SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported):
June 26, 1997
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LONG ISLAND LIGHTING COMPANY
(Exact name of registrant as specified in its charter)
NEW YORK 1-3571 11-1019782
(State or other jurisdiction (Commission file number) (I.R.S. employer
of incorporation) identification no.)
175 East Old Country Road,
Hicksville, New York 11801
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 755-6650
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Item 1. Changes in Control of Registrant.
The Registrant and Long Island Power Authority executed the Agreement
and Plan of Merger dated as of June 26, 1997 set forth as Exhibit 2.1 to this
Current Report on Form 8-K, which is incorporated herein by reference, with
respect to the matters described therein and to the additional exhibits included
therewith.
Item 2. Acquisition or Disposition of Assets.
The Registrant and Long Island Power Authority executed the Agreement
and Plan of Merger dated as of June 26, 1997 set forth as Exhibit 2.1 to this
Current Report on Form 8-K, which is incorporated herein by reference, with
respect to the matters described therein and to the additional exhibits included
therewith.
Item 5. Other Events.
The Registrant and Long Island Power Authority executed the Agreement
and Plan of Merger dated as of June 26, 1997 set forth as Exhibit 2.1 to this
Current Report on Form 8-K, which is incorporated herein by reference, with
respect to the matters described therein and to the additional exhibits included
therewith.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit 2.1 Agreement and Plan Merger dated as of June 26, 1997 by and among
BL Holding Corp., the Registrant, Long Island Power Authority, a
corporate municipal instrumentality of the state of New York and
LIPA Acquisition Corp.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LONG ISLAND LIGHTING COMPANY
(Registrant)
Date: July 3, 1997 By: /s/ Theodore A. Babcock
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Theodore A. Babcock
Vice President, Treasurer
and Assistant Corporate Secretary
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INDEX
Exhibit No. Description
Exhibit 2.1 Agreement and Plan Merger dated as of June 26, 1997 by and among
BL Holding Corp., the Registrant, Long Island Power Authority, a
corporate municipal instrumentality of the state of New York and
LIPA Acquisition Corp.
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EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
by and among
BL HOLDING CORP.,
LONG ISLAND LIGHTING COMPANY,
LONG ISLAND POWER AUTHORITY
AND
LIPA ACQUISITION CORP.
Dated as of June 26, 1997
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TABLE OF CONTENTS
ARTICLE I
THE MERGER; RELATED TRANSACTIONS
Section 1.1 The Merger.............................. 2
Section 1.2 Effect of the Merger.................... 2
Section 1.3 Effective Time of the Merger............ 2
Section 1.4 Related Transactions.................... 2
Section 1.5 Description of Assets................... 4
Section 1.6 Liabilities............................. 4
Section 1.7 Transition Work......................... 4
Section 1.8 Resignations............................ 4
Section 1.9 Formation of LIPA Sub................... 4
Section 1.10 Charter Amendment....................... 4
Section 1.11 Certain Other Preferred Stock........... 4
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock... 5
Section 2.2 Dissenting Shares....................... 11
Section 2.3 Issuance of Parent Shares............... 11
ARTICLE III
CLOSING
Section 3.1 Closing................................. 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 4.1 Organization and Qualification.......... 13
Section 4.2 Subsidiaries............................ 14
Section 4.3 Capitalization.......................... 14
Section 4.4 Authority; Non-Contravention; Statutory
Approvals; Compliance................... 15
Section 4.5 Reports and Financial Statements........ 17
Section 4.6 Absence of Certain Changes or Events ... 18
Section 4.7 Litigation ............................. 18
Section 4.8 Registration Statement and Proxy
Statement............................... 19
Section 4.9 Environmental Protection................ 19
Section 4.10 Regulation as a Utility................. 21
Section 4.11 Vote Require............................ 22
Section 4.12 Insurance............................... 22
Section 4.13 Disclosure.............................. 22
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AUTHORITY AND LIPA SUB
Section 5.1 Organization............................ 23
Section 5.2 Authority; Non-Contravention; Statutory
Approvals; Compliance................... 23
Section 5.3 Disclosure...............................24
Section 5.4 Ownership of LIPA Sub; No Prior
Activities.............................. 24
Section 5.5 Ownership of Company Common Stock....... 24
ARTICLE VI
COVENANTS
Section 6.1 Covenants of Parent and Company......... 25
Section 6.2 Covenants of Authority and LIPA Sub..... 30
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information................... 30
Section 7.2 Proxy Statement and Registration
Statement............................... 31
Section 7.3 Shareholder Approval.................... 31
Section 7.4 Disclosure Schedule..................... 31
Section 7.5 Regulatory Matters...................... 32
Section 7.6 Public Announcements.................... 32
Section 7.7 Confidentiality......................... 32
Section 7.8 Certain Litigation...................... 34
Section 7.9 Expenses................................ 34
Section 7.10 Further Assurances...................... 35
Section 7.11 Purchase Price Allocation............... 35
Section 7.12 Receipt of Consents and Approvals....... 35
Section 7.13 Certain Other Matters................... 35
Section 7.14 Opinions of Counsel..................... 35
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's
Obligations ............................ 35
Section 8.2 Conditions to Obligations of
Authority and LIPA Sub ................. 37
Section 8.3 Conditions to Obligations of
Parent and Company...................... 38
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination............................. 39
Section 9.2 Effect of Termination................... 40
Section 9.3 Survival................................ 41
Section 9.4 Amendment............................... 41
Section 9.5 Extension; Waiver....................... 41
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ARTICLE X
STANDSTILL
Section 10.1 Standstill.............................. 41
ARTICLE XI
MISCELLANEOUS
Section 11.1 Certain Definitions..................... 42
Section 11.2 Notices................................. 42
Section 11.3 Descriptive Headings.................... 44
Section 11.4 Counterparts............................ 44
Section 11.5 Entire Agreement; Assignment............ 44
Section 11.6 Governing Law........................... 44
Section 11.7 Specific Performance.................... 44
Section 11.8 Parties in Interest..................... 44
Section 11.9 Severability............................ 44
Section 11.10 Alternative Dispute Resolution.......... 44
Schedule A Transferred Assets
Schedule B Principles and Procedures for Finalizing the
Transferred Asset Schedule
Schedule C Transition Work
Schedule D Tax Matters
Schedule E Employment Matters
Schedule F Future Rights
Schedule G Retained Assets
Exhibit A Form of Management Services Agreement
Exhibit B Form of Power Supply Agreement
Exhibit C Form of Energy Management Agreement
Exhibit D Form of Generation Purchase Right Agreement
Exhibit E Guaranty Agreement
Exhibit F Form of Parent Liabilities Undertaking
Exhibit G Form of Authority Liabilities Undertaking
Exhibit H Form of Certificate of Designation
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AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June
26, 1997, by and among BL HOLDING CORP., a corporation to be formed as a New
York corporation as contemplated herein ("Parent"), LONG ISLAND LIGHTING
COMPANY, a New York corporation ("Company"), LONG ISLAND POWER AUTHORITY, a
corporate municipal instrumentality and political subdivision of the State of
New York ("Authority"), and LIPA ACQUISITION CORP., a New York corporation
("LIPA Sub").
W I T N E S S E T H
WHEREAS, Authority is authorized under the Long Island Power
Authority Act, Public Authorities Law Section 1020 et seq. (the "Act") to
acquire all or any part of Company's securities or assets; and
WHEREAS, the Act confers upon Authority the power to condemn the
securities and/or assets of Company, including the common stock of Company to be
acquired in the proposed transaction, and Authority has previously publicly
announced its intention to consider exercising its condemnation power to acquire
the common stock or assets of Company if a negotiated transaction cannot be
achieved; and
WHEREAS, The Brooklyn Union Gas Company, a New York corporation
("BU"), Company and Parent have entered into an Amended and Restated Agreement
and Plan of Exchange and Merger, dated as of June 26, 1997 (the "Exchange
Agreement"), which provides for the business combination of BU and Company as
peer firms and the formation of Parent as a holding company to manage their
combined businesses; and
WHEREAS, Authority, Company and BU have undertaken negotiations
as to various methods of accomplishing the objectives set forth in the Act and
in connection with such negotiations, the parties have reached definitive
agreement as to the transactions described herein; and
WHEREAS, the Boards of Directors of Company and LIPA Sub and the
Board of Trustees of Authority have each determined that it is advisable for
Authority to cause LIPA Sub to merge with and into Company upon the terms and
subject to the conditions set forth herein; and
WHEREAS, in furtherance of such combination, the Boards of
Directors of Company and LIPA Sub and the Board of Trustees of Authority have
each approved the merger (the "Merger") of LIPA Sub with and into Company, in
accordance with the applicable provisions of the New York Business Corporation
Law (the "NYBCL"), and upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants,
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agreements, and conditions contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER; RELATED TRANSACTIONS
Section 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined in Section 1.3),
LIPA Sub shall be merged with and into Company (the "Merger") in accordance with
the laws of the State of New York. Company shall be the surviving corporation in
the Merger and shall continue its corporate existence under the laws of the
State of New York. Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
Section 1.2 Effect of the Merger. At the Effective Time, (i) the
certificate of incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided by law and in such certificate
of incorporation and (ii) the by-laws of Company, as in effect immediately prior
to the Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter amended as provided by law, in the certificate of incorporation of
the Surviving Corporation and in such by-laws. Subject to the foregoing, the
additional effects of the Merger shall be as provided in the applicable
provisions of the NYBCL.
Section 1.3 Effective Time of the Merger. As promptly as
practicable after the satisfaction or waiver of the conditions set forth in
Article VIII and the consummation of the transactions contemplated by Section
1.4(d), the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger as contemplated by the NYBCL (the "Certificate of
Merger"), together with any required related certificates, with the Secretary of
State of the State of New York, in such form as required by, and executed in
accordance with the relevant provisions of, the NYBCL (the time of such filing
being the "Effective Time").
Section 1.4 Related Transactions. In addition to the Merger, the
following transactions will be consummated at or prior to the Closing (as
defined below):
(a) Formation of Subsidiaries. Parent and Company shall take all
necessary action to form prior to the Closing such subsidiaries (which may be
limited liability companies) of Parent (the "Transferee Subsidiaries") which, at
the direction of Parent, will, as applicable, (i) enter into at the Closing a
management services agreement in the form of Exhibit A attached hereto (the
"Management Services Agreement"), a power supply agreement in the form of
Exhibit B attached hereto (the "Power Supply Agreement"), an energy management
agreement in the form
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of Exhibit C attached hereto (the "Energy Management Agreement"), a generation
purchase right agreement in the form of Exhibit D attached hereto (the
"Generation Purchase Right Agreement") and a guaranty agreement in the form of
Exhibit E attached hereto (the "Guaranty Agreement") and/or (ii) receive the
assets and properties of Company set forth on Schedule A attached hereto (the
"Transferred Assets"). Parent, upon written notice to the parties hereto, may
direct any portion of the Transferred Assets to be distributed to a particular
Transferee Subsidiary; provided, however, that the Transferee Subsidiary which
is designated by Parent to receive the assets contemplated by the Generation
Purchase Right Agreement to be subject to Company's rights thereunder shall be
the Transferee Subsidiary that enters into the Generation Purchase Right
Agreement.
(b) Company shall, reasonably prior to the anticipated Closing
Date, form a new New York corporation to act as Parent hereunder and to own,
directly or indirectly, all of the stock or other equity interests of the
Transferee Subsidiaries, shall provide Authority and LIPA Sub with written
notice of such formation and shall cause such new corporation to execute and
deliver a counterpart hereof, whereupon such new corporation shall become Parent
for all purposes hereof and each other Basic Agreement (as hereinafter defined).
(c) Company will use reasonable efforts to transfer to a
wholly-owned subsidiary of Company its ownership interest in the Nine Mile Point
Two Nuclear Power Plant and its interest in all related nuclear fuel and nuclear
decommissioning trust funds ("Nine Mile"), but Company's failure to obtain any
required consent thereto of any governmental agency or other owner of any
interest therein shall not constitute a breach of this Agreement.
(d)(i) Immediately prior to the Effective Time, Company shall
transfer the Transferred Assets to the Transferee Subsidiaries in exchange for,
and Parent shall deliver to Company, (i) the Designated Number (as hereinafter
defined) of shares of the common stock, par value $0.01 per share, of Parent
("Parent Common Stock") and (ii) up to $75,000,000 face amount of Parent
preferred stock in an aggregate face amount and having the rights and terms to
be specified in a notice delivered by Parent to each party hereto not later than
the date on which the notices of redemption are issued pursuant to Section 1.11
(the "New Parent Preferred Stock"). The "Designated Number" shall be the number
of shares of Parent Common Stock specified in a notice delivered by Parent to
each party hereto not later than the date on which such notices of redemption
are issued pursuant to Section 1.11 and representing Parent's good faith
estimate of the net fair market value of the Transferred Assets less the face
amount of New Parent Preferred Stock delivered by Parent pursuant to this
Section 1.4(d). Concurrently with such delivery and immediately prior to the
Effective Time, Company shall sell for cash in a private placement all shares of
New Parent Preferred
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Stock to one or more persons or entities which are not otherwise shareholders of
Company or BU at the Effective Time.
(ii) Notwithstanding clause (i) of this Section 1.4(d), if the
BUGLILCO Transactions (as defined in Section 2.1(b)) have been consummated prior
to the Effective Time, the transfer of the Transferred Assets as contemplated by
such clause (i) shall be made without the delivery by Parent of any Parent
Common Stock or New Parent Preferred Stock.
Section 1.5 Description of Assets. To the extent that Schedule A
hereto (the "Transferred Asset Schedule") does not provide for a full legal
description of the Transferred Assets referred to therein, the parties hereto
shall revise the Transferred Asset Schedule prior to the Closing in accordance
with the principles and procedures set forth on Schedule B attached hereto.
Section 1.6 Liabilities.
(a) At the Closing, Parent and each Transferee Subsidiary will
execute and deliver to Authority and Surviving Corporation a liabilities
undertaking and indemnification agreement in substantially the form of Exhibit F
attached hereto (the "Parent Liabilities Undertaking").
(b) At the Closing, the Authority and the Surviving Corporation
will execute and deliver to Parent and each Transferee Subsidiary a liabilities
undertaking and indemnification agreement in substantially the form of Exhibit G
attached hereto (the "Authority Liabilities Undertaking").
Section 1.7 Transition Work. The parties agree to take the
respective actions set forth on Schedule C attached hereto to prepare for an
orderly transition under the Basic Agreements at the Effective Time.
Section 1.8 Resignations. Parent shall cause each officer and
director of Company to resign from each position any such person then holds with
Company, effective at the Effective Time.
Section 1.9 Formation of LIPA Sub. Reasonably prior to the
anticipated Closing Date, Authority shall cause LIPA Sub to be duly incorporated
as a New York corporation and shall cause LIPA Sub to execute a counterpart of
this Agreement. Each representation and warranty set forth in Article V with
respect to LIPA Sub shall be deemed to have been made on the date of such
execution.
Section 1.10 Charter Amendment. Authority shall cause the Amended
and Restated Certificate of Incorporation of Company to be amended as
contemplated in the request for a ruling from the Internal Revenue Service with
respect to Section 115 of
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the Internal Revenue Code of 1986, as amended (the "Code"), not later than the
tenth business day after the Effective Time.
Section 1.11 Certain Other Preferred Stock. Promptly after all
conditions to the Closing set forth in Article VIII have been satisfied or
waived in accordance therewith (other than Section 8.1(b), provided Company has
received assurances satisfactory to Company that such condition can be
satisfied), Company shall issue notices of redemption for all outstanding shares
of Company Preferred Stock (as defined in Section 4.3) (other than the Series AA
Preferred Stock and the other series thereof specifically referred to in Section
2.1(c)(iii)) and shall pay all amounts due in respect of such redemption as
promptly as practicable in accordance with the applicable terms of Company's
Amended and Restated Certificate of Incorporation.
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any capital stock of Parent, Company or LIPA Sub:
(a) Cancellation of Certain Stock. (i) Each share of Company
Common Stock and each share of Company Preferred Stock that is owned by Company
as treasury stock, and each share of Company Preferred Stock owned by any direct
or indirect wholly owned Subsidiary (as defined in Section 4.1) of Parent
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
be cancelled and retired without payment of any consideration therefor and cease
to exist.
(ii) Each share of the common stock of LIPA Sub, by virtue of the
Merger and without any action on the part of the holder thereof, shall be
cancelled and converted into the right to receive one fully paid and, subject to
Section 630 of the NYBCL, non-assessable share of common stock of the Surviving
Corporation.
(b) Treatment of Company Common Stock. (i) Each issued and
outstanding share of Company Common Stock, other than shares cancelled pursuant
to Section 2.1(a) and Company Dissenting Shares (as defined in Section 2.2),
shall be cancelled and converted into the right to receive (x) an amount of cash
equal to the Cash Purchase Price (as defined in Section 2.1(d)(i)) divided by
the number of shares of Company Common Stock outstanding on the Closing Date
(the "Common Stock Conversion Amount") and (y) a number of shares of Parent
Common Stock (the "Transferred Assets Stock Portion") equal to the number of
shares of Parent Common Stock received by Company pursuant to clause (i) of
Section 1.4(d) divided by the number of shares of Company Common Stock
outstanding on the Closing Date.
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Each holder of any such share of Company Common Stock shall be deemed hereby to
have appointed the Exchange Agent (as defined in Section 2.3(a)) as its agent to
subscribe for shares of Parent Common Stock by applying the aggregate Common
Stock Conversion Amount for such purchase. The number of shares of Parent Common
Stock to be purchased for the Common Stock Conversion Amount shall be (x) 0.880
shares of Parent Common Stock less the Transferred Assets Stock Portion if the
transactions contemplated by the Exchange Agreement (the "BUGLILCO
Transactions") will be consummated contemporaneously with the transactions
contemplated hereby or (y) one share of Parent Common Stock less the Transferred
Assets Stock Portion if the BUGLILCO Transactions will not be consummated
contemporaneously with the transactions contemplated hereby. Upon such
cancellation, all such shares of Company Common Stock shall cease to exist, and
each holder of a certificate formerly representing any such shares shall cease
to have any rights with respect thereto, except the right to receive Parent
Common Stock purchased pursuant to the second sentence of this Section 2.1(b)
and distributed pursuant to clause (y) of the first sentence of this Section
2.1(b).
(ii) Notwithstanding clause (i) of this Section 2.1(b), if the
BUGLILCO Transactions have been consummated prior to the Effective Time, each
issued and outstanding share of Company Common Stock shall be cancelled and
converted into the right to receive only an amount of cash equal to the Common
Stock Conversion Amount and the transactions contemplated by the second and
third sentences of such clause (i) shall not occur.
(c) Treatment of Company Preferred Stock. (i) Each issued and
outstanding share of Series AA Preferred Stock other than shares cancelled
pursuant to Section 2.1(a) and Company Dissenting Shares shall be cancelled and
converted into the right to receive one fully paid and, subject to Section 630
of the NYBCL, non-assessable share of preferred stock, par value $25 per share,
of Parent ("Parent Preferred Stock") with identical rights (including dividend
rates) and designations to the Series AA Preferred Stock as set forth in the
Certificate of Designation attached hereto as Exhibit H. Upon such conversion,
each holder of a certificate formerly representing any shares of Series AA
Preferred Stock shall cease to have any rights with respect thereto, except the
right to receive the shares of Parent Preferred Stock in consideration therefor
upon the surrender of such certificate in accordance with Section 2.3.
(ii) Each issued and outstanding share of Company Preferred Stock
that is subject to optional redemption by Company at or before the Closing Date
(other than shares cancelled pursuant to Section 2.1(a) (collectively,
"Redeemable Preferred Stock") shall be called for redemption by Company as
provided in Section 1.11 and all such shares shall be redeemed for cash by
Company in accordance with the terms applicable to such shares. The aggregate
amount of accrued but unpaid dividends and redemption premiums payable by
Company in respect of such
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redemptions (the "Aggregate Redemption Premium") shall be paid by Parent to
Company not later than two business days prior to the date the applicable
redemption price is payable.
(iii) Each issued and outstanding share of Company Preferred
Stock (other than shares cancelled pursuant to Section 2.1(a), Company
Dissenting Shares, shares of Series AA Preferred Stock and Redeemable Preferred
Stock) (collectively, "Non- redeemable Preferred Stock") shall be cancelled and
converted into the right to receive cash in the amount of the sum of (x) the
Make-Whole Amount (as hereinafter defined) and (y) accrued but unpaid dividends
in respect of such share through the Closing Date. As used herein, "Make-Whole
Amount" with respect to each share of Nonredeemable Preferred Stock means an
amount equal to the present value of (A) the face or liquidation preference
amount, whichever is applicable, of such share and (B) the remaining dividend
payments due on such share between the Closing Date and the earliest date on
which Company may redeem such share, computed using a discount rate equal to the
applicable Fair Market Rate divided by 0.95. "Fair Market Rate" is defined as
the Generic General Obligation Fair Market Yield for Baa rated Low/Medium Coupon
General Municipal Obligations at the time of the computation as reported on
Bloomberg, with a maturity most nearly equal to the period between cancellation
and final redemption of such series of Non-redeemable Preferred Stock. The
period between cancellation and redemption refers to the period between the
Closing Date and: (A) August 1, 2002, with respect to the Series CC Preferred
Stock, (B) March 1, 1999, with respect to the Series GG Preferred Stock, (C) May
1, 2001, with respect to the Series QQ Preferred Stock, and (D) October 16,
2018, with respect to the Series UU Preferred Stock. The amount by which the
aggregate amount payable pursuant to this Section 2.1(c)(iii) exceeds 100% of
the aggregate face or liquidation preference amounts, whichever is applicable,
for all shares of Nonredeemable Preferred Stock shall be paid by Parent to the
Surviving Corporation at the Effective Time.
(d) Cash Purchase Price; Adjustment. (i) The "Cash Purchase
Price" to be paid by Authority shall be $2,497,500,000.
(ii) The Cash Purchase Price has been determined based upon the
net book value of the Retained Assets (as defined in Section 4.4(b)) of
$2,500,800,000 as set forth in the pro forma consolidated balance sheet of
Company as of December 31, 1997 prepared by Company (the "Pro Forma Balance
Sheet"). The Cash Purchase Price is based upon the assumption that the total
long-term indebtedness of Company on the Closing Date shall not exceed
$3,576,000,000 (the "Retained Debt Amount"). The Retained Debt Amount shall be
adjusted in accordance with the adjustment referred to in Section 2.1(d)(vi)
(the "Adjustment").
(iii) No later than 60 days after the Closing Date, Parent shall
prepare and deliver to Authority, with a copy to Authority's independent
accountants, Price Waterhouse LLP ("Price
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Waterhouse"), the audited consolidated balance sheet of Company as of the
Closing Date (the "Closing Date Balance Sheet") and a statement, as of the
Closing Date (the "Statement"), setting forth the amount of the Adjustment and
the calculations thereof in reasonable detail and showing the differences
between each account contained in the Pro Forma Balance Sheet and the
corresponding account in the Closing Date Balance Sheet. The Closing Date
Balance Sheet and the Statement shall be prepared in accordance with generally
accepted accounting principles used by Company in the preparation of its
financial statements for the year ended December 31, 1996 ("GAAP"), using
allocation procedures consistent with the procedures used by Company to prepare
the Pro Forma Balance Sheet and its audited historical financial statements.
During the period required to prepare the Closing Date Balance Sheet, Surviving
Corporation will make available the books and records of Surviving Corporation
to Parent, its authorized representatives and Parent's independent auditors,
Ernst & Young ("E&Y").
(iv) During the 60-day period following receipt by Authority of
the Closing Date Balance Sheet and the Statement, Parent shall make available
and shall direct E&Y to make available to Authority and Price Waterhouse copies
of the working papers, books and records used in the preparation of the Closing
Date Balance Sheet and the Statement, as reasonably requested by Authority. The
Closing Date Balance Sheet and the Statement shall become final and binding upon
the parties at the close of business on the sixtieth day following receipt
thereof by Authority, except to the extent that Authority gives written notice
of its disagreement with the Closing Date Balance Sheet or the Statement
("Notice of Disagreement") to Parent prior to such date, or if such day is not a
business day, the next following business day. Any Notice of Disagreement shall
specify in reasonable detail the nature of any disagreement so asserted.
(v) During the 30-day period following the delivery of a Notice
of Disagreement, Parent and Authority shall seek in good faith to resolve in
writing any differences which they may have with respect to the matters
specified in the Notice of Disagreement. During such period, Parent and E&Y
shall have access to the working papers of Price Waterhouse prepared in
connection with their analysis of any matter specified in the Notice of
Disagreement, as reasonably requested by Parent, and Authority and Price
Waterhouse shall have access to the working papers of E&Y prepared in connection
with the Closing Date Balance Sheet and the Statement, as reasonably requested
by Authority. At the end of such 30-day period, Parent and Authority shall
submit to an independent accounting firm (the "Accounting Firm") for review and
resolution of any and all matters which remain in dispute and which were
included in the Notice of Disagreement. The Accounting Firm shall be KPMG Peat
Marwick or, if such firm is unable or unwilling to act, such other nationally
recognized independent public accounting firm as shall be agreed upon by Parent
and Authority in writing. If
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Parent and Authority do not agree on the selection of a nationally recognized
independent accounting firm, Price Waterhouse and E&Y shall select a third
accounting firm to act as the Accounting Firm hereunder. The Adjustment as
determined by Parent, as modified (if at all) by resolution of Parent and
Authority or by the Accounting Firm, is referred to herein as the "Final
Adjustment." The determination of the Accounting Firm as to such matters shall
be final and binding on the parties hereto, and Parent and Authority agree that
judgment may be entered upon the determination of the Accounting Firm in any
court having jurisdiction over the party against which such determination is to
be enforced. The fees and expenses of the Accounting Firm incurred pursuant to
this Section 2.1(d)(v) shall be borne by Parent and Authority in inverse
proportion as they may prevail on matters resolved by the Accounting Firm, which
proportionate allocations shall also be determined by the Accounting Firm at the
time the determination of the Accounting Firm is rendered on the merits of the
matters submitted. The fees and disbursements of E&Y incurred in connection with
their certification of the Closing Date Balance Sheet and the Statement and
review of any Notice of Disagreement shall be borne by Parent and the fees and
disbursements of Price Waterhouse incurred in connection with their review of
the Closing Date Balance Sheet, and the Statement shall be borne by Surviving
Corporation or Authority.
(vi) The Retained Debt Amount shall be (A) increased by the
amount, if any, by which the net book value of the Retained Assets exceeds
$2,500,800,000 or (B) decreased by the amount, if any, by which the net book
value of the Retained Assets is less than $2,500,800,000.
(vii) The Transferred Assets shall include all cash held by
Company at the Closing except for the net proceeds of the sale of New Parent
Preferred Stock. The accounts payable retained by Company immediately following
the Closing shall be $101.7 million plus or minus the New Parent Preferred Stock
Adjustment as hereinafter defined. To the extent that the amount of such net
proceeds from the sale of the New Parent Preferred Stock is more (the "Excess")
or less than $75 million (the "Shortfall") the accounts payable retained by the
Company immediately following the Closing shall be increased or decreased by the
amount of the Excess or Shortfall, respectively, (the "New Parent Preferred
Stock Agreement").
(e) Retained Debt. At the Closing, Parent shall execute and
deliver and shall cause each Transferee Subsidiary to execute and deliver, to
Company such promissory notes as shall have an aggregate principal amount equal
to the excess, if any, of (i) the indebtedness of Company outstanding on the
Closing Date (the "Closing Date Debt Amount") over (ii) the Retained Debt Amount
and as shall have such rates and maturities (including, without limitation,
accelerated maturities resulting from default and voluntary and mandatory
prepayments) as shall correspond, to each portion of debt underlying the
indebtedness of Company on
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the Closing Date (the "Promissory Notes"); provided, however, that such interest
and principal payment dates shall be adjusted to require payment by Parent, 30
days prior to the corresponding payment dates on the underlying debt, of an
amount which, including amounts assured to be earned by Authority while such
funds are held by it, will be sufficient to make the corresponding payments. The
aggregate excess principal amount shall be allocated to each Promissory Note on
a pro rata basis such that the ratio of (x) the principal amount of each
Promissory Note to (y) the aggregate excess principal amount shall correspond to
the ratio of (A) the principal amount of the corresponding underlying portion of
debt to (B) the Closing Date Debt Amount. The Closing Date Debt Amount shall,
for the purpose of calculating the aggregate principal amount of such Promissory
Notes, be the amount set forth in a certificate signed by the Chief Financial
Officer of Company and delivered to Parent and Authority on the Closing Date.
Such amount shall be reviewed by E&Y in accordance with Section 2.1(d)(iii) and
the actual amount thereof shall be set forth in the Statement. The actual amount
shall be subject to review by Price Waterhouse, in accordance with the
procedures set forth in Section 2.1(d)(iv), with any disagreements being
resolved in accordance with the procedures set forth in Section 2.1(d)(v). Upon
the final determination of such amount, the Promissory Notes shall be adjusted
on a pro rata basis to reflect the principal amount so determined.
(f) Credit Rating. (i) If, at any time when any Promissory Notes
are outstanding, a Material Decline in Parent's Credit Standing (as defined
below) occurs, then within 10 days after such occurrence, Parent shall provide
credit enhancement of the Promissory Notes hereunder at its sole cost and
expense in the form of a letter of credit securing the Promissory Notes
hereunder in a face amount equal to the aggregate outstanding balances of the
Promissory Notes, issued by a financial institution whose long-term senior debt
is or would be rated "A", or better by at least two nationally recognized rating
services.
(ii) For purposes of this Section, a "Material Decline in
Parent's Credit Standing" shall be deemed to have occurred if (1) Parent has
long-term senior debt outstanding which is rated by a nationally recognized
rating service and Parent's long-term senior debt outstanding is not rated at
least "A" by two or more such rating services, or (2) in the sole reasonable
opinion of the Authority, in the event that Parent does not have long-term
senior debt outstanding or such debt is not rated by at least two nationally
recognized rating services, or the credit standing of Parent declines to a level
which is insufficient to support at least an "A" credit rating by two or more
nationally recognized rating services, whether or not any such debt is
outstanding. Parent shall immediately notify the Authority of any Material
Decline in Parent's Credit Standing.
(iii) Upon the occurrence of a Material Decline in Parent's
Credit Standing, Parent shall have the right to
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economically defease the Promissory Notes by delivering to Authority U.S.
treasury securities of such maturities and in such principal amounts as shall be
sufficient, as reasonably determined by Authority, to produce cash at the times
and in the amounts required to pay all amounts due in respect of the
indebtedness underlying the Promissory Notes.
(g) Treatment of Debt at Closing. (i) The parties shall cooperate
with each other to effect refinancings, repayments, amendments of Company's
outstanding indebtedness and other related transactions with the intention of
minimizing the aggregate principal amount of the Promissory Notes and maximizing
the amount of Company's tax-exempt indebtedness at the Effective Time.
(ii) No party shall be required by this Section 2.1(g) to effect
any transaction that it reasonably determines to be financially adverse to it by
comparison to the transactions contemplated by Section 2.1(e).
(h) Assumption of Certain Debt. Subject to obtaining all required
consents, Parent will assume at Closing (i) the 7.3% Debentures due July 15,
1999, with an approximate aggregate principal amount currently outstanding of
$397 million and (ii) the 8.20% Debentures due March 15, 2023, with an
approximate aggregate principal amount currently outstanding of $270 million.
Certain other tax exempt authority financing notes will be identified by the
parties and assumed by Parent (subject to obtaining all required consents and to
the parties' tax counsel's concurrence).
(i) Accounts Receivable and Accrued Unbilled Revenues. Parent
will be entitled to/responsible for any over/undercollec- tion in excess of
$500,000 of the retained customer accounts receivable and accrued unbilled
revenues on the Closing Date Balance Sheet. Prior to the Closing Date, the
parties will develop a mutually agreed upon methodology that will measure such
collections.
Section 2.2 Dissenting Shares. Shares of Common Stock, Series AA
Preferred Stock or Nonredeemable Preferred Stock held by any holder entitled to
relief as a dissenting shareholder under Section 910 of the NYBCL (the "Company
Dissenting Shares") shall not become the right to receive the Common Stock
Conversion Amount in cash (in the case of any such share of Company Common
Stock), Parent Preferred Stock (in the case of any such share of Series AA
Preferred Stock) or any cash amount payable pursuant to Section 2.1(c)(iii) (in
the case of any such share of Nonredeemable Preferred Stock), but shall be
cancelled and converted into such consideration as may be due with respect to
such shares pursuant to the applicable provisions of the NYBCL, unless and until
the right of such holder to receive fair cash value for such Company Dissenting
Shares terminates in accordance with Section 623 of the NYBCL. If such right is
terminated
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otherwise than by the purchase of such shares by Company or LIPA Sub, then such
shares shall cease to be Company Dissenting Shares and shall represent the right
to receive the Common Stock Conversion Amount in cash (in the case of any such
share of Company Common Stock), Parent Preferred Stock (in the case of any such
share of Series AA Preferred Stock) or any cash amount payable pursuant to
Section 2.1(c)(iii) (in the case of any such share of Nonredeemable Preferred
Stock).
Section 2.3 Issuance of Parent Shares.
(a) Deposit with Exchange Agent. As soon as practicable after the
Effective Time, Parent shall deposit with such bank or trust company as shall
have been mutually agreeable to Company and Authority prior to the Effective
Time (the "Exchange Agent"), certificates representing Parent Shares required to
effect the issuances referred to in Section 2.1(b) and Section 2.1(c)(i). If
Company and Authority shall not have agreed on the Exchange Agent prior to the
Effective Time, the bank or trust company then serving as registrar and transfer
agent for the Series AA Preferred Stock shall be selected to act as Exchange
Agent for the Series AA Preferred Stock. The shares of Parent Common Stock
subscribed for by the Exchange Agent as agent for the holders of Company Common
Stock pursuant to Section 2.1(b) and the shares of Parent Common Stock
constituting the Transferred Assets Stock Portion, together with the shares of
Parent Preferred Stock for which the shares of Series AA Preferred Stock are to
be exchanged pursuant to Section 2.1(c)(i), are referred to herein collectively
as the "Parent Shares."
(b) Procedures for Issuance of Parent Shares. As soon as
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares of Series
AA Preferred Stock or Company Common Stock, as applicable (the "Cancelled
Shares") that were cancelled and became instead, directly or indirectly, the
right to receive the applicable Parent Shares, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon actual delivery of the Certificates to
the Exchange Agent) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing Parent Shares. Upon
surrender of a Certificate to the Exchange Agent for cancellation (or to such
other agent or agents as may be appointed by agreement of Company and
Authority), together with a duly executed letter of transmittal and such other
documents as the Exchange Agent shall require, the holder of such Certificate
shall be entitled to receive a certificate representing that number of Parent
Shares which such holder has the right to receive pursuant to the provisions of
this Article II. In the event of a transfer of ownership of Cancelled Shares
which is not registered in the transfer records
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of Company a certificate representing the proper number of Parent Shares may be
issued to a transferee if the Certificate representing such Cancelled Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence satisfactory to the Exchange
Agent that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.3, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the certificate representing Parent Shares as contemplated by this
Section 2.3.
(c) Distributions with respect to Unsurrendered Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to the Parent Shares with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
Parent Shares represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to the effect of unclaimed property,
escheat and other applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing Parent
Shares issued in consideration therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such Parent
Shares and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such Parent Shares.
(d) Closing of Transfer Books. From and after the Effective Time,
the stock transfer book of the Company shall be closed and no transfer of any
capital stock of the Company shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Company, they shall be cancelled and
exchanged for certificates representing the appropriate number of Parent Shares,
as provided in this Section 2.3.
(e) Termination of Exchange Agent. Any certificates representing
Parent Shares deposited with the Exchange Agent pursuant to Section 2.3(a) and
not exchanged within one year after the Effective Time pursuant to this Section
2.3 shall be returned by the Exchange Agent to Parent, which shall thereafter
act as Exchange Agent. Parent shall not be liable to any person for such shares
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
ARTICLE III
CLOSING
Section 3.1 Closing. Upon the terms and subject to the conditions
of this Agreement, the consummation of the transactions contemplated by this
Agreement (the "Closing") will
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take place on the second business day following the redemption of all series of
Company Preferred Stock contemplated to be redeemed pursuant to Section 1.11 at
10:00 a.m., at such place on Long Island or other time as shall be agreed upon
by the parties. The date on which the Closing occurs is referred to herein as
the "Closing Date."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND COMPANY
Each of Parent and Company hereby represents and warrants to
Authority and LIPA Sub as follows:
Section 4.1 Organization and Qualification. Except as
contemplated by Section 1.4, as set forth in Section 4.1 of the Parent
Disclosure Schedule (as defined in Section 7.4), each of Parent, Company and
each of the Company Subsidiaries (as defined below) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary approvals and
orders to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary. As used in this Agreement,
(a) the term "Subsidiary" of a person shall mean any corporation or other entity
(including partnerships, limited liability companies and other business
associations) of which at least a majority of the outstanding capital stock or
other voting securities having voting power under ordinary circumstances to
elect directors or similar members of the governing body of such corporation or
entity shall at the time be held, directly or indirectly, by such person and (b)
the term "Company Subsidiary" shall mean a Subsidiary of Company.
Section 4.2 Subsidiaries. Section 4.2 of the Parent Disclosure
Schedule sets forth a description as of the date hereof of all Company
Subsidiaries and Joint Ventures of Company ("Company Joint Ventures"), including
(a) the name of each such entity and Company's interest therein, and (b) a brief
description of the principal line or lines of business conducted by each such
entity. Except as set forth in Section 4.2 of the Parent Disclosure Schedule,
none of Company Subsidiaries is a "public utility company", a "holding company",
a "subsidiary company" or an "affiliate" of any public utility company within
the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the Public
Utility Holding Company Act of 1935 (the "1935 Act"), respectively. Except as
set forth in Section 4.2 of the Parent Disclosure Schedule, all of the issued
and outstanding shares of capital stock of Company and of each Company
Subsidiary are validly issued, fully paid, nonassessable and free of preemptive
rights, and, as of the Closing Date, will be owned directly or
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indirectly by Parent free and clear of any liens, claims, encumbrances, security
interests, equities, charges and options of any nature whatsoever and there are
no outstanding subscriptions, options, calls, contracts, voting trusts, proxies
or other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such Company Subsidiary
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend or enter into any
such agreement or commitment. As used in this Agreement, (a) the term "Joint
Venture" of a person shall mean any corporation or other entity (including
partnerships and other business associations) that is not a Subsidiary of such
person, in which such person or one or more of its Subsidiaries owns an equity
interest and (b) the term "Company Joint Venture" shall mean those of the joint
ventures of Company or any Company Subsidiary identified as a Company Joint
Venture in Section 4.2 of the Parent Disclosure Schedule.
Section 4.3 Capitalization. The authorized capital stock of
Company is as set forth in the Transition Report on Form 10-Q for the transition
period from January 1, 1997 to March 31, 1997. The number of issued and
outstanding shares of common stock, par value $5 per share, of Company ("Company
Common Stock") and preferred stock of Company (the "Company Preferred Stock"),
and each series thereof, as of December 31, 1996, are as set forth in Company's
Annual Report on Form 10k for the year ended December 31, 1996, and Company has
neither issued, sold, redeemed or repurchased any shares of Company Preferred
Stock since December 31, 1996. All of the issued and outstanding shares of the
capital stock of Company are validly issued, fully paid, nonassessable (subject
to Section 630 of the NYBCL) and free of preemptive rights. Except as set forth
in Section 4.3 of the Parent Disclosure Schedule, as of the date hereof, there
are no outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions, arrangements, rights
or warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Parent, Company or any of
the Company Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Company, or
obligating Parent to grant, extend or enter into any such agreement or
commitment. There are no outstanding stock appreciation rights of Company which
were not granted in tandem with a related stock option and no outstanding
limited stock appreciation rights or other rights to redeem for cash options or
warrants of Company.
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Section 4.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. Each of Parent and Company has all requisite power
and authority to enter into each of this Agreement, the Management Services
Agreement, the Power Supply Agreement, the Energy Management Agreement, the
Generation Purchase Right Agreement, the Guaranty Agreement, the Parent
Liabilities Undertaking, the Authority Liabilities Undertaking and the
Promissory Notes (collectively, the "Basic Agreements") to which it is a party,
and, subject to the Parent Required Statutory Approvals (as defined in Section
4.4(c)), to consummate the transactions contemplated hereby and thereby. Each of
the applicable Transferee Subsidiaries will, at the Effective Time, have all
requisite power and authority to enter into each of the Basic Agreements to
which it is a party, and, subject to the Parent Required Statutory Approvals, to
consummate the transactions contemplated thereby. The execution and delivery of
each of the Basic Agreements to which Parent or Company is a party and the
consummation by Parent and Company of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Parent and Company, other than the Company Shareholder Approval (as defined
in Section 4.11). The execution and delivery of each of the Basic Agreements to
which the applicable Transferee Subsidiaries are a party and the consummation of
the transactions contemplated thereby will, at the Effective Time, be duly
authorized by all necessary corporate action on the part of such Transferee
Subsidiaries. This Agreement has been duly and validly executed and delivered by
Parent and Company and, assuming the due authorization, execution and delivery
hereof by the other signatories hereto (other than LIPA Sub), constitutes the
valid and binding obligation of Parent and Company, enforceable against each of
them in accordance with its terms.
(b) Non-Contravention. Except as set forth in Section 4.4(b) of
the Parent Disclosure Schedule, the execution and delivery of this Agreement by
Parent and Company and each of the other Basic Agreements to which Parent or
Company is a party does not, and the consummation of the transactions
contemplated hereby and thereby will not, in any material respect, violate,
conflict with, or result in a material breach of any provision of, or constitute
a material default (with or without notice or lapse of time or both) under, or
result in the termination or modification of, or accelerate the performance
required by, or result in a right of termination, cancellation, or acceleration
of any obligation or the loss of a material benefit under, or result in the
creation of any material lien, security interest, charge or encumbrance upon any
of the properties or assets contemplated hereby to be owned at the Effective
Time (x) by Company or (y) by any Company Subsidiary or Company Joint Ventures
not constituting a portion of the Transferred Assets (collectively, and as
described in Schedule G, the "Retained Assets") (any such violation, conflict,
breach, default, right of termination,
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modification, cancellation or acceleration, loss or creation, a "Violation" with
respect to Parent, Company or any Company Subsidiaries, such term when used in
Article V having a correlative meaning with respect to Authority and LIPA Sub)
pursuant to any provisions of (i) the certificate of incorporation, by-laws or
similar governing documents of Parent, Company or any of the Company
Subsidiaries or the Company Joint Ventures, (ii) subject to obtaining the Parent
Required Statutory Approvals and the receipt of the Company Shareholder
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any Governmental Authority (as
defined in Section 4.4(c)) applicable to Parent or Company or any of the Company
Subsidiaries or the Company Joint Ventures or any Retained Asset or (iii)
subject to obtaining the third-party consents set forth in Section 4.4(b) of the
Parent Disclosure Schedule (the "Parent Required Consents"), any material note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Parent or Company or any of the Company Subsidiaries or the
Company Joint Ventures is a party or by which any Retained Asset may be bound or
affected.
(c) Statutory Approvals. No declaration, filing or registration
with, or notice to or authorization, consent or approval of, any court, federal,
state, local or foreign governmental or regulatory body (including a stock
exchange or other self-regulatory body) or authority (each a "Governmental
Authority") is necessary for the execution and delivery of this Agreement by
Parent and Company and each of the other Basic Agreements to which Parent,
Company or a Transferee Subsidiary is a party or the consummation by Parent,
Company and the Transferee Subsidiaries of the transactions contemplated hereby
and thereby, except as described in Section 4.4(c) of the Parent Disclosure
Schedule (the "Parent Required Statutory Approvals," it being understood that
references in this Agreement to "obtaining" such Parent Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law).
(d) Compliance. Except as set forth in Section 4.4(d) or Section
4.9 of the Parent Disclosure Schedule, Schedule D (Tax Matters) or Schedule E
(Employment Matters) hereto, or as disclosed in the Parent SEC Reports (as
defined in Section 4.5) filed prior to the date hereof (i) neither Parent,
Company nor any of the Company Subsidiaries nor, to the knowledge of Parent or
Company, any Company Joint Venture is, with respect to any Retained Asset, in
material violation of, is, with respect to any Retained Asset, under
investigation with respect to any material violation of, or, with respect to any
Retained Asset, has been given notice or been charged with any material
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable Environmental Law,
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ordinance or regulation) of any Governmental Authority, and (ii) (other than as
covered under clause (i) of this Section 4.4(d)) neither Company nor any of the
Company Subsidiaries nor, to the knowledge of Parent or Company, any Company
Joint Venture, is in material violation of, is under investigation with respect
to any material violation of, or has been given notice or been charged with any
material violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable Environmental Law,
ordinance or regulation) of any Governmental Authority. Except as set forth in
Section 4.4(d) of the Parent Disclosure Schedule or in Section 4.9 of the Parent
Disclosure Schedule, Company and the Company Subsidiaries and Company Joint
Ventures have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted in all material respects. Except as set forth in Section
4.4(d) of the Parent Disclosure Schedule, Company and each of the Company
Subsidiaries is not in material breach or violation of or in material default in
the performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result in a
material default under, (i) its certificate of incorporation or by-laws or (ii)
any material contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which it
is a party or by which it is bound or to which any Retained Asset is subject.
Section 4.5 Reports and Financial Statements. The filings
required to be made by Parent, Company and the Company Subsidiaries since
January 1, 1994 under the Securities Act of 1933 (the "Securities Act"), the
Securities Exchange Act of 1934 (the "Exchange Act"), the 1935 Act, the Federal
Power Act, the Atomic Energy Act and applicable state laws and regulations have
been filed with the Securities and Exchange Commission (the "SEC"), the Federal
Energy Regulatory Commission ("FERC"), the Nuclear Regulatory Commission or the
appropriate state public utilities commission, as the case may be, including all
forms, statements, reports, agreements (oral or written) and all documents,
exhibits, amendments and supplements appertaining thereto, and complied, as of
their respective dates, in all material respects with all applicable
requirements of the appropriate statute and the rules and regulations
thereunder. Parent or Company has made available to Authority or LIPA Sub a true
and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Parent or Company with the SEC since January
1, 1994 (as such documents have since the time of their filing been amended, the
"Parent SEC Reports"). As of their respective dates, the Parent SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Company included in the Parent SEC
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Reports have been prepared in accordance with GAAP (except as may be indicated
therein or in the notes thereto and except with respect to unaudited statements
as permitted by Form 10-Q of the SEC) and fairly present the financial position
of Company as of the dates thereof and the results of its operations and cash
flows for the periods then ended, subject, in the case of the unaudited interim
financial statements, to normal, recurring audit adjustments. True, accurate and
complete copies of the respective certificates of incorporation and by-laws of
Parent and Company, as in effect on the date hereof, are included (or
incorporated by reference) in the Parent SEC Reports.
Section 4.6 Absence of Certain Changes or Events. Except as
disclosed in the Parent SEC Reports filed prior to the date hereof or as set
forth in Section 4.6 of the Parent Disclosure Schedule, since December 31, 1995,
Parent, Company and each of the Company Subsidiaries have conducted their
business only in the ordinary course of business consistent with past practice
and there has not been, and no fact or condition exists which would have or,
insofar as reasonably can be foreseen, could have, a material adverse effect on
the Retained Assets or the properties, business, operations, financial condition
or prospects of the business relating to the Retained Assets taken as a whole or
a material adverse decline in the electric rate savings projections presented to
the Authority at its June 16, 1997 meeting to be realized after the Closing (a
"Material Adverse Effect").
Section 4.7 Litigation. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof or as set forth in Section 4.7 or Section
4.9 of the Parent Disclosure Schedule, (i) there are no material claims, suits,
actions or proceedings, pending or, to the knowledge of Parent and Company,
threatened, nor are there, to the knowledge of Parent and Company, any material
investigations or reviews pending or threatened against, relating to or
affecting Company or any of the Company Subsidiaries, (ii) there have not been
any significant developments since December 31, 1996 with respect to such
disclosed claims, suits, actions, proceedings, investigations or reviews and
(iii) there are no material judgments, decrees, injunctions, rules or orders of
any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to Company or any of the Company
Subsidiaries.
Section 4.8 Registration Statement and Proxy Statement. None of
the information supplied or to be supplied by or on behalf of Company for
inclusion or incorporation by reference in the proxy statement, in definitive
form, relating to the meeting of the Company shareholders to be held in
connection with the Merger (the "Proxy Statement") will, at the date mailed to
shareholders and at the time of the meeting of shareholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact
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required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder.
Section 4.9 Environmental Protection. Except as set forth in
Section 4.9 of the Parent Disclosure Schedule or in the Parent SEC Reports filed
prior to the date hereof:
(a) Compliance. The operation and activities of the Company and
each of the Company Subsidiaries are, and have been, in material
compliance with all Environmental Laws (as defined in Section 4.9(g)(ii))
applicable to the Retained Assets; and neither Parent, Company nor any of
the Company Subsidiaries has received any communication (written or
oral), from any person or Governmental Authority that alleges that
Company or any of the Company Subsidiaries is not in such compliance with
applicable Environmental Laws.
(b) Environmental Permits. Company and each of the Company
Subsidiaries has obtained or has applied for all material environmental
health and safety permits and all other governmental licenses, permits,
and authorizations (collectively, the "Environmental Permits") necessary
for the construction of facilities constituting part of the Retained
Assets or the ownership or operation of such facilities or Retained
Asset, and all such Environmental Permits are in good standing or, where
applicable, a renewal application has been timely filed and is pending
agency approval, and Company and the Company Subsidiaries are in material
compliance with all terms and conditions of the Environmental Permits.
(c) Environmental Claims. There is no material Environmental
Claim (as defined in Section 4.9(g)(i)) pending (i) against Company or
any of the Company Subsidiaries or Company Joint Ventures, (ii) to the
best knowledge of Parent and Company, against any person or entity whose
liability for any Environmental Claim Company or any of the Company
Subsidiaries has or may have retained or assumed either contractually or
by operation of law, or (iii) against any real or personal property or
operations which Company or any of the Company Subsidiaries owns or
formerly owned or, to the best knowledge of Parent and Company, any real
or personal property or operations which Company or any of the Company
Subsidiaries leases or manages or formerly leased or managed, in each
case, in whole or in part.
(d) Releases. Parent and Company have no knowledge of any
material Releases (as defined in Section 4.9(g)(iv)) of any Hazardous
Material (as defined in Section 4.9(g)(iii)),
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that would be reasonably likely to form the basis of any material
Environmental Claim against Company or any of the Company Subsidiaries,
or against any person or entity whose liability for any material
Environmental Claim Parent or any of the Company Subsidiaries has or may
have retained or assumed either contractually or by operation of law.
(e) Predecessors. Parent and Company have no knowledge, with
respect to any predecessor of Company or any of the Company Subsidiaries,
of any material Environmental Claim pending or threatened, or of any
Release of Hazardous Materials that would be reasonably likely to form
the basis of any material Environmental Claim.
(f) Disclosure. Parent and Company have disclosed to Authority or
LIPA Sub all material facts which Parent reasonably believes form the
basis of a material Environmental Claim arising from (i) the cost of
Company pollution control equipment currently required or known to be
required in the future with respect to the Retained Assets; (ii) current
Company remediation costs or Company remediation and site monitoring
costs known to be required in the future with respect to the Retained
Assets; or (iii) any other environmental matter affecting Company with
respect to the Retained Assets.
(g) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person or entity (including any Governmental
Authority) alleging potential liability (including, without limitation,
potential responsibility for or liability for enforcement, investigatory costs,
cleanup costs, governmental response costs, removal costs, remedial costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (A) the presence, or Release or
threatened Release into the environment, of any Hazardous Materials at any
location, whether or not owned, operated, leased or managed by Company or any of
the Company Subsidiaries or Company Joint Ventures and constituting a portion of
the Retained Assets (for purposes of this Section 4.9); or (B) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law with respect to the Retained Assets; or (C) any and all claims by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or Release of any
Hazardous Materials with respect to the Retained Assets.
(ii) "Environmental Laws" means all federal, state, local laws,
ordinances, rules and regulations relating to health
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and safety, pollution, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment including, without
limitation, laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and transformers or other equipment
that contain dielectric fluid containing polychlorinated biphenyls ("PCBs"); and
(B) any chemicals, materials or substances which are now defined as or included
in the definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", or words of similar import, under any
Environmental Law; and (C) any other chemical, material, substance or waste,
exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which Company or any of the Company
Subsidiaries or Company Joint Ventures operates using any Retained Assets (for
purposes of this Section 4.9).
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the atmosphere, surface or subsurface soil, surface water, saltwater shoreline
or floor bottom, groundwater or property from or affecting any Retained Assets.
Section 4.10 Regulation as a Utility. Except as set forth in
Section 4.10 of the Parent Disclosure Schedule, neither Company nor any
"subsidiary company" or "affiliate" (as such terms are defined in the 1935 Act)
of Company is subject to regulation as a public utility or public service
company (or similar designation) by any state in the United States other than
New York or any foreign country.
Section 4.11 Vote Required. The following are the only votes
("Company Shareholder Approval") of the holders of any class or series of the
capital stock of Company or any of its subsidiaries required to adopt this
Agreement, the other Basic Agreements and the other transactions contemplated
hereby and thereby:
(a) the adoption of this Agreement by two-thirds of the votes
entitled to be cast by all holders of Company Common Stock and Company Preferred
Stock (other than the Redeemable Preferred Stock redeemed in accordance with
Section 2.1(c)(ii)), voting together as a single class (with each share entitled
to one vote, except that Company Preferred Stock with $25 par value is entitled
to only 1/4 vote per share);
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(b) the adoption of this Agreement by a majority of the votes
entitled to be cast by all holders of Company Preferred Stock (other than such
Redeemable Preferred Stock), voting together as a single class (with each share
entitled to one vote, except that Company Preferred Stock with $25 par value is
entitled to only 1/4 vote per share);
(c) the adoption of this Agreement by a majority of the votes
entitled to be cast by all holders of Company Common Stock, voting separately as
a class; and
(d) the adoption of this Agreement by a majority of the votes
entitled to be cast by holders of Series AA Preferred Stock and each series of
Nonredeemable Preferred Stock, in each case voting as a separate class.
Section 4.12 Insurance. Except as set forth in Section 4.12 of
the Parent Disclosure Schedule, Company and each of the Company Subsidiaries is,
and has been continuously since January 1, 1991, insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary in all material respects for companies conducting the business as
conducted by Company and the Company Subsidiaries during such time period.
Except as set forth in Section 4.12 of the Parent Disclosure Schedule, neither
Parent, Company nor any of the Company Subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy of
Company or any of the Company Subsidiaries. The insurance policies of Company
and each of the Company Subsidiaries are valid and enforceable policies in all
material respects.
Section 4.13 Disclosure. No representations or warranties by
Parent or Company in this Agreement and no statement contained in any document
furnished by Parent or Company to Authority or LIPA Sub pursuant to the
provisions of, or in connection with the transactions contemplated by this
Agreement, will contain any untrue statement of material fact or omit any
material fact necessary, in light of the circumstances under which it was made,
in order to make such statement not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AUTHORITY AND LIPA SUB
Authority represents and warrants to Parent and Company as
follows:
Section 5.1 Organization. Authority is a corporate municipal
instrumentality and political subdivision of the State of New York and was
created by legislation of the State of New York (Chapter 517 of the 1986 Laws of
New York). LIPA Sub is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Each of Authority and LIPA Sub has all requisite
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corporate power and authority, and has been duly authorized by all necessary
approvals and orders to own, lease and operate its assets and properties to the
extent owned, leased and operated and to carry on its business as it is now
being conducted and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary.
Section 5.2 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. Each of Authority and LIPA Sub has all requisite
power and authority to enter into this Agreement and each of the other Basic
Agreements to which it is a party and, subject to the Authority Required
Statutory Approvals (as defined in Section 5.2(c)) to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement by each of Authority and LIPA Sub and each of the other Basic
Agreements to which it is a party and the consummation by each of Authority and
LIPA Sub of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Trustees of Authority and the Board of Directors of
LIPA Sub; no other corporate proceedings on the part of each of Authority and
LIPA Sub are necessary to authorize this Agreement, each of the other Basic
Agreements to which it is a party or to consummate the transactions contemplated
hereby and thereby. This Agreement has been duly and validly executed and
delivered by Authority and LIPA Sub and, assuming the due authorization,
execution and delivery hereof by the other signatories hereto, this Agreement
constitutes the valid and binding obligation of Authority and LIPA Sub,
enforceable against each of Authority and LIPA Sub in accordance with its terms.
(b) Non-Contravention. The execution and delivery of this
Agreement and each of the other Basic Agreements by Authority or LIPA Sub does
not, and the consummation of the transactions contemplated hereby and thereby
will not, result in a material Violation pursuant to any provisions of (i) the
certificate of incorporation, by-laws or similar governing documents of LIPA
Sub, (ii) subject to obtaining the Authority Required Statutory Approvals, any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any Governmental Authority applicable to Authority or
LIPA Sub or (iii) any provisions of any material note, bond, mortgage,
indenture, deed of trust license, franchise, permit, concession, contract, lease
or other instrument, obligation or agreement of any kind to which Authority or
LIPA Sub is a party or by which it or any of its properties or assets may be
bound.
(c) Statutory Approvals. No declaration, filing or registration
with, or notice to or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement and each
of the other
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Basic Agreements by each of Authority and LIPA Sub or the consummation by each
of Authority and LIPA Sub of the transactions contemplated hereby and thereby,
except as set forth in writing by Authority (the "Authority Required Statutory
Approvals").
Section 5.3 Disclosure. No representations or warranties by
Authority or LIPA Sub in this Agreement and no statement contained in any
document furnished by Authority or LIPA Sub to Parent or Company pursuant to the
provisions of, or in connection with the transactions contemplated by, this
Agreement, will contain any untrue statement of material fact or omit any
material fact necessary, in light of the circumstances under which it was made,
in order to make such statement not misleading.
Section 5.4 Ownership of LIPA Sub; No Prior Activities. LIPA Sub
is a direct, wholly owned subsidiary of Authority and was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement. As of
the date hereof and the Effective Time, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated by this Agreement and except for this Agreement and
any other agreements or arrangements contemplated by this Agreement, LIPA Sub
has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
Section 5.5 Ownership of Company Common Stock. Neither Authority
nor LIPA Sub "beneficially owns" (as such term is defined for purposes of
Section 13(d) of the Exchange Act) any shares of Company Common Stock or Company
Preferred Stock.
ARTICLE VI
COVENANTS
Section 6.1 Covenants of Parent and Company. After the date
hereof and prior to the Closing Date or earlier termination of this Agreement,
Parent and Company agree as follows, as to themselves and to each of the Company
Subsidiaries, as the case may be, except as expressly contemplated or permitted
in this Agreement, the other Basic Agreements or to the extent the other parties
hereto shall otherwise consent in writing:
(a) Ordinary Course of Business. With respect to the Retained
Assets only, Company and the Company Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use all
commercially reasonable efforts to preserve intact their present business
organizations and goodwill and preserve the goodwill and
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relationships with customers, suppliers and others having business
dealings with them. Company and the Company Subsidiaries may, with the
prior approval of Authority or LIPA Sub, engage in transactions out of
the ordinary course of business relating to the Retained Assets, such
approval not to be unreasonably withheld or delayed; provided, however,
that the following will not be subject to Authority's or LIPA Sub's prior
approval: any transaction involving the Transferred Assets; provided,
however, that such approval will be required for (A) any transaction that
would impair the applicable Transferee Subsidiary's ability to perform
its obligations under any Basic Agreement or that would violate any term
of the Generation Purchase Right Agreement or (B) any transaction whereby
Company enters into a capacity or transmission purchase agreement
relating to the purchase of more than 75 megawatts of capacity or having
a term which extends beyond March 19, 1999.
Except as set forth in Section 6.1(a) of the Parent Disclosure Schedule
or as contemplated in this Section 6.1(a), neither Company nor any of the
Company Subsidiaries shall make any change in the line of business
involving the Retained Assets in which it engages as of the date hereof
which involves any material investment of assets or resources or any
material exposure to liability or loss to the Retained Assets taken as a
whole.
(b) Charter Documents. Company shall not amend nor propose to
amend its certificate of incorporation, by-laws or regulations, or
similar organizational documents, except as contemplated herein or as set
forth in Section 6.1(b) of the Parent Disclosure Schedule.
(c) No Acquisitions. Except as set forth in Section 6.1(c) of the
Parent Disclosure Schedule or as contemplated in Section 6.1(a), neither
Company nor any of the Company Subsidiaries shall acquire, or publicly
propose to acquire, or agree to acquire, by merger or consolidation with,
or by purchase or otherwise, in a transaction relating to the Retained
Assets, a substantial equity interest in or a substantial portion of the
assets of, any business or any corporation, partnership, association or
other business organization or division thereof, nor shall any party
acquire or agree to acquire, in a transaction relating to the Retained
Assets, a material amount of assets other than in the ordinary course of
business consistent with past practice.
(d) Capital Expenditures. Except as set forth in Section 6.1(d)
of the Parent Disclosure Schedule, or as required by law, neither Company
nor any of the Company Subsidiaries shall make capital expenditures or
commitments relating to the Retained Assets in an aggregate amount
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significantly less or significantly more than the amounts projected
therefor in Company's 1996 electric rate filing.
(e) No Dispositions. Except as set forth in Section 6.1(e) of the
Parent Disclosure Schedule or as contemplated by Section 6.1(a),
singularly or in the aggregate, neither Company nor any of the Company
Subsidiaries shall sell, lease, license, encumber or otherwise dispose
of, any of the Retained Assets, other than encumbrances or dispositions
in the ordinary course of its business consistent with past practice and
other than dispositions of Retained Assets by Company and the Company
Subsidiaries of less than $10 million in the aggregate; provided,
however, that notwithstanding the foregoing, neither Company nor any of
the Company Subsidiaries shall sell, lease, license, encumber or
otherwise dispose of, any attachment or similar rights.
(f) Indebtedness. Except as contemplated by any Basic Agreement,
neither Company nor any of the Company Subsidiaries shall incur or
guarantee any indebtedness (including any debt borrowed or guaranteed or
otherwise assumed including, without limitation, the issuance of debt
securities or warrants or rights to acquire debt) or enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect
of any of the foregoing other than incurrences to refinance existing
indebtedness, incurrences of debt that will be assumed by Parent and/or
one or more Transferee Subsidiaries at the Closing and other than as set
forth in Section 6.1(f) of the Parent Disclosure Schedule.
(g) Transmission, Generation. Except as required pursuant to
tariffs on file with the FERC as of the date hereof, in the ordinary
course of business consistent with past practice, or as set forth in
Section 6.1(g) of the Parent Disclosure Schedule, neither Company nor any
of the Company Subsidiaries shall (i) commence construction of any
additional electric generating, transmission or delivery capacity, or
(ii) obligate itself to purchase or otherwise acquire, or to sell or
otherwise dispose of, or to share, any additional electric generating,
transmission or delivery capacity except as provided in clause (B) of the
second proviso to Section 6.1(a) or as set forth in the budget of Company
on the date hereof as set forth in Section 6.1(d) of the Parent
Disclosure Schedule.
(h) Accounting. Except as set forth in Section 6.1(h) of the
Parent Disclosure Schedule, Parent and Company shall not, nor shall
Parent and Company permit any of the Company Subsidiaries to, make any
changes in their accounting methods or principles, except as required by
law, rule, regulation or GAAP.
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(i) Affiliate Transactions. Except as set forth in Section 6.1(i)
of the Parent Disclosure Schedule, neither Company nor any of the Company
Subsidiaries shall enter into any material agreement or arrangement with
any of their respective affiliates (other than those wholly-owned
subsidiaries which will constitute Retained Assets) on terms materially
less favorable to such party than could be reasonably expected to have
been obtained with an unaffiliated third party on an arm's-length basis.
(j) Cooperation, Notification. Parent and Company shall, and
shall cause the Company Subsidiaries to, (i) confer on a regular and
frequent basis with one or more representatives of Authority or LIPA Sub
to discuss, subject to applicable law, material operational matters and
the general status of its ongoing operations; (ii) promptly notify
Authority or LIPA Sub of any significant changes in its business,
properties, assets, condition (financial or other), results of operations
or prospects; (iii) advise Authority or LIPA Sub of any change or event
which has had or, insofar as reasonably can be foreseen, is reasonably
likely to result in a Material Adverse Effect; and (iv) promptly provide
Authority or LIPA Sub with copies of all filings made by Parent or
Company or any of the Company Subsidiaries with any state or federal
court, administrative agency, commission or other Governmental Authority
in connection with any Basic Agreement and the transactions contemplated
hereby and thereby or the Retained Assets.
(k) Rate Matters. Parent and Company shall, and shall cause the
Company Subsidiaries to, notify Authority or LIPA Sub of any changes in
its or Company's rates or charges (other than pass-through fuel rates or
charges, but including, without limitation, gas rates or charges),
standards of service or accounting from those in effect on the date
hereof. Without the consent of Authority (which consent will not be
unreasonably withheld), Company shall not file or prosecute any rate case
or other nonroutine proceeding before the Public Service Commission of
the State of New York (the "PSC") or FERC or any appeal therefrom, except
for cases or proceedings (i) relating solely to pass-through fuel or gas
rates or charges, (ii) required to be made by order of the PSC or FERC,
(iii) relating solely to the Transferred Assets or (iv) involving
commercial or contractual disputes which are required to be resolved
through such proceedings; provided, however, that if Company reasonably
believes that a matter threatens the financial viability of Company, it
may defend or prosecute such matter before the PSC or FERC. Either in
seeking consent from Authority or if Company has the right to defend or
prosecute a matter as contemplated herein, Company shall provide 30 days
prior notice to Authority (including, upon request of Authority, copies
of draft documentation) of any proposed filing with the PSC or FERC
unless Company reasonably
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determines that circumstances require action within such 30 day period,
in which event Company shall provide Authority with as prompt notice as
is practicable. The parties will consult with each other with respect to
all matters described in the preceding two sentences.
(l) Third-Party Consents. Parent and Company shall, and shall
cause the Company Subsidiaries to, use all commercially reasonable
efforts to obtain all Parent Required Consents. Parent shall promptly
notify Authority or LIPA Sub of any failure or prospective failure to
obtain any such consents and, if requested by Authority or LIPA Sub,
shall provide copies of all Parent Required Consents obtained by Parent
or Company to Authority or LIPA Sub.
(m) No Breach, Etc. Parent and Company shall not, nor permit any
of the Company Subsidiaries to, willfully take any action that would or
is reasonably likely to result in a material breach of any provision of
any Basic Agreement, as the case may be, or in any of its representations
and warranties set forth in any Basic Agreement, as the case may be,
being untrue on and as of the Closing Date or any condition to their
obligation to close not being satisfied.
(n) Tax-Exempt Status. Parent and Company shall not, nor shall
Parent and Company permit, any Company Subsidiary to, take any action
that would likely jeopardize the qualification of Company's outstanding
revenue bonds which qualify on the date hereof under Section 142(a) of
the Code as "exempt facility bonds" or as tax-exempt industrial
development bonds under Section 103(b)(4) of the Internal Revenue Code of
1954, as amended, prior to the Tax Reform Act of 1986.
(o) Tax Matters. Except with respect to the matters set forth in
the LILCO Tax Matters Disclosure Schedule attached to Schedule D, Parent
and Company shall not make or rescind any material express or deemed
election relating to taxes, settle (other than within established
reserves) or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
taxes, or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of
their respective federal income tax returns for the taxable year ending
December 31, 1995, except as may be required by applicable law.
(p) Contracts. Subject to Section 6.1(a) and except as set forth
in Section 6.1(p) of Parent Disclosure Schedule, Parent and Company shall
not, other than in the ordinary course of business consistent with past
practice, modify, amend, terminate, renew or fail to use reasonable
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business efforts to renew any material franchise, contract or agreement
to which Company or any Company Subsidiary is a party or waive, release
or assign any material rights or claims, provided, however, that Parent
and Company shall not enter into new power supply agreements, or amend
existing power supply or transmission agreements, without prior approval
of Authority (which approval will not be unreasonably withheld).
(q) Insurance. Parent and Company shall, and shall cause the
Company Subsidiaries to, maintain with financially responsible insurance
companies insurance in such amounts and against such risks and losses as
are customary for companies engaged in the electric and gas utility
industry and employing methods of generating electric power and fuel
sources similar to those methods employed and fuels used by Parent,
Company or the Company Subsidiaries.
(r) Permits. Parent and Company shall, and shall cause the
Company Subsidiaries to, use reasonable efforts to maintain in effect all
existing governmental permits pursuant to which Company or the Company
Subsidiaries own and operate any Retained Asset.
(s) Compliance with Law: Permits. The operations and activities
of Company, and the ownership, possession, maintenance and operation of
the Retained Assets, have complied and are in compliance, in all
respects, with all applicable federal, state and local laws, statutes,
acts, regulations, codes, ordinances, rules, judgments, orders, decrees,
judgments, injunctions, or notices or demand letters issued or
promulgated or approved thereunder ("Applicable Law"). Except as set
forth in Section 6.1(s) of Parent Disclosure Schedule, Company has all
material federal, state, and local governmental licenses, permits,
approvals, franchises and other authorizations ("Permits") as are
necessary in order for it to conduct the business conducted with the
Retained Assets. No material violations have been recorded in respect of
any Permits and no proceeding is pending or, to the knowledge of Parent
or Company, threatened with respect to the limitation or revocation of
any Permit.
Section 6.2 Covenants of Authority and LIPA Sub.
(a) Filings. Authority and LIPA Sub shall promptly provide Parent
and Company with copies of all filings made by Authority or LIPA Sub with
any state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement or any Basic
Agreement and the transactions contemplated hereby and thereby.
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(b) Third-Party Consents. Authority and LIPA Sub shall use all
commercially reasonable efforts to obtain all Authority Required
Consents. Authority shall promptly notify Parent and Company of any
failure or prospective failure to obtain any such consents and, if
requested by Parent or Company, shall provide copies of all Authority
Required Consents obtained by Authority and LIPA Sub to Parent and
Company.
(c) No Breach, Etc. Authority and LIPA Sub shall not willfully
take any action that would or is reasonably likely to result in (x) a
material breach of any provision of this Agreement or any other Basic
Agreement, as the case may be, (y) any of their representations and
warranties set forth in this Agreement or in any other Basic Agreement
being untrue on and as of the Closing Date or (z) any condition to their
obligations to close not being satisfied.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information. Upon reasonable notice, each
party shall afford to the officers, employees, accountants, counsel, investment
bankers, financial advisors, engineers and other representatives of the other
(collectively, "Representatives") reasonable access, during normal business
hours throughout the period prior to the Effective Time, to all of its
properties, books, contracts, commitments and records and, during such period,
each party shall furnish promptly to the other (i) access to each report,
schedule and other document filed or received by it pursuant to the requirements
of federal or state securities laws or filed with or sent to the SEC, the FERC,
the NRC, the Department of Justice, the Federal Trade Commission, the PSC or any
other federal or state regulatory agency or commission, and (ii) access to all
information concerning themselves, their subsidiaries, directors and officers
and such other matters as may be reasonably requested by the other party in
connection with any filings, applications or approvals required or contemplated
by this Agreement or for any other reason related to the transactions
contemplated by this Agreement. In addition, Company and Parent shall promptly
furnish to Authority upon request all such information as may be necessary or
desirable in order that Authority may obtain the financing referred to in
Section 8.1(f).
Section 7.2 Proxy Statement and Registration Statement. Company
will prepare and file with the SEC as soon as reasonably practicable after the
date hereof the registration statement relating to the Parent Shares (the
"Registration Statement") and the Proxy Statement. The parties hereto shall each
use reasonable efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after such filing.
Each of the parties hereto shall
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furnish all information concerning itself which is required or customary for
inclusion in the Proxy/Registration Statement.
Section 7.3 Shareholder Approval. Company shall, as soon as
reasonably practicable after the date hereof, (i) take all steps necessary to
duly call, give notice of, convene and hold a special meeting of its
shareholders for the purpose of securing the approval of its shareholders, (ii)
distribute to its shareholders the Proxy Statement in accordance with applicable
federal and state law and with its Restated Certificate of Incorporation and
by-laws, (iii) subject to the fiduciary duties of its Board of Directors,
recommend to its shareowners the adoption of this Agreement and the transactions
contemplated hereby and (iv) cooperate and consult with Authority with respect
to each of the foregoing matters. In the event that during the special meeting
of shareholders referred to above the Company Shareholder Approval is initially
not obtained, Company shall adjourn the meeting for a reasonable period and
Company and Parent shall take such actions as may be necessary or desirable in
order to obtain the Company Shareholder Approval when such meeting is
reconvened.
Section 7.4 Disclosure Schedule. (a) On the date hereof, Parent
has delivered to Authority a schedule (the "Parent Disclosure Schedule"),
accompanied by a certificate signed by the Chief Financial Officer of Company
stating that the Parent Disclosure Schedule is being delivered pursuant to this
Section 7.4(a). The Parent Disclosure Schedule constitutes an integral part of
this Agreement and modifies the representations, warranties, covenants or
agreements of Parent hereto contained herein to the extent that such
representations, warranties, covenants or agreements expressly refer to the
Parent Disclosure Schedule.
(b) Not later than 30 days before the date scheduled for the
Closing, Parent shall deliver to Authority a revised Parent Disclosure Schedule
(the "Updated Parent Disclosure Schedule"), accompanied by a certificate signed
by the Chief Financial Officer of Company stating that the Updated Parent
Disclosure Schedule is being delivered pursuant to this Section 7.4(b). The
Updated Parent Disclosure Schedule shall contain the information Parent believes
would be required to comply with the condition set forth in Section 8.2(b) (but
for purposes solely of this Section 7.4(b), as if such Section 8.2(b) did not
contain any reference to Material Adverse Effect). No liability shall arise
under any Basic Agreement by reason of the delivery of the Updated Parent
Disclosure Schedule or, after the Effective Time, by reason of any matter
disclosed therein.
Section 7.5 Regulatory Matters. Each party hereto shall cooperate
and use its best efforts to promptly prepare and file all necessary
documentation and to effect all necessary applications, notices, petitions,
filings and other documents, and shall use all commercially reasonable efforts
to obtain all
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necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to consummate the transactions contemplated
by this Agreement, including, without limitation, the Parent Required Statutory
Approvals and the Authority Required Statutory Approvals. Parent, Company,
Authority and LIPA Sub shall cooperate in good faith and consult with each other
on all components of, significant steps towards the completion of, and
significant amendments to, the applications to obtain the Parent Required
Statutory Approvals and the Authority Required Statutory Approvals, and with
respect to material filings, communications, agreements, arrangements or
consents, written or oral, formal or informal, relating to applications for such
Approvals.
Section 7.6 Public Announcements. Parent, Company, Authority and
LIPA Sub will cooperate with each other in the development and distribution of
all news releases and other joint public information disclosures with respect to
this Agreement and any other Basic Agreement or any of the transactions
contemplated hereby.
Section 7.7 Confidentiality. (a) Company Request. The parties
acknowledge that certain information that may be furnished pursuant to the
provisions of this Agreement may be confidential and proprietary to Company. The
Company and Parent each acknowledges that Authority may be required to disclose
information upon request under applicable law. The Company shall have the right
to request Authority in writing not to publicly disclose any information which
Company believes to be confidential or proprietary and not subject to public
disclosure under applicable law, and such request will be accompanied by an
explanation of its reasons for such belief. Any information which is the subject
of such a request shall be clearly marked on all pages, shall be bound, and
shall be physically separate from all non-confidential and non-proprietary
information. At Company's request, Authority and its Representatives given
access to such information shall execute and comply with the terms of a
confidentiality agreement in a mutually acceptable form, subject to applicable
law.
(b) Authority Non-Disclosure. If Authority receives a request
from the public for the disclosure of any information designated as confidential
or proprietary by Company pursuant to subsection (a) of this Section 7.7,
Authority (1) shall use reasonable efforts, consistent with applicable law, to
provide notice to Company of the request prior to any disclosure, and (2) shall
use reasonable efforts, consistent with applicable law, to keep in confidence
and not disclose such information unless it is entitled to do so pursuant to the
provisions of subsection (c) of this Section 7.7. Company shall indemnify, hold
harmless and defend Authority against all losses incurred from the withholding
from public disclosure of information designated as confidential or proprietary
by Company or otherwise requested by Company to be withheld.
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(c) Previously Furnished Information. Company hereby permits
Authority and its Representatives to obtain all information previously furnished
by Company to Bear, Stearns & Co. Inc. and certain other persons pursuant to the
letter dated October 11, 1995, (as amended to date) subject to the terms and
conditions of this Section 7.7. Authority agrees that all such information
(other than information described in clauses (1), (2) or (3) of Section 7.7(e))
shall be deemed to be delivered to Authority pursuant to the procedures set
forth in Section 7.7(a) for the purpose of identifying confidential or
proprietary information.
(d) Restriction on Use. Authority and LIPA Sub may not use any
confidential or proprietary information disclosed to either of them by Company
(other than information described in clauses (1), (2) or (3) of Section 7.7(e))
in taking any action described in clauses (a), (b), (c) or (d) of Article X at
any time after the date hereof.
(e) Permitted Disclosures. Notwithstanding any confidential or
proprietary designation thereof by Company, Authority may disclose the
following: (1) information which is known to Authority without any restriction
as to disclosure or use at the time it is furnished, (2) information which is or
becomes generally available to the public without breach of any agreement, (3)
information which is received from a third party without limitation or
restriction on such third party or Authority at the time of disclosure, or (4)
following notice to Company pursuant to subsection (b) of this Section,
information which , in the opinion of counsel for Authority, is required to be
disclosed under any applicable law, an order of a court of competent
jurisdiction, or a lawful subpoena.
Section 7.8 Certain Litigation.
(a) Class Settlement. After the date hereof, Company and
Authority shall jointly file an appropriate motion before the court having
jurisdiction over the Class Settlement (as hereinafter defined) to obtain a
modification of the final order approving such Class Settlement which would
permit the payment in full at the Closing of all amounts remaining unpaid with
respect to such Class Settlement, discounted to such present value as Authority
and Company may agree and such court may approve. As used herein, "Class
Settlement" shall mean the class settlement which became effective on June 28,
1989 and resolved a civil lawsuit against Company brought under the federal
Racketeer Influenced and Corrupt Organizations Act.
(b) Tax Cases. With respect to all tax cases relating to property
taxes or payments in lieu of property taxes assessable against any of the assets
and properties of Company as of the date hereof, and other similar tax claims
arising prior to the Closing Date (which shall constitute Retained Assets),
Company will enter into appropriate standstill agreements and
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maintain the current status of such cases; provided, however, if any taxing
authority increases, directly or indirectly, or purports to increase, directly
or indirectly, the assessed value of any Transferred Asset (other than in
respect of property additions or general increases in assessments), then Company
may pursue any judicial remedy it deems advisable in connection therewith.
Notwithstanding the foregoing, if any taxing authority, at any time prior to the
Closing, asserts a claim for property taxes or payments in lieu of property
taxes which Company reasonably believes is not authorized by statute or asserts
a right to value a taxable property in a method other than in accordance with
applicable New York State rules and regulations, then Company may take such
actions as it reasonably determines to be necessary or advisable to protect its
interests, but shall not otherwise pursue its claims pending the Closing or the
termination of this Agreement.
(c) Phase I Rebates. Upon the Closing, Parent will immediately
pay Authority $15 million in respect of the Phase I judgment relating to the
Shoreham property tax case for distribution to ratepayers.
Section 7.9 Expenses. All costs and expenses incurred in
connection with this Agreement and any other Basic Agreement and the
transactions contemplated hereby (including, without limitation, any termination
fees and expense reimbursements payable by Company pursuant to the Exchange
Agreement or to its officers or directors in respect of severance, change of
control or similar agreements) shall be paid by the party incurring such
expenses. Any such cost or expense of Company not paid or otherwise discharged
at or prior to the Closing shall be paid or reimbursed by Parent and the
Transferee Subsidiaries pursuant to the Parent Liabilities Undertaking and shall
not be included in the Closing Date Balance Sheet.
Section 7.10 Further Assurances. Each party will, and will cause
its Subsidiaries to, execute such further documents and instruments and take
such further actions as may reasonably be requested by any other party in order
to consummate the transactions contemplated hereby in accordance with the terms
hereof.
Section 7.11 Purchase Price Allocation. At or prior to the
Closing, the parties shall jointly prepare and agree to an allocation for
federal income tax purposes pursuant to Section 1060 of the Code of the purchase
price payable by Parent in respect of the transfer of the Transferred Assets.
Section 7.12 Receipt of Consents and Approvals. Each party agrees
to respond promptly to any request for any consent or approval from any other
party contemplated by this Agreement and any third party consent or statutory
approval required hereunder. Each party shall designate representatives who
shall be authorized to address any request for any such consents or
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approvals. Any act of any such representative with respect to such approvals and
consents shall be binding upon the party that designates such representative.
Section 7.13 Certain Other Matters. The provisions set forth in
Schedules D (Tax Matters), E (Employment Matters) and F (Future Rights) attached
hereto are hereby incorporated by reference as if set forth herein in their
entirety.
Section 7.14 Opinions of Counsel. In addition, Parent and Company
shall deliver to Authority such opinions of counsel for Parent and Company as to
the agreements to be entered into in connection with the transactions
contemplated by the Basic Agreements, in customary form for financing
transactions, as to the matters of law covered by the representations of Parent
and Company and the Transferee Subsidiaries in the Basic Agreements, similar
matters of law with respect to such other agreements and as to such other
matters of law as Authority may reasonably request, together with appropriate
certified authorizing resolutions and incumbency certificates.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligations. The
respective obligations of each party to effect the transactions contemplated by
this Agreement shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions:
(a) No Injunction. No temporary restraining order or preliminary
or permanent injunction or other order by any federal or state court preventing
consummation of the transactions contemplated by this Agreement and the other
Basic Agreements shall have been issued and be continuing in effect, and this
Agreement and the other Basic Agreements and the transactions contemplated
hereby and thereby shall not have been prohibited under any applicable federal
or state law or regulation.
(b) Statutory Approvals. The Parent Required Statutory Approvals
and the Authority Required Statutory Approvals shall have been obtained at or
prior to the Closing Date, such approvals shall have become Final Orders (as
defined below) and such Final Orders shall not impose terms or conditions which,
in the aggregate, would have, or insofar as reasonably can be foreseen, could
have, a material adverse effect on the business, assets, financial condition or
results of operations Parent, which would be materially inconsistent with the
agreements of the parties contained herein or in the Basic Agreements or would
have (or, insofar as reasonably can be foreseen could have) a Material Adverse
Effect. A "Final Order" means action by the relevant regulatory authority which
has not been reversed, stayed, enjoined, set aside, annulled or suspended, with
respect to which any waiting period prescribed by
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law before the transactions contemplated hereby may be consummated has expired,
and as to which all conditions to the consummation of such transactions
prescribed by law, regulation or order have been satisfied.
(c) Basic Agreements. The relevant parties shall have entered
into each other Basic Agreement.
(d) Tax Rulings. Favorable private letter rulings reasonably
satisfactory to each of the parties hereto shall have been received from the IRS
with respect to the application of Section 337(d) of the Code.
(e) Consummation of Exchange Transaction. Either (i) the
transactions contemplated by the Exchange Agreement shall have been consummated,
(ii) the Exchange Agreement shall have been terminated or (iii) all conditions
to such consummation shall have been satisfied or waived in accordance with the
terms of the Exchange Agreement and such transactions will be consummated
promptly after the Closing.
(f) Financing. Authority shall have obtained financing in an
amount sufficient to acquire the Common Stock and the Non-Redeemable Preferred
Stock and redeem the Redeemable Preferred Stock and the bonds issued in
connection therewith shall have received ratings pursuant to rating applications
which contemplate the issuance of up to $7.3 billion for such purpose and for
the purpose of refinancing Company debt.
Section 8.2 Conditions to Obligations of Authority and LIPA Sub.
The obligations of Authority and LIPA Sub to effect the transactions
contemplated by this Agreement and the other Basic Agreements shall be further
subject to the satisfaction on or prior to the Closing Date, of the following
conditions, except as may be waived by Authority or LIPA Sub in writing pursuant
to Section 9.5:
(a) Performance of Obligations of Parent and Company. Each of
Parent and Company shall have performed in all material respects its agreements
and covenants contained in or contemplated by this Agreement and the other Basic
Agreements required to be performed by it at or prior to the Closing Date.
(b) Representations and Warranties. The representations and
warranties of Parent and Company set forth in this Agreement and the other Basic
Agreements shall be true and correct (i) on and as of the date hereof and (ii)
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of a
specific date or time other than the date hereof or the Closing Date which need
only be true and correct as of such date or time) except in each of cases (i)
and (ii) for such failures of representations or warranties to be
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true and correct (without regard to any materiality qualifications contained
therein) which, individually or in the aggregate, would not be reasonably likely
to result in a Material Adverse Effect.
(c) Closing Certificates. Authority shall have received a
certificate signed on behalf of Parent and Company by the Chief Financial
Officer of Parent, dated the Closing Date, to the effect that, to the best of
such Officer's knowledge, the conditions set forth in Section 8.2(a) and Section
8.2(b) have been satisfied.
(d) Material Adverse Effect. No Material Adverse Effect shall
have occurred and there shall exist no fact or circumstance which is reasonably
likely to have a Material Adverse Effect.
(e) Parent Required Consents. The Parent Required Consents shall
have been obtained, except for those consents the failure of which to obtain
would not have a Material Adverse Effect.
(f) Formation of Parent Subsidiaries. The Transferee Subsidiaries
will have been duly formed and organized.
(g) Tax Rulings. Favorable private letter rulings reasonably
satisfactory to Authority shall have been received from the IRS with respect to
the application of Sections 103 and 115 of the Code.
(h) Rate Savings Determination. Authority shall have made the
final rate savings determination required under its governing statute.
Section 8.3 Conditions to Obligations of Parent and Company. The
obligations of Parent and Company to effect the transactions contemplated by
this Agreement and the other Basic Agreements shall be further subject to the
satisfaction on or prior to the Closing Date of the following conditions, except
as may be waived by Parent and Company in writing pursuant to Section 9.5:
(a) Performance of Obligations of Authority and LIPA Sub.
Authority and LIPA Sub shall have performed in all material respects its
agreements and covenants contained in or contemplated by this Agreement and the
other Basic Agreements required to be performed at or prior to the Closing Date.
(b) Representations and Warranties. The representations and
warranties of each of Authority and LIPA Sub set forth in this Agreement and the
other Basic Agreements shall be true and correct (i) on and as of the date
hereof and (ii) on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the
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Closing Date (except for representations and warranties that expressly speak
only as of a specific date or time other than the date hereof or the Closing
Date which need only be true and correct as of such date or time) except in each
of cases (i) and (ii) for such failures of representations or warranties to be
true and correct (without regard to any materiality qualifications contained
therein) which, individually or in the aggregate, would not be reasonably likely
to result in a Material Adverse Effect.
(c) Closing Certificates. Parent shall have received a
certificate signed on behalf of Authority by the Executive Director of
Authority, dated the Closing Date, to the effect that, to the best of such
Executive Director's knowledge, the conditions set forth in Section 8.3(a) and
Section 8.3(b) have been satisfied.
(d) Material Adverse Effect. No Material Adverse Effect shall
have occurred and there shall exist no fact or circumstance which is reasonably
likely to have a Material Adverse Effect.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated prior
to the Closing Date:
(a) by mutual written consent of the Board of Directors of
Company and the Board of Trustees of Authority;
(b) by either Parent and Company, on the one hand, or Authority
and LIPA Sub, on the other hand, if the Closing shall not have occurred on or
before August 31, 1998 (the "Initial Termination Date"); provided, however, that
the right to terminate the Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before this date; and provided, further, that if on the
Initial Termination Date the conditions to the Closing set forth in Sections
8.1(b), 8.1(d) or 8.2(e) shall not have been fulfilled but all other conditions
to the Closing shall be fulfilled or shall be capable of being fulfilled, then
the Initial Termination Date shall be extended to April 28, 1999.
(c) by Parent or Company, upon two days' prior notice to
Authority, if, as a result of a tender offer or any written offer or proposal
with respect to a merger, sale of a material portion of its assets or other
business combination made by a party other than Authority or any of its
affiliates prior to Company having obtained Company Shareholder Approval, the
Board of Directors of Company determines in good faith that their fiduciary
obligations under applicable law require that such
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tender offer or other written offer or proposal be accepted; provided, however,
that (i) the Board of Directors of Company shall have been advised in a written
opinion of outside counsel that notwithstanding a binding commitment to
consummate an agreement of the nature of this Agreement entered into in the
proper exercise of their applicable fiduciary duties, and notwithstanding all
concessions which may be offered by Authority in negotiations entered into
pursuant to clause (ii) below, such fiduciary duties would also require the
directors to reconsider such commitment as a result of such tender offer or
other written offer or proposal; and (ii) prior to any such termination, Company
shall, and shall cause its respective financial and legal advisors to, negotiate
with Authority to make such adjustments in the terms and conditions of this
Agreement as would enable Company to proceed with the transactions contemplated
herein on such adjusted terms;
(d) by Authority, by written notice to Parent and Company, if (i)
there exist breaches of the representations and warranties of Parent and Company
made herein as of the date hereof which breaches, individually or in the
aggregate, would or would be reasonably likely to result in a Material Adverse
Effect, and such breaches shall not have been remedied within 20 days after
receipt by Parent and Company of notice in writing from Authority, specifying
the nature of such breaches and requesting that they be remedied, (ii) Parent or
Company shall have failed to perform and comply with, in all material respects,
its agreements and covenants hereunder or under any other Basic Agreement and
such failure to perform or comply shall not have been remedied within 20 days
after receipt by Parent and Company of notice in writing from Authority,
specifying the nature of such failure and requesting that it be remedied; or
(iii) the Board of Directors of Parent or any committee thereof (A) shall
withdraw or modify in any manner adverse to Authority or LIPA Sub its approval
or recommendation of this Agreement or the other Basic Agreements, (B) shall
fail to reaffirm such approval or recommendation upon Authority's or LIPA Sub's
request, or (C) shall resolve to take any of the actions specified in clause (A)
or (B);
(e) by Parent or Company, by written notice to Authority and LIPA
Sub, if (i) there exist material breaches of the representations and warranties
of Authority and LIPA Sub made herein as of the date hereof which breaches,
individually or in the aggregate, would or would be reasonably likely to result
in a Material Adverse Effect, and such breaches shall not have been remedied
within 20 days after receipt by Authority of notice in writing from Parent,
specifying the nature of such breaches and requesting that they be remedied,
(ii) Authority shall have failed to perform and comply with, in all material
respects, its agreements and covenants hereunder or under any other Basic
Agreements, and such failure to perform or comply shall not have been remedied
within 20 days after receipt by Authority or LIPA Sub of notice in writing from
Parent, specifying the nature of
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such failure and requesting that it be remedied, or (iii) the Board of Trustees
of Authority or any committee thereof (A) shall withdraw or modify in any manner
adverse to Parent or Company its approval or recommendation of this Agreement or
any of the other Basic Agreements, (B) shall fail to reaffirm such approval or
recommendation upon Parent's or Company's request, or (C) shall resolve to take
any of the actions specified in clause (A) or (B); or
(f) by either Parent and Company, on the one hand, or Authority
and LIPA Sub, on the other hand, by written notice to the other party, if any of
the conditions of either party's obligation to effect the transactions cannot be
satisfied.
Section 9.2 Effect of Termination. In the event of the
termination of this Agreement, the provisions in this Section 9.2, in Sections
7.7, 7.9 and Article X (and Section 11.7 to the extent it is applicable to such
Sections and Article) shall survive the termination and no party shall be
relieved of any liability for any breach of this Agreement.
Section 9.3 Survival. All of the covenants in the Schedules
attached hereto shall survive the Effective Time. All representations and
warranties in this Agreement shall not survive the Effective Time, except as
otherwise provided in this Agreement.
Section 9.4 Amendment. This Agreement may be amended at any time
by the parties hereto, but only by an instrument in writing signed by each of
the parties hereto; provided, however, that Authority and LIPA Sub shall not
unreasonably withhold their consent to any amendment proposed by Company with
respect to Sections 2.1(b) and (c).
Section 9.5 Extension; Waiver. At any time prior to the Closing,
the parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the parties hereto, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or, to the
extent permitted by applicable law, conditions contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed by such party.
ARTICLE X
STANDSTILL
Section 10.1 Standstill. In the event Authority terminates this
Agreement, Authority and its affiliates will not (and will not assist or
encourage others to), directly or indirectly, without the prior consent of
Parent and Company, prior to the date that is six months after the date of
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termination, if any, of this Agreement by Authority pursuant to Section 9.1:
(a) acquire or agree, offer, seek or propose to acquire, or cause
to be acquired, ownership (including, but not limited to, beneficial ownership
as defined in Rule 13d-3 under the Exchange Act of any of Company's (or any
successor's) assets or businesses or any securities issued by Company (or any
successor) or any rights or options to acquire such ownership, including from a
third party;
(b) condemn or agree, offer, seek or propose to condemn, or cause
to be condemned, any of Company's (or any successor's) assets or businesses or
any securities issued by Company (or any successor);
(c) make, or in any way participate, in any solicitation of
proxies or consents with respect to any securities of Parent or Company which
are, or may be, entitled to vote in the election of Parent's or Company's
directors, as the case may be ("Voting Securities"), become a "participant" in
any "election contest" (as such terms are defined or used in Rule 14a-11 under
the Exchange Act) with respect to Parent or Company; or seek to advise,
encourage or influence any person or entity with respect to the voting of any of
Parent's or Company's Voting Securities; or demand a copy of Parent's or
Company's stock ledger, list of Parent's or Company's shareholders or other
books and records; or call or attempt to call any meeting of the shareholders of
Parent or Company; or
(d) enter into any discussions, negotiations, arrangements or
understandings with any third party or agency with respect to any of the matters
described in clause (a), (b) or (c) of this Section 10.1.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Certain Definitions. For all purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(a) "affiliate" or "associate" of any specified person means any
other person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any specified person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing;
(b) "business day" means any day (other than a Saturday or a
Sunday) on which banking institutions in New York
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City, New York are not authorized or obligated by law or executive order to
close; and
(c) "person" means any individual, corporation, firms, companies,
trusts, business trusts, legal entities general partnership, limited
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
Section 11.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon receipt if
delivered personally or mailed by registered or certified mail (return receipt
requested) or overnight delivery service to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Authority or LIPA Sub, to:
Long Island Power Authority
333 Earle Ovington Boulevard
Suite 403
Uniondale, New York 11553
Telephone: (516) 222-7700
Attention: Executive Director
with a copy to:
Richard Kessel
Chairman of the Board
Long Island Power Authority
333 Earle Ovington Blvd., Suite 403
Uniondale, New York 11553
Patrick Foye
Deputy Chairman of the Board
Long Island Power Authority
333 Earle Ovington Blvd., Suite 403
Uniondale, New York 11553
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Telephone: (212) 858-1000
Attention: Stephen R. Rusmisel
(b) if to Parent or Company, to:
Long Island Lighting Company
175 East Old County Road
Hicksville, New York 11801
Telephone: (516) 545-4800
Attention: Chief Executive Officer
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with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telephone: (212) 715-9100
Attention: Thomas E. Constance
Section 11.3 Descriptive Headings. The descriptive headings
herein are inserted for convenience only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 11.4 Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement.
Section 11.5 Entire Agreement; Assignment. This Agreement,
including the annexes and exhibits hereto and the documents, schedules
(including, without limitation, the Disclosure Schedule), certificates and
instruments referred to herein constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof. This Agreement shall not be
assigned by operation of law or otherwise.
Section 11.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York, without regard
to any applicable principles of conflicts of law. Except as otherwise provided
in Section 11.10, any action arising out of or relating to this Agreement shall
be brought in New York State Court or Federal District Court.
Section 11.7 Specific Performance. The parties hereto agree that
if any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
Section 11.8 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person or persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 11.9 Severability. This Agreement shall be deemed
severable; the invalidity or unenforceability of any term or provision of this
Agreement shall not affect the validity or enforceability of this Agreement or
of any other term hereof, which shall remain in full force and effect.
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Section 11.10 Alternative Dispute Resolution.
(a) Any dispute arising out of or relating to any covenant
contained in any Schedule to this Agreement shall be resolved in accordance with
the procedures specified in this Section 11.10, which shall constitute the sole
and exclusive procedures for the resolution of such disputes, except to the
extent any such Schedule expressly provides another dispute resolution process.
(b) The parties agree to use their best efforts to settle
promptly any disputes or claims arising out of or relating to this Agreement
through negotiation conducted in good faith between executives having authority
to reach such a settlement. If either party hereto shall so request, the parties
shall mutually agree on the selection of a mediator who shall mediate the
negotiations, which shall be non-binding.
All negotiations and mediation discussions pursuant to this
paragraph are confidential and shall be treated as compromise and settlement
negotiations for purposes of Federal Rule of Evidence 408 and applicable state
rules of evidence.
(c) Any dispute arising out of relating to any Schedule to this
Agreement or the breach, termination, or validity thereof, which dispute has not
been resolved by a negotiation or mediation as provided in paragraph (b) hereof
within 60 days from the date that either negotiations or mediation shall have
been first requested, shall be settled by binding arbitration before three
independent and impartial arbitrators in accordance with the then current rules
of the American Arbitration Association, except to the extent such rules are
inconsistent with any provision of this Agreement, in which case the provisions
of this Agreement shall be followed, and except that the arbitrations under this
Agreement shall not be administered by the American Arbitration Association. The
Arbitrators shall be (i) independent of the parties and disinterested in the
outcome of the dispute, (ii) attorneys, accountants, investment bankers,
commercial bankers or engineers familiar with contracts governing the operation
of electric utility assets, and (iii) qualified in the subject area of the issue
in dispute. For purposes of the preceding sentence, residents of Long Island
shall not be considered interested merely by virtue of their residence. The
Arbitrators shall be chosen by the parties, with each party choosing one
arbitrator and those arbitrators choosing the third arbitrator. Judgment on the
award rendered by the Arbitrators may be entered in any court in the State of
New York having jurisdiction thereof. If either party refuses to participate in
good faith in the negotiations or mediation proceedings described in paragraph
(b) hereof, the other may initiate arbitration at any time after such refusal
without waiting for the expiration of the 60 day period. Except as provided in
Paragraph (d) hereof relating to provisional remedies, the Arbitrators shall
decide all aspects of any dispute
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brought to them including attorney disqualification and the timeliness of the
making of any claim.
(d) Either party may, without prejudice to any negotiation,
mediation, or arbitration procedures, proceed in any court of competent
jurisdiction to seek provisional judicial relief if, in such party's sole
discretion, such action is necessary to avoid imminent irreparable harm or to
preserve the status quo pending the conclusion of the dispute procedures
specified in this Section 11.10.
(e) The Arbitrators shall have no authority to award punitive
damages or any other damages aside from the prevailing party's actual and
consequential damages, plus interest thereon at the Base Interest Rate (as
defined in the Management Services Agreement) accrued from the date such damages
were incurred. The Arbitrators shall not have the authority to make any ruling,
finding, or award that does not conform to the terms and conditions of this
Agreement.
(f) The Arbitrators may award reasonable attorneys' fees and
costs of the arbitration.
(g) Any claim under any Schedule to this Agreement shall be
time-barred, regardless of any statute of limitations periods provided by state
or federal law, unless negotiation or mediation with respect thereto is
commenced with respect to such claim within twelve months after the basis for
such claim has been discovered.
(h) The Arbitrators shall have the discretion to order a
pre-hearing exchange of information by the parties, including, without
limitation, the production of requested documents, the exchange of summaries of
testimony of proposed witnesses, and the examination by deposition of parties.
Each of the parties agrees to produce all such requested documents and to
deliver to the other a certificate, executed by a senior executive of such
party, stating that all such documents have been so produced.
(i) The site of any arbitration proceeding brought pursuant to
this Agreement shall be Mineola or Hauppauge, New York.
(j) The Arbitrators' award shall be in writing and shall set
forth the factual and legal bases for the award.
-46-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
LONG ISLAND LIGHTING COMPANY
By:
--------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
LONG ISLAND POWER AUTHORITY
By:
--------------------------------
Name: Richard M. Kessel
Title: Chairman
By:
--------------------------------
Name: Patrick Foye
Title: Deputy Chairman
LIPA ACQUISITION CORP.
By:
--------------------------------
Name:
Title:
As contemplated by Section 1.4 hereof, the undersigned has
executed and delivered this Agreement as Parent:
BL HOLDING CORP.
By:
-------------------------------
Name:
Title:
-47-
<PAGE>
SCHEDULE A
TRANSFERRED ASSETS
This Schedule A describes the Transferred Assets and is subject to
modification by the parties after the date hereof pursuant to Schedule B to the
extent provided below or as may otherwise be agreed to by the parties. More
complete legal descriptions of the Transferred Assets will be prepared in
accordance with Schedule B.
1. All assets reflected under the columns "Genco" and "Gas" on the Pro Forma
Balance Sheet attached as Exhibit A-1 shall be Transferred Assets (subject,
however, to any reallocation pursuant to Section B.4 of the Principles of
Schedule B) and any similar assets owned by Company on the Closing Date.
2. All common plant.
3. All materials, inventory and supplies held by Company or to be delivered to
Company prior to the Closing Date and all related rights, agreements and
purchase orders, whether or not any thereof is held for use only in connection
with the Retained Assets.
4. All motor vehicles owned or purchased by Company and all interest of Company
in any leased motor vehicles except those, including "bucket trucks", used
primarily in the transmission and distribution system ("T&D System").
5. All of the real estate parcels designated as Transferred Assets pursuant to
Schedule B.
6. All rights of Company in or pursuant to (i) current agreements with MCI and
Omnipoint previously disclosed to Authority and (ii) similar agreements entered
into prior to the Closing Date with the consent of Authority (which consent will
not be unreasonably withheld or withheld on a discriminatory basis), subject to
the rights of Authority under Schedule F.
7. All rights of Company in respect of its software development project
identified as the Customer Business System and the related joint venture with
James Martin subject to the rights of Authority under Schedule F.
8. All equipment, including, without limitation, all office equipment, other
than (i) fixtures identified pursuant to Schedule B as Retained Assets and (ii)
equipment included in the Pro Forma Balance Sheet under the column "Lilco" and
similar equipment owned by Company on the Closing Date.
9. Notwithstanding anything in Schedule B to the contrary, Company's existing
J.W. Dye Training Center and associated
<PAGE>
parking lots at Hoffman Boulevard, Hauppauge, and the underlying Parcel shall be
a Transferred Asset.
10. All patents, copyrights, trademarks, service marks, trade secrets,
proprietary information, manuals and other intellectual property owned by
Company and all rights of Company in any intellectual property licensed from
other persons or entities, other than (i) customer data and (ii) any such
intellectual property that relates primarily to the T&D System of Company at the
Closing Date.
11. All franchises, permits and other governmental authorizations applicable
solely to Company's gas business and generating assets and any rights to joint
franchises granted pursuant to Schedule B.
12. All rights of Company in causes of action, suits and other legal or
administrative proceedings that are pending at the Closing Date and all claims
and counterclaims, whether or not asserted, accrued or contingent, at the
Closing Date, in each case relating primarily to any Transferred Asset (subject,
however, to Section 7.8 of the Merger Agreement). The parties acknowledge and
agree that all right, title and interest of the Company in the Shoreham property
tax case and the Shoreham Pilots case shall be a Retained Asset.
13. All rights of Company in NOx and SOx emission credits subject to the
applicable provisions of Schedule F.
14. All tax benefits associated with or derived from the payment by Company
prior to the Closing Date of any accrued liability.
15. Applicable FERC accounting principles will be considered in evaluating the
proper classification of any asset not specifically addressed in the Pro Forma
Balance Sheet or this Schedule A.
- 2 -
<PAGE>
Schedule B
Principles and Procedures for
Finalizing the Transferred Asset Schedule
A. Procedures
1. Each of Company and Authority will promptly designate the representatives
to form a task force (the "Task Force") to review and finalize the
descriptions of Transferred Assets in order to provide for legal
descriptions of such Assets. The parties agree to use, and to instruct
their representatives to use, their best efforts to provide full legal
descriptions (as hereinafter defined) of the Transferred Assets for
inclusion as an appendix to this Agreement by December 31, 1997.
2. If the Task Force is unable at any time to agree upon the full legal
description or the best feasible legal description (as hereinafter defined)
of any Transferred Asset, certain executives of Company and Authority
designated from time to time by the parties (the "Executives") shall meet
to discuss and resolve any disagreements.
3. If the Executives are unable to agree within 14 days of the referral to
them of any such dispute (or such other period of time as the parties may
agree), and the parties are unable to agree upon an appropriate mediation
procedure with respect to such dispute, any such disagreement shall be
finally settled by arbitration. The arbitration shall be conducted in
accordance with the American Arbitration Association's commercial
arbitration rules in effect at the time of arbitration, except as modified
herein or by mutual agreement of the parties. The seat of the arbitration
shall be Mineola or Hauppauge, New York, provided that the arbitrators may
hold hearings in such other locations as the arbitrators determine to be
most convenient and efficient for all the parties under the circumstances.
Notwithstanding anything to the contrary in Section 11.6, the arbitration
shall be governed by the Federal Arbitration Act. The arbitration shall be
conducted by an arbitration panel consisting of three independent
individuals with relevant professional experience in commercial or real
estate law or engineering and shall be designated by the parties by
September 30, 1997 or, if no such designation shall be made, by the
American Arbitration Association. Any award rendered by the arbitrators
shall be in writing and shall be final and binding upon the parties, and
may include an award of costs, including reasonable attorneys' fees and
disbursements. Judgment upon the award rendered may be
<PAGE>
entered in any court having jurisdiction thereof or having jurisdiction
over the parties or their assets. The parties shall mutually instruct the
arbitrators to limit the time and scope of discovery to the greatest extent
practicable and request the arbitrators to provide a decision as rapidly as
practicable, in each case consistent with the interests of justice, it
being the intention of the parties that any arbitration under this Section
3 be commenced, conducted and completed, and a decision rendered, as
rapidly as practicable.
4. Each determination made by the Task Force, the Executives or the
arbitrators shall be documented as an appendix to this Agreement and may
take the form of an amendment and restatement of the applicable Schedule or
any Annex thereto.
5. Each of Company and Authority may at any time upon 10 days' prior written
notice to the other designate one or more persons to act as representatives
on the Task Force as additions to or replacements of any person previously
designated by such party. Each such party may also by similar notice
designate a replacement Executive for such party.
B. Principles
1. For purposes of this Schedule B, "full legal description" means, with
respect to any Transferred Asset, a description and customary related
conveyancing documentation of the kind ordinarily used to describe property
of the same type and to document its transfer. The parties acknowledge and
agree that it may not be possible to provide full legal descriptions of all
Transferred Assets due to factors not within the control of any party and
that for any such Transferred Asset the Task Force is directed to produce
the best feasible legal description consistent with the requirements of the
parties' respective operations after the Closing and applying prudent
business judgment (the "best feasible legal description").
2. In evaluating the requirements of the parties, the Task Force shall be duly
mindful of any requirements imposed on Authority by reason of the
tax-exempt financing required in order to fund the Cash Purchase Price.
With respect to Parent, the parties acknowledge and agree that Parent shall
bear the risk of any deficiency in the legal description of a Transferred
Asset attributable to the state of Company's records and recordkeeping
practices prior to Closing.
3. For each parcel of real property owned in fee by Company ("parcel") at
which only the gas or generating business of Company is currently conducted
and each Common parcel, the form and content of the legal descriptions
thereof and
B-2
<PAGE>
conveyancing documentation with respect thereto shall be determined by the
Company representatives on the Task Force, subject to the second sentence
of Section 2, consistent with the documentation by which title was acquired
and local custom with respect to documenting transfers of property, and to
the consent of the Authority representatives on the Task Force (which
consent will not be unreasonably withheld). As used herein, with respect to
real property and fixtures on such real property only "Common" shall mean
any parcel at which the gas and generating business of Company are
currently conducted in common and any other parcel (including, without
limitation, any vacant or future use property (except future use property
held primarily for the T&D System) and property leased by Company to or
from any third party) other than any parcel at which the transmission and
distribution ("T&D") business of Company is currently conducted.
4. For each parcel at which (a) the gas, generating or Common business of
Company and (b) the T&D business of Company is currently conducted, the
identification of Transferred Assets shall be made in accordance with the
following principles:
a. Fixtures and Structures. The parties will refer to an electrical
one-line diagram which represents the typical interconnection between
(i) the T&D system (the "T&D System") constituting a portion of the
Retained Assets and (ii) the gas, generating or Common facilities
constituting a portion of the Transferred Assets. The division between
(x) the T&D System and (y) the gas, generating or Common assets will
be determined by applying to each parcel the principles reflected on
such diagram.
b. Parcels. The legal description of the Transferred Assets in certain
parcels will be determined by reference to the applicable plot plans
and parcel maps for such parcels and the division between the T&D
System and the gas, generating or Common assets set forth on such plot
plans. If as of the Closing Date and as set forth in the applicable
parcel maps any parcel has been improved with any Retained Asset
fixtures that occupy less than 50% of such parcel, then such parcel
will be presumed to be a Transferred Asset and Authority will receive
a perpetual easement to use such parcel for its operations. If as of
the Closing Date and as set forth in the applicable parcel maps any
parcel has been improved with any Retained Asset fixtures that occupy
50% or more of such parcel, then such parcel will be presumed to be a
Retained Asset and Company will receive a perpetual easement to use
such parcel for its operations. Notwithstanding the preceding two
sentences, a parcel that would, pursuant
B-3
<PAGE>
to such sentences, be (i) classified as a Transferred Asset shall
nonetheless be classified as a Retained Asset if an independent
professional engineer would reasonably conclude that the parcel,
taken as a whole, is significantly more in the nature
functionally of a T&D asset than a gas, generating or common
asset or (ii) classified as a Retained Asset shall nonetheless be
classified as a Transferred Asset if such engineer would
reasonably conclude that such parcel, taken as a whole, is not
significantly more in the nature functionally of a T&D asset than
a gas, generating or common asset. At Authority's or Company's
request, the parties will evaluate in good faith the
practicability of subdividing a parcel subject to this Section
B.4 and, if the parties conclude that subdivision is practicable,
will negotiate in good faith the terms and conditions of any such
subdivision.
c. The parties will negotiate in good faith to provide a reasonable
reallocation of amounts reflected in the Pro Forma Balance Sheet
to reflect any variance between the results obtained by the
application of this Schedule B and the corresponding amounts
reflected in the Pro Forma Balance Sheet.
d. Each fixture functionally related to the gas, generating or
Common business of Company shall be a Transferred Asset. Each
fixture functionally related to the T&D business of Company shall
be a Retained Asset.
e. Company shall have the right to attach equipment, including
telecommunications equipment, to the T&D System at applicable or
negotiated rates on a non-discriminatory basis and obtain all
necessary access or leasehold rights related thereto on a
non-discriminatory basis.
f. All legal and technical documentation primarily associated with a
Transferred Asset (such as purchase orders, title documentation,
manufacturers' and distributors' warranties, governmental
registrations, insurance policies, maintenance records, etc.)
shall be Transferred Assets.
5. Any easement that is primarily for the installation and maintenance of the
T&D System will be a Retained Asset, and Authority will provide Company
with access rights for the installation and maintenance of any Transferred
Asset situated on such easement. Any easement that is not primarily for the
installation and maintenance of the T&D system will be a Transferred Asset,
and Company will provide Authority with access rights for the installation
and maintenance of any Retained Asset situated on such easement.
B-4
<PAGE>
The parties will negotiate in good faith adjustments to the principles set
forth in this Section B.5 to the extent necessary or advisable to reduce
costs and enhance operational efficiency.
6. For each parcel referred to in Section 4 for which no plot plan has been
provided, the parties will negotiate in good faith to provide reasonable
rights of access from public roads, services and facilities to the
separated facilities of Company or Parent, as the case may be, at no
additional cost.
7. Company shall establish such recordkeeping practices as shall be necessary
to properly designate each asset it purchases or otherwise acquires after
the date hereof as a Transferred Asset or a Retained Asset in accordance
with applicable Task Force, Executive and arbitration decisions made in
accordance herewith.
8. All motor vehicles owned or purchased by Company and all interest of
Company in any leased motor vehicles, including "bucket trucks", used
primarily in the T&D business shall be Retained Assets.
9. Applicable FERC accounting principles will be considered in evaluating the
proper classification of any asset.
B-5
<PAGE>
SCHEDULE C
TRANSITION WORK
As required by Section 1.7 of this Agreement, promptly
following the Contract Date, the parties shall take the respective actions set
forth in this Schedule in good faith and as soon as practicable, and in any
event, no later than the date specified (if appropriate) unless mutually agreed
otherwise:
1. Parent and Company Responsibilities. Parent and Company, as
appropriate, shall undertake and complete the following responsibilities:
(a) Site Access. Upon reasonable notice by Authority, Parent
and Company shall permit Authority, its representatives, consultants, designees
and agents to have access at Authority discretion, subject to compliance with
safety and operational procedures, to the T&D System, the Common Facilities
necessary for the operation and maintenance of the T&D System, and the GENCO
Generating Facilities in order to (1) perform engineering analysis and such
additional studies or tests as deemed necessary by Authority, and (2) perform
all necessary onsite activities in order to satisfy Authority's pre-Closing
responsibilities under the Acquisition Agreement and the other Basic Agreements.
Parent and Company shall, upon reasonable notice by Authority, grant Authority
access to the Shoreham site for investigations, analyses and studies in
connection with the possible development of generating facilities and an
undersound transmission cable.
(b) T&D System Information. Parent and the Company shall
cooperate with Authority, its representatives, consultants, designees and agents
to provide information reasonably necessary, including, without limitation,
information in electronic form, if available, to assess T&D System operation,
characteristics and limitations, reliability, generation operation and cost
impacts associated with changes in generation plant, load growth, and
transmission facility improvements, additions and interconnections. Such
information shall include, but not be limited to, information which is filed by
Parent or Company with the New York Power Pool.
(c) Capital Assets Inventory and Depreciation Analysis. Parent
and Company shall undertake and complete, within 90 days after the Closing Date,
a capital assets inventory of the T&D System in accordance with the Management
Services Agreement and a depreciation analysis of the Generating Facilities in
accordance with the Power Supply Agreement.
(d) Legal Entitlements. Parent and Company shall obtain and
maintain all legal entitlements necessary for their consummation of the
transactions for which they, or a Transferee Subsidiary, are responsible as
contemplated under the Basic Agreements.
(e) Reliability of New Undersound Transmission Cable. Parent
and Company, working with Authority, shall cooperate in the performance by
others of or, at the Authority's
<PAGE>
request, conduct a study and evaluation of the impact on T&D System reliability
of the installation and operation of a new nominal 600 MW direct current
transmission cable between Long Island and Connecticut. Such study shall be
undertaken in accordance with good engineering practices and shall be completed
no later than the earlier of March 1, 1998 and 180 days prior to the anticipated
Closing Date. Authority, its representatives, consultants and agents shall have
access to work papers, supporting models in electronic form, assumptions and
analyses supporting the results of such study and evaluation. Parent and Company
shall also cooperate in the performance by others of and undertake such other
reliability studies as Authority may reasonably request.
(f) Acquisition of Necessary Non-Electric Utilities. Parent
and Company shall arrange for the acquisition and/or maintenance of all
Non-Electric Utilities necessary to perform their obligations under the Basic
Agreements.
(g) O&M Manuals. Parent and Company shall provide the
Authority access to six copies of the existing T&D System Operation and
Maintenance Manuals on the day after the Contract Date and shall modify, as
necessary, such manuals to reflect the terms and conditions of the Management
Services Agreement and any other changes in circumstances. Parent and Company
shall provide six copies of the fully updated Operation and Maintenance Manuals
to the Authority no later than 60 days prior to the anticipated Closing Date.
(h) Insurance. Parent and Company, working with the Authority,
shall develop an insurance policy program as required under the Basic Agreements
prior to the adoption of the initial Budgets. Parent and Company or the
applicable Transferee Subsidiary shall submit to Authority certificates or
evidence of insurance for all required insurance specified in the Basic
Agreements no later than 60 days prior to the anticipated Closing Date.
(i) Representatives. Parent and Company shall appoint a
qualified T&D System Supervisor and Senior Executive, as required under the
Management Services Agreement, a qualified Energy Manager Representative, as
required under the Energy Management Agreement and a Representative as required
under the Power Supply Agreement, within 30 days after the date of the execution
of the Agreement and Plan of Merger (the "Contract Date"), subject in each case
to Authority approval.
(j) Financing Cooperation. Parent and Company shall cooperate
with and assist the Authority in effecting the issuance of tax-exempt bonds for
purposes of financing all or a portion of the Cash Purchase Price and
refinancing all or a portion of the Retained Debt, including timely providing
such information as requested by the Authority in connection with the offering
of such bonds and shall certify that such information is true and accurate.
(k) Rate Assistance. Parent and Company shall render requested
assistance to the Authority in establishing its retail rates and wholesale
rates.
- 2 -
<PAGE>
(l) Preparation of Budgets; Revenue Requirements and Proposed
Rate Design. Parent and Company, working with Authority, shall prepare a
proposed Annual T&D Budget, Five Year Planning Budget and Major Capital Plan and
Budget for the T&D System as required in Article V and VI of the Management
Services Agreement and a proposed Five Year Budget Plan as required in Article
IX of the Power Supply Agreement, all no later than six months prior to the
anticipated Closing Date or at such other times as Authority may reasonably
determine. Such budgets shall be prepared, along with the estimated debt service
and reserve requirements provided by Authority in a manner which results in a
projection of total T&D System revenue requirements for the Authority.
(m) Development of Reporting and Cost Tracking Systems. Parent
and Company, working with Authority shall develop, and present to Authority no
later than 45 days after the Contract Date, a protocol for tracking costs
incurred which will be chargeable to the Authority or LIPA Subsidiary and
reporting such information to Authority and LIPA Subsidiary. Such protocol shall
be subject to the review and approval of Authority.
(n) Mutual Assistance. Parent and Company, working with the
Authority, shall develop and present to Authority for its review and approval,
mutual assistance policies in connection with its gas and generator personnel
and assets, for use with respect to the T&D System and shall cause the
Transferee Subsidiaries to enter into mutual assistance agreements in form and
substance reasonably satisfactory to Authority.
(o) Development of Cost Allocation Methodology. Parent and
Company, working with the Authority, shall develop and present to Authority no
later than 45 days after the Contract Date, a proposed methodology to be used to
allocate costs between the T&D System, GENCO Generating Facilities as defined in
the Power Supply Agreement, the Common Facilities, and Parent's gas system and
costs under the Energy Management Agreement, including, without limitation, the
concepts set forth in Appendix 11 of the Management Services Agreement. Such
methodology shall be subject to the review and approval of Authority.
(p) Workforce Training on Reporting and Timekeeping. Parent
and Company shall provide training to the T&D System workforce and their
administrative staffs so that they are thoroughly familiar with and will be able
to timely comply with the reporting, timekeeping and other recordkeeping
requirements of the Basic Agreements during the terms thereof.
(q) Customer Payments Allocation Methodology. Parent and
Company, working with the Authority, shall develop and present to Authority a
proposed methodology for allocating billing payments received between the gas
customers of Parent and Company, or a Transferee Subsidiary, and the electric
customers of Authority no later than six months before the anticipated Closing
Date. Such methodology shall be subject to the review and approval of Authority.
- 3 -
<PAGE>
(r) Common Facilities. Parent and Company shall allocate and
make ready for the functional use by Authority such offices, work space, and
other areas of the Common Facilities as required to be made available to
Authority under Section 3.1(F) of the Management Services Agreement.
(s) Preparation of Signage with Authority Name/Use of Manager
Name. Parent and Company shall prepare a format, for Authority review and
approval, for the placement of Authority's name as owner on all vehicles,
equipment and other property that will be owned by Authority and used by the
Manager after the Closing. The size and placement of such identifying
information shall be subject to Authority approval. Parent and Company
acknowledge and consent that some property owned by Parent or Company as of the
Contract Date that will be owned by the Authority following the Closing will
retain the name of Parent or Company for a period of time following the Closing
as part of the transition to Authority ownership.
(t) FERC Wholesale Rates. Parent and Company, working with
Authority, shall seek approval from FERC as necessary to effect the transactions
contemplated hereby and establish and obtain FERC approval of wholesale rates in
connection with Authority's purchase of power from the GENCO Generation
Facilities in accordance with the Power Supply Agreement.
(u) Load Forecast and Resource Plan. Manager, working with
Authority, shall prepare a 10 and 15 year load forecast for annual peak demand
and annual energy requirements with and without consideration of energy
efficiency and load control programs. Manager shall also prepare a power
resource supply plan to meet forecasted customer load and energy requirements
based upon a periodic competitive solicitation process for incremental power
supply. The load forecast and resource plan will be subject to Authority
approval.
(v) Applicable Law Compliance. Parent and Company shall comply
with all requirements of applicable law pertaining to the activities undertaken
prior to the Closing.
(w) Parent and Company and Transferee Subsidiary Law
Compliance. Parent and Company and the Transferee Subsidiaries shall be in
substantial compliance with all laws, regulations, rules and orders applicable
to their businesses, non-compliance with which would have material effect upon
their businesses or their ability to perform their respective obligations under
the Basic Agreements.
(x) Delivery of Guaranty. Parent shall execute and deliver the
Guaranty Agreement in substantially the form attached as Appendix 15 to the
Management Services Agreement.
(y) Support Authority Activities. Parent and Company shall
cooperate with and assist Authority in completing its pre-Closing
responsibilities under the Acquisition Agreement.
- 4 -
<PAGE>
2. Authority Responsibilities. Authority shall undertake and complete
the following responsibilities:
(a) Legal Entitlements. Authority shall obtain and maintain
all legal entitlements necessary for the consummation of the transactions for
which it is responsible as contemplated under the Basic Agreements.
(b) Review and Adoption of Budgets, Revenue Requirements and
Rate Design. Authority shall review the budgets proposed by Parent and Company
and shall approve the budgets required under the Management Services Agreement
and the Power Supply Agreement prior to the Closing Date. Authority shall
determine the revenue requirements for the T&D System and design and establish
customer rates for use of the T&D System.
(c) Rate Adoption. Authority shall adopt retail electric rates
for the T&D System prior to the Closing Date.
(d) Authority Workforce Hiring and Training. Authority shall
hire and train employees to carry out such functions as Authority deems
necessary in connection with the transactions contemplated by the Basic
Agreements.
(e) Design Format for Manager Reporting Requirements.
Authority shall develop, subject to Parent's review and comment, standard
formats for information required to be reported by Parent to Authority.
(f) Design Format for Ratepayer Bills. Authority shall
develop, subject to Parent's review and comment and its information system
capabilities, the formats for bills rendered to customers of the T&D System.
(g) Adoption of System Policies and Procedures. Authority
shall adopt such policies and procedures concerning the operation, maintenance,
use and availability of the T&D System as it deems appropriate in its sole
discretion. The initial policies and procedures shall be established no later
than thirty days prior to the date on which Parent or Company must submit its
proposed initial Annual T&D Budget.
(h) Complaints. Authority shall adopt requirements concerning
the types of customer complaints that Manager is required to provide notice of
to Authority, as well as what information is required to be reported as provided
in Section 4.10 of the Management Services Agreement.
(i) Applicable Law Compliance. Authority shall comply with all
provisions of applicable law pertaining to the activities undertaken prior to
the Closing.
- 5 -
<PAGE>
(j) Support Parent and Company Activities. Authority shall
cooperate with and assist Parent and Company in completing their pre-Closing
responsibilities under the Acquisition Agreement.
(k) Prepare Initial Budget. Authority shall prepare and submit
to Parent or Company, for use in preparing the Annual T&D Budget, its annual
operating and capital budget.
3. Schedule. The parties will consult and agree from time to time as to
the schedule for accomplishing all pre-Closing activities, including
establishing and updating the anticipated Closing Date.
4. Mutual Responsibilities. Prior to the adoption of the applicable
initial budgets, or as otherwise provided in the applicable Basic Agreement,
Parent and Company and Authority shall mutually agree on the following:
(a) Appraisal Methodology. The parties shall establish the
appraisal methodology for Authority's option to lease or purchase certain
parcels of any of GENCO's existing Generating Facility Sites contemplated in
Section 4.2 of the Power Supply Agreement in accordance therewith.
(b) Customer Service Offices. The parties shall establish the
minimum requirements to be provided by the T&D System Manager at its customer
service offices, as required under Section 4.9(E) of the Management Services
Agreement.
(c) Location of T&D System Books and Records. The parties
shall establish the location or locations within the Service Area where Manager
shall keep its books and records concerning the T&D System, as contemplated
under Section 4.15(F) of the Management Services Agreement.
(d) T&D System Description. The parties shall further specify
the detailed description of the T&D System as contemplated in Appendix 2 to the
Management Services Agreement. Parent and Company shall timely provide all
documents and other information necessary for Authority's due diligence in
connection therewith.
(e) Construction Standards and Procurement Requirements. The
parties shall establish additional construction standards and procurement
requirements in connection with the performance of Construction Work as
contemplated in Appendix 8 to the Management Services Agreement.
(f) Operations Information and Format. The parties shall
determine the additional types and format of operations information required to
be provided by the Manager with the Annual Settlement Statement as contemplated
in Appendix 9 of the Management Services Agreement.
- 6 -
<PAGE>
(g) Pre-Closing Joint Solicitations. The parties will
cooperate with each other during the last full year prior to the anticipated
Closing Date or such earlier date as may be agreed upon by the parties to
prepare joint solicitations for power purchase, supply or transmission
agreements.
5. Reporting Requirements. The parties shall each provide the other
with monthly reports regarding the undertaking, completion and satisfaction of
the pre-Closing responsibilities set forth in the Acquisition Agreement. In
addition, on the first day of each month, Parent and Company shall provide to
the Authority an itemized list of all such work expected to be undertaken in the
following two months. Written documents or instruments constituting or
evidencing satisfaction of the conditions to the Closing shall be furnished to
each party prior to or on the Closing Date.
6. Defined Terms. Unless otherwise specified, all capitalized terms set
forth in this Schedule C and not otherwise defined herein or in the Acquisition
Agreement shall have the respective meanings specified in the Management
Services Agreement.
- 7 -
<PAGE>
Schedule D
Tax Matters
1. "Taxes", as used in this Agreement, means any federal, state,
county, local or foreign taxes, charges, fees, levies, or other assessments,
including all net income, gross income, gross earnings, gross receipt, sales and
use, ad valorem, transfer, gains, profits, excise, franchise, real and personal
property, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties (civil or criminal) on or additions to any such
taxes. "Tax Return", as used in this Agreement, means a report, return or other
information required to be supplied to a governmental entity with respect to
Taxes including, where permitted or required, combined or consolidated returns
for any group of entities that includes Parent, Company or any of the Company
Subsidiaries, or Parent, Company or any of the Company Subsidiaries, as the case
may be.
2. Except as set forth on the Tax Matters Disclosure Schedule annexed
to this Schedule D:
(a) Filing of Timely Tax Returns. Parent, Company and each of the
Company Subsidiaries have filed (or there has been filed on its
behalf) and will file all material Tax Returns required to be filed by
each of them under applicable law. All such Tax Returns were, are and
will be in all material respects true, complete and correct and filed
on a timely basis.
(b) Payment of Taxes. Parent, Company and each of the Company
Subsidiaries have, within the time and in the manner prescribed by
law, paid and will pay all Taxes that are currently due and payable
except for those contested in good faith for which adequate reserves
have been established.
(c) Tax Reserves. Parent, Company and the Company Subsidiaries
have established on their books (i) in accordance with GAAP, reserves,
charges and accruals ("Tax Reserves") adequate to pay all Taxes due,
or accrued but not yet due, relating to the income, properties or
operations of Parent, Company and the Company Subsidiaries and (ii)
reserves for deferred income taxes.
(d) Tax Liens. There are no Tax liens upon the assets of Parent,
Company or any of the Company Subsidiaries except liens for Taxes not
yet due.
(e) Withholding Taxes. Parent, Company and each of the Company
Subsidiaries have complied with the provisions of the Internal Revenue
Code of 1986, as amended (the
<PAGE>
"Code") relating to the withholding of Taxes, as well as similar
provisions under any other federal, state and local laws, and have,
within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities
all amounts so withheld.
(f) Extensions of Time for Filing Tax Returns. Neither Parent,
Company nor any of the Company Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither Parent, Company
nor any of the Company Subsidiaries has executed any outstanding
waivers or comparable consents regarding the application of the
statute of limitations with respect to the assessment or collection of
any Taxes or Tax Returns, and neither Parent, Company nor any Company
Subsidiary has been requested to enter into any such waiver or
consent.
(h) Expiration of Statute of Limitations. The statute of
limitations for the assessment of all Taxes has expired for all
applicable Tax Returns of Parent, Company and each of the Company
Subsidiaries or those Tax Returns have been examined by the
appropriate taxing authorities for all periods through the date
hereof, and no deficiency for any Taxes has been proposed, asserted or
assessed against Parent, Company or any of the Company Subsidiaries
that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. No audits or
other administrative proceedings or court proceedings are presently
pending which could result in material liability for any Taxes to
Parent, Company or any of the Company Subsidiaries or any affiliated
group filing consolidated returns in which Parent, Company or any
Company Subsidiary joined.
(j) Powers of Attorney. No power of attorney currently in force
has been granted by Parent, Company or any of the Company Subsidiaries
concerning any Tax matter.
(k) Tax Rulings. Neither Parent, Company nor any of the Company
Subsidiaries has received a Tax Ruling or entered into a Closing
Agreement with any taxing authority and no request for a Tax Ruling or
Closing Agreement is pending with any taxing authority that would have
a continuing material effect after the Closing Date. "Tax Ruling", as
used in this Agreement, shall mean a written ruling of a taxing
authority relating to Taxes. "Closing Agreement", as used in this
Agreement, shall mean a written and legally binding agreement with a
taxing authority relating to Taxes.
- 2 -
<PAGE>
(l) Availability of Tax Returns. Parent or Company has made
available to the extent requested by Authority or LIPA Sub complete
and accurate copies of (i) all Tax Returns, and any amendments
thereto, filed by Parent, Company or any of the Company Subsidiaries,
(ii) all audit reports, revenue agent or examination reports, proposed
adjustments, and statutory notices of deficiency, agreements and
waivers and all related documents received from any taxing authority
relating to any Tax Return filed by Parent, Company or any of the
Company Subsidiaries and (iii) any Closing Agreements entered into by
Parent, Company or any of the Company Subsidiaries with any taxing
authority.
(m) Tax Sharing Agreements. Neither Parent, Company nor any
Company Subsidiary is a party to any agreement relating to allocating
or sharing of income Taxes.
(n) Code Section 280G. Neither Parent, Company nor any of the
Company Subsidiaries is a party to any agreement, contract, or
arrangement that could result, on account of the transactions
contemplated hereunder, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 280G
of the Code.
(o) Liability for Others. None of Parent, Company or any of the
Company Subsidiaries has any liability for Taxes of any person other
than Parent, Company and the Company Subsidiaries (i) under Treasury
Regulations Section 1.1502-6 (or any similar provision of state, local
or foreign law) as a transferee or successor, (ii) by contract, or
(iii) otherwise.
(p) Code Section 168(h). Neither the Company nor any Company
Subsidiary is (A) required to treat any asset of the Company or any
Company Subsidiary as owned by another person pursuant to the "safe
harbor" leasing provisions of the Code or as "tax-exempt use property"
within the meaning of Code Section 168(h) or (B) required to apply any
of the foregoing rules under any comparable foreign, state or local
Tax provision;
(q) Code Section 481(a). Neither the Company nor any Company
Subsidiary has agreed, or is required, to make any adjustment under
Code Section 481(a) (or any comparable provision of state, local or
foreign law) by reason of a change in accounting method or otherwise;
(r) Changes and Elections. Since the most recent Tax period for
which Parent has provided Authority with copies of the federal income
Tax Returns of the Company and the Company Subsidiaries, neither the
Company nor any Company Subsidiary has, nor has the Parent on behalf
of any of them, made or changed any election concerning Taxes or Tax
Returns, changed an annual accounting period, adopted or
- 3 -
<PAGE>
changed any accounting method, filed any amended Tax Return, entered
into any closing agreement with respect to Taxes, settled any Tax
claim or assessment or surrendered any right to claim a refund of
Taxes or obtained or entered into any Tax Ruling, agreement, contract,
understanding, arrangement or plan;
3. Tax Periods Ending on or Before the Closing Date. Parent shall be
responsible for and shall pay all Taxes with respect to periods that end on or
before the Closing Date except to the extent such Taxes are reflected in Tax
Reserves on the Closing Date Balance Sheet. Parent shall prepare or cause to be
prepared all Tax Returns for the Company for all periods ending on or prior to
the Closing Date which are filed after the Closing Date and shall furnish
federal income returns to Authority at least 15 business days, and with the
respect to all other returns at least 5 business days prior to filing. Authority
shall have the right to review such Tax Return prior to the filing thereof.
Authority shall notify Parent of any reasonable objections Authority may have to
any items set forth in such draft Tax Returns, and Authority and Parent agree to
consult and resolve in good faith any such objection and to mutually agree to
the form and substance of such Tax Return. Such Tax Returns shall be prepared in
a manner consistent with prior practice of the Company with respect to Returns
concerning the income, properties or operations of the Company (including
elections and accounting methods and conventions) and with this Agreement except
where a specific contrary practice is required by law or regulation or otherwise
agreed to prior to the filing thereof. Upon the agreement of Authority and
Parent as to the form and substance of any such Tax Return, Authority shall
cause Company to file such Tax Return. Parent shall pay to Authority at least 5
days prior to the due date of any such Tax Return, all Taxes that are reflected
on such Tax Return that have not theretofore been paid to the applicable taxing
authority or reflected in Tax Reserves on the Closing Date Balance Sheet.
4. Tax Periods Beginning Before and Ending After the Closing Date.
Parent shall prepare or cause to be prepared any Tax Returns of the Company for
Tax periods which begin before the Closing Date and end after the Closing Date.
Parent shall provide a preliminary draft of any federal income Tax Return at
least 60 days prior to the scheduled due date for such Tax Return (with regard
to any extensions in effect on such date), and Parent shall provide a
substantially final draft of any Tax Return relating to any other Taxes at least
5 business days prior to their due date (including any extensions). Authority
shall notify Parent of any reasonable objections Authority may have to any items
set forth in any such draft Tax Returns, and Authority and Parent agree to
consult and resolve in good faith any such objection and to mutually agree to
the form and substance of such Tax Return. Except as otherwise provided in this
Agreement, such Tax Returns shall be prepared or completed in a manner
consistent with prior practice of the Company with respect to Returns
- 4 -
<PAGE>
concerning the income, properties or operations of the Company (including
elections and accounting methods and conventions) and with this Agreement except
where a specific contrary practice is required by law or regulation or otherwise
agreed to by Authority prior to the filing thereof. Upon the agreement of
Authority and Parent as to the form and substance of any such Tax Return,
Authority shall cause Company to file such Tax Return. Parent shall pay to
Authority at least 5 days prior to the due dates of such returns the portion of
such Taxes which relate to the portion of such Tax period ending on the Closing
Date determined as provided in this Schedule D, to the extent such Taxes have
not theretofore been paid by Parent, Company or any Company Subsidiary prior to
the Closing Date to the applicable taxing authorities or are not reflected in
Tax Reserves on the Closing Date Balance Sheet provided, however, any liability
which is discovered after the Closing Date which under the rules of the PSC (at
the date hereof) is an electric ratepayer expense which has not previously been
charged or credited to ratepayers shall be considered a liability or asset of
the Authority. For purposes of this Schedule, in the case of any Tax that is
imposed on a periodic basis and is payable for a Tax period that includes (but
does not end on) the Closing Date, the portion of such Tax which relates to the
portion of such Tax period ending on the Closing Date shall (x) in the case of
any Taxes other than Taxes based upon or related to net or gross income or
receipts, be deemed to be the amount of such Taxes for the entire Tax period
multiplied by a fraction the numerator of which is the number of days in the Tax
period ending on the Closing Date and the denominator of which is the number of
days in the entire Tax period, and (y) in the case of any Tax based upon or
related to net or gross income or receipts be deemed equal to the amount which
would be payable if the relevant Tax Period ended on the Closing Date. Parent
shall be responsible for the portion of such Taxes which relate to the portion
of the Taxable period ending on the Closing Date including without limitation
Taxes reflected in Tax Reserves on the Closing Date Balance Sheet (as adjusted
pursuant to the proviso in the second preceeding sentence) and shall pay the
amount of such Taxes to Authority except to the extent such Taxes have
theretofore been paid by Parent, Company or any Company subsidiary to the
appropriate tax authority or are reflected in such Tax Reserves on the Closing
Date Balance Sheet (taking into account such adjustments). All determinations
necessary to give effect to the foregoing allocations shall be made in a manner
consistent with prior practice of the Company. Notwithstanding the foregoing and
except as provided in Schedule E, if requested to do so by Parent, and provided
Parent has supplied the necessary funds therefore, Company shall make a payment
or payments at such time as directed by Parent prior to the last day of the Tax
Period that includes the Closing Date with respect to any expense or liability
of the Company which accrues prior to the Closing Date and the tax benefit
attributable to such payment shall be deemed attributable to the Tax Period
ending on or before the Closing Date. Authority shall reimburse Parents for such
funds to the
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<PAGE>
extent and at such times as such reimbursement may be appropriate.
5. Certain Taxes. Notwithstanding any provision of this Agreement to
the contrary, all Taxes incurred by Company with respect to the transfer to
Parent or the Transferee Subsidiaries of the Transferred Assets the distribution
of the Parent Shares, and the sale of the New Parent Preferred Shares shall be
deemed to relate to the portion of the relevant taxable period ending on the
Closing Date for purposes of the preceding Section 4, and in no event shall
Parent or its Subsidiaries be responsible for the payment or reimbursement to
Authority or Company of Taxes to the extent the right to recover such Taxes from
ratepayers would have been recordable as an asset on the Closing Date Balance
Sheet and were not so recorded, other than federal income taxes arising out of
the transactions contemplated by the Acquisition Agreement.
6. Refunds and Tax Benefits. Except to the extent that any amount would
be returnable to electric ratepayers under PSC rules (at the date hereof), any
refunds of taxes based on gross or net income that are received by Authority or
its Subsidiaries subsequent to the Closing Date, and any amounts credited
against any such Taxes to which Authority and its Subsidiaries become entitled,
that relate to Tax periods or portions thereof ending on or before the Closing
Date shall be for the account of Parent, and Authority shall pay over to Parent
any such refund or credit within 15 days after receipt thereof, unless any such
refund or amount results in a liability for such Taxes being imposed on Company
relating to Tax periods or portions thereof ending after the Closing Date, in
which case the amount paid to Parent shall be reduced by the amount of such
liability.
7. Cooperation on Tax Matters.
(a) Parent shall have the right to represent the interests of
Company in any Tax audit or administrative or court proceeding relating to Tax
Returns described in Paragraphs 3 and 4 with respect to which Parent may be
liable for Taxes pursuant to this Agreement (including any such proceedings
relating to Company or any Company Subsidiary) and shall control such audit or
proceeding with respect to Taxes for which it is responsible under paragraphs 3
& 4 of this Schedule D consistent with the Liabilities Undertaking and
Indemnification Agreement (Exhibit F); provided, however, that Authority shall
have the right to participate in any such audit or proceeding to the extent that
any such audit or proceeding may affect the Tax liability of Authority, any of
its affiliates or Company for any period ending after the Closing Date and to
employ counsel of its choice at its own expense for purposes of such
participation and shall control such audit or proceeding with respect to Taxes
for which it is responsible under paragraph 4 of this Schedule D consistent with
the Liabilities Undertaking and Indemnification Agreement (Exhibit G).
Notwithstanding anything to the contrary contained or implied in this Agreement,
without the prior written approval of Authority, neither Parent nor any
affiliate of Parent shall agree or consent to compromise or settle, either
administratively
- 6 -
<PAGE>
or after the commencement of litigation, any issue or claim arising in any such
audit or proceeding, or otherwise agree or consent to any Tax liability, to the
extent that any such compromise, settlement, consent or agreement may affect the
Tax liability of Authority or Company for any Tax Period ending after the
Closing Date. Except to the extent required by law, neither Authority nor any of
its Subsidiaries shall take any position with respect to Taxes that is
inconsistent with any position taken by the Company prior to the Closing Date
and shall file no amended Tax Returns with respect to any Tax Period that ends
before or includes the Closing Date. Neither Parent nor any affiliate of Parent
shall, without the prior written consent of Authority, file, or cause to be
filed, any amended Tax return or claim for Tax refund, with respect to Company
to the extent that any such filing may affect the Tax liability of Authority,
any of its affiliates, or Company for any Tax Period ending after the Closing
Date.
(b) Parent, Authority, and their Subsidiaries 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 Schedule and any
audit, litigation, refund claim, 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, refund claim, or other proceeding, making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder, and executing powers of attorney to allow
Parent and its representatives to exercise the rights herein enumerated. Parent,
Authority, and their Subsidiaries agree (A) to retain all books and records with
respect to Tax matters pertinent to the Company relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by the other party, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) 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, Authority or
Company, or Parent or its Subsidiaries, as the case may be, shall allow the
other party to take possession and control of such books and records.
(c) Authority and Parent 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 transaction contemplated in this Agreement).
8. Any liability arising after the Closing by reason of failure to meet
the requirements of Section 337(d) and the
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<PAGE>
regulations thereunder because of the action of a regulatory agency, or any
mistatements made to such regulatory agency, shall be allocated to Authority if
the agency is an agency of New York State and to Parent if the agency is an
agency of the Federal government.
- 8 -
<PAGE>
LILCO TAX MATTERS DISCLOSURE SCHEDULE
TAX MATTERS DISCLOSURE SCHEDULE
A) FILING OF TIMELY TAX RETURNS
No exceptions
B) PAYMENT OF TAXES
No exceptions
C) TAX RESERVES
No exceptions
D) TAX LIENS
No exceptions
E) WITHHOLDING TAXES
No exceptions
F) EXTENSIONS OF TIME FOR FILING TAX RETURNS
1996 Federal Income tax return
1996 New York State Gross Earnings and Gross Income Tax
Returns
G) WAIVERS OF STATUTE OF LIMITATIONS
Waivers exist for federal income tax audit for 1981-
1989 and the matters referred to in paragraph (i).
H) EXPIRATION OF STATUTE OF LIMITATIONS
Except as disclosed in Annual report on Form 10-K, no
expiration of statute of limitations. No years that
are otherwise open for audit have been audited or
deficiencies proposed except for the matters referred
to in paragraph (i).
I) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS
LILCO is seeking refunds on property taxes, garbage
taxes and special district taxes.
Federal income tax audit 1981-1989
New York State and Use Tax audit for
9/1/90 through 2/28/93
New York State Gross Earnings Tax and Gross
Income Tax audit for 1991-1993
New York City Utility Excise Tax audit
for 6/1/92 through 12/31/94
New York State Petroleum Business Tax refund
claims for all periods.
J) POWERS OF ATTORNEY
Powers of Attorney have been granted with respect to certain
property tax proceedings and with respect to private letter
rulings to be requested as contemplated in this Agreement.
<PAGE>
K) TAX RULINGS
Private letter rulings from Internal Revenue Service with
respect to deductibility of contributions to nuclear
decommission trust for 9-Mile Point 2.
Advisory Opinions from New York State regarding gross receipt
tax treatment of RICO Settlement and proposed sale/leaseback
transaction.
A letter from the New York State Department of Taxation and
Finance dated 4/25/1997 regarding the tax treatment of the
proposed transactions involving LILCO, Authority and Brooklyn
Union.
L) AVAILABILITY OF TAX RETURNS
No exceptions
M) TAX SHARING AGREEMENTS
No exceptions
N) CODE SECTION 280G
Under the terms of the transactions contemplated by this
agreement and the Exchange Agreement, every officer of LILCO
could receive payments in excess of 280G limitations.
O) LIABILITY FOR OTHERS
No exceptions
R) LILCO intends to change its year for federal income tax
purposes to the fiscal year ending March 31, beginning with
the short year ending March 31, 1997, and, effective on April
1, 1997, deconsolidated for federal income tax purposes.
<PAGE>
Schedule E
Employment Matters
I. Compensation and Benefits
Discharge of Company liability with respect to employee & executive
compensation and benefits.
1. Parent will become the successor employer to Company under the
collective bargaining agreements to which Company is a party. All
employees of Company will be offered employment by Parent or an
affiliate of Parent, effective as of the Closing. Employees who do not
accept employment with Parent or an affiliate shall be terminated.
2. Company will make the following arrangements with respect to payment
of its liabilities under its compensation and benefit plans and
programs prior to the end of the tax year within which the date of the
Closing falls:
a. With respect to any welfare benefit plan providing
post-retirement welfare benefits that under PSC rules in effect
at the date hereof is a ratepayer expense, Company, prior to
Closing, and Parent, prior to the close of the tax year which
includes the date of the Closing, may fund any such liability by
paying to the trustee of any employee benefit trust the amount of
the projected benefit obligation accrued up to the Closing for
welfare benefits under such plans (whether vested or unvested)
which Company or Parent (as the case may be) has a reasonable
basis to believe is deductible for Federal income tax purposes.
To the extent not otherwise charged to Company pursuant to the
Basic Agreements or any other contractual relationship between
Parent, any affiliate of Parent, Authority or Company (and
otherwise without regard to any other contractual relationships
between Parent, Company or Authority), Authority shall pay Parent
an amount equal to the amount of the portion of the post-
retirement liability described in this paragraph that under the
rules of the PSC in effect at the date hereof is an Electric
ratepayer expense (an estimate of which amount is reflected as a
regulatory asset of Company on the Pro Forma Balance Sheet, at
the same time and for the same amount that the Electric
ratepayers would have had the cost attributable to such
post-retirement
<PAGE>
liability included in the cost of their service under the rules
of the PSC in effect at the date hereof until such liability is
fully amortized.
b. Notwithstanding any other provision of the Agreement, Company,
prior to Closing, and Parent, prior to the close of the tax year
which includes the date of the Closing, shall pay or arrange for
the funding of any employee compensation or benefit previously
accrued (or which would be accrued upon an employee's termination
of employment from Company) which, in the judgment of Company or
Parent (as the case may be), is reasonable and which under rules
of the PSC in effect at the date hereof is not a ratepayer
expense.
c. With respect to any employee or former employee (or his or her
spouse, or other dependent or beneficiary) who qualifies for a
benefit under a welfare benefit (including severance) plan or
workers' compensation plan because of an illness, accident or
other event (including termination of employment) that occurred
on or prior to the Closing, Authority shall pay or provide for
the cost of continuing coverage of any such benefit not described
in paragraph a, b, d, or e of this Section I.2, to the extent and
at the time the cost of such coverage is an Electric ratepayer
expense under PSC rules in effect at the date hereof. Company
prior to Closing, and Parent, prior to the close of the tax year
which includes the date of the Closing, may, subject to paragraph
h below, contribute funds to a trust to provide for such
benefits.
d. With respect to any liability for the projected benefit
obligations accrued up to the Closing for pension benefits that
under PSC rules in effect at the date hereof is an Electric
ratepayer expense (including, but not limited to, benefits under
either qualified or nonqualified plans which alone or together
with other benefits are non- discriminatory), Company prior to
Closing, and Parent, prior to the close of the tax year which
includes the date of the Closing, may, subject to paragraph h
below, fund such benefits (vested or non-vested) under the
actuarial methods, factors or assumptions set forth in the latest
actuarial reports with respect to such plans by contributing to
the appropriate trust up to the amount which Company or Parent
(as the case may be) has a reasonable basis to believe is
deductible for Federal tax purposes.
-2-
<PAGE>
e. Company prior to Closing, and Parent, prior to the close of the
tax year which includes the date of the Closing, may, subject to
paragraph h below, pay any accrued benefit or compensation
including accrued vacation pay that under the rules of the PSC in
effect at the date hereof is a ratepayer expense.
f. Any liabilities Company incurs for payments by Company referred
to in paragraphs a, c, d and e of this Section I.2 that are
attributable to employees who were not, prior to the Closing,
employed by, or whose compensation was not allocable to,
Company's gas business shall be assumed by Parent at the Closing
subject to Authority's obligations pursuant to the last sentence
of paragraph a and pursuant to paragraph c.
g. Any liabilities Company incurs for payments by Company referred
to in paragraphs a, c, d and e of this Section I.2 and
attributable to employees who, prior to the Closing, were
employed by, or whose compensation is allocated to, Company's gas
business, and any liabilities Company incurs for payments by the
Company referred to in paragraph b of this Section I.2, shall be
assumed by Parent at the Closing.
h. In the case of liabilities attributable to employees who were
not, prior to the Closing, employed by, or whose compensation was
not allocable to, Company's gas business, prefunding or
prepayment of such liabilities under paragraph c, d or e of this
Section I.2 shall require the prior written consent of Authority,
which shall not be unreasonably withheld.
3. Provision for certain employee liabilities.
a. Effective as of the Closing, Parent shall assume, or shall cause
one or more of its affiliates to assume, all of the "Employee
Plans" described in Section II.1 of this Schedule E, including
all liabilities and assets thereunder, and the Parent (or such
affiliate) as plan sponsor shall have the sole authority to
appoint the plan trustees and named fiduciaries.
b. Notwithstanding the foregoing, and subject to the limitations set
forth in this Section I.3, Parent or such affiliate(s) shall be
entitled to charge Authority for the cost of funding and
maintaining the following Employee Plans and related trusts,
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<PAGE>
to the extent such cost is attributable to employees who have
been employed by Company prior to the Closing (other than
employees employed by or who provided services solely to the
Company gas business) or who after the Closing provide services
to Company or Authority under any Basic Agreement or other
contractual relationship between Parent or an affiliate of Parent
and Company or the Authority:
(i) any qualified pension plan and trust;
(ii) any benefit plan and trust providing post- retirement health
or life insurance benefits; and
(iii)any other Employee Plan and related trust which, under the
current rules of the PSC in effect at the date hereof,
provides benefits which are properly a ratepayer expense.
c. No cost shall be charged to Authority pursuant to Section I.3.b
to the extent such cost has been or will be charged to Authority
pursuant to the Ancillary Agreements or any other contractual
relationship between Parent or any affiliate of Parent and
Company or the Authority.
d. The cost to be charged to Authority pursuant to Section I.3.b
shall be subject to the following:
(i) With respect to any liability which depends upon actuarial
methods, factors or assumptions, Authority shall be liable
for, or be credited with the effect of, the difference
between the amount funded by Authority and the amount
actually required to provide the employee benefits with
respect to the services rendered by the employee to
Authority either as (A) an employee of Company or Authority
or (B) an employee of Parent or its affiliates providing
services to Company or Authority. The proportion of the
total liability which shall be funded by Authority shall be
the amount of the actual liability multiplied by a fraction
the numerator of which is the total months of service by the
employee for Company or service for Parent or any affiliate
which is properly charged to Company or Authority and the
denominator of which is the total number of months of
service of the employee to both Company and Parent or its
affiliate.
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<PAGE>
(ii) To the extent that any liability for benefits incurred after
the Closing reflects the amount of compensation of the
employee, the proportion of any such liability which shall
be funded by Authority shall be the proportion of the
employee's compensation properly charged to Authority. For
example, if an employee of Parent is charged only 50 percent
to Authority after the Closing, Authority's responsibility
for his pension benefit shall be one half of the amount of
the liability attributable to the employee's benefit for
such period of service.
e. Parent and its affiliates shall have the right to alter the
benefits provided to their employees. However, except as Parent,
and Authority may otherwise agree, to the extent any such change
in benefits result in increased costs, the effect of such change
shall not be charged to Authority and Authority's liability and
contribution with respect to any such employee who continues to
render services to Authority shall be determined as if the plans
and trusts of Company continued without amendment, change or
termination.
f. The amount of any payments which Authority is required to make to
any trustee under any employee pension benefit plan as that term
is defined in Section 3(2) of ERISA or any employee welfare
benefit plan as defined in Section 3(1) of ERISA shall be paid in
time and amount as such amount would be included in the costs
charged to ratepayers in accordance with the rules of the PSC at
the date hereof, with respect to the plans of utilities regulated
by it, but in all events shall be in compliance with applicable
funding rules under ERISA, the Code or other applicable Federal
law. Any costs incurred by any trust with respect to the
determination of the time and amount of any payment by Authority
to such trust shall be borne by Authority in proportion to the
Authority's pro rata share of the total benefit liabilities of
such trust (on a present value basis), and otherwise by Parent or
an affiliate of Parent.
g. (i) Parent and the affiliates of Parent maintaining the Employee
Plans after the Closing shall submit within 30 days after
the end of each calendar quarter one consolidated invoice
for the cost to be charged to Authority pursuant to Section
I.3.b for such quarter, together with such supporting
documentation as may be reasonably requested
-5-
<PAGE>
by Authority. Authority shall have thirty days from date of
receipt to pay such invoice.
(ii) Notwithstanding the foregoing, (A) if Authority reasonably
requests additional supporting documentation or an
explanation for a particular invoice, Authority shall have
at least thirty days following receipt of such documentation
or explanation to make such payment, and (B) in the case of
any invoice exceeding 125% of the invoice for the
immediately preceding calendar quarter, Authority shall have
the option to pay such invoice over a period of up to twelve
months, with interest payable quarterly at an effective
interest rate equal to Parent's effective cost of borrowing.
(iii)If there is a dispute with respect to actuarial
calculations that cannot be resolved between Parent's
actuary and Authority's actuary, the dispute shall be
referred to a third actuary selected by Parent and
Authority, the cost of whom shall be borne equally by Parent
and Authority. Any costs (including without limitation
reasonable attorneys' fees) incurred in connection with any
legal action taken to collect the amount so determined to be
payable by Authority shall be payable by Authority.
h. If any Basic Agreement is terminated and, as a result thereof,
Parent or an affiliate thereof is replaced as service-provider,
Authority shall require that any successor to Parent or such
affiliate shall assume Parent's and such affiliate's rights and
obligations under this Section I.3, and Parent, Authority and
Company shall enter into such agreements as are necessary to
separate the obligations for which the new service-provider will
be responsible from all other obligations of Parent and its
affiliates. If any new service-provider who assumes such
liabilities fails to discharge same, Parent and its affiliates
shall pursue their rights against such service- provider as their
primary right of recourse in such event, but Company and
Authority shall not be relieved of their obligations to Parent
and its subsidiaries under this Schedule E with respect to
liabilities not in fact discharged by such service-provider.
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i. The obligations of Company and Authority under this Schedule E shall
not be limited by, and shall survive the expiration of, any other
contractual relationship between Company or Authority and Parent or
any of its affiliates.
II. Employee Benefit Plans
1. The Employment Matters Disclosure Schedule annexed to this Schedule E
as Annex A ("Annex A") lists all plans, contracts and other
arrangements in which Company or any Company Subsidiary participates
or with respect to which Company, any Company Subsidiary, or any other
corporation whose stock is being acquired by Authority under the
Agreement or any of its Subsidiaries (collectively, the "Employers"),
has or may have any liability or obligation and which (a) is an
employee benefit plan (as defined in Section 3(3) of ERISA), or
similar plan provided with respect to directors, independent
contractors or their dependents, (b) provides stock-based
compensation, or (c) provides any bonus, incentive profit sharing,
employee severance, change in control, vacation, medical, sick leave,
cafeteria, or fringe benefit or is a deferred compensation or similar
arrangement (the "Employee Plans"). True and complete copies of all
Employee Plans and those related documents and records described in
Annex A have been made available to Authority. Except as required by
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(COBRA), or as described in Annex A, none of the Employee Plans
provides medical or life insurance or other welfare benefits to or
with respect to former employees, independent contractors or their
dependents. No party has failed to materially comply with any law or
regulation applicable to any Employee Plan or with the terms of any
Employee Plan. The Employee Plans provide all compensation and
benefits required to be provided employees of Company and their
dependents under all applicable law. Each of the Employee Plans
intended to meet the requirements for qualification under Section
401(a) of the Code has been determined by the IRS to be so qualified,
and to the best knowledge of Company, no circumstances exist that are
reasonably expected by Company to result in the revocation of any such
determination. No excise tax, or encumbrance on any of the assets with
respect to Company has arisen or, based on events which have already
occurred, may arise with respect to any Employee Plan. Except as set
forth in Annex A, the transactions contemplated by the Agreement will
not in and of themselves give rise to any liability or obligation of
Company or any other Employer, with respect to any Employee Plan. Each
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Employee Plan may be amended or terminated by Company or by one of the
other Employers at any time on or after the Closing Date without
violating its terms or any law or regulation. Except as required by
law, Company has not agreed to any changes to any Employee Plan that
would cause an increase in benefits under any such Employee Plan (or
the creation of new benefits) or change any employee coverage which
would cause an increase in the expense of maintaining any such plan.
In all material respects Company and each of the other Employers have
made all required contributions and paid all applicable premiums to,
or with respect to, the Employee Plans as and when due. Neither
Company nor any other party has made any promises or commitments with
respect to any Employee Plan, other than in accordance with a
reasonable interpretation of the terms of such Employee Plan. Except
as set forth in Annex A, no suit, action or other litigation or claim
(excluding claims for benefits incurred in the ordinary course of plan
activities) has been threatened or brought against or with respect to
any Employee Plan nor is Company aware of any facts or circumstances
which might reasonably give rise thereto.
2. Except as set forth in Annex A, no liability under Subtitle C or D of
Title IV of ERISA has been or is reasonably expected to be incurred by
Company with respect to any "single-employer plan," within the meaning
of Section 4001(a)(15) of ERISA, currently or formerly maintained or
contributed to by Company ("Pension Plan") or the single-employer plan
of any entity (an "ERISA Affiliate") which is or was considered one
employer with the Company under Section 4001 of ERISA or Section
414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate Plan"). The
Pension Benefit Guaranty Corporation has not instituted proceedings to
terminate any Pension Plan or ERISA Affiliate Plan, and no condition
exists that presents a material risk that such proceedings will be
instituted. Company neither has nor will have any material liability
of any nature whatsoever (contingent or otherwise) arising out of or
relating to any ERISA Affiliate Plan. None of the Pension Plans is a
"multiemployer plan" (within the meaning of Section 4001(a)(3) of
ERISA), and neither Company nor any ERISA Affiliate currently has an
obligation to contribute to or has contributed to or had any
obligation to contribute to a multiemployer plan during the six-year
period immediately preceding the date of the Agreement. No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for
which the thirty (30)-day reporting requirement has not been waived,
has been required to be filed by Company or Parent as a result of the
transactions contemplated herein. No Pension Plan has an "accumulated
funding
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deficiency" (whether or not waived) within the meaning of Section 412
of the Code or Section 302 of ERISA and neither Company nor any ERISA
Affiliate has an outstanding funding waiver. Company has not provided
and is not required to provide, security to any Pension Plan or to any
ERISA Affiliate Plan pursuant to Section 401(a)(29) of the Code.
3. All contributions required to be made under the terms of any Pension
Plan have been timely made when due and have been properly reported in
the financial statements included in the SEC Reports.
4. Except as disclosed in Annex A, under each Pension Plan which is a
single-employer plan and under each ERISA Affiliate Plan, as of the
last day of the most recent plan year ended prior to the date hereof,
the actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on
the basis of the actuarial assumptions contained in the respective
plan's most recent actuarial valuation), did not exceed the then
current value of the assets of such plan, and there has been no
material adverse change in the financial condition of any such plan
since the last day of the most recent plan year. All contributions
with respect to each Pension Plan have been made when due.
5. Payments resulting from the transactions. (a) The consummation or
announcement of any transaction contemplated by the Agreement will not
(either alone or upon the occurrence of any additional or further acts
or events) result in any (i) payment (whether of severance pay or
otherwise) becoming due from Company or any of the Company
Subsidiaries to any officer, employee, former employee or director
thereof or to the trustee under any "rabbi trust" or similar
arrangement, or (ii) benefit under any Employee Plan being established
or becoming accelerated, vested or payable and (b) neither Company or
any of the Company Subsidiaries is a party to (i) any management,
employment deferred compensation, severance (including any payment,
right or benefit resulting from a change in control), bonus or other
contract for personal services with any officer, director or employee,
(ii) any consulting contract with any person who prior to entering
into such contract was a director or officer of Company or (iii) any
plan, agreement, arrangement or understanding similar to any of the
foregoing.
6. Labor Agreements. As of the date hereof, except as set forth in the
Company SEC Reports filed prior to the date of the Agreement, neither
Company nor any of the Company Subsidiaries is a party to any
collective
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bargaining agreement or other labor agreement with any union or labor
organization. To the best knowledge of Company, as of the date of the
Agreement, except as set forth in Annex A, there is no current union
representation question involving employees of Company or any of the
Company Subsidiaries, nor does Company know of any activity or
proceeding of any labor organization (or representative thereof) or
employee group to organize any such employees. Except as disclosed in
the Company SEC Reports filed prior to the date of the Agreement or in
Annex A, (a) there is no unfair labor practice, employment
discrimination or other material complaint against Company or any of
the Company Subsidiaries pending, or to the best knowledge of Company,
threatened, (b) there is no strike, or lockout or material dispute,
slowdown or work stoppage pending, or to the best knowledge of
Company, threatened, against or involving Company, and (c) there is no
proceeding, claim, suit, action or governmental investigation pending
or, to the best knowledge of Company, threatened, in respect of which
any director, officer, employee or agent of Company or any of the
Company Subsidiaries is or may be entitled to claim indemnification
from Company or such Company Subsidiary pursuant to their respective
certificates of incorporation or by-laws or as provided in the
indemnification agreements listed in Annex A.
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Annex A to Schedule E
Employment Matters Disclosure Schedule
II. 1.
Employee Plans:
Retirement Income Plan
Officers Supplemental Retirement Plan
401(k) Capital Accumulation Plan - Union and Non-Union
Director's Retirement Plan
Employment Contracts for each Officer
Union Severance Plan
Educational Assistance Program
Long Term Disability Plan - Union and Non-Union
Retirement Benefits Restoration Plan
Executive Incentive Plans - Annual and Long Term
Company Managed Care Program (active employees and retirees)
Company Dental Expense Plan
Disability Leave Program
Employees Group Life Insurance Plans (active employees and
retirees)
Travel Accident Plans
Supplemental Flexible Spending Medical Plan and Dependent
Care Assistance Plan
Supplemental Death & Disability Plan
Separation Allowance Plan
Contract Retirement Benefits
Split life Insurance Plan
Death in Family Leave
Flexible Spending Plan
Deferred Compensation Trust
Unless a change in control sooner occurs pursuant to the Exchange Agreement,
consummation of the transaction contemplated by the Agreement could result in
(i) payments to each officer of Company and acceleration of benefits under the
Officers Supplemental Retirement Plan pursuant to employment agreements entered
into with each officer and acceleration of other accrued compensation or benefit
payments as a result of the termination of executive and employee employment at
LILCO as such employees become employed at the Parent.
Pension Litigation involving Company and the Plan Administrator (an officer of
Company): Becher, et al. v. Long Island Lighting Company, et al.
II. 2. No exceptions.
II. 4. Any underfunding is only as described in the Form
5500's furnished in connection with due diligence.
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II. 6. See Section II.1 of this Annex A.
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SCHEDULE F
Grant of Future Rights
----------------------
1. Generating Facility Sites. Effective upon the Closing and for a
period of 99 years thereafter, Parent shall (and to the extent necessary to
effectuate the same, cause the Transferee Subsidiaries to) grant to Authority
the right (the "Right"), subject to the rights of Parent and the Transferee
Subsidiaries addressed in paragraph 4 herein, to lease or purchase or to allow
its designee to lease or purchase appropriately sized and sited parcels at any
of the then existing Generating Facility Sites including parcels of land
included among those required to be transferred to GENCO at Closing pursuant to
Section 2.1 of the Generation Purchase Right Agreement (and, subject to the
provisions of paragraph 2 herein, to acquire unlimited access to Generating
Facility Sites as well as appropriate easements), as reasonably determined by
Authority's consulting engineer and confirmed by a mutually agreeable
independent consulting engineer for the purpose of constructing new electric
generating facilities to be owned by Authority or its designee; provided,
however, neither Authority nor its designee shall have the right to lease or
purchase any parcels if such lease or purchase materially interferes with either
the physical operation of any Generating Facilities or the GENCO's environmental
compliance. The parties shall attempt to identify a site at a location that will
minimize any payments that may be required from Authority or its designees under
paragraph 2. Parent and the Transferee Subsidiaries will not unreasonably limit
or restrict Authority's ability to investigate and identify such parcels.
2. Interference Compensation. If Authority's construction or operation
of new generating units at Generating Facility Sites or its use of the Shoreham
Site materially interferes with either the physical operation of the Generating
Facilities or with Parent's (or the Transferee Subsidiary's, as the case may be)
environmental compliance, Authority shall ensure that Parent or such Transferee
Subsidiary will be compensated for the adverse impact on Parent or such
Transferee Subsidiary of such interference.
3. Fair Market Value. The lease or purchase price for the parcels
referred to in paragraph 1 will include the fair market value at the time of
lease or purchase as determined by an independent real estate appraiser jointly
selected by the Parties. The appraisal methodology will be determined and agreed
upon by Parent and Authority prior to the Closing Date, provided that such
appraisal methodology shall take into account any decreased value of such
parcels resulting from the requirements of paragraph 2.
4. Right of First Refusal. Notwithstanding Authority's rights under
paragraph 1 herein, Parent and the Transferee Subsidiaries will have the right
to sell or lease Generating Facility Sites, other than parcels of land included
among those
<PAGE>
required to be transferred to GENCO at Closing pursuant to Section 2.1 of the
Generation Purchase Right Agreement until the expiration of the term of the
Purchase Right (as therein defined), to third parties where: (i) Authority has
not already exercised its right to purchase such sites; and (ii) where such sale
or lease would not interfere with Authority's rights under a then existing
lease. However, Parent's or such Transferee Subsidiary's right to sell or lease
a parcel at a Generating Facility Site to a third party (for purposes of this
paragraph 4 referred to as the "property") shall be subject to Authority's right
of first refusal to purchase or lease such property as hereafter provided. The
terms of any such third party sale or lease shall have been negotiated by Parent
or such Transferee Subsidiary in good faith pursuant to a bonafide written offer
and shall not include terms and conditions that would make it impractical or
difficult for Authority to exercise its right of first refusal.
(b) Parent or such Transferee Subsidiary may sell or lease the property
to a third party only after providing Authority written notice (the "Transfer
Notice") of its intent to sell or lease such property. The Transfer Notice shall
include an offer to Authority to purchase or lease the property (as the case may
be) at a price equal to the Offered Price. For purposes of this paragraph 4,
"Offered Price" shall be the price offered by the third party for the property,
and accepted by Parent or such Transferee Subsidiary, including any non-cash or
like-kind offer, which Authority shall have the right to match by paying an
equivalent amount in cash or bonds.
(c) If Authority does not accept the offer provided in the Transfer
Notice at the Offered Price of the property (for purposes of this paragraph 4
referred to as the "Transfer Price") within sixty (60) days, or one hundred and
twenty (120) days if the Transfer Price is greater than or equal to One Million
Dollars ($1,000,000), after receipt of the Transfer Notice, Parent or such
Transferee Subsidiary may proceed to sell or lease such property to the third
party pursuant to a bonafide written offer or agreement at a price no less than
the Transfer Price; provided, however, if such transfer is not consummated
within nine (9) months after Authority's receipt of the Transfer Notice, that
transfer shall again become subject to the provisions of this paragraph 4, to
provide a new Transfer Notice to Authority.
5. Shoreham Site. Authority will acquire at the Closing Date for fair
market value, an appropriately sized parcel, as reasonably determined by
Authority's consulting engineer and confirmed by a mutually agreeable
independent consulting engineer, at the Shoreham Site (as defined in Appendix A
attached hereto) to serve as the terminus for an undersound cable (nominal
rating approximately 600 MW) and the site for up to approximately 600 MW of new
gas fired combined cycle generating facilities and be granted unlimited access
to the site as well as Appropriate Shoreham Easements.
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"Appropriate Shoreham Easements" means general access easements and utility
easements, as well as easements determined by LIPA or its designees to be needed
from time to time to construct, maintain and operate the facilities described in
this Section 5 and related facilities (the "LIPA Facilities") in an economic
manner, including easements for:
o natural gas pipelines
o fuel oil pipelines
o electric transmission facilities and rights of way
o electric distribution facilities and rights of way for
station service
o communication facilities
o construction laydown, staging and parking
o environmental monitoring equipment
o environmental buffer (which will be defined through
mutual agreement):
The locations of such easements to be reasonably and mutually agreed upon.
Parent or an Affiliate thereof, as the case may be, will retain all right, title
and interest in, to or of the combustion turbine and diesel peaking units
located on this site, and will be granted unlimited access to such facilities.
Should the parties agree that there would be significant economic savings to
Authority by locating a portion of the cable terminus site or the combined cycle
generating facility site on land on the Shoreham Site beyond the fenced in area,
then Parent and/or an Affiliate thereof will sell at fair market value a portion
of the land within the Shoreham Site Additional Area (as defined in Appendix A
attached hereto) that is thereby required. Parent and/or such Affiliate will not
unreasonably withhold its or their agreement. Authority's actual use of the
property acquired pursuant hereto shall not be limited to a terminus for an
underground cable or a site for a new gas fired combined cycle generating
facility, and if so used, such cable and generating facilities shall not be
limited to 600MW.
Authority will be responsible for any and all transmission reinforcements
reasonably required to accommodate either of the foregoing, as contemplated in
Section 4.3 of the Power Supply Agreement.
6. Method of Exercise of the Right. The Right may be exercised only by
giving of written notice to Parent. Notice must be accompanied by: (1)
certification by the Chairman or Executive Director of Authority that the
exercise of the Right has been affirmatively approved by the vote of a majority
of all members of the entire Authority Board of Trustees; and (2) a copy of the
related resolutions of the Authority Board of Trustees certificated as true and
correct by the Chairman or Executive Director of Authority.
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7. Procedure. In the case of any sale and purchase of any Property
pursuant to Authority's exercise of the Right, the form and content of the legal
descriptions thereof and conveyancing documentation with respect thereto shall
be determined by representatives of Parent or Transferee Subsidiary, as the case
may be, subject to the consent of the Authority, and shall be consistent with
the documentation by which title was acquired, local custom with respect to
documenting transfer of property and grantor's acts.
8. Local Transportation Charge. Effective upon the Closing
interruptible gas transportation to the existing generation units will be
continued on the same basis as is currently provided. Parent will also provide
an interruptible gas transportation rate on the distribution system included in
the Transferred Assets and any extensions thereof to new generation (regardless
of who owns it) above a mutually agreeable MW threshold, of 19 cents/dekatherm
adjusted only for any system capital improvements specifically required which
will be charged on a cost-based, return on rate base basis, using Parent's cost
of capital for its gas system. This pricing will be continued for 11.5 years
after the acquisition is completed.
9. Business Combinations. Effective upon the Closing and for a period
of 99 years thereafter, Parent will not (and to the extent necessary to
effectuate the same, prevent its Subsidiaries from) increase any fee, rate or
charge to the Authority on the basis of any business combination involving the
Parent or any of its Subsidiaries.
10. Owernship of/Access to Common Plant. Parent will own common plant
(as provided in Schedules A and B) and will charge Authority for its beneficial
use through the Management Services Agreement, the Power Supply Agreement and
the Energy Management Agreement. The allocation of costs related to common plant
between gas, generation and transmission and distribution will be mutually
agreeable to all parties. Such charges to Authority will be determined in the
same manner as common plant is charged to gas customers by Parent's regulated
gas business; charges to rate payers will not increase as a result of the
BUG/LILCO merger or any future merger or business combination by Parent, or
Authority's acquisition of the Company.
The Authority and Parent will mutually agree upon the appropriate
allocation of real property (as provided in Schedules A and B) and will select
personal property (e.g., billing/customer service hardware and software) that
Authority shall have access to or control of as owner of the T&D System. After
the Effective Time and for 99 years, Parent will give Authority the perpetual
right to enter into leases for such assets or sub-contract for such services
which it may assign to a subsequent management services contractor. Terms of
each such lease will be fair market value as determined by independent
appraisers.
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11. Tax Exempt Securities. Parent shall not, nor shall Parent permit
any Subsidiary to take any action that would likely jeopardize the qualification
of outstanding revenue bonds which qualify on the date of the Closing under
Section 142(a) of the Code as "exempt facility bonds" or as tax-exempt
industrial development bonds under Section 03(b)(5) of the Internal Revenue Code
of 1954, as amended, prior to the Tax Reform Act of 1986.
12. Access to Properties. Effective upon the Closing and for a period
of 99 years thereafter, the Authority and its consultants and agents shall have
a right of unrestricted access to the Allocated Common Facilities as more fully
described in Section 3.1(F) of the Management Services Agreement. The Authority
and its consultants and designees shall have a dedicated on-site office space
also as described more fully in Section 3.1(F).
During the term of the Management Services Agreement, Parent, or as
appropriate, Parent's Subsidiaries may enter upon Authority's transmission and
distribution system to perform its duties thereunder, all as more fully
described in Section 3.1(C) of the Management Services Agreement.
13. Easements. In connection with the acquisition by Authority of any
right, title or interest to any property as contemplated herein, Authority shall
grant Parent an irrevocable and perpetual easement for the maintenance and
access of and to any Transferred Assets located on or under adjoining property
of Seller, provided if Parent's use of such easement materially interferes with
either the physical operation of any generating facilities or with Authority's
environmental compliance, Parent shall compensate Buyer for the adverse impact
on Authority of such interference.
14. Customer Billing & Services System. If, at any time after the
effective time of the Closing, Parent shall sell, lease or otherwise market its
Customer Billing/Customer Services ("CBS") system, currently under development
with James Martin & Co. and others, then Parent shall distribute 66-2/3% of its
net revenues resulting from such sale or marketing to Authority. Prior to the
Closing, expenses and costs for the development of CBS shall be borne by
ratepayers to the extent consistent with existing New York State Public Service
Commission ("NYSPSC") law and regulations. After the Closing, such expenses and
costs shall be reflected in annual budgets to the extent agreed by Authority and
Manager.
15. Non-Competition, Sale to Third Parties. Effective upon the Closing
and for a period of 99 years thereafter, Parent shall not (and to the extent
necessary to effectuate the same, shall cause its Subsidiaries not to) compete
with Authority, directly or indirectly, as a provider of transmission or
distribution service on Long Island; provided, however, that Parent may provide
non-retail delivery of power on LILCO's property to serve its existing common
plant and generating facilities. To the
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extent that Parent sells capacity or energy in the territory serviced by LILCO
after the Closing, such capacity or energy is to be delivered through
Authority's transmission and distribution system.
Parent further agrees that it will not oppose any tariffs, access
charges or fees for the use of Authority's transmission and distribution system,
whether or not such tariffs, access charges or fees are established by or on
behalf of Authority; provided, however, that such tariffs, access charges or
fees shall be non-discriminatory between Parent and other affected parties.
16. Synergy Savings. Parent and BUG agree that Authority will share in
the projected ten-year synergy savings attributable to the BUG/LILCO
combination. Authority's share of synergy savings will be based upon the amount
of the projected savings allocated by the NYSPSC to LILCO electric rate payers
up to a maximum of 2% of LILCO's projected ten-year average annual electric
revenues. Eight/tenths of the aggregate projected ten-year savings so allocated
by the NYSPSC will be used to reduce the budgeted cost amounts under the
Management Services Agreement, the Power Supply Agreement and the Energy
Management Agreement, as appropriate, in the following percentages in each of
the first eight years.
Year Percentage
1 2.44%
2 7.20
3 9.68
4 12.18
5 14.64
6 16.93
7 18.08
8 18.85
------
100.00%
Based upon the anticipated synergy savings announced by LILCO and BUG and
assuming allocation by the NYSPSC of such savings to LILCO electric ratepayers
equal to 2% of LILCO's average annual electric revenues, the Authority's share
of the synergy savings pursuant to the schedule above will result in aggregate
net savings (including consideration of carrying costs) to the Authority's
electric ratepayers of approximately $413 million over the eight years following
the closing.
17. NOx and SOx Emission Credits. Parent shall apply all NOx, SOx and
other air emission credits owned by the Transferee Subsidiaries for the
continued operation of the Generating Facilities at cost, if any, without
markup. Effective as of the Closing Date, 67% of the net proceeds of any sale or
other disposition of emission credits which are excess to the needs of the
operation of the Generating Facilities shall be credited to the annual charges
to the Authority under the Agreements and the
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balance shall be for Parent's account. Parent shall provide Authority with
notice of its intention to sell or otherwise dispose of emission credits in
order to allow Authority sufficient time to submit a bid for such credits if it
so chooses.
18. Omnipoint. Effective as of the Closing Date, 66-2/3% of all lease
rentals and attachment fees received by Company after the Closing Date from the
Omnipoint agreements, the MCI metro agreements and from other similarly
structured and financed telecommunications agreements entered into prior to the
Effective Time will be payable to Authority and the balance shall be for
Parent's account. In addition, to the extent that less than 66- 2/3% of all such
lease rentals and attachment fees received by Company prior to the Closing Date
were allocated or credited by Company to electric ratepayers, Company shall pay
to Authority the difference between 66-2/3% of such amounts and the amount
allocated or credited to electric ratepayers.
19. Tax Cases. Parent and the Transferee Subsidiaries shall not, from
and after the Closing Date, commence or prosecute any tax case challenging any
property tax relating to the Generating Facilities, except for claims in respect
of assessments (other than generally applicable assessments and other than when
such assessment is in conjunction with a property addition), which may be
pursued fully by Parent, including, without limitation, any property tax
assessment on the Generating Facilities or Generating Facility Sites, but only
if the assessment on any such challenged facilities is increased not in an
appropriate proportion to the increase in value related to taxable capital
additions affixed to the tax parcel between the last two tax status dates. If
the tax attributable to the assessment on the Generating Facilities or
Generating Facility Sites is not included in the costs paid by Authority or its
Affiliates (e.g., gas facility located on Generating Facility Site) then Parent
or the Transferee Subsidiaries, in its or their sole discretion, may pursue tax
challenges on such assessments. This provision shall expire upon the termination
of the Power Supply Agreement.
In the event the Parent or Transferee Subsidiaries challenge any tax assessments
on the Generating Facilities, any tax refunds received by Parent or such
Transferee Subsidiary shall be shared 25%/75% between Parent or such Transferee
Subsidiary and Authority, respectively. Parent or the Transferee Subsidiaries
shall be responsible for all preparatory efforts and litigation- related costs
pertaining to any such challenge. This provision shall expire upon the
termination of the Power Supply Agreement, except that Authority will continue
to share 75% of tax refunds received after such termination to the extent that
such refunds relate to property taxes for which Authority has reimbursed Parent
or the Transferee Subsidiaries.
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APPENDIX A - SHOREHAM SITE AND SHOREHAM SITE ADDITIONAL AREA
Shoreham Site is described as attached.
Shoreham Site Additional Area is shown on the attached survey map as the lined
area outside but contiguous to the Shoreham Site. The placing of the lined area
is approximate, to be further defined by GENCO, and is not intended to include
any property not owned by GENCO, Guarantor or its affiliates.
A - 1
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SCHEDULE G
RETAINED ASSETS
"Retained Assets" means all properties or assets contemplated
hereby to be owned at the Effective Time (x) by Company or (y) by any Company
Subsidiary or Company Joint Venture not constituting a Transferred Asset as
determined pursuant to Schedule A or Schedule B, including, without limitation:
(A) Electric transmission and distribution system ("T&D
System"). "T&D System" means the electricity transmission
and distribution system owned by Company at the Effective
Time, as described in the paragraph below, and assets,
facilities, equipment or contractual arrangements of Company
used to provide the transmission and distribution of the
electrical energy and capacity available from the System
Power Supply (as defined in Appendix 1 to the Management
Services Agreement) to the counties of Suffolk and Nassau
and that portion of the County of Queens constituting the
Company's service area as of the effective date of the Long
Island Power Authority Act, N.Y. Pub. Auth. Lawss. 1020 et
seq., and not including the Villages of Freeport, Greenport
and Rockville Centre.
The T&D System extends, without limitation, from the
points of interconnection with Consolidated Edison Company
of New York, the New York Power Authority, and Connecticut
Light & Power and the on-island generating plants owned by
GENCO (as defined in the Power Supply Agreement) on the low
voltage side of the step-up transformers in the switch
yards, or others and interconnections as they are built to
the meters of the transmission and distribution facilities,
equipment and property up through the retail and wholesale
electric customers' point of interconnection with the meter.
(B) Company's 18% ownership interest in Nine Mile Point 2, and
related nuclear fuel and nuclear decommissioning trust
funds. "Nine Mile Point 2" means Unit No. 2 of the Nine Mile
Point Nuclear Power Generating Station located in Scriba,
New york and operated pursuant to a joint operating
agreement by Niagara Mohawk Power Corporation.
(C) The Shoreham property tax and PILOT claims and all other tax
claims and tax certiorari matters arising with respect to
Company's pre-closing operations, including with respect to
generation and common plant.
<PAGE>
(D) Certain other assets. Assets included in the Company's Pro
forma Balance Sheet At December 31, 1997 attached as Exhibit
A-1.
<PAGE>
PARENT DISCLOSURE SCHEDULE
REFERRED TO IN SECTION 7.4(A) OF THE
AGREEMENT AND PLAN OF EXCHANGE AND MERGER, DATED AS OF JUNE 26, 1997
BY AND AMONG
BL HOLDING CORP., A NEW YORK CORPORATION,
LONG ISLAND LIGHTING COMPANY, A NEW YORK CORPORATION,
LONG ISLAND POWER AUTHORITY, A CORPORATE MUNICIPAL
INSTRUMENTALITY AND POLITICAL SUBDIVISION OF THE
STATE OF NEW YORK, AND LIPA ACQUISITION CORP., A
NEW YORK CORPORATION.
<PAGE>
PARENT DISCLOSURE SCHEDULE
This is the Parent Disclosure Schedule referred to in Section 7.4(a) of the
Agreement and Plan of Exchange and Merger, dated as of June 26, 1997, by and
among BL Holding Corp., a New York corporation ("Parent"), Long Island Lighting
Company, a New York corporation (the "Company" or "LILCO"), Long Island Power
Authority, a corporate municipal instrumentality and political subdivision of
the State of New York (the "Authority"), and LIPA Acquisition Corp., a New York
corporation, (the "Agreement"). Section references given below are to the
corresponding sections of the Agreement, to which reference is hereby made for
the definitions of all capitalized terms not otherwise defined herein. Any
matter disclosed pursuant to any section referred to below shall be deemed
disclosed pursuant to all other applicable sections and Disclosure Schedules
that are made a part of the Basic Agreement.
This Disclosure Schedule hereby incorporates by reference all of the Parent SEC
Reports filed with the SEC through the date of the Agreement the latest of which
is the Company's transition report on Form 10Q for the quarter ending March 31,
1997. This Disclosure Schedule also incorporates by reference the LILCO Tax
Matters Disclosure Schedule attached to Schedule D of this Agreement and the
Employment Matters Disclosure Schedule attached as Annex A to Schedule E of this
Agreement.
SECTION 4.1 ORGANIZATION AND QUALIFICATION.
No exception.
SECTION 4.2 SUBSIDIARIES.
<TABLE>
<CAPTION>
Percent of Stock
Name of Company Description of Business Ownership
- --------------- ----------------------- ---------
<S> <C> <C>
Honeoye Storage Storage of natural or manufactured gas and in connection therewith
Corporation it engages, to some extent, in transportation and operates various
storage and transmission facilities. 23.3
Marquez Owner of mining properties in New Mexico following a foreclosure
Development sale of Nov. 4, 1991. On September 19, 1991, a US Bankruptcy Court
Corporation filed a final judgment, decree of foreclosure and order of sale,
authorizing LILCO to complete the proceedings to foreclose on the
Bokum Resources Corporation properties. This judgment was assigned
to Marquez by LILCO prior to the foreclosure sale. 75
Boundary Gas, Inc. Purchases and receives natural gas from Trans-Canada Pipelines Limited
at the Canadian-US border near Niagara Falls, Ontario and immediately
resells and delivers the same natural gas to its fourteen stockholders
at the border. Commencement of deliveries is subject to Regulatory Approval.
Boundary Gas owns no real property, will not be an operating utility and
will not construct any facilities. 2.70
</TABLE>
1
<PAGE>
PARENT DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
Percent of Stock
Name of Company Description of Business Ownership
- --------------- ----------------------- ---------
<S> <C> <C>
LILCO Energy Authorized to participate as General Partner in Iroquois Gas
Systems, Inc. Transmission System, LILCO Energy Systems, Inc. has a 1%
equity interest in the Iroquois Gas Transmission System. 70
Island Energy Island Energy Services Company, Inc. is currently inactive. 70
Services Company,Inc.
</TABLE>
SECTION 4.3 CAPITALIZATION.
1. Series I Preferred Stock-convertible to Common Stock.
2. Employee Stock Purchase Plan.
3. Investor Common Stock Plan, effective May 5, 1997,
(replaced Automatic Dividend Reinvestment Plan).
4. Annual Stock Incentive Compensation Plan.
5. Long-Term Stock Incentive Plan.
6. Directors' Stock Unit Retainer Plan.
7. Option granted to Brooklyn Union in connection with the Binding Share
Exchange.
8. The Company may, from time to time, acquire shares of its common stock
to be held
as treasury shares or to satisfy its obligations under the above-
referenced stock plans.
9. The Company may, from time to time, purchase, redeem, exchange or
otherwise
acquire shares of its preferred stock in order to satisfy its
obligation respecting such shares as contemplated herein.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
b) NON-CONTRAVENTION.
1. Consents from the lending institutions participating in LILCO's
Revolving Credit Agreement and the letters of credit agreements
supporting LILCO's tax exempt debt.
2. Consents from the holder of the 8.20% and 7.30% Debentures as
necessary to effect the transfer of these securities to the
Parent as contemplated herein.
3. Consents from the holders of Series AA Preferred Stock and the
Non-redeemable Preferred Stock as necessary to effect the
transactions respecting such securities contemplated herein.
c) STATUTORY APPROVALS.
Approvals will be required by regulatory agencies including
the FERC, the NRC and the SEC.
d) COMPLIANCE.
No exception.
2
<PAGE>
PARENT DISCLOSURE SCHEDULE
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS.
No exception, except for certain waived audit adjustments of Ernst & Young
relating principally to: (i) the deferral of call premiums associated with
preferred stock refinanced by LILCO; (ii) the under accrual of gas supply
expense; (iii) customer account receivable reserve; and (iv) the write off of
LIPA/NYPA proposal costs.
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
No exception.
SECTION 4.7 LITIGATION.
Attached hereto as Attachment 1 is a list of non-claims pending lawsuits against
the Company for which the Company may potentially be exposed to liability of $1
million or more. Additionally, there are 22 out of 710 pending claims lawsuits
against the Company alleging personal injury or property damages for which
reserves of $100,000 or more have been established.
Matters pending before the PSC, FERC or involving EPA, DEC or DEP are either
identified in the Company's SEC filings or do not meet the criteria for civil
litigation described above.
SECTION 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT.
No exception.
SECTION 4.9 ENVIRONMENTAL PROTECTION.
(A) COMPLIANCE.
No exception.
(B) ENVIRONMENTAL PERMITS.
No exception.
(C) ENVIRONMENTAL CLAIMS.
The Company is working cooperatively with the N.Y. State
Department of Environmental Conservation, Suffolk County
Health Department and Novartis (the manufacturer of the
herbicide Simazine) to investigate Simazine levels in the
water supply.
(D) RELEASES.
No exception.
(E) PREDECESSORS.
3
<PAGE>
PARENT DISCLOSURE SCHEDULE
Five (5) additional MPG sites on Long Island not currently
owned by LILCO, at least two (2) of which were owned by LILCO
predecessors in interest. Information contained in Atlantic
Environmental Consulting Report.
(F) DISCLOSURE.
No exception.
SECTION 4.10 REGULATION AS A UTILITY.
No exception.
SECTION 4.11 VOTE REQUIRED.
No exception.
SECTION 4.12 INSURANCE.
1. Possible future policy cancellation with respect to insurance
claim on NUSCO cable.
2. In 1995, LILCO obtained for the first time Employee Liability
Insurance.
3. In 1993, LILCO reduced its workers compensation insurance coverage
from 1st dollar
insured to coverage on events over $250,000.
4. Possible future acquisition of Professional Liability Insurance.
SECTION 6.1 COVENANTS OF PARENT AND COMPANY.
(A) ORDINARY COURSE OF BUSINESS.
Although entered into in the ordinary course of business,
Company has disclosed that it has entered and may, subject to
the Agreement, enter into agreements that provide for the
attachment of telecommunication equipment to Retained Assets.
(B) CHARTER DOCUMENTS.
No exception.
(C) NO ACQUISITIONS.
No exception.
(D) CAPITAL EXPENDITURES.
1997 Capital budget for the Transmission and Distribution
portion of the Company's total capital budget as set forth in
the LIBRA capital budget report as updated in April 1997 is
approximately $118.7 million.
(E) NO DISPOSITIONS.
1. Although entered into in the ordinary course of business,
Company has disclosed that it has entered and may, subject
to the Agreement, enter into
4
<PAGE>
PARENT DISCLOSURE SCHEDULE
agreements that provide for the attachment of
telecommunication equipment to Retained Assets.
2. Sale of investment in Marquez Development Corporation.
(F) INDEBTEDNESS.
1. Possible use of Revolving Line of Credit ($250 million line
of credit).
2. Advances to subsidiaries.
3. Debt issued in connection with the call, tender or other
acquisition of outstanding debt securities or Preferred
Stock when economic conditions permit.
(G) TRANSMISSION, GENERATION.
No exception.
(H) ACCOUNTING.
No exception.
(I) AFFILIATE TRANSACTIONS.
No exception.
(P) CONTRACTS.
No exception.
5
<PAGE>
LONG ISLAND LIGHTING COMPANY
CHIEF FINANCIAL OFFICER'S CERTIFICATE
The undersigned, the Chief Financial Officer of Long Island Lighting
Company, a New York corporation, pursuant to Section 7.4(a) of the Agreement and
Plan of Exchange and Merger, dated as of June 26, 1997, by and among BL Holding
Corp., a New York corporation ("Parent"), Long Island Lighting Company, a New
York corporation, Long Island Power Authority, a corporate municipal
instrumentality and political subdivision of the State of New York
("Authority"), and LIPA Acquisition Corp., a New York corporation, (the
"Agreement"), does hereby certify that the Parent Disclosure Schedule (as
defined in the Agreement) attached hereto has been delivered to the Authority.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the ____ day of June, 1997.
-----------------------
Anthony Nozzolillo
Chief Financial Officer
6
<PAGE>
SECTION 4.7 - LITIGATION
ATTACHMENT 1
Advanced Conservation Systems, Inc. v. LILCO
(Sup. Ct. Nassau Co. and E.D.N.Y.)
Asbestos cases claiming damages resulting
from Asbestos exposure at LILCO
generating facilities (Sup. Ct. N.Y. Co.)
Becher, et al. v. LILCO et al. (E.D.N.Y.)
Incorporated Village of Asharoken, et al. v. LILCO (Sup. Ct. Suffolk Co.)
Spectrum v. LILCO (Sup. Ct. Nassau Co.)
Town of Oyster Bay v. Occidental et al. (94-CV-0694 - E.D.N.Y.)
Town of Riverhead, Mary K. Gardner as President
of the Wading River Beach and Conservation
Association v. LILCO (Sup. Ct. Suffolk Co.)
<PAGE>
EXHIBIT A
MANAGEMENT SERVICES AGREEMENT
BETWEEN
LONG ISLAND POWER AUTHORITY
AND
LONG ISLAND LIGHTING COMPANY
DATED AS OF
JUNE 26, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
RECITALS........................................................................................................... 1
ARTICLE I
DEFINITIONS; INTERPRETATION
SECTION 1.1. DEFINITIONS; INTERPRETATION.................................................................... 2
(A) Defined Terms.............................................................................. 2
(B) References Hereto.......................................................................... 2
(C) Gender and Plurality....................................................................... 2
(D) Persons.................................................................................... 2
(E) Headings................................................................................... 2
(F) Entire Agreement........................................................................... 2
(G) Costs and Cost Substantiation.............................................................. 2
(H) References to Transmission and Distribution of Power....................................... 3
(I) Actions Taken Pursuant to Agreement........................................................ 3
(J) Prudent Utility Practice................................................................... 3
(K) Delivery of Documents in Digital Format.................................................... 3
(L) Counterparts............................................................................... 3
(M) Applicable Law............................................................................. 3
(N) Severability............................................................................... 3
(O) References to Days......................................................................... 3
(P) Good Faith Obligation...................................................................... 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF THE AUTHORITY................................................ 5
(A) Existence and Power........................................................................ 5
(B) Due Authorization and Binding Obligation................................................... 5
(C) No Conflict................................................................................ 5
(D) No Litigation.............................................................................. 5
(E) No Legal Prohibition....................................................................... 5
SECTION 2.2. REPRESENTATIONS AND WARRANTIES OF THE MANAGER.................................................. 5
(A) Existence and Power........................................................................ 5
(B) Due Authorization and Binding Obligation................................................... 5
(C) No Conflict................................................................................ 6
(D) No Litigation.............................................................................. 6
(E) No Legal Prohibition....................................................................... 6
(F) Patents and Licenses....................................................................... 6
(G) T&D System Familiarity..................................................................... 6
ARTICLE III
OWNERSHIP OF THE TRANSMISSION AND DISTRIBUTION SYSTEM
SECTION 3.1. OWNERSHIP OF THE T&D SYSTEM.................................................................... 7
(A) Authority Ownership........................................................................ 7
(B) Engagement of Manager...................................................................... 7
(C) Use........................................................................................ 7
(D) Encumbrances............................................................................... 7
(E) Surrender of the T&D System................................................................ 7
(i)
<PAGE>
Page
(F) Right of Access............................................................................ 7
ARTICLE IV
OPERATION OF THE T&D SYSTEM
SECTION 4.1. T&D SYSTEM GENERALLY........................................................................... 9
(A) Reliance................................................................................... 9
(B) Limitations on Manager Rights.............................................................. 9
(C) Curtailments and Shutdowns................................................................. 9
SECTION 4.2. OPERATION AND MAINTENANCE...................................................................... 9
(A) General.................................................................................... 9
(B) Scope of Services.......................................................................... 9
(1) General........................................................................... 9
(2) Implementation of Emergency Response and Reporting................................ 11
(3) Customer Service Programs......................................................... 11
(4) Revenue Requirements and Rate Design.............................................. 12
(C) T&D System Supervisor...................................................................... 12
(D) Operation and Maintenance Manual........................................................... 12
(E) Delivery of Manual on Termination.......................................................... 13
SECTION 4.3. MAINTENANCE AND REPAIR OF T&D SYSTEM........................................................... 13
(A) General.................................................................................... 13
(B) Maintenance Expenditures................................................................... 13
(C) Ownership of T&D System Assets............................................................. 14
(D) Retirement of T&D System Assets............................................................ 14
(E) Insurance and Other Third Party Payments................................................... 14
SECTION 4.4. PERFORMANCE GUARANTEES......................................................................... 14
(A) Compliance and Remedies.................................................................... 14
(B) Conditions to Performance Guarantee Relief................................................. 14
SECTION 4.5. RIGHTS AND RESPONSIBILITIES OF THE AUTHORITY................................................... 15
(A) Generally.................................................................................. 15
(B) T&D System Policies and Procedures......................................................... 16
(C) T&D System Access Policies and Prices...................................................... 16
(E) No Acceptance, Waiver or Release........................................................... 17
SECTION 4.6. STAFFING AND LABOR ISSUES...................................................................... 17
SECTION 4.7. SAFETY......................................................................................... 17
SECTION 4.8. VEHICLES AND EQUIPMENT......................................................................... 18
(A) Vehicle and Equipment Identification....................................................... 18
(B) Vehicle Specifications, Maintenance and Appearance......................................... 18
SECTION 4.9. CUSTOMER SERVICES, RATES AND RULES OF SERVICE.................................................. 18
(A) General.................................................................................... 18
(B) Billing Services........................................................................... 18
(C) Account Records............................................................................ 18
(D) Collection of Monies....................................................................... 18
(E) Customer Service Office Facilities......................................................... 19
(F) Customer Service Office Hours.............................................................. 19
(G) Availability of Representatives............................................................ 19
(H) Emergency Telephone Number................................................................. 19
(I) New Connections............................................................................ 19
(J) Customer Retention and Expansion Activities................................................ 19
SECTION 4.10. SERVICE COMPLAINTS AND DEFICIENCIES............................................................ 19
(A) Complaints to Manager...................................................................... 19
SECTION 4.11. COMPLIANCE WITH APPLICABLE LAW................................................................. 20
(ii)
<PAGE>
Page
SECTION 4.12. LICENSES, PERMITS AND APPROVALS................................................................ 20
SECTION 4.13. OPERATING PERIOD INSURANCE..................................................................... 20
SECTION 4.14. INFORMATION.................................................................................... 21
(A) Information System......................................................................... 21
(B) Computer Database.......................................................................... 21
(C) Ownership of Information and Documentation................................................. 21
SECTION 4.15. MANAGER'S REPORTING REQUIREMENTS............................................................... 21
(A) Monthly Reports............................................................................ 21
(B) Semi-Annual Reports........................................................................ 22
(C) Other Costs Reports........................................................................ 22
(D) Annual Reports............................................................................. 22
(E) Operations Reports......................................................................... 22
(F) Books and Records.......................................................................... 22
SECTION 4.16. FISCAL AFFAIRS, ACCOUNTING AND RECORD KEEPING.................................................. 23
(A) General.................................................................................... 23
(B) Bank Deposits.............................................................................. 23
(C) Record Keeping............................................................................. 23
(D) Financial Audits........................................................................... 23
(E) Authority Bank Accounts.................................................................... 24
(F) Maps, Plans and Specifications............................................................. 24
SECTION 4.17. INVENTORY CONTROL.............................................................................. 24
SECTION 4.18. CAPITAL ASSET CONTROL.......................................................................... 24
SECTION 4.19. WARRANTIES..................................................................................... 24
SECTION 4.20. TECHNICAL ASSISTANCE........................................................................... 24
SECTION 4.21. PURCHASE OF EQUIPMENT, MATERIALS AND SERVICES.................................................. 24
SECTION 4.22. OTHER SERVICES................................................................................. 25
(A) Bill Payments.............................................................................. 25
(B) Attendance at Meetings..................................................................... 25
SECTION 4.23. EMPLOYEE PLANS................................................................................. 25
SECTION 4.24. HAZARDOUS WASTE................................................................................ 25
ARTICLE V
MAJOR CAPITAL IMPROVEMENTS
SECTION 5.1. MAJOR CAPITAL IMPROVEMENTS GENERALLY........................................................... 26
(A) Generally.................................................................................. 26
(B) Insurance and Other Third Party Payments................................................... 26
(C) Cost Disputes.............................................................................. 26
(D) Major Capital Improvement Cost Payments.................................................... 27
SECTION 5.2. MAJOR CAPITAL PLAN AND BUDGET.................................................................. 27
(A) Preparation................................................................................ 27
(B) Schedule for Major Capital Plan and Budget Review.......................................... 28
(C) Projects in Excess of $500,000............................................................. 28
SECTION 5.3. COST DETERMINATION............................................................................. 28
(A) Basis for Major Capital Improvement Cost Determination..................................... 28
(B) Source of Financing of Major Capital Improvements.......................................... 28
(C) Procurement and Contracting Procedures..................................................... 28
(D) Advancement of Funds for Major Capital Improvements and
Additions.................................................................................. 29
(E) Major Capital Improvements Cost Savings Incentive.......................................... 29
SECTION 5.4 PUBLIC WORKS IMPROVEMENTS...................................................................... 29
(A) Generally.................................................................................. 29
(iii)
<PAGE>
Page
(B) Cost Disputes............................................................................. 29
(C) Cost Determination........................................................................ 30
(D) Public Works Improvements Cost Savings Incentives......................................... 30
(E) Public Works Improvement Costs Estimate................................................... 30
(F) Public Works Improvement Cost Payments.................................................... 30
SECTION 5.5. MAJOR CAPITAL IMPROVEMENTS FOR WHICH MANAGER IS RESPONSIBLE................................... 30
ARTICLE VI
COMPENSATION AND BUDGETS
SECTION 6.1. SERVICE FEE................................................................................... 31
(A) Formula................................................................................... 31
(B) Fixed Direct Fee.......................................................................... 31
(C) Third Party Costs......................................................................... 31
(D) Variable Payment.......................................................................... 31
(E) Management Fee, Cost Incentive Fee and Non-cost Performance
Incentives and Disincentives.............................................................. 32
(F) Cost Overruns............................................................................. 32
(G) Limitations............................................................................... 32
(H) Carrying Costs............................................................................ 32
SECTION 6.2. ANNUAL T&D BUDGET AND FIVE YEAR PLANNING BUDGET PROCESS...................................... 32
(A) General................................................................................... 32
(1) Direct Cost Budget.................................................................... 32
(2) Third Party Cost Budget............................................................... 33
(3) Cost Incentive Fees................................................................... 33
(B) Annual T&D Budget Preparation............................................................. 33
(1) Generally............................................................................. 33
(2) Initial Budgets....................................................................... 33
(3) Direct Cost Budget Preparation........................................................ 33
(4) Third Party Costs Budget Preparation.................................................. 34
(5) Rate Recommendations and Budget Review................................................ 34
(6) Five-Year Planning Budget............................................................. 34
(7) Budget Format......................................................................... 35
(8) Accelerated Budget Preparation........................................................ 35
(9) Manager Availability at Forums........................................................ 35
SECTION 6.3 OTHER COSTS................................................................................... 35
(A) "Other Costs" Definition.................................................................. 35
(B) Other Costs Reserve Estimate.............................................................. 36
(C) Other Costs Reimbursement................................................................. 36
SECTION 6.4. NON-COST PERFORMANCE INCENTIVES AND DISINCENTIVES............................................. 36
(A) Generally................................................................................. 36
(B) Adjustments to Threshold Levels........................................................... 37
(C) Limits on Incentives and Disincentives.................................................... 37
SECTION 6.5. AUTHORITY NON-PERFORMANCE..................................................................... 37
(A) Costs of Construction Work and of Operation and Maintenance............................... 37
(B) Major Capital Improvements to Repair Damage Caused by Authority........................... 37
SECTION 6.6. MANAGER NON-PERFORMANCE....................................................................... 37
SECTION 6.7. BILLING OF MAJOR CAPITAL; PUBLIC WORKS........................................................ 38
SECTION 6.8. ANNUAL SETTLEMENT............................................................................. 38
(A) Annual Settlement Statement............................................................... 38
(B) Payment of Amounts Owed................................................................... 38
(C) Carrying Costs............................................................................ 38
(iv)
<PAGE>
Page
SECTION 6.9. AUTHORITY'S PAYMENT OBLIGATIONS............................................................... 38
(A) Source of Payments by Authority........................................................... 38
(B) Disputes.................................................................................. 38
SECTION 6.10. ALLOCATION OF RISK OF CERTAIN COSTS AND LIABILITIES........................................... 39
ARTICLE VII
DEFAULT, TERMINATION FOR CAUSE
AND DISPUTE RESOLUTION
SECTION 7.1. REMEDIES FOR BREACH........................................................................... 41
SECTION 7.2. EVENTS OF DEFAULT BY THE MANAGER.............................................................. 41
(A) Events of Manager Default Defined......................................................... 41
(1) Events of Default Not Requiring Cure Opportunity for
Termination........................................................................... 41
(a) Change of Control of Manager...................................................... 41
(b) Worker Safety..................................................................... 41
(c) Customer Service.................................................................. 41
(d) Voluntary Bankruptcy.............................................................. 41
(e) Involuntary Bankruptcy............................................................ 41
(f) Credit Enhancement................................................................ 41
(g) Letter of Credit Draw............................................................. 42
(2) Events of Default Requiring Cure Opportunity for Termination.......................... 42
(a) System Reliability................................................................ 42
(b) Failure to Pay or Credit.......................................................... 42
(c) Failure Otherwise to Comply with Agreement or
Guaranty.......................................................................... 42
SECTION 7.3. EVENTS OF DEFAULT BY THE AUTHORITY............................................................ 43
(A) Events of Authority Default Defined....................................................... 43
(1) Failure to Pay........................................................................ 43
(2) Failure to Comply with Agreement...................................................... 43
(3) Change of Control of LILCO............................................................ 43
SECTION 7.4. PROCEDURE FOR TERMINATION FOR CAUSE........................................................... 43
(A) Two-Year Notice........................................................................... 43
(B) Termination by Authority.................................................................. 43
(1) Access................................................................................ 43
(2) Assumption of Responsibilities........................................................ 43
SECTION 7.5. CERTAIN OBLIGATIONS OF THE MANAGER UPON TERMINATION
OR EXPIRATION................................................................................. 44
(A) Obligations on Termination or Expiration.................................................. 44
(B) Additional Obligations.................................................................... 45
(C) Authority Payment of Certain Transition Costs............................................. 46
SECTION 7.6. NO WAIVERS.................................................................................... 46
SECTION 7.7. FORUM FOR DISPUTE RESOLUTION.................................................................. 46
SECTION 7.8. NON-BINDING MEDIATION; ARBITRATION............................................................ 46
(A) Dispute Resolution........................................................................ 46
(B) Negotiation and Non-Binding Mediation..................................................... 46
(C) Arbitration............................................................................... 46
(D) Provisional Relief........................................................................ 47
(E) Obligation to Repair...................................................................... 47
(F) Awards.................................................................................... 47
(G) Information Exchange...................................................................... 47
(H) Site of Arbitration....................................................................... 47
(v)
<PAGE>
Page
SECTION 7.9. AUTHORITY EMERGENCY POWERS............................................................ 48
SECTION 7.10. WAIVER OF CERTAIN DEFENSES............................................................ 48
ARTICLE VIII
TERM
SECTION 8.1. TERM OF AGREEMENT..................................................................... 49
SECTION 8.2. MANDATORY COMPETITIVE SELECTION OF FUTURE MANAGERS.................................... 49
SECTION 8.3. EXIT TEST............................................................................. 49
ARTICLE IX
GENERAL
SECTION 9.1. MANAGER TO REMAIN AFFILIATE OF GUARANTOR; CREDIT ENHANCEMENT
IN CERTAIN CIRCUMSTANCES................................................................. 50
(A) Limitations........................................................................... 50
(B) Material Decline in the Guarantor's Credit Standing................................... 50
(C) Credit Enhancement.................................................................... 50
SECTION 9.2. UNCONTROLLABLE CIRCUMSTANCES GENERALLY................................................ 50
(A) Performance Excused................................................................... 50
(B) Notice, Mitigation.................................................................... 50
(C) Conditions to Relief on Account of Uncontrollable Circumstances....................... 51
(D) Acceptance of Relief Constitutes Release.............................................. 51
SECTION 9.3. INDEMNIFICATION....................................................................... 51
(A) Indemnification by the Manager........................................................ 51
(B) Indemnification by the Authority...................................................... 52
SECTION 9.4. PROPERTY RIGHTS....................................................................... 53
SECTION 9.5. PROPRIETARY INFORMATION............................................................... 54
(A) Manager Request....................................................................... 54
(B) Authority Non-Disclosure.............................................................. 54
(C) Permitted Disclosures................................................................. 54
SECTION 9.6. RELATIONSHIP OF THE PARTIES............................................................... 54
SECTION 9.7. ASSIGNMENT AND TRANSFER................................................................... 54
SECTION 9.8. INTEREST ON OVERDUE OBLIGATIONS........................................................... 55
SECTION 9.9. NO DISCRIMINATION......................................................................... 55
SECTION 9.10. APPROVAL OF SUBCONTRACTORS................................................................ 55
SECTION 9.11. ACTIONS OF THE AUTHORITY IN ITS GOVERNMENTAL CAPACITY..................................... 56
SECTION 9.12. BINDING EFFECT............................................................................ 56
SECTION 9.13. AMENDMENTS................................................................................ 56
SECTION 9.14. NOTICES................................................................................... 56
SECTION 9.15. FURTHER ASSURANCES........................................................................ 56
SECTION 9.16. NO THIRD PARTY BENEFICIARIES.............................................................. 56
SECTION 9.17 STATE LAW REQUIREMENTS.................................................................... 57
</TABLE>
APPENDICES
(1) Definitions
(2) Description of T&D System and T&D System Site Related Documents
(3) Notice Appendix
(vi)
<PAGE>
Page
(4) Insurance
(5) Direct Cost Budget Indices
(6) Exit Test
(7) Non-Cost Performance Guarantees, Obligations, Incentives and Disincentives
(8) Major Capital Improvements Construction Standards and Procurement
Requirements
(9) Operations Information and Format
(10) Budget Information and Format
(11) Cost Allocation Methodology
(12) Sample Service Fee Calculation
(13) Certain State Law Requirements
(14) System Policies and Procedures
(vii)
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made and dated as of June 26,
1997 between the Long Island Power Authority, a corporate municipal
instrumentality of the State of New York and a body corporate and politic and a
political subdivision of the State of New York (the "Authority"), and Long
Island Lighting Company, a corporation or other entity organized and existing
under the laws of the State of New York (the "Manager").
RECITALS
WHEREAS, an affiliate of the Authority is expected to become the owner
of the T&D System (as defined herein) and the Authority wishes to make provision
for the operation and maintenance of the T&D System and for the performance of
the Construction Work (as defined herein) relating to the T&D System to be
undertaken in accordance with the terms hereof in order to assure the continued
delivery of electric energy to the customers of the T&D System.
WHEREAS, as an essential term and condition of the Acquisition
Agreement, the Authority has agreed to contract with the Manager for the purpose
of providing, and the Manager has agreed to provide, the Operation and
Maintenance Services (as herein defined) and the Construction Work in accordance
with the terms hereof and in a manner consistent with policies established by
the Authority.
WHEREAS, in accordance with the terms hereof, the Authority is to
establish the System Policies and Procedures for the T&D System and the Manager
is responsible for the implementation of those policies.
It is, therefore, agreed as follows:
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ARTICLE I
DEFINITIONS; INTERPRETATION
SECTION 1.1. DEFINITIONS; INTERPRETATION. In this Agreement, unless the
context otherwise requires:
(A) Defined Terms. All initially capitalized terms used and not
otherwise defined herein are used as defined in Appendix 1 hereto. The
definitions set forth in Appendix 1 hereof shall control in the event of any
conflict with the definitions used in the recitals hereto. All terms used herein
and not otherwise defined herein or in Appendix 1 hereto are used as defined in
the Acquisition Agreement.
(B) References Hereto. The terms "hereby," "hereof," "herein,"
"hereunder" and any similar terms refer to this Agreement, and the term
"hereafter" means after, and the term "heretofore" means before, the Contract
Date.
(C) Gender and Plurality. Words of the masculine gender mean and
include correlative words of the feminine and neuter genders and words importing
the singular number mean and include the plural number and vice versa.
(D) Persons. Words importing persons include firms, companies,
associations, general partnerships, limited partnerships, limited liability
companies, trusts, business trusts, corporations and other legal entities,
including public bodies, as well as individuals.
(E) Headings. The table of contents and any headings preceding the text
of the Articles, Sections and subsections of this Agreement shall be solely for
convenience of reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction or effect.
(F) Entire Agreement. This Agreement, the Acquisition Agreement, the
Power Supply Agreement, the Energy Management Agreement, and the Generation
Purchase Right Agreement (the "Basic Agreements") collectively contain the
entire agreement between the parties hereto with respect to the transactions
contemplated by the Basic Agreements and nothing in this Agreement is intended
to confer on any person other than the parties hereto and their respective
permitted successors and assigns hereunder any rights or remedies under or by
reason of this Agreement. Without limiting the generality of the foregoing, this
Agreement and the other Basic Agreements shall completely and fully supersede
all other understandings and agreements among the parties with respect to such
transactions, including those contained in the Agreement in Principle.
(G) Costs and Cost Substantiation. Any cost proposed or incurred by the
Manager which is directly or indirectly chargeable to the Authority in whole or
in part hereunder shall be no greater than the fair market price, to the extent
available, for the good or service provided, or, if there is no market, shall be
a fair and reasonable price; provided, however, that use of Manager inventory
shall be charged to the Authority at the cost Manager paid for such inventory
(excluding any inter-company profit). The Manager shall maintain and, at the
Authority's request, provide Cost Substantiation for all such costs invoiced to
the Authority hereunder, and for all estimates and quotations furnished to the
Authority hereunder for the purpose of reviewing and approving costs for Major
Capital Improvements, Other Costs, additional operation services or other
additional work or costs incurred for which the Authority is responsible
hereunder.
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(H) References to Transmission and Distribution of Power. The phrases
"transmit", "transmitted", "transmitting", and "transmission" and any similar
phrases herein, when used with respect to Power and Energy, shall mean and refer
to the operation of the T&D System in accordance with this Agreement and the
Performance Guarantees to transmit Power and Energy. The phrases "distribute",
"distributed", "distributing" and "distribution" and any similar phrases herein,
when used with respect to Power and Energy, shall mean and refer to the
operation of the T&D System in accordance with this Agreement and the
Performance Guarantees to distribute Power and Energy.
(I) Actions Taken Pursuant to Agreement. The parties acknowledge that
this Agreement sets forth procedures and intended results with respect to
various circumstances which may arise during the Term hereof. Such circumstances
include, without limitation, the "wheeling", "transmission" or "distribution" of
Power and Energy; Changes in Law and other Uncontrollable Circumstances; the
preparation of operating plans and schedules; and the assignment and transfer of
this Agreement. Unless otherwise agreed to by the parties, any such
correspondence, report, submittal, consent or other document or communication
given pursuant hereto on account of such a circumstance shall be considered as
between the parties to be an action taken pursuant to this Agreement and not an
amendment hereto.
(J) Prudent Utility Practice. Prudent Utility Practice shall be
utilized hereunder, among other things, to implement and in no event lower or
diminish, the Contract Standards.
(K) Delivery of Documents in Digital Format. In this Agreement the
Manager is obligated to deliver reports, records, drawings, proposals and other
documentary submittals in connection with the performance of its duties
hereunder. The Manager agrees that all such documents shall be submitted to the
Authority both in printed form (in the number of copies indicated) and, to the
extent reasonably available, in digital form. Electronic copies shall consist of
computer readable data submitted in consistent standard interchange format to
facilitate the administration and enforcement of this Agreement.
(L) Counterparts. This Agreement may be executed in any number of
original counterparts. All such counterparts shall constitute but one and the
same Agreement.
(M) Applicable Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York without regard to any
applicable principles of conflicts of law.
(N) Severability. If any clause, provision, subsection, Section or
Article of this Agreement shall be ruled invalid in any Legal Proceeding, then
the parties shall: (1) promptly meet and negotiate in good faith a substitute
for such clause, provision, section or Article which shall, to the greatest
extent legally permissible, effect the intent of the parties therein; (2) if
necessary or desirable to accomplish item (1) above, apply to the court or other
authority, as applicable, having declared such invalidity for a judicial
construction of the invalidated portion of this Agreement; and (3) negotiate in
good faith such changes in, substitutions for or additions to the remaining
provisions of this Agreement as may be necessary in addition to and in
conjunction with items (1) and (2) above to effect the intent of the parties
reflected in the invalid provision. The invalidity of such clause, provision,
subsection, Section or Article shall not affect any of the remaining provisions
hereof, and this Agreement shall be construed and enforced as if such invalid
portion did not exist.
(O) References to Days. All references to days herein are references to
calendar days.
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(P) Good Faith Obligation. In the performance of any and all of their
respective obligations and responsibilities hereunder, the Authority and the
Manager shall be required to do so in good faith and with due diligence.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF THE AUTHORITY. The
Authority represents and warrants to the Manager that:
(A) Existence and Power. The Authority is a corporate municipal
instrumentality of the State and a body corporate and politic and a political
subdivision of the State of New York validly existing under the Constitution and
laws of the State, with full legal right, power and authority to enter into and
perform its obligations under this Agreement.
(B) Due Authorization and Binding Obligation. The Authority has duly
authorized the execution and delivery of this Agreement. This Agreement has been
duly executed and delivered by the Authority and constitutes a legal, valid and
binding obligation of the Authority, enforceable against the Authority in
accordance with its terms except insofar as such enforcement may be affected by
bankruptcy, insolvency, moratorium and other laws affecting creditors' rights
generally.
(C) No Conflict. Neither the execution nor the delivery by the
Authority of this Agreement nor the performance by the Authority of its
obligations hereunder nor the consummation by the Authority of the transactions
contemplated hereby (1) conflicts with, violates or results in a breach of any
law or governmental regulation applicable to the Authority or (2) conflicts
with, violates or results in a breach of any term or condition of any judgment,
decree, agreement or instrument to which the Authority is a party or by which
the Authority or any of its properties or assets are bound, or constitutes a
default under any such judgment, decree, agreement or instrument.
(D) No Litigation. There is no action, suit or other proceeding, at law
or in equity, before or by any court or governmental authority pending or to the
Authority or to the Authority's best knowledge, without having undertaken
independent investigation, threatened against the Authority, which is likely to
result in an unfavorable decision, ruling or finding which would materially and
adversely affect the validity or enforceability of this Agreement or any other
agreement or instrument to be entered into by the Authority in connection with
the transactions contemplated hereby, or which would materially and adversely
affect the performance by the Authority of its obligations hereunder or under
any such other agreement or instrument.
(E) No Legal Prohibition. There is no Applicable Law in effect on the
date as of which this representation is being made which would prohibit the
performance by the Authority of this Agreement and the transactions contemplated
hereby.
SECTION 2.2. REPRESENTATIONS AND WARRANTIES OF THE MANAGER. The Manager
hereby represents and warrants to the Authority that:
(A) Existence and Power. The Manager is duly organized and validly
existing as a corporation or other entity under the laws of the State of New
York, with full legal right, power and authority to enter into and perform its
obligations under this Agreement.
(B) Due Authorization and Binding Obligation. The Manager has duly
authorized the execution and delivery of this Agreement. This Agreement has been
duly executed and delivered by the Manager and constitutes the legal, valid and
binding obligation of the Manager, enforceable against the Manager in accordance
with its terms except insofar as such enforcement may be affected by bankruptcy,
insolvency, moratorium and other laws affecting creditors' rights generally.
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(C) No Conflict. Neither the execution nor the delivery by the Manager
of this Agreement nor the performance by the Manager of its obligations
hereunder (1) conflicts with, violates or results in a breach of any law or
governmental regulation applicable to the Manager, (2) conflicts with, violates
or results in a breach of any term or condition of any judgment, decree,
contract, agreement (including, without limitation, the certificate of
incorporation of the Manager) or instrument to which the Manager is a party or
by which the Manager or any of its properties or assets are bound, or
constitutes a default under any such judgment, decree, agreement or instrument
or (3) will result in the creation or imposition of any Encumbrance of any
nature whatsoever upon any of the properties or assets of the Manager.
(D) No Litigation. There is no action, suit or other proceeding, at law
or in equity, before or by any court or governmental authority, pending or, to
the Manager's best knowledge, threatened against the Manager which is likely to
result in an unfavorable decision, ruling or finding which would materially and
adversely affect the validity or enforceability of this Agreement or any other
agreement or instrument entered into by the Manager in connection with the
transactions contemplated hereby, or which would materially and adversely affect
the performance by the Manager of its obligations hereunder or by the Manager
under any such other agreement or instrument.
(E) No Legal Prohibition. There is no Applicable Law in effect on the
date as of which this representation is being made which would prohibit the
execution, delivery or performance by the Manager of this Agreement and the
transactions contemplated hereby.
(F) Patents and Licenses. The Manager and its Affiliates own or possess
all patents, rights to patents, trademarks, copyrights and licenses necessary to
be owned or possessed by the Manager and its Affiliates for the performance by
the Manager of this Agreement and the transactions contemplated hereby, without
any known material conflict with the rights of others.
(G) T&D System Familiarity. The Manager acknowledges that: (1) the
Manager, as the prior owner and operator of the T&D System is thoroughly
familiar with the entire T&D System and has had control over and has operated
the T&D System; (2) the Manager is familiar with local conditions which may be
material to the Manager's performance of its obligations under this Agreement;
and (3) based on the foregoing, the T&D System is acceptable and suitable for
the performance of the Manager's obligations hereunder and will permit the
Manager to safely and reliably operate and maintain the T&D System in compliance
with the terms and conditions of this Agreement. In making such acknowledgment,
the Manager is not relying on the Authority.
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ARTICLE III
OWNERSHIP OF THE TRANSMISSION AND DISTRIBUTION SYSTEM
SECTION 3.1. OWNERSHIP OF THE T&D SYSTEM. (A) Authority Ownership. The
T&D System is and shall be owned by the Authority (or a subsidiary thereof)
throughout the Term of this Agreement. The Manager shall not have any legal,
equitable, tax, beneficial or other ownership or leasehold interest in the T&D
System.
(B) Engagement of Manager. The Authority hereby engages the Manager as
an independent contractor to furnish the services described in this Agreement at
and for the compensation provided for hereunder. The Manager hereby accepts such
engagement upon the terms and conditions provided for herein.
(C) Use. During the Term hereof, the Manager may enter upon, occupy and
operate the T&D System to perform the Operation and Maintenance Services and/or
manage Construction Work for the Authority, all in accordance herewith, and for
no other purpose unless otherwise directed or approved by the Authority.
(D) Encumbrances. The Manager shall not, without the Authority's prior
written consent, directly or indirectly, create or permit to be created or to
remain, and will promptly discharge, at its expense, any Encumbrance on the T&D
System, other than (1) Encumbrances existing as of the date hereof, or (2) any
Lien affecting the T&D System (i) resulting solely from any action or failure to
act by the Authority or anyone claiming by, through or under the Authority
(other than the Manager and persons claiming by, through or under the Manager);
or (ii) created by Subcontractors that are promptly discharged or bonded against
by the Manager. Nothing in this Agreement shall be deemed to create any Lien or
Encumbrance in favor of the Manager on any asset of the Authority, including the
T&D System, as security for the obligations of the Authority hereunder.
(E) Surrender of the T&D System. At the end of the Term hereof, the
Manager shall peaceably leave and surrender the T&D System to the Authority in a
condition consistent with the Manager's construction, operation, maintenance,
repair and replacement responsibilities hereunder. In conjunction with such
surrender, the Exit Test shall be conducted in accordance with Section 8.3
hereof.
(F) Right of Access. Notwithstanding any other provision of this
Agreement, beginning on the Closing Date, the Authority, as the owner of the T&D
System, shall have a right of unrestricted access to the T&D System for itself,
its consultants and agents at such times and for such purposes as it deems
necessary or desirable. In addition, the Authority shall have a right of
reasonable access to the T&D System for other visitors upon reasonable notice to
the Manager. The Authority and its consultants and agents also shall have a
right of unrestricted access to the Allocated Common Facilities during normal
business hours and, with reasonable notice, outside of normal business hours.
When, as reasonably determined by the Authority to be necessary due to the
nature of the task performed, access to the Common Facilities shall be allowed
to the Authority and its consultants and agents on an unannounced basis for
audit and oversight purposes. All Authority personnel, representatives,
designees and other visitors shall comply with the Manager's on-site safety
policies and procedures. The Authority and its consultants and designees shall
have a dedicated on-site office space located at the current LILCO headquarters
building or another suitable site mutually agreed upon and a separate work space
adequate to enable the Authority to exercise its oversight rights and
responsibilities under this Agreement. Such work space initially shall include a
separate lockable room or rooms large enough for six people and shall provide
space sufficient for computer terminals, a printer, telephones, a fax machine,
lockable file cabinets and desks and other office equipment and supplies. The
file cabinets and desks shall be able to
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be locked or unlocked only by the Authority. All Authority personnel,
representatives and agents shall have access to a photocopying machine and other
commonly used supplies and facilities located on-site. In addition, the Manager
shall make available such additional or different office and work space and
equipment and supplies as reasonably requested by the Authority from time to
time.
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ARTICLE IV
OPERATION OF THE T&D SYSTEM
SECTION 4.1. T&D SYSTEM GENERALLY. (A) Reliance. The Manager
acknowledges that the Authority, in meeting the Power and Energy requirements of
the Service Area, in providing an essential public service, and in complying
with Applicable Law, will rely on the performance by the Manager of its
obligations hereunder.
(B) Limitations on Manager Rights. The Manager shall not transmit or
distribute Power and Energy other than Power and Energy obtained by, on behalf
of, or with the approval of the Authority, and shall not use the T&D System for
any purpose other than the purposes contemplated hereby or to serve or benefit
any person other than the Authority and its retail and wholesale customers in
the Service Area.
(C) Curtailments and Shutdowns. If deliveries of Power and Energy
through the T&D System are temporarily reduced, curtailed or shut down for any
reason, the Manager shall, with due consideration of its responsibility for
safety and system reliability, immediately advise the Authority as to the
nature, reason and probable duration thereof and the expected effect thereof on
the operation of the T&D System. Such notices shall be given in accordance with
Appendix 3 hereto which shall be agreed upon by the Manager and the Authority.
Any announcement concerning such events made to the public or the media shall be
made in accordance with the provisions of subsection 4.2(B) and Section 4.5
hereof.
SECTION 4.2. OPERATION AND MAINTENANCE. (A) General. Commencing on the
Closing Date, the Manager shall provide Operation and Maintenance Services and
Construction Work for the T&D System on behalf of the Authority in accordance
with the Contract Standards.
(B) Scope of Services. Without limiting the generality of the
provisions of subsection 4.2(A) hereof, the Manager shall be responsible for the
safe and reliable operation and maintenance of the T&D System, management and/or
performance of construction of improvements thereto and delivery of Power and
Energy to the Authority's customers and shall be specifically responsible for
the following tasks and services:
(1) General. The Manager shall be responsible for the following
activities:
(a) day-to-day operation and maintenance of the T&D System,
including emergency repairs and maintenance of an Open Access
Same-time Information System (OASIS);
(b) performance of routine facility additions and improvements,
including customer connections and disconnections;
(c) construction activities performed by the Manager's work force
as part of its routine operation and maintenance activities as well in
connection with Construction Work;
(d) supervision (including engineering and related design and
construction management services) of routine and major capital
improvements;
(e) preparation of recommended and monitoring of approved annual
capital and operating expenditure budgets, load and energy forecasts
and long and short range system and
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strategic plans including integrated electric resource planning and
system and policy modifications necessary to transition to a
competitive environment;
(f) preparation of long and short range transmission and
distribution planning analyses to determine the need for capital
additions to and to assure the reliability of the T&D System;
(g) performance of accounting and tax and payment in lieu of tax
reporting functions and preparation of monthly reports concerning the
T&D System, including the maintenance of the fixed assets records;
(h) procurement from third parties of other goods and services in
connection with Operation and Maintenance Services, Construction Work
and inventory management in accordance with pre-established guidelines
developed by the Manager and approved by the Authority;
(i) compliance with Applicable Law;
(j) operation of the T&D System in compliance with applicable
provisions of the Authority bond resolutions, copies of which shall be
furnished by the Authority to the Manager, and with other requirements
pertaining to qualification of the Authority's bonds for tax-exemption
under the Code, which requirements shall be furnished, or otherwise
specified to, the Manager;
(k) repair or modification activities required due to Public
Works Improvements;
(l) provision of personnel and human resource-related matters and
personnel training for Manager personnel and provision of emergency
and other training to the Authority personnel (the extent of such
Authority personnel and training to be defined and established in
adopted Annual T&D Budgets approved by the Authority);
(m) day to day legal and tax management responsibilities relating
to the operation and maintenance of the T&D System and performance of
the Construction Work and Public Works Improvements;
(n) maintenance of the Operation and Maintenance Manuals for use
by Manager and by the Authority and its designees in accordance with
subsection 4.2(D) hereof;
(o) other actions necessary to safely and reliably operate the
T&D System in accordance with Prudent Utility Practice;
(p) administration and management, at the direction of the
Authority, of the Authority's interest in Nine Mile Point 2, including
participation in meetings of the joint owners of Nine Mile Point 2;
(q) billing and collection, in accordance with Authority
direction, of all attachment fees, rents and other revenues due to the
Authority associated with telecommunications and other equipment
attached to or located on the T&D System or T&D System Site; and
(r) billing and collection, in accordance with Authority
direction, of all fees and charges in connection with the use or
availability of the T&D System for wheeling services.
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(2) Implementation of Emergency Response and Reporting. The Manager
shall be responsible for implementation of all necessary emergency response
and reporting relating to the T&D System, including but not limited to,
response and reporting relating to storms and other unusual weather
occurrences. Such tasks and responsibilities at a minimum shall be
consistent with current NYSPSC standards applicable to the T&D System and
Prudent Utility Practice, except as otherwise reasonably directed by the
Authority, and shall include:
(a) timely reporting to the Authority of such emergency
conditions including regular updates as to the courses of action taken
in response thereto or in anticipation thereof and progress made in
responding to such emergency conditions;
(b) storm monitoring and mobilization of Manager, Manager
Affiliate or Subcontractor workforce (including workforce available
under mutual assistance agreements) in connection with anticipated
storms;
(c) media, fire, police, and local government coordination;
(d) customer communications;
(e) system condition monitoring;
(f) repair and replacement of damaged components of the T&D
System;
(g) public safety activities; and
(h) restoration of the T&D System to pre-emergency conditions.
(3) Customer Service Programs. The Manager shall be responsible for
implementation of Authority-approved customer service programs for the T&D
System which, at a minimum, shall be consistent with current NYSPSC
practices and standards applicable to the T&D System and Prudent Utility
Practice, except as otherwise directed by the Authority, and shall include,
but not be limited to, using its best efforts:
(a) complete and timely response to customer inquiries;
(b) development and maintenance of all necessary information and
accounting systems and controls relating to the provision and
reporting of customer services;
(c) marketing for retail system expansion and retail customer
retention;
(d) complete, timely and accurate reading of customer meters,
issuance of customer bills in a format approved by the Authority, and
timely collection of customer payments consistent with Section 4.9 and
timely investigation of customer bill inquiries and unusual usage;
(e) timely collection of reliability, meter reading, call
answering, collection and customer satisfaction performance data;
(f) inclusion of any communications to customers requested or
approved by the Authority in customer bills related to the provision
of energy services;
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(g) other communications (all of which shall be
Authority-approved) to T&D System customers; and
(h) under Authority direction, assist in the development and/or
implementation of energy conservation and load management programs for
the T&D System and its customers, including coordination with third
parties or other resources necessary or desirable to develop and
implement such programs.
(4) Revenue Requirements and Rate Design. The Manager shall be
responsible for (i) the preparation of recommended revenue requirements for
the management of the T&D System in accordance with this Agreement, (ii)
the preparation of recommended rate classification and designs for the T&D
System; and (iii) at the Authority's request, public presentation of
recommended rate and capital expenditure adjustments at the Authority rate
hearings.
(C) T&D System Supervisor. The Manager shall appoint the supervisor of
the T&D System (the "T&D System Supervisor") within 30 days after the Contract
Date, who shall have at least ten (10) years experience with respect to the
management of the T&D System, a similar system or an electric utility generally,
and who shall be responsible for the day to day operation and maintenance of the
T&D System. The Manager shall inform the Authority of the identity of the person
serving from time to time as T&D System Supervisor, and of the telephone and
beeper numbers or other means by which such person and his or her designee may
be contacted at all times. The Manager and the Guarantor shall appoint officials
with senior supervisory responsibility for the operation of the T&D System (the
"Senior Executives") and shall inform the Authority of the telephone and beeper
numbers or other means by which such persons may be contacted at all times.
Recognizing the need for an amicable working relationship between the Authority
and the Manager, the Authority shall approve the appointment of the T&D System
Supervisor and all other Senior Executives of the Manager and any successors
thereto, such approval not to be unreasonably withheld. The Senior Executives
and the T&D System Supervisor shall attend monthly meetings, following Authority
receipt and review of the monthly reports delivered pursuant to Section 4.15(A)
hereof, with the Authority to discuss such matters as either party deems
appropriate.
(D) Operation and Maintenance Manual. At the request of Authority, the
Manager shall provide the Authority its representatives, consultants and agents
with access to the existing Operation and Maintenance Manual during the
Pre-Closing Period and shall modify, as necessary, such manuals to reflect the
conditions of this Agreement and any other changes in circumstances and deliver
to the Authority six (6) copies of an updated Operation and Maintenance Manual
no later than 60 days prior to the Closing Date. The Manager shall review and
discuss in good faith with the Authority any aspect of the existing and updated
Operation and Maintenance Manual. The content of the updated Operation and
Maintenance Manual shall be consistent with the terms and provisions of this
Agreement, shall provide for the operation and maintenance of the T&D System and
the training of employees in accordance with the Contract Standards, and shall
otherwise be sufficiently detailed to permit the T&D System to be operated and
maintained by a third party reasonably experienced in electricity transmission
and distribution operations. Neither the review of or comment upon, nor the
failure of the Authority to comment upon, the Operation and Maintenance Manual
shall relieve the Manager of any of its responsibilities under this Agreement,
be deemed to constitute a representation by the Authority that operating the T&D
System pursuant to the Operation and Maintenance Manual will cause the T&D
System to be in compliance with this Agreement and the Contract Standards, or
impose any liability upon the Authority except as expressly provided in
subsection 4.2(E) hereof. During the Term, the Manager shall remain responsible
for the Operation and Maintenance Manual and shall keep it current by making
necessary updates, supplements or revisions thereto to reflect the Contract
Standards. Manager shall promptly supply the Authority with six (6) copies of
any such updates, supplements or revisions thereto.
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The Authority shall have the right to review and comment on any such updates,
supplements or revisions prior to their inclusion in the Operation and
Maintenance Manual. Upon the commencement of procurements for future contract
bids for the management of the T&D System, the Operation and Maintenance Manual,
with the exception of that information that the parties mutually agree in
writing is proprietary, shall be available to any qualified prospective bidder.
The Authority shall require such qualified prospective bidders to treat the
Operation and Maintenance Manual confidentially.
(E) Delivery of Manual on Termination. Upon the expiration or
termination of this Agreement for any reason whatsoever, the Manager shall
deliver to the Authority the Operation and Maintenance Manual for use in
connection with the operation and maintenance of the T&D System. Any final
payments due at the time of the termination of the Agreement shall be
conditional upon delivery of such Operation and Maintenance Manual. Such manual
will be available for use by any subsequent manager, provided any such manager
is required by the Authority to also maintain the confidentiality of information
contained therein and is prohibited from using any such information other than
in connection with the management of the T&D System. The Authority will hold
Manager harmless from any Loss and Expense solely resulting from any claims or
Legal Proceedings commenced by third parties based upon use by subsequent
managers of such manuals.
SECTION 4.3. MAINTENANCE AND REPAIR OF T&D SYSTEM. (A) General. The
Manager shall maintain the T&D System, the T&D System Site and the Common
Facilities in good working order and repair and in a neat and orderly condition
(including the cleanup of litter and debris as required), and shall conduct
periodic, corrective, and preventive maintenance and repair of the T&D System
consistent with the Contract Standards for the purpose of, among other things,
mitigating and preventing abnormal wear, tear and usage. The Manager shall also
maintain a spare parts inventory as required under the Contract Standards. The
Manager shall maintain the aesthetic quality of the T&D System and the T&D
System Site; provided, however, that such maintenance responsibility shall not
materially adversely affect the reliability of the T&D System. As used herein,
"maintenance" means those routine and/or repetitive activities required or
reasonably recommended by the equipment or facility manufacturer, by the
Authority or by Manager, or customary in the industry to provide for the normal
useful life of property, plant, equipment or other capital items. As used
herein, "repair" means those non-routine/non-repetitive activities required for
operational continuity, safety and performance generally due to failure or to
avert a failure of the T&D System or any of its components. If the Manager
chooses to defer any scheduled maintenance or repair provided for in any
maintenance or repair program or in the Annual T&D Budget that is in excess of a
per item or category dollar amount or a dollar amount on a cumulative basis,
such dollar amount to be agreed upon by the parties prior to the adoption of the
initial Annual T&D Budget or for more than a number of months to be agreed upon
by the parties prior to the adoption of the initial Annual T&D Budget, the
Manager shall so advise the Authority and provide satisfactory justification
therefor, provided that the Manager may not defer any maintenance or repairs if
such deferral could reasonably be expected to materially and adversely affect
the reliability or safety of the T&D System.
(B) Maintenance Expenditures. The Manager shall be authorized to make
expenditures for routine repair, maintenance, or replacement as set forth in the
Annual T&D Budget. The Authority may require that the Annual T&D Budget set
forth, on a project or category basis, anticipated repairs, maintenance, or
replacement in excess of a dollar amount to be agreed upon by the parties prior
to the adoption of the initial Annual T&D Budget. The Manager shall provide
proposals to, and obtain prior written authorization from, the Authority for
routine repair, maintenance, or replacement projects or categories not set forth
in the Annual T&D Budget if the projected cost therefor is reasonably estimated
to exceed a dollar limit for such projects or categories to be agreed upon by
the parties prior to the adoption of the initial Annual T&D Budget; provided,
however, the Manager shall
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respond immediately to any emergency situations and shall notify the Authority
immediately upon initiating such emergency response.
(C) Ownership of T&D System Assets. All additions to the T&D System
purchased in conjunction or for the use with any part of the T&D System during
the Term shall be the property of the Authority, except those which are leased
or constitute part of the Common Facilities. Manager shall maintain, and provide
to the Authority, perpetual records of all capital items purchased, installed or
constructed (including, without limitation, vehicles, fixtures and equipment)
with the Authority's funds.
(D) Retirement of T&D System Assets. In the event the Manager intends
to retire from service T&D System assets constituting a "unit of property" as
set forth in the Authority's capital asset policies with an original cost at
least equal to a dollar amount that will be agreed upon by the parties prior to
the adoption of the initial Annual T&D Budget, the Manager shall notify the
Authority either in the proposed Annual T&D Budget, or, if the Annual T&D Budget
has been adopted for the applicable Contract Year, at least 90 days prior to the
scheduled retirement date. The Manager may not retire such T&D System assets
without the prior written approval of the Authority. Any salvage or residual
value of any T&D System assets shall be for the account of the Authority. All
retirements shall be conducted in accordance with the Bond Resolution.
(E) Insurance and Other Third Party Payments. To the extent that any
repair or replacement costs that are incurred pursuant to this Article can be
recovered by the Manager from any insurer providing the Required Construction
Work Insurance or the Required Operating Period Insurance, or from another third
party, the Manager shall exercise with due diligence such rights as it may have
to effect such recovery. The Manager shall give prompt written notice to the
Authority of the receipt of any such recovery which shall be applied as
appropriate to the restoration or reconstruction of the T&D System in accordance
with the Bond Resolution. The Manager shall provide the Authority with copies of
all documentation, and shall afford the Authority a reasonable opportunity to
participate in and, if the Authority so determines, to direct all conferences,
negotiations and litigation, regarding insurance claims which materially affect
the Authority's interest under this Agreement. All applicable insurance
recoveries shall be applied to reducing the cost of restoration or
reconstruction.
SECTION 4.4. PERFORMANCE GUARANTEES. (A) Compliance and Remedies.
Commencing on the Closing Date, the Manager shall at all times comply with the
Performance Guarantees, except to the extent excused by Uncontrollable
Circumstances or Authority Fault. If the Manager fails to comply with any
Performance Guarantee, the Manager shall, without relief under any other
Performance Guarantee under this Agreement, (1) promptly notify the Authority of
any such noncompliance, (2) promptly provide the Authority with copies of any
notices sent to or received from any Governmental Body having regulatory
jurisdiction with respect to any violations of Applicable Law, (3) promptly make
any applicable payments provided for herein, and to the extent required under
Section 6.10 hereof, any other resulting damages, fines, levies, assessments,
impositions, penalties or other charges resulting therefrom, and (4) at its own
cost and expense to the extent required under Section 6.10 hereof, promptly take
any action (including without limitation making all repairs, replacements and
operating changes) necessary in order to comply with such Performance Guarantee,
continue or resume performance hereunder and eliminate the cause of, and avoid
or prevent recurrence of noncompliance with such Performance Guarantee.
(B) Conditions to Performance Guarantee Relief. The Manager shall be
relieved of its obligation to comply with a Performance Guarantee to the extent
and for any period during which the operation of the T&D System is affected by
the occurrence of an Uncontrollable Circumstance or Authority Fault. Should any
such circumstances occur, the Manager shall nonetheless (1) in accordance with
the Contract Standards, use its best efforts to mitigate any noncompliance with
such Performance
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Guarantee and restore T&D System performance to comply with this Agreement as
rapidly as practicable, and (2) promptly advise the Authority of the
circumstances and the Manager's planned course of action.
SECTION 4.5. RIGHTS AND RESPONSIBILITIES OF THE AUTHORITY. (A)
Generally. As the owner of the T&D System, the Authority retains the ultimate
authority and control over the assets and operations of the T&D System and the
right to direct the Manager, consistent with the provisions of the Agreement in
connection with the performance of the Manager's obligations under this
Agreement. Without limiting the generality of the foregoing, the Authority's
specific rights and responsibilities with respect to the T&D System shall
include:
(a) the right to determine all T&D System rates and charges, line
extension policies and service rules and regulations applicable to the T&D
System and System Power Supply;
(b) the right to determine and to change from time to time, in its sole
discretion, all policies and procedures for the T&D System consistent with
Applicable Law and Prudent Utility Practice;
(c) the right to review, amend as appropriate and approve annual
capital and operating expenditure budgets pursuant to the procedures outlined in
subsection 6.2(B) hereof and approve or in its discretion, develop, all
long-range strategic plans for the T&D System and System Power Supply;
(d) to the extent the Manager acts as the representative of the
Authority in connection with the North American Electric Reliability Council,
Northeast Power Coordinating Council, the New York Power Pool, the ISO and any
other similar institutions or organizations, the right to direct the Manager's
actions with respect thereto;
(e) the right to determine customer service programs for the T&D
System;
(f) the right to determine customer and public communications policy;
including the right to determine all billing formats, bill inserts, flyers and
other advertisements distributed by Manager (other than communications required
to address emergencies);
(g) the right to review and approve the power resource model/plan
developed for the T&D System and the load forecast developed by the Manager;
(h) the right to determine all energy efficiency and conservation and
load management policies and plans for the T&D System;
(i) the responsibility for management of the Authority's financial
resources including, but not limited to, determination of the source of
financing for major projects;
(j) responsibility for compliance with Bond Resolution provisions
regarding third party expert review of the annual operating and capital budgets
and compliance with rate covenants;
(k) overall legal responsibilities;
(l) responsibility for governmental relations and reporting, except to
the extent the Authority has expressly authorized and directed the Manager to
assist in such activities;
(m) the right to oversee and audit Manager operations and performance
under this Agreement;
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(n) the right and responsibility for establishing future management
service contract procurement procedures and selecting a new manager or managers
for the T&D System and other Manager functions hereunder;
(o) the right to approve all contracts entered into by the Manager to
the extent required to meet the requirements of the state law applicable to the
Authority and as otherwise determined by the Authority;
(p) the responsibility to respond in a timely manner to all requests of
Manager for action or decision by the Authority with respect to all matters
requiring the approval, review or consent of the Authority hereunder and as to
such other matters relating to the obligations of the Manager hereunder as to
which the Manager shall reasonably request the response of the Authority in
accordance with the provisions of this Agreement;
(q) the right of review and approval of recommended power supply
agreements and the right to own and construct new generation capacity;
(r) the right to establish policies for the T&D System generally,
including, without limitation, policies governing wholesale or retail access;
(s) the responsibility, on an annual and five year basis, to provide
the Manager with estimates for Authority's costs required to be funded with T&D
System revenues;
(t) the responsibility to directly make all appropriate payments in
lieu of taxes or taxes imposed on the Authority;
(u) the responsibility to undertake the obligations imposed on the
Authority as an owner of an interest in Nine Mile Point 2 under the provisions
of the Nine Mile Point Nuclear Station Unit 2 Operating Agreement and to
directly make all appropriate payments relating to the Authority's ownership
interest in Nine Mile Point 2.
In the event that any obligation of Manager hereunder conflicts with
Applicable Law, Applicable Law shall govern with respect to the Manager's
performance required hereunder.
(B) T&D System Policies and Procedures. Not later than thirty days
prior to the date on which the Manager is required to submit the proposed
initial Annual T&D Budget, the Authority will establish initial policies and
procedures for the operation and maintenance of the T&D System, which will take
into consideration, but not be bound by, policies and procedures in effect prior
to the Closing Date. Authority shall promptly notify the Manager of any
subsequent changes to the System Policies and Procedures. Appendix 14 provides a
preliminary outline of the topics for which the Authority will adopt such
policies and procedures.
(C) T&D System Access Policies and Prices. The Authority intends to
establish non-discriminatory prices and policies for access to, and use of, its
transmission facilities for its customers, Manager or its Affiliates, and other
parties providing similar services, in a manner which is designed to enable the
Authority to recover its costs and will not inequitably shift costs among
customers or classes of customers.
(D) Authority Representative. Not later than 30 days after the Contract
Date, the Authority shall select a representative (the "Authority
Representative"). The Authority Representative will act for and on behalf of the
Authority on all matters concerning this Agreement for which the
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Authority has authorized such representative to act. The Authority shall advise
the Manager as to the scope of such authorization. In all such matters, the
Authority shall be bound, to the extent permitted by Applicable Law, by the
written communications, directions, requests and decisions made by the Authority
Representative. The Authority shall promptly notify the Manager in writing of
the selection of the Authority Representative and any subsequent replacement(s).
(E) No Acceptance, Waiver or Release. No exercise of rights or failure
to exercise rights by the Authority hereunder shall be construed as the
Authority's acceptance of any Operation and Maintenance Service which is
defective, incomplete, or otherwise not in compliance with this Agreement, as
the Authority's release of the Manager from any obligation under this Agreement,
as an estoppel against the Authority, or as the Authority's acceptance of any
claim by the Manager. Notwithstanding any review or approval of the Authority
hereunder, in no event shall the Manager be excused from the performance of its
responsibilities hereunder, except to the extent due to Authority Fault, subject
to Section 6.5, or Uncontrollable Circumstances, subject to Section 9.2.
SECTION 4.6. STAFFING AND LABOR ISSUES. The Manager shall staff the T&D
System during the Term of this Agreement with the appropriate number of hourly
and salaried employees and utilize Subcontractors consistent with the Contract
Standards. The Manager shall provide proper training for the Manager's employees
in the performance of their work under this Agreement. The Manager shall give
due consideration to any comments of the Authority with respect to the
performance of specific employees. At all times, the Manager shall comply with
Prudent Utility Practice and Applicable Law with respect to the Manager's
employees and with respect to the Manager's obligations under this Agreement,
including, but not limited to, ERISA, wage withholding, social security, equal
employment opportunity, age and disability discrimination, unemployment
insurance, hours of labor, wages, working conditions, OSHA, immigration control
and other employer-employee related subjects. The Manager shall provide to the
Authority copies of the Manager's salary administration plan and the job
descriptions for each of the Manager's employees on the Closing Date and shall
thereafter provide copies of all subsequent amendments and changes thereto. The
Manager recognizes that a substantial portion of the work force at the T&D
System is currently unionized and agrees to honor existing labor contracts and
will not rely upon mandatory lay-offs to achieve any operational efficiencies.
The Manager shall require that Subcontractors agree to pay prevailing wage rates
and employee benefits in connection with the performance of the Operation and
Maintenance Services and Construction Work that is performed by a Subcontractor
(other than pursuant to existing Subcontractor arrangements and renewals and
replacements thereof) which would otherwise have been performed by union
employees of the Manager.
SECTION 4.7. SAFETY. The Manager shall maintain a safe T&D System at a
level at least consistent with the Contract Standards. Without limiting the
foregoing, the Manager shall: (1) take all reasonable precautions for the safety
of, and provide all reasonable protection to prevent damage, injury or loss by
reason of or related to the operation of the T&D System to, (a) all employees
working at the T&D System and all other persons who may be involved with the
operation or maintenance of the T&D System, (b) all materials and equipment
under the care, custody or control of the Manager on the T&D System Site, and
(c) other property on the T&D System Site, including trees, shrubs, lawns,
walks, pavements, roadways, structures and utilities; (2) establish and enforce
all reasonable safeguards for safety and protection, including posting danger
signs and other warnings against hazards and promulgating safety regulations;
(3) give all notices and comply with all Applicable Laws relating to the safety
of persons or property or their protection from damage, injury or loss; and (4)
designate a qualified and responsible employee at the T&D System whose duty
shall be the supervision of plant safety, the prevention of fires and accidents
and the coordination of such activities as shall be necessary with federal,
State and local officials.
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SECTION 4.8. VEHICLES AND EQUIPMENT. (A) Vehicle and Equipment
Identification. The Manager's name, and vehicle or equipment number shall be
visibly displayed on both sides of its vehicles or other equipment used by the
Manager in the operation and maintenance of the T&D System. All such vehicles
and equipment owned by the Authority and used by the Manager shall also display
the name of the Authority as owner and identify the Manager as the operator. The
size and placement of such identifying information shall be approved by the
Authority. No other signs or markings shall be placed in the vehicles or other
equipment used by the Manager without the prior approval of the Authority,
except signs or markings relative to use of such equipment including traffic
safety signs or other safety markings.
(B) Vehicle Specifications, Maintenance and Appearance. All vehicles
used by the Manager in providing the Operation and Maintenance Services or in
conducting any Construction Work shall be registered with the appropriate state
Department of Motor Vehicles, shall be kept clean and in good repair, and shall
be uniformly painted. No advertisement or other display shall be carried on any
vehicle without the written approval of the Authority.
SECTION 4.9. CUSTOMER SERVICES, RATES AND RULES OF SERVICE. (A)
General. The Manager shall perform normal and customary customer services in a
manner designed to achieve the highest level of customer service, including, but
not limited to: customer account service and maintenance; service restorations
account inquiry work; customer assistance, credit and collection services;
cashiering; account connection and disconnection; and conservation advice.
(B) Billing Services. The Manager shall, unless otherwise directed by
the Authority, read the meters of electric commercial, industrial, residential
heating and residential multiple rate period customers on a monthly basis and
all other electric customer meters on a bi-monthly basis. Manager shall,
according to the schedule of rates, tariffs and policies (the "Schedule of
Rates") then in effect, render bills to all T&D System customers in the name of
the Authority for electric service delivered on behalf of the Authority and in
the format determined by the Authority. To the extent directed by the Authority,
such bills shall also reflect electric services provided to T&D System customers
by other parties. The Authority may implement changes to such rates, rules of
service, regulations and procedures by giving written notice to the Manager not
later than sixty (60) days prior to the effective date of such change to the
extent practicable given the nature of the change.
(C) Account Records. The Manager shall maintain customer bills and
records as the Authority reasonably requests setting forth in accurate and
reasonable detail the actual and estimated meter readings, billing determinants,
charges made to the Authority's customers in accordance with the Schedule of
Rates, and payments received from each of the Authority's customers. At a
minimum, the Manager shall maintain the records in a manner such that data by
various customer classifications can readily be reported on a monthly basis, for
the fiscal year to date and for the most recent twelve-month period. The Manager
shall retain any records that it is required to maintain pursuant to this
subparagraph for the term of this Agreement and shall deliver them to the
Authority upon the Authority's request.
(D) Collection of Monies. The Manager shall use best efforts to collect
on a timely basis (1) all amounts due the Authority for service provided to
customers, and for other services, in accordance with the Schedule of Rates for
the periods in which services were provided, and (2) other monies owed to the
Authority pursuant to the operation of the T&D System. At the Authority's
direction, the Manager shall investigate and implement checking account debit
payment procedures for payment of customer bills. The Manager's responsibilities
shall also include, consistent with the System Policies and Procedures, the
institution of legal proceedings in the Authority's name to collect utility
billings and other monies owed the Authority related to the T&D System. The
Manager shall provide current billing information concerning customers of the
T&D System to the Authority monthly in such
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form as reasonably requested by the Authority and historical billing information
as otherwise reasonably requested by the Authority. All monies collected by the
Manager or its Subcontractors shall be the property of the Authority and shall
be deposited by the Manager daily in the account of the Authority specified
pursuant to Section 4.16. In collecting such monies, the Manager and any
Subcontractor shall act solely as an agent for the Authority and shall have no
right or claim to such moneys and, without limiting the generality of the
foregoing, shall have no right to assert a claim of set-off, recoupment,
abatement, counterclaim or deduction for any amounts which may be owed to the
Manager hereunder or with respect to any other matter in dispute hereunder. The
Manager is unconditionally and absolutely obligated to pay or deposit all such
monies as directed by the Authority.
It is expected that in accordance with current practice, gas customers
of Manager's Affiliate and the T&D System electric customers will be billed in a
single statement. In the event any electric customer who is also a gas customer
shall pay less than all of the amount due at any time under a single statement,
the amounts collected shall be applied pro rata between the amounts owed by such
customer with respect to electric service and gas service. To the extent moneys
are collected for any power supply services provided by any unrelated party,
amounts collected shall be allocated in accordance with the directions of the
Authority. Manager may elect to bill gas customers separately provided that
Manager shall bear all incremental costs arising by reason of any such election.
(E) Customer Service Office Facilities. The Manager shall maintain at
all times during the Term hereof customer service and/or payment offices within
Nassau and Suffolk Counties and in Far Rockaway with specific minimum
requirements to be agreed upon by the parties. The Manager shall establish a
local toll free customer service number that shall be identified on all
publications, bills and correspondence.
(F) Customer Service Office Hours. Except as otherwise approved by the
Authority, the Manager's customer service office hours shall be, at a minimum,
from 8:30 a.m. to 5 p.m. daily, except Saturdays, Sundays and holidays.
(G) Availability of Representatives. Representatives of the Manager
shall be available during normal business hours for communication with the
Authority or the public.
(H) Emergency Telephone Number. The Manager shall maintain a toll-free
emergency telephone number(s) for use during other than normal business hours.
The Manager shall have a representative, or an answering service to contact such
representative, available at the emergency telephone number during all hours
other than normal office hours.
(I) New Connections. Manager shall provide new customer connection
services, which may include electric facility design, estimation of construction
costs, new service hook-up, credit check and job scheduling.
(J) Customer Retention and Expansion Activities. The Manager shall
undertake, subject to Authority approval, marketing and public information
activities to retain and expand the customer base served by the T&D System in
accordance with the System Policies and Procedures. In its sole discretion, the
Authority may undertake its own marketing and public information activities or
retain other parties to do so. In such event, the Annual T&D Budget will be
appropriately modified.
SECTION 4.10. SERVICE COMPLAINTS AND DEFICIENCIES. (A) Complaints to
Manager. The Manager shall maintain during office hours a complaint service and
a telephone answering system having an answering capacity consistent with the
System Policies and Procedures. All service complaints and billing complaints
will be directed to the Manager. Copies of all complaints shall be
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given to the Authority upon request. The Manager shall record all complaints,
including date and time, complainant name and address, and nature and date and
time of resolution of complaint, in a log. This log shall be available for
inspection by the Authority during the Manager's regular office hours. Copies
thereof shall be furnished to the Authority upon request. The Manager shall also
provide the Authority with a monthly report summarizing the status of any
complaints in such month. In particular, such summary shall specify any
complaints for which dollar damages in excess of a dollar amount to be agreed
upon by the parties prior to the adoption of the initial Annual T&D Budget have
been asserted. The Manager shall take such reasonable actions as may be
warranted in response to customer complaints to retain customers and provide
service in accordance with Prudent Utility Practice, the System Policies and
Procedures and Applicable Law.
SECTION 4.11. COMPLIANCE WITH APPLICABLE LAW. The Manager shall operate
and maintain the T&D System and otherwise perform all of its obligations
hereunder in accordance with Applicable Law. In the event that the Manager fails
at any time to comply with Applicable Law, then the Manager shall immediately
remedy such failure and, to the extent required by Section 6.10 hereof, do so at
its cost and expense and bear all Loss-and-Expense of either party resulting
therefrom subject, however, to the provisions hereof regarding Uncontrollable
Circumstances or Authority Fault and Section 6.10 hereof. Any such damage, fine,
assessment or other charge paid by the Manager due to a violation of Applicable
Law caused by Uncontrollable Circumstances or Authority Fault or with respect to
which Manager is not responsible under Section 6.10 hereof shall be reimbursed
to the Manager. Notwithstanding whether a regulatory enforcement action has been
undertaken by a Governmental Body, the Authority shall have an independent right
to require Manager to comply with all applicable Legal Entitlements and
Applicable Law.
SECTION 4.12. LICENSES, PERMITS AND APPROVALS. The Manager shall
identify for the Authority, prepare, and with Authority approval, make and
prosecute all filings, applications and reports necessary to obtain and maintain
all permits, licenses and approvals required to be made, obtained or maintained
by each under Applicable Law in order to operate the T&D System. Draft and
record copies of all such documents shall be timely given to the Authority. The
Manager shall supply all data and information in a timely manner, which may be
required and which is in the Manager's knowledge or control, and shall take all
other action necessary or desirable in order to assist the Authority in
obtaining, maintaining, renewing, extending and complying with the terms of all
permits, licenses and approvals necessary subsequent to the Closing Date in
order to perform the Operation and Maintenance Services and any Construction
Work. The data and information supplied by the Manager to the Authority and all
regulatory agencies in connection therewith shall be correct and complete in all
material respects, and to the extent required under Section 6.10 hereof the
Manager shall be responsible for any schedule and cost consequences which may
result from the submission of materially incorrect or incomplete information.
Except as directed by the Authority, the Manager shall not submit any data or
information directly to the regulatory agencies unless required to do so under
Applicable Law or by the terms of an existing license, permit or approval. The
Manager shall report immediately to the Authority all violations of the terms
and conditions of any permit, license, approval or Applicable Law pertaining to
the T&D System.
SECTION 4.13. OPERATING PERIOD INSURANCE. Commencing with the Closing
Date and continuing throughout the remainder of the Term of this Agreement, the
Manager shall obtain and maintain, the Required Operating Period Insurance as
specified in Appendix 4 hereto and shall comply with all applicable Insurance
Requirements. The Manager shall name the Authority, its trustees, officers and
employees as additional insureds or named insureds, as appropriate, on its
insurance policies, which policies shall require 30 days prior written notice to
the Authority prior to any change in or cancellation of such policies. Insurance
coverage required pursuant to this Section shall be maintained with generally
recognized financially responsible insurers reasonably acceptable to the
Authority and
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qualified and authorized to insure risks in the State. The cost of the Required
Operating Period Insurance shall be paid by the Manager, subject to
reimbursement by the Authority pursuant to Section 6.1 hereof as a Third Party
Cost. The Manager shall demonstrate to the Authority, by a bidding process or
other acceptable methods, that the premiums payable for the Required Operating
Period Insurance constitute a fair and reasonable price for the coverage
provided. The Authority shall have the right, upon 90 days' notice to the
Manager, at any time at its expense to cancel or replace and obtain
independently all or any portion of the Required Operating Period Insurance as
set forth in Appendix 4 hereto.
SECTION 4.14. INFORMATION. (A) Information System. The Manager shall,
on and after the Closing Date establish and maintain an information system to
provide storage and, to the extent practicable, real time retrieval for
Authority review and copying of T&D System operating data, including all
information necessary to verify calculations made pursuant to this Agreement.
(B) Computer Database. The Manager shall maintain for the Authority a
computer database which specifies each customer served by the T&D System, the
service classification applicable to each such customer, and any special
services provided to each such customer. The Authority shall be entitled to
access such database at any time.
(C) Ownership of Information and Documentation. The Authority will have
sole ownership of information related to customers served by the T&D System
(except to the extent such information is also owned by an Affiliate of the
Manager in its role as owner of the gas utility) and the operation of the T&D
System ("Authority Customer & Operations Data"). The Manager may not use any
Authority Customer & Operations Data for non-Authority related purposes without
the Authority's prior written permission. Such permission, if granted, will be
granted on a nondiscriminatory basis. Neither the Manager nor any Affiliate will
(1) use customer information systems to extract, sort or otherwise use Authority
Customer and Operations Data (including, without limitation, name, address,
telephone number, and energy usage) or (2) use mechanisms for customer access
(including, without limitation, meter reading, customers representatives and
service call center), available solely as a result of Manager's role as the
Manager of the T&D System, to market any services to customers served by the T&D
System other than the services provided under this Agreement. To the extent
Authority Customer and Operations Data is available from other sources, neither
the Manager nor its Affiliates shall be precluded from using in its business
such data obtained from other sources.
SECTION 4.15. MANAGER'S REPORTING REQUIREMENTS. (A) Monthly Reports.
The Manager shall provide the Authority and the Consulting Engineer with monthly
reports no later than 15 Business Days after the end of each month, including
the following data: (1) on a monthly and year-to-date basis, the actual T&D
System costs versus the Annual T&D Budget and the prior year's costs at such
time, (2) a description and explanation of significant variations (at least
$1,000,000 and 3%) from the Annual T&D Budget (or any line item therein) or the
prior year's results including a description of any related changes in the tasks
performed or to be performed, (3) a description of partial or total shutdowns
for maintenance and repairs during the prior month and anticipated during the
current month, (4) any known or anticipated adverse conditions which may be
expected to arise during the next 30 day period that may affect the ability of
the Manager to transmit and distribute Power and Energy in accordance with the
Performance Guarantees and the annual operating plan established for the T&D
System, (5) the results of any regulatory or insurance inspections or tests
conducted during the prior month, (6) all Major Capital Improvements Costs and
Other Costs paid by the Manager during such Billing Period, including a
description and explanation of significant variations (at least $1,000,000 and
2%) from budgeted costs for such period, (7) identification of those costs which
are classified as capital versus operating in sufficient detail in order to
allow the Authority to determine which costs qualify for bonding under the Bond
Resolution and which are to be recovered through T&D System rates, (8) the
results of any environmental or other tests or monitoring procedures conducted
by or at the direction of any federal,
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State or local environmental or other regulatory agency during the prior monthly
period, and copies of any reports or other submittals made to or received from
any such agency, and (9) any other information or statement which is requested
by the Authority and which may be reasonably produced from records maintained by
the Manager in the normal course of business. The Manager shall also provide a
quarterly forecast of projected expenditures by line item through year-end.
These reports shall present the data in form and detail reasonably acceptable to
the Authority and the Consulting Engineer and shall be certified as to accuracy
and completeness by the Manager.
(B) Semi-Annual Reports. The Manager will, on a semi-annual basis
within 60 days after the end of each half of the Contract Year, provide the
Authority and the Consulting Engineer with a report of actual Direct Costs and
Third Party Costs together with:
(i) identification of any material Direct Costs projects or Third Party
Costs projects which were included in the Direct Cost Budget or the Third Party
Costs Budget from the previous Contract Year which were deferred to the current
Contract Year or proposed to be deferred to a subsequent Contract Year, or such
costs in the current Contract Year which the Manager proposes deferring beyond
the current Contract Year; and
(ii) such other information as may be reasonably requested by the
Authority.
(C) Other Costs Reports. The Manager shall promptly notify the
Authority when an event occurs, or is anticipated to occur, that the Manager
believes qualifies for treatment as an Other Cost. If practicable, the Manager
shall provide the Authority with an explanation and estimate of the incremental
costs caused by the event at the time of notification. If such explanation and
estimate is not provided at the time of notification, it shall be provided as
soon as practicable thereafter. The Manager shall submit an invoice certified as
to accuracy and completeness by the Manager, together with appropriate
supporting documentation, for reimbursement of the related incremental costs of
such event as soon as practicable and, if appropriate, on a progress basis. The
Authority shall have an opportunity to review such billing prior to payment and
shall have access to the Manager's books and records in order to confirm such
costs prior to reimbursing the Manager consistent with provisions of Section
6.3(C).
(D) Annual Reports. The Manager shall furnish the Authority and the
Consulting Engineer, with the Annual Settlement Statement, an annual summary of
the statistical data provided in the monthly reports, certified by the Manager
and the Manager's independent public accountants, as well as all other data
required to be furnished to the Authority pursuant to Appendix 9 hereto.
(E) Operations Reports. As reasonably requested by the Authority, the
Manager shall prepare appropriate reports concerning matters reasonably related
to the operation of or planning for the T&D System, including, but not limited
to: source of Power and Energy supply; revenues and unit sales of Power and
Energy supplied to customers in the aggregate and by customer class, including
an explanation of any significant variations from planned sales; environmental
requirements and compliance; compliance with Applicable Law; safety requirements
and compliance; and reports relating to any incentive and penalty provisions set
forth herein.
(F) Books and Records. The Manager shall prepare and maintain proper,
accurate and complete books, records and accounts regarding the operations and
financial or other transactions related to the T&D System to the extent
necessary (1) to enable the Authority to prepare financial statements, regarding
the operations of the T&D System, certified in accordance with generally
accepted accounting principles, (2) to verify data with respect to any
operations or transactions in which the Authority has a financial or other
material interest hereunder, and (3) to prepare periodic performance reports and
statements of the T&D System, which shall be submitted by the Manager to the
Authority.
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The Manager shall, upon reasonable notice and demand from the Authority, produce
for examination and copying at the Manager's office, by representatives of the
Authority, all books of account, bills, vouchers, invoices, personnel rate
sheets, cost estimates and bid computations and analyses, Subcontracts, purchase
orders, time books, daily job diaries and reports, correspondence, and any other
documents showing all acts and transactions in connection with or relating to or
arising by reason of this Agreement. Manager shall at reasonable times produce
such books and records for examination and copying in order to allow the
Authority to determine the costs payable by the Authority under Article VI
hereof or any other costs for which the Authority may be responsible hereunder.
All such books and records and all supporting documents shall be available at
mutually agreeable locations in the Service Area. The Manager shall keep the
relevant portions of the books, records and accounts maintained with respect to
each Contract Year until at least the seventh anniversary of the last day of
each such Contract Year and provide access to or copies thereof to the Authority
at its reasonable request to the extent necessary to allow the Authority to
determine to its reasonable satisfaction the propriety of any request for
payment or charge hereunder. The provisions of this subsection 4.15(F) shall
survive the termination of this Agreement.
SECTION 4.16. FISCAL AFFAIRS, ACCOUNTING AND RECORD KEEPING. (A)
General. The Manager shall maintain possession of operating equipment,
buildings, materials and supplies, maps, plans, specifications, and customer
billing records during the Term in accordance with Manager's customary practices
or in such manner as the Authority may reasonably require and shall duly account
to the Authority therefor.
(B) Bank Deposits. All cash held by the Manager for the account of the
Authority and all cash collected by the Manager for the account of the Authority
after the Closing Date shall be deposited on each business day in bank accounts
in such bank as the Authority may direct and upon such terms and conditions as
may be specified by the Authority.
(C) Record Keeping. In addition to the requirements of Section 4.15(F),
the Manager shall maintain Authority's fixed asset books and records for those
activities performed by the Manager in general conformity with municipal
electric utility accounting standards or such other standards as reasonably
requested by the Authority. When requested by the Authority, the Manager shall
make reasonable changes in its standard accounting practices and procedures
applied to the books and records of the T&D System.
(D) Financial Audits. Financial information prepared as of the end of
each Contract Year, shall be certified by an officer of the Manager and an
independent public accountant who is experienced in electric utility system
accounting (which accountant shall be a member of a nationally recognized
accounting firm) and shall be delivered to the Authority within ninety (90) days
after the end of such Contract Year. In addition, the books and records upon
which the reports and statements required by this Article IV were prepared shall
be made available by the Manager to the Authority for audit by the Authority or
the Authority's designated independent auditor for a period not to exceed
twenty-four (24) months. Upon completion of the Authority's audit or upon
expiration of said twenty-four-month period, the statements, invoices and
records shall be deemed to be correct, provided no written protest by the
Authority has been provided to the Manager. If the Authority's audit establishes
that the total of all payments by the Authority to the Manager exceeds the
amount actually due hereunder, then Manager shall immediately refund the
overpayment to the Authority with interest at the Base Interest Rate from the
time such overpayment was made by the Authority to the Manager until repaid to
the Authority. If the Authority's audit establishes that the Authority has
underpaid the Manager, then the Authority shall immediately pay the Manager the
underpayment, with interest at the Base Interest Rate from the time such
underpayment was due until paid by the Authority.
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(E) Authority Bank Accounts. The Authority may establish and maintain
such special bank accounts as may be necessary or desirable, including, but not
limited to, petty cash funds and local accounts funds, and shall establish the
rules and procedures for access to any such accounts by the Manager and certain
of its designated employees.
(F) Maps, Plans and Specifications. At the expiration of this Agreement
or at such time that the Authority (or a successor manager of the T&D System)
assumes the functions requiring the same, the Manager shall transfer to or at
the direction of the Authority all maps, plans and specifications, and records
pertaining to the T&D System in its possession at that time. Notwithstanding the
Manager's possession of such maps, plans and specifications, and records, the
Manager acknowledges that the same remain and are the property of the Authority
provided that, to the extent they relate to facilities in addition to the T&D
System, the Manager shall retain a joint-ownership interest therein.
SECTION 4.17. INVENTORY CONTROL. The Manager shall, in consultation
with, and with approval of, the Authority, maintain an inventory of equipment,
spare parts, materials and supplies consistent with the Contract Standards and
shall maintain and document an inventory control program. The Manager shall
comply with the inventory policy agreed to by the Authority and the Manager and
shall purchase and store inventory in a manner consistent with the Annual T&D
Budget. Inventory shall be billed to the Authority on a cost basis as used. The
Manager shall complete, on an agreed-upon cycle count basis, a physical
inventory of the equipment, spare parts, materials and supplies and reconcile
the same with the inventory assets carried on the balance sheet and provide the
information to the Authority.
SECTION 4.18. CAPITAL ASSET CONTROL. Within 90 days after the Closing
Date, the Authority and the Manager shall complete an inventory of all T&D
System assets constituting "Capital Assets" as such term shall be defined in
accordance with directions of the Authority. Annually, no later than 60 days
after the end of each Contract Year, the Manager shall provide to the Authority
a list of all additions and retirements of Capital Assets from the perpetual
records set forth in subsection 4.17 hereof, with such detail as requested by
the Authority for maintenance of these records. Within 90 days after the sixth
anniversary of the Closing Date, the Manager shall assist the Authority in
completing a physical inventory of all Capital Assets. The Manager shall not
dispose of, scrap, trade or sell any individual Capital Asset having an original
cost of $100,000 or more without the Authority's prior written approval. To the
extent directed by the Authority, all vehicles and equipment shall be purchased
in the name of the Authority and title shall be so issued. As vehicles or other
equipment are acquired by the Manager for the Authority, the Manager shall
forward all titles to the Authority within 30 days after such acquisitions.
SECTION 4.19. WARRANTIES. The Manager shall maintain and enforce any
warranties or guarantees on any facilities, vehicles, equipment or other items
owned or leased by the Authority or purchased or leased on behalf of the
Authority and used by the Manager in carrying out this Agreement, and shall not,
by act or omission, negligently or knowingly invalidate in whole or part such
warranties or guarantees without the prior approval of the Authority.
SECTION 4.20. TECHNICAL ASSISTANCE. The Manager may contract for the
services of outside consultants, suppliers, manufacturers, or experts pursuant
to the limits of expenditure described in this Agreement or as provided in the
Annual T&D Budget, provided that the Manager shall remain responsible for the
performance or omissions of the same.
SECTION 4.21. PURCHASE OF EQUIPMENT, MATERIALS AND SERVICES. Consistent
with each Annual T&D Budget, the Manager shall arrange for the purchase or
rental for the account of the Authority of equipment, materials, and supplies
and services which are not purchased directly by the Authority or other items
necessary to properly operate and maintain the T&D System and
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to maintain the records of the Authority, and to make such additions and
extensions to the T&D System, all as may be required from time to time by the
Authority. In this connection, any contracts let by the Manager shall be in
conformity with competitive bidding laws or regulations applicable to the
Manager, and, without the prior authorization of such specific contract by the
Authority, no such contract shall be for an amount greater than $250,000 or
extend for a term greater than one year. Subcontractors shall be subject to
approval by the Authority in accordance with Section 9.10.
SECTION 4.22. OTHER SERVICES. (A) Bill Payments. The Manager shall
timely pay all bills related to the T&D System which are proper, appropriate and
not otherwise disputed and which it has authority to pay and shall assure that,
to the extent within the Manager's control, no mechanic's or similar liens are
filed against any portion of the T&D System. In the event that the Manager fails
to pay any such bill timely, the Authority shall have the right, but not the
obligation, to pay such bill and deduct the amount of such payment (including,
but not limited to, any penalties which may be payable in respect of such bill),
plus interest at the Base Interest Rate from the time such payment was made by
the Authority until repaid the Manager and an administrative fee in an amount of
$50.
(B) Attendance at Meetings. The Manager shall attend meetings of the
Authority, with customers of the Authority, suppliers of the Authority and
others as reasonably requested by the Authority.
SECTION 4.23. EMPLOYEE PLANS. During the term of this Agreement, the
Manager shall fully comply with all of the terms of its Plans and all Applicable
Law relating thereto. Any liability arising by reason of the Manager's failure
to do so shall be borne by the Manager. The Manager shall promptly give notice
to the Authority of any default under any Plans, or any event which with the
passage of time or giving of notice would be a default under any Plan and shall
not permit or suffer an event by the Manager which with the passage of time or
giving of notice would be a default under any Plan.
SECTION 4.24. HAZARDOUS WASTE. With respect to the performance of its
obligations hereunder and to the extent required by the provisions of the System
Policies and Procedures relating to unusual events in connection with the
handling, transporting or disposing of Hazardous Waste, the Manager shall give
notice to the Authority, and to any other Governmental Body as required by
Applicable Law, of its intention to handle, transport or dispose of such
Hazardous Waste. The Manager shall cause such Hazardous Waste to be handled,
transported and disposed of at a Disposal Facility in accordance with the
Contract Standards. The costs associated with such handling, transport and
disposal shall be borne by the Authority, unless the Manager is responsible
therefor under Section 6.10 hereof.
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ARTICLE V
MAJOR CAPITAL IMPROVEMENTS
SECTION 5.1. MAJOR CAPITAL IMPROVEMENTS GENERALLY.
(A) Generally. The parties acknowledge that the Major Capital Plan and
Budget provided for herein is intended to provide for the implementation of
major repairs and replacements not constituting routine maintenance of the T&D
System. In addition, the Major Capital Plan and Budget is intended to recognize
that it will be necessary or desirable from time to time during the Term hereof
to modify, alter or improve the T&D System from its then-current condition. Such
modifications may be appropriate, by way of example, in order to increase the
efficiency or improve the performance of the T&D System, to anticipate or
address the obsolescence of any portion of the T&D System, to respond to a
Change in Law or to reduce Power and Energy supply costs. All such projects
which constitute Major Capital Improvements shall be made in accordance with
this Article and all Major Capital Improvements shall be owned by the Authority.
Under no circumstances shall any such Major Capital Improvement be considered to
constitute routine repair, maintenance or replacement of the T&D System, all of
which remain the responsibility of the Manager to be performed pursuant to
Section 4.3 hereof. The Manager shall make all Major Capital Improvements
described in the approved Major Capital Plan and Budget in accordance with the
provisions thereof. The Manager shall not make a Major Capital Improvement
without notifying the Authority and receiving written consent from the Authority
unless such Major Capital Improvement is included in the then current annual
Major Capital Plan and Budget. The Authority shall have the right, when the
Manager has materially exceeded the Major Capital Plan and Budget as of an
interim date to require the Manager to defer specific Major Capital Improvements
planned for the remainder of the year. In no event shall the approval or denial
of a Manager-requested Major Capital Improvement relieve the Manager of any of
its performance obligations hereunder or entitle the Manager to a cost
adjustment unless the Manager is entitled to recover such costs as an Other Cost
under Section 6.3 hereof or the Authority shall have agreed to such adjustments,
and except to the extent provided in Section 7.8. The requirements of Applicable
Law relating to Authority procurement of construction services shall govern
whether, to what extent and in what manner the Authority may exercise its rights
to contract with the Manager with respect to any Major Capital Improvement
pursuant to this Article.
(B) Insurance and Other Third Party Payments. To the extent that any
Major Capital Improvement Costs that are incurred pursuant to this Article can
be recovered by the Manager from any insurer providing the Required Construction
Work Insurance or the Required Operating Period Insurance, or from another third
party, the Manager shall exercise with due diligence such rights as it may have
to effect such recovery. The Manager shall give prompt written notice to the
Authority of the receipt of any such recovery which shall be applied in
accordance with the Bond Resolution. The Manager shall provide the Authority
with copies of all documentation, and shall afford the Authority a reasonable
opportunity to participate in and, if the Authority so determines, to direct all
conferences, negotiations and litigation, regarding such insurance claims which
materially affect the Authority's interest under this Agreement. All applicable
insurance recoveries shall be applied to reducing the cost of restoration or
reconstruction.
(C) Cost Disputes. The Manager agrees to use its best efforts to limit
the costs incurred in making each Major Capital Improvement consistent with
Prudent Utility Practice. The Authority may, without limiting the Authority's
obligation to make timely payments of any Major Capital Improvement Costs
consistent with the mutually agreeable payment procedures established in
accordance with 5.1(D) hereof, object to any Major Capital Improvement Cost or
to the payment of any Major Capital Improvement Cost on the grounds that such
Major Capital Improvement Cost or the amount being
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charged to the Authority was improperly computed, that the Major Capital
Improvement Costs incurred by the Manager were unreasonable for the work
performed, or that the work performed by the Manager in making the Major Capital
Improvement was materially delayed or not completed due to a circumstance for
which the Manager would be responsible for the costs of under Section 6.10
hereof.
(D) Major Capital Improvement Cost Payments. Payment for Major Capital
Improvement Costs will be made in accordance with mutually agreeable payment
procedures which shall reflect customary construction drawdown, milestone and
retainage provisions for similar projects.
SECTION 5.2. MAJOR CAPITAL PLAN AND BUDGET. (A) Preparation.
Contemporaneously with the preparation of the Annual T&D Budget, the Manager
shall prepare a proposed annual and five year Major Capital Plan and Budget
concerning planned Major Capital Improvement projects (the "Major Capital Plan
and Budget"). Such Major Capital Plan and Budget shall identify, among other
things:
(i) proposed Major Capital Improvements by function (e.g. transmission,
substation, distribution, communication, common plant, and public works) and
project location;
(ii) detailed project descriptions in the case of projects the costs of
which exceed a dollar limit to be agreed upon by the parties prior to the
adoption of the initial Annual T&D Budget, and general descriptions in all other
cases;
(iii) the planned initiation date of each project and the expected
duration of such project;
(iv) an estimate of the amount of the Major Capital Improvement Cost
for each project, including the dollar amount of capital expenditures per year
if the project requires more than a year to complete;
(v) a proposed drawdown schedule for each project;
(vi) an explanation of the relationship to other planned or
subsequently required capital additions or improvements of which each individual
Major Capital Improvement is a component;
(vii) the anticipated useful life of each improvement or addition;
(viii) the economic and engineering justifications for each capital
improvement or addition, including, where applicable, quantification of system
performance changes as a result of such improvement or addition, and the
expected effect, if any, of the capital improvement or addition on the ability
of the Manager to meet the Performance Guarantees;
(ix) an indication of whether the improvement or addition is planned
for performance by Manager work force or by third party contractor; and
(x) such other information as may be reasonably requested by the
Authority.
Such Major Capital Plan and Budget shall include explanation and
justification of costs in a form acceptable to the Authority. Whether particular
costs are capital or operation and maintenance costs payable from the Annual T&D
Budget shall be determined by the Authority in accordance with the Bond
Resolution.
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(B) Schedule for Major Capital Plan and Budget Review. The Manager
shall file a proposed Major Capital Plan and Budget with the Authority at the
same time the Annual T&D Budget proposal is filed pursuant to Section 6.2(B).
The Authority shall provide preliminary comments on the Major Capital Plan and
Budget within 60 days after receipt, provided additional time for review, if
required, may be agreed to by the parties. The Manager shall make all changes to
the Major Capital Plan and Budget reasonably requested by the Authority. Any
proposed Major Capital Plan and Budget submitted to the Authority by the Manager
may be made available to the public by the Authority at such time as it shall
deem appropriate for public review and comment. The annual Major Capital Plan
and Budget will be approved by the Authority before or contemporaneously with
the adoption of the Annual T&D Budget, and prior to or contemporaneously with
the adoption of any rate adjustment by the Authority; provided that in the event
the Major Capital Plan and Budget has not been adopted by the Authority as of
the beginning of a Contract Year, the Manager may undertake such Major Capital
Improvements as reasonably approved by the Authority on a project-by-project
basis.
(C) Projects in Excess of $500,000. Other than for emergency repairs or
replacements, at the Authority's request, the Manager shall prepare a
repair-or-replace analysis for the Authority for repairs or replacements of the
T&D System costing more than $500,000 if the same have not been approved in the
Annual T&D Budget. The Authority shall decide whether to have such repair or
replacement implemented.
SECTION 5.3. COST DETERMINATION. (A) Basis for Major Capital
Improvement Cost Determination. Major Capital Improvements, except those awarded
to the Manager as a result of the competitive procurement procedures outlined in
subsection 5.3(C) hereof shall be performed, whether by the Manager's own
workforce or by a Subcontractor, at the cost of the service without any
multiplier fee or mark-up. Construction Work management and administration costs
will either be specifically budgeted on a project-specific outsourced basis, or
such costs will be captured within the then current Direct Cost Budget.
(B) Source of Financing of Major Capital Improvements. (1) Major
Capital Improvements other than those for which the Manager is responsible under
Section 6.10 hereof will be financed by the Authority in accordance with the
construction drawdown payment procedures established pursuant to Section 5.1(D)
hereof, provided that the Authority and the Manager may agree to have the
Manager fund, subject to reimbursement, capital additions in the event of
emergency costing in the aggregate not more than a dollar amount to be agreed
upon by the parties prior to the adoption of the initial Annual T&D Budget.
(2) The Authority may in its sole discretion determine whether to fund
particular Major Capital Improvements from current revenue or from bond
proceeds. The Manager shall reflect the principal and interest repayment for
Major Capital Improvement Cost financing in its projections for System Revenue
Requirements in the Major Capital Plan and Budget.
(C) Procurement and Contracting Procedures. (1) Along with its proposed
annual Major Capital Plan and Budget, the Manager shall provide the Authority
with an explanation of its proposed process for procuring equipment,
construction, and other services related to implementing the Major Capital
Improvements so as to achieve favorable cost completion of the Major Capital
Improvements. Such procurement process shall be performed in accordance with
Applicable Law and Appendix 8. Decisions as to outsourcing construction
management shall be made in accordance with the procedures and criteria to be
determined in accordance with Appendix 8 hereto.
(2) Wherever a Major Capital Improvement is to be performed under this
Agreement, the provisions and procedures set forth in Appendix 8 hereto shall
apply. In order to implement such
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provisions with respect to any Major Capital Improvement costing in excess of a
dollar amount to be agreed upon by the parties prior to the adoption of the
initial Annual T&D Budget, the costs for which the Authority is responsible, the
Manager shall submit, at the Authority's discretion, a lump sum or an individual
element price proposal for such Major Capital Improvement, which shall be broken
out by the categories of work to be done and corresponding costs. Any such
proposal shall be deemed the Manager's offer to the Authority, binding for 60
days, to perform the Major Capital Improvement at the price quoted. The parties
shall promptly proceed to negotiate in good faith to reach agreement on the
price to be paid to the Manager for the Major Capital Improvement and on the
effect of such Major Capital Improvement on any costs or obligations of the
Manager under this Agreement. If the Authority does not accept the Manager's
proposal, the Authority may conduct a procurement to contract with a third-party
to undertake such Major Capital Improvement or, alternatively, the Authority may
require the Manager to solicit at least three competitive bids for such Major
Capital Improvements on a lump-sum or individual element basis, as requested by
the Authority. The Manager shall cooperate with and assist the Authority in
connection with any procurement undertaken by the Authority. To the extent that
the Manager or any Affiliate participates as a bidder in any competitive
solicitation process, the Manager shall establish internal controls and other
procedures satisfactory to the Authority for the purpose of assuring the
integrity of the competitive solicitation. Except as the Authority may otherwise
direct, competitive solicitations of bids shall be conducted in accordance with
the process and procedures to be established by the Authority. The Manager shall
promptly notify the Authority of any reasonable objection to the Authority's
inclusion of a party on a list of bidders.
(D) Advancement of Funds for Major Capital Improvements and Additions.
Once an annual Major Capital Plan and Budget is approved, the Authority shall
advance funds in accordance with an agreed upon drawdown schedule established to
the mutual satisfaction of the Authority and the Manager for payment of Major
Capital Improvement Costs. Such drawdown schedule shall conform to Applicable
Law, including the provisions set forth in Appendix 13 hereto.
(E) Major Capital Improvements Cost Savings Incentive. Manager shall be
entitled to incentive payments for cost savings and disincentive payments for
cost overruns and delays in scheduled completion of approved Major Capital
Improvements equal to 50% of all variances from the approved Major Capital Plan
and Budget; provided, however, that no such incentive or disincentive shall be
payable for cost variances in excess of 15% of the approved Major Capital Plan
and Budget. Such incentive and disincentive payments will relate to Major
Capital Improvements which are not subject to competitive bidding and those
projects in which Manager serves as construction manager over third party
contracts and not with respect to Major Capital Improvements in which the
Manager serves as the general contractor, except as otherwise agreed by the
Authority or as set forth in the terms and conditions of the contract.
Incentives and disincentives will be trued-up upon the closing and acceptance by
the Authority of approved capital projects.
SECTION 5.4 PUBLIC WORKS IMPROVEMENTS. (A) Generally. The Manager shall
not undertake a Public Works Improvement without previously notifying the
Authority and receiving the written consent of the Authority which shall not be
unreasonably delayed. In such notification, the Manager shall provide a proposed
project budget for such Public Works Improvement containing information that is
consistent with that required under Section 5.2 hereof. The budget for each
Public Works Improvement shall be subject to Authority approval and the Manager
shall not undertake any Public Works Improvement until the budget therefor has
been adopted. The parties may agree to adjust any Public Works Improvement
budget in the event the governmentally requested scope of work for such project
substantially changes from the originally budgeted scope of work.
(B) Cost Disputes. The Manager shall use its best efforts to limit the
costs incurred in undertaking each Public Works Improvement consistent with
Prudent Utility Practice. The Authority
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may, without limiting the Authority's obligations to make timely payments of any
Public Works Improvement Costs under subsection 5.4(C) consistent with the
mutually agreeable payment procedures established in accordance with Section
5.4(E) hereof, object to any Public Works Improvement Costs or to the payment of
any Public Works Improvement Costs on the grounds that such Public Works
Improvement Cost or the amount being charged to the Authority was improperly
computed, that the Public Works Improvement Costs incurred by the Manager were
unreasonable for the work performed or that the work performed by the Manager in
undertaking the Public Works Improvement was materially delayed or not completed
due to a circumstance for which the Manager would be responsible for the costs
of under Section 6.10 hereof.
(C) Cost Determination. Public Works Improvements shall be performed,
whether by the Manager's own workforce or by a Subcontractor, at the cost of the
service without any multiplier fee or mark-up; provided, however, that such
costs shall be reduced by all reimbursements or payments received from the
applicable Governmental Body for the planning, engineering, procurement and
completion of the Public Works Improvement. Construction management and
administration costs will either be specifically budgeted on a project-specific
outsourced basis or such costs will be captured within the then current Direct
Cost Budget. Decisions as to outsourcing construction management of Public Works
Improvements shall be made in accordance with the procedures and criteria set
forth in Appendix 8 hereto.
(D) Public Works Improvements Cost Savings Incentives. The Manager
shall be entitled to incentive payments for cost savings and disincentives for
cost overruns and delays in scheduled completion that result in incremental
costs for approved Public Works Improvement as follows: (a) no incentive or
disincentives shall be payable for all variances from the approved Public Works
Improvement project budget between 0% and plus or minus 2%, and (b) 50% of all
variances (whether positive or negative) from the approved Public Works
Improvement budget of 2.01% or more. Incentives and disincentives will be
payable 60 days after the project completion and acceptance by the Authority of
approved Public Works Improvements.
(E) Public Works Improvement Costs Estimate. The Manager shall
recommend, and the Authority shall adopt, an annual reserve level for Public
Works Improvements. Such reserve level shall be identified in each Major Capital
Plan and Budget and 5-year planning budget, although not included therein, in
order to enable estimation of total cash flows for the T&D System. Such
estimates will also be used by the Authority for determination of financial
reserve requirements for the T&D System.
(F) Public Works Improvement Cost Payments. Payment for Public Works
Improvement Costs will be made in accordance with mutually agreeable payment
procedures which shall reflect customary construction drawdown, milestone and
retainage provisions for similar projects.
SECTION 5.5. MAJOR CAPITAL IMPROVEMENTS FOR WHICH MANAGER IS
RESPONSIBLE. If the T&D System is damaged or destroyed by reason of
circumstances for which the Manager is responsible under Section 6.10 hereof,
the Manager shall promptly proceed to make or cause to be made all Major Capital
Improvements reasonably necessary to permit the Manager to perform its
obligations under this Agreement. The Manager shall give the Authority and the
Consulting Engineer written notice of, and reasonable opportunity to review and
comment upon, any such proposed Major Capital Improvement. All such Major
Capital Improvements for which Manager is responsible under Section 6.10 shall
be made at the Manager's sole cost and expense, and the Manager shall not be
entitled to any compensation from the Authority as a result thereof.
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ARTICLE VI
COMPENSATION AND BUDGETS
SECTION 6.1. SERVICE FEE. (A) Formula. Commencing with the first
Billing Period and for each Billing Period during the Term of this Agreement,
the Authority shall pay the Manager a Service Fee for the services provided by
the Manager under the terms of this Agreement in accordance with the following
formula:
SF = FDF + TPC + VP + CIF + NCPI
-
Where
SF = Service Fee
FDF = Fixed Direct Fee
TPC = Third Party Costs
VP = Variable Payment
CIF = Cost Incentive Fee
NCPI = Non-cost Performance Incentives and Disincentives
Each component of the Service Fee shall be computed in accordance with this
Article and may be adjusted from time to time as provided in this Agreement. For
illustrative purposes, examples of the calculation of the Service Fee payable
hereunder are attached as Appendix 12 hereto. In addition to the Service Fee,
Manager shall be entitled to payment for cost overruns as set forth in Section
6.1(F).
(B) Fixed Direct Fee. The Authority will make a monthly payment to the
Manager equal to ninety (90%) of the approved annual Direct Cost Budget (the
"Fixed Direct Fee"). The monthly allocation of such payment will be determined
by the parties prior to the adoption of each Annual T&D Budget based on
historical monthly trends to minimize working capital costs.
(C) Third Party Costs. The Authority will make a monthly payment to the
Manager for the monthly allocation of the approved annual Third Party Cost
Budget. Monthly allocation of such payments will be determined by the parties
prior to the adoption of each Annual T&D Budget based on historical monthly
trends to minimize working capital costs.
(D) Variable Payment. The Manager will be entitled to a Variable
Payment equal to the lesser of (a) the difference between actual Total Costs
(the sum of the actual Direct Costs and the actual Third Party Costs), less the
sum of the Fixed Direct Fee and the lesser of actual or budgeted Third Party
Costs or (b) the difference between the approved Total Cost Budget (the sum of
the Direct Cost Budget and the Third Party Cost Budget) less the sum of the
Fixed Direct Fee and the lesser of the actual or budgeted Third Party Costs.
Monthly allocation of such payment shall be determined by the parties based on
historical monthly trends to minimize working capital costs. For administrative
ease, the calculation of the monthly Variable Payment shall be based on the
difference between the Total Cost budget and the sum of the amounts paid for the
Fixed Direct Fee and Third Party Costs.
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(E) Management Fee, Cost Incentive Fee and Non-cost Performance
Incentives and Disincentives. To the extent actual Total Costs are less than the
approved Total Cost Budget for the year, the Manager shall be paid the portion
of its Management Fee, described within the definition of Direct Costs in
subsection 6.2(A) (relating to cost savings), in an amount equal to such cost
savings up to a maximum of $5 million. Beyond such $5 million level, the Manager
will be paid a Cost Incentive Fee equal to 50% of such additional savings,
provided that no incentive will be paid for savings in excess of 15% of the
Total Cost Budget. All savings above this cap shall be for the benefit of the
Authority. The amounts described in this subsection shall not be payable
monthly, but shall instead be paid as part of the Annual Settlement Statement
process in accordance with Section 6.8 hereof. The Manager shall also be
entitled to share in any amounts recovered in accordance with Section 4 of
Appendix 7 hereto.
(F) Cost Overruns. To the extent actual Total Costs, excluding the
Management Fee, are greater than the Total Cost Budget, excluding the net
Management Fee, for the applicable Contract Year, the Manager shall absorb the
first dollars of such overruns, up to a maximum total of $15 million in each
Contract Year. For cost overruns in excess of this amount, the Manager shall be
entitled to a payment through the Annual Settlement Statement equal to the
amount of such excess overruns (the "Overrun Payment").
(G) Limitations. To the extent required by the terms of the letter
ruling obtained from the Internal Revenue Service in connection with the
Agreement, the ratio of (1) the sum of the Variable Payment plus the Cost
Incentive Fee plus the sum of the Non-cost Performance Incentives and
Disincentives (described in Section 6.4) plus the Overrun Payment divided by (2)
the sum of (a) the amounts described in (1) above and (b) the Fixed Direct Fee
shall not be greater than twenty percent (20%) in any Contract Year.
(H) Carrying Costs. Interest rates and charges due from one party to
the other for carrying costs for the timing of reimbursements for balances due
for differences between the lesser of actual Total Costs or the approved
budgeted Total Costs and the monthly payments for such costs shall be determined
as set forth in Section 6.8 hereof in connection with the Annual Settlement
Statement.
SECTION 6.2. ANNUAL T&D BUDGET AND FIVE YEAR PLANNING BUDGET PROCESS.
(A) General. The Annual T&D Budget and the Five-Year Planning Budget will be
established in accordance with subsection 6.2(B) and will provide for the
determination and payment of the Manager's costs of operating and maintaining
the T&D System and performing its obligations hereunder, inclusive of fees paid
to the Manager. The Annual T&D Budget and the Five-Year Planning Budget shall be
comprised of two broad categories: Direct Costs (the "Direct Costs Budget") and
Third Party Costs (the "Third Party Costs Budget"). These categories of costs
shall exclude Incremental Internal Costs and additional Third Party Costs
relating to Major Capital Improvements, Public Works Improvements, and Other
Costs.
(1) Direct Cost Budget. In establishing the Direct Cost Budget for the
initial Annual T&D Budget hereunder, the Direct Cost Budget shall include (1)
amounts to compensate the Manager for Operation and Maintenance Services costs
anticipated to be reasonably predictable and incurred by the Manager through the
utilization of either its work force, or its owned assets, in carrying out its
responsibilities under the Agreement (the "Direct Costs") and (2) the Manager's
fee ("Management Fee"). Costs related to the Manager's work force shall include
compensation paid to employees of the Manager as well as an appropriate
allocation of such costs of employees of the Manager's parent or affiliates to
the extent such employees provide service to the Authority pursuant to the
Agreement. Costs related to the Manager's owned assets shall include an
appropriate allocation of depreciation and return on the undepreciated balance
and shall include an appropriate allocation for projects in progress at the
Closing Date. The determination of depreciation and return to be allocated shall
be based upon historical costs
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and an agreed upon capital structure. The Management Fee shall be an annual
fixed amount of $15 million. Of this amount, however, $5 million must result
from cost savings. As a result, the Direct Cost Budget will include a net
Management Fee of $10 million.
(2) Third Party Cost Budget. The Third Party Cost Budget shall include
amounts for reimbursement of, on a dollar for dollar basis, all recurring
capital or operating costs incurred by the Manager in carrying out its
responsibilities under the Agreement and paid to parties other than Manager, its
parent or affiliates, and any of their employees (the "Third Party Costs"). Such
costs shall include, for example, costs incurred in respect of professional
fees, postage, materials and supplies, third party contract labor, rents,
property taxes on the Common Facilities, telecommunications, insurance, dues and
fees, advertising, and mutual assistance agreements with non-Affiliates of the
Manager.
(3) Cost Incentive Fees. The Manager shall be entitled to receive Cost
Incentive Fees, as provided in subsection 6.1(E) hereof, for costs savings from
the amounts included for Direct Costs and Third Party Costs in the approved
Annual T&D Budget.
(B) Annual T&D Budget Preparation. (1) Generally. On the date
determined in accordance with Schedule C to the Acquisition Agreement to be the
date six months preceding the projected Closing Date and thereafter no later
than six months prior to the end of each Contract Year, the Manager will prepare
a recommended annual budget for the operation and maintenance, including routine
capital projects not constituting Major Capital Improvements or Public Works
Improvements, of the T&D System and a recommended annual budget for total
revenue requirements, inclusive of the Authority's own costs, with the costs
that will be paid by the Authority to Manager under this Agreement specifically
and separately identified (together, the "Annual T&D Budget"). The recommended
Annual T&D Budget shall be accompanied by a five year T&D planning budget (the
"Five-Year Planning Budget"). The Authority will hold at least one hearing to
solicit public input on the initial budgets. The Annual T&D Budget and Five-Year
Planning Budget shall be divided into a Direct Cost Budget and a Third Party
Cost Budget in accordance with the budget categories set forth in Appendix 10
hereto, consistent with the general definition of such costs in subsection
6.2(A) hereof. The initial Direct Cost Budget, once established and approved by
the Authority, will be indexed for each subsequent year during the Term of this
Agreement as described in Appendix 5. The Third Party Cost Budget, as contained
in the Annual T&D Budget and the Five Year Planning Budget, will be determined
and approved annually. Each Annual T&D Budget and Five-Year Planning Budget will
be composed of the indexed Direct Cost Budget and the annually determined and
approved Third Party Cost Budget. Direct Costs and Third Party Costs in the
adopted Annual T&D Budget shall be calculated and included in such budget at
cost without mark-up.
(2) Initial Budgets. The Manager shall propose and the Authority shall
review, amend as appropriate and approve the Annual T&D Budget and the Five-Year
Planning Budget for the first Contract Year prior to the Closing Date. Such
initial Annual T&D Budget and Five-Year Planning Budget shall reflect an
agreed-upon estimate of adjustments in T&D System costs attributable to
productivity improvements to be undertaken by the Manager and in accordance with
the Acquisition Agreement, estimated synergy savings from the combination of
Long Island Lighting Company and The Brooklyn Union Gas Company pursuant to the
BUGLILCO Agreement.
(3) Direct Cost Budget Preparation. The amounts included for Direct
Costs in the initial Annual T&D Budget shall be based upon the agreed upon
disaggregated T&D System costs portion of the proposed 1997 rate year budget in
the LILCO 1996 rate case filing with the NYSPSC, adjusted to 1999 (the
anticipated first full calendar year of operation under the Agreement).
Adjustments to the 1997 base budget shall include, but not be limited to,
adjustment of union labor costs in accordance with the existing union labor
contract, non-union labor costs in accordance with the Direct Cost Budget
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Indices, other indices as used in the 1996 rate case filing to adjust from the
1997 rate year to the 1999 revenue requirements estimate, addition of the net
Management Fee of $10 million and known changes in facts and circumstances. Such
Direct Cost Budget shall also consider actual historical results from 1996
through the date of adoption of the initial Annual T&D Budget prepared on a
comparable disaggregated basis. Payment of any bonus or incentive pay to
officers of the Parent shall not be part of the Direct Cost Budget unless
mutually agreed to in writing by the parties.
Subsequent annual Direct Cost Budgets shall be calculated based upon
the initial Direct Cost Budget, subject to adjustments for the Direct Cost
Budget Indices described in Appendix 5 hereto and as follows:
(i) The union labor portion of the Direct Costs will be adjusted in
accordance with existing union contracts through February 13, 2001. Thereafter,
the cost of union labor and benefits will be adjusted based on Direct Cost
Budget Indices. At the Authority's option, Manager will consult with the
Authority on all future renegotiations of union labor contracts prior to final
agreement and will keep the Authority apprised of labor negotiations as they
progress;
(ii) All other portions of the Direct Cost budget, including non-union
labor, will be adjusted for the appropriate Direct Cost Budget Indices set forth
in Appendix 5.
(4) Third Party Costs Budget Preparation. If in any proposed Annual T&D
Budget or Five-Year Planning Budget the Manager proposes changes in components
of Third Party Costs (e.g. rates for professional services, unit costs for
materials and supplies, postage rates, insurance premiums, etc.) from the prior
budgets due to claims by the Manager of changes in costs significantly different
from previously applicable rates used in the previously adopted Third Party
Costs Budget, the Manager must provide documentation of the basis of such
changes. The Authority may require that the Manager demonstrate justification
for increases in components of Third Party Costs through competitively bidding
for contracts or services, or through other means. If the Annual T&D Budget has
not been adopted by the Authority prior to the beginning of a Contract Year, the
Manager, to the extent necessary to maintain T&D System reliability and safety,
shall be authorized to expend, amounts up to the actual Third Party Costs for
the first three months of the prior Contract Year.
(5) Rate Recommendations and Budget Review. The Annual T&D Budget and
Five-Year Planning Budget prepared by the Manager and submitted to the Authority
for review and approval shall be accompanied by any Manager-recommended rate
adjustments for the upcoming year and shall be submitted at least six months
before the anticipated Closing Date and six months before the beginning of each
subsequent Contract Year. The Authority shall have 60 days to review the
proposed Annual T&D Budget and Five-Year Planning Budget and any rate
adjustments and to propose modifications as it deems appropriate. The parties'
objective is to have the Annual T&D Budget and the Five-Year Planning Budget
adopted at least two months before the beginning of the next Contract Year. If
there is a rate adjustment, the Manager, at the Authority's request, shall
expedite its preparation and discussions with the Authority so as to enable the
public review process for a rate adjustment to begin sufficiently early to allow
approximately four (4) months of public review, comment, and adoption by the
Authority before the new rate year begins. All rate proposals will be subject to
public hearings prior to approval by the Authority.
(6) Five-Year Planning Budget. The Five-Year Planning Budget shall
include a projection of the Direct Cost Budget based on the load forecast most
recently approved by the Authority and a projection of the applicable indices.
The Manager acknowledges that the Authority's acceptance of the year 2 through 5
planning budgets as contained in the Five-Year Planning Budget shall not be
deemed to constitute approval of such budgets, although these later year
planning budgets will be used
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as guidance for the reasonableness of any adjustments to subsequent annual
budgets to be adopted by the Authority.
(7) Budget Format. The Annual T&D Budget and Five-Year Planning Budget
shall be in a form acceptable to the Authority, with the initial Annual T&D
Budget and Five-Year Planning Budget to be prepared with the same categories and
levels of detail for historical costs and documented in a manner which enables
comparison to actual expenditures. The Annual T&D Budget and Five-Year Planning
Budget shall include the type and format of information shown in Appendix 10
hereto.
(8) Accelerated Budget Preparation. If, in the Authority's sole
opinion, trends in the cost of service, customer loads or other factors indicate
a need to consider changes in rates, cost allocation, or rate design, the
Authority may request a revised budget and rate recommendation from the Manager
or preparation of the budget on an accelerated schedule, with reasonable notice.
The Authority and the Manager shall agree on any reasonable incremental costs
which may be subject to reimbursement for such accelerated budget preparation.
(9) Manager Availability at Forums. At the Authority's request upon
reasonable notice, the Manager shall provide, in any public or private forums,
explanation and support for the Manager's T&D System management activities,
including, without limitation, activities relating to the Annual T&D Budget and
Five-Year Planning Budget, the Major Capital Plan and Budget, rates and rate
design.
SECTION 6.3 OTHER COSTS. (A) "Other Costs" Definition. (1) Other Costs
are those costs which cannot reasonably be anticipated and shall include those
costs the Manager and the Authority agree are not included in the Direct Cost
Budget, Third Party Cost Budget or Major Capital Plan and Budget ("Other
Costs"). Other Costs include the Incremental Internal Costs and additional Third
Party Costs incurred by the Manager as a result of events (including but not
limited to major storms and extreme weather) that Manager and the Authority
agree have caused costs to be incurred by the Manager to respond to significant
(i) damage to or adverse affects on the T&D System, (ii) changes in the level of
required maintenance or operation of the T&D System, or (iii) tasks which are
necessary for safety reasons. In addition, Manager will be reimbursed for Other
Costs resulting from or as a consequence of:
(i) changes in work scope and projects agreed to by the Manager and
the Authority;
(ii) a Change in Law;
(iii) determinations made by the Authority pursuant to Section 4.5
resulting in changes in System Policies and Procedures; or
(iv) the Authority's assumption "of the day-to-day direction" of the
Manager pursuant to Section 7.4(B)(2).
None of the following shall constitute an event which can cause Other Costs to
arise:
(i) general economic conditions, interest or inflation rates, or
currency fluctuations or exchange rates,
(ii) the financial condition of the Authority, the Manager, the
Guarantor, any of their Affiliates or any Subcontractor,
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(iii) the consequences of a failure by the Manager, the Guarantor, any
Subcontractor, any of their Affiliates or any other person to adhere
to the Contract Standards in the performance of any work hereunder;
(iv) the failure of the Manager to secure patents or licenses to be
owned or possessed by the Manager and its Affiliates in connection
with the technology necessary to perform their obligations hereunder;
(v) union work rules, requirements or demands which have the effect of
increasing the number of employees employed at the T&D System,
reducing the operating flexibility of the Manager or otherwise
increase the cost to the Manager of operating and maintaining the T&D
System, or
(vi) the failure of any Subcontractor or supplier to furnish labor,
materials, services or equipment for any reason.
(2) "Incremental Internal Costs" shall include those incremental
internal costs incurred by the Manager and approved by the Authority to provide
for Major Capital Improvements, Public Works Improvements, and Other Costs
pursuant to the Agreement to the extent such costs are not otherwise included as
a Direct Cost or a Third Party Cost. Such costs shall include, for example,
unbudgeted overtime wages for employees of the Manager or its Affiliates whose
salaries are included, directly or indirectly, in the Direct Cost Budget, and
wages and benefits for any additional employees hired to perform the task or a
task contemplated in the Direct Cost Budget not able to be performed by the
Manager's employees due to their deployment as a result of such event, and any
incremental allocation of costs related to employees of the Manager's parent or
affiliates.
(3) The Authority and the Manager shall agree upon the occurrence of an
event that qualifies as one that has or is anticipated to lead to Other Costs.
The Authority's approval of the reimbursement of Other Costs shall not be
unreasonably withheld. Other Costs will not be taken into consideration in any
determination of incentives or disincentives as contemplated in this Agreement.
(B) Other Costs Reserve Estimate. Although Other Costs will not be
budgeted, the Manager shall recommend, and the Authority shall adopt, an annual
reserve level for Other Costs for each Annual T&D Budget and Five-Year Planning
Budget to enable estimation of total System Revenue Requirements. Such estimate
will also be used by the Authority for determination of financial reserve
requirements for the T&D System.
(C) Other Costs Reimbursement. The Manager will be reimbursed for
reasonably incurred Other Costs. Payment for such costs will be made as needed
from reserves retained by the Authority. Approved costs in excess of available
reserves will be reimbursed in a manner which minimizes working capital costs to
the Authority. Other Costs shall be billed as incurred, but not more frequently
than on a monthly basis. The Authority shall pay such invoice within 30 days of
receipt, subject to a 10% retention by the Authority pending completion of
review of such invoice. The Authority shall have 60 days to review such invoice
and supporting documentation after which time it shall pay the Manager the full
amount thereof, unless the Authority disputes any aspect of such invoice. Any
amounts determined to be owing by one party to the other through such dispute
resolution shall be paid, along with interest at the Base Interest Rate from the
date the Authority made its payment under this subsection until the date of
payment of the disputed or retained amounts.
SECTION 6.4. NON-COST PERFORMANCE INCENTIVES AND DISINCENTIVES. (A)
Generally. In addition to the cost saving incentives provided for in
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Section 6.2, the Manager will be eligible for incentives for performance above
certain threshold target levels of performance standards ("Non-cost Performance
Incentives") and subject to disincentives for performance below certain other
threshold minimum performance standard levels ("Non-cost Performance
Disincentives"), with an intermediate band of performance in which neither
incentives nor disincentives shall apply, for reliability, worker safety, and
customer service, all as described in Appendix 7 hereto.
(B) Adjustments to Threshold Levels. The threshold levels to which
Manager's performance is measured for purposes of determining the Non-cost
Performance Incentives and Non-Cost Performance Disincentives as described in
Appendix 7, may be increased or decreased by the mutual agreement of the Parties
to reflect material effects, if any, of (1) increases in Authority-approved
Annual T&D Budgets; (2) determinations by the Authority not to approve
maintenance or capital improvement projects as originally recommended by Manager
and not otherwise reflected in the annual T&D Budgets; (3) changes in System
Policies and Procedures; or (4) changes in the scope of Manager's services from
that which is contemplated in this Agreement.
(C) Limits on Incentives and Disincentives. In any Contract Year in no
event shall the total of the Non-cost Performance Incentives, net of any
applicable Non-cost Performance Disincentives, together with the System Power
Supply Incentive/Disincentive payable under Section 5.3.2 of the Energy
Management Agreement, be greater than $7.5 million, nor will the total Non-cost
Performance Disincentives, net of any applicable Non-cost Performance Incentives
together with the System Power Supply Incentive/Disincentive payable under
Section 5.3.2 of the Energy Management Agreement be greater than $7.5 million.
SECTION 6.5. AUTHORITY NON-PERFORMANCE. (A) Costs of Construction Work
and of Operation and Maintenance. If subsequent to the Closing Date, caused by
an event the costs of which the Authority is responsible for under Section 6.10
hereof, there shall be an increase in the Manager's cost of Construction Work or
Operation and Maintenance Services, the amount of any such incremental cost
increase shall be borne by the Authority to the extent it is responsible
therefor under Section 6.10 hereof and shall not be considered for purposes of
calculating any incentive or disincentive hereunder. The Manager shall give the
Authority and the Consulting Engineer prompt written notice of the occurrence of
any such event, including in such notice as and to the extent known (1) a
description in reasonable detail of the reasons why such increase is due to such
an event, (2) the projected amount of any increase in the Manager's cost of
Construction Work or Operation and Maintenance Services, including Cost
Substantiation therefor and any impact on the scheduled completion date, and (3)
the resulting adjustment in the compensation due hereunder. The Authority may
object to any adjustment to the compensation due hereunder due to any such
increase in the Manager's cost of operation and maintenance for any reason under
this Agreement, including the grounds that such adjustment was improperly
computed, that such costs are unreasonable for the work performed, that such
costs or the manner in which the work was carried out was not a reasonable
response to the event, or that the event is something for which the Manager is
responsible under Section 6.10 hereof has occurred. Notification and resolution
of any such dispute shall be made in accordance with the provisions of Section
7.8 hereof.
(B) Major Capital Improvements to Repair Damage Caused by Authority. If
at any time the T&D System is damaged or destroyed due to an event for which the
Authority is responsible under Section 6.10 hereof, the Authority shall pay, in
addition to and not in substitution for the payments required under subsection
(A) hereof, all Major Capital Improvement Costs and adjustments as are required
to be made by the Authority pursuant to Article V hereof.
SECTION 6.6. MANAGER NON-PERFORMANCE. If subsequent to the Closing
Date, due to an event for which the Manager is responsible under Section 6.10
hereof, there shall be an increase in the Manager's cost of Construction Work or
Operation and Maintenance Services, or in the
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Authority's costs associated with performing obligations hereunder, the amount
of any such incremental cost increase shall be borne by the Manager to the
extent it is responsible therefor under Section 6.10 hereof. If at any time the
T&D System is damaged or destroyed due to an event for which the Manager is
responsible under Section 6.10 hereof, the Manager shall pay, in addition to and
not in substitution for the payments required above, all Major Capital
Improvement Costs and adjustments resulting therefrom.
SECTION 6.7. BILLING OF MAJOR CAPITAL; PUBLIC WORKS. Major Capital
Improvements shall be billed and paid as provided in Article V hereof.
SECTION 6.8. ANNUAL SETTLEMENT. (A) Annual Settlement Statement. Within
60 days after the end of each Contract Year, the Manager shall deliver to the
Authority an annual settlement statement (the "Annual Settlement Statement") in
a mutually agreed upon form, certified as to accuracy and completeness by the
Manager, setting forth the actual aggregate Service Fee payable with respect to
such Contract Year and a reconciliation of such amount with the amounts actually
paid by the Authority pursuant to the Billing Statements with respect to such
Contract Year, including, without limitation, all adjustments to the Service Fee
made pursuant to Article V hereof and this Article VI, all adjustments made
pursuant to subsection 6.8(B) hereof. If any amount is then in dispute, the
Annual Settlement Statement shall set forth the Manager's estimate of such
amount and a final reconciliation of such amount shall be made in the Billing
Statement for the Billing Period immediately following the resolution of such
dispute. The Annual Settlement Statement shall also include an accounting of any
incentives or disincentives accrued during the applicable Contract Year along
with appropriate supporting documentation. The Authority shall have an
opportunity to review such accounting prior to payment and shall have access to
the Manager's books and records in order to confirm such accounting prior to
payment. Such review will be performed within 90 days of receipt of the Annual
Settlement Statement.
(B) Payment of Amounts Owed. During the first quarter of the following
Contract Year, the monthly payments made to the Manager by the Authority shall
be (i) reduced by any overpayment by the Authority resulting from the sum of
actual Direct Costs and actual Third Party Costs being less than the payments
made by the Authority to the Manager for such costs during the previous year or
(ii) increased to reflect any Non-Cost Performance Incentive earned by the
Manager during the previous year and/or any Overrun Payment Due. In the final
Contract Year, such adjustments shall be made in the last month of such year for
the first nine months of the year, and a final adjustment will be made within 90
days after the end of the year.
(C) Carrying Costs. Any amounts determined in the Annual Settlement
Statement to be owing by one party to the other, other than Non-Cost Performance
Incentives or Non-Cost Performance Disincentives shall be paid with interest at
the Base Interest Rate calculated from July 1 of the preceding Contract Year
until the date of the Annual Settlement Statement.
SECTION 6.9. AUTHORITY'S PAYMENT OBLIGATIONS. (A) Source of Payments by
Authority. Amounts payable to Manager hereunder are to be paid from T&D System
revenues and other funds of the Authority available for such purposes in
accordance with the terms of the Bond Resolution.
(B) Disputes. If the Authority disputes any amount billed by the
Manager in any Billing Statement, the Authority shall pay that portion of the
billed amount which is not in dispute and shall provide the Manager with written
objection within 45 days of the receipt of such Billing Statement indicating the
portion of the billed amount that is being disputed and providing all reasons
then known to the Authority for its objection to or disagreement with such
amount. If the Authority and the Manager are not able to resolve such dispute
within 30 days after the Authority's objection, either party may refer such
dispute for resolution in accordance with Section 7.8 hereof. If any such amount
is adjusted in the
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Manager's favor pursuant to agreement, mediation or otherwise, the Authority
shall pay the amount of such adjustment to the Manager, with interest thereon at
the Base Interest Rate from the date such disputed amount was due the Manager to
the date of payment in full of such amount. Nothing contained in this subsection
shall limit the authority of any authorized officer of the Authority or any
other governmental agency pursuant to Applicable Law to raise a further
objection to any amount billed by the Manager pursuant to an audit conducted by
the Authority or such governmental agency. No payment of amounts by the
Authority hereunder shall be construed as or shall constitute a waiver by the
Authority of its rights to dispute such amounts, to conduct a final audit or
reconciliation, or otherwise review the appropriateness of such amounts.
SECTION 6.10. ALLOCATION OF RISK OF CERTAIN COSTS AND LIABILITIES.
Except to the extent due to Authority Fault (as determined by either a final
non-appealable order or judgment of a court of competent jurisdiction (including
administrative tribunals) or a final non-appealable binding arbitration
decision), the Manager shall be responsible and liable to the Authority for, and
shall not be entitled to reimbursement from the Authority for any
Loss-and-Expense incurred by the Manager or the Authority,
(a) due to any gross negligence or willful misconduct by the
Manager during the period commencing six months prior to the Closing
Date to the extent LILCO knew or should have known of such gross
negligence or willful misconduct and during the Term in carrying out
its obligations hereunder,
(b) due to any violation of or failure of compliance with
Applicable Law by the Manager (except as provided below) during the
period commencing six months prior to the Closing Date to the extent
LILCO knew or should have known of such violation or failure of
compliance and during the Term which materially and adversely affects
(i) the condition or operations of the T&D System,
(ii) the financial condition of the Authority,
(iii) the performance or ability of the Manager to perform
its obligations under this Agreement, or
(iv) the cost of providing electric service to the customers
of the T&D System, provided, however, that Manager shall not be
responsible and liable to the Authority under this clause (b)
with respect to any violation of, failure of compliance with, or
liability under, Environmental Laws (as defined in the
Acquisition Agreement) for which the Authority or the Manager may
be strictly liable provided that Manager (or for actions prior to
the Closing Date, LILCO) acted in a manner consistent with
Prudent Utility Practice. Notwithstanding the foregoing, Manager
shall in all events be liable for any fine or penalty arising by
reason of any violation of or failure of compliance with
Applicable Law for acts or omissions of the Manager not
consistent with Prudent Utility Practice,
(c) due to any criminal violation of Applicable Law by the
Manager (or for actions prior to the Closing Date, LILCO), or
(d) due to an event which gives rise to a cost not included in
the Direct Cost Budget or Third Party Cost Budget or a cost incurred
with respect to Major Capital Improvements or
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Public Works Improvements, that is incurred by reason of actions or
omissions of the Manager not consistent with Prudent Utility Practice.
Any action or omission identified in (a), (b), (c) or (d) shall be
determined by either a final non-appealable order or judgment of a court of
competent jurisdiction (including administrative tribunals) or a final
non-appealable binding arbitration decision and shall be attributable to the
Manager for purposes of the preceding sentence whether it is attributable to the
Manager or to any officer, member, agent, employee or representative of the
Manager or any Affiliate and any contractor, Subcontractor of any tier, or
independent contractor selected to perform any work hereunder not previously
objected to by the Manager to the extent permitted by Section 5.3 and related
dispute resolution provisions.
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ARTICLE VII
DEFAULT, TERMINATION FOR CAUSE
AND DISPUTE RESOLUTION
SECTION 7.1. REMEDIES FOR BREACH. Subject to the provisions of Section
7.8 hereof, the parties agree that, in the event that either party breaches any
other obligation under this Agreement or any representation made by either party
hereunder is untrue in any material respect, the other party shall have the
right to take any action at law or in equity it may have to enforce the payment
of any damages or the performance of such other obligation hereunder and such
right to recover damages or to be reimbursed as provided herein will ordinarily
constitute an adequate remedy for any breach of such other obligation or any
material untruth in any such representation. Either party may enforce by an
action for specific performance the other party's obligations hereunder in the
event a material breach thereof has occurred and is continuing. Neither party
shall have the right to terminate this Agreement for cause except after an Event
of Default determined in accordance with the provisions of this Article VII
shall have occurred.
SECTION 7.2. EVENTS OF DEFAULT BY THE MANAGER. (A) Events of Manager
Default Defined. (1) Events of Default Not Requiring Cure Opportunity for
Termination. Each of the following shall constitute an Event of Default on the
part of the Manager for which the Authority may terminate this Agreement without
any requirement of cure opportunity:
(a) Change of Control of Manager. Change of Control of the
Manager, the Parent or the Guarantor has occurred; provided, however,
that the combination effectuated under the BUGLILCO Agreement or the
Acquisition Agreement shall not constitute a Change of Control of the
Manager for purposes of this provision.
(b) Worker Safety. Failure for any two out of three consecutive
years, for reasons other than major storms or extreme weather, to
achieve the Minimum Worker Safety Standard;
(c) Customer Service. Failure for two out of three consecutive
years to achieve the Minimum Customer Service Standard.
(d) Voluntary Bankruptcy. The written admission by the Manager or
the Guarantor that it is bankrupt, or the filing by the Manager or the
Guarantor of a voluntary petition under the Federal Bankruptcy Code,
or the consent by the Manager, the Parent or the Guarantor to the
appointment by a court of a receiver or trustee for all or a
substantial portion of its property or business, or the making by the
Manager, the Parent or the Guarantor of any arrangement with or for
the benefit of its creditors involving an assignment to a trustee,
receiver or similar fiduciary, regardless of how designated, of all or
a substantial portion of the Manager's or the Guarantor's property or
business.
(e) Involuntary Bankruptcy. The final adjudication of the
Manager, the Parent or the Guarantor as a bankrupt after the filing of
an involuntary petition under the Federal Bankruptcy Code, but no such
adjudication shall be regarded as final unless and until the same is
no longer being contested by the Manager, the Parent or the Guarantor
nor until the order of the adjudication shall be regarded as final
unless and until the same is no longer being contested by the Manager
or the Guarantor nor until the order of the adjudication is no longer
appealable.
(f) Credit Enhancement. Failure of the Manager to supply,
maintain, renew, extend or replace the credit enhancement required
under subsection 9.1(C) hereof within the time
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specified therein in the event there is a Material Decline in the
Guarantor's Credit Standing, as defined in Section 9.1 hereof.
(g) Letter of Credit Draw. Failure of the Manager to supplement,
replace or cause to be reinstated the letter of credit as described in
Section 9.1 hereof within 30 days following draws equal to, in the
aggregate, 50% of the face value thereof.
(2) Events of Default Requiring Cure Opportunity for Termination. Each
of the following shall constitute an Event of Default on the part of the Manager
for which the Authority may terminate this Agreement upon compliance with the
notice and cure provisions set forth below:
(a) System Reliability. Failure to achieve, for two out of three
consecutive years, the Minimum Reliability Standard for both SAIFI and
CAIDI as defined in Appendix 7 hereto for any of the same individual
system geographic operating divisions; provided that if the Authority
and the Manager shall agree that such failure is not capable of being
cured within the three year period, then such failure shall not be
deemed an Event of Default hereunder if and so long as the Manager
shall provide assurances satisfactory to the Authority that
appropriate steps have been and are being taken to effect a cure and
that such failure will be cured within an agreed upon appropriate
period;
(b) Failure to Pay or Credit. The failure of the Manager to pay
or credit undisputed amounts owed to the Authority under this
Agreement within 90 days following the due date for such payment or
credit (including the payment or crediting of any payments due to the
Authority in connection with the Performance Guarantees); and
(c) Failure Otherwise to Comply with Agreement or Guaranty. The
failure or refusal by the Manager to perform any material obligation
under this Agreement (other than those obligations contained in
subsection 7.2(A)(1) above), or the failure of the Guarantor to comply
with any of its material obligations under the Guaranty unless such
failure or refusal is excused by an Uncontrollable Circumstance or
Authority Fault; except that no such failure or refusal specified in
clause (b) or (c) of this Section 7.2(A)(2) shall constitute an Event
of Default giving the Authority the right to terminate this Agreement
for cause under this subsection unless:
(i) The Authority has given prior written notice to the
Manager or the Guarantor, as applicable, stating that a specified
failure or refusal to perform exists which will, unless
corrected, constitute a material breach of this Agreement on the
part of the Manager or the Guaranty on the part of the Guarantor
and which will, in its opinion, give the Authority a right to
terminate this Agreement for cause under this Section unless such
default is corrected within a reasonable period of time, and
(ii) The Manager or the Guarantor, as applicable, has
neither challenged in an appropriate forum the Authority's
conclusion that such failure or refusal to perform has occurred
or constitutes a material breach of this Agreement nor corrected
or diligently taken steps to correct such default within a
reasonable period of time, but not more than 60 days, from
receipt of the notice given pursuant to clause (i) of this
subsection (but if the Manager or the Guarantor shall have
diligently taken steps to correct such default within a
reasonable period of time, the same shall not constitute an Event
of Default for as long as the Manager or the Guarantor is
continuing to take such steps to correct such default).
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SECTION 7.3. EVENTS OF DEFAULT BY THE AUTHORITY. (A) Events of
Authority Default Defined. Each of the following shall constitute an Event of
Default on the part of the Authority for which the Manager may terminate this
Agreement upon compliance with the notice and cure provisions set forth below:
(1) Failure to Pay. The failure of the Authority to pay
undisputed amounts owed to the Manager under this Agreement within 90
days following the due date for such payment.
(2) Failure to Comply with Agreement. The failure or refusal by
the Authority to perform any material obligation under this Agreement
unless such failure or refusal is excused by an Uncontrollable
Circumstance or Manager Fault; except that no such failure or refusal
to pay or perform shall constitute an Event of Default giving the
Manager the right to terminate this Agreement for cause under this
Section unless:
(a) The Manager has given prior written notice to the
Authority stating that a specified failure or refusal to perform
exists which will, unless corrected, constitute a material breach
of this Agreement on the part of the Authority and which will, in
its opinion, give the Manager a right to terminate this Agreement
for cause under this Section unless such default is corrected
within a reasonable period of time, and
(b) The Authority has neither challenged in an appropriate
forum the Manager's conclusion that such failure or refusal to
perform has occurred or constitutes a material breach of this
Agreement nor corrected or diligently taken steps to correct such
default within a reasonable period of time but not more than 60
days from the date of the notice given pursuant to clause (a) of
this subsection (but if the Authority shall have diligently taken
steps to correct such default within a reasonable period of time,
the same shall not constitute an Event of Default for as long as
the Authority is continuing to take such steps to correct such
default).
(3) Change of Control of LILCO. A change of control of LILCO
(after acquisition by the Authority) which results in ownership
control of LILCO by other than a state public benefit corporation,
authority, political subdivision or other instrumentality of the State
or any political subdivision thereof.
SECTION 7.4. PROCEDURE FOR TERMINATION FOR CAUSE. (A) Two-Year Notice.
If any party shall have a right of termination for cause in accordance with this
Article VII, the same may be exercised by notice of termination given to the
party in default at least two years prior to (or, in the case of a bankruptcy or
insolvency default or a Change of Control, simultaneously with, or, in the case
of an Event of Default specified in clause (f) or (g) of subsection 7.2(A)(1)
hereof, six months) the date of termination specified in such notice (the
"Termination Date").
(B) Termination by Authority. (1) Access. In the event an Event of
Default of the Manager occurs and the Authority issues a termination notice
described in subsection (A) hereof, from the date of such issuance until the
Termination Date, the Authority shall have unrestricted access to all areas of,
and all information, data and records concerning, the T&D System and to
Manager's personnel necessary to monitor the performance of the Manager and to
ensure that the Manager complies with the provisions of this Agreement during
such time period (the "Termination Notice Period").
(2) Assumption of Responsibilities. At the Authority's sole option, the
Authority may elect at any time during the Termination Notice Period to direct
the Manager and its employees in the day-to-day performance of the Manager's
obligations under this Agreement. If the Authority so elects,
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the Authority shall reimburse the Manager for its resulting Cost Substantiated
incremental costs incurred, and the Manager shall no longer be eligible to
receive any performance incentives otherwise payable hereunder nor be
responsible for the payment of any performance disincentives otherwise payable
under this Agreement; provided that the Manager shall be entitled to receive any
performance incentives otherwise payable hereunder and shall be responsible for
any performance disincentives otherwise payable hereunder for the period
preceding such assumption of day-to-day operations.
SECTION 7.5. CERTAIN OBLIGATIONS OF THE MANAGER UPON TERMINATION OR
EXPIRATION. (A) Obligations on Termination or Expiration. Upon a termination of
the Manager's right to perform this Agreement under Section 7.2 hereof or the
expiration of this Agreement in accordance with the terms hereof, the Manager
shall cooperate in the smooth transition to the new manager and, without
limiting the generality of the foregoing, in addition to those rights and
obligations under Schedule F to the Acquisition Agreement shall:
(1) transfer all records, customer lists and account information,
the Operation and Maintenance Manuals and personnel information to the
new manager;
(2) sell all existing materials and supplies utilized by the
Manager in the operation and maintenance of the T&D System to the new
manager at cost;
(3) stop the Operation and Maintenance Services and any
Construction Work on the date or dates and to the extent specified by
the Authority, provided that in so doing the Manager shall cooperate
and coordinate with the Authority and any successor manager so as to
assure continued operation of the T&D System;
(4) promptly take all action as necessary to protect and preserve
all materials, equipment, tools, facilities and other property;
(5) promptly remove from the T&D System Site all equipment,
implements, machinery, tools, temporary facilities of any kind and
other property owned or leased by the Manager which are not to be
transferred to any successor manager or the Authority, and repair any
damage caused by such removal;
(6) leave the T&D System in a neat and orderly condition;
(7) promptly remove all employees of the Manager and any
Subcontractors and vacate the T&D System Site, subject to subsection
(B) of this Section and further subject to the requirement that all
employees of the Manager shall be permitted by the Manager to take
employment with the Authority or a replacement manager of the T&D
System;
(8) promptly deliver to the Consulting Engineer or the successor
manager, as the Authority shall direct, copies of all Subcontracts,
together with a statement of:
(a) the items ordered and not yet delivered pursuant to each
agreement;
(b) the expected delivery date of all such items;
(c) the total cost of each agreement and the terms of
payment; and
(d) the estimated cost of cancelling and/or assigning each
agreement;
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(9) deliver to the Consulting Engineer or the successor manager,
as the Authority shall direct, promptly a list of:
(a) all special order items previously delivered or
fabricated by the Manager or any Subcontractor but not yet
incorporated in the Construction Work or the Operation and
Maintenance Services; and
(b) all other supplies, materials, machinery, equipment and
other property previously delivered or fabricated by the Manager
or any Subcontractor but not yet incorporated in the Construction
Work or the Operation and Maintenance Services;
(10) advise the Authority promptly of any special circumstances
which might limit or prohibit cancellation of any Subcontract;
(11) as the Authority directs, terminate or assign to the new
manager all Subcontracts and make no additional agreements with
Subcontractors without the prior written approval of the Authority;
(12) as directed by the Authority, transfer to the Authority by
appropriate instruments of title, and deliver to such place as the
Authority may specify, all special order items;
(13) furnish to the Authority all information used in the
preparation of reports and other data necessary for the Authority (or
any successor manager) to operate the T&D System, and use its best
efforts to obtain the consent of any third party required to fulfill
such obligation;
(14) notify the Authority promptly in writing of any Legal
Proceedings against the Manager by any Subcontractor relating to the
termination of the Construction Work or the Operation and Maintenance
Services (or any Subcontracts);
(15) give written notice of termination, effective as of date of
termination of this Agreement, promptly under each policy of Required
Construction Work Insurance and Required Operation Period Insurance
(with a copy of each such notice to the Authority), but permit the
Authority to continue and/or assign such policies thereafter at its
own expense, if possible; and
(16) take such other actions, and execute such other documents,
as may be necessary to effectuate and confirm the foregoing matters,
or as may be otherwise necessary or desirable to minimize the
Authority's costs, and take no action which will increase any amount
payable to the Authority under this Agreement.
(B) Additional Obligations. The Manager shall also provide, and shall
use its best reasonable efforts to cause its Subcontractors to provide,
technical advice and support to the Authority (or any replacement manager
designated by the Authority). Such advice and support shall be for a period of
six months and shall include providing any plans, drawings, renderings,
blueprints, operating and training manuals for all facilities, personal
information, specifications or other information useful or necessary for the
Authority or any replacement manager designated by the Authority to complete and
carry out the Construction Work and to perform the Operation and Maintenance
Services. In addition, to the extent requested by the Authority, the Manager
shall use reasonable efforts to retain any or all key operating and management
employees and make them available following termination or expiration of this
Agreement to provide on-site, real-time consulting advice to a replacement
manager for the T&D System.
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(C) Authority Payment of Certain Transition Costs. The Authority shall
reimburse the Manager within 60 days of the date of the Manager's invoice all
mutually agreeable costs incurred by the Manager in satisfying the requirement
of subsections (A) and (B) hereof, subject to Cost Substantiation.
SECTION 7.6. NO WAIVERS. No action of the Authority or Manager pursuant
to this Agreement (including, but not limited to, any investigation or payment),
and no failure to act, shall constitute a waiver by either party of the other
party's compliance with any term or provision of this Agreement. No course of
dealing or delay by the Authority or Manager in exercising any right, power or
remedy under this Agreement shall operate as a waiver thereof or otherwise
prejudice such party's rights, powers and remedies. No single or partial
exercise of (or failure to exercise) any right, power or remedy of the Authority
or Manager under this Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
SECTION 7.7. FORUM FOR DISPUTE RESOLUTION. Subject to the provisions of
Section 7.8, it is the express intention of the parties that all legal actions
and proceedings related to this Agreement or to the T&D System or to any rights
or any relationship between the parties arising therefrom shall be solely and
exclusively initiated and maintained in courts of the State of New York having
appropriate jurisdiction; provided, however, that except in the case of a
termination due to a change in control or bankruptcy or insolvency, either party
may refer a challenge to the termination of this Agreement to an independent
arbitrator, following the use of expedited limited mediation provided for in
Section 7.8 hereof. During such arbitration process, the two-year notice period
provided for in Section 7.4 hereof shall continue to run and this Agreement
shall terminate at the end of such period, unless a final, binding ruling that
the termination of this Agreement was improper has been issued by such
arbitrator.
SECTION 7.8. NON-BINDING MEDIATION; ARBITRATION.
(A) Dispute Resolution. Any dispute arising out of or relating to this
Agreement shall be resolved in accordance with the procedures specified in this
Section, which shall constitute the sole and exclusive procedures for the
resolution of such disputes.
(B) Negotiation and Non-Binding Mediation. The parties agree to use
their best efforts to settle promptly any disputes or claims arising out of or
relating to this Agreement through negotiation conducted in good faith between
executives having authority to reach such a settlement. Either party hereto may,
by written notice to the other party, refer any such dispute or claim for advice
or resolution by mediation by an Independent Engineer, financial advisor or
other suitable mediator. The parties shall mutually agree on the selection of
such mediator. If the parties are unable to agree, the parties shall each
designate a qualified mediator who, together, shall choose the mediator for the
particular dispute or claim. If the mediator is unable, within 30 days of such
referral, to reach a determination as to the dispute that is acceptable to the
parties hereto, the matter shall be referred to applicable Legal Proceedings.
All negotiations and mediation discussions pursuant to this paragraph
shall be confidential subject to Applicable Law and shall be treated as
compromise and settlement negotiations for purposes of Federal Rule of Evidence
408 and applicable state rules of evidence.
(C) Arbitration. Any dispute arising out of or relating to this
Agreement or the breach, termination, or validity thereof, except for a
termination due to a Change in Control or due to a bankruptcy or insolvency or a
failure to provide, renew, reinstate or replace the credit enhancement required
pursuant to Section 9.1 which dispute has not been resolved by a negotiation or
mediation as
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provided in subsection 7.8(B) hereof within 30 days from the date that either
negotiations or mediation shall have been first requested, shall be settled by
arbitration before three independent and impartial arbitrators (the
"Arbitrators") in accordance with the then current rules of the American
Arbitration Association, except to the extent such rules are inconsistent with
any provision of this Agreement, in which case the provisions of this Agreement
shall be followed, and except that the arbitrations under this Agreement shall
not be administered by the American Arbitration Association. The Arbitrators
shall be (a) independent of the parties and disinterested in the outcome of the
dispute, provided that residents of Long Island shall not be deemed to be
interested merely by virtue of their residence on Long Island, (b) attorneys,
accountants, investment bankers, commercial bankers or engineers familiar with
contracts governing the operation of electric utility assets, and (c) qualified
in the subject area of the issue in dispute. The Arbitrators shall be chosen by
the parties, with each party choosing one arbitrator and those arbitrators
choosing the third Arbitrator. Judgment on the award rendered by the Arbitrators
may be entered in any court in the State of New York having jurisdiction
thereof. If either party refused to participate in good faith in the
negotiations or mediation proceedings described in subsection 7.8(B)hereof, the
other may initiate arbitration at any time after such refusal without waiting
for the expiration of the applicable time period. Except as provided in
subsection 7.8(D) hereof relating to provisional remedies, the Arbitrators shall
decide all aspects of any dispute brought to them including attorney
disqualification and the timeliness of the making of any claim.
(D) Provisional Relief. Either party may, without prejudice to any
negotiation, mediation, or arbitration procedures, proceed in any court to
obtain provisional judicial relief if, in the such party's sole discretion, such
action is necessary to avoid imminent irreparable harm, to provide uninterrupted
electrical and other services, or to preserve the status quo pending the
conclusion of the dispute procedures specified in this Section.
(E) Obligation to Repair. It is the intention of the parties that the
Manager's operation and maintenance obligations hereunder shall be implemented
by the Manager in accordance with this Agreement, notwithstanding the existence
of any dispute hereunder, including without limitation, responsibility for the
costs therefor. Such actions by the Manager shall in no case prejudice its
rights thereafter to dispute its responsibility for the costs therefor.
(F) Awards. The Arbitrators shall have no authority to award punitive
damages or any other damages aside from the prevailing party's actual and
consequential damages plus interest at the Base Interest Rate from the date such
damages were incurred. The Arbitrators shall not have the authority to make any
ruling, finding, or award that does not conform to the terms and conditions of
this Agreement. The Arbitrators may award reasonable attorneys' fees and costs
of the arbitration. The Arbitrator's award shall be in writing and shall set
forth the factual and legal bases for the award.
(G) Information Exchange. The Arbitrators shall have the discretion to
order a pre-hearing exchange of information by the parties, including, without
limitation, the production of requested documents, the exchange of summaries of
testimony of proposed witnesses, and the examination by disposition of parties.
The parties hereby agree to produce all such information as ordered by the
Arbitrators and shall certify that they have provided all applicable information
and that such information is true, accurate and complete.
(H) Site of Arbitration. The site of any Arbitration brought pursuant
to this Agreement shall be either Mineola, New York or Hauppauge, New York.
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SECTION 7.9. AUTHORITY EMERGENCY POWERS. Should the Manager, due to
Uncontrollable Circumstances or any other reason whatsoever, fail, refuse or be
unable to provide any or all Operation and Maintenance Services and Construction
Work contemplated hereby and the Authority or any Governmental Body finds that
such failure endangers or menaces the public health, safety or welfare, then, in
any of those events and to the extent of such failure, the Authority shall have
the right, upon notice to the Manager, during the period of such emergency, to
take possession of and use any or all of the Operating Assets necessary to
transmit and distribute Power and Energy which the Manager would otherwise be
obligated to transmit and distribute. The Manager agrees that in such event it
will fully cooperate with the Authority to effect such a temporary transfer of
possession of the Operating Assets for Authority's use of the same. The Manager
agrees that, in such event, the Authority may take possession of and use any or
all of the Operating Assets for the above-mentioned purposes without paying the
Manager or any other person any additional charges or compensation whatsoever
for such possession and use; provided, however, that if such emergency is due to
Uncontrollable Circumstances, the Authority shall reimburse the Manager for its
Cost-Substantiated costs incurred due to such a transfer of the Operating
Assets. The parties acknowledge that if the Authority takes emergency possession
of the Operating Assets, any applicable cure period provided for in this
Agreement for the Manager's benefit shall be tolled until such time as the
Manager resumes possession of the Operating Assets. The Authority may operate
the Operating Assets with Authority employees, or cause the Operating Assets to
be operated by subcontractors to the Authority or through the use of the
Manager's employees, and the Manager shall make its employees available for such
purposes. It is further agreed that the Authority may at any time, at its
discretion, relinquish possession of any or all of the Operating Assets to the
Manager and thereupon demand that the Manager resume the operations as provided
in the Agreement. It is specifically understood and agreed that the Authority's
exercise of its rights under this Section: (1) does not constitute a taking of
private property for which payment must be made other than as specifically
provided for in this Section; (2) shall not create any liability on the part of
the Authority to the Manager; and (3) that the indemnity provisions of the
Agreement of Section 9.3 hereof covering the Authority and the Manager are meant
to include circumstances arising under this Section. The Authority's right to
retain temporary emergency possession of the Operating Assets, and to operate
the T&D System shall terminate at the earlier of: (1) the time when such
services can, in the judgment of the Authority, be resumed by the Manager, or
(if earlier) (2) the time when the Authority no longer reasonably requires such
Operating Assets, as determined by the Authority.
SECTION 7.10. WAIVER OF CERTAIN DEFENSES. The Manager acknowledges that
it is responsible for the day-to-day operation and maintenance of the T&D System
and the design, construction, startup and testing of the Major Capital
Improvements and Public Works Improvements and agrees that, unless otherwise
permitted pursuant to the provisions of this Agreement with respect to the
occurrence of Uncontrollable Circumstances, and without limiting such
provisions, it shall not assert (i) impossibility or impracticability of
performance, (ii) lack of fitness for use or operation of the T&D System, (iii)
the existence, non-existence, occurrence or non-occurrence of any foreseen or
unforeseen fact, event or contingency that may be a basic assumption of the
Manager, (iv) commercial frustration of purposes or (v) contract of adhesion, as
a defense against any claim by the Authority against the Manager.
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ARTICLE VIII
TERM
SECTION 8.1. TERM OF AGREEMENT. This Agreement shall become effective
on the Contract Date, and shall continue in effect until the eighth (8th)
anniversary of the Closing Date (the "Term"), unless earlier terminated in
accordance with its terms, in which event the Term shall be deemed to have
expired as of the date of such termination. All rights, obligations and
liabilities of the parties hereto shall commence on the Closing Date, subject to
the terms and conditions hereof. The Authority shall have no obligation to make
Service Fee payments hereunder until the Closing Date. The rights and
obligations of the parties hereto pursuant to Sections 3.1(E), 4.2(D), 4.2(E),
4.3(E), 4.14(C), 4.15(F), 4.16(D), 4.16(F), 4.24, 6.3, 6.10, 7.1, 7.4(B)(2),
7.5, 7.7, 7.8, 7.10, 8.3, 9.1(C), 9.2, 9.3, 9.4 and 9.5 hereof shall survive the
termination or expiration of this Agreement, and no such termination or
expiration of this Agreement shall limit or otherwise affect the respective
rights and obligations of the parties hereto accrued prior to the date of such
termination or expiration. At the end of the Term of this Agreement, all other
obligations of the parties hereunder shall terminate unless extended.
SECTION 8.2. MANDATORY COMPETITIVE SELECTION OF FUTURE MANAGERS. The
Manager hereby acknowledges that the Authority will commence and conduct a
competitive procurement for T&D System management services following the fifth
anniversary of the Closing Date. The Manager shall have the right or be
ineligible, as the case may be, to submit a bid in such procurement on the same
basis as other bidders; provided that if this Agreement is terminated due to an
Event of Default of the Manager, the Manager shall not have the right to submit
a bid in such procurement. The Manager shall cooperate with the Authority during
such procurement process, including, by way of example, providing information
and documents requested by the Authority for dissemination to bidders and
providing access to the T&D System for such bidders.
SECTION 8.3. EXIT TEST. An exit test (the "Exit Test") will be
commenced six months prior to the expiration or termination of this Agreement to
confirm (1) that the Manager has performed the maintenance and Major Capital
Improvement and Public Work Improvements activities which were budgeted for the
final year of the Agreement or as otherwise previously approved by the
Authority, in such final year and (2) that the Manager has completed any
remedial activities to cure maintenance deficiencies or Major Capital
Improvements and Public Works Improvements which were previously determined to
be incomplete as noted by the Authority pursuant to the most recently conducted
review of the condition of the T&D System which review shall be conducted
annually. The Exit Test shall be carried out in accordance with the provisions
of Appendix 6 hereto. If, as a result of such Exit Test, an independent engineer
selected by the Authority and agreed to by the Manager, finds that maintenance,
Major Capital Improvement and Public Works Improvements, replacement, or
remedial activities described in (1) and (2) above have not been performed in
accordance with this Agreement and that the Authority has provided the funds for
such activities as part of the payments made during such final year or in the
case of items noted as deficiencies or incomplete items pursuant to (2) above
were funded by the Authority in a previous year, then the Manager shall, in its
discretion, either perform such incomplete maintenance, Major Capital
Improvement, Public Works Improvements, replacement, or remedial activities
without further compensation from the Authority, or within 90 days after
termination of the Agreement, the Manager shall reimburse the Authority for the
cost to complete such work.
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ARTICLE IX
GENERAL
SECTION 9.1. MANAGER TO REMAIN AFFILIATE OF GUARANTOR; CREDIT
ENHANCEMENT IN CERTAIN CIRCUMSTANCES. (A) Limitations. The Manager agrees that
it will remain an Affiliate of the Guarantor.
(B) Material Decline in the Guarantor's Credit Standing. For purposes
of this Section, a "Material Decline in the Guarantor's Credit Standing" shall
be deemed to have occurred if (1) in the event that the Guarantor has long-term
senior debt outstanding which has a credit rating by a Rating Service, such
rating by a Rating Service is established or is reduced below investment grade
level or (2) in the event the Guarantor does not have long-term senior debt
outstanding which has a credit rating by a Rating Service and the Guarantor has
a credit rating by a Rating Service, such credit rating is established or
reduced below investment grade level, or (3) in the event the Guarantor does not
have long-term senior debt outstanding which has a credit rating by a Rating
Service and the Guarantor does not have a credit rating by a Rating Service, in
which event the Guarantor shall seek a credit rating for the Guaranty from a
Rating Service, such rating is established or is reduced below investment grade
level or if no rating is established. The Manager immediately shall notify the
Authority of any Material Decline in the Guarantor's Credit Standing.
(C) Credit Enhancement. If, at any time during the Term hereof, a
Material Decline in the Guarantor's Credit Standing occurs, the Manager shall
immediately notify the Authority thereof and, within 30 days after such
occurrence, shall provide credit enhancement of its obligations hereunder,
GENCO's obligations under the Power Supply Agreement and the Energy Manager's
obligations under the Energy Management Agreement at its sole cost and expense
in the form either of (1) an unconditional guarantee of all of the Manager's
obligations hereunder, GENCO's obligations under the Power Supply Agreement and
the Energy Manager's obligations under the Energy Management Agreement provided
by a corporation or financial institution whose long-term senior debt is or
would be rated investment grade by a Rating Service or (2) an irrevocable letter
of credit in form and substance satisfactory to the Authority securing the
Manager's obligations hereunder, GENCO's obligations under the Power Supply
Agreement and the Energy Manager's obligations under the Energy Management
Agreement in a face amount of $60,000,000 provided by a financial institution
whose long-term senior debt is rated investment grade by a Rating Service;
provided that if any such letter of credit is drawn upon in the aggregate in an
amount equal to 50% of the face value of such letter of credit, the Manager
shall, within 30 days thereafter, supplement or replace such letter of credit
with an additional letter of credit such that the total amount of such letter of
credit then available equals $60 MILLION. The amount of such letter of credit
shall be reduced by $30 million if the Energy Management Agreement has
theretofore been or is thereafter terminated and by $4 million if the Power
Supply Agreement has theretofore been or is thereafter terminated, such
obligation to continue until the expiration or termination of this Agreement,
the Power Supply Agreement and the Energy Management Agreement.
SECTION 9.2. UNCONTROLLABLE CIRCUMSTANCES GENERALLY. (A) Performance
Excused. Except as otherwise specifically provided in this Agreement, neither
the Authority nor the Manager shall be liable to the other for any failure or
delay in performance of any obligation under this Agreement (other than any
payment at the time due and owing) to the extent due to the occurrence of an
Uncontrollable Circumstance.
(B) Notice, Mitigation. The party experiencing an Uncontrollable
Circumstance shall notify the other party by hardcopy telecommunication or
telephone and in writing, on or promptly after the date the party experiencing
such Uncontrollable Circumstance first knew of the commencement
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thereof, followed within 15 days by a written description of (1) the
Uncontrollable Circumstance and the cause thereof (to the extent known), (2) the
date the Uncontrollable Circumstance began and the cause thereof, its estimated
duration, the estimated time during which the performance of such party's
obligations hereunder will be delayed, and the impact, if any, on any scheduled
completion dates for Major Capital Improvements Public Works Improvements, (3)
to the extent appropriate in accordance with Section 6.3, the estimated amount,
if any, by which Other Costs may arise as a result of such Uncontrollable
Circumstance, (4) its estimated impact on the other obligations of such party
under this Agreement and (5) potential mitigating actions which might be taken
by the Manager or Authority and any areas where costs might be reduced and the
approximate amount of such cost reductions. Each party shall provide prompt
written notice of the cessation of such Uncontrollable Circumstance. Whenever
such act, event or condition shall occur, the party claiming to be adversely
affected thereby shall, as promptly as reasonably possible, use its best
reasonable efforts to eliminate the cause therefor, reduce costs and resume
performance under this Agreement. While the delay continues, the Manager or
Authority shall give notice to the other party with a copy to the Consulting
Engineer, before the first day of each succeeding month, updating the
information previously submitted. The Manager shall furnish promptly (if and to
the extent available to the Manager) any additional documents or other
information relating to the Uncontrollable Circumstance reasonably requested by
the Consulting Engineer or the Authority.
(C) Conditions to Relief on Account of Uncontrollable Circumstances. If
and to the extent that Uncontrollable Circumstances interfere with, delay or
increase the cost of the Manager's performing any Construction Work or the
Operation and Maintenance Services in accordance herewith, and the Manager has
given timely notice as required by subsection 9.2(B) hereof, the Manager shall
be entitled to an increase or extension in the Service Fee or the schedule for
performance equal to the amount of the increased cost or the time lost as a
result thereof. In the event that the Manager believes it is entitled to with
respect to compensation or any other relief hereunder on account of any
Uncontrollable Circumstance, it shall furnish the Authority written notice of
the specific relief requested and detailing the event giving rise to the claim
within 45 days after the giving of notice delivered pursuant to subsection
9.2(B) hereof. Within 45 days after receipt of such a timely submission from the
Manager, the Authority shall issue a written determination as to the extent, if
any, it concurs with the Manager's claim for relief, and the reasons therefor.
(D) Acceptance of Relief Constitutes Release. The Manager's acceptance
of compensation or schedule relief under this Section shall be construed as a
release of the Authority by the Manager (and all persons claiming by, through,
or under the Manager) for any and all Loss-and-Expense resulting from, or
otherwise attributable to, the event giving rise to the relief claimed.
SECTION 9.3. INDEMNIFICATION. (A) Indemnification by the Manager. The
Manager agrees that to the extent permitted by law it will protect, indemnify
and hold harmless the Authority and its respective representatives, trustees,
officers, employees and subcontractors (as applicable in the circumstances),
(the "Authority Indemnified Parties") from and against (and pay the full amount
of) any Loss-and-Expense and will defend the Authority Indemnified Parties in
any suit, including appeals, for personal injury to, or death of, any person, or
loss or damage to property arising out of any matter for which the Manager is
responsible under Section 6.10 hereof. The Manager shall not, however, be
required to reimburse or indemnify any Authority Indemnified Party for any
Loss-and-Expense to the extent any such Loss-and-Expense is due to (a) any
matter for which the Authority is responsible under Section 6.10 hereof, (b) the
negligence or other wrongful conduct of any Authority Indemnified Party, (c) any
Uncontrollable Circumstance, (d) any act or omission of any Authority
Indemnified Party judicially determined to be responsible for or contributing to
the Loss-and-Expense, or (e) any matter for which the risk has been specifically
allocated to the Authority hereunder. An Authority Indemnified Party shall
promptly notify the Manager of the assertion of any claim against it for which
it is entitled to be indemnified hereunder, shall give the Manager the
opportunity to defend such claim, and shall not settle
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the claim without the approval of the Manager. The Manager shall be entitled to
control the handling of any such claim and to defend or settle any such claim,
in its sole discretion, with counsel of its own choosing that is reasonably
acceptable to the Authority Indemnified Parties; provided, however, that, in the
case of any such settlement, the Manager shall obtain written release of all
liability of the Authority Indemnified Parties, in form and substance reasonably
acceptable to the Authority Indemnified Parties. Notwithstanding the foregoing,
each Authority Indemnified Party shall have the right to employ its own separate
counsel in connection with, and to participate in (but, except as provided
below, not control) the defense of, such claim, but the fees and expenses of
such counsel incurred after notice to the Manager of its assumption of the
defense thereof shall be at the expense of such Authority Indemnified Party
unless:
(i) the employment of counsel by such Authority Indemnified Party has
been authorized by the Manager;
(ii) counsel to such Authority Indemnified Party shall have reasonably
concluded that there may be a conflict on any significant issue
between the Manager and such Authority Indemnified Party in the
conduct of the defense of such claim; or
(iii)the Manager shall not in fact have employed counsel reasonably
acceptable to the Authority Indemnified Party to assume the
defense of such claim within twenty (20) days following the
receipt by the Manager of the notice from the Authority
Indemnified Party regarding the assertion of the applicable
claim,
in each of which cases the fees and expenses of counsel for such Authority
Indemnified Party shall be at the expense of the Manager; provided, however,
that, with respect to clauses (ii) and (iii) of this sentence, the Manager shall
not be obligated to pay the fees and expenses of more than one law firm, plus
local counsel if necessary in each relevant jurisdiction, for all such Authority
Indemnified Parties with respect to any claims arising out of the same events or
facts or the same series of events or facts. The Manager shall not be entitled,
without the consent of such Authority Indemnified Party, to assume or control
the defense of any claim as to which counsel to such Authority Indemnified Party
shall have reasonably made the conclusion that there may be a conflict on any
significant issue between the Manager and such Authority Indemnified Party in
the conduct of the defense of such claim as set forth in clause (ii) above,
provided that the foregoing limitation shall apply only with respect to those
issues for which there may be such a conflict. These indemnification provisions
are for the protection of the Authority Indemnified Parties only and shall not
establish, of themselves, any liability to third parties. The provisions of this
subsection 9.3(A) shall survive termination of this Agreement.
(B) Indemnification by the Authority. The Authority agrees that to the
extent permitted by law, it will protect, indemnify and hold harmless the
Manager and its Affiliates and their respective officers, directors,
Subcontractors (as applicable in the circumstances) and employees (the "Manager
Indemnified Parties") from and against (and pay the full amount of) any
Loss-and-Expense, and will defend the Manager Indemnified Parties in any suit,
including appeals, for personal injury to, or death of, any person, or loss or
damage to property arising out of any matter for which the Authority is
responsible under Section 6.10 hereof. The Authority shall not, however, be
required to reimburse or indemnify any Manager Indemnified Party for any
Loss-and-Expense to the extent any such Loss-and-Expense is due to (a) any
matter for which the Manager is responsible under Section 6.10 hereof, (b) the
negligence or other wrongful conduct of any Manager Indemnified Party, (c) any
Uncontrollable Circumstance, (d) any act or omission of any Manager Indemnified
Party judicially determined to be responsible for or contributing to the
Loss-and-Expense, (e) any matter for which the risk has been specifically
allocated to the Manager hereunder. A Manager Indemnified Party shall promptly
notify the
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Authority of the assertion of any claim against it for which it is entitled to
be indemnified hereunder, shall give the Authority the opportunity to defend
such claim, and shall not settle the claim without the approval of the
Authority. The Authority shall be entitled to control the handling of any such
claim and to defend or settle any such claim, in its sole discretion, with
counsel of its own choosing that is reasonably acceptable to the Manager
Indemnified Party; provided, however, that, in the case of any such settlement,
the Authority shall obtain written release of all liability of the Manager
Indemnified Party, in form and substance reasonably acceptable to the Manager
Indemnified Party. Notwithstanding the foregoing, each Manager Indemnified Party
shall have the right to employ its own separate counsel in connection with, and
to participate in (but, except as provided below, not control) the defense of,
such claim, but the fees and expenses of such counsel incurred after notice to
the Authority of its assumption of the defense thereof shall be at the expense
of such Manager Indemnified Party unless:
(i) the employment of counsel by such Manager Indemnified Party has
been authorized by the Authority;
(ii) counsel to such Manager Indemnified Party shall have reasonably
concluded that there may be a conflict on any significant issue
between the Authority and such Manager Indemnified Party in the
conduct of the defense of such claim; or
(iii)the Authority shall not in fact have employed counsel reasonably
acceptable to the Authority Indemnified Party to assume the
defense of such claim within twenty (20) days following the
receipt by the Authority of the notice from the Manager
Indemnified Party regarding the assertion of the applicable
claim,
in each of which cases the fees and expenses of counsel for such Manager
Indemnified Party shall be at the expense of the Authority; provided, however,
that, with respect to clauses (ii) and (iii) of this sentence, the Authority
shall not be obligated to pay the fees and expenses of more than one law firm,
plus local counsel if necessary in each relevant jurisdiction, for all such
Manager Indemnified Parties with respect to any claims arising out of the same
events or facts or the same series of events or facts. The Authority shall not
be entitled, without the consent of such Manager Indemnified Party, to assume or
control the defense of any claim as to which counsel to such Manager Indemnified
Party shall have reasonably made the conclusion that there may be a conflict on
any significant issue between the Authority and such Manager Indemnified Party
in the conduct of the defense of such claim as set forth in clause (ii) above,
provided that the foregoing limitation shall apply only with respect to those
issues for which there may be such a conflict. These indemnification provisions
are for the protection of the Manager Indemnified Parties only and shall not
establish, of themselves, any liability to third parties. The provisions of this
Section 9.3(B) shall survive termination of this Agreement.
SECTION 9.4. PROPERTY RIGHTS. The Manager shall pay, subject to
Authority reimbursement as a Third Party Cost, all royalties and
non-governmental license fees relating to the operation and maintenance of the
T&D System and the design, construction and testing of any Major Capital
Improvements. The Manager agrees that it will protect, indemnify and hold
harmless the Authority and any of the Authority Indemnified Parties from and
against all Loss-and-Expenses, and will defend the Authority Indemnified Parties
in any suit, including appeals, arising out of or related to infringement of
such patent, trademark or copyright relating to, or for the unauthorized use of
trade secrets by reason of, the operation or maintenance of the T&D System or
the design, construction or testing of any Major Capital Improvements, or at its
option, will acquire the rights of use under infringed patents, or modify or
replace infringing equipment with equipment equivalent in quality, performance,
useful life and technical characteristics and development so that such equipment
does not so infringe. The Manager shall not, however, be required to reimburse
or indemnify any person for any Loss-and-Expense
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due to the negligence or wrongful conduct of such person. The provisions of this
Section 9.4 shall survive termination of this Agreement, but only for a period
of time equal to the unexpired statute of limitations applicable to any claim
for which indemnification might be required.
SECTION 9.5. PROPRIETARY INFORMATION. (A) Manager Request. The parties
hereto hereby acknowledge that the Manager has a proprietary interest in certain
information that may be furnished pursuant to the provisions of this Agreement.
The Manager acknowledges that the Authority may be required to disclose
information upon request under Applicable Law. The Manager shall have the right
to request the Authority in writing not to publicly disclose any information
which the Manager believes to be proprietary and not subject to public
disclosure under Applicable Law, any such request to be accompanied by an
explanation of its reasons for such belief. Any information which is the subject
of such a request shall be clearly marked on all pages, shall be bound, and
shall be physically separate from all non-proprietary information. At the
Manager's request, the Authority and its agents, consultants and employees
(including the Consulting Engineer) given access to such information shall
execute and comply with the terms of a confidentiality agreement in a mutually
acceptable form, subject to Applicable Law.
(B) Authority Non-Disclosure. In the event the Authority receives a
request from the public for the disclosure of any information designated as
proprietary by the Manager pursuant to subsection (A) of this Section, the
Authority (1) shall use reasonable efforts, consistent with Applicable Law, to
provide notice to the Manager of the request prior to any disclosure, and (2)
shall use reasonable efforts, consistent with Applicable Law, to keep in
confidence and not disclose such information unless it is entitled to do so
pursuant to the provisions of subsection (C) of this Section. The Manager shall
indemnify, hold harmless and defend the Authority against all Loss-and-Expense
incurred from the withholding from public disclosure of information designated
as proprietary by the Manager or otherwise requested by the Manager to be
withheld.
(C) Permitted Disclosures. Notwithstanding any confidential or
proprietary designation thereof by the Manager, the Authority may disclose the
following: (1) information which is known to the Authority without any
restriction as to disclosure or use at the time it is furnished, (2) information
which is or becomes generally available to the public without breach of any
agreement, (3) information which is received from a third party without
limitation or restriction on such third party or the Authority at the time of
disclosure, or (4) following notice to the Manager pursuant to subsection (B) of
this Section, information which, in the opinion of counsel for the Authority, is
required to be or may be disclosed under any Applicable Law, an order of a court
of competent jurisdiction, or a lawful subpoena.
SECTION 9.6. RELATIONSHIP OF THE PARTIES. Except as otherwise expressly
provided herein, neither party to this Agreement shall have any responsibility
whatsoever with respect to services provided or contractual obligations assumed
by the other party hereto, and nothing in this Agreement shall be deemed to
constitute either party a partner, agent or legal representative of the other
party or to create any fiduciary relationship between the parties.
SECTION 9.7. ASSIGNMENT AND TRANSFER. This Agreement may be assigned by
either party hereto only with the prior written consent of the other party,
except that without the consent of the other party (1) the Authority may make
such assignments, create such security interests in its rights hereunder and
pledge such monies receivable hereunder as may be required in connection with
issuance of Revenue Bonds; (2) the Authority may assign its rights, obligations
and interests hereunder, or transfer such rights and obligations by operation of
law, to any other governmental entity or to a subsidiary of the Authority
provided that the successor entity gives reasonable assurances to the Manager
that it will be able to fulfill the Authority's obligations hereunder; and (3)
the Manager may
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assign its rights, obligations and interests hereunder to the Parent or any
Affiliate thereof; provided, however, that with respect to clause (3)
immediately above, the Manager may not, without the consent of the Authority,
make any assignment or other transfer to any person of its rights and
obligations under this Agreement unless the Guaranty is and remains in full
force and effect and unless the Guarantor or a majority-owned direct or indirect
subsidiary of the Guarantor shall have control of and responsibility for the
Operation and Maintenance Services and any Construction Work. Effective upon the
Closing Date, the Authority may assign its rights, obligations and interests
hereunder to Long Island Lighting Company and the Manager shall assign all of
its rights, obligations and interests hereunder to the Parent or any Affiliate
thereof pursuant to clause 3 above.
SECTION 9.8. INTEREST ON OVERDUE OBLIGATIONS. Except as otherwise
provided herein, all amounts due hereunder, whether as damages, credits, revenue
or reimbursements, that are not paid when due shall bear interest at the Base
Interest Rate on the amount outstanding from time to time, on the basis of a
365-day year, counting the actual number of days elapsed, and all such interest
accrued at any time shall, to the extent permitted by law, be deemed added to
the amount due, as accrued. The parties agree that the Base Interest Rate will
apply to payments under this Agreement as specified herein in lieu of any
different rate that would otherwise apply generally to late payments by the
Authority.
SECTION 9.9. NO DISCRIMINATION. The Manager shall not discriminate nor
permit discrimination by any of its officers, employees, agents and
representatives against any person because of age, race, color, religion,
national origin, sex or, with respect to otherwise qualified individuals,
handicap. The Manager will take all actions reasonably necessary to ensure that
applicants are employed, and that employees are treated during employment,
without regard to their age, race, color, religion, sex, national origin or,
with respect to otherwise qualified individuals, handicap. Such action shall
include, without limitation, recruitment and recruitment advertising; layoff or
termination; upgrading, demotion, transfer, rates of pay or other form of
compensation; and selection for training, including apprenticeship. The Manager
shall impose the non-discrimination provisions of this Section 9.9 by contract
on all Subcontractors hired to perform work related to the T&D System and shall
take all reasonable actions necessary to enforce such provisions. The Manager
will post in conspicuous places, available to employees and applicants for
employment, notices setting forth the provisions of this nondiscrimination
clause.
SECTION 9.10. APPROVAL OF SUBCONTRACTORS. The Authority shall have the
right to approve all Subcontractors engaged to perform any work related to the
T&D System, or any portion of the Construction Work or Operation and Management
Services. For contracts in which at least $250,000 would be paid to a
Subcontractor in a Contract Year the Authority shall have the right to approve
such Subcontractors on a contract-by-contract basis. Prior to the beginning of
each Contract Year Manager shall propose a list of pre-approved Subcontractors
for the Authority's review and approval, which shall specify the proposed
categories of potential work under contracts pursuant to which less than
$250,000 would be paid for each such Subcontractors for such Contract Year. The
Manager also shall furnish the Authority, along with such list, with all
information requested by the Authority to the extent reasonably available to the
Manager pertaining to the proposed Subcontractors and categories of subcontracts
in the following areas: (1) the qualification and experience of the proposed
subcontractors for the services to be performed or for the supplies or equipment
to be furnished, (2) any conflicts of interest, (3) any record of felony
criminal convictions or pending felony criminal investigations, (4) any final
judicial or administrative finding or adjudication of illegal employment
discrimination, and (5) any known final judicial or administrative finding or
adjudication of non-performance in contracts with the Authority or the State. In
its sole discretion, Authority may approve any proposed Subcontractor for such
Contract Year or for a designated shorter period or for a specific subcontract.
If a Subcontractor is approved for a Contract Year or shorter period, such
Subcontractor shall be deemed to be approved for
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the specified categories of potential work for the duration of such Contract
Year or shorter period unless the Authority otherwise notifies the Manager. The
approval or withholding thereof by the Authority of any proposed Subcontractor
shall not create any liability of the Authority to the Manager, such
Subcontractor, third parties or otherwise.
SECTION 9.11. ACTIONS OF THE AUTHORITY IN ITS GOVERNMENTAL CAPACITY.
Nothing in this Agreement shall be interpreted as limiting the rights and
obligations of the Authority in its governmental or regulatory capacity, or as
limiting the right of the Manager to bring any legal action against the
Authority, not based on this Agreement, arising out of any act or omission of
the Authority in its governmental or regulatory capacity.
SECTION 9.12. BINDING EFFECT. This Agreement shall become binding and
effective on the Closing Date and shall thereafter bind and inure to the benefit
of the parties hereto and any successor or assignee acquiring an interest
hereunder in compliance with the provisions of Section 9.7 hereof.
SECTION 9.13. AMENDMENTS. Neither this Agreement nor any provision
hereof may be changed, modified, amended or waived except by written agreement
duly executed by all parties.
SECTION 9.14. NOTICES. Any notices or communications required or
permitted hereunder shall be in writing and shall be sufficiently given if sent
by registered or certified mail return receipt request, postage prepaid, or by
nationally recognized overnight delivery service, signature required upon signed
receipt to the following:
If to the Manager: Long Island Lighting Company
Executive Offices
175 East Old Country Road
Hicksville, New York 11801
Attention: Chief Executive Officer
If to the Authority: Long Island Power Authority
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: Executive Director
With copy to: Chairman, Long Island Power Authority
333 Earle Ovington Boulevard
Uniondale, New York 11553
Changes in the respective addresses to which such notices may be directed may be
made from time to time by any party by written notice to the other party.
Notices and communications given by mail hereunder shall be deemed to have been
given 5 days after the date of dispatch; all other notices shall be deemed to
have been given upon receipt.
SECTION 9.15. FURTHER ASSURANCES. Each party agrees to execute and
deliver any instruments and to perform any acts as may be necessary or
reasonably requested by the other in order to give full effect to this
Agreement. The Authority and the Manager, in order to carry out this Agreement,
each shall use all reasonable efforts to provide such information, execute such
further instruments and documents and take such actions as may be reasonably
requested by the other and not inconsistent with the provisions of this
Agreement and not involving the assumption of obligations or liabilities
different from or in excess of or in addition to those expressly provided for
herein.
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SECTION 9.16. NO THIRD PARTY BENEFICIARIES. Unless specifically set
forth herein, neither party to this Agreement shall have any obligation to any
third party other than Indemnified Parties as a result of the agreements
contained herein.
SECTION 9.17 STATE LAW REQUIREMENTS. All contracts entered into by the
Authority are required under State law to contain certain terms and conditions,
as set forth in Appendix 13 hereto and the provisions of such Appendix 13 are
hereby deemed incorporated in this Agreement at this place. To the extent of any
conflict between any other provision of this Agreement and Appendix 13, Appendix
13 shall control. The Manager shall comply with such terms and conditions during
the Term of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers or representatives as
of the date first above written.
LONG ISLAND POWER AUTHORITY
By
------------------------------
Name: Richard M. Kessel
Title: Chairman
By
------------------------------
Name: Patrick Foye
Title: Deputy Chairman
LONG ISLAND LIGHTING COMPANY
By
------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
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APPENDICES
1. Definitions
2. Description of T&D System and T&D System Site Related Documents
3. Notice Appendix
4. Insurance
5. Direct Cost Budget Indices
6. Exit Test
7. Non-Cost Performance Guarantees, Obligations, Incentives and Disincentives
8. Major Capital Improvements Construction Standards and Procurement
Requirements
9. Operations Information and Format
10. Budget Information and Format
11. Cost Allocation Methodology
12. Sample Service Fee Calculation
13. Certain State Law Requirements
14. System Policies and Procedures
<PAGE>
APPENDIX 1
DEFINITIONS
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings set forth below:
"Acquisition Agreement" means the Agreement of Plan of Exchange and
Merger dated as of June 26, 1997 by and among BL Holding Corp., Long Island
Lighting Company, Long Island Power Authority and LIPA Acquisition Corp.
"Act" means the Long Island Power Authority Act, N.Y. Pub. Auth. Law
ss. 1020 et seq.
"Affiliate" means any person, corporation or other entity directly
or indirectly controlling or controlled by another person, corporation or other
entity or under direct or indirect common control with such person, corporation
or other entity.
"Agreement" means this Management Services Agreement between the
Manager and the Authority, including the Appendices hereto, as the same may be
amended or modified from time to time in accordance herewith.
"Agreement in Principle" means the Agreement in Principle, dated as
of March 19, 1997 by and among the Authority, Long Island Lighting Company and
The Brooklyn Union Gas Company, concerning, among other things, agreements among
the parties to transfer certain assets, to purchase power and to provide
management services.
"Allocated Common Facilities" means the offices and workspace at the
current LILCO headquarters building or other suitable mutually agreed upon site
dedicated by the Manager for use by the Authority and its representatives and
consultants.
"Annual Settlement Statement" has the meaning specified in
subsection 6.8 hereof.
"Annual T&D Budget" has the meaning set forth in Section 6.2 hereof.
"Appendix" means an appendix to this Agreement, as the same may be
amended or modified from time to time in accordance with the terms hereof.
"Applicable Law" means any law, rule, regulation, condition or
requirement, guideline, ruling, ordinance or order of or any Legal Entitlement
issued by, any Governmental Body and applicable from time to time to the
performance of the obligations of the parties hereunder.
"Authority" means the Long Island Power Authority and its
subsidiaries, and its successors or assigns as permitted hereunder.
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"Authority Customer & Operations Data" has the meaning set forth in
subsection 4.14(C) hereof.
"Authority Fault" means any breach, failure of compliance, or
nonperformance by the Authority with its obligations hereunder or any negligence
or willful misconduct by the Authority under this Agreement (whether or not
attributable to any officer, trustee, member, agent, employee, representative,
contractor, subcontractor of any tier, or independent contractor of the
Authority other than the Manager and its Subcontractors) that materially and
adversely affects the Manager's performance or the Manager's rights or
obligations under this Agreement.
"Authority Indemnified Parties" has the meaning specified in
subsection 9.3(A) hereof.
"Base Interest Rate" means the lesser of (1) the maximum rate of
interest permitted by Applicable Law and (2) (a) for interest accuring during
the first six months or less after the date on which a payment was payable
hereunder, 6 month LIBOR, and (b) for interest accuring more than six months
after the date on which such payment was payable hereunder, the Prime Rate plus
1.00%, in each case, as 6 month LIBOR or the Prime Rate was reported in the Wall
Street Journal for each day.
"Billing Period" means each calendar month in each Contract Year,
except that (1) the first Billing Period shall begin on the Closing Date and
shall continue to the last day of the month in which the Closing Date occurs and
(2) the last Billing Period shall end on the last day of the Term of this
Agreement. Any computation made on the basis of a Billing Period shall be
adjusted on a pro rata basis to take into account any Billing Period of less
than the actual number of days in the month to which such Billing Period
relates.
"Billing Statement" has the meaning specified in Section 6.6 hereof.
"Bondholders" means the holders of the Revenue Bonds.
"Bond Resolution" means the bond resolutions to be adopted by the
Authority, pursuant to which the Authority shall issue the Revenue Bonds or
other indebtedness described therein to finance certain costs of the T&D System
and other purposes of the Authority.
"BUGLILCO Agreement" means the Amended and Restated Agreement and
Plan of Exchange dated as of June 26, 1997, by and among the Guarantor, LILCO
and The Brooklyn Union Gas Company.
"Capital Assets" has the meaning specified in Section 4.18 hereof.
"Change in Law" means any of the following events or conditions
having, or which may reasonably be expected to have, a material and adverse
effect on the performance by the parties of their respective obligations under
this Agreement (except for payment obligations), or on the operation or
maintenance of the T&D System:
(1) the adoption, promulgation, issuance, modification or
written change in administrative or judicial interpretation on or
after the Closing Date of Applicable Law, unless such Applicable Law
was on or prior to the Closing Date duly adopted, promulgated,
issued or
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otherwise officially modified or changed in interpretation, in each
case in final form, to become effective without any further action
by any Governmental Body or governmental official having
jurisdiction;
(2) the order or judgment of any Governmental Body, on or
after the Closing Date, to the extent such order or judgment is not
the result of willful misconduct or negligent action or omission or
lack of reasonable diligence of the Manager or of the Authority,
whichever is asserting the occurrence of a Change in Law; provided,
however, that the contesting in good faith or the failure in good
faith to contest any such order or judgment shall not constitute or
be construed as such a willful misconduct or negligent action or
omission or lack of reasonable diligence; or
(3) the denial of an application for, delay in the review,
issuance or renewal of, or suspension, termination, interruption,
imposition of a new condition in connection with the issuance,
renewal or failure of issuance or renewal on or after the Closing
Date of any Legal Entitlement to the extent that such denial, delay,
suspension, termination, interruption, imposition or failure
interferes with the performance of this Agreement, and to the extent
that such denial, delay, suspension, termination, interruption,
imposition or failure is not the result of willful misconduct or
negligent action or omission or a lack of reasonable diligence of
the Manager or of the Authority, whichever is asserting the
occurrence of a Change in Law; provided, however that the contesting
in good faith or the failure in good faith to contest any such
denial, delay, suspension, termination, interruption, imposition or
failure shall not be construed as such a willful misconduct or
negligent action or omission or lack of reasonable diligence.
A "Change in Law" shall not include a change in any tax or similar law regarding
taxes or similar charges not chargeable to or reimbursable by the Authority
under Article VI hereof.
"Change of Control" means (i) the acquisition of beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"1934 Act")) of 35% or more of the outstanding shares of securities the holders
of which are generally entitled to vote for the election of directors of the
Manager or the Guarantor, as the case may be (including securities convertible
into, or exchangeable for, such securities or rights to acquire such securities
or securities convertible into, or exchangeable for such securities, "Voting
Stock"), on a fully diluted basis, by any Person or group of Persons (within the
meaning of Section 13 or 14 of the 1934 Act); (ii) any sale, transfer or other
disposition of beneficial ownership of 35% or more of the outstanding shares of
Voting Stock, on a fully diluted basis, of the Manager or the Guarantor, as the
case may be; (iii) any merger, consolidation, combination or similar transaction
of the Manager or the Guarantor, as the case may be, with or into any other
Person, whether or not the Manager or the Guarantor, as the case may be, is the
surviving entity in any such transaction; (iv) any sale, lease, assignment,
transfer or other disposition of the beneficial ownership in 35% or more of the
property, business or assets of the Manager or the Guarantor, as the case may
be; (v) a Person other than the current shareholders of the Manager or the
Guarantor, as the case may be, obtains, directly or indirectly, the power to
direct or cause the direction of the management or policies of the Manager or
the Guarantor, as the case may be, whether through the ownership of capital
stock, by contract or otherwise; (vi) during any period of 12 consecutive
calendar months, when individuals who were directors of the Manager or the
Guarantor, as the case may be, on the first day of such period cease to
constitute
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a majority of the board of directors of the Manager or the Guarantor, as the
case may be; or (vii) any liquidation, dissolution or winding up of the Manager
or the Guarantor, as the case may be.
"Code" mean the Internal Revenue Code of 1986, as amended.
"Closing Date" has the meaning ascribed to that term in the
Acquisition Agreement.
"Common Facilities" shall have the meaning attributed to that term
in the FERC Uniform System of Accounts.
"Construction Work" means the services to be provided and materials
to be supplied by Manager relating to the design, procurement, construction,
start-up and testing of the Major Capital Improvements and Public Works
Improvements. "Construction Work" shall include, without limitation, the
employment and furnishing of all labor, materials, equipment, supplies, tools,
plant, scaffolding, transportation, insurance, temporary facilities, and other
things and services necessary in order for Manager to perform its obligations
under this Agreement with respect to the Major Capital Improvements and Public
Works Improvements as well as all permitting, design, engineering, construction,
shakedown, testing, administrative, accounting, record-keeping, notification and
similar services relating to such obligations. A reference to "Construction
Work" shall mean "any part and all of the Construction Work" unless the context
otherwise requires.
"Consulting Engineer" means a nationally recognized consulting
engineer or firm of consulting engineers, having experience with respect to the
design, construction, testing, operation and maintenance of electricity
transmission and distribution systems, which is designated as the Consulting
Engineer for the purposes of this Agreement from time to time in writing by the
Authority.
"Contract Date" means the date of delivery of this Agreement as
executed by the parties hereto.
"Contract Standards" means the terms, conditions, requirements,
methods, techniques, standards and practices of (1) Applicable Law, (2) the
System Policies and Procedures, (3) the substantive requirements and standards
and guidelines established by the NYSPSC that apply as of the Closing Date to
the operation and maintenance of the T&D System, except to the extent otherwise
directed by the Authority, (4) Prudent Utility Practice, (5) the Performance
Guarantees, (6) the Operation and Maintenance Manual, (7) applicable equipment
manufacturer's specifications and reasonable recommendations, (8) applicable
Insurance Requirements, and (9) any other term, condition or requirement
specifically provided in this Agreement to be observed by the Manager.
"Contract Year" except as the Authority shall otherwise propose
subject to the approval of the Manager, which approval shall not be unreasonably
withheld, means the calendar year commencing on January 1 in any year and ending
on December 31 of that year; provided, however, that the first Contract Year
shall commence on the Closing Date and shall end on December 31 of that year,
and the last Contract Year shall commence on January 1 prior to the date this
Agreement expires or is terminated, whichever is appropriate, and shall end on
the last day of the Term of this Agreement or the effective date of any
termination, whichever is appropriate. Any computation made on the basis of a
Contract Year shall be adjusted on a pro rata basis to take into account any
Contract Year of less than 365/366 days.
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<PAGE>
"Cost Incentive Fee" has the meaning set forth in Section 6.1
hereof.
"Cost Substantiation" or "Cost Substantiated" means, with respect to
any cost reasonably incurred or to be incurred by the Manager which is directly
or indirectly chargeable in whole or in part to the Authority as an Other Cost,
a Major Capital Improvement Cost or a Public Works Improvement Cost hereunder,
the delivery to the Authority of a certificate reasonably acceptable to the
Authority signed by an authorized engineering officer and an authorized
financial officer of the Manager, certifying that it is true, complete and
correct and setting forth the amount of such cost and the provisions of this
Agreement under which such cost is properly chargeable to the Authority, stating
that such cost is a fair and reasonable price for the service or materials
supplied or to be supplied and that such services and materials are reasonably
required pursuant to this Agreement, and accompanied by copies of such
documentation as shall be necessary to reasonably demonstrate that the cost as
to which Cost Substantiation is required has been or will be paid or incurred.
Such documentation, to the extent applicable, shall include reasonably detailed
information concerning (1) all applicable Subcontracts, (2) the amount and
character of materials furnished, the persons from whom purchased, the amounts
payable therefor and related delivery and transportation costs and any sales or
personal property taxes, (3) a statement of the equipment used and any rental
payable therefor, (4) Manager and Subcontractor worker hours, duties, wages,
salaries, benefits, assessments, taxes and premiums, (5) Manager administration,
bonds, insurance, and other expenses, and (6) in the case of costs incurred by
Affiliates of the Manager, such additional information as may be reasonably
requested by the Authority to demonstrate that such costs do not reflect any
inter-company profit and reflect a fair and reasonable price for the work or
services. Any Cost Substantiation required with respect to costs reasonably
incurred by the Authority which are directly or indirectly chargeable in whole
or in part to the Manager hereunder shall include similarly detailed
information, and shall be certified by an authorized administrative and
financial official of the Authority.
"Direct Cost Budget" has the meaning set forth in Section 6.2
hereof.
"Direct Cost Budget Indices" has the meaning specified in Appendix 6
hereto.
"Direct Costs" has the meaning set forth in Section 6.2 hereof.
"Disposal Facility" means either a sanitary Hazardous Waste landfill
or other Hazardous Waste disposal or management facility, selected by the
Manager which (1) is operated in accordance with prudent industry practices (as
applicable to Hazardous Waste disposal facilities) and the applicable Contract
Standards and (2) is being operated at the time of disposal or delivery in
accordance with Applicable Law as evidenced by the absence of any regulatory
sanctions, notices of violations or other significant enforcement actions with
respect to material environmental matters.
"Encumbrances" means any lien, lease, mortgage, security interest,
charge, judgment, judicial award or encumbrance with respect to the T&D System
(other than those associated with any retainage holdback on construction
materials, supplies and equipment).
"Energy Management Agreement" means the Energy Management Agreement
dated as of June 26, 1997 by and between Long Island Lighting Company and the
Authority, as the same may be amended from time to time in accordance therewith.
1-5
<PAGE>
"Event of Default" has the meaning specified in Sections 7.2 and 7.3
hereof.
"Exit Test" has the meaning set forth in Section 8.3 hereof.
"Existing Power Supply Agreements" means the power supply agreements
which exist between LILCO and other parties for the purchase of capacity and/or
energy which are in effect as of the Contract Date and which were, either in
existence as of March 19, 1997 or which were entered into in accordance with the
provisions of Section 6.1(p) of the Acquisition Agreement on or prior to the
Closing Date.
"Fees-And-Costs" means reasonable fees and expenses of employees,
attorneys, architects, engineers, accountants, expert witnesses, contractors,
consultants and other persons, and costs of transcripts, printing of briefs and
records on appeal, copying and other reimbursed expenses, and expenses of any
Legal Proceeding.
"Final Determination" means a judgment, order, or other
determination in any Legal Proceeding which has become final after all appeals
or after the expiration of all time for appeal.
"Five-Year Planning Budget" has the meaning set forth in Section 6.2
hereof.
"Fixed Direct Fee" has the meaning set forth in Section 6.1 hereof.
"GENCO" means the owner of the Generating Facilities, as defined in
the Power Supply Agreement.
"Governmental Body" means any federal, State or local legislative,
executive, judicial or other governmental board, agency, authority, commission,
administration, court or other body other than the Authority, or any official
thereof having jurisdiction with respect to any matter which is a subject of
this Agreement.
"Guarantor" means BL Holding Corp. and its successors and assigns
permitted under the Guaranty Agreement.
"Guaranty Agreement" or "Guaranty" means the Guaranty Agreement to
be entered into prior to the Closing Date from the Guarantor to the Authority
substantially in the form provided as an Exhibit to the Acquisition Agreement,
as the same may be amended from time to time in accordance therewith.
"Hazardous Waste" means any waste which by reason of its composition
or characteristics is defined or regulated as a hazardous waste, toxic
substance, hazardous chemical substance or mixture, or asbestos under Applicable
Law, as amended from time to time, including, but not limited to, "Hazardous
Substances" as defined in CERCLA and the regulations promulgated thereunder.
"Incremental Internal Costs" has the meaning set forth in Section
6.3 hereof.
"Independent Engineer" means a nationally recognized engineer or
firm of engineers having experience with respect to the planning, design,
construction, testing, operation and maintenance
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<PAGE>
of electricity transmission and distribution systems, and with respect to
electricity rate design which is selected by the parties for mediation purposes
pursuant to Section 7.8 hereof.
"Insurance Requirement" means any rule, regulation, code, or
requirement issued by any fire insurance rating bureau or any body having
similar functions or by any insurance company which has issued a policy of
Required Construction Work Insurance or Required Operation Period Insurance
under this Agreement, as in effect during the term hereof.
"ISO" means the party or governing board responsible for the
operation of transmission facilities and the dispatch of power generation
facilities contemplated to succeed the New York Power Pool as part of the
restructuring of the electric utility industry within the State of New York.
"Legal Entitlement" means any permit, license, approval,
authorization, consent and entitlement of whatever kind and however described
which is required under Applicable Law to be obtained or maintained by any
person with respect to the performance of any obligation under this Agreement.
"Legal Proceeding" means every action, suit, litigation,
arbitration, administrative proceeding, and other legal or equitable proceeding
having a bearing upon this Agreement.
"Lien" means any and every lien against the T&D System, the T&D
System Site, the Construction Work, the Operation and Maintenance Services or
against any monies due or to become due from the Authority to the Manager under
this Agreement, for or on account of the Construction Work or the Operation and
Maintenance Services.
"LILCO" , as of the date hereof, means Long Island Lighting Company.
"Loss-and-Expense" means any and all losses, liabilities,
obligations, damages, delays, fines, penalties, judgments, deposits, costs,
claims, demands, charges, assessments, taxes, or expenses, including all
Fees-And-Costs.
"Major Capital Improvement" means any repair, replacement,
improvement, alteration or addition to the T&D System or any part thereof (other
than any repair, replacement, improvement, alteration or addition constituting
routine maintenance of the T&D System) contained in the Major Capital Plan and
Budget and that has a useful life at least equal to three years.
"Major Capital Improvement Cost" means the cost of any Major Capital
Improvement which the Manager reasonably incurs hereunder and proves by Cost
Substantiation including, without limitation, expenditures for material,
equipment, incremental labor, and services supplied by architects, engineers and
Subcontractors, and expenses related to managing and administering the Major
Capital Improvement. "Major Capital Improvement Cost" shall not include amounts
for an allowance for overhead, profit, or contingency.
"Major Capital Plan and Budget" has the meaning set forth in Section
5.2 hereof.
"Management Fee" has the meaning set forth in Section 6.2 hereof.
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<PAGE>
"Manager" means the Long Island Lighting Company and its successors
or assigns expressly permitted pursuant to Section 9.7.
"Manager Fault" means any breach, failure of compliance, or
nonperformance by the Manager with its obligations hereunder or any negligence
or willful misconduct by the Manager under this Agreement (whether or not
attributable to any officer, member, agent, employee, representative,
contractor, Subcontractor of any tier, or independent contractor of the Manager
or any Affiliate of the Manager) that materially and adversely affects the
Manager's performance or the Manager's rights or obligations under this
Agreement.
"Manager Indemnified Parties" has the meaning specified in
subsection 9.3(B) hereof.
"Minimum Reliability Standard" has the meaning set forth in Appendix
7 hereto.
"Minimum Worker Safety Standard" has the meaning set forth in
Appendix 7 hereto.
"Minimum Customer Service Standard" has the meaning set forth in
Appendix 7 hereto.
"New York Power Pool" means the member system currently comprising
of Consolidated Edison Company of New York, Inc., Central Hudson Gas and
Electric Company, Long Island Lighting Company, Orange and Rockland Utilities,
Rochester Gas and Electric Company, New York State Electric and Gas Corporation,
Niagara Mohawk Power Corporation, and the Power Authority of the State of New
York, as such organization or membership may change from time to time.
"Nine Mile Point 2" means the Authority's 18 percent ownership
interest in Unit No. 2 of the Nine Mile Point Nuclear Power Generating Station
located in Scriba, New York and operated pursuant to a joint operating agreement
by Niagara Mohawk Power Corporation.
"Non-Electric Utilities" means any and all utility services and
installations whatsoever other than electricity (including gas, water,
telephone, other telecommunications of every kind and sewer), and all piping,
wiring, conduit, and other fixtures of every kind whatsoever related thereto or
used in connection therewith.
"NYSDEC" or "DEC" means the Department of Environmental Conservation
of the State of New York.
"NYSPSC" or "PSC" means the Public Service Commission of the State
of New York.
"Operating Assets" means the T&D System and all of the assets of the
Manager used in the operation and maintenance of the T&D System and the
performance of the Manager's obligations under this Agreement.
"Operation and Maintenance Manual" has the meaning set forth in
Section 4.2(D) hereof.
"Operation Period" means the period commencing on the Closing Date
and ending on the date this Agreement expires in accordance with its terms, or
if earlier, on the Termination Date.
1-8
<PAGE>
"Operation and Maintenance Services" means the services to be
provided and materials to be supplied by the Manager pursuant to this Agreement
during the Operation Period, except Construction Work. Operation and Maintenance
Services shall include, without limitation, the employment and furnishing of all
labor, materials, equipment, supplies, tools, storage, transfer, transportation,
insurance, delivery and other items and services necessary in order for Manager
to perform its routine operation and maintenance obligations under this
Agreement, as well as all related administrative, accounting, record-keeping,
notification and similar services relating to such obligations. A reference to
"Operation and Maintenance Services" shall mean "any part and all of the
Operation and Maintenance Services" unless the context otherwise requires.
"Other Costs" shall have the meaning set forth in Section 6.3
hereof.
"Parent" has the meaning ascribed to such term in the Acquisition
Agreement.
"Performance Guarantees" means the Minimum Reliability Standard, the
Minimum Worker Safety Standard and the Minimum Customer Service Standard.
"Plans" has the meaning given in the Acquisition Agreement.
"Power and Energy" means the electrical energy and capacity
available from the System Power Supply.
"Power Supply Agreement" means the Power Supply Agreement dated as
of June 26, 1997, between Authority and Long Island Lighting Company for the
purchase of electric capacity and energy as the same may be amended from time to
time in accordance therewith.
"Pre-Closing Period" means the period, from and including the
Contract Date up to and including the day preceding the Closing Date.
"Prime Rate" means the rate announced by Citibank, N.A. from time to
time at its principal office as its prime lending rate for domestic commercial
loans, the Prime Rate to change when and as such prime lending rate changes.
"Prudent Utility Practice" at a particular time means any of the
practices, methods, and acts (including but not limited to the practices,
methods and acts engaged in or approved by a significant portion of the
electrical utility industry prior thereto), which, in the exercise of reasonable
judgment in light of the facts and the characteristics of the T&D System and
System Power Supply known at the time the decision was made, would have been
expected to accomplish the desired result at the lowest reasonable cost
consistent with reliability, safety and expedition and good customer relations.
Prudent Utility Practice is not intended to be limited to the optimum practice,
method or act, to the exclusion of all others, but rather to be a spectrum of
possible practices, methods or acts.
"Public Works Improvements" means Major Capital Improvements
performed as a result of requirements or requests of a Governmental Body.
"Public Works Improvement Costs" means the cost of any Public Works
Improvement which the Manager reasonably incurs hereunder and proves by Cost
Substantiation including, without
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<PAGE>
limitation, expenditures for material, equipments, incremental labor and
services supplied by architects, engineers and Subcontractors, and expenses
related to managing and administering the Public Works Improvements. "Public
Works Improvement Costs" shall not include amounts for an allowance for
overhead, profit or contingency.
"Rating Services" means Moody's Investors Service, Inc., Standard
and Poor's Rating Services, Fitch Investors Services, and Duff & Phelps or any
of their successors.
"Required Construction Work Insurance" has the meaning specified in
Appendix 5 hereto.
"Required Operating Period Insurance" has the meaning specified in
Appendix 5 hereto.
"Resource Conservation and Recovery Act" or "RCRA" means the
Resource Conservation and Recovery Act, 42 U.S.C.A. ss. 6901 et seq., as amended
or superseded.
"Revenue Bonds" means any bonds, notes or other obligations issued
or secured under the Bond Resolution.
"Schedule of Rates" has the meaning set forth in subsection 4.9(B)
hereof.
"Senior Executives" has the meaning set forth in subsection 4.2(C)
hereof.
"Service Area" means the counties of Suffolk and Nassau and that
portion of the County of Queens constituting LILCO's franchise area as of the
effective date of the Act. "Service Area" does not include the Villages of
Freeport, Greenport and Rockville Centre.
"Service Fee" has the meaning specified in Section 6.1 hereof.
"State" means the State of New York.
"Subcontract" means an agreement between the Manager and a
Subcontractor, or between two Subcontractors, as applicable.
"Subcontractor" means every person (other than employees of the
Manager) employed or engaged by the Manager or any person directly or indirectly
in privity with the Manager (including every sub-subcontractor of whatever tier)
for any portion of the Construction Work or Operation and Maintenance Services,
whether for the furnishing of labor, materials, supplies, equipment, services,
or otherwise.
"System Policies and Procedures" means the policies and procedures
adopted from time to time by the Authority with respect to the T&D System and
the System Power Supply in accordance with Applicable Law and Prudent Utility
Practices.
"System Power Supply" means electric capacity and energy from all
power supply sources owned by or under contract to the Authority, including, but
not limited to, the Existing Power Supply Agreements, the Power Supply
Agreement, the Authority's rights and interests with respect to the Nine Mile
Point 2, and the Authority's interest in any future generating facilities, spot
market capacity and
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<PAGE>
energy purchases made on behalf of the Authority, and any load control programs
or measures adopted by the Authority.
"System Revenue Requirements" means the sum of the annual Service
Fee, plus an estimate of other costs plus debt service requirements on the
Authority's Revenue Bonds plus the Authority's costs as reported to the Manager
pursuant to Section 6.2(B)(2) hereof.
"T&D System" means the electricity transmission and distribution
system owned by the Authority, as described in Appendix 2 hereto, and all other
assets, facilities, equipment or contractual arrangements of the Authority used
to provide the transmission and distribution of Power and Energy to the Service
Territory. "T&D System" also shall include all capital improvements made to the
T&D System after the Contract Date, less retirements.
"T&D System Supervisor" has the meaning specified in subsection
4.2(C) hereof.
"T&D System Site" means the real property and interests therein upon
which the components of the T&D System are and will be located, including,
without limitation, those described in Appendix 2 hereto
"Term" has the meaning set forth in Section 8.1 hereof.
"Termination Date" has the meaning set forth in subsection 7.4(A)
hereof.
"Termination Notice Period" has the meaning set forth in subsection
7.4(B) hereof.
"Third Party Cost Budget" has the meaning set forth in Section 6.2
hereof.
"Third Party Costs" has the meaning set forth in Section 6.2 hereof.
"Total Cost" has the meaning set forth in Section 6.1 hereof.
"Transaction Agreement" means any agreement entered into by any
person in connection with the transactions contemplated by this Agreement
including, without limitation, the Bond Resolution, the Power Supply Agreement,
the Energy Management Agreement and the Acquisition Agreement.
"Trustee" means the trustee acting under the Bond Resolution for the
benefit of the Bondholders.
"Uncontrollable Circumstance" means any act, event or condition,
whether affecting the T&D System, the System Power Supply, the Authority, the
Manager, or any of the Authority's subcontractors or the Manager's
Subcontractors to the extent that it materially and adversely affects the
ability of either party to perform any obligation under the Agreement (except
for payment obligations), if such act, event or condition is beyond the
reasonable control and is not also the result of the misconduct or negligent
action or omission or failure to exercise reasonable diligence on the part of
the party relying thereon as justification for not performing an obligation or
complying with any condition required of such party under the Agreement;
provided, however, that the contesting in good faith or the
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<PAGE>
failure in good faith to contest such action or inaction shall not be construed
as willful or negligent action or a lack of reasonable diligence of either
party.
(1) Inclusions. Subject to the foregoing, such acts or events may
but not necessarily shall include, and shall not be limited to, the following:
(a) an act of God (but not including reasonably anticipated
weather conditions for the geographic area of the T&D System, other
than major storms and extreme weather events) landslide, lightning,
earthquake, fire, explosion, flood, sabotage or similar occurrence,
acts of a public enemy, extortion, war, blockade or insurrection,
riot or civil disturbance;
(b) a Change in Law;
(c) the failure of any appropriate Governmental Body or
private utility having operational jurisdiction in the area in which
the T&D System is located, to provide and maintain Non-Electric
Utilities to any facility comprising part of the T&D System which
are required for the performance of this Agreement and which failure
directly results in a delay or curtailment of the performance of the
Operation and Maintenance Services or any Construction Work;
(d) any failure of title to any portion of the T&D System Site
or any enforcement of any Encumbrance on the T&D System Site or on
any improvements thereon not consented to in writing by, or arising
out of any action or agreement entered into by, the party adversely
affected thereby;
(e) the preemption of materials or services by a Governmental
Body in connection with a public emergency or any condemnation or
other taking by eminent domain of any portion of the T&D System.
(f) the presence of archeological finds, endangered species,
Hazardous Waste or Hazardous Substances at the T&D System Site,
except to the extent the Manager or the Guarantor knew or should
have known of such presence or to the extent identified in the
documents referenced in Appendix 2 hereto.
(2) Exclusions. It is specifically understood that none of the
following acts or conditions shall constitute Uncontrollable Circumstances:
(a) general economic conditions, interest or inflation rates,
or currency fluctuations or exchange rates,
(b) the financial condition of the Authority, the Manager, the
Guarantor, any of their Affiliates or any Subcontractor,
(c) the consequences of error, neglect or omissions by the
Manager, the Guarantor, any Subcontractor, any of their Affiliates
or any other person in the performance of any work hereunder;
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<PAGE>
(d) any increase for any reason in premiums charged by the
Manager's insurers or the insurance markets generally for the
Required Construction Work Insurance or the Required Operating
Period Insurance;
(e) the failure of the Manager to secure patents or licenses
in connection with the technology necessary to perform its
obligations hereunder;
(f) equipment malfunction or failure;
(g) union work rules, requirements or demands which have the
effect of increasing the number of employees employed at the T&D
System, reducing the operating flexibility of the Manager or
otherwise increase the cost to the Manager of operating and
maintaining the T&D System,
(h) any impact of prevailing wage laws on the Manager's
operation and maintenance costs with respect to wages and benefits,
(i) the failure of any Subcontractor or supplier to furnish
labor, materials, services or equipment for any reason;
(j) strikes, work stoppages or other labor disputes or
disturbances, or
(k) any act, event or circumstance occurring outside of the
United States.
"Variable Payment" has the meaning set forth in Section 6.1 hereof.
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<PAGE>
APPENDIX 2
DESCRIPTION OF T&D SYSTEM
AND T&D SYSTEM SITE RELATED DOCUMENTS
The T&D System consists of all real and personal property,
equipment, machinery, tools and materials and other similar items relating to
the transmission and distribution of Power and Energy retained by Long Island
Lighting Company at the time of its merger with the Authority's subsidiary under
the terms of the Acquisition Agreement. The T&D System extends, without
limitation, from the points of interconnection with Consolidated Edison Company
of New York, the New York Power Authority, and Connecticut Light & Power and the
on-island generating plants owned by GENCO on the low voltage side of the
step-up transformers in the switch yards, or others and interconnections as they
are built to the meters of the transmission and distribution facilities,
equipment and property up through the retail and wholesale electric customers'
point of interconnection with the meter. Prior to the adoption of the initial
Annual T&D Budget, the parties shall further specify the detailed description of
the T&D System based upon, among other things, documents and information
provided by the Manager or an Affiliate of the Manager.
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APPENDIX 3
NOTICE APPENDIX
The Manager shall give notice to the Authority as to the matters
relating to Operation and Maintenance Services and Construction Work, at the
times and in the manner as shall be specified in the System Policies and
Procedures. Except as the Authority shall otherwise agree, such notice shall, at
a minimum, be consistent with the notices provided to the NYSPSC by LILCO as of
the Contract Date under applicable NYSPSC requirements.
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APPENDIX 4
INSURANCE
In accordance with Section 4.13 of the Agreement, the Manager shall
obtain and maintain insurance policies with respect to the Operation and
Maintenance Services (the "Required Operation Period Insurance") and the
Construction Work (the "Required Construction Work Insurance"), covering such
risks and in such amounts as are required under Applicable Law and as are
consistent with Prudent Utility Practice. The parties shall agree upon the types
and amounts of coverage and deductible amounts prior to the Closing Date. In
addition, the Manager shall obtain and maintain such other insurance coverages
as requested by the Authority during the Term. The Authority, its trustees,
officers and employees shall be additional or named insureds, as appropriate, on
all such policies, which shall require 30 days prior written notice to the
Authority prior to any change in or cancellation of such policies. Such
coverages shall be maintained with generally recognized financially responsible
insurers reasonably acceptable to the Authority and qualified and authorized to
insure risks in the State of New York. At the Authority's discretion, it may, at
its expense, cancel or replace and obtain independently some or all of such
insurance, following at least 90 days' written notice to the Manager.
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APPENDIX 5
DIRECT COST BUDGET INDICES
Indices to be used in determining the initial and subsequent Direct Cost Budgets
as described in subsection 6.2(B)(3) shall be mutually agreeable objective
indices such as:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COST COMPONENT COST INDEX
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Union Labor and Benefits Local 1381 and Local 1049
February 14, 1998 - 2.5% increase
August 14, 1998 - 1% increase
February 14, 1999 - 2.5% increase
August 14, 1999 - 1% increase
February 14, 2000 - 2.5% increase
August 14, 2000 - 1% increase
Effective February 14, 2001 - Employment Cost
Index - Service Producing Industries, Union workers*
- ------------------------------------------------------------------------------------------------------------------------
Non-Union Labor Regional Employment Cost Index - Service Producing
Industries, Non-union workers
- ------------------------------------------------------------------------------------------------------------------------
Administrative and General:
- - Labor and employee Regional Employment Cost Index - Service Producing
benefits Industries, Non-union workers
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COST COMPONENT GROWTH INDICES
- ------------------------------------------------------------------------------------------------------------------------
Distribution Cost
<S> <C>
- - Meter Expenses Percentage increase in number of Active Meters
(586,587,597)
- - Other Distribution O&M Percentage in Conductor Miles
- ------------------------------------------------------------------------------------------------------------------------
Customer Service & Customer Percentage increase in Number of Customers
Accounts
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
o Commencing on the Closing Date, non-union labor and benefit costs
included in the Direct Cost Budget shall be escalated annually at the
beginning of each contract year using the U.S. Labor Department's
Bureau of Labor Statistics Employment Cost Index (ECI) for nonunion
workers in service-producing industries. Commencing February 14,
- --------
*As published by the United States Labor Department's Bureau of Labor Statistics
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<PAGE>
2001, union labor and benefit costs included in the Direct Cost Budget
shall be escalated annually at the beginning of each contract year
using the U.S. Labor Department's Bureau of Labor Statistics Employment
Cost Index (ECI) for union workers in service- producing industries.
Prior to February 14, 2001, escalations in union labor and benefit
costs will be based on the percent wage increases outlined in the
provisions of the existing labor contracts. The initial Direct Cost
Budget shall be adjusted each year based on the difference between the
1997 base year index and the current year index.
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APPENDIX 6
EXIT TEST
The following provides an overview of the scope of the "Exit Test" to
be performed on behalf of the Authority in accordance with Section 8.3 of the
Agreement. The Exit Test will include, topically and in detail, those reviews,
evaluations, inspections, and audits as contemplated in Section 8.3 of the
Agreement undertaken on behalf of the Authority periodically during the course
of the Agreement for assessment of the T&D System since the last regular
periodic review, including determination of the need for corrective, remedial,
or replacement actions noted in previous periodic reviews performed on behalf of
the Authority, but not yet corrected or completed as of the date of completion
of the Exit Test. The Exit Test will include review of reporting, testing,
inspection, and recordkeeping performed by or on behalf of the Manager or its
Affiliates, agents or Subcontractors, including, but not limited to, the topics
set forth below.
(A) Maintenance Review
1. Job Records
2. Document Review
3. Budget Compliance
4. Standards Compliance
5. Field Survey
6. Rights of Way Maintenance
7. Rolling Stock Condition
8. Reliability
9. Care of Equipment
(B) Major Capital Improvements and Public Works Improvements Review
1. Job Records
2. Document Review
3. Budget Compliance
4. Standards Compliance
5. Schedule Performance
6. Field Survey
(C) Deficiencies
1. Responsibility
2. Cure Policy Compliance Status
3. Remedial Activity
4. Resolution
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<PAGE>
(D) Reporting/Proof of Performance
1. Compliance
2. Budget
3. Inventory
6-2
<PAGE>
APPENDIX 7
NON-COST PERFORMANCE INCENTIVES
AND DISINCENTIVES; PILOT PAYMENTS
The following are the formulas for non-cost performance incentives and
disincentives in accordance with Section 6.4(A) of the Agreement related to
reliability, worker safety, and customer service.
1. OPERATING AREA RELIABILITY
The Manager will earn an incentive or incur a disincentive computed in
accordance with a formula based on specific minimum, midpoint and objective
System Average Annual Interruption Frequency Index ("SAIFI") and Customer
Average Interruption Duration Index ("CAIDI") levels for each of the four
divisions as set forth below. For purposes of this incentive, interruptions
during major storms are excluded from the SAIFI and CAIDI statistics. Major
storms, as currently defined by the NYSPSC, are periods of adverse weather
during which service interruptions affect at least 10 percent of the customers
in an operating area and/or result in customers being without electric service
for a duration of at least 24 hours.
<TABLE>
<CAPTION>
================================================================================================================================
Operating SAIFI Levels CAIDI Levels
Division
======================================================================================================
Minimum Midpoint Objective Minimum Midpoint Objective
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Queens-Nassau 1.230 1.080 0.930 1.120 1.025 0.930
- --------------------------------------------------------------------------------------------------------------------------------
Central 1.400 1.245 1.090 1.350 1.230 1.110
- --------------------------------------------------------------------------------------------------------------------------------
West Suffolk 1.600 1.450 1.300 1.210 1.150 1.090
- --------------------------------------------------------------------------------------------------------------------------------
East Suffolk 2.100 1.925 1.750 1.190 1.040 0.890
================================================================================================================================
</TABLE>
In each year, performance in each division for each reliability measure
shall be compared to the minimum, midpoint, and objective standard set forth in
the above table. For performance
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<PAGE>
at or below the minimum level for each division, the Manager shall incur a
disincentive of $800,000 for SAIFI and $200,000 for CAIDI. For performance at or
in excess of the objective level for each division, the Manager shall receive an
incentive of $800,000 for SAIFI and $300,000 for CAIDI. For performance at the
midpoint levels and below the objective levels, the Manager shall receive
one-half of the full incentive payment. For performance between the minimum and
midpoint levels (the "dead band"), the Manager shall neither incur a
disincentive nor receive an incentive payment. The total possible incentive
payment can be earned by equaling or exceeding the objective level for each
measure in each division. The maximum total reliability incentive or
disincentive shall be $4,000,000.
For the purpose of Section 7.2, the Minimum Reliability Standards for
SAIFI and CAIDI shall be as set forth below.
<TABLE>
<CAPTION>
============================================================================================
Operating Minimum Reliability Standard
Division
=============================================================
SAIFI CAIDI
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Queens-Nassau 1.53 1.31
- --------------------------------------------------------------------------------------------
Central 1.71 1.59
- --------------------------------------------------------------------------------------------
West Suffolk 1.90 1.33
- --------------------------------------------------------------------------------------------
East Suffolk 2.45 1.49
============================================================================================
</TABLE>
2. WORKER SAFETY
The Authority shall provide an annual incentive payment to the Manager
of $100,000 per Chargeable Accident less than 75 rated on a three-year rolling
average. The Manager shall neither earn an incentive payment nor incur a
disincentive payment obligation for periods in which the number of chargeable
accidents falls between 75 and 80, inclusive (the "dead band"). The Manager
shall incur a penalty of $100,000 per Chargeable Accident for years in which the
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<PAGE>
three-year rolling average number of Chargeable Accidents is greater than the
80. Data from years prior to the Commencement Date shall be used to compute the
three-year averages in the first and second years. The upper and lower limits of
the dead band shall be adjusted annually in proportion to the changes in total
workforce (full time equivalents) for the departments to which this incentive
plan applies: Electric Design & Construction, Electric Service, Electric System
Operations, and Meter Readers. The total annual incentive or disincentive shall
not exceed $1,000,000.
A Chargeable Accident, for incentive purposes, are those which are
charged to the involved employee's department in accordance with LILCO General
Operating Procedure 10103, Exhibit 9.9. It is any injury or illness suffered by
an employee, while at work, that requires offsite treatment administered by a
physician or registered professional under the direction of a physician,
(whether the treatment is received at a clinic, doctor's office, hospital, or
other medical facility) with the exception of injuries in the following
categories:
(1) company sanctioned sports activities
(2) assaults by customers
(3) insect bites
(4) animal bites
(5) injuries resulting from running to safety while being
threatened with attack by customer, animal or insect
(6) medical conditions not related to work (diabetic shock, etc.)
(7) certain occupational illnesses that occur due to chronic
exposure in the work place specifically: Carpal Tunnel
Syndrome, respiratory illnesses (such as Asbestosis),
7-3
<PAGE>
chronic hearing loss, or other medical conditions due to
exposure to substances in work place (rashes from unknown
substances, etc.)
(8) Motor Vehicle accidents in which the employee is not at fault.
For the purpose of Section 7.2, the Minimum Worker Safety Standard shall be 95
Chargeable Accidents on a three-year rolling average basis.
3. CUSTOMER SERVICE
(A) Call Answering
The Manager shall earn an incentive or incur a discentive for customer
call answering performance on a basis that shall be mutually agreed to prior to
the beginning of the second Contract Year.
(B) Meter Reading
For purposes of the meter reading incentive, "Estimated Meter Reads"
are defined as those scheduled meter reads which were not performed. These
exclude "management estimates" due to sustained periods of abnormal weather
conditions or abnormal weather events such as hurricanes, nor'easters, winter
storms, heavy snow cover, "black ice", flooding, and ice storms. When these
conditions occur, and it is the opinion of the Manager of Customer Offices and
the Senior Vice President of Customer Relations that meter reading effectiveness
is diminished by slow travel or increased safety hazards, the resulting
estimates will be excluded. The Manager will record specific data concerning the
excluded estimated meter reads and the reasons for their exclusion.
Management estimates due to meter reading personnel being assigned to
storm response efforts are also excluded.
7-4
<PAGE>
The meter reads considered by this mechanism currently are for both
electric and gas meters, until such time as the meter reading performance for
electric and gas meters can be separately determined.
The percentage of Estimated Meter Reads shall be calculated for each
month by dividing the number of scheduled meter readings that are not completed,
by the total number of scheduled meter reads. The Authority shall provide an
incentive payment of $200,000 to the Manager for each month in which the
percentage of Estimated Meter Reads is equal to or less than 10.9%. The Manager
shall neither earn an incentive payment nor incur a disincentive payment for
months during which Estimated Meter Reads fall between 10.9% and 11.1%,
exclusive (the "dead band"). In months during which the Estimated Meter Reads
are at or above 11.1 percent, the Manager shall incur a disincentive payment of
$200,000.
For the purpose of Section 7.2, the Minimum Customer Service Standard
shall be Estimated Meter Reads not in excess of 11.6% in more than six months
during a year.
(C) Accounts Receivable
The Manager shall earn an incentive or incur a disincentive for
accounts receivable performance on a basis that shall be mutually agreed to
prior to the beginning of the second Contract Year.
4. PILOT PAYMENTS
The Authority has the sole discretion for determining whether
to challenge any payment in lieu of tax (PILOT) payments made on any Retained
Asset. At the Authority's request, the Manager shall assist the Authority in
evaluating whether to challenge any PILOT payment and with its concurrence shall
represent the Authority in any litigation challenging such
7-5
<PAGE>
PILOT payment. In the event the Manager challenges any excessive PILOT payment
in court, any PILOT refunds received shall be shared 25%/75% between the Manager
and the Authority, respectively. The Manager shall be responsible for all
litigation-related costs pertaining to such challenge, provided, however, that
if such litigation is terminated solely at the Authority's request, or if this
Agreement expires or is terminated by either party, the Manager shall be
reimbursed for all of its costs related to litigations brought at the request of
the Authority plus interest at the Base Interest Rate to the extent such costs
are not included in the Annual T&D Budget.
7-6
<PAGE>
APPENDIX 8
MAJOR CAPITAL IMPROVEMENTS CONSTRUCTION STANDARDS
AND PROCUREMENT REQUIREMENTS
CONSTRUCTION STANDARDS
- ----------------------
The Manager and its Subcontractors shall perform all Construction Work
in a timely, safe and efficient manner consistent with the Contract Standards
and the Major Capital Plan and Budget, unless otherwise directed in writing by
the Authority. In developing any design and engineering specifications, whether
for bid documents or for its own use, the Manager shall utilize good engineering
practices and shall consult with and implement the reasonable recommendations of
the Authority. The Authority shall have access to all construction sites in
accordance with Section 3.1(F) and shall have the right to review all
Construction Work on an on-going basis for, among other things, compliance with
milestone schedules, performance testing, final completion and other customary
construction contract provisions. The Authority and the Manager shall also agree
to additional procedures or standards to be followed on a project-by- project
basis prior to the adoption of each Major Capital Plan and Budget.
PROCUREMENT REQUIREMENTS
- ------------------------
In conducting any procurements for all or a portion of Construction
Work, the Manager shall comply with Applicable Law and shall use its best
efforts to obtain such services or materials on a least cost basis, subject to
the Contract Standards. The parties shall agree on additional guidelines for
such procurements prior to the adoption of the initial Major Capital Plan and
Budget and from time to time during the Term. Any decision by the Manager to
perform Construction Work with its own workforce rather than by use of a
Subcontractor shall be made with due consideration of the goal of utilizing the
lowest cost responsible party to perform such work, unless otherwise directed by
the Authority or warranted due to the cost, size, scope or complexity of a
particular Major Capital Improvement or Public Works Improvement, as well as
additional provisions to be agreed to by the parties prior to the adoption of
the Major Capital Plan and Budget.
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<PAGE>
APPENDIX 9
OPERATIONS INFORMATION AND FORMAT
The parties shall establish prior to the Closing Date the format and
types of such additional information and data concerning the T&D System and the
performance of the Manager's obligations under this Agreement that shall be
provided by the Manager with the Annual Settlement Statement after the end of
each Contract Year. Such information shall include, without limitation, data
sufficient to allow the Authority to verify the amounts set forth in the Annual
Settlement Statement, information concerning the performance of the Manager with
its maintenance and Construction Work responsibilities, any fines or penalties
incurrent to a Governmental Body, and known violations of Applicable Law and
such other matters to enable the Authority to oversee the Manager's compliance
with the terms of this Agreement.
9-1
<PAGE>
APPENDIX 10
BUDGET INFORMATION AND FORMAT
Utilizing the FERC Uniform System of Accounts (USoA) as a framework,
the Manager shall prepare proper, accurate and complete Direct Cost and Third
Party Costs Budgets. The Manager may establish subaccounts within the USoA prime
accounts to provide greater detailed descriptions of cost activities. Detail
shall be sufficient enough to enable the Authority to prepare pro forma
financial statements and financial ratios regarding the operations of the T&D
System. Underlying accounting data shall be maintained to provide adequate
support for the respective budgets.
The format of the Direct Cost Budget and Third Party Cost Budget shall be
mutually agreed to by the Authority and the Manager no later than six months
prior to the anticipated Closing Date.
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<PAGE>
APPENDIX 11
COST ALLOCATION METHODOLOGY
The cost allocation methodology described herein shall be developed
jointly by a team composed of representatives from the Authority and the
Manager. This team will recommend a plan to establish the cost allocation
procedures to be followed by the Manager in performing its Operation and
Maintenance Services and Construction Work.
The initial task of this joint project team will be to obtain a
detailed understanding of the nature of (1) the restructured operations of the
Parent to determine an appropriate definition of the segments or recipients of
activity and related costs, (2) costs directly incurred and (3) costs which are
or could be charged to residual overhead pools for subsequent allocation to the
segments or recipients of activity. Upon completing this task, the joint project
team will recommend appropriate allocation methodologies and procedures to
charge its direct costs and allocate its indirect costs to its internal
constituents. Such procedures and methods will be based on cost causation
principles consistent with generally accepted cost accounting principles.
Allocations shall be based on cost without mark-up. The parties recognize that
in establishing cost allocation methodologies, appropriate consideration must be
given to the NYSPSC accepted allocation methodology for the gas business and the
FERC accepted allocation methodology for the generation business.
The objectives of the joint team will be to: (i) review LILCO's current
allocation practices with regard to costs charged to O&M T&D costs and T&D
capital projects, identify changes to existing processes related to
restructuring and develop alternatives appropriate to the new corporate
organization, considering prospective changes to the way the Manager will charge
its costs to the Authority in the future; (ii) review LILCO's current and
proposed cost accounting systems and develop appropriate analysis techniques and
cost tracking framework; and (iii) develop budgeting and monitoring techniques.
The joint team will determine the number of cost pools to be used and
prepare a schedule of cost elements for the Annual T&D Budget year by
responsibility area, FERC prime account and general ledger posting source. For
each cost pool, the joint teams will establish an allocation methodology. Some
typical methodology examples used include:
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<PAGE>
COST FUNCTION EXAMPLES
1. Payroll-related Direct labor costs
Total labor costs
2. Personnel-related Number of employees
Number of hires
3. Activity-related Number of transactions
Volume
Number of reports
4. Space-related Square footage
5. Revenue and/or expense-related Revenues
O&M Expenses
Net income
Total revenues and expenses
6. Asset-related Book value
Net book value
Replacement value
11-2
<PAGE>
APPENDIX 12
SAMPLE SERVICE FEE CALCULATION
The examples set forth below are sample calculations of the Service
Fee, as provided for in the Agreement. These examples are provided for reference
only and are not meant to be indicative of expected amounts of the applicable
budgets and costs. The language contained in the provisions of the body of the
Agreement shall control with respect to such applicable provisions in the event
of any conflict with this Appendix.
<TABLE>
<CAPTION>
YEARS FORMULA
1 2 3
-------------------------------------------------------------
DIRECT COST BUDGET
<S> <C> <C> <C>
T&D Salaries 255.0 261.4 267.9
Common Plant Capital Recovery 14.0 14.4 14.7
Management Fee 15.0 15.0 15.0
-------------------------------------------------------------
Direct Cost Budget 284.0 290.7 297.6
LILCO/BU Synergy Savings (20.0) (45.0) (60.0)
Management Savings (5.0) (5.0) (5.0)
Efficiency/Productivity Savings (2.0) (4.0) (5.0)
-------------------------------------------------------------
NET DIRECT COST BUDGET A 257.0 236.7 227.6
-------------------------------------------------------------
THIRD PARTY COST
Materials & Supplies 0.0 0.0 0.0 Included for
Sub-contract Labor 0.0 0.0 0.0 illustration
Professional Fees 0.0 0.0 0.0 purposes
Mailing 0.0 0.0 0.0
Other 0.0 0.0 0.0
-------------------------------------------------------------
Third Party Cost Budget B 116.0 118.9 121.9
-------------------------------------------------------------
BUDGETED TOTAL COSTS C 373.0 355.6 349.5 (A+B)
=============================================================
-------------------------------------------------------------
ACTUAL COST
Direct Cost D 242.0 226.2 208.4
Management Fee E 15.0 15.0 15.0
-------------------------------------------------------------
F 257.0 241.2 223.4 (D+E)
Third Party Cost G 116.0 121.3 119.4
-------------------------------------------------------------
Actual Total Costs H 373.0 362.4 342.8 (F+G)
-------------------------------------------------------------
PAYMENT CALCULATION
Fixed Direct Fee I 231.3 213.0 204.9 (A * 90%)
Variable Payment J 25.7 23.7 18.5 Lesser of (C-I-N)
or (H-I-N)
Cost Incentive Fee K 0.0 0.0 3.3 Greater of (C-H)
*50% or zero
Non-cost Performance Incentives L 5.0 5.0 5.0 Direct input
-------------------------------------------------------------
M 262.0 241.7 231.7 (I+J+K+L)
Third-party Costs N 116.0 118.9 119.4 Lesser of B or G
-------------------------------------------------------------
SERVICE FEE O 378.0 360.6 351.1 (M+N)
Overrun Payment P 0.0 0.0 0.0 ((H-E)-(C-10)-15)
or zero
-------------------------------------------------------------
Total Q $378.0 $360.6 $351.1 (O+P)
=============================================================
</TABLE>
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<PAGE>
APPENDIX 13
PROVISIONS REQUIRED BY STATE LAW
--------------------------------
1.1 MANAGER TO COMPLY WITH LEGAL REQUIREMENTS. The Manager, in performing its
obligations under this Agreement, shall comply with all applicable laws and
regulations. All provisions required by such laws and regulations to be included
in this Agreement shall be deemed to be included in this Agreement with the same
effect as if set forth in full.
1.2 MANAGER TO OBTAIN PERMITS, ETC. Except as otherwise instructed in writing by
the Authority, the Manager shall obtain and comply with all legally required
licenses, consents, approvals, orders, authorizations, permits, restrictions,
declarations, and filings required to be obtained by the Authority or the
Manager in connection with this Agreement.
1.3 WORKERS' COMPENSATION INSURANCE. The Manager agrees that:
(a) It will secure Workers' Compensation and Disability Insurance and
keep insured during the life of this Agreement such employees as are required to
be insured by the provisions of Chapter 41 of the Laws of 1914, as amended,
known as the Worker's Compensation Law; and
(b) This Agreement shall be voidable at the election of the Authority
and of no effect unless the Manager complies with the requirement in paragraph
(a) of this Section.
1.4 NO ASSIGNMENT WITHOUT CONSENT. The Manager agrees that: (a) It is
prohibited from assigning, transferring, or otherwise disposing of this
Agreement, or of its rights or interests therein, or its power to execute such
Agreement to any person, company, partnership, or corporation, without the
previous written consent of the Authority. Assignments of this Agreement
expressly referred to in clause (3) of the first sentence of Section 9.7 of this
Agreement have been so consented to.
(b) If the prohibition contained in paragraph (a) above is violated,
the Authority may revoke and annul this Agreement and the Authority shall be
relieved from any and all liability and obligations hereunder to the Manager and
to the person, company, partnership, or corporation to whom such assignment,
transfer, or other disposal shall have been made, and the Manager and such
assignee or transferee shall forfeit and lose all the money theretofore earned
under this Agreement.
1.5 NON-DISCRIMINATION. (a) The Manager shall not discriminate against employees
or applicants for employment because of race, creed, color, national origin,
sex, age, disability,
13-1
<PAGE>
or marital status, and will undertake or continue existing programs of
affirmative action to ensure that minority group persons and women are afforded
equal opportunity without discrimination. Such programs shall include, but not
be limited to, recruitment, employment, job assignment, promotion, upgrading,
demotion, transfer, layoff, termination, rates of pay or other forms of
compensation, and selection for training and retraining, including
apprenticeship and on-the-job training.
(b) At the request of the Authority, the Manager shall request each
employment agency, labor union, or authorized representative of workers with
which it has a collective bargaining or other agreement or understanding and
which is involved in the performance of this Agreement to furnish a written
statement that such employment agency, labor union, or representative shall not
discriminate because of race, creed, color, national origin, sex, age,
disability, or marital status and that such union or representative will
cooperate in the implementation of the Manager's obligations hereunder.
(c) The Manager shall state, in all solicitations or advertisements for
employees placed by or on behalf of the Manager in the performance of this
Agreement, that all qualified applicants will be afforded equal employment
opportunity without discrimination because of race, creed, color, national
origin, sex, age, disability, or marital status.
The Manager shall submit an equal employment opportunity policy
statement to the Authority which shall contain, but not be limited to, the
provisions (a) through (c) of this section. (As required by NYCRR ss.142.1(d)(2)
and (3)).
(d) The Manager will include provisions (a) through (c) of this section
in every subcontract or purchase order in such a manner that such provisions
will be binding upon each subcontractor or vendor as to its work in connection
with this Agreement.
(e) The Manager shall furnish to the Authority such information and
reports regarding its compliance with the above requirements as the Authority
may from time to time request.
(f) The provisions of this section shall not be binding upon the
Manager or any subcontractor in the performance of work or the provision of
services or any other activity that is unrelated, separate or distinct from this
Agreement, as expressed by its terms.
(g) The requirements of this section do not apply to any employment
outside the State of New York or application for employment outside the State of
New York or solicitations or advertisements therefor, or to any existing
programs of affirmative action regarding employment outside the State of New
York.
(h) Any disputes regarding this section shall be resolved as provided
in Section 316 of the New York State Executive Law.
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<PAGE>
1.6 INTERNATIONAL BOYCOTT PROHIBITION. The Manager expressly agrees and
certifies that neither the Manager nor any person, firm, partnership, or
corporation which is substantially owned by or affiliated with the Manager has
participated, is participating, or will participate in an international boycott
in violation of the provisions of the United States Export Administration Act of
1969, as amended, or the Export Administration Act of 1979, as amended, or the
regulations of the United States Department of Commerce promulgated thereunder.
The Manager understands that such agreement and certification constitutes a
material term of this Agreement.
1.7 FAILURE OR REFUSAL TO TESTIFY. Upon the refusal of any person, including any
member, officer, or director of the Manager, when called before a grand jury,
head of state department, temporary state commission or other state agency, the
organized crime task force in the department of law, head of a city department,
or other city agency, which is empowered to compel the attendance of witnesses
and examine them under oath, to testify in an investigation concerning any
transaction or contract had with the state, any political subdivision thereof or
of a public authority, to sign a waiver of immunity against subsequent criminal
prosecution or to answer any relevant question concerning such transaction or
contract:
(a) such person, and any firm, partnership, or corporation of which he
or she is a member, partner, director, or officer (including, if applicable, the
Manager), shall be disqualified from thereafter selling to or submitting bids to
or receiving awards from or entering into any contracts with any public
authority or official thereof, for goods, work, or services, for a period of
five years after such refusal, or until a disqualification shall be removed
pursuant to law; and
(b) any and all contracts made with any public authority or official
thereof, since July 1, 1959 (including if applicable, this Agreement), by such
person and by any firm, partnership or corporation of which he is a member,
partner, director, or officer (including, if applicable, the Manager), may be
canceled or terminated by the public authority without incurring any penalty or
damages on account of such cancellation or termination, but any monies owing by
the public authority for goods delivered or work done prior to the cancellation
or termination shall be paid.
1.8 MINORITY AND WOMEN-OWNED BUSINESS ENTERPRISE PROCEDURES
(a) DECLARATION OF POLICY AND STATEMENT OF GOALS. It is the policy of
the Authority to provide Minority and Women-Owned Business Enterprises
("M/WBEs") the greatest practicable opportunity to participate in the
Authority's contracting activity for the procurement of goods and services. To
effectuate this policy, the Manager shall comply with the provisions of this
section and the provisions of Article 15-A of the New York State Executive Law.
The Manager will use its best efforts to achieve the below-stated M/WBE Goals
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<PAGE>
set for the Agreement, and will cooperate in any efforts of the Authority, or
any government agency which may have jurisdiction, to monitor and assist the
Manager's compliance with the Authority's M/WBE policy.
Minority-Owned Business Enterprise (MBE) Subcontracting Goal *%
-----
Women-Owned Business Enterprise (WBE) Subcontracting Goal *%
-----
(b) DEFINITIONS.
------------
(1) "CERTIFICATION". The process conducted by the Director of the
Division of Minority and Women's Business Development in the
Department of Economic Development to verify that a business
enterprise qualifies for New York State Minority or
Women-Owned Business Enterprise status. To initiate the
certification process, contact one of the offices listed
below.
ALBANY OFFICE: (518) 474-6342
State Capitol, 2nd Floor
Albany, New York 12224
NEW YORK CITY OFFICE
2 World Trade Center, 58th Floor
New York, New York 10047
(2) "CERTIFIED BUSINESS". A business enterprise which has been
approved by the Director for status as a MBE or WBE subsequent
to verification that the business enterprise is owned,
operated, and controlled by Minority Group Members, or women.
(3) "CONTRACT SCOPE OF WORK". For purposes of this section, this
means:
(i) Specific tasks required by the Agreement;
(ii) Services or products which must be provided to
perform specific tasks required by this Agreement;
and
(iii) Components of any overhead costs billed to the
Authority pursuant to this Agreement.
- --------
** To be specified at time of adoption of initial Annual T&D Budget.
13-4
<PAGE>
(4) "DAY". A calendar state business day unless otherwise
specified.
(5) "DIRECTOR". The Director of the Division of Minority and
Women's Business Development in the Department of Economic
Development.
(6) "DIRECTORY". The Directory of Certified Businesses, prepared
by the Director.
(7) "GOAL". A percentage of participation, which is not a set
aside or quota, that represents a target toward which the
Manager must aim in expending good faith efforts to
subcontract with or otherwise ensure the commercial
involvement of minority and women-owned businesses on this
Agreement.
(8) "OFFICE" or "OFFICE OF MINORITY AND WOMEN'S BUSINESS
DEVELOPMENT". Office in the New York State Department of
Economic Development created by Article 15-A of the Executive
Law.
(9) MINORITY GROUP MEMBER. A United States citizen or permanent
resident alien who is and can demonstrate membership in one of
the following groups:
(i) Black persons having origins in any of the Black
African racial groups;
(ii) Hispanic persons of Mexican, Puerto Rican, Dominican,
Cuban, Central or South American descent of either
Indian or Hispanic Origin, regardless of race;
(iii) Native American or Alaskan native persons having
origins in any of the original peoples of North
America;
(iv) Asian and Pacific Islander persons having origins in
any of the Far East countries, South East Asia, the
Indian subcontinent or the Pacific Islands;
(v) Other groups which the Office may determine to be
eligible for M/WBE status.
(10) MINORITY-OWNED BUSINESS ENTERPRISE. A business enterprise,
including a sole proprietorship, partnership or corporation
that is:
(i) At least fifty-one percent owned by one or more
Minority Group Members;
13-5
<PAGE>
(ii) An enterprise in which such minority ownership is
real, substantial and continuing;
(iii) An enterprise in which such minority ownership has,
and exercises the authority to control independently,
the day-to-day business decisions of the enterprise
for at least one year; and
(iv) An enterprise authorized to do business in New York
State and is independently owned and operated.
(11) "SUBCONTRACT". An agreement in which a portion of the
Manager's obligation under this Agreement is undertaken or
assumed.
(12) "WOMEN-OWNED BUSINESS ENTERPRISE". A business enterprise,
including a sole proprietorship, partnership or corporation
that is:
(i) At least fifty-one percent owned by one or more
United States citizens or permanent resident aliens
who are women;
(ii) An enterprise in which the ownership interest of such
women is real, substantial and continuing;
(iii) An enterprise in which such women ownership has, and
exercises the authority to control independently, the
day-to-day business decisions of the enterprise for
at least one year; and
(iv) An enterprise authorized to do business in New York
State and is independently owned and operated.
(c) REQUIREMENTS.
(1) The Manager shall search for, assess the capabilities of and
generally deal with potential M/WBE subcontractors in a fair and
responsive manner, allowing them the opportunity to participate in the
Contract Scope of Work.
(2) The Manager will designate, and make known to the Authority an
M/WBE Officer who will have the responsibility for and authority to
effectively administer the M/WBE Program.
(3) The Manager shall submit its Preliminary Subcontracting Plan on a
preliminary subcontracting plan form, which shall identify the
Certified Businesses it will utilize to meet its M/WBE Contract Goals.
Approval of any such firm is solely within the
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<PAGE>
discretion of the Authority. The Manager will also designate an M/WBE
Officer who will have the responsibility for, and authority to,
effectively administer these procedures. If the Manager believes it may
be unable to meet the Goals, the reasons shall be submitted in writing
with the form.
(4) The Manager may inspect the current New York State Certification
Directory of Minority and Women Owned Businesses, prepared for use by
state agencies and contractors in complying with Executive Law Article
15-A, (the Directory) at the Authority's office. In addition, printed
or electronic copies of the Directory may be purchased from the Office
of Minority and Women's Business Development.
(5) Firms certified as both MBE and WBE may count toward either the MBE
or WBE Goal on a single contract, but not both, regardless of whether
either Goal is thus exceeded. The Manager must choose the Goal to which
the participation value is to be applied in the preliminary
Subcontracting Plan.
(6) Within 10 days following the adoption of the initial Annual T&D
Budget and in any event no later than 60 days prior to the anticipated
Closing Date, the Manager shall submit a complete Utilization Plan,
which shall include identification of the M/WBEs which the Manager
intends to use; the dollar amount of business with each such M/WBE; the
Contract Scope of Work which the Manager intends to have performed by
such M/WBEs; and the commencement and end dates of such performance.
The Authority will review the plan and, within 20 days of its receipt,
issue a written acceptance of the plan or comments on deficiencies in
the plan.
(7) The Authority shall consider a partial or total waiver of Goal
requirements only upon the submission of a written request for a waiver
following the Manager's unsuccessful good faith efforts at compliance.
Such waiver request may be made simultaneously with the submission of
the Utilization Plan.
(8) The Manager shall include in each Subcontract, in such a manner
that the provisions will be binding upon each subcontractor, all of the
provisions herein including those requiring subcontractors to make a
good faith effort to solicit participation by M/WBEs.
(9) The Manager shall keep records, canceled checks and documents for
at least one (1) year following completion of this Agreement. These
records, and canceled checks, documents or copies thereof will be made
available at reasonable times upon written request by the Authority or
any other authorized governmental entity.
(10) The Manager shall submit monthly compliance reports regarding its
M/WBE utilization activity on a Compliance Report -orm acceptable to
the Authority. Reports
13-7
<PAGE>
are due on the first business day of each month, beginning 30 days
after the Closing Date.
(11) The Authority will conduct compliance reviews for determination of
the Manager's performance relative to meeting the specified M/WBE Goal
which may include review and inspection of documents pertaining to the
Manager's efforts towards meeting the Goals and on-site interviews with
personnel of Manager and its subcontractors. The Manager will fully
cooperate to assist the Authority in this endeavor.
(12) The Manager shall not use the requirements of this section to
discriminate against any qualified company or group of companies.
(d) CONDITIONS FOR SATISFYING M/WBE GOALS. M/WBE participation will be
counted toward the total Contract M/WBE Goals subject to the following
conditions:
(1) If the Manager is unable to meet the Goals with Certified
Businesses by making all of the good faith efforts defined herein, the
Manager shall actively solicit uncertified M/WBEs to satisfy the Goals.
Uncertified firms will be required to submit an application for
certification (to the Office of Minority and Women's Business
Development) and will be counted as contributing towards the contract
Goals only after they have been certified.
(2) The Manager must keep records of efforts to utilize certified
M/WBE's including
(i) The firm's name, address and telephone number.
(ii) A description of the information provided to the M/WBE.
(iii) A written explanation of why an agreement with the M/WBE
was not obtained.
(3) Price alone will not be an acceptable basis for rejecting M/WBE
bids if any of the bids are reasonable.
(4) Geographical limitation in the M/WBE search is not an acceptable
reason for not meeting the M/WBE goal when traditionally non-local
firms have been generally utilized.
(5) the Authority reserves the right to reject any firm as counting
toward meeting the Manager's M/WBE goal if, in the opinion of the
Authority, the facts as to that firm's business and technical
organization and practices justify the rejection.
13-8
<PAGE>
(e) MANAGER'S GOOD-FAITH EFFORTS. To satisfy the M/WBE participation
requirements, the Manager agrees to make the following good-faith
efforts in a timely manner:
(1) Submission of a completed, acceptable Utilization Plan as described
herein.
(2) Advertising in appropriate general circulation, trade and minority
and women-oriented publications.
(3) Written solicitations made in a timely manner of certified minority
and women- owned business enterprises listed in the Directory.
(4) Attendance at meetings, if any, scheduled by the Authority with
certified M/WBEs capable of performing the Contract Scope of Work.
(5) Written notification to M/WBE trade associations located within the
region where the Contract Scope of Work will be performed.
(6) Structuring the Contract Scope of Work for purposes of
subcontracting with certified M/WBEs.
(7) Where certified M/WBEs have expressed an interest to the Manager in
performing work that the Manager normally performs with its own sources
and the Contract Scope of Work has not been fully performed, the
Manager shall consider subcontracting such work or portions of it to
meet the M/WBE Goals.
1.9. COMMENCEMENT OF ACTIONS ON STATE PUBLIC WORKS CONTRACTS. The
time within which an action on this Agreement against the Manager must be
commenced shall be computed from the date of completion of the physical work.
The Manager may notify the Authority in writing, that such physical work has
been completed by specifying a completion date, which date shall be no more than
thirty days previous to the date of such notice, in which case the completion
date set forth in such notice shall be deemed to be the date of completion of
the physical work unless the Authority, within thirty days of receipt of such
notice, notifies the Manager in writing of its disagreement. In the event that
the Manager fails to send the notice provided for herein or the Authority
disagrees in the manner provided herein, the date of completion of the physical
work shall be determined in any other manner provided by law.
13-9
<PAGE>
APPENDIX 14
OUTLINE OF T&D SYSTEM POLICIES AND PROCEDURES
TERMS AND CONDITIONS OF ELECTRIC SERVICE
The following is a representative outline of the topics to be addressed by
Authority in the T&D System Policies and Procedures in accordance with Section
4.5(B).
(A) INTRODUCTION
------------
1. Purpose
2. Application
3. Modification
4. Responsibility of Enforcement
(B) GENERAL INFORMATION
-------------------
1. Definitions
2. Application for Electric Service
(a) New Occupancy
(b) Responsibility for Changes in Service
3. Characteristics of Electric Service
4. Service Interruptions
5. Application of Rates
6. Extension of Customer's Wiring System
7. Continuity and Quality of Electric Service
8. Single Phase and Three Phase Service to Customers Served Under
Residential
Rate Schedules
9. Single Phase and Three Phase Service to Customers Served Under
Commercial
Rate Schedules
10. Method of Supplying Electric Service
(a) General Residential Service
(b) Multiple Dwelling Units, Apartment Complexes
(c) Commercial Service
(d) Industrial Service
(e) Temporary Service
(f) Other
11. Access by Authorized Agents to Customer's Premises
12. Electric Service Deposits
(a) Commercial Deposits
14-1
<PAGE>
(b) Residential Deposits
(c) Interest on Utility Service Deposits
(d) Errors in Usage Records
(e) Unclaimed Deposits
13. Billing for Electric Service
(a) Average/Level Billing Program
(b) Defined Payment Program
(c) Utility Assistance Programs
(d) Late Payment Charge
(e) Estimated Billing
(f) Delinquent Bills
(g) Shared Customer Meter Billing
14. Testing of Meters Upon Request of Customer
15. Adjustment of Bills for Meter Inaccuracy and Incorrect
Metering
16. Change of Occupancy
17. Discontinuance of Electric Service
18. Denial of Electric Service to a Customer
19. Customer's Responsibility for Utility Property
20. Tampering with the Utility's Measuring Equipment or Other
Property
(a) Sub-Metering
(b) Meter Seals
(c) Tampering with Shut-Off Device
(d) Penalties for Energy Diversion
(e) Responsibility of Enforcement
21. Fraudulent Use of Electricity
22. Street Light Policy
(C) ELECTRIC SERVICE REGULATIONS
1. Customer's Wiring-National Electric Code
2. Electric Service Inspection
3. Availability of Electric Service
4. Minimum Service Connection
5. Exclusive Use of Utility's Electric Service
6. Resale of Utility's Electric Service
7. Point of Delivery of Electric Service
8. Grounding/Bonding Conductors and Electrodes Meters
9. Equipment Which Adversely Affects Electric Service
(a) General
(b) Motors
(c) Intermittent Electric Loads
(d) Voltage and Wave Form Sensitive Equipment
14-2
<PAGE>
(e) Power Factor
(f) Interference Producing Equipment
(g) Radio Antennas
(D) STANDARD EXTENSION POLICY
-------------------------
1. General
2. Rights-of-Way
3. Overhead Distribution System-Overhead Service
4. Single Phase Underground Secondary Service from Overhead
Distribution System
5. Three Phase Underground Secondary Service from Overhead
Distribution System
6. Single Phase Underground Secondary Service from Underground
Distribution System-Residential
(a) Easement Guidelines on Underground Distribution
System
7. Underground Service from Primary System
(a) Delivery at Primary Voltage Through Utility-Owned
Transformers
(Primary Extension)
(b) Loads Served at Primary Voltage to Customer-Owned
Equipment
8. Underground Distribution System
9. Permanent Electric Service
10. Indeterminate Electric Service
11. Temporary Electric Service for Construction
(E) STORM RESTORATION PROCEDURES
----------------------------
1. Safety
(a) General Operations
(b) General Procedures
2. Orientation and Training
(a) Service Restoration Program - General
(b) Pre-Storm Operations
(c) Radio Procedure
(d) Mapping
(e) Hot-Stick Operator Training
(f) Patrolling and Reporting Storm Damage
(g) Storm Training
(h) Training of Manager's affiliates and authorized
company personnel
3. Customer Service During Storms/Storm Restoration
(a) Essential Customer Report
(b) Portable Generators
14-3
<PAGE>
4. Service Restoration
(a) Area Storm Operations
(b) Storm Damage Reporting
(c) Lineworker Responsibilities
(d) Map Posting
(e) Initial Clearing of Main Lines
(f) Restoration of Primary and Secondary Lines
(g) Service Restoration/Trouble Calls
(h) Switching
(i) Hot-Stick Operations
(j) Service Restoration Paperwork
(k) Streetlight Restoration
(l) Area Daily Crew Log
(m) Tagging Out Procedures
(n) Public, Fire & Emergency Coordination and
Communication
(o) Public, Governmental and Media Communications
(p) Mutual Aid
(F) WORK ORDER, STATUS ASSESSMENT AND CONDITION REPORTING FORMS
-----------------------------------------------------------
(G) OPERATING PROCEDURES
--------------------
1. Planning
(a) Job Planning Check List
(b) Vehicle Material and Equipment Check List
(c) Job Preliminary Procedures
(d) Clearing and Tree Trimming
(e) Trenching
(f) Commitment of Special Equipment
(g) Street Crossings
(h) Sketch Procedures
(i) Revisions and Alterations to Jobs
(j) Voiding Jobs
(k) Conflicts of Interest
(H) CUSTOMER SERVICE -- GENERAL
---------------------------
1. Customer Calling Centers
2. Complaint Handling Procedure
3. Emergency Hotline
4. Billing Disputes
5. Alternative Power Supplier Policies
14-4
<PAGE>
6. DSM/Energy Efficiency Program Communications
7. Billing Inserts and Customer Communications
(I) RIGHTS-OF-WAY AND EASEMENTS
---------------------------
1. Transmission Facilities
2. Distribution Facilities
3. Changes to ROW
4. Locked Gates
5. Easement Encroachments
6. Railroad Crossings
(J) GENERAL JOB AND OPERATION PROCEDURES
------------------------------------
1. Information on Job Sketches
2. Phase Diagrams
3. Slab/Conduit Inspections
4. Cable in Conduit Guidelines
5. Protection Coordination
6. Transformer Sizing
7. Wire Sag and Tension
8. Locating Buried Facilities
9. Clearances
10. Poles and Crossarms
11. Conductors and Cables
12. Guying
13. Transformers
14. Grounding
15. Secondaries and Services
16. Metering
17. Voltage Regulation
18. Switching
19. Tagging Procedures
20. Outage Reporting
21. Tree Trimming
22. Care of Equipment
23. Customer-Owned Equipment
24. Coordination With Other Utilities
25. Communications
(a) Inter-Utility
(b) SCADA
(c) Telephone System
14-5
<PAGE>
(d) Radio
(K) LOAD FORECASTING AND RESOURCE PLANNING
--------------------------------------
1. Load Forecasting
2. Resource Planning
(a) Off-System Purchases
(b) Fully-Owned Generation
3. Competitive Positioning Strategies
(a) ESCO Cooperation
(b) DSM/Load Control
(c) Energy Pricing - Compilation and Distribution
(d) Retail Wheeling Policies
(e) Transmission Access Policies
(i) Network
(ii) Point-to-Point
4. Power Supply Solicitation Procedures
14-6
<PAGE>
EXHIBIT B
POWER SUPPLY AGREEMENT
between
LONG ISLAND LIGHTING COMPANY
and
LONG ISLAND POWER AUTHORITY
Dated as of June 26, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
ARTICLE 1 - DEFINITIONS................................................................................ 1
PART I - POWER SUPPLY.................................................................................. 9
ARTICLE 2 - POWER SUPPLY............................................................................... 9
2.1. Delivery of Power....................................................................... 9
2.1.1. Capacity..................................................................... 9
2.1.2. Energy....................................................................... 9
2.1.3. Ancillary Services........................................................... 9
2.2. Delivery Points......................................................................... 9
2.3. Dispatch of Generating Facilities....................................................... 9
2.4. Maintenance Scheduling.................................................................. 10
2.5. Dependable Maximum Net Capability (DMNC) Testing........................................ 10
2.6. DMNC Target............................................................................. 11
2.7. T&D System Access....................................................................... 11
PART II - POWER SUPPLY PLANNING AND OPERATIONS......................................................... 11
ARTICLE 3 - FUTURE RESOURCE PLANNING................................................................... 11
3.1. Power Supply Planning................................................................... 11
3.1.1. Integrated Electric Resource Planning (IERP)................................. 11
PART III - OTHER ITEMS................................................................................. 12
ARTICLE 4 - GENERATING FACILITY SITES.................................................................. 12
4.1. Interference Compensation............................................................... 12
4.2. Generating Facilities................................................................... 12
4.3. Transmission Requirements............................................................... 12
ARTICLE 5 - REGULATION................................................................................. 12
5.1. Regulation.............................................................................. 12
ARTICLE 6 - STORM RESTORATION.......................................................................... 13
6.1. Storm Declaration....................................................................... 13
6.2. Responsibility During Storm Condition................................................... 13
ARTICLE 7 - ENVIRONMENTAL CONSIDERATIONS............................................................... 13
7.1. Environmental Compliance................................................................ 13
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ARTICLE 8 - PURCHASE PRICE AND PAYMENT................................................................. 13
8.1. Price Components. ...................................................................... 13
8.1.1. Monthly Capacity Charge...................................................... 14
8.1.2. Monthly Variable Charge...................................................... 14
8.1.3. Monthly Ancillary Service Charge............................................. 14
8.1.4. Monthly Capacity Payment Adjustment Charge................................... 15
8.1.5. Monthly Variable Payment Adjustment Charge. ................................ 15
8.1.6. NOx and SOx Emission Credits................................................. 15
8.2. Power Plant Electric Use. .............................................................. 15
8.3. Generating Facility Major Failure....................................................... 15
8.4. Incentives/Disincentives. ............................................................. 16
8.5. Payment. ............................................................................... 16
8.6. Late Payment. .......................................................................... 16
ARTICLE 9 - BUDGETS.................................................................................... 17
9.1. Budget Preparation...................................................................... 17
9.1.1. Initial Capacity and Variable Charge Determination........................... 17
9.1.2. Five Year Capital Improvement Budgets........................................ 17
9.2. Budget Review. ......................................................................... 17
9.3. Failure To Adopt Contract Year Budget. ................................................. 18
9.4. Capital Improvement Budget Performance.................................................. 18
ARTICLE 10 - INCENTIVES/DISINCENTIVES.................................................................. 18
10.1. Incentives/Disincentives............................................................... 18
ARTICLE 11 - CAPACITY RAMP DOWN........................................................................ 18
11.1. Capacity Ramp Down Option. ........................................................... 18
ARTICLE 12 - TERM AND TERMINATION...................................................................... 21
12.1. Term................................................................................... 21
12.2. Termination For Cause by GENCO......................................................... 21
12.2.1 Events of LIPA Default Defined............................................... 21
12.3. Termination For Cause by LIPA.......................................................... 22
12.3.1 Events of GENCO Default Defined............................................... 22
12.4. Procedure For Termination For Cause ................................................... 23
ARTICLE 13 - DESIGNATION OF REPRESENTATIVES............................................................ 24
13.1. LIPA Representative.................................................................... 24
13.2. GENCO Representative................................................................... 24
ARTICLE 14 - METERING.................................................................................. 24
14.1. Electric Metering...................................................................... 24
14.1.1. Electric Metering Equipment................................................. 24
</TABLE>
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<S> <C>
14.1.2 Testing of Metering Equipment................................................ 24
14.1.3 Meter Reading................................................................ 25
14.1.4 Metering Inaccuracies........................................................ 25
14.2. Gas Metering........................................................................... 25
14.2.1. Gas Metering Equipment...................................................... 25
14.2.2. Testing of Self Checking Gas Metering Equipment.............................. 25
14.2.3. Testing of Non Self Checking Gas Metering Equipment.......................... 26
14.2.4. Gas Meter Reading........................................................... 26
14.2.5. Gas Metering Inaccuracies................................................... 26
14.3. Oil Fuel Measurement................................................................... 27
ARTICLE 15 - REPORTS................................................................................... 27
15.1. Reports................................................................................ 27
15.2. Other Information...................................................................... 27
15.3. Litigation; Permit Lapses.............................................................. 27
ARTICLE 16 - GENERAL SERVICE REQUIREMENTS.............................................................. 28
16.1. General Service Requirements........................................................... 28
16.1.1. Standard of Performance..................................................... 28
16.1.2. Limitation of Liability..................................................... 28
16.1.3. Accounting Controls......................................................... 28
ARTICLE 17 - INSURANCE................................................................................. 28
ARTICLE 18 - CREDIT ENHANCEMENT........................................................................ 29
18.1. Credit Enhancement in Certain Circumstances............................................ 29
18.1.1. Limitations................................................................. 29
18.1.2. Material Decline in the Guarantor's Credit Standing......................... 29
18.1.3. Credit Enhancement.......................................................... 29
ARTICLE 19 - ALLOCATION OF RISK OF CERTAIN COSTS AND LIABILITIES................................................ 30
ARTICLE 20 - PROPRIETARY INFORMATION............................................................................ 31
20.1. Request Not To Disclose......................................................................... 31
20.2. LIPA's Non-Disclosure........................................................................... 31
20.3. Permitted Disclosures........................................................................... 32
ARTICLE 21 - MISCELLANEOUS PROVISIONS........................................................................... 32
21.1. Agreement....................................................................................... 32
21.2. Relationship of the Parties..................................................................... 32
21.3. Assignment...................................................................................... 32
21.4. Cooperation in Financing........................................................................ 33
</TABLE>
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<CAPTION>
<S> <C>
21.5. Force Majeure................................................................................... 33
21.5.1. Events Constituting Force Majeure................................................... 33
21.5.2. Event of Force Majeure.............................................................. 33
21.5.3. Scope............................................................................... 34
21.6. Amendments...................................................................................... 34
21.7. No Waiver....................................................................................... 34
21.8. Notices......................................................................................... 34
21.9. Representations and Warranties.................................................................. 35
21.9.1. GENCO Representations and Warranties................................................ 35
21.9.2. LIPA Representations and Warranties................................................. 36
21.10. Counterparts................................................................................... 36
21.11. Governing Law.................................................................................. 36
21.12. Captions; Appendices........................................................................... 36
21.13. Non-Recourse................................................................................... 37
21.14. Severability................................................................................... 37
21.15. Rules of Interpretation........................................................................ 37
21.16. Property Taxes................................................................................. 37
21.17. Binding Effect................................................................................. 38
APPENDIX A - FORMULA RATE.....................................................................................A - 1
APPENDIX B - MONTHLY VARIABLE ADJUSTMENT CHARGE...............................................................B - 1
APPENDIX C - GENERATING UNITS.................................................................................C - 1
APPENDIX D - DELIVERY POINTS..................................................................................D - 1
APPENDIX E - MINIMUM LOADINGS, RAMP RATES, START-UP & SCHEDULED SHUTDOWN TIME.................................E - 1
APPENDIX F - PERFORMANCE INCENTIVES/DISINCENTIVES.............................................................F - 1
I. DMNC Incentive/Disincentives..................................................................F - 1
II. Availability Incentive/Disincentive...........................................................F - 2
III. Property Tax Incentive........................................................................F - 4
IV. Heat Rate Incentive/Disincentive..............................................................F - 5
</TABLE>
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POWER SUPPLY AGREEMENT
----------------------
This POWER SUPPLY AGREEMENT ("Agreement") is entered into as of June
26, 1997 ("Contract Date") by and between Long Island Lighting Company, a New
York corporation ("GENCO"), and LONG ISLAND POWER AUTHORITY, a corporate
municipal instrumentality and political sub-division of the State of New York
("LIPA"). Each of the foregoing are sometimes referred to herein as a "Party"
and collectively as the "Parties."
RECITALS
--------
WHEREAS, GENCO, is currently the owner of the Generating Facilities (as
defined herein), LIPA desires to purchase capacity and energy from the
Generating Facilities in order to provide Electricity (as defined herein) to its
customers on Long Island.
WHEREAS, if LIPA exercises its right to purchase the Generating
Facilities under the Generation Purchase Right Agreement dated the date hereof,
the purchase of capacity and energy hereunder shall terminate.
WHEREAS, GENCO and LIPA have set forth in this Agreement the terms and
conditions for the sale and delivery of electric capacity and energy by GENCO to
LIPA.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the Parties agree as follows:
ARTICLE 1 - DEFINITIONS
-----------------------
Unless otherwise required by the context in which any defined term
appears, the following capitalized terms have the meanings specified in this
Article 1.
1.1. "Ancillary Service" means the ancillary services required by NYPP/ISO
from time to time to enable the NYPP/ISO to operate the transmission
system in New York State in a secure and reliable manner.
1.2. "Applicable Law" means any law, rule, regulation, condition or
requirement, guideline, ruling, ordinance or order of or any Legal
Entitlement issued by, any Governmental Authority and applicable from
time to time to the performance of the obligations of the parties
hereunder.
1.3. "Business Day" means any day other than a Saturday, Sunday or Legal
Holiday (as defined herein).
- 1 -
<PAGE>
1.4. "Base Interest Rate" means the lesser of (1) the maximum rate of
interest permitted by Applicable Law and (2) (a) for interest accruing
during the first six months after the date on which a payment was
payable hereunder, 6 months LIBOR, and (b) for interest accruing more
than six months after the date on which a payment was payable
hereunder, the prime interest rate plus one percentage point, in each
case as six month LIBOR or the prime interest rate as reported in The
Wall Street Journal for each day.
1.5. "Capacity Charge" has the meaning ascribed to that term in Section
8.1.1.
1.6. "Change of Control" means (i) the acquisition of beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act")) of 35% or more of the outstanding shares of
securities the holders of which are generally entitled to vote for the
election of directors of GENCO or the Guarantor, as the case may be
(including securities convertible into, or exchangeable for, such
securities or rights to acquire such securities or securities
convertible into, or exchangeable for such securities, "Voting Stock"),
on a fully diluted basis, by any Person or group of Persons (within the
meaning of Section 13 or 14 of the 1934 Act); (ii) any sale, transfer
or other disposition of beneficial ownership of 35% or more of the
outstanding shares of the Voting Stock, on a fully diluted basis, of
GENCO or the Guarantor, as the case may be; (iii) any merger,
consolidation, combination or similar transaction of GENCO or the
Guarantor, as the case may be, with or into any other Person, whether
or not GENCO or the Guarantor, as the case may be, is the surviving
entity in any such transaction; (iv) any sale, lease, assignment,
transfer or other disposition of the beneficial ownership in 35% or
more of the property, business or assets of GENCO or the Guarantor, as
the case may be; (v) a Person other than the current shareholders of
GENCO or the Guarantor, as the case may be, obtains, directly or
indirectly, the power to direct or cause the direction of the
management or policies of GENCO or the Guarantor, as the case may be,
whether through the ownership of capital stock, by contract or
otherwise; (vi) during any period of 12 consecutive calendar months,
when individuals who were directors of GENCO or the Guarantor, as the
case may be, on the first day of such period cease to constitute a
majority of the board of directors of GENCO or the Guarantor, as the
case may be; or (vii) any liquidation, dissolution or winding up of
GENCO or the Guarantor, as the case may be.
1.7. "Closing Date" has the meaning ascribed to that term in the Merger
Agreement (as herein defined).
1.8. "Contract Date" means the date of this Agreement as set forth on page 1
hereof.
1.9. "Contract Year" except as LIPA shall otherwise propose subject to the
approval of GENCO which approval shall not be unreasonably withheld,
means the calendar year commencing on January 1 in any year and ending
on December 31 of that year; provided, however, that the first Contract
Year shall commence on the Closing Date and shall end
- 2 -
<PAGE>
on December 31 of that year, and the last Contract Year shall commence
on January 1 prior to the date this Agreement expires or is terminated,
whichever is appropriate, and shall end on the last day of the Term of
this Agreement or the effective date of any termination, whichever is
appropriate. Any computation made on the basis of a Contract Year shall
be adjusted on a pro rata basis to take into account any Contract Year
of less than 365/366 days.
1.10. "Contract Year Budget Plan" shall mean a budget plan for the Contract
Year. Thereafter, Contract Year Budget Plan means a budget plan for
each Contract Year.
1.11. "Deliver," "Delivered," "Delivering" and "Delivery" shall mean the
provision of Electricity at the Delivery Points (as defined herein) of
a type known as three-phase alternating current.
1.12. "Delivery Point" shall mean that point at which Electrical Metering
Equipment (as defined herein) is located, as described in Appendix D
for each of the Generating Facilities.
1.13. "Dependable Maximum Net Capability" shall mean the maximum amount of
Electricity the Generating Facility can Deliver, as periodically
determined through "NYPP Method and Procedure 2 -Uniform Method for
Rating Generating Capability," as modified from time to time, for the
applicable capability period.
1.14. "Dispatch" shall mean LIPA's adjustment and control of the Generating
Facilities' net electrical energy output for the purpose of regulating
the amount of Electricity Delivered.
1.15. "Electricity" shall mean the electrical energy (real and reactive) and
capacity produced by the Generating Facilities and Delivered to the
Delivery Point.
1.16. "Electricity Customers" means the retail and wholesale electricity
customers of LIPA located in the Service Area.
1.17. "Energy Manager" means Long Island Lighting Company, and its permitted
successors and assigns.
1.18. "Energy Management Agreement" means the Energy Management Agreement
entered into between Energy Manager and LIPA on or about the date of
the signing of this agreement.
1.19. "Event of Default" has the meaning ascribed to that term in Sections
12.2 and 12.3.
1.20. "Existing Power Supply Agreements" means the power supply agreements
which exist between GENCO and other parties for the purchase of
capacity and/or energy which are in effect as of the Contract Date and
which were, either in existence as of March 19, 1997
- 3 -
<PAGE>
or which were entered into in accordance with the provisions of Section
6.1 of the Acquisition Agreement on or prior to the Closing Date.
1.21. "Fees-and-Costs" means reasonable fees and expenses of employees,
attorneys, architects, engineers, accountants, expert witnesses,
contractors, consultants and other persons, and costs of transcripts,
printing of briefs and records on appeal, copying and other reimbursed
expenses, and expenses of any Legal Proceeding.
1.22. "FERC" means the Federal Energy Regulatory Commission.
1.23. "Financing Parties" means any and all Persons that are lenders,
lessors, holders of notes, bonds, or mortgages or investors providing
or potentially providing bridge, construction, interim or long-term
debt or equity financing, or any refinancing of the same or any capital
lease of the Generating Facilities, and any agent or trustee for any
such Persons, and their respective successors and assigns.
1.24. "Five Year Capital Improvement Budget" has the meaning as ascribed to
that term in Section 9.1.2.
1.25. "Fuel" means the fuel for operating the Generating Facilities.
1.26. "Generating Facilities" means the electric generating facilities owned
by GENCO as of March 19, 1997, including, but not limited to: (a) all
systems, structures, equipment and appurtenances associated with each
Generating Facility's operation and forming a part thereof; (b)
permanent administrative offices and building structures housing
Generating Facility equipment; site improvements such as roads,
drainage, fencing and landscaping; and (c) structures, pipelines and
equipment for: (i) the delivery of Fuel; (ii) the transport of water,
waste water and other waste disposal; and (iii) other materials,
supplies and commodities required for the Services. A list of GENCO's
generating units is contained in Appendix C. This definition is to be
further developed in accordance with Schedule B of the Merger Agreement
(as herein defined).
1.27. "Generating Facility Sites" means each parcel of land upon which each
existing Generating Facility is situated, as well as the land
contiguous thereto, owned by GENCO as of March 19, 1997.
1.28. "Governmental Authority" means any national, state or local government,
any political subdivision or any governmental, quasi-governmental,
judicial, public or statutory instrumentality, administrative agency,
authority, body or other entity having jurisdiction over the Generating
Facilities or the electrical energy produced by those facilities or
this Agreement other than LIPA.
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1.29. "Governmental Rule" means any permit or any law, statute, act,
regulation, code, ordinance, rule, judgment, order, decree, directive,
requirement, guideline or any similar decision or determination, or any
Governmental Authority's official interpretation or administration of
any of the foregoing, excluding any acts of LIPA, that governs or
affects the Generating Facilities.
1.30. "Guarantor" means the Parent (as defined in the Merger Agreement (as
defined herein)).
1.31. "Hazardous Waste" means any waste which by reason of its composition or
characteristics is defined or regulated as a hazardous waste, toxic
substance, hazardous chemical substance or mixture, or asbestos under
Applicable Law, as amended from time to time, including, but not
limited to, "Hazardous Substances" as defined in CERCLA and the
regulations promulgated thereunder.
1.32. "Legal Entitlement" means any permit, license, approval, authorization,
consent and entitlement of whatever kind and however described which is
required under Applicable Law to be obtained or maintained by any
person with respect to the performance of any obligation under this
Agreement.
1.33. "Legal Holiday" is defined as New Year's Day, Martin Luther King Jr.'s
Birthday, Lincoln's Birthday, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving Day, Day After Thanksgiving, Christmas Eve, Christmas Day
and New Year's Eve, or other such days as the Parties may mutually
agree, from time to time.
1.34. "Legal Proceeding " means every action, suit, litigation, arbitration,
administrative proceeding, and other legal or equitable proceeding
having a bearing upon this Agreement.
1.35. "LIPA Fault" means any breach, failure of compliance, or nonperformance
by LIPA with its obligations hereunder or any negligence or willful
misconduct by LIPA under this Agreement (whether or not attributable to
any officer, trustee, member, agent, employee, representative,
contractor, subcontractor of any tier, or independent contractor of
LIPA) that materially and adversely affects GENCO's performance or
GENCO'S rights or obligations under this Agreement.
1.36. "Loss-and-Expense" means any and all losses, liabilities, obligations,
damages, delays, disincentives, judgments, deposits, costs (including
replacement power costs and incremental fuel costs) expenses, claims,
demands, charges, taxes, or expenses, including all Fees-and-Costs.
1.37. "Merger Agreement" means the Agreement and Plan of Exchange and Merger
by and among BL Holding Corp., Long Island Lighting Company, LIPA and
LIPA Acquisition Corp. dated as of the date hereof.
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1.38. "Monthly Ancillary Service Charge" has the meaning ascribed to that
term in Section 8.1.3.
1.39. "Monthly Capacity Charge" has the meaning ascribed to that term in
Section 8.1.1.
1.40. "Monthly Capacity Payment Adjustment Charge" has the meaning ascribed
to that term in Section 8.1.4.
1.41. "Monthly Variable Payment Adjustment Charge" has the meaning ascribed
to that term in Section 8.1.5
1.42. "Monthly Variable Charge" has the meaning ascribed to that term in
Section 8.1.2
1.43. "MW" shall mean megawatt.
1.44. "MWN" shall mean net megawatt.
1.45. "MWh" shall mean megawatt hour.
1.46. "MWhG" shall mean gross megawatt hour.
1.47. "Mvar" shall mean reactive megavolt amperes.
1.48. "New York Power Pool" or "NYPP" means the member system currently
comprised of Consolidated Edison Company of New York, Inc., Central
Hudson Gas and Electric Corporation, Long Island Lighting Company,
Orange and Rockland Utilities, Inc., Rochester Gas and Electric
Corporation, New York State Electric and Gas Corporation, Niagara
Mohawk Power Corporation, and the New York Power Authority, as such
organization or membership may change from time to time.
1.49. "NYPP/ISO" means the Independent System Operator ("ISO") into which the
NYPP is proposed to be restructured, to the extent approved by FERC. In
the event this restructuring occurs, the principal reliability,
security and dispatch function of the NYPP will be performed by the
ISO.
1.50. "Off System Sale" means the sale of capacity and/or energy to wholesale
or retail customers located outside of the Service Area.
1.51. "Parent" shall have the meaning ascribed to such term in the Merger
Agreement.
1.52. "Person" means, unless otherwise specified, any individual,
corporation, firms, companies, trusts, business trusts, legal entities,
general partnership, limited partnership, joint venture, association,
joint-stock company, trust, limited liability company, unincorporated
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organization, government or any agency or political subdivision thereof
or other entity, including a Governmental Authority.
1.53. "Prudent Utility Practice" at a particular time means any of the
practices, methods and acts (including but not limited to the
practices, methods and acts engaged in or approved by a significant
portion of the electrical utility industry prior thereto), which, in
the exercise of reasonable judgment in light of the facts and the
characteristics of the T&D System and System Power Supply known at the
time the decision was made, would have been expected to accomplish the
desired result at the lowest reasonable cost consistent with
reliability, safety and expedition and good customer relations. Prudent
Utility Practice is not intended to be limited to the optimum practice,
method or act, to the exclusion of all others, but rather to be a
spectrum or possible practices, methods or acts.
1.54. "Ramp Down" has the meaning ascribed in Article 11.
1.55. "Rating Services" means Moody's Investors, Inc., Standard and Poor's
Rating Services, Fitch Investors Services, and Duff & Phelps or any of
their successors.
1.56. "Receipt Points" shall mean those points at which gas is received at
the Generation Facilities.
1.57. "Service Area" means the counties of Suffolk and Nassau and that
portion of the county of Queens constituting GENCO's electric franchise
area as of the effective date of the Long Island Power Authority Act.
"Service Area" does not include the Villages of Freeport, Rockville
Center, and Greenport.
1.58. "Summer Operating Period" shall mean the six month period commencing
May 1 through and ending October 31.
1.59. "System Emergency" shall mean any abnormal system condition that
requires automatic or immediate manual action to prevent or limit loss
of transmission facilities or generation resources that could adversely
affect the reliability of an electric system.
1.60. "System Power Supply" means the electrical capacity and energy from all
power supply sources owned by or under contract to LIPA, including, but
not limited to, the Existing Power Supply Agreements, this Agreement,
LIPA's rights and interests with respect to Nine Mile Point 2, LIPA's
interest in any future generating facilities, spot market capacity and
energy purchases made by the Energy Manager on behalf of LIPA, and any
load control programs or measure adopted by LIPA.
1.61. "System Pre-Emergency" shall mean a condition which reasonably could be
expected, if permitted to continue, to contribute to a System Emergency
or to a degraded operating
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condition and includes the Alert, Warning, Major Emergency, and
Restoration conditions described in NYPP Operating Procedure 1
"Operation of the Bulk Power System," as it may be revised or replaced.
1.62. "T&D System" means the electric transmission and distribution system
located in the Service Area which provides the means for transmitting
and distributing Generating Facility Electricity and off-system
capacity and/or for energy purchases and Off-System Sales.
1.63. "Term" has the meaning ascribed to that term in Article 12.1.
1.64. "Unit Heat Rate" means the Btu of fuel per kilowatt hour of gross
generation.
1.65. "Winter Operating Period" shall mean the six month period commencing
November 1 and ending April 30.
1.66. "Year Seven" is the twelve (12) month period commencing on the sixth
anniversary of the Closing Date.
PART I - POWER SUPPLY
ARTICLE 2 - POWER SUPPLY
2.1. DELIVERY OF POWER. During the Term of this Agreement, except as
otherwise provided herein, GENCO agrees to sell and Deliver to LIPA and
LIPA agrees to purchase and accept Delivery from GENCO, as follows:
2.1.1. CAPACITY. GENCO will sell and Deliver to LIPA all the capacity (MW)
from the Generating Facilities in accordance with this Agreement.
2.1.2. ENERGY. GENCO will sell and Deliver to LIPA all the energy (MWh)
it produces from the Generating Facilities, in accordance with this Agreement,
that LIPA requests to meet the Electricity requirements of its Electricity
Customers and for making Off System Sales.
2.1.3. ANCILLARY SERVICES. GENCO will provide the various Ancillary Services
as required by LIPA. LIPA will pay GENCO in accordance with this
Agreement, for any cost associated with any Ancillary Services not
otherwise compensated by LIPA.
2.2. DELIVERY POINTS. Delivery of capacity and energy will be at the
Delivery Points, identified in Appendix D, between LIPA's T&D System
and GENCO's Generating Facilities.
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2.3. DISPATCH OF GENERATING FACILITIES.
(a) LIPA shall have the responsibility for the Dispatch of the
Generating Facilities for both real (MW) and reactive (Mvar) power requirements
for providing Electricity to LIPA. LIPA shall also have the responsibility for
the Dispatch of Ancillary Services at the Generating Facilities for its
Electricity Customers. It is anticipated that Dispatch of the Generating
Facilities will be accomplished by LIPA through the use of existing automatic
generator control equipment at the Generating Facilities. If the automatic
generator control equipment is not currently installed at a Generating Facility
or becomes inoperable, GENCO shall manually implement LIPA's Dispatch
requirements. Internal combustion units are not equipped with automatic
generation control equipment and, therefore, LIPA's Dispatch requirements shall
be implemented manually by GENCO.
(b) GENCO may, in its sole discretion consistent with Prudent Utility
Practice, override the automatic generation, reactive power and load frequency
control equipment to preserve the safety and integrity of its Generating
Facilities and to react to System Emergencies and System Pre-Emergencies.
(c) When Dispatching the Generating Facilities, LIPA will comply with
the limitations of Dispatch as set forth in Appendix E, including but not
limited to, minimum loadings, ramp rates, scheduled shut down time, internal
combustion loadings and start-up times on the Generating Facilities. GENCO will
inform LIPA when Prudent Utility Practice requires changes to those limitations,
either on a short term or long term basis. Such changes may be required due to
conditions such as equipment problems (e.g. crack in turbine, build up in
precipitators), opacity and voltage regulation. GENCO will provide LIPA with
revised limitations of Dispatch reflecting such changes as required, but not
less than once per year.
(d) LIPA will provide GENCO with a preliminary schedule of the expected
operation of the Generating Facilities (steam units only) on a week ahead and a
day ahead basis. For next day and next seven (7) days of operation, the
preliminary schedule must be provided to GENCO by 11 AM on the previous day.
Schedules for Friday and Saturday must be provided on Thursday by 11 AM.
Schedules for Sunday and Monday must be provided on Friday by 11 AM. In the
event of a Legal Holiday the schedules must be provided on the last Business Day
prior to the Legal Holiday. The above scheduling requirements may be modified in
accordance with the NYPP/ISO requirements. LIPA will not be bound by such
preliminary schedule and will be permitted to Dispatch the Generating Facilities
on a real time basis consistent with the limitations set forth in Section 2.3
(c).
(e) GENCO will normally operate the Generating Facilities at a power
factor between 0.90 and 1.0 (lead or lag Mvar) at the Delivery Points, subject
to the limitations defined in Section 2.3 (b). Notwithstanding the foregoing,
during a System Emergency or System Pre-Emergency, GENCO may operate the
Generating Facilities below a 0.90 power factor but not below a 0.85
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power factor (lead or lag Mvar) at the Delivery Point(s), subject to the
limitations defined in Section 2.3 (b).
2.4. MAINTENANCE SCHEDULING. The Generating Facilities' five year maintenance
outage schedule will be provided by GENCO ninety (90) days prior to the
commencement of each Contract Year. GENCO will not schedule major maintenance
outages in the months of June, July and August, except in the case of System
Emergency or by mutual agreement, or in response to unusual circumstances in
accordance with Prudent Utility Practice. The Parties recognize that certain
non-scheduled routine maintenance will be conducted throughout the year, as
required, for the purpose of inspection, cleaning and/or repair of power plant
equipment. GENCO will attempt to schedule and implement such outages in the off
peak periods. GENCO will inform LIPA when such maintenance is required.
2.5. DEPENDABLE MAXIMUM NET CAPABILITY (DMNC) TESTING. GENCO will perform
capacity tests on its Generating Facilities to determine the DMNC rating,
consistent with the "NYPP Methods and Procedure 2 - Uniform Method for Rating
Generating Capability," as it may be revised or replaced. If the NYPP Methods
and Procedure -2 is revised or replaced, the target level in the DMNC incentive
will be modified as required to reflect these changes. GENCO will provide LIPA
with sufficient advance notice of the capacity test dates and provide LIPA the
opportunity to witness such tests. GENCO will also provide to LIPA the results
of the DMNC tests for each individual generating unit.
2.6. DMNC TARGET. GENCO will use reasonable efforts, in accordance with Prudent
Utility Practice to maintain a DMNC level of 3975 MW (to be revised to be equal
to the average of annual DMNC values for the last five-year period prior to the
Closing Date as described in Appendix F) during the Summer Operating Period. It
is the intent of the Parties that the expense and capital budgets will be
sufficient to provide GENCO a reasonable opportunity to maintain the DMNC target
level. If LIPA should not approve an adequate budget it is recognized that the
DMNC target may not be achieved. In such event, the incentive/disincentive
provisions of the DMNC performance incentive shall equitably be adjusted
consistent with Section 9.2. In addition, this value will be reduced to reflect
any Generating Facility that has been Ramped Down, mothballed, retired,
significantly derated, removed from service or incurs a long term outage, except
that for a significant derating, removal from service or long term outage the
reduction in the DMNC target will apply only to the extent that these events
were not attributable to GENCO's failure to follow Prudent Utility Practice.
2.7. T&D SYSTEM ACCESS. LIPA will provide open access service to GENCO on its
T&D System for Off System Sales to the extent that the required T&D capacity is
available, priced at applicable FERC tariffs or other non-discriminatory terms
and prices.
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PART II - POWER SUPPLY PLANNING AND OPERATIONS
----------------------------------------------
ARTICLE 3 - FUTURE RESOURCE PLANNING
------------------------------------
3.1. POWER SUPPLY PLANNING. This article provides for the provision of
information by GENCO to LIPA as requested by LIPA to conduct an Integrated
Electric Resource Planning study, and does not obligate LIPA to perform such a
study.
3.1.1. INTEGRATED ELECTRIC RESOURCE PLANNING (IERP). The Parties to
this Agreement recognize that LIPA intends to perform a comprehensive analysis
for meeting the future electric energy requirements of LIPA's Electricity
Customers on a periodic basis with due consideration given for environmental
issues. This analysis would evaluate all available resource options to meet the
electric energy requirements of LIPA's Electricity Customers. LIPA, in
consultation with GENCO, may establish a schedule for conducting any IERP study.
The IERP analysis is intended to be performed to determine the optimum mix of
the Generating Facilities and purchased power in an effort to provide the least
cost mix of electricity resources including demand side management (DSM) options
for LIPA's Electricity Customers while observing established reliability
criteria. GENCO will contribute to any IERP evaluation by providing information
to LIPA regarding the operation of the Generating Facilities as requested. At
the request of LIPA, GENCO shall:
(a) Provide projected short and long term maintenance schedules and
cost information;
(b) Provide information on planned capacity improvements and capital
additions on the Generating Facilities (including environmental compliance
modifications);
(c) Provide information and analysis regarding Fuel usage (type);
(d) Provide any other information that may reasonably be required for
the conduct of the IERP study.
LIPA will pay all reasonable costs for providing this information which are not
otherwise compensated by payments to GENCO under this Agreement.
PART III - OTHER ITEMS
----------------------
ARTICLE 4 - GENERATING FACILITY SITES
-------------------------------------
4.1. INTERFERENCE COMPENSATION. If LIPA's construction or operation of new
generating units at Generating Facility Sites materially interferes with either
the physical operation of the Generating Facilities or with GENCO's
environmental compliance, LIPA shall ensure that GENCO will be compensated for
the adverse impact on GENCO of such interference.
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4.2. GENERATING FACILITIES. GENCO shall not sell or otherwise assign any
interest in any of its generating units (as set forth on Appendix C) except for
(i) liens securing bona fide debt or other encumbrances incurred in the ordinary
course of business, (ii) capital leases or (iii) sales or assignments made with
LIPA's prior written consent, which consent shall be deemed to have been given
in respect of any and all easements granted pursuant to either Section 5.3(d) of
the Generation Purchase Right Agreement dated as of the date hereof by and
between GENCO and LIPA or Paragraph 5 of the Grant of Future Rights attached as
Schedule F to the Merger Agreement.
4.3. TRANSMISSION REQUIREMENTS. LIPA will be responsible for all transmission
reinforcements required in conformance with Prudent Utility Practice for any new
generation, including any new interconnections and other T&D System requirements
regardless of their location, sufficient to maintain the Delivery of Electricity
from the Generating Facilities onto the T&D System. The additional costs charged
to GENCO for such transmission reinforcements shall not be greater than if such
costs were allocated to all of LIPA's Electricity Customers and transmission
service customers on an average system basis.
ARTICLE 5 - REGULATION
----------------------
5.1. REGULATION. GENCO will seek all necessary regulatory approvals appropriate
for the provision of the service to LIPA as described herein. LIPA agrees to
provide all reasonable support needed to obtain any required regulatory
approvals of this Agreement. In addition, each of LIPA and GENCO agree to
provide all necessary information in its possession that is reasonably requested
by the other Party for future regulatory filings.
ARTICLE 6 - STORM RESTORATION
-----------------------------
6.1. STORM DECLARATION. A storm restoration condition shall be deemed to exist
when LIPA requests GENCO personnel to assist in restoring storm caused damage to
the T&D System. LIPA shall promptly notify GENCO of a storm restoration
condition.
6.2. RESPONSIBILITY DURING STORM CONDITION. Personnel designated by GENCO (in
its sole discretion) will be made available to perform storm restoration duties
for LIPA upon LIPA's request, as contemplated above, provided that GENCO will
follow the same storm restoration practice currently followed by GENCO to make
GENCO employees available. LIPA will pay for the incremental costs incurred by
GENCO in providing storm restoration services in accordance with this Agreement;
personnel costs will be paid in accordance with GENCO's personnel salary scale
(including any overtime premiums) consistent with the personnel salary cost
basis used to establish fixed operation and maintenance costs in the Capacity
Charge in accordance with this Agreement. LIPA will also coordinate and pay any
incremental costs related to storm restoration training (e.g. car lease,
equipment, meals, etc.). This cost will be
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reimbursed by LIPA either through an adjustment in the Monthly Variable Charge
as contemplated herein or through another mutually agreed-upon method.
ARTICLE 7 - ENVIRONMENTAL CONSIDERATIONS
----------------------------------------
7.1. ENVIRONMENTAL COMPLIANCE. GENCO shall comply in all material respects with
all Applicable Laws including all applicable laws regulating or affecting any
spill, discharge, or release of any Hazardous Waste into or upon any of its
land, air, surface water, ground water, or improvements located thereon and
shall take all action required (including any investigation, study, sampling and
testing, cleanup, removal and remediation) by any Governmental Authority having
jurisdiction to remedy any notice of violation or non-compliance issued by such
entity, with regard to air emissions, water discharges, noise emissions,
hazardous discharges, or any other environmental, health, or safety problems
affecting the Generating Facilities. All costs including those related to any
legal or regulatory proceedings, related to such compliance will be reimbursed
by LIPA through an adjustment in the Monthly Capacity Charge and Monthly
Variable Charge as contemplated herein. GENCO's liability to LIPA for
nonperformance of this Section 7.1 shall be limited to liabilities under Article
19, and its recoverability from LIPA for environmental compliance to the extent
allowed under Article 8 and Appendix A shall be limited to the extent addressed
in Article 19.
ARTICLE 8 - PURCHASE PRICE AND PAYMENT
--------------------------------------
8.1. PRICE COMPONENTS. Except as otherwise specifically provided in this
Agreement, the prices LIPA will pay to GENCO for Electricity delivered pursuant
to this Agreement will be those prices calculated as set forth in Appendix A and
Appendix B. During the Term of this Agreement, LIPA will make monthly payments
to GENCO consisting of an amount equal to: (i) the Monthly Capacity Charge, (ii)
the Monthly Variable Charge, (iii) the Monthly Ancillary Service Charge, (iv)
the Monthly Capacity Payment Adjustment Charge and (v) the Monthly Variable
Adjustment Charge.
8.1.1. MONTHLY CAPACITY CHARGE. The Monthly Capacity Charge is 1/12 of
the annual Capacity Charge as set forth in Appendix A. The annual Capacity
Charge will compensate GENCO for its fixed costs of generating Electricity from
the Generating Facilities (including associated common costs) including: (a)
return on investment, and depreciation for the undepreciated cost of the
Generating Facilities, (b) completed capital additions approved in accordance
with Article 9 including Allowance for Funds Used During Construction (AFUDC)
(c) insurance, (d) income taxes (federal, state, local, net or gross), (e)
property and all other taxes, (f) fixed operations and maintenance costs,
including an allowance for scheduled major maintenance and overhauls, (g)
research and development costs and (h) administration costs. Generation charges
will not be increased as a result of any step-up in the book or tax basis of the
assets. In establishing the depreciation schedule for the recovery of the costs
of existing plant
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and approved capital additions thereto, the Parties will commission an
engineering and economic depreciation study which reflects the age, condition,
and market circumstances which influence the remaining economic lives of the
Generating Facilities. The results of such depreciation study will be taken into
account in determining the proper depreciation schedule and resulting
depreciation charges to be included in the filing of the FERC regulated Capacity
Charge component of the formula rate described in this Article 8. The annual
Capacity Charge will exclude demolition costs, environmental remediation costs
related to demolition and site restoration costs in excess of amounts recovered
in GENCO's retail rates applicable as of March 1997 and recovered as part of
GENCO's depreciation charge, and charges for starts, fired hours of operation
and fuel swaps as defined in Appendix B after meeting the threshold levels
established in Appendix B.
8.1.2. MONTHLY VARIABLE CHARGE. The Monthly Variable Charge will be
based on the variable operation and maintenance costs as set forth in Appendix
A, multiplied by the actual MWh of operation of the Generating Facilities. The
variable operation and maintenance costs include those materials, supplies and
maintenance costs, environmental fees or charges, and labor costs, if any, which
vary directly with the amount of energy generated. Variable operation and
maintenance costs do not include charges for fixed operation and maintenance
costs nor charges for starts, fired hours of operation and fuel swaps defined in
Appendix B after meeting threshold levels established in Appendix B. Fuel
required to operate the Generating Facilities for the purpose of providing
energy will be provided in accordance with the provisions of the Energy
Management Agreement and, accordingly, there will be no charge for fuel.
8.1.3. MONTHLY ANCILLARY SERVICE CHARGE. LIPA will pay for any costs
incurred by GENCO in providing Ancillary Services to LIPA, if any such services
are required by LIPA which are not otherwise compensated by LIPA through the
Monthly Capacity Charge or the Monthly Variable Charge or otherwise, such charge
defined as the "Monthly Ancillary Service Charge." Fuel, if any, required to
operate the Generating Facilities for the purpose of providing Ancillary
Services will be provided in accordance with the provisions of the Energy
Management Agreement and, accordingly, there will be no charge for fuel.
8.1.4. MONTHLY CAPACITY PAYMENT ADJUSTMENT CHARGE. The Monthly Capacity
Payment Adjustment Charge will provide for the payment by LIPA to GENCO of
non-variable related expenses net of insurance proceeds, that can not be planned
for with any certainty and are outside the control of GENCO, including
extraordinary uninsured damage from storms and other acts of God, catastrophic
failure of one or more units of a Generating Facility, and environmental
compliance (for events that were not planned for and not of a type covered by
any contingency in the applicable budget), provided that all capital
expenditures are subject to approval by LIPA as provided in Article 9.4.
Incremental costs associated with the retirement of a Generating Facility, as
set forth in Section 8.3, or through a Ramp-Down of a Generating Facility in
accordance with Article 11 of this Agreement may also be included in the Monthly
Capacity Payment Adjustment Clause.
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8.1.5. MONTHLY VARIABLE PAYMENT ADJUSTMENT CHARGE. The Monthly Variable
Payment Adjustment Charge will provide for the payment of starts, fired hours of
operation, and fuel swaps defined in Appendix B after meeting the threshold
levels established in Appendix B. Charges incurred for starts, fired hours of
operation and swaps after meeting the threshold levels will be billed in total
to LIPA by GENCO immediately following the month incurred in accordance with
Section 8.5.
8.1.6. NOX AND SOX EMISSION CREDITS. GENCO shall apply to the
Generating Facilities all NOx, SOx and other air emission credits owned by GENCO
or attributable to the Generating Facilities, the cost of which to LIPA shall be
included at cost without markup in the Monthly Capacity Charge to the extent
such costs are fixed costs and in the Monthly Variable Charge to the extent such
costs vary with levels of generation. Sixty-seven percent (67%) of any sale or
other disposition of emission credits which are excess to the needs of the
operation of the Generating Facilities shall be credited to the annual charges
to LIPA under the Agreements. GENCO will receive thirty-three percent (33%) of
the net proceeds of any such sale or disposition of emission credits. Parent
shall provide LIPA with notice of its intention to sell or otherwise dispose of
emission credits in order to allow LIPA sufficient time to submit a bid for such
credit, if it so chooses.
8.2. POWER PLANT ELECTRIC USE. It is recognized and agreed that the Generating
Facilities require electricity for operating auxiliary systems. This electricity
shall be provided by the specific generating units located at the appropriate
Generating Facilities and/or from LIPA's T&D System. Any charges from LIPA to
GENCO for this auxiliary power from LIPA's T&D System, will be charged to GENCO
at non-discriminatory rates, and such charges will be added, without any markup
thereto, to the Monthly Variable Charge.
8.3. GENERATING FACILITY MAJOR FAILURE. LIPA and GENCO may mutually agree to
cease operating any Generating Facility, due to a major failure of such
Generating Facility that the Parties mutually agree is uneconomic to repair.
Upon mutual agreement, the Parties may elect to either mothball or retire such a
Generating Facility.
In the event the Parties mutually agree to mothball such a Generating Facility,
with or without preserving the operability of such Generating Facility, LIPA
will continue to pay the associated Capacity Charge which will reflect any net
cost reduction achieved from the mothballing of such Generating Facility.
In the event the Parties mutually agree that a Generating Facility should be
retired and decommissioned, LIPA will pay GENCO the remaining unrecovered net
plant cost of such Generating Facility, including any unreimbursed approved
capital expenditures that have been made and reasonably incurred demolition
costs, site restoration costs and any other costs associated with retiring such
Generating Facility net of site restoration costs recovered in rates together
with accumulated interest on reserves carried by Long Island Lighting Company
for such site restoration costs, if any, over the life of such Generating
Facility. LIPA will have the option
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to make such payment to GENCO immediately following the decision to retire such
Generating Facility or agree to a payment schedule over the remaining term of
the Agreement, including interest through an adjustment to the Monthly Capacity
Payment Adjustment Clause.
8.4. INCENTIVES/DISINCENTIVES. The incentive/disincentive payments contemplated
by Appendix F in this Agreement will be calculated and billed separately from
the charges established in Appendix A and B no less frequently than annually.
8.5. PAYMENT. GENCO will submit a monthly invoice to LIPA for the Monthly
Capacity Charge by the first (1st) Business Day of the month for capacity
provided during the month, consistent with the provisions in Section 8.1. GENCO
will also submit monthly invoices to LIPA for the Monthly Variable Charge, and
any other charges that may be required, consistent with this Article 8, by the
fifth (5th) Business Day following the month of service, consistent with the
provisions in this Article. Payment of the Monthly Capacity Charge invoiced
amounts shall be due and payable by LIPA on the later of the tenth (10th)
Business Day of the month or ten (10) Business Days after LIPA's receipt of the
monthly invoice. Payment of the Monthly Variable Charge invoiced amounts and any
other invoices shall be due and payable by LIPA on the later of the first
Business Day following the nineteenth (19th) of the month or ten (10) Business
Days of LIPA's receipt of such invoices.
All such payments shall be made in the form of immediately available funds by
wire transfer to a bank or financial institution specified by GENCO or in such
other form as may be reasonably requested by GENCO. The wired funds will be
deemed timely paid if received by the close of business on or before the due
date of such payment.
8.6 LATE PAYMENT. Any invoiced amount not paid by LIPA by the due date will bear
interest at the Base Interest Rate.
ARTICLE 9 - BUDGETS
-------------------
9.1. BUDGET PREPARATION.
9.1.1. INITIAL CAPACITY AND VARIABLE CHARGE DETERMINATION. Not less
than a mutually agreed upon number of days prior to (a) the Closing Date and (b)
the commencement of each successive five year period thereafter during the Term
of this Agreement, GENCO shall prepare and submit to LIPA for review and
approval a proposed Five Year Budget Plan, which shall provide details on the
fixed and variable costs of operating the GENCO Generating Facilities, as set
forth in Sections 8.1.1 and 8.1.2 and as described by Appendix A. The initial
such budget, upon approval by LIPA, shall establish the Monthly Capacity Charge
and Monthly Variable Charge for the first year of the five year period, which
forms the basis for adjustment for subsequent Contract Years in the five year
period in accordance with Appendix A. The budget plan for the first Contract
Year of the first Five Year Budget Plan will be based upon the agreed
- 16 -
<PAGE>
upon disaggregated generation cost elements relating to the Generating
Facilities (including associated common costs) and contained in the proposed
1997 rate year budget in the GENCO 1996 rate case filing with the New York State
Public Service Commission, updated for known changes in facts and circumstances,
adjusted to the First Contract Year and as set forth in Appendix A. Such budget
shall also consider actual historical results prepared on a comparable
disaggregated basis for 1996 and thereafter up to the date of adoption of such
budget. For subsequent Contract Years the Monthly Capacity Charge and Monthly
Variable Charge will be based upon the previous year as adjusted in accordance
with indices and approved capital improvement budgets as set forth in Appendix
A.
9.1.2. FIVE YEAR CAPITAL IMPROVEMENT BUDGETS. GENCO shall annually
prepare and submit to LIPA a rolling Five Year Capital Improvement Budget for
incremental capital expenditures and associated rate adjustments for LIPA's
review and approval. Each Five Year Budget Plan shall consist of five individual
Contract Year Budget Plans.
9.2. BUDGET REVIEW. Not more than a mutually agreed upon number of days
subsequent to LIPA's receipt of the proposed Five Year Budget Plan and/or
rolling Five Year Capital Improvement Budget from GENCO, LIPA shall provide
GENCO with any requested changes, additions, deletions or revisions. The GENCO
Representative and LIPA Representative will employ reasonable efforts to agree
upon a final Five Year Capital Improvement Budget by a mutually agreed upon
number of days before the commencement of the initial Contract Year and to
approve the first year of the rolling Five Year Capital Improvement Budget a
mutually agreed upon number of days prior to the commencement of each Contract
Year. Such approved budget for the initial Contract Year (a "Contract Year
Budget") shall be effective throughout the Contract Year, subject to
modifications as provided in Section 9.4. It is the intent of the Parties that
the amounts provided in the Five Year Budget Plan and rolling Five Year Capital
Improvement Plan for operation and maintenance expenses and capital expenditures
will be sufficient to provide GENCO (or its affiliate, as the case may be) no
less of an opportunity to maintain the DMNC, Availability and Heat Rate target
levels (as defined in Appendix F) than GENCO has at the execution of this
Agreement, and to otherwise maintain the Generating Facilities in good working
order, consistent with Prudent Utility Practices, provided that LIPA shall have
the final right to determine whether GENCO should proceed with specific capital
projects. In the event that LIPA does not approve amounts for operating and
maintenance expenses and capital expenditures that provide GENCO (or its
affiliate, as the case may be) with the same opportunity to maintain the DMNC,
Availability and Heat Rate target levels (as defined in Appendix F) as GENCO has
at the execution of this Agreement, such target levels shall be equitably
adjusted.
9.3 FAILURE TO ADOPT CONTRACT YEAR BUDGET. If the Parties are unable to reach
agreement concerning all or any portion of the Contract Year Budget for the
initial Contract Year of a Contract Year Budget Plan or the first year of the
Five Year Capital Improvement Budget as contemplated in Section 9.2, those
portions of the Contract Year Budget that are in dispute for such Contract Year
shall be resolved in a proceeding before the FERC. Those portions of the
Contract Year Budget not in dispute shall become effective.
- 17 -
<PAGE>
9.4. CAPITAL IMPROVEMENT BUDGET PERFORMANCE. GENCO will provide to LIPA, on a
quarterly basis, a report of actual total capital improvement costs versus the
approved capital expenditures in the Five Year Capital Improvement Budget. GENCO
will prepare a detailed explanation outlining variations of more than ten (10)
percent and one million dollars ($1,000,000) from the Five Year Capital
Improvement Budget. GENCO will promptly notify LIPA when an event occurs, or is
anticipated to occur, which would result in any required unbudgeted capital
expenditures. As soon as practical, GENCO will provide an explanation and
estimate of such unforeseen incremental costs, as well as a proposal for
modification of the applicable Monthly Capacity Charge to recover such costs.
LIPA will review and respond to such explanation and Capacity Charge
modification proposal within thirty (30) days after receipt. If the parties are
unable to reach agreement, this dispute shall be resolved by a final and
non-appealable order of FERC in a proceeding under the Federal Power Act.
ARTICLE 10 - INCENTIVES/DISINCENTIVES
-------------------------------------
10.1. INCENTIVES/DISINCENTIVES. Four performance incentives/disincentives are
established under this Agreement: DMNC, Availability, Heat Rate, and Property
Taxes. Each of these incentives/disincentives mechanisms are set forth in
Appendix F.
ARTICLE 11 - CAPACITY RAMP DOWN
-------------------------------
11.1. CAPACITY RAMP DOWN OPTION. Beginning in Year Seven, LIPA may determine to
reduce ("Ramp Down") the amount of capacity purchased from GENCO. In such an
event, LIPA shall immediately reimburse GENCO for the Capacity Charges in the
amount set forth below which would have been recovered from LIPA over the
remaining portion of the original term of this Agreement.
The Ramp Down will be an aggregate potential reduction amount of no greater than
1500 MW. The Ramp Down schedule is as follows:
<TABLE>
<CAPTION>
==========================================================================================================================
CAPACITY BLOCK Year* UNITS Approximate Summer
Capacity DMNC
==========================================================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1 7 - 9 Far Rockaway 4 300 MW
Glenwood 4 & 5
- --------------------------------------------------------------------------------------------------------------------------
2 10 - 11 E.F. Barrett 1 & 2 380 MW
- --------------------------------------------------------------------------------------------------------------------------
3 12 - 13 Pt. Jefferson 3 & 4 380 MW
- --------------------------------------------------------------------------------------------------------------------------
4 14 - 15 Northport 1 380 MW
==========================================================================================================================
</TABLE>
*Year Seven begins on the sixth anniversary of the Closing Date.
- 18 -
<PAGE>
If economic conditions change during the term of this Agreement, the order of
the above Ramp Down schedule may be changed if mutually agreed upon by the
Parties. The Ramp Down amount shall be for the full amount of the capacity in
each agreed upon capacity block as set forth above.
If LIPA exercises this option in years 7 through 10 of this Agreement, LIPA will
immediately pay GENCO 100 percent of the present value, at the time the Ramp
Down option is exercised, of all the related Capacity Charges, that it would
have otherwise received for that capacity block of unit(s) which was ramped
down, for the remainder of the term of this Agreement, adjusted for the removal
of net salvage as used in the depreciation calculation. GENCO will be entitled
to these payments regardless of the future disposition of the Generating
Facilities. GENCO will have the responsibility for all costs for demolition,
environmental remediation and site restoration.
If LIPA exercises this option in subsequent years, the recovery percentage will
be reduced for such capacity block(s) through the end of the term of this
Agreement as follows:
<TABLE>
<CAPTION>
=================================================================================================
YEAR OPTION EXERCISED Fixed Cost Reduction
=================================================================================================
<S> <C>
- -------------------------------------------------------------------------------------------------
11 12.5%
- -------------------------------------------------------------------------------------------------
12 25.0%
- -------------------------------------------------------------------------------------------------
13 37.5%
- -------------------------------------------------------------------------------------------------
14 50.0%
- -------------------------------------------------------------------------------------------------
15 62.5%
=================================================================================================
</TABLE>
If LIPA exercises this option, GENCO will be entitled to the fixed cost reduced
by the above percentages regardless of the future disposition of any released
capacity. The present value will be determined using GENCO's weighted cost of
capital used in the Capacity Charge to LIPA.
GENCO may use any capacity released pursuant to this option to bid on new LIPA
capacity requirements or on LIPA's capacity requirements to replace other Ramp
Down capacity. If GENCO wins such bid, it will be paid its bid price.
If GENCO continues to operate the ramped down unit, GENCO will use reasonable
efforts to market the released capacity. Allocation of profits from Off System
Sales of capacity and energy
- 19 -
<PAGE>
from non-ramped down and ramped down units during the term of this Agreement
shall be shared based on the following schedule:
<TABLE>
<CAPTION>
=================================================================================================
NON RAMPED DOWN CAPACITY Ratio: LIPA / GENCO
<S> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Years 1 to 15 67% / 33%
- -------------------------------------------------------------------------------------------------
RAMPED DOWN CAPACITY
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Years 7 to 10 67% / 33%
- -------------------------------------------------------------------------------------------------
Year 11 60% / 40%
- -------------------------------------------------------------------------------------------------
Year 12 53% / 47%
- -------------------------------------------------------------------------------------------------
Year 13 46% / 54%
- -------------------------------------------------------------------------------------------------
Year 14 39% / 61%
- -------------------------------------------------------------------------------------------------
Year 15 33% / 67%
=================================================================================================
</TABLE>
The profits for any capacity sales from such Ramp Down capacity will be based on
all costs required for such sale that have not been recovered by GENCO. Such
recovery is understood to include any prepayment by LIPA of fixed O&M costs. If
LIPA's exercise of this option results in operational inefficiencies at
Northport, the Capacity Charges will be adjusted to reflect demonstrable cost
increases due to such inefficiencies.
ARTICLE 12 - TERM AND TERMINATION
---------------------------------
12.1. TERM. The Term of this Agreement shall commence on the Closing Date and,
except as provided in Article 4 and as otherwise provided herein, shall remain
in full force and effect for an initial term of fifteen (15) years from such
Closing Date. At the end of the Term of this Agreement, LIPA may renew this
Agreement, for all capacity upon which it has not exercised its Ramp Down
option, under substantially the same terms and conditions as set forth herein,
including but not limited to the continuation of a Ramp Down option. This
Agreement (other than Article 4) shall terminate upon the purchase of the
Generating Facilities by LIPA under the Generation Purchase Right Agreement
attached as Exhibit D to the Merger Agreement.
12.2. TERMINATION FOR CAUSE BY GENCO. GENCO shall have the right to terminate
this Agreement for cause after an Event of Default determined in accordance with
the provisions of this Section 12.2 shall have occurred.
- 20 -
<PAGE>
12.2.1 EVENTS OF LIPA DEFAULT DEFINED. Each of the following shall
constitute an Event of Default on the part of the LIPA for which GENCO may
terminate this Agreement upon compliance with the notice and cure provisions set
forth below:
(1) Failure to Pay. The failure of LIPA to pay undisputed
amounts owed to GENCO under this Agreement within 90 days of such
amounts having become due.
(2) Failure to Comply with Agreement. The failure or refusal
by LIPA substantially to perform any material obligation under this
Agreement unless such failure or refusal is excused by Force Majeure
except that no such failure or refusal to pay or perform in clauses (1)
and (2) of this Section 12.2(A) shall constitute an Event of Default
giving GENCO the right to terminate this Agreement for cause under this
Section unless:
(a) GENCO has given prior written notice to LIPA
stating that a specified failure or refusal to perform exists
which will, unless corrected, constitute a material breach of
this Agreement on the part of LIPA and which will, in its
opinion, give GENCO a right to terminate this Agreement for
cause under this Section unless such default is corrected
within a reasonable period of time, and
(b) LIPA has neither challenged in an appropriate
forum GENCO's conclusion that such failure or refusal to
perform has occurred or constitutes a material breach of this
Agreement nor corrected or diligently taken steps to correct
such default within a reasonable period of time but not more
than 60 days from the date of the notice given pursuant to
clause (a) of this subsection (but if LIPA shall have
diligently taken steps to correct such default within a
reasonable period of time, the same shall not constitute an
Event of Default for as long as LIPA is continuing to take
such steps to correct such default).
12.3. TERMINATION FOR CAUSE BY LIPA. LIPA shall have the right to terminate this
Agreement for cause after an Event of Default determined in accordance with the
provisions of this Section 12.3 shall have occurred.
12.3.1 EVENTS OF GENCO DEFAULT DEFINED. (1) Events of Default Not
Requiring Cure Opportunity for Termination. Each of the following shall
constitute an Event of Default on the part of GENCO for which LIPA may terminate
this Agreement without any requirement of cure opportunity:
(a) Change of Control of GENCO. Change of Control of GENCO or
the Guarantor has occurred; provided, however, that the combination
effectuated under the Merger Agreement shall not constitute a Change of
Control of GENCO for purposes of this provision.
- 21 -
<PAGE>
(b) Voluntary Bankruptcy. The written admission by GENCO or
the Guarantor that it is bankrupt, or the filing by GENCO or the
Guarantor of a voluntary petition under the Federal Bankruptcy Code, or
the consent by GENCO or the Guarantor to the appointment by a court of
a receiver or trustee for all or a substantial portion of its property
or business, or the making by GENCO or the Guarantor of any arrangement
with or for the benefit to its creditors involving an assignment to a
trustee, receiver or similar fiduciary, regardless of how designated,
of all or a substantial portion of GENCO's or the Guarantor's property
or business.
(c) Involuntary Bankruptcy. The final adjudication of GENCO or
the Guarantor as bankrupt after the filing of an involuntary petition
under the Federal Bankruptcy Code, but no such adjudication shall be
regarded as final unless and until the same is no longer being
contested by GENCO or the Guarantor nor until the order of the
adjudication shall be regarded as final unless and until the same is no
longer being contested by GENCO or the Guarantor nor until the order of
the adjudication is no longer appealable.
(d) Credit Enhancement. Failure of GENCO to supply, maintain,
renew, extend or replace the credit enhancement required under Article
18 hereof in the event there is a Material Decline in the Guarantor's
Credit Standing, as defined in Section 18.1.2.
hereof.
(e) Letter of Credit Draw. Failure of GENCO to supplement,
replace or cause to be reinstated the letter of credit as described in
Section 18.1.3. hereof within 30 days following draws equal to, in the
aggregate, 50% of the face value thereof.
(2) Events of Default Requiring Cure Opportunity for
Termination. Each of the following shall constitute an Event of Default
on the part of GENCO for which the LIPA may terminate this Agreement
upon compliance with the notice and cure provisions set forth below:
(a) Failure to Comply with Agreement. The failure or
refusal by GENCO to substantially perform any
material obligation under this Agreement except that
no such failure or refusal shall constitute an Event
of Default giving LIPA the right to terminate this
Agreement for cause under this subsection unless:
(i) LIPA has given prior written notice to
GENCO or the Guarantor, as applicable, stating that a
specified failure or refusal to perform exists which
will, unless corrected, constitute a material breach
of this Agreement on the part of GENCO or the
Guaranty on the part of the Guarantor and which will,
in it opinion, give LIPA a right to terminate this
- 22 -
<PAGE>
Agreement for cause under this Section unless such
default is corrected within a reasonable period of
time, and
(ii) GENCO or the Guarantor, as applicable,
has neither challenged in an appropriate forum the
LIPA's conclusion that such failure or refusal to
perform has occurred or constitutes a material breach
of this Agreement nor corrected or diligently taken
steps to correct such default within a reasonable
period of time, but not more than 60 days, from
receipt of the notice given pursuant to clause (i) of
this subsection (but if GENCO or the Guarantor shall
have diligently taken steps to correct such default
within a reasonable period of time, the same shall
not constitute an Event of Default for as long as
GENCO or the Guarantor is continuing to take such
steps to correct such default).
12.4. PROCEDURE FOR TERMINATION FOR CAUSE . (A) TWO-YEAR NOTICE. If any Party
shall have a right of termination for cause in accordance with either Section
12.2 or Section 12.3, the same may be exercised by notice of termination given
to the Party in default at least two years prior to (or, in the case of a
bankruptcy or insolvency default or a Change of Control, simultaneously with or,
in the case of an Event of Default specified in clause (d) or (e) of Section
12.3.1 hereof, six months) the date of termination specified in such notice (the
"Termination Date").
12.5. NON-BINDING MEDIATION; ARBITRATION.
(a) Dispute Resolution. Any dispute arising out of or relating to this
Agreement shall be resolved in accordance with the procedures specified in this
Section, which shall constitute the sole and exclusive procedures for the
resolution of such disputes.
(b) Negotiation and Non-Binding Mediation. The parties agree to use
their best efforts to settle promptly any disputes or claims arising out of or
relating to this Agreement through negotiation conducted in good faith between
executives having authority to reach such a settlement. Either party hereto may,
by written notice to the other party, refer any such dispute or claim for advice
or resolution by mediation by an Independent Engineer, financial advisor or
other suitable mediator. The parties shall mutually agree on the selection of
such mediator. If the parties are unable to agree, the parties shall each
designate a qualified mediator who, together, shall choose the mediator for the
particular dispute or claim. If the mediator is unable, within 30 days of such
referral, to reach a determination as to the dispute that is acceptable to the
parties hereto, the matter shall be referred to applicable Legal Proceedings.
All negotiations and mediation discussions pursuant to this
paragraph shall be confidential subject to Applicable Law and shall be treated
as compromise and settlement negotiations for purposes of Federal Rule of
Evidence 408 and applicable state rules of evidence.
- 23 -
<PAGE>
(c) Arbitration. Any dispute arising out of or relating to this
Agreement or the breach, termination, or validity thereof, except for a
termination due to a Change in Control or due to a bankruptcy or insolvency or a
failure to provide, renew, reinstate or replace the credit enhancement required
pursuant to Section 18.1 or a dispute concerning the charging or establishment
of rates under this Agreement which dispute has not been resolved by a
negotiation or mediation as provided in subsection (B) hereof within 30 days
from the date that either negotiations or mediation shall have been first
requested, shall be settled by arbitration before three independent and
impartial arbitrators (the "Arbitrators") in accordance with the then current
rules of the American Arbitration Association, except to the extent such rules
are inconsistent with any provision of this Agreement, in which case the
provisions of this Agreement shall be followed, and except that the arbitrations
under this Agreement shall not be administered by the American Arbitration
Association. The Arbitrators shall be (a) independent of the parties and
disinterested in the outcome of the dispute, provided that residents of Long
Island shall not be deemed to be interested merely by virtue of their residence
on Long Island, (b) attorneys, accountants, investment bankers, commercial
bankers or engineers familiar with contracts governing the operation of electric
utility assets, and (c) qualified in the subject area of the issue in dispute.
The Arbitrators shall be chosen by the parties, with each party choosing one
arbitrator and those arbitrators choosing the third Arbitrator. Judgment on the
award rendered by the Arbitrators may be entered in any court in the State of
New York having jurisdiction thereof. If either party refused to participate in
good faith in the negotiations or mediation proceedings described in subsection
12.5(B)hereof, the other may initiate arbitration at any time after such refusal
without waiting for the expiration of the applicable time period. Except as
provided in subsection 12.5(D) hereof relating to provisional remedies, the
Arbitrators shall decide all aspects of any dispute brought to them including
attorney disqualification and the timeliness of the making of any claim.
(d) Provisional Relief. Either party may, without prejudice to any
negotiation, mediation, or arbitration procedures, proceed in any court to
obtain provisional judicial relief if, in the such party's sole discretion, such
action is necessary to avoid imminent irreparable harm, to provide uninterrupted
electrical and other services, or to preserve the status quo pending the
conclusion of the dispute procedures specified in this Section.
(e) Awards. The Arbitrators shall have no authority to award punitive
damages or any other damages aside from the prevailing party's actual and
consequential damages plus interest at the Base Interest Rate from the date such
damages were incurred. The Arbitrators shall not have the authority to make any
ruling, finding, or award that does not conform to the terms and conditions of
this Agreement. The Arbitrators may award reasonble attorneys' fees and costs of
the arbitration. The Arbitrator's award shall be in writing and shall be set
forth the factual and legal bases for the award.
(f) Information Exchange. The Arbitrators shall have the discretion to
order a pre- hearing exchange of information by the parties, including, without
limitation, the production of requested documents, the exchange of summaries of
testimony of proposed witnesses, and the
- 24 -
<PAGE>
examination by disposition of parties. The parties hereby agree to produce all
such information as ordered by the Arbitrators and shall certify that they have
provided all applicable information and that such information is true, accurate
and complete.
(g) Site of Arbitration. The site of any Arbitration brought pursuant
to this Agreement shall be either Mineola, New York or Hauppauge, New York.
ARTICLE 13 - DESIGNATION OF REPRESENTATIVES
-------------------------------------------
13.1. LIPA REPRESENTATIVE. Within thirty (30) Business Days after the execution
of this Agreement, LIPA shall select a Representative (the "LIPA
Representative"). The LIPA Representative will act for and on behalf of LIPA on
all matters concerning this Agreement for which LIPA has authorized such agent
to act. LIPA will advise GENCO as to the scope of such authorization. In all
such matters, LIPA shall be bound, to the extent permitted by Applicable Law by
the written communications, directions, requests and decisions made by the LIPA
Representative. LIPA shall promptly notify GENCO in writing of LIPA's
Representative selection and any subsequent replacement(s).
13.2. GENCO REPRESENTATIVE. Within thirty (30) Business Days after the execution
of this Agreement, GENCO will select a Representative (the "GENCO
Representative") subject to LIPA's approval. The GENCO Representative will act
for and on behalf of GENCO in all matters concerning this Agreement for which
GENCO has authorized such agent to act. In all such matters, GENCO shall be
bound by the written communications, directions, requests and decisions made by
GENCO Representative. GENCO will advise LIPA as to the scope of such
authorization. GENCO shall promptly notify LIPA in writing of GENCO's
Representative selection and any subsequent replacement(s).
ARTICLE 14 - METERING
---------------------
14.1. ELECTRIC METERING.
14.1.1. ELECTRIC METERING EQUIPMENT. If the existing meters are
inadequate to meet the electricity measuring requirement set forth below, GENCO
at its own expense (but subject to cost recovery provision of Article 8 and 9)
shall procure, own, install, test, operate and maintain industry standard
revenue meters and instrument transformers; shall install metering mounting
equipment; shall install and maintain a dedicated datalink for telemetry
purposes to measure electricity Delivered to LIPA by GENCO. The aforementioned
equipment (the "Metering Equipment") shall be procured, tested, installed,
operated and maintained by GENCO, or GENCO's designee, in accordance with
Prudent Utility Practice. LIPA shall not breach the integrity of the wiring or
instrument transformers for any reason. LIPA, at its own expense, may
- 25 -
<PAGE>
own, install and maintain other meters and associated equipment for purposes of
measuring Electricity Delivered from GENCO. ("LIPA's Metering Equipment").
14.1.2 TESTING OF METERING EQUIPMENT. GENCO shall test the Metering
Equipment for accuracy every two (2) years or at any time within thirty (30)
days after a written request by LIPA if LIPA reasonably believes the metering
measurement accuracy of the Metering Equipment is inaccurate by two (2) percent.
At LIPA's option, such tests may be witnessed by a LIPA representative. Metering
measurement accuracy between ninety eight (98) and one hundred and two (102)
percent shall be deemed acceptable. In the event any Metering Equipment is found
outside the acceptable limits of accuracy specified in the prior sentence, it
shall be immediately repaired, calibrated or replaced. Upon completion of any
examination, maintenance, repair, calibration or replacement of any Metering
Equipment, such equipment shall be, sealed by GENCO.
14.1.3 METER READING. Meter readings shall be conducted every month or
as otherwise mutually agreed by the Parties.
14.1.4 METERING INACCURACIES. When, as the result of a test pursuant to
section 14.1.2, the Metering Equipment is found to be inaccurate by more than
two (2) percent or the Metering Equipment is otherwise functioning improperly,
the correct amount of Electricity Delivered to LIPA for the period during which
such inaccurate measurements were made, shall be determined as follows:
(a) GENCO and LIPA may mutually agree to use the readings of
LIPA's Metering Equipment, if any, to calculate the correct amount of
Electricity Delivered. LIPA shall furnish the most recent test and calibration
documentation for LIPA's metering equipment. If LIPA's meters are utilized, an
adjustment for transmission and transformation losses shall be made to such
meter readings, as applicable;
(b) If LIPA's Metering Equipment has not been installed, or if
it is found to be unacceptable, then the Parties shall jointly prepare an
estimate of the correct reading on the basis of available information, including
the assumption that if the duration of the metering inaccuracy cannot be
determined, such duration shall be deemed to have persisted for fifty percent
(50%) of the time between the last meter reading and the discovery of the
inaccuracy.
14.2. GAS METERING
14.2.1. GAS METERING EQUIPMENT. If the existing meters are inadequate
to meet the gas measuring requirements set forth below, GENCO at its own expense
(but subject to the cost recovery provision of Articles 8 & 9 shall procure,
own, install, operate and maintain industry standard revenue grade meters;
install, operate and maintain, at the Receipt Points, a dedicated datalink for
telemetery purposes to measure gas fuel delivered by GENCO or other gas
suppliers. The aforementioned equipment (the "Gas Metering Equipment") shall be
installed, operated and
- 26 -
<PAGE>
maintained by GENCO, or GENCO's designee, in accordance with prudent gas utility
practice. LIPA shall not breach the integrity of the wiring or piping for any
reason. LIPA, at its own expense, may own, install and maintain other meters and
associated equipment for purposes of measuring gas Delivered from GENCO.
("LIPA's Gas Metering Equipment").
14.2.2. TESTING OF SELF CHECKING GAS METERING EQUIPMENT. GENCO shall
test the Metering Equipment for accuracy at any time within thirty (30) days
after a written request by LIPA, if LIPA reasonably believes the metering
measurement accuracy of the Metering Equipment is inaccurate by two (2) percent.
At LIPA's option, such tests shall be witnessed by LIPA representative. Metering
measurement accuracy between ninety eight (98) and one hundred and two (102)
percent shall be deemed acceptable. In the event any Metering Equipment is found
outside the acceptable limits of accuracy specified in the prior sentence, it
shall be immediately repaired, recalibrated or replaced. Upon completion of any
examination, maintenance, repair, recalibration or replacement of any Metering
Equipment, such equipment shall be, sealed by GENCO.
14.2.3. TESTING OF NON SELF CHECKING GAS METERING EQUIPMENT. At LIPA's
expense, GENCO shall test the Metering Equipment for accuracy on a regular
schedule that conforms with industry revenue metering practices, and which is
prudent to maintain acceptable metering accuracy or at any time within thirty
(30) days after a written request by LIPA, if LIPA reasonably believes the
metering measurement accuracy of the Metering Equipment is inaccurate by two (2)
percent. At LIPA's option, such tests shall be witnessed by LIPA representative.
Metering measurement accuracy between ninety eight (98) and one hundred and two
(102) percent shall be deemed acceptable. In the event any Metering Equipment is
found outside the acceptable limits of accuracy specified in the prior sentence,
it shall be immediately repaired, recalibrated or replaced at the expense of
LIPA. Upon completion of any examination, maintenance, repair, recalibration or
replacement of any Metering Equipment, such equipment shall be, sealed by GENCO.
14.2.4. GAS METER READING. Meter readings shall be conducted every
month, or as otherwise mutually agreed by the Parties.
14.2.5. GAS METERING INACCURACIES. When, as the result of a test
pursuant to section 14.2.2 and/or 14.2.3, the Gas Metering Equipment is found to
be inaccurate by more than two (2) percent or the Gas Metering Equipment is
otherwise functioning improperly, the correct amount of Gas delivered to LIPA
for the period during which such inaccurate measurements were made, shall be
determined as follows:
(a) GENCO and LIPA may mutually agree to use the readings of
LIPA's Metering Equipment, if any, to calculate the correct amount of Gas
Delivered. LIPA shall furnish the most recent test and calibration documentation
for LIPA's metering equipment. If LIPA's meters are utilized, an adjustments for
supercompressibility (following AGA standards) and base pressure should be made
to such meter readings, as applicable.
- 27 -
<PAGE>
(b) If LIPA's Metering Equipment has not been installed, or if
it is found to be inaccurate, then the Parties shall jointly prepare an estimate
of the correct reading on the basis of available information, including the
assumption that if the duration of the metering inaccuracy cannot be determined,
such duration shall be deemed to have persisted for fifty percent (50%) of the
time between the last meter reading and the discovery of the inaccuracy.
14.3. OIL FUEL MEASUREMENT. GENCO will perform monthly Fuel oil tank gauging to
determine the amount of No. 6 Fuel oil, No. 2 Fuel oil and kerosene in storage
at each Generating Facility. The gauging will occur on a pre-determined date
prior to the end of the month. Usage from the gauging date until the last
calendar day of the month will be calculated based on the average monthly Heat
Rate at each Generating Facility and the actual generation between the gauging
date and the end of such month. This calculated amount will be subtracted from
the oil in storage on the gauging day to determine the oil in storage on the
last day of the month. Fuel oil deliveries during each month will be measured at
the time of delivery. The difference between the oil in storage at the beginning
and end of the month will be added to the oil deliveries received during the
month to calculate the net oil consumed for the month, in accordance with the
current methodology of calculating Generating Facility Fuel oil consumption.
Changes in unit operation may necessitate mutually agreed to modifications to
this procedure.
ARTICLE 15 - REPORTS
--------------------
15.1. REPORTS. Twenty Business Days following the end of each quarter, GENCO
shall submit to LIPA a report summarizing the Electricity Delivered, Fuel
burned, the status of maintenance on the Generating Facilities, the status of
all construction projects, Contract Year Budget Plan performance and such other
information as the Parties may mutually agree.
15.2. OTHER INFORMATION. (a) Upon LIPA's reasonable request, GENCO shall submit
to LIPA any other material information in GENCO's possession concerning the
Generating Facilities. If such requested information is not in GENCO's
possession, GENCO will obtain and prepare such information, to the extent
possible, and charge LIPA for all additional reasonable costs incurred to obtain
and prepare such information.
(b) Prior to the Closing Date, GENCO shall provide to LIPA the
following information, which information shall be certified by GENCO to be to
the best of its knowledge, based on reasonably available information
(i) the historical fixed costs for each year
from 1994 through 1996 associated with the
Generating Facilities, broken down by the
categories of costs set forth in Section
8.1.1(a) through (h);
(ii) the historical costs of complying with all
Government Approvals applicable to the
Generating Facilities.
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<PAGE>
15.3. LITIGATION; PERMIT LAPSES. Promptly upon obtaining knowledge thereof, each
Party shall submit to the other Party written notice of (and, upon request,
copies of any relevant non- privileged documents in the Party's possession
relating to): (i) any material litigation, claims, disputes or actions actually
filed, or any material litigation, claims, disputes or actions which are
threatened, concerning in each case this Agreement or the Generating Facilities;
(ii) any actual refusal to grant, renew or extend, or any action pending or any
action filed with respect to, the granting, renewal or extension of any permit
or any material threatened action regarding the same in this Agreement or the
Generating Facilities; (iii) any dispute with any Governmental Authority
relating to this Agreement or the Generating Facilities of GENCO or LIPA; and
(iv) without regard to their materiality, all penalties or notices of violation
issued by any Governmental Authority relating to this Agreement or the
Generating Facilities.
ARTICLE 16 - GENERAL SERVICE REQUIREMENTS
-----------------------------------------
16.1. GENERAL SERVICE REQUIREMENTS.
16.1.1. STANDARD OF PERFORMANCE. In performing its obligations under
this Agreement, GENCO shall operate in accordance with Prudent Utility Practice
and all Governmental Rules and shall seek to minimize costs in accordance with
Prudent Utility Practice and Governmental Rules.
16.1.2. LIMITATION OF LIABILITY. GENCO liability for any failure to
comply with Section 16.1.1 shall be limited to the performance incentives
provided in Article 10, except as set forth in Article 19.
16.1.3. ACCOUNTING CONTROLS. GENCO shall provide all accounting,
bookkeeping, and administrative services in connection with the Electricity
Costs, such accounting to be consistent with the Federal Energy Regulatory
Commission Uniform System of Accounts and Generally Accepted Accounting
Principles (GAAP) consistently applied. In areas of conflict, FERC accounting
principles apply. All books and records upon which any rates or charges under
this Agreement are based shall be made available by GENCO for audit by LIPA.
ARTICLE 17 - INSURANCE
----------------------
GENCO shall maintain an insurance program with respect to the
Generating Facilities and its activities under this Agreement similar in all
material respects to the program described in Appendix 4 - Insurance of the
Management Services Agreement dated the date hereof between LIPA and the Energy
Manager.
- 29 -
<PAGE>
ARTICLE 18 - CREDIT ENHANCEMENT
-------------------------------
18.1 CREDIT ENHANCEMENT IN CERTAIN CIRCUMSTANCES.
18.1.1. LIMITATIONS. After the Closing Date, GENCO agrees that it will
remain an affiliate of the Guarantor.
18.1.2. MATERIAL DECLINE IN THE GUARANTOR'S CREDIT STANDING. For
purposes of this Section, a "Material Decline in the Guarantor's Credit
Standing" shall be deemed to have occurred if (1) in the event that the
Guarantor has long-term senior debt outstanding which has a credit rating by a
Rating Service, such rating by a Rating Service is established or is reduced
below investment grade level or (2) in the event the Guarantor does not have
long-term senior debt outstanding which has a credit rating by a Rating Service,
and the Guarantor has a credit rating by a Rating Service, such credit rating is
established or reduced below investment grade level, or (3) in the event the
Guarantor does not have long-term senior debt outstanding which has a credit
rating by a Rating Service and the Guarantor does not have a credit rating by a
Rating Service, in which event the Guarantor shall seek a credit rating for the
Guaranty from a Rating Service, such rating is established or is reduced below
investment grade level or if no rating is established. GENCO immediately shall
notify LIPA of any Material Decline in the Guarantor's Credit Standing.
18.1.3. CREDIT ENHANCEMENT. If, at any time during the Term hereof, a
Material Decline in the Guarantor's Credit Standing occurs, GENCO shall
immediately notify LIPA's Representative thereof and, within 30 days after such
occurrence, shall provide credit enhancement of its obligations hereunder at its
sole cost and expense in the form either of (1) an unconditional guarantee of
all of GENCO's obligations hereunder, the Manager's obligations under the
Management Services Agreement, and the Energy Manager's obligations under the
Energy Management Agreement provided by a corporation or financial institution
whose long-term senior debt is or would be rated investment grade by a Rating
Service or (2) an irrevocable letter of credit securing GENCO's obligations
hereunder, the Manager's obligations under the Management Services Agreement,
and the Energy Manager's obligations under the Energy Management Agreement in a
face amount of $60,000,000 provided by a financial institution whose long-term
senior debt is rated investment grade by a Rating Service; provided, however,
that if any such letter of credit is drawn upon in the aggregate in an amount
equal to 50% of the face value of such letter of credit, GENCO shall, within 30
days thereafter, supplement or replace such letter of credit with an additional
letter of credit such that the total amount of such letter of credit then
available equals $60 million. The amount of such letter of credit shall be
reduced by $30 million if the Energy Management Agreement has theretofore been
or is thereafter terminated and by $26 million if the Management Services
Agreement has theretofore been or is thereafter terminated, such obligation to
continue until the expiration or termination of this Agreement, the Management
Services Agreement and the Energy Management Agreement.
- 30 -
<PAGE>
ARTICLE 19 - ALLOCATION OF RISK OF
----------------------------------
CERTAIN COSTS AND LIABILITIES.
------------------------------
Except to the extent due to LIPA Fault (as determined by either a final
non-appealable order or judgment of a court of competent jurisdiction (including
administrative tribunals) or a final non-appealable binding arbitration
decision), GENCO shall be responsible and liable to LIPA for, and shall not be
entitled to reimbursement or cost recovery under Article 8 or otherwise from
LIPA for any Loss-and-Expense incurred by GENCO:
(a) due to any gross negligence or willful misconduct by
GENCO during the period commencing six months prior
to the Closing Date to the extent GENCO knew or
should have known of such gross negligence or willful
misconduct and during the Term in carrying out its
obligations hereunder,
(b) due to any violation of or failure of compliance with
Applicable Law by GENCO (except as provided below)
during the period commencing six months prior to the
Closing Date to the extent GENCO knew or should have
known of such violation or failure of compliance and
during the Term which materially and adversely
affects
(i) the condition or operations of the T&D
System or the Generating Facilities,
(ii) the financial condition of LIPA,
(iii) the performance or ability of GENCO to
perform its obligations under this
Agreement, or
(iv) the cost of providing electric service to
the customers of the T&D System,
provided, however, that GENCO shall not be
responsible and liable to LIPA under this clause b)
with respect to any violation of, failure of
compliance with, or liability under, Environmental
Laws (as defined in the Acquisition Agreement) for
which LIPA or GENCO may be strictly liable provided
that GENCO acted in a manner consistent with Prudent
Utility Practice. Notwithstanding the foregoing,
GENCO shall in all events be liable for any fine or
penalty arising by reason of any violation of or
failure of compliance with Applicable Law for acts or
omissions of GENCO not consistent with Prudent
Utility Practice,
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<PAGE>
(c) due to any criminal violation of Applicable Law by
GENCO prior to, on or after the Closing Date, or
(d) due to an event which would otherwise permit recovery
of a cost under Section 8.1.4 (Monthly Capacity
Payment Adjustment Charge) of an excess capital
expenditure under Section 9.4, that is incurred by
reason of actions or omissions of GENCO not
consistent with Prudent Utility Practice.
Any such action or omission identified in (a), (b), (c) or (d)
shall be determined by either a final non-appealable order or judgment of a
court or regulatory body of competent jurisdiction (including administrative
tribunals) or a final non-appealable binding arbitration decision and shall be
attributable to GENCO for purposes of the preceding sentence whether it is
attributable to GENCO or to any officer, member, agent, employee or
representative of GENCO or any Affiliate and any contractor, subcontractor of
any tier.
The provisions of this Article 19 are intended to modify
GENCO's right to receive payments under Article 8 and Appendix A.
ARTICLE 20 - PROPRIETARY INFORMATION
------------------------------------
20.1. REQUEST NOT TO DISCLOSE. The parties hereto hereby acknowledge that GENCO
has a proprietary interest in certain information that may be furnished pursuant
to the provisions of this Agreement. GENCO acknowledges that LIPA may be
required to disclose information upon request under Applicable Law. GENCO shall
have the right to request LIPA in writing not to publicly disclose any
information which GENCO believes to be proprietary and not subject to public
disclosure under Applicable Law, any such request to be accompanied by an
explanation of its reasons for such belief. Any information which is the subject
of such a request shall be clearly marked on all pages, shall be bound, and
shall be physically separate from all nonproprietary information. At GENCO's
request, LIPA and its agents, consultants and employees (including its
consulting engineer) given access to such information shall execute and comply
with the terms of a confidentiality agreement in a mutually acceptable form,
subject to Applicable Law.
20.2. LIPA'S NON-DISCLOSURE. In the event LIPA receives a request from the
public for the disclosure of any information designated as proprietary by GENCO
pursuant to Section 20.1, LIPA (i) shall use reasonable efforts, consistent with
applicable law, to provide notice to GENCO of the request prior to any
disclosure, and (ii) shall use reasonable efforts, consistent with applicable
law, to keep in confidence and not disclose such information unless it is
entitled to do so pursuant to the provisions of Section 20.3. GENCO shall
indemnify, hold harmless and defend LIPA against costs incurred from the
withholding from public disclosure of information designated as proprietary by
GENCO or otherwise requested by GENCO to be withheld.
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<PAGE>
20.3. PERMITTED DISCLOSURES. Notwithstanding any confidential or proprietary
designation thereof by GENCO, LIPA may disclose the following information (i)
information which is known to LIPA without any restriction as to disclosure or
use at the time it is furnished, (ii) information which is or becomes generally
available to the public without breach of any agreement, (iii) information which
is received from a third party without limitation or restriction on such third
party or LIPA at the time of disclosure, (iv) with regard to capacity that has
not been ramped down, documentation of historical Generation Facilities'
operations and costs, and all costs, assumptions and supporting data associated
with the determination of the FERC-approved contract rate for capacity and
energy under this agreement, (v) information with respect to (a) Electricity
sales to LIPA by time of day, month and year, to the extent available; (b)
prices paid by LIPA to GENCO for capacity, energy and any Ancillary Services
under this Agreement; and (c) power plant emission information and environmental
compliance information and any information required to be provided to FERC to
support rate filings with FERC to the extent such information directly relates
to GENCO's provision of service to LIPA under this Agreement, and (vi) following
notice to GENCO pursuant to Section 20.2, information which, in the opinion of
counsel for LIPA, is required to be or may be disclosed under any Applicable
Law, an order of a court of competent jurisdiction, or a lawful subpoena.
ARTICLE 21 - MISCELLANEOUS PROVISIONS
-------------------------------------
21.1. AGREEMENT. This Agreement consists of the terms and conditions set forth
in the body hereof and the Appendices and other attachments hereto. This
Agreement contains the entire agreement between the Parties with respect to the
subject matter hereof. In the event of a conflict, variation or inconsistency
between or among the Appendices, other attachments and the terms and conditions
set forth in the body hereof, the terms and conditions contained in the body
hereof shall govern.
21.2. RELATIONSHIP OF THE PARTIES. GENCO is deemed to be an independent
contractor hereunder and shall not be deemed as a partner, joint venturer or
affiliate of LIPA.
21.3. ASSIGNMENT. This Agreement shall not be assignable by either party without
the prior written consent of the other party hereto, which consent shall not be
unreasonably withheld or delayed except LIPA may assign its interest in this
Agreement to another State agency if required by or as the result of State law.
Notwithstanding the foregoing sentence, nothing herein shall prevent GENCO,
without LIPA's consent, from selling, assigning or transferring a pecuniary
interest in any payment, revenues, proceeds, incentive, profits or income
derived from this Agreement. Effective upon the Closing Date, LIPA may assign
its rights, obligations and interests hereunder to Long Island Lighting Company
(then a wholly owned subsidiary of LIPA) and GENCO shall assign all of its
rights, obligations and interests hereunder to the Guarantor or any affiliate
thereof.
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<PAGE>
21.4. COOPERATION IN FINANCING. Each Party shall reasonably cooperate with the
other Party during negotiations with any Financing Party and will promptly
execute any reasonable amendment or addition to this Agreement required by any
Financing Party, provided that neither Party shall be required to execute any
amendment or addition it determines in its sole discretion to be disadvantageous
in any respect.
21.5. FORCE MAJEURE.
21.5.1. EVENTS CONSTITUTING FORCE MAJEURE. As used in this Agreement,
Force Majeure means any act, event, or condition that causes delay in or failure
of performance of obligations under this Agreement, or otherwise materially and
adversely affects a party's ability to perform, if such act, event or condition
(i) is beyond the reasonable control of the party relying thereon, (ii) is not
the result of the willful misconduct or negligent act or omission of such party,
and (iii) is not an act, event or condition, the risk or consequence of which
such party expressly assumed under this Agreement, including but not limited to:
(1) acts of God, accident, flood, sabotage, fire, epidemic,
earthquake, or similar occurrence, act of public or foreign enemy, war and other
hostilities, invasion, blockade, insurrection, rebellion, riot and disorder,
strikes or labor disturbances, general arrest or restraint of government and
people, civil disturbance or similar occurrence;
(2) entry of an injunctive or restraining order or judgment of
any Governmental Authority, if such order or judgment is not the result of the
act, or failure to act, of a party or its subcontractors or suppliers; or
(3) suspension, termination, interruption of, or failure to
obtain any permit required or necessary for the construction, operation or
maintenance of the Generating Facilities, provided such suspension, termination,
interruption or failure is not the result of the action or inaction of a party
relying thereon or its subcontractors or suppliers.
Notwithstanding the foregoing, neither the failure of a subcontractor
or supplier to perform its obligations to LIPA or GENCO, which failure is not
itself caused by a Force Majeure event with respect to such subcontractor or
supplier, nor financial difficulty suffered by LIPA or GENCO or any
subcontractor, supplier or vendor in performing its obligations, shall be deemed
a Force Majeure event.
21.5.2. EVENT OF FORCE MAJEURE. Except for the obligations of either
party to make payments of amounts due to the other party, either party shall be
excused from performance and shall not be considered to be in default in respect
of any obligation under this Agreement to the extent that a failure of
performance of such obligation shall be due to Force Majeure. If either party's
ability to perform its obligations under this Agreement is affected by a Force
Majeure, the party claiming such inability shall: (i) promptly notify the other
party of such Force Majeure and its cause and confirm the same in writing within
five Business Days of discovery of the event
- 34 -
<PAGE>
or circumstances constituting such Force Majeure; (ii) immediately supply such
available information about the event or circumstances constituting the Force
Majeure and the cause thereof as is reasonably requested by the other party; and
(iii) immediately initiate removal of the cause of the Force Majeure or, if
immediate removal is not possible, to mitigate the effect thereof.
21.5.3. SCOPE. The suspension of performance due to a Force Majeure
shall be of no greater scope and no longer duration than that which is
necessary. The excused party shall use its reasonable best efforts to remedy its
inability to perform.
21.6. AMENDMENTS. No amendments or modifications of this Agreement shall be
valid unless evidenced in writing and signed by duly authorized representatives
of both Parties.
21.7. NO WAIVER. It is understood and agreed that any delay, waiver or omission
by GENCO or LIPA to exercise any right arising from any breach or default by
GENCO or LIPA with respect to any of the terms, provisions, or covenants of this
Agreement shall not be construed to be a waiver by GENCO or LIPA, as the case
may be, of any subsequent breach or default of the same or other terms,
provisions or covenants on the part of the other party.
21.8. NOTICES. Any written notice under this Agreement shall be deemed properly
given if sent by registered or certified mail, return receipt requested, postage
prepaid, or by nationally recognized overnight delivery service, signature
required upon signed receipt, to the address specified below, unless otherwise
provided for in this Agreement:
To LIPA: Long Island Power Authority
333 Earle Ovington Blvd.
Uniondale, NY 11553
Attention: Executive Director
To GENCO: Long Island Lighting Company
Executive Offices
175 East Old Country Road
Hicksville, NY 11801
Attention: President
Either party may, by written notice to the other party, change the name or
address of the person to receive notices pursuant to this Agreement.
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<PAGE>
21.9. REPRESENTATIONS AND WARRANTIES.
21.9.1. GENCO REPRESENTATIONS AND WARRANTIES. GENCO, as of the date of
this Agreement, makes the following representations and warranties as the basis
for its undertakings contained herein:
(a) After the Closing Date, any assignee of GENCO pursuant to
Section 21.3 hereof will be a wholly owned subsidiary of Guarantor duly
organized, validly existing and in good standing under the laws of the State of
New York, is qualified to do business under the laws of the State of New York,
has the power and authority to own its properties, to carry on its business as
it now is being conducted, and to enter into this Agreement and carry out the
transactions contemplated hereby, and to perform and carry out all covenants and
obligations on its part to be performed under and pursuant to this Agreement,
and is duly authorized to execute and deliver this Agreement and consummate the
transactions herein contemplated.
(b) The execution and delivery of this Agreement, the
consummation of the transactions contemplated herein and the fulfillment of and
compliance with the provisions of this Agreement do not materially conflict with
or constitute a material breach of or a material default under any of the terms,
conditions or provisions of any law, any order of any court or other agency of
government, the articles of incorporation or by-laws of GENCO, or outstanding
trust indenture, deed of trust, mortgage, loan agreement, other evidence of
indebtedness or any other agreement or instrument to which GENCO is a party or
by which it or any of its property is bound or result in a material breach of or
a material default under any of the foregoing, and this Agreement is the legal,
valid and binding obligation of GENCO enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.
(c) As of the Closing Date and throughout the Term of this
Agreement, GENCO, will be in material compliance with, or will have acted in
good faith and used all reasonable efforts to be in material compliance with,
all laws, judicial and administrative orders, rules and regulations with respect
to the ownership and operation of the Generating Facilities including but not
limited to the following: all requirements to obtain and comply with the
conditions of any applicable Governmental Rules, including, to the extent
required, the filing of all applicable environmental impact analyses; and, if
applicable and required by Environmental Law, the mitigation of all
environmental impacts.
(d) As of the date provided, all historical records supplied
to LIPA with respect to the Dependable Maximum Net Capability, availability and
Heat Rate of each Generating Facility are to GENCO's best knowledge accurate in
all material respects.
(e) To the best of GENCO's knowledge, all Governmental
Approvals necessary for the full load operation of each Generating Facility with
all types of fuel for which such
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<PAGE>
Generating Facility is operated have been validly issued and are in full force
and effect. GENCO knows of no pending action to cancel any such Governmental
Approval.
21.9.2. LIPA REPRESENTATIONS AND WARRANTIES. LIPA, as of the date of
this Agreement, makes the following representations and warranties as the basis
for its undertakings contained herein:
(a) LIPA is a corporate municipal instrumentality and
political sub-division of the State of New York, has the corporate power and
authority to own its properties, to carry on its business as now being
conducted, and to enter into this Agreement and the transactions contemplated
herein and perform and carry out all covenants and obligations on its part to be
performed under and pursuant to this Agreement, and is duly authorized to
execute and deliver this Agreement and consummate the transactions herein
contemplated.
(b) The execution and delivery of this Agreement, the
consummation of the transactions contemplated herein and the fulfillment of and
compliance with the provisions of this Agreement do not materially conflict with
or constitute a material breach of or a material default under, any of the
terms, conditions or provisions of any law, any order of any court or other
agency of government, or any contractual limitation, corporate or partnership
restriction or outstanding trust indenture, deed of trust, mortgage, loan
agreement, other evidence of indebtedness or any other agreement or instrument
to which LIPA is a party or by which it or any of its property is bound or
result in a material breach of or a material default under any of the foregoing,
and this Agreement is the legal, valid and binding obligation of LIPA
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(c) All corporate or other organization consents,
authorizations, and approvals, and all other actions required for LIPA to
execute, deliver and perform its obligations hereunder have been obtained or
completed.
21.10. COUNTERPARTS. The Parties may execute this Agreement in counterparts,
which shall, in the aggregate, when signed by both Parties constitute one and
the same instrument; and, thereafter, each counterpart shall be deemed an
original instrument.
21.11. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York. Any action arising out of or
relating to this Agreement shall be brought in New York State Court or Federal
District Court.
21.12. CAPTIONS; APPENDICES. Titles or captions of the articles contained in
this Agreement are inserted only as a matter of convenience and for reference,
and in no way define, limit, extend, describe or otherwise affect the scope or
meaning of this Agreement or the intent of any provision hereof.
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<PAGE>
21.13. NON-RECOURSE. Except as otherwise agreed, neither party shall have any
recourse against any parent, affiliate, or constituent of the other party, or
the successors and assigns of such parent, affiliate or constituent
(collectively, "Party Affiliates") and each party expressly waives its rights of
recourse against, and releases from liability, the other party's Party
Affiliates. Each party shall look solely to the other party, and the assets
thereof, to effect recovery of such party's claims against the other party.
21.14. SEVERABILITY. The invalidity or unenforceability of any provision of this
Agreement shall be determined only by a court of competent jurisdiction, and the
Parties hereby agree to negotiate an equitable adjustment to the invalid or
unenforceable provisions with a view toward effecting the purposes of this
Agreement; the validity or enforceability of the remaining provisions or
portions or applications thereof, shall not be affected thereby.
21.15. RULES OF INTERPRETATION. The terms and provisions of this Agreement shall
be interpreted and construed as follows: (a) words of the masculine gender shall
include corresponding words of the feminine or neuter genders and vice versa;
(b) the plural shall include the singular and vice versa; (c) unless the context
indicates otherwise, all references herein to Articles, Sections, paragraphs,
exhibits, schedules, and Appendices shall refer, respectively, to the Articles,
Sections, paragraphs, exhibits, schedules and Appendices of this Agreement; (d)
the words "includes" or "including" mean "including, but not limited to" and are
not limiting; (e) any reference to an agreement, a contract or any other
document means the same as it may be amended, modified, supplemented or replaced
from time to time, unless otherwise noted; and (f) any reference to a Person
includes such Person's successors and assigns.
21.16. PROPERTY TAXES. After the Contract Date, GENCO, in its sole discretion,
may challenge any property tax assessment on its Generating Facilities or
Generating Facility Sites only if the assessment on any such challenged
facilities is increased not in an appropriate proportion to the increase in
value related to taxable capital additions affixed to the tax parcel between the
last two tax status dates. If the tax attributable to the assessment on the
Generating Facilities or Generating Facilities Sites is not included in the
costs paid by LIPA or its Affiliates (e.g., gas facility located on Generating
Facility Site) then GENCO, in its sole discretion, may pursue tax challenges on
such assessments. This provision shall expire upon the termination of this
Agreement.
In the event GENCO challenges any tax assessments on its Generating Facilities,
any tax refunds received by GENCO shall be shared 25%/75% between GENCO and
LIPA, respectively. GENCO shall be responsible for all preparatory efforts and
litigation-related costs pertaining to any such challenge, and such costs shall
not be included in any charge under Article 8 or otherwise under this Agreement.
This provision shall expire upon the termination of this Agreement, except that
LIPA will continue to share 75% of tax refunds received after such termination
to the extent that such refunds relate to property taxes for which LIPA has
reimbursed GENCO under Section 8.1.1.
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<PAGE>
21.17. BINDING EFFECT. This Agreement shall become binding and effective on the
Closing Date and shall thereafter bind and inure to the benefit of the parties
hereto and any successor or assignee acquiring an interest hereunder in
compliance with the provisions of Section 21.3 hereof.
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement through
their duly authorized officers as of the date set forth in the preamble to this
Agreement.
LONG ISLAND POWER AUTHORITY
By:_______________________________
Name: Richard M. Kessel
Title: Chairman
By:_______________________________
Name: Patrick Foye
Title: Deputy Chairman
LONG ISLAND LIGHTING COMPANY
By:_______________________________
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
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<PAGE>
APPENDIX A
----------
FORMULA RATE
------------
Appendix A provides the detailed methodology for determining
the Monthly Capacity Charge, Monthly Variable Charge, Monthly Ancillary Service
Charge and Monthly Capacity Payment Adjustment Charge as set forth in Articles 8
and 9. This Appendix will be developed and agreed upon promptly after the date
hereof and, in any event, prior to the Closing Date.
A-1
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B
----------
MONTHLY VARIABLE ADJUSTMENT CHARGE
----------------------------------
This Appendix will be developed and agreed upon promptly after the date hereof
and, in any event, prior to the Closing Date.
VARIABLE RATES FOR GENERATING FACILITIES START UP / SHUT DOWN WEAR AND TEAR RATES
====================================================================================================================
UNIT $/START (PER UNIT) FOR STARTS ABOVE
(PER UNIT)
====================================================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
STEAM UNITS
- --------------------------------------------------------------------------------------------------------------------
Northport Units 1 - 4
- --------------------------------------------------------------------------------------------------------------------
185 MW Unit - E. F. Barrett Units
1&2; Port Jefferson Units 3&4
- --------------------------------------------------------------------------------------------------------------------
100 MW Unit - Glenwood Units 4&5;
Far Rockaway Unit 4
- --------------------------------------------------------------------------------------------------------------------
INTERNAL COMBUSTION UNITS
- --------------------------------------------------------------------------------------------------------------------
Wading River Units 1 - 3
- --------------------------------------------------------------------------------------------------------------------
E. F. Barrett 1-8
- --------------------------------------------------------------------------------------------------------------------
E. F. Barrett 9-12
- --------------------------------------------------------------------------------------------------------------------
Glenwood
- --------------------------------------------------------------------------------------------------------------------
Northport
- --------------------------------------------------------------------------------------------------------------------
Port Jefferson
- --------------------------------------------------------------------------------------------------------------------
Southold
- --------------------------------------------------------------------------------------------------------------------
Southhampton
- --------------------------------------------------------------------------------------------------------------------
Glenwood 2 & 3
- --------------------------------------------------------------------------------------------------------------------
West Babylon
- --------------------------------------------------------------------------------------------------------------------
Shoreham 1
====================================================================================================================
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
VARIABLE RATES FOR INTERNAL COMBUSTION UNITS FOR FIRED HOURS OF OPERATION
================================================================================================
UNIT $/MWH FOR GENERATION *
(PER UNIT) ABOVE (PER UNIT)
================================================================================================
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Glenwood 2 & 3
- ------------------------------------------------------------------------------------------------
West Babylon
- ------------------------------------------------------------------------------------------------
Shoreham 1
- ------------------------------------------------------------------------------------------------
Holtsville 1 - 10
- ------------------------------------------------------------------------------------------------
Barrett 9 - 12
- ------------------------------------------------------------------------------------------------
Barrett 1 - 8
- ------------------------------------------------------------------------------------------------
Glenwood 1
- ------------------------------------------------------------------------------------------------
Port Jefferson
- ------------------------------------------------------------------------------------------------
East Hampton
- ------------------------------------------------------------------------------------------------
Shoreham 2
- ------------------------------------------------------------------------------------------------
Northport
- ------------------------------------------------------------------------------------------------
East Hampton Diesels
- ------------------------------------------------------------------------------------------------
Montauk Diesels
- ------------------------------------------------------------------------------------------------
Southhampton
- ------------------------------------------------------------------------------------------------
Southold
- ------------------------------------------------------------------------------------------------
Wading River 1-3
================================================================================================
*These MWhG may be revised if required due to environmental compliance.
</TABLE>
<TABLE>
<CAPTION>
STEAM UNIT FUEL SWAPS
================================================================================================================================
MAXIMUM per day per month per year Cost swaps above
<S> <C> <C> <C> <C>
================================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
Northport Unit
- --------------------------------------------------------------------------------------------------------------------------------
185 MW Unit
================================================================================================================================
</TABLE>
B-2
<PAGE>
APPENDIX C - GENERATING UNITS
-----------------------------
This Appendix will be developed and agreed upon promptly after the date hereof
and, in any event, prior to the Closing Date.
<TABLE>
<CAPTION>
======================================================
UNIT NAME Name Plate
Rating (MW)
======================================================
<S> <C>
- ------------------------------------------------------
STEAM UNITS
- ------------------------------------------------------
Northport 1 375
- ------------------------------------------------------
Northport 2 375
- ------------------------------------------------------
Northport 3 375
- ------------------------------------------------------
Northport 4 375
- ------------------------------------------------------
Port Jefferson 3 175
- ------------------------------------------------------
Port Jefferson 4 175
- ------------------------------------------------------
Glenwood 4 100
- ------------------------------------------------------
Glenwood 5 100
- ------------------------------------------------------
E.F. Barrett 1 175
- ------------------------------------------------------
Far Rockaway 4 100
======================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================
UNIT NAME NAME PLATE
======================================================
INTERNAL-COMBUSTION-UNITS
<S> <C>
- ----------------------------------------------------
E.F.-Barrett-1-8 144
- ----------------------------------------------------
E.F.-Barrett-9-12 167
- ----------------------------------------------------
Holtsville-1-10 567
- ----------------------------------------------------
Wading-River-1-3 239
- ----------------------------------------------------
Shoreham-1 53
- ----------------------------------------------------
Shoreham-2 19
- ----------------------------------------------------
Glenwood=1 16
- ----------------------------------------------------
Glenwood 2-3 110
- ----------------------------------------------------
East Hampton 1 6
- ----------------------------------------------------
East Hampton 2-4 21
- ----------------------------------------------------
Northport G-1 16
- ----------------------------------------------------
Port Jefferson G-1 16
- ----------------------------------------------------
W. Babylon 4 52
- ----------------------------------------------------
Southhold 1 14
- ----------------------------------------------------
So. Hampton 1 12
- ----------------------------------------------------
Montauk 2-4 6
====================================================
</TABLE>
C-1
<PAGE>
APPENDIX D - DELIVERY POINTS
----------------------------
This Appendix will contain all the interconnections points between each
generating unit and the T&D System. These will be the same points as identified
in Appendix 2 to the Management Service Agreement.
D-1
<PAGE>
APPENDIX E - MINIMUM LOADINGS, RAMP RATES, START-UP & SCHEDULED
---------------------------------------------------------------
SHUTDOWN TIME
-------------
This Appendix will be developed and agreed upon promptly after the date hereof
and, in any event, prior to the Closing Date.
MINIMUM LOADINGS:
-----------------
===========================================================================
UNIT MINIMUM LOADING
===========================================================================
Northport
- ---------------------------------------------------------------------------
Port Jefferson
- ---------------------------------------------------------------------------
E. F. Barrett
- ---------------------------------------------------------------------------
Glenwood
- ---------------------------------------------------------------------------
Far Rockaway
===========================================================================
RAMP RATES:
-----------
===============================================================================
UNIT RAMP RATES
===============================================================================
Northport
- -------------------------------------------------------------------------------
Port Jefferson
- -------------------------------------------------------------------------------
E. F. Barrett
- -------------------------------------------------------------------------------
Glenwood
- -------------------------------------------------------------------------------
Far Rockaway
===============================================================================
<TABLE>
<CAPTION>
START-UP TIMES:
---------------
====================================================================================================================
UNIT COLD (more than) 90 HRS WARM HOT (less than) 24 HRS
====================================================================================================================
<S> <C> <C> <C>
Northport
- --------------------------------------------------------------------------------------------------------------------
Port Jefferson
- --------------------------------------------------------------------------------------------------------------------
E. F. Barrett
- --------------------------------------------------------------------------------------------------------------------
Glenwood
- --------------------------------------------------------------------------------------------------------------------
Far Rockaway
====================================================================================================================
</TABLE>
E - 1
<PAGE>
MINIMUM SCHEDULED SHUTDOWN
--------------------------
===========================================================================
UNIT MINIMUM SHUTDOWN
===========================================================================
Northport
- ---------------------------------------------------------------------------
Port Jefferson
- ---------------------------------------------------------------------------
E. F. Barrett
- ---------------------------------------------------------------------------
Glenwood
- ---------------------------------------------------------------------------
Far Rockaway
===========================================================================
E - 2
<PAGE>
INTERNAL COMBUSTION LOADINGS
These units can be placed in service at the load points (base or peak) listed in
Appendix E. For variable maintenance costs, one hour operation at peak load is
equivalent to three hours of operation at base load.
<TABLE>
<CAPTION>
======================================================================================================================
UNIT BASE LOAD (MW) 1 PEAK LOAD (MW) 1
======================================================================================================================
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Holtsville 1-5 (C1 eng.)
- ----------------------------------------------------------------------------------------------------------------------
Holtsville 6-10 (C1D eng.)
- ----------------------------------------------------------------------------------------------------------------------
Wading River 1-3
- ----------------------------------------------------------------------------------------------------------------------
Southold
- ----------------------------------------------------------------------------------------------------------------------
Port Jefferson
- ----------------------------------------------------------------------------------------------------------------------
East Hampton G.T.
- ----------------------------------------------------------------------------------------------------------------------
East Hampton Diesels 2,3,4
- ----------------------------------------------------------------------------------------------------------------------
Montauk Diesels 2,3,4
- ----------------------------------------------------------------------------------------------------------------------
Southampton
- ----------------------------------------------------------------------------------------------------------------------
Shoreham 1
- ----------------------------------------------------------------------------------------------------------------------
Shoreham 2
- ----------------------------------------------------------------------------------------------------------------------
E.F. Barrett 1-8
- ----------------------------------------------------------------------------------------------------------------------
E.F. Barrett 9-12
- ----------------------------------------------------------------------------------------------------------------------
Glenwood 1
- ----------------------------------------------------------------------------------------------------------------------
Glenwood 2,3
- ----------------------------------------------------------------------------------------------------------------------
West Babylon
- ----------------------------------------------------------------------------------------------------------------------
Northport
======================================================================================================================
</TABLE>
Note: 1. At 80(degree)F
E - 3
<PAGE>
APPENDIX F - PERFORMANCE INCENTIVES/DISINCENTIVES
-------------------------------------------------
I. DMNC INCENTIVE/DISINCENTIVES
GENCO will use its best efforts to maintain its generating units such that
during the six month Summer Operating Period (May through October) the total
dependable maximum net capability ("Annual DMNC") as defined by the New York
Power Pool (NYPP) Methods & Procedures - 2 (MP-2), meets or exceeds the
predetermined level ("Target DMNC"). GENCO shall determine the Annual DMNC each
year in accordance with the New York Power Pool Methods and Procedures - 2
("MP-2"). The MP-2 test will be conducted once between June 1 through September
15 for each unit. LIPA shall have the right to witness such tests and/or review
the test data and results. If the MP-2 is revised by the NYPP, the Parties agree
to revise or replace this incentive/disincentive mechanism in a manner that
reflects the intended purpose.
The Annual DMNC and the Target DMNC ratings shall be considered only for the
total system (the sum of all steam and internal combustion generating units
under contract to LIPA).
The Target DMNC shall be computed as the simple average of the Annual DMNC
values (as adjusted for the average temperature for the last five year period
prior to the Closing Date) for the last five-year period prior to the Closing
Date. The Target DMNC is based upon all of the existing GENCO steam and internal
combustion units in service. The Target DMNC shall remain fixed unless (a) LIPA
exercises its option to ramp down its GENCO capacity purchases, or (b) any GENCO
unit is mothballed, retired, significantly derated, incurs a long-term outage,
or is otherwise removed from service in whole, or in part, or (c) any capital
improvement approved by LIPA that materially increases the DMNC of the
Generating Facilities. Under these conditions, the Target DMNC shall be
equitably adjusted based on the generating unit data for the original
computation period with appropriate adjustments for the new conditions, except
that for a significant derating, removal from service or long term outage the
reduction in the DMNC target will apply only to the extent that these events
were not attributable to GENCO's failure to follow Prudent Utility Practice.
Should the Annual DMNC be in excess of the Target DMNC, LIPA shall make a
payment to GENCO equal to $30,000 per MW above that Target DMNC. Should the
Annual DMNC be less than 99% of the Target DMNC, GENCO shall make a payment to
LIPA equal to $30,000 for each MW deficiency below 99% of the Target DMNC. There
shall not be any incentives or disincentives payments for a year in which the
Annual DMNC is between 99% and 100% of the Target DMNC. The maximum
incentive/disincentives will be $1 million annually.
In the event that LIPA does not approve amounts for operating and maintenance
expenses and capital expenditure, that provide GENCO with the same opportunity
to maintain the DMNC target levels as GENCO has at the execution of this
Agreement, such target levels shall be equitably adjusted.
F - 1
<PAGE>
Any DMNC incentive/disincentive payments will be determined after October 31,
the end of the Summer Operating Period for each year and will be reflected in
the first monthly invoice following the end of such Summer Operating Period.
II. AVAILABILITY INCENTIVE/DISINCENTIVE
GENCO will use its best efforts to maintain its generating units such that
during the three month summer peak period (June through August) the availability
of its steam and internal combustion units meets or exceeds the predetermined
level ("Target Availability") as measured by the National Electric Reliability
Council (NERC) - Generating Availability Data System (GADS) Availability Factor
formula set forth as follows:
AF= AH/PH
where:
AH = Available Hours are the sum of in-service hours and reserve
shutdown hours in the period. In-service hours are defined as those
hours where the unit is in service and electrically connected to the
system. Reserve shutdown hours are those hours whenever the unit is
available to generate but is not electrically connected due to a lack
of demand or the availability of lower cost power.
PH = Period Hours are the total number of hours in the period.
Unit availability is tracked and calculated by GENCO for submittal to NERC. All
data collection, reporting and calculations are defined in the GADS Data
Reporting Instructions.
The average generation availability for the GENCO system (for the June through
August period) shall be calculated annually ("Availability") as a weighted total
of each units' availability. The weighting is based on the Net Dependable
Capacity (NDC), as submitted to NERC.
The Availability Target for each summer period (June through August) shall be
97.5 percent of the simple average of the annual Availability values for the
last five year period prior to the Closing Date.
F - 2
<PAGE>
5 Year Average Availability = 96.5 percent (to be revised to reflect
last five year period prior to the Closing Date)
Target Availability = 97.5 percent of 5 Year Average Availability (to
be revised to reflect last five year period prior to the Closing Date)
.975 * 96.5% = 94.1% (Target Availability)
As noted, the above target is based upon all of the existing GENCO steam and
internal combustion units in service. The Target Availability shall remain fixed
unless (a) LIPA exercises its option to Ramp Down GENCO's Generating Facilities,
or (b) any of GENCO's Generating Facilities is mothballed, retired,
significantly derated, removed from service, or incurs a long term outage for
unforeseen reasons. In the event any changes are required the Target
Availability will be adjusted appropriately.
For each year the Availability shall be compared with the Target Availability to
determine the amount of incentive or disincentive. Should the Availability
exceed the Target Availability by 0.5 percent, LIPA shall provide an incentive
payment to GENCO of $100,000. Such incentive payment shall increase by $100,000
for each 0.1 percent increase in the Availability. Should the Availability be
less than the Target Availability by 0.5 percent, GENCO will incur a
disincentive of $100,000. Such disincentive shall increase by $100,00 for each
0.1 percent decrease in the Availability. The maximum incentive/disincentive
shall be $2 million annually.
In the event that LIPA does not approve amounts for operating and maintenance
expenses and capital expenditure, that provide GENCO with the same opportunity
to maintain the Availability levels as GENCO has at the execution of this
Agreement, such target levels shall be equitably adjusted.
Any Availability incentive/disincentive payments will be determined after August
30 for each year and will be reflected in the first monthly invoice following
August 30.
F - 3
<PAGE>
III. PROPERTY TAX INCENTIVE
This incentive shall be as described in this Agreement in Section 21.16 Property
Taxes.
F - 4
<PAGE>
IV. HEAT RATE INCENTIVE/DISINCENTIVE
GENCO will use its best efforts to maintain the efficiency of its generating
units in order to reduce the fuel consumption for production of electric energy
for LIPA. An incentive or disincentive shall be determined monthly based on a
measure of the overall efficiency of GENCO's steam generating units, including
steam units at the Northport, Barrett, Glenwood, Port Jefferson, and Far
Rockaway power stations, in comparison with a predetermined standard as
described herein.
For purposes of this incentive plan, LIPA and GENCO have established a
functional relationship between monthly net generation (MWhN) and monthly fuel
burned, expressed in terms of millions of British thermal units ("MMBtu"),
considering (i) the relationship between total net MWhN generated and average
efficiency of the generating units; and (ii) the relative efficiency of
generating units when burning natural gas or oil. This relationship (the "Btu
Curve") is expressed by the following equation:
MMBtu = 10.7106* MWhN + 173,252
Where: MMBtu = Target Btu
MWhN = Steam Unit Net Generation
The Btu Curve represents the average amount of fuel required to generate a given
amount of monthly electricity (the "Target Btu") from GENCO's steam generating
units.
Each month the total net generation shall be used to establish the corresponding
Target Btu based on the Btu Curve. Actual fuel used for generation shall be
expressed in Gas Equivalent MMBtu by multiplying the MMBtu of oil consumption by
1.04 (the "Gas Conversion Factor") to account for differences in the average
Unit Heat Rates when burning oil versus natural gas. Deviations in the Gas
Equivalent MMBtu for the month in comparison to the Target Btu shall be shared
as follows: (a) LIPA shall absorb the cost of fuel used for Gas Equivalent MMBtu
between 100% and 101% of the Target Btu; (b) LIPA shall receive the savings
resulting in the cost of fuel used for Gas Equivalent MMBtu between 99% and 100%
of the Target Btu; (c) LIPA and GENCO shall share equally in the cost or savings
resulting from Gas Equivalent MMBtu in excess of 101% or less than 99%. No
payments are contemplated under items (a) and (b) above.
There shall be no incentive or disincentive in any month when the net generation
from the GENCO steam Generating Facilities is less than 475,000 MWhN.
For purposes of computing the incentives or disincentives, the cost of fuel
shall be stated in dollars per Gas Equivalent MMBtu based on the cost of fuel
actually burned for generation in each month (i.e. that month's weighted average
fuel cost) including fuel cost incentive or disincentives as defined in the
Energy Management Agreement, and adjustment for the Gas Conversion Factor,
applicable to the fuel oil burned. The annual maximum incentive or disincentive
shall be $1 million.
F - 5
<PAGE>
The above BTU Curve equation is based upon all of the existing GENCO steam units
in service. The BTU Curve shall remain fixed unless (a) LIPA exercises its
options to Ramp Down GENCO's Generating Facilities, or (b) any of GENCO's
Generating Facilities is mothballed, retired, significantly derated, removed
form service, or incurs a long term outage for unforeseen reasons. If a
significant change in the operation of GENCO's steam units occurs the Parties
shall mutually agree on modifications to the incentive/disincentive mechanism.
In the event that LIPA does not approve amounts for operating and maintenance
expenses and capital expenditure, that provide GENCO with the same opportunity
to maintain the Heat Rate target levels as GENCO has at the execution of this
Agreement, such target levels shall be equitably adjusted.
Any incentive/disincentive payments will be determined after the end of each
month and will be reflected in the first monthly invoice following the end of
each month.
F - 6
<PAGE>
EXHIBIT C
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ENERGY MANAGEMENT AGREEMENT
between
LONG ISLAND LIGHTING COMPANY
and
LONG ISLAND POWER AUTHORITY
Dated as of June 26, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS..................................................... 2
ARTICLE 2 - SCOPE OF ENERGY MANAGEMENT SERVICES............................. 10
ARTICLE 3 - FUEL MANAGEMENT................................................. 11
3.1. FUEL MANAGEMENT SERVICES................................ 11
3.2. FUEL MANAGEMENT COMPENSATION............................ 12
3.2.1. Fuel Management Fee............................ 12
3.2.2. Monthly Fuel Payment........................... 12
3.3. FUEL PURCHASE PERFORMANCE INCENTIVES/DISINCENTIVE
PAYMENTS................................................ 13
3.4. PAYMENT................................................. 13
3.5. LATE PAYMENT............................................ 13
3.6. FUEL MEASUREMENT........................................ 13
3.7. GENERAL FUEL SERVICE REQUIREMENTS....................... 14
3.7.1. Minimization of Costs.......................... 14
3.7.2. Accounting Controls............................ 14
ARTICLE 4 - OFF SYSTEM SALES................................................ 15
ARTICLE 5 - SYSTEM POWER SUPPLY MANAGEMENT
5.1. LOWEST COST ELECTRICITY................................. 16
5.2. SPECIFIC ENERGY MANAGER RESPONSIBILITIES................ 16
5.3. SYSTEM POWER SUPPLY MANAGEMENT COMPENSATION............. 17
5.3.1 System Power Supply Management Fee............. 17
5.3.2 System Power Supply Performance
Incentives/Disincentives....................... 17
5.4. PAYMENT................................................. 17
(i)
<PAGE>
5.5. LATE PAYMENT............................................ 18
ARTICLE 6 - GENERAL......................................................... 19
6.1. STAFFING AND LABOR ISSUES............................... 19
6.2. ACCOUNT RECORDS; COLLECTION OF MONIES;
AVAILABILITY OF ENERGY MANAGER.......................... 19
6.2.1. Account Records................................ 19
6.2.2 Collection of Monies........................... 19
6.2.3 Availability of Energy Manager................. 20
(A) Office Facilities...................... 20
(B) Availability of Representatives........ 20
(C) Emergency Telephone Number............. 20
6.3. COMPLIANCE WITH APPLICABLE LAW.......................... 20
6.4. INFORMATION............................................. 20
6.4.1. Information System............................. 20
6.4.2. Ownership of Information and Documentation..... 20
6.5. BOOKS AND RECORDS....................................... 21
6.6. FISCAL AFFAIRS, ACCOUNTING AND RECORD KEEPING........... 21
6.6.1. General........................................ 21
6.6.2. Bank Deposits.................................. 21
6.7. OTHER SERVICES.......................................... 22
6.7.1. Bill Payments.................................. 22
6.7.2 Review of System Supply Bills.................. 22
6.7.3. Attendance at Meetings......................... 22
ARTICLE 7 - TERM; EVENTS OF DEFAULT
7.1. TERM.................................................... 24
7.2. EVENTS OF DEFAULT BY THE ENERGY MANAGER................. 24
7.2.1. Events of Energy Manager Default Defined....... 24
(1) Events of Default Not Requiring Cure
Opportunity for Termination.............. 24
(a) Change of Control of Energy Manager... 24
(b) Voluntary Bankruptcy.................. 24
(c) Involuntary Bankruptcy................ 24
(ii)
<PAGE>
(2) Events of Default Requiring Cure
Opportunity................................ 25
(a) Failure to Pay or Credit............... 25
(b) Failure Otherwise to Comply with
Agreement or Guaranty.................. 25
7.3. EVENTS OF DEFAULT BY THE AUTHORITY....................... 25
7.3.1. Events of Authority Default Defined............. 25
(1) Failure to Pay............................. 25
(2) Failure to Comply with Agreement........... 26
(3) Change of Control of Long Island Lighting
Company.................................... 26
7.4. PROCEDURE FOR TERMINATION FOR CAUSE...................... 26
7.4.1. Thirty Day Notice............................... 26
7.4.2. Termination by Authority........................ 26
(1) Access..................................... 26
(2) Assumption of Responsibilities............. 27
7.5. CERTAIN OBLIGATIONS OF THE ENERGY MANAGER UPON
TERMINATION OR EXPIRATION................................ 27
7.5.1. Obligations on Termination or Expiration........ 27
7.5.2. Authority Payment of Certain Transition Costs... 28
7.6. NO WAIVERS............................................... 28
7.7. AUTHORITY EMERGENCY ASSUMPTION OF FUEL AND
SYSTEM POWER SUPPLY MANAGEMENT SERVICES.................. 28
7.8. WAIVER OF CERTAIN DEFENSES............................... 29
ARTICLE 8 - DESIGNATION OF REPRESENTATIVES
8.1. AUTHORITY REPRESENTATIVE................................. 30
8.2. ENERGY MANAGER REPRESENTATIVE............................ 30
ARTICLE 9 - ENERGY MANAGER'S REPORTING REQUIREMENTS
9.1. MONTHLY REPORTS.......................................... 31
9.2. ANNUAL REPORTS........................................... 31
9.3. FUEL CONSUMPTION REPORTS................................. 31
9.4. LITIGATION; PERMIT LAPSES................................ 31
(iii)
<PAGE>
ARTICLE 10 - INSURANCE....................................................... 32
ARTICLE 11 - INDEMNIFICATION................................................. 33
11.1. INDEMNIFICATION.......................................... 33
(A) Indemnification by the Energy Manager............... 33
(B) Indemnification by the Authority.................... 34
ARTICLE 12 - NONDISCLOSURE................................................... 36
12.1. PROPRIETARY INFORMATION.................................. 36
(A) Energy Manager Request.............................. 36
(B) Authority Non-Disclosure............................ 36
(C) Permitted Disclosures............................... 36
ARTICLE 13 - MISCELLANEOUS PROVISIONS
13.1. AGREEMENT................................................ 37
13.2. RELATIONSHIP OF THE PARTIES.............................. 37
13.3. ASSIGNMENT AND TRANSFER.................................. 37
13.4. APPROVAL OF SUBCONTRACTORS............................... 37
13.5. ACTIONS OF THE AUTHORITY IN ITS GOVERNMENTAL
CAPACITY............................................... 38
13.6. NO THIRD PARTY BENEFICIARIES............................. 38
13.7. STATE LAW REQUIREMENTS................................... 38
13.8. DISPUTE RESOLUTION....................................... 38
13.8.1 Dispute Resolution................................ 38
13.8.2 Negotiation and Non-Binding Mediation.......... 38
13.8.3 Arbitration.................................... 39
13.8.4 Provisional Relief............................. 39
13.8.5 Awards............................................ 40
13.8.6 Information Exchange.............................. 40
13.8.7 Site of Arbitration............................... 40
13.8.8 Precondition to Litigation........................ 40
13.8.9 Continuity of Service............................. 40
(iv)
<PAGE>
13.9. AMENDMENTS............................................... 40
13.10. NOTICES.................................................. 40
13.10.1 ................................................ 40
13.10.2.................................................. 41
13.11. REPRESENTATIONS AND WARRANTIES........................... 41
13.11.1. Energy Manager Representations and Warranties... 41
13.11.2. Authority Representations and Warranties....... 42
13.12. COUNTERPARTS............................................. 43
13.13. GOVERNING LAW............................................ 43
13.14. CAPTIONS; APPENDICES..................................... 43
13.15. ENERGY MANAGER TO REMAIN AFFILIATE OF GUARANTOR;
CREDIT ENHANCEMENT IN CERTAIN CIRCUMSTANCES.............. 43
(A) Limitations......................................... 43
(B) Material Decline in the Guarantor's Credit Standing. 43
(C) Credit Enhancement.................................. 43
13.16. SEVERABILITY............................................. 44
13.17. RULES OF INTERPRETATION.................................. 44
13.18. HEDGING POLICIES......................................... 44
13.19 ENERGY PRICING INFORMATION SYSTEM........................ 44
APPENDICES
Appendix A Fuel purchase performance, incentive/disincentive
Appendix B System power supply performance incentive/disincentive
Appendix C Provisions Required by State Law
(v)
<PAGE>
ENERGY MANAGEMENT AGREEMENT
This ENERGY MANAGEMENT AGREEMENT ("Agreement") is entered into as of
June 26, 1997 ("Contract Date") by and between LONG ISLAND LIGHTING COMPANY, a
New York corporation ("Energy Manager"), and LONG ISLAND POWER AUTHORITY a
corporate municipal instrumentality and political sub-division of the State of
New York (the "Authority"). Each of the foregoing are sometimes referred to
herein as a "Party" and collectively as the "Parties".
RECITALS
WHEREAS, the Energy Manager currently manages the fuel supplies for the
GENCO Generating Facilities (as defined herein), and the Authority desires the
Energy Manager, acting as the Authority's agent, to purchase fuel supplies for
use in the GENCO Generating Facilities.
WHEREAS, the Energy Manager currently manages the System Power Supply
(as defined herein), and the Authority desires the Energy Manager to continue to
manage the System Power Supply on behalf of the Authority.
WHEREAS, the Energy Manager and the Authority have set forth in this
Agreement the terms and conditions for the management by the Energy Manager of
fuel supplies used at the GENCO Generating Facilities to produce electric energy
for delivery to the Authority and for management and administration of the
System Power Supply on behalf of the Authority in a manner consistent with
policies established by the Authority.
WHEREAS, in accordance with the terms hereof, the Authority is to
establish policies and procedures for the System Power Supply and the Manager is
responsible for the implementation of those policies.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the Parties agree as follows:
- 1 -
<PAGE>
ARTICLE 1 - DEFINITIONS
Unless otherwise required by the context in which any defined term
appears, the following capitalized terms have the meanings specified in this
Article 1. All terms used and not otherwise defined herein are defined in
Appendix 1 to the Management Services Agreement, a copy of which is annexed
hereto for reference purposes.
"Ancillary Services" means the ancillary services required by NYPP/ISO
from time to time to enable the NYPP/ISO to operate the transmission system in
New York State in a secure and reliable manner.
"Annual Settlement Statement" means the Annual Settlement Statement
referred to in subsection 9.2 hereof.
"Appendix" means an appendix to this Agreement, as the same may be
amended or modified from time to time in accordance with the terms hereof.
"Applicable Law" means any law, rule, regulation, requirement,
guideline, ruling, ordinance or order of or any Legal Entitlement issued by, any
Governmental Body and applicable from time to time to the performance of the
obligations of the parties hereunder.
"Authority" means the Long Island Power Authority and its subsidiaries,
and its successors or assigns as permitted hereunder.
"Authority Fault" means any breach, failure of compliance, or
nonperformance by the Authority with its obligations hereunder or any negligent
or willful misconduct by the Authority under this Agreement (whether or not
attributable to any officer, trustee, member, agent, employee, representative,
contractor, Subcontractor of any tier, or independent contractor of the
Authority other than the Energy Manager and its Subcontractors) that materially
and adversely affects the Energy Manager's performance or the Energy Manager's
rights or obligations under this Agreement.
"Authority Indemnified Parties" has the meaning specified in subsection
11.1(A) hereof.
"Business Day" means any day other than a Saturday, Sunday or Legal
Holiday (as defined herein).
"Change of Control" means (i) the acquisition of beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act")) of 35% or more of the outstanding shares of securities the holders of
which are generally entitled to vote for the
- 2 -
<PAGE>
election of directors of the Energy Manager or the Guarantor, as the case may be
(including securities convertible into, or exchangeable for, such securities or
rights to acquire such securities or securities convertible into, or
exchangeable for such securities, "Voting Stock"), on a fully diluted basis, by
any Person or group of Persons (within the meaning of Section 13 or 14 of the
1934 Act); (ii) any sale, transfer or other disposition of beneficial ownership
of 35% or more of the outstanding shares of the Voting Stock, on a fully diluted
basis, of the Energy Manager or the Guarantor, as the case may be; (iii) any
merger, consolidation, combination or similar transaction of the Energy Manager
or the Guarantor, as the case may be, with or into any other Person, whether or
not the Energy Manager or the Guarantor, as the case may be, is the surviving
entity in any such transaction; (iv) any sale, lease, assignment, transfer or
other disposition of the beneficial ownership in 35% or more of the property,
business or assets of the Energy Manager or the Guarantor, as the case may be;
(v) a Person other than the current shareholders of the Energy Manager or the
Guarantor, as the case may be, obtains, directly or indirectly, the power to
direct or cause the direction of the management or policies of the Energy
Manager or the Guarantor, as the case may be, whether through the ownership of
capital stock, by contract or otherwise; (vi) during any period of 12
consecutive calendar months, when individuals who were directors of the Energy
Manager or the Guarantor, as the case may be, on the first day of such period
cease to constitute a majority of the board of directors of the Energy Manager
or the Guarantor, as the case may be; or (vii) any liquidation, dissolution or
winding up of the Energy Manager or the Guarantor, as the case may be.
"City Gate" means a receipt point of natural gas at any point located
at the New York Facilities at which LILCO may now have rights to receive natural
gas.
"Closing Date" has the meaning ascribed to that term in the Agreement
and Plan of Exchange and Merger by and among BL Holding Corp., Long Island
Lighting Company, the Authority, and LIPA Acquisition Corp., dated as of June
26, 1997.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commencement of Discharge Date" means the date that the unloading or
delivery of Fuel begins at a Generating Facility.
"Contract Date" means the date of this Agreement, as set forth on page
1 hereof.
"Contract Year", except as the Authority shall otherwise propose
subject to the approval of the Energy Manager which approval shall not be
unreasonably withheld, means the calendar year commencing on January 1 in any
year and ending on December 31 of that year; provided, however, that the first
Contract Year shall commence on the Closing Date and shall end on December 31 of
that year, and the last Contract Year shall commence on January 1 prior to the
date this Agreement expires or is terminated, whichever is appropriate, and
shall end on the last day of the Term of this Agreement or the effective date of
any termination, whichever
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is appropriate. Any computation made on the basis of a Contract Year shall be
adjusted on a pro rata basis to take into account any Contract Year of less than
365/366 days.
"Dispatch" shall mean Authority's adjustment and control (which may be
coordinated by NYPP/ISO) of the net electrical energy output of any component of
the System Power Supply for the purpose of regulating the amount of Electricity
delivered.
"Dth" shall mean dekatherm.
"Electricity" means the electrical energy (real and reactive) and
capacity available from the System Power Supply.
"Electricity Customers" means the retail and wholesale customers of the
Authority located in the Service Area.
"Energy Manager" means the Long Island Lighting Company and its
successors or assigns expressly permitted pursuant to Section 13.3.
"Energy Manager Fault" means any breach, failure of compliance, or
nonperformance by the Energy Manager with its obligations hereunder or any
negligence or willful misconduct by the Energy Manager under this Agreement
(whether or not attributable to any officer, member, agent, employee,
representative, contractor, Subcontractor of any tier, or independent contractor
of the Energy Manager or any Affiliate of the Energy Manager).
"Energy Manager Indemnified Parties" has the meaning specified in
subsection 11.1(B) hereof.
"Existing Power Supply Agreements" means the power supply agreements
which exist between LILCO and other parties for the purchase of capacity and/or
energy which are in effect as of the Contract Date and which were, either in
existence as of March 19, 1997 or which are entered into in accordance with the
provisions of Section 6.1(p) of the Acquisition Agreement on or prior to the
Closing Date.
"FERC" shall mean the Federal Energy Regulatory Commission.
"Firm Gas Supply" means a type of natural gas supply delivered or
transported to a City Gate which may not be interrupted except for "force
majeure" events. Such gas may be interrupted on the gas distribution system
serving LILCO's existing gas service area whenever its continued delivery would
adversely affect the reliability of the gas distribution system serving LILCO's
existing gas service area.
"Fuel" means the natural gas, oil, kerosene or other fossil fuel used
for operating the GENCO Generating Facilities.
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"Fuel Management Fee" means the Fuel Management Fee payable under
Section 3.2.1.
"Fuel Purchase Performance Incentive/Disincentive" means the incentive
payment to or disincentive payment from Energy Manager calculated in accordance
with Appendix A hereto.
"Fuel Services" means those services required to be furnished and done
for and relating to the delivery of Fuel to the GENCO Generating Facilities by
the Energy Manager pursuant to this Agreement subsequent to the Closing Date. A
reference to "Fuel Services" shall mean "any part and all of the Fuel Services"
unless the context otherwise requires.
"Gas Balancing" means the service of the type currently provided by
LILCO whenever the aggregate daily gas taken by GENCO for use in the GENCO
Generating Facilities varies from the daily nominated quantity. When this
occurs, Energy Manager will cause certain assets currently owned or contracted
for by LILCO to be used to either provide additional quantities of gas required
by GENCO or take back any excess quantities of gas not required by GENCO.
"GENCO" means Long Island Lighting Company and its successors and
assigns permitted under the Power Supply Agreement.
"GENCO Generating Facilities" means the electric generating facilities
owned by GENCO and under contract at any time with the Authority under the Power
Supply Agreement. A list of the generating units to be owned by GENCO as of the
Closing Date is contained in Appendix C to the Power Supply Agreement.
"Governmental Body" means any federal, State or local legislative,
executive, judicial or other governmental board, agency, authority, commission,
administration, court or other body, or any official thereof having jurisdiction
with respect to any matter which is a subject of this Agreement other than the
Authority.
"Guarantor" means BL Holding Corp. and its successors and assigns
permitted under the Guaranty Agreement.
"Guaranty Agreement" or "Guaranty" means the Guaranty Agreement to be
entered into prior to the Closing Date from the Guarantor to the Authority
substantially in the form provided in Exhibit E to the Acquisition Agreement, as
the same may be amended from time to time in accordance therewith.
"Incremental Fuel Cost" means the additional actual fuel cost incurred
to produce an additional amount of Electricity at the GENCO Generating
Facilities, so as to enable the sale of available excess energy.
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"Interruptible Gas Supplies" means gas supplies that will be
interrupted whenever the supplier recalls supplies pursuant to a negotiated
supply contract and/or the interstate pipeline interrupts the transportation of
such gas supply pursuant to its FERC approved tariff. Such gas supplies may also
be interrupted for force majeure events.
"Legal Holiday" is defined as New Year's Day, Martin Luther King Jr.'s
Birthday, Lincoln's Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, Day
After Thanksgiving, Christmas Eve, Christmas Day and New Year's Eve, or such
other days as the Parties may mutually agree from time to time.
"LILCO" as of the date hereof, means Long Island Lighting Company and,
as of the Closing Date, shall mean the entity or entities owning and operating
the gas distribution system and related facilities and interests in gas
transmission facilities currently owned and operated by Long Island Lighting
Company.
"Local Transportation Charge" is defined as the gas transportation rate
set forth herein that will be charged to Authority for the use of LILCO's gas
assets to deliver gas to the GENCO Generating Facilities.
"Management Services Agreement" means the Management Services Agreement
dated June 26, 1997, between the Authority and Long Island Lighting Company, as
the same may be amended in accordance with its terms.
"Fuel Management Fee" has the meaning ascribed to that term in Section
3.2.1.
"Monthly Fuel Payment" has the meaning ascribed to that term in Section
3.2.2.
"Monthly System Power Supply Management Fee" has the meaning ascribed
to that term in Section 5.3.1.
"New York Facilities" ("NYF") is defined as the system of gas mains
severally owned and operated by LILCO, The Brooklyn Union Gas Company and
Consolidated Edison Co. of New York pursuant to the NYF Agreement. Among other
things, the NYF Agreement provides for the firm delivery of gas (directly or by
displacement) from the City Gate delivery points of the four interstate
pipelines currently delivering gas to the NYF to the transmission systems of
each of the companies. The rights of the respective parties to firm transport on
the NYF system are specified in the NYF Agreement.
"NYF Agreement" means the New York Facilities Agreement entered into as
of the first day of January, 1994 by and between The Brooklyn Union Gas Company,
Consolidated Edison Company of New York, Inc. and LILCO, as the same may be
amended in accordance with its terms.
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"New York Power Pool" or "NYPP" means the member system currently
comprising of Consolidated Edison Company of New York, Inc., Central Hudson Gas
and Electric Company, Long Island Lighting Company, Orange and Rockland
Utilities, Rochester Gas and Electric Company, New York State Electric and Gas
Corporation, Niagara Mohawk Power Corporation, and the Power Authority of the
State of New York, as such organization or membership may change from time to
time.
"NYPP/ISO" means the Independent System Operator ("ISO") into which the
NYPP is proposed to be restructured to the extent approved by FERC. In the event
this restructuring occurs, the principal reliability, security and dispatch
functions of the NYPP will be performed by the ISO.
"Off-System Sales" means the sale of electric capacity and/or energy to
wholesale or retail customers located outside the Service Area.
"Person" means, unless otherwise specified, any individual person,
corporation, firms, companies, trusts, business trusts, legal entities, general
partnership, limited partnership, joint venture, joint-stock company, limited
liability company, unincorpoprated organization, government or other or
political subdivision thereof or other entity, including a Governmental Body.
"Prime Rate" means the rate announced by Citibank, N.A. from time to
time at its principal office as its prime lending rate for domestic commercial
loans, the Prime Rate to change when and as such prime lending rate changes.
"Power Supply Agreement or PSA" means the agreement dated June 26,
1997, between Authority and GENCO for the purchase of electric capacity and
energy.
"Prudent Utility Practice" at a particular time means any of the
practices, methods, and acts (including but not limited to the practices,
methods and acts engaged in or approved by a significant portion of the
electrical utility industry prior thereto), which, in the exercise of reasonable
judgment in light of the facts and the characteristics of the T&D System, the
Service Area, System Power Supply (and, insofar as the delivery of Fuel Service
may require, the gas distribution and transmission system serving LILCO's
existing gas service area and prevailing regulations or regulatory policies
applicable to such gas distribution and transmission system), known at the time
the decision was made, would have been expected to accomplish the desired result
at the lowest reasonable cost consistent with reliability, safety and expedition
and good customer relations. Prudent Utility Practice is not intended to be
limited to the optimum practice, method or act, to the exclusion of all others,
but rather to be a spectrum of possible practices, methods or acts.
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"Service Area" means the counties of Suffolk and Nassau and that
portion of the County of Queens constituting LILCO's electric franchise area as
of the effective date of the Act. "Service Area" does not include the Villages
of Freeport, Rockville Centre and Greenport.
"Subcontract" means an agreement between the Energy Manager and a
Subcontractor, or between two Subcontractors, as applicable.
"Subcontractor" means every person (other than employees of the Energy
Manager) employed or engaged by the Energy Manager or any person directly or
indirectly in privity with the Energy Manager (including every sub-subcontractor
of whatever tier) for any portion of the services or the materials, supplies, or
equipment to be provided by the Energy Manager hereunder.
"System Emergency" shall mean any abnormal system condition that
requires automatic or immediate, manual action to prevent or limit loss of
transmission facilities or generation resources that could adversely affect the
reliability of an electric system.
"System Interruptible Gas Supply" means a type of gas supply which will
be interrupted whenever its continued delivery would adversely impact the
delivery of gas to the gas customers served by the gas transmission or
distribution system which is currently owned by LILCO; furthermore, if Energy
Manager is using non-LILCO assets to provide natural gas to GENCO, such gas will
only be interrupted on LILCO's gas distribution system whenever its continued
delivery would adversely impact the reliability of such gas distribution system.
If GENCO is using gas provided from LILCO assets, GENCO will be interrupted
before LILCO's interruptible gas customers consistent with current practices.
Such gas supplies may also be interrupted for force majeure events.
"System Policies and Procedures" means the policies and procedures
adopted from time to time by the Authority with respect to the T&D System and
the System Power Supply in accordance with Applicable Law and Prudent Utility
Practice.
"System Power Supply" means the electrical capacity and energy from all
power supply sources owned by or under contract to the Authority, including, but
not limited to, the Existing Power Supply Agreements, the Power Supply
Agreement, the Authority's rights and interests with respect to the Nine Mile
Point 2 power plant, the Authority's interest in any future generating
facilities, spot market capacity and energy purchases made by the Energy Manager
on behalf of the Authority, and any load control programs or energy efficiency
measure adopted by the Authority.
"System Power Supply Management Fee" means the System Power Supply
Management Fee payable in accordance under Section 5.3.1.
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"System Power Supply Performance Incentive/Disincentive" means the
"System Power Supply Performance Incentive/Disincentive under Section 5.3.2.
"System Power Supply Services" means those services required to be
furnished and done for and relating to the administration and management of
System Power Supply pursuant to this Agreement subsequent to the Closing Date. A
reference to "System Power Supply Services" shall mean "any part and all of the
System Power Supply Services" unless the context otherwise requires.
"System Pre-Emergency" shall mean a condition which reasonably could be
expected, if permitted to continue, to contribute to a System Emergency or to a
degraded operating condition and includes the Alert, Warning, Major Emergency,
and Restoration conditions described in NYPP Operating Procedure 1 - "Operating
of the Bulk Power System", as it may be revised or replaced.
"T&D System" means the electric transmission and distribution system
located in the Service Area which provides the means for transmitting and
distributing Electricity.
"Term" has the meaning ascribed to that term in Article 7.
"Termination Date" has the meaning ascribed to that term in Section
7.4.
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ARTICLE 2 - SCOPE OF ENERGY MANAGEMENT SERVICES
As hereinafter described, Energy Manager shall be responsible for (a)
fuel procurement, delivery, storage, and management for GENCO Generating
Facilities to meet the energy generation requirements of the Electricity
Customers, (b) the dispatch of all System Power Supply available to the
Authority to meet total capacity and energy requirements of the Electricity
Customers and Off-System Sales, (c) the purchase, on behalf of the Authority, of
all capacity and energy to meet the needs of the Electricity Customers and (d)
the sale, on behalf of the Authority, of Electricity owned by, or under contract
to, the Authority which is not otherwise required to meet the needs of the
Electricity Customers. All such responsibilities shall be discharged in a manner
consistent with Prudent Utility Practice, the System Policies and Procedures and
New York State Public Service Commission policies and procedures pertaining to
retail gas customer service. In discharging all such functions, Energy Manager
shall use best-efforts to obtain the least-cost fuel and least-cost capacity and
energy for the benefit of the Electricity Customers.
Energy Manager agrees to establish policies and procedures satisfactory
to the Authority designed to assure that Energy Manager's responsibilities are
performed without consideration of the ownership or economic return to the
Energy Manager or its Affiliates, except for the incentive provisions of this
Agreement, and comply with such policies and procedures.
In no event will Energy Manager take title to Electricity being
purchased or sold under this Agreement.
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ARTICLE 3 - FUEL MANAGEMENT
3.1. FUEL MANAGEMENT SERVICES. Energy Manager shall manage all aspects
of the Fuel supply for the GENCO Generating Facilities including determinations
regarding the type of Fuel used for operating the GENCO Generating Facilities
and the source of such Fuel supply taking into account the purchase of alternate
sources of Electricity in lieu of Electricity from the GENCO Generating
Facilities when economic. Authority will compensate Energy Manager for such Fuel
management services, including a Fuel Purchase Performance Incentive/
Disincentive Payment, in accordance with the terms of this Agreement. In this
respect, Energy Manager shall, among other things:
1) Acquire required gas supplies which includes a mix of
Interruptible and Firm Gas Supplies as deemed appropriate;
2) Acquire required fuel oil supplies in accordance with generating
unit specific requirements as determined by GENCO which include a
mix of residual oil, No. 2 oil and kerosene as deemed
appropriate;
3) Negotiate, execute and administer Fuel supply contracts with one
or more entities;
4) Obtain and schedule transportation for all Fuel deliveries,
including daily nomination and dispatch;
5) Arrange for the displacement of gas across LILCO's gas
distribution system and the New York Facilities to facilitate
deliveries to each GENCO Generating Facility; and
6) Arrange for the delivery, receipt, fuel analysis, handling,
storage, local and on site transportation and use of Fuel.
Unless otherwise arranged and agreed to between Authority and Energy Manager,
all gas supplies to be used at the GENCO Generating Facilities will be
Interruptible Gas Supplies or short term Firm Gas Supplies with contracts
extending no longer than one month from the date entered into, all of which are
System Interruptible Gas Supplies. Energy Manager will arrange for the most
cost-effective Fuel for use at the existing GENCO Generating Facilities subject
to Energy Manager's existing rate obligations to the gas customers of the
current gas service area of Long Island Lighting Company. Energy Manager will
arrange for Gas Balancing services to be provided associated with use of gas at
the GENCO Generating Facilities. Energy Manager will provide these services from
existing assets of the Energy Manager or its affiliates. The Energy Manager will
not contract for additional firm assets (including storage, pipeline capacity or
swing gas supply) specifically for use in the GENCO Generating Facilities unless
the
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Authority and Energy Manager agree to the contract. Such Interruptible Gas
Supplies will be provided only as long as it is available for use, in the GENCO
Generating Facilities. The price of such gas to be paid for by Authority will
include a Local Transportation Charge of 19 cents/Dth for a period of eleven and
one half (11 1/2) years from the Closing Date. Thereafter the Local
Transportation Charge included will be a charge imposed under non-discriminatory
tariffs or otherwise be determined on a non-discriminatory basis.
3.2. FUEL MANAGEMENT COMPENSATION. Except as otherwise provided in this
Agreement, the payments Authority will make to Energy Manager pursuant to this
Agreement will be calculated as set forth below. During the term of this
Agreement, Authority will make monthly payments to Energy Manager consisting of
an amount equal to the sum of: (i) the Monthly Fuel Management Fee, plus (ii)
the Monthly Fuel Payment, plus or minus (iii) the Fuel Purchase Performance
Incentive/Penalty.
3.2.1. Fuel Management Fee.
Energy Manager shall be paid an annual Fuel Management Fee, in
consideration for Energy Manager's performance of the Fuel Services
contemplated herein. The amount of such Fuel Management Fee shall be
agreed upon by the parties not later than the Closing Date and shall
reflect a fee of $750,000 and an allowance for certain costs. These
costs included in the Fuel Management Fee shall be comprised of an
appropriate allocation of compensation paid to employees and expenses
of the Energy Manager, an appropriate allocation of such costs of
employees and expenses of the Energy Manager's parent or affiliates to
the extent such employees provide service pursuant to this Agreement
and an appropriate allocation of depreciation and return on the
undepreciated balance of Energy Manager and its parent or affiliates
owned assets. The cost component of the initial Fuel Management Fee,
once established and approved by Authority, will be indexed in the same
manner as the Direct Cost Budget under the Management Services
Agreement until the termination of the Management Services Agreement
and thereafter subject to mutually agreeable adjustments. Authority
shall pay the Fuel Management Fee to Energy Manager in twelve equal
monthly installments, payable in accordance with the provisions of
Section 3.4.
3.2.2. Monthly Fuel Payment.
Authority will, in accordance with the provisions of Section
3.4, pay the total monthly cost of all Fuel for use in the GENCO
Generating Facilities that are under contract to Authority pursuant to
the Power Supply Agreement, including but not limited to any current or
future fuel related taxes or other fuel related fees or costs
reasonably incurred by Energy Manager. This cost will be based upon (a)
the actual variable cost of gas delivered to the delivery points for
such fuel plus (i) any incremental Firm Gas Supply costs which are
incurred based on use of Firm Gas Supplies in the operation of the
GENCO Generating Facilities, (ii) any costs Energy Manager incurs based
on non-use of gas it has otherwise contracted to purchase for use in
the operation of the
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GENCO Generating Facilities, and (iii) the Local Transportation Charge
and (b) the delivered cost of oil for use in GENCO's Generating
Facilities.
3.3. FUEL PURCHASE PERFORMANCE INCENTIVES/DISINCENTIVE PAYMENTS. Energy
Manager shall receive a Fuel Purchase Performance Incentive/Disincentive Payment
calculated in accordance with Appendix A hereto. Such Fuel Purchase Performance
Incentive/Disincentive Payment will be calculated at the end of each month, with
the results reflected in the following month's invoice submitted in accordance
with the provisions of Section 3.4. The total Fuel Purchase Performance
Incentive/Disincentive Payment shall not exceed $5.0 million on an annual basis.
3.4. PAYMENT. Energy Manager will submit monthly invoices to Authority
for the Monthly Fuel Management Fee and the Fuel Purchase Performance
Incentive/Disincentive Payment by the tenth (10th) Business Day following the
month of service, consistent with the provisions in this Article 3. Payment of
all invoiced amounts shall be due and payable by Authority within fifteen (15)
Business Days of Authority receiving such invoices. Prior to the Closing Date,
the parties will establish a mutually satisfactory billing arrangement for the
Monthly Fuel Payment designed to minimize and compensate, as appropriate, for
carrying costs and to reflect billing procedures contained in Fuel contracts
entered into by Energy Manager.
All such payments shall be made in the form of immediately available
funds by wire transfer to a bank or financial institution specified by Energy
Manager or in such other form as may be reasonably requested by Energy Manager.
The wired funds will be deemed timely paid if received by the close of business
on or before the due date of such payment.
3.5. LATE PAYMENT. Any invoiced amount not paid by Authority by the due
date will be subject to interest computed from the date payment was payable
hereunder at the rate equal to the lesser of (i) the maximum rate of interest
per monthly billing period permitted by Applicable Law and (ii) (a) for interest
accruing during the first six months or less after the date on which such
payment was payable hereunder, 6 month LIBOR, and (b) for interest accruing more
than six months after the date on which a payment was payable hereunder, the
Prime Rate plus 1.00% in each case, as 6 month LIBOR or the Prime Rate was
reported in the Wall Street Journal for each day. The parties agree that such
interest rate will apply to payments under this Agreement in lieu of any
different rate that would otherwise apply generally to late payments by the
Authority.
3.6. FUEL MEASUREMENT Installation, maintenance and operation of all
Fuel metering and telemetering equipment shall be undertaken by GENCO in
accordance with the Power Supply Agreement. Energy Manager shall cooperate with
Authority in Authority's verification of the accuracy of all measurements of
Fuel made by GENCO and Authority shall have access to all records of Energy
Manager necessary for such purpose.
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3.7. GENERAL FUEL SERVICE REQUIREMENTS.
3.7.1. Minimization of Costs. In providing the Fuel, Energy
Manager shall use best efforts to minimize Fuel costs for the GENCO
Generating Facilities, such efforts being consistent with (i) all
applicable insurance policies, (ii) all applicable prudent industry
practices and standards, including Prudent Utility Practice, (iii) all
applicable operating and contract constraints for Fuel delivery, (iv)
Energy Manager's collective bargaining agreements and (v) Applicable
Law.
3.7.2. Accounting Controls. Energy Manager on a quarterly
basis shall provide, or cause to be provided, all accounting,
bookkeeping, and administrative services in connection with the Fuel
costs, such accounting to be consistent with the FERC Uniform System of
Accounts and Generally Accepted Accounting Principles consistently
applied. In areas of conflict, FERC accounting principles shall
control. All records relating to such services shall be subject to
review and audit in accordance with Section 6.2.
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ARTICLE 4 - OFF SYSTEM SALES
Energy Manager shall use best efforts to market to Off-System Sales
customers, on Authority's behalf, Electricity from the System Power Supply that
is not otherwise needed by the Electricity Customers in a manner which will
reduce the net cost of Electricity provided to the Electricity Customers. Energy
Manager shall receive 33 percent of the revenue net of incremental costs from
Off-System Sales of Electricity from the System Power Supply and the Authority
shall receive 67 percent of the revenue net of incremental costs from these
Off-System Sales of Electricity from the System Power Supply. The incremental
costs for such Off-System Sales will be based upon the incremental cost of
energy for such Electricity sales including any other costs or charges
(including applicable taxes) incurred to produce and deliver the Electricity
and/or Ancillary Services for sale by Energy Manager. The incremental costs
associated with capacity sales shall include the cost of replacement capacity
incurred as a result of the sale, if any, and any other costs or charges related
to the sale, including startup, no-load operation, transmission, and applicable
taxes.
Amounts due to Energy Manager under this Article 4 shall be billed by
Energy Manager and shall be paid by the Authority in accordance with the billing
and payment provisions of Section 5.4.
Notwithstanding any of the above, the Energy Manager will only attempt
to sell excess Electricity to the extent that, in GENCO's judgment, such
Electricity sales do not jeopardize any of GENCO's tax-exempt debt and to the
extent that, in the Authority's judgment, such Electricity sales do not
jeopardize the tax-exempt status of any of the Authority's debt. Each party
shall furnish the other an appropriately detailed description of the constraints
imposed on such sales prior to the Closing Date and shall update such
description from time to time to reflect any applicable changes in law or
regulation.
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ARTICLE 5 - SYSTEM POWER SUPPLY MANAGEMENT
5.1. LOWEST COST ELECTRICITY. In connection with the purchase and
management of the System Power Supply, on Authority's behalf, the Energy Manager
shall use best efforts to provide the lowest cost Electricity to the T&D System
and the Electricity Customers, given (i) the transmission and distribution
limitations unique to the T&D System; (ii) the terms of the Existing Power
Supply Agreements; (iii) availability of power through the New York Power Pool
or its successor; (iv) regulatory and reliability council requirements,
including, but not limited to system safety and reliability; and (v) System
Policies and Procedures, including environmental policies contained therein.
5.2. SPECIFIC ENERGY MANAGER RESPONSIBILITIES. In implementing its
System Power Supply responsibilities, the Energy Manager will, subject to the
transmission, contractual and reliability constraints referred to in Section 5.1
above:
(i) schedule deliveries of and Dispatch energy from the System Power
Supply;
(ii) arrange for the Authority's purchase of Electricity to the extent
the System Power Supply is insufficient to meet the requirements of the T&D
System;
(iii) continually monitor the market for the Authority's sale and
purchase of wholesale Electricity and purchase Electricity, on the
Authority's behalf, on the wholesale market to displace System Power Supply
if such purchases, including the cost of transmission services to deliver
such Electricity, will reduce total power supply costs;
(iv) sell Electricity on Authority's behalf from the System Power
Supply that is surplus to the requirements of the T&D System whenever such
sales, including consideration of any incremental cost of Transmission for
delivery of such sales, are advantageous to the Authority;
(v) arrange for such additional transmission services and capacity as
shall be necessary for the purchase or sale of Electricity by the
Authority; and
(vi) with the prior written consent of Authority, subcontract with
power marketers or brokers, or similar entities, to assist in the
acquisition of Electricity and the marketing and sale of excess
Electricity.
All contracts for the purchase or sale of Electricity will be entered
into by the Authority or by the Energy Manager as agent for the Authority. No
contract for the purchase
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or sale of Electricity for a term in excess of three months shall be entered
into without the prior written consent of the Authority.
5.3. SYSTEM POWER SUPPLY MANAGEMENT COMPENSATION. Except as otherwise
provided in this Agreement, the payments Authority will make to Energy Manager
pursuant to this Agreement with respect to System Power Supply Services other
than Off-System Sales will be calculated as set forth below. During the term of
this Agreement, Authority will make monthly payments to Energy Manager
consisting of an amount equal to the sum of: (i) the System Power Supply
Management Fee, plus or minus (ii) the System Power Supply Performance
Incentive/Disincentive.
5.3.1 System Power Supply Management Fee.
Energy Manager shall be paid an annual System Power Supply
Management Fee, in consideration for Energy Manager's performance of
the System Power Supply management services contemplated herein. The
amount of such System Power Supply Management Fee shall be agreed upon
by the parties not later than the Closing Date and shall reflect a fee
of $750,000 and an allowance for certain costs. These costs included in
the System Power Supply Management Fee shall be comprised of an
appropriate allocation of compensation paid to employees and expenses
of the Energy Manager plus, an appropriate allocation of such costs of
employees and expenses of the Energy Manager's parent or affiliates to
the extent such employees provide service pursuant to this Agreement
and an appropriate allocation of depreciation and return on the
undepreciated balance of Energy Manager and its parent or affiliates
owned assets. The cost component of initial System Power Supply
Management Fee once established and approved by Authority, will be
indexed during the Term of this Agreement in the same manner as the
Direct Cost Budget under the Management Services Agreement. Authority
shall pay the System Power Supply Management Fee to Energy Manager in
twelve equal monthly installments, payable in accordance with the
provisions of Section 5.4.
5.3.2 System Power Supply Performance
Incentives/Disincentives. Energy Manager shall receive a System Power
Supply Performance Incentive/Disincentive calculated in accordance with
Appendix B hereto. Such System Power Supply Incentive/Disincentive will
be calculated at the end of each month, with the results reflected in
the following month's invoice submitted in accordance with the
provisions of Section 5.4. The total System Power Supply Performance
Incentive/Disincentive shall not exceed $2 million on an annual basis.
5.4. PAYMENT. Energy Manager will submit monthly invoices to Authority
for the Monthly System Power Supply Management Fee and the System Power Supply
Performance Incentive/Disincentive Payments and Off-System Sales compensation
(as provided for in Article 4) by the tenth (10th) Business Day following the
month of service, consistent with the provisions in this Article 5 and Article
4. Such invoices shall show separately amounts
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payable under Articles 4 and 5. Payment of all invoiced amounts shall be due and
payable by Authority within fifteen (15) Business Days of Authority receiving
such invoices.
All such payments shall be made in the form of immediately available
funds by wire transfer to a bank or financial institution specified by Energy
Manager. The wired funds will be deemed timely paid if received by the close of
business on or before the due date of such payment.
5.5. LATE PAYMENT. Any invoiced amount not paid by Authority under this
Article by the due date will be subject to interest computed from the date
payment was due at the rate equal to the lesser of (i) the maximum rate of
interest per monthly billing period permitted by Applicable Law and (ii) (a) for
interest accruing during the first six months or less after the date on which
such payment was payable hereunder, 6 month LIBOR, and (b) for interest accruing
more than six months after the date on which a payment was payable hereunder,
the Prime Rate plus 1.00% in each case, as 6 month LIBOR or the Prime Rate was
reported in the Wall Street Journal for each day. The parties agree that such
interest rate will apply to payments under this Agreement in lieu of any
different rate that would otherwise apply generally to late payments by the
Authority.
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ARTICLE 6 - GENERAL
6.1. STAFFING AND LABOR ISSUES. The Energy Manager shall employ and
supervise Energy Manager's employees in sufficient numbers and possessing
sufficient skills to perform the services required of the Energy Manager under
this Agreement consistent with Prudent Utility Practice. The Energy Manager
shall provide proper training for the Energy Manager's employees in the
performance of their work under this Agreement. The Energy Manager shall assure
that the Energy Manager's employees are qualified to perform their work and the
services contemplated by this Agreement in accordance with Prudent Utility
Practice, and the Energy Manager shall give due consideration to any comments of
the Authority with respect to the performance of specific employees. At all
times, the Energy Manager shall comply with Prudent Utility Practice and
Applicable Law with respect to the Energy Manager's employees and with respect
to the Energy Manager's obligations under this Agreement.
6.2. ACCOUNT RECORDS; COLLECTION OF MONIES; AVAILABILITY OF ENERGY
MANAGER.
6.2.1. Account Records. The Energy Manager shall maintain such records
as the Authority reasonably requests setting forth in accurate and
reasonable detail the information relating to the purchase and sale of Fuel
and Electricity hereunder requested by the Authority. At a minimum, the
Energy Manager shall maintain the records in a manner such that data by
various supplier and purchaser classifications can readily be reported on a
monthly basis, for the fiscal year to date and for the most recent
twelve-month period. The Energy Manager shall retain any records that it is
required to maintain pursuant to this subparagraph for the term of this
Agreement and shall deliver them to the Authority upon the Authority's
request.
6.2.2 Collection of Monies. The Energy Manager shall use best efforts
to collect on a timely basis (1) all amounts due the Authority for
Off-System Sales, and (2) any other monies owed to the Authority in
connection with System Power Supply and other matters within the purview of
the Energy Manager. The Energy Manager shall provide current and historical
billing information concerning Fuel and System Power Supply to the
Authority monthly in such form as reasonably requested by the Authority.
All such monies collected by the Energy Manager or any Subcontractor
thereto shall be the property of the Authority and shall be deposited by
the Energy Manager daily into such accounts and in the manner as the
Authority may from time to time designate. In collecting such monies, the
Energy Manager and any Subcontractor shall act solely as an agent for the
Authority and shall have no right or claim to such moneys and, without
limiting the generality of the foregoing, shall have no right to assert a
claim of set-off, recoupment, abatement, counterclaim or deduction for any
amounts which may be owed to the Energy Manager hereunder or with respect
to any other matter in dispute
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hereunder or otherwise. The Energy Manager is unconditionally and
absolutely obligated to pay or deposit such moneys as directed by the
Authority.
6.2.3 Availability of Energy Manager.
(A) Office Facilities. The Energy Manager shall maintain at all times
during the Term hereof an office within Nassau or Suffolk County.
(B) Availability of Representatives. Representatives of the Energy
Manager shall be available at the Energy Manager's office during office
hours for communication with the Authority or with suppliers of Fuel and
System Power Supply.
(C) Emergency Telephone Number. The Energy Manager shall maintain an
emergency telephone number(s) for use during other than normal business
hours and shall, to the extent directed by the Authority make such numbers
available to suppliers of System Power Supply, the New York Power Pool or
successor organization, and the Manager.
6.3. COMPLIANCE WITH APPLICABLE LAW. The Energy Manager shall perform
all of its obligations hereunder in accordance with Applicable Law. In the event
that the Energy Manager fails at any time to comply with Applicable Law, then
the Energy Manager shall immediately remedy such failure at its cost and expense
and bear all Loss-and- Expense of either party and pay any resulting damages,
fines, assessments or other charges resulting therefrom to the extent provided
in Section 6.8 hereof. Any such damage, fine, assessment or other charge paid by
the Energy Manager due to a violation of Applicable Law for which Authority is
responsible under Section 6.8 shall be reimbursed to the Energy Manager.
6.4. INFORMATION.
6.4.1. Information System. The Energy Manager shall on and after the
Closing Date establish and maintain an information system to provide
storage and real time retrieval for Authority review and copying of
operating data relating to (i) cost and quantities of Fuel Supply and Power
Purchases, (ii) revenues from and quantities of Off-System Sales and (iii)
the performance by the Energy Manager of its obligations hereunder,
including, but not limited to, all information necessary to verify
calculations made pursuant to this Agreement.
6.4.2. Ownership of Information and Documentation. The Authority will
have sole ownership of information related to the purchase of Fuel and the
operation and management of the System Power Supply (the "Fuel and System
Power Supply Operations Data"). The Energy Manager may not use any Fuel and
System Power Supply Operations Data for non-Authority related purposes
without the Authority's prior written permission. Such permission, if
granted, will be granted on a nondiscriminatory
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basis. To the extent Fuel and System Power Supply Operations Data is
available from other sources, neither the Energy Manager nor its Affiliates
shall be precluded from using in its business such data obtained from other
sources.
6.5. BOOKS AND RECORDS. The Energy Manager shall prepare and maintain
proper, accurate and complete books, records and accounts regarding Fuel and
System Power Supply to the extent necessary (1) to enable the Authority to
prepare the Authority's financial statements in accordance with generally
accepted accounting principles, (2) to verify data with respect to any
operations or transactions in which the Authority has a financial or other
material interest hereunder, (3) to prepare periodic performance reports and
statements relating to purchase of Fuel and System Power Supply, which shall be
submitted by the Energy Manager to the Authority and (4) to enable the Authority
to administer any fuel adjustment clause or similar provision applicable to
Electricity sales. The Energy Manager shall, upon notice and demand from the
Authority, produce for examination and copying at the Energy Manager's office,
by representatives of the Authority, all books of account, bills, vouchers,
invoices, personnel rate sheets, cost estimates and bid computations and
analyses, Subcontracts, purchase orders, time books, daily job diaries and
reports, correspondence, and any other documents showing all acts and
transactions in connection with or relating to or arising by reason of this
Agreement, any Subcontract or any transactions in which the Authority has or may
have a financial or other material interest hereunder, and shall produce such
operation books and records for examination and copying in connection with the
costs for which the Authority may be responsible hereunder. The Energy Manager
shall keep the relevant portions of the books, records and accounts maintained
with respect to each Contract Year until at least the seventh anniversary of the
last day of each such Contract Year (the third anniversary for tape recordings
of transactions) and provide copies thereof to the Authority at its reasonable
request to the extent necessary to allow the Authority to determine to its
reasonable satisfaction the propriety of any request for payment or charge
hereunder. The Energy Manager shall have the right to destroy such books and
records if it provides copies thereof at its expense upon Authority request
following 60 days' written notice to the Authority of the Energy Manager's
intention to destroy such books and records. The provisions of this subsection
6.5 shall survive the termination of this Agreement.
6.6. FISCAL AFFAIRS, ACCOUNTING AND RECORD KEEPING.
6.6.1. General. The Energy Manager shall maintain possession of
equipment, materials and supplies, maps, plans and specifications, and Fuel
and System Power Supply billing records during the term of this Agreement
and shall duly account to the Authority therefor.
6.6.2. Bank Deposits. All cash held by the Energy Manager for the
account of the Authority and all cash collected by the Energy Manager for
the account of the Authority after the Closing Date shall be deposited on
each Business Day in bank
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accounts in such bank or banks as the Authority may direct and upon such
terms and conditions as may be specified by the Authority.
6.7. OTHER SERVICES
6.7.1. Bill Payments. The Energy Manager shall timely pay all bills
related to Fuel which are proper and appropriate and which it has authority
to pay and shall assure that, to the extent within the Energy Manager's
control, no liens are filed against any portion of the assets or revenues
of the Authority. In the event that the Energy Manager fails to pay any
such bill on a timely basis, the Authority shall have the right, but not
the obligation, to pay such bill and deduct the amount of such payment,
plus all costs and expenses incurred by the Authority in connection
therewith and an administration fee of $50, from the next payment due from
the Authority to the Energy Manager hereunder.
6.7.2. Review of System Power Supply Bills. The Energy Manager shall
review all purchased power bills in a timely manner and forward those which
are proper and appropriate to the Authority for payment.
6.7.3. Attendance at Meetings. The Energy Manager Representative shall
attend meetings of the Authority, with suppliers of the Authority and
others as reasonably requested by the Authority.
SECTION 6.8. ALLOCATION OF RISK OF CERTAIN COSTS AND LIABILITIES.
Except to the extent due to Authority Fault (as determined by either a final
non-appealable order or judgment of a court of competent jurisdiction (including
administrative tribunals) or a final non-appealable binding arbitration
decision), the Energy Manager shall be responsible and liable to the Authority
for, and shall not be entitled to reimbursement from the Authority for any
Loss-and-Expense incurred by the Energy Manager or the Authority,
(a) due to any gross negligence or willful misconduct by the Energy
Manager during the period commencing six months prior to the
Closing Date to the extent LILCO knew or should have known of
such gross negligence or willful misconduct and during the Term
in carrying out its obligations hereunder,
(b) due to any violation of or failure of compliance with Applicable
Law by the Energy Manager (except as provided below) during the
period commencing six months prior to the Closing Date to the
extent LILCO knew or should have known of such violation or
failure of compliance and during the Term which materially and
adversely affects
(i) the condition or operations of the T&D System or the System
Power Supply,
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(ii) the financial condition of the Authority,
(iii)the performance or ability of the Energy Manager to perform
its obligations under this Agreement, or
(iv) the cost of providing electric service to the customers of
the T&D System, provided, however, that Energy Manager shall
not be responsible and liable to the Authority under this
clause (b) with respect to any violation of, failure of
compliance with, or liability under, Environmental Laws (as
defined in the Acquisition Agreement) for which the
Authority or the Energy Manager may be strictly liable
provided that Energy Manager (or for actions prior to the
closing date, LILCO) acted in a manner consistent with
Prudent Utility Practice. Notwithstanding the foregoing,
Energy Manager shall in all events be liable for any fine or
penalty arising by reason of any violation of or failure of
compliance with Applicable Law for acts or omissions of the
Energy Manager not consistent with Prudent Utility Practice.
(c) due to any criminal violation of Applicable Law by the Energy
Manager (or for actions prior to the Closing Date, LILCO), or
(d) due to an event which would otherwise permit recovery of cost
incurred hereunder which would otherwise be recoverable
hereunder, that is incurred by reason of actions or omissions of
the Manager not consistent with Prudent Utility Practice.
Any action or omission identified in (a), (b), (c) or (d) shall be
determined by either a final non-appealable order or judgment of a court of
competent jurisdiction (including administrative tribunals) or a final
non-appealable binding arbitration decision and shall be attributable to the
Manager for purposes of the preceding sentence whether it is attributable to the
Manager or to any officer, member, agent, employee or representative of the
Manager or any Affiliate and any contractor, Subcontractor of any tier.
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ARTICLE 7 - TERM; EVENTS OF DEFAULT
7.1. TERM. The Term of this Agreement shall commence on the Closing
Date and, except as otherwise provided herein, shall remain in full force and
effect for an initial term of (i) fifteen (15) years from such Closing Date with
respect to the Fuel Services and (ii) eight (8) years from such Closing Date
with respect to System Power Supply Services.
7.2. EVENTS OF DEFAULT BY THE ENERGY MANAGER.
7.2.1. Events of Energy Manager Default Defined. (1) Events of Default
Not Requiring Cure Opportunity for Termination. The following constitute
Events of Default on the part of the Energy Manager for which the Authority
may terminate this Agreement without any requirement of cure opportunity:
(a) Change of Control of Energy Manager. Change of Control of the
Energy Manager, the Parent or the Guarantor has occurred; provided,
however, that the combination effectuated under the BU/LILCO Agreement or
Acquisition Agreement shall not constitute a Change of Control of the
Energy Manager for purposes of this provision.
(b) Voluntary Bankruptcy. The written admission by the Energy Manager
or the Guarantor that it is bankrupt, or the filing by the Energy Manager
or the Guarantor of a voluntary petition under the Federal Bankruptcy Code,
or the consent by the Energy Manager, the Parent or the Guarantor to the
appointment by a court of a receiver or trustee for all or a substantial
portion of its property or business, or the making by the Energy Manager,
the Parent or the Guarantor of any arrangement with or for the benefit of
its creditors involving an assignment to a trustee, receiver or similar
fiduciary, regardless of how designated, of all or a substantial portion of
the Energy Manager's or the Guarantor's property or business.
(c) Involuntary Bankruptcy. The final adjudication of the Energy
Manager, the Parent or the Guarantor as a bankrupt after the filing of an
involuntary petition under the Federal Bankruptcy Code, but no such
adjudication shall be regarded as final unless and until the same is no
longer being contested by the Energy Manager, the Parent or the Guarantor
nor until the order of the adjudication shall be regarded as final unless
and until the same is no longer being contested by the Energy Manager or
the Guarantor nor until the order of the adjudication is no longer
appealable.
(d) Credit Enhancement. Failure of the Energy Manager to supply,
maintain, renew, extend or replace the credit enhancement required under
subsection 13.15(C) hereof within the time specified therein in the event
there is a Material Decline in the Guarantor's Credit Standing, as defined
in Section 13.15 hereof.
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(e) Letter of Credit Draw. Failure of the Energy Manager to
supplement, replace or cause to be reinstated the letter of credit as
described in Section 13.15 hereof within 30 days following draws equal to,
in the aggregate, 50% of the face value thereof.
(2) Events of Default Requiring Cure Opportunity for Termination. Each
of the following shall constitute an Event of Default on the part of the
Energy Manager for which the Authority may terminate this Agreement upon
compliance with the notice and cure provisions set forth below:
(a) Failure to Pay or Credit. The failure of the Energy Manager to pay
or credit undisputed amounts it owes to the Authority under this Agreement
within 90 days following the due date for such payment or credit; and
(b) Failure Otherwise to Comply with Agreement or Guaranty. The
failure or refusal by the Energy Manager to perform any material obligation
under this Agreement (other than those obligations contained in subsection
7.2.1.(2)(a) above), or the failure of the Guarantor to comply with any of
its obligations under the Guaranty unless such failure or refusal is
excused by an Uncontrollable Circumstance or Authority Fault; except that
no such failure or refusal specified in clause (b) of this Section 7.2.1(2)
shall constitute an Event of Default giving the Authority the right to
terminate this Agreement for cause under this subsection unless:
(i) The Authority has given prior written notice to the Energy
Manager or the Guarantor, as applicable, stating that a specified
failure or refusal to perform exists which will, unless corrected,
constitute a material breach of this Agreement on the part of the
Energy Manager or the Guaranty on the part of the Guarantor and which
will, in its opinion, give the Authority a right to terminate this
Agreement for cause under this Section unless such default is
corrected within a reasonable period of time, and
(ii) The Energy Manager or the Guarantor, as applicable, has
neither challenged in an appropriate forum the Authority's conclusion
that such failure or refusal to perform has occurred or constitutes a
material breach of this Agreement nor corrected or diligently taken
steps to correct such default within a reasonable period of time, but
not more than 60 days, from receipt of the notice given pursuant to
clause (i) of this subsection (but if the Energy Manager or the
Guarantor shall have diligently taken steps to correct such default
within a reasonable period of time, the same shall not constitute an
Event of Default for as long as the Energy Manager or the Guarantor is
continuing to take such steps to correct such default).
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7.3. EVENTS OF DEFAULT BY THE AUTHORITY.
7.3.1. Events of Authority Default Defined. Each of the following
shall constitute an Event of Default on the part of the Authority for
which the Energy Manager may terminate this Agreement upon compliance
with the notice and cure provisions set forth below:
(1) Failure to Pay. The failure of the Authority to pay
undisputed amounts owed to the Energy Manager under this Agreement
within 90 days following the due date for such payment.
(2) Failure to Comply with Agreement. The failure or refusal by
the Authority to perform any material obligation under this Agreement
unless such failure or refusal is excused by an Uncontrollable
Circumstance or Energy Manager Fault; except that no such failure or
refusal to pay or perform shall constitute an Event of Default giving
the Energy Manager the right to terminate this Agreement for cause
under this Section unless:
(a) The Energy Manager has given prior written notice to the
Authority stating that a specified failure or refusal to perform
exists which will, unless corrected, constitute a material breach
of this Agreement on the part of the Authority and which will, in
its opinion, give the Energy Manager a right to terminate this
Agreement for cause under this Section unless such default is
corrected within a reasonable period of time, and
(b) The Authority has neither challenged in an appropriate
forum the Energy Manager's conclusion that such failure or
refusal to perform has occurred or constitutes a material breach
of this Agreement nor corrected or diligently taken steps to
correct such default within a reasonable period of time but not
more than 60 days from the date of the notice given pursuant to
clause (a) of this subsection (but if the Authority shall have
diligently taken steps to correct such default within a
reasonable period of time, the same shall not constitute an Event
of Default for as long as the Authority is continuing to take
such steps to correct such default).
(3) Change of Control of Long Island Lighting Company. A Change
of Control of Long Island Lighting Company (after acquisition by the
Authority) which results in ownership control of LILCO by other than a
state public benefit corporation, authority, political subdivision or
other instrumentality of the State or any political subdivision
thereof.
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7.4. PROCEDURE FOR TERMINATION FOR CAUSE.
7.4.1. Thirty Day Notice. If any party shall have a right of
termination for cause in accordance with Section 7.3, the same may be
exercised by notice of termination given to the party in default at
least thirty days prior to (or, in the case of a bankruptcy or
insolvency default or a Change of Control, simultaneously with) the
date of termination specified in such notice (the "Termination Date").
7.4.2. Termination by Authority. (1) Access. In the event an
Event of Default of the Energy Manager occurs and the Authority issues
a termination notice described in 7.4.1 hereof or the Energy Manager
is terminated in accordance with Section 7.2 hereof, from the date of
such issuance until the Termination Date, the Authority shall have
unrestricted access to all information, data and records concerning
the Fuel and Energy Supply Services in order to monitor the
performance of the Energy Manager and to ensure that the Energy
Manager complies with the provisions of this Agreement during such
time period (the "Termination Notice Period").
(2) Assumption of Responsibilities. At the Authority's sole
option, the Authority may elect at any time during the Termination
Notice Period to direct the Energy Manager and its employees in the
day-to-day performance of the Energy Manager's obligations under this
Agreement. If the Authority so elects, the Authority shall reimburse
the Energy Manager for its resulting Cost Substantiated incremental
costs incurred in the performances of services hereunder, and the
Energy Manager shall no longer be eligible to receive any performance
incentives nor be responsible for the payment of performance
disincentives under this Agreement; provided that the Energy Manager
shall be entitled to receive any such performance incentives and shall
be responsible for any such performance disincentives for the period
preceding such assumption of day-to-day operations.
7.5. CERTAIN OBLIGATIONS OF THE ENERGY MANAGER UPON TERMINATION OR
EXPIRATION.
7.5.1. Obligations on Termination or Expiration. Upon a
termination of the Energy Manager's right to perform this Agreement or
the expiration of this Agreement in accordance with the terms hereof,
the Energy Manager shall cooperate in the smooth transition to the new
manager and, without limiting the generality of the foregoing, shall:
(1) transfer all records, supplier lists and account information,
operations and training manuals for all Fuel and System Power Supply
Services and, to the extent permitted by law, personnel information to
the new fuel and energy supply manager;
(2) stop the Fuel and System Power Supply Services on the date or
dates and to the extent specified by the Authority, provided that in
so doing the Energy Manager
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shall cooperate and coordinate with the Authority and any successor
fuel and energy supply manager so as to permit Authority to maintain
an uninterrupted Fuel supply and System Power Supply;
(3) promptly deliver to the Consulting Engineer or the successor
fuel and energy supply manager, as the Authority shall direct, copies
of all Fuel and Electricity supply contracts, together with a
statement of:
(a) the fuel and/or energy purchased and not yet delivered
pursuant to each agreement;
(b) the expected delivery date of all such items;
(c) the total cost of each agreement and the terms of
payment; and
(d) the estimated cost of cancelling and/or assigning each
agreement;
(4) advise the Authority promptly of any special circumstances
which might limit or prohibit cancellation of any contract or
subcontract;
(5) as the Authority directs, terminate or assign to the new
energy manager or the Authority all contracts or subcontracts entered
into or utilized by the Energy Manager in performance of this Energy
Management Agreement (including, but not limited to, any contracts for
gas pipeline capacity (or portions thereof in the case of contracts
entered into for multiple purposes) entered into to serve the GENCO
Generating Facilities) and make no additional contracts or
subcontracts hereunder without the prior written approval of the
Authority;
(6) furnish to the Authority all information in the possession of
Manager and any subcontractor on how Energy Manager or subcontractor
obtained Fuel and System Power Supply during the term of this
Agreement that would be helpful to Authority (or any successor
manager) in performing these services in the future;
(7) notify the Authority promptly in writing of any Legal
Proceedings against the Energy Manager by any contractor or
subcontractor relating to the termination of the Fuel and Energy
Supply Services (or any Subcontracts);
(8) take such other actions, and execute such other documents, as
may be necessary to effectuate and confirm the foregoing matters, or
as may be otherwise necessary or desirable to minimize the Authority's
costs, and take no action which will increase any amount payable to
the Authority under this Agreement.
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7.5.2. Authority Payment of Certain Transition Costs. The Authority
shall reimburse the Energy Manager within 60 days of the date of the Energy
Manager's invoice for all mutually agreeable costs incurred by the Energy
Manager in satisfying the requirements of Section 7.5.1, subject to Cost
Substantiation.
7.6. NO WAIVERS. No action of the Authority or Energy Manager pursuant
to this Agreement (including, but not limited to, any investigation or payment),
and no failure to act, shall constitute a waiver by either party of the other
party's compliance with any term or provision of this Agreement. No course of
dealing or delay by the Authority or Energy Manager in exercising any right,
power or remedy under this Agreement shall operate as a waiver thereof or
otherwise prejudice such party's rights, powers and remedies. No single or
partial exercise of (or failure to exercise) any right, power or remedy of the
Authority or Energy Manager under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
7.7. AUTHORITY EMERGENCY ASSUMPTION OF FUEL AND SYSTEM POWER SUPPLY
MANAGEMENT SERVICES. Should the Energy Manager, due to Uncontrollable
Circumstances or any other reason whatsoever, fail, refuse or be unable to
provide any or all Fuel and System Power Supply Services contemplated hereby and
the Authority or any Governmental Body finds that such failure endangers or
menaces the public health, safety or welfare, then, in any of those events and
to the extent of such failure, the Authority shall have the right, upon notice
to the Energy Manager, during the period of such emergency, to perform the
services which the Energy Manager would otherwise be obligated to perform
hereunder. The Energy Manager agrees that in such event it will fully cooperate
with the Authority to effect such a temporary assumption. The Energy Manager
agrees that, in such event, the Authority may take and use any or all of the
operating assets of the Energy Manager necessary for the above-mentioned
purposes without paying the Energy Manager or any other person any additional
charges or compensation whatsoever for such possession and use; provided,
however, that if such emergency is due to Uncontrollable Circumstances, the
Authority shall reimburse the Energy Manager for its Cost-Substantiated costs
incurred due to such a transfer of the operating assets. The parties acknowledge
that if the Authority assumes the Fuel and System Power Supply services in
accordance with this Section 7.7, any applicable cure period provided for in
this Agreement for the Energy Manager's benefit shall be tolled until such time
as the Energy Manager resumes performance of its obligations hereunder. The
Authority may use the Energy Manager's employees and the Energy Manager shall
make its employees available for such purposes. It is further agreed that the
Authority may at any time, at its discretion, relinquish its performance of the
Fuel Services and System Power Supply Services thereupon demand that the Energy
Manager resume such services as provided in the Agreement. It is specifically
understood and agreed that the Authority's exercise of its rights under this
Section: (1) does not constitute a taking of private property for which payment
must be made other than as specifically provided for in this Section; (2) shall
not create any liability on the part of the Authority to the Energy Manager; and
(3) that the indemnity provisions of Article 11 hereof covering the Authority
and the Energy Manager are meant to include
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circumstances arising under this Section. The Authority's right to perform the
services anticipated to be performed by the Energy Manager hereunder shall
terminate at the time when such services can, in the judgment of the Authority,
be resumed by the Energy Manager.
7.8. WAIVER OF CERTAIN DEFENSES. The Energy Manager acknowledges that
it is solely responsible for the day-to-day management of Fuel Services and
System Power Supply Services and agrees that, unless otherwise permitted
pursuant to the provisions of this Agreement with respect to the occurrence of
Uncontrollable Circumstances, and without limiting such provisions, it shall not
assert (i) impossibility or impracticability of performance, (ii) the existence,
non-existence, occurrence or non-occurrence of any foreseen or unforeseen fact,
event or contingency that may be a basic assumption of the Energy Manager, (ii)
commercial frustration of purposes or (iii) contract of adhesion, as a defense
against any claim by the Authority against the Energy Manager.
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ARTICLE 8 - DESIGNATION OF REPRESENTATIVES
8.1. AUTHORITY REPRESENTATIVE. Not later than 30 days after the
execution and delivery of this Agreement, Authority shall select a
Representative (the "Authority Representative"). The Authority Representative,
subject to any necessary approvals, is authorized to act for and on behalf of
Authority concerning this Agreement. In all such matters, Authority shall be
bound, to the extent authorized, by the written communications, directions,
requests and decisions made by the Authority Representative. Authority shall
promptly notify Energy Manager in writing of Authority's Representative
selection and any subsequent replacement(s).
8.2. ENERGY MANAGER REPRESENTATIVE. Not later than 30 days after the
execution and delivery of this Agreement, Energy Manager will select a
Representative (the "Energy Manager Representative") who shall be authorized to
act for and on behalf of Energy Manager in all matters concerning this
Agreement. In all such matters, Energy Manager shall be bound by the written
communications, directions, requests and decisions made by the Energy Manager
Representative. Energy Manager shall promptly notify Authority in writing of
Energy Manager's Representative selection and any subsequent replacement(s). The
Energy Manager Representative shall have appropriate experience with respect to
the supervision and management of services of the type contemplated by this
Agreement and who shall be responsible for the day to day supervision of the
Energy Manager's performance of this Agreement. The Energy Manager shall inform
the Authority of the identity of the person serving from time to time as Energy
Manager Representative, and of the telephone and beeper numbers or other means
by which such person and his or her designee may be contacted at all times.
Recognizing the need for an amicable working relationship between the Authority
and the Energy Manager, the Authority shall have the right to approve the
appointment of the Energy Manager Representative and any successors thereto,
such approval not to be unreasonably withheld. The Energy Manager Representative
or a pre-approved designee shall attend monthly meetings, following Authority
receipt and review of the monthly reports delivered pursuant to Section 9.1
hereof, with the Authority to discuss such matters as the Authority deems
appropriate.
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ARTICLE 9 - ENERGY MANAGER'S REPORTING REQUIREMENTS
9.1. MONTHLY REPORTS. The Energy Manager shall provide the Authority
and the Consulting Engineer with monthly reports no later than 20 days after the
end of each month, including such data relating to the Fuel Services and System
Power Supply Services as may reasonably be requested to be furnished by the
Authority.
9.2. ANNUAL REPORTS. The Energy Manager shall furnish the Authority
and, the Consulting Engineer, within 60 days after the end of each Contract
Year, an Annual Settlement Statement together with annual summary of the
statistical data provided in the monthly reports, certified by the Energy
Manager, as well as such other data relating to the services provided hereunder
as may be reasonably requested to be furnished by the Authority. The Annual
Settlement Statement shall also include an accounting of any incentives or
penalties accrued during the applicable Contract Year along with appropriate
supporting documentation. The Authority or its designees shall have an
opportunity to review such accounting prior to payment and shall have access to
the Energy Manager's books and records in order to confirm such accounting prior
to payment. Such review will be performed within 90 days of receipt of the
Annual Settlement Statement.
9.3. FUEL CONSUMPTION REPORTS. Fifteen (15) Business Days following the
end of each month, Energy Manager shall submit to Authority a report summarizing
the Fuel burned during that month and such other information as the parties may
mutually agree.
9.4. LITIGATION; PERMIT LAPSES. Promptly upon obtaining knowledge
thereof, each Party shall submit to the other Party written notice of (and, upon
request, copies of any relevant non-privileged documents in the Party's
possession relating to): (i) any material litigation, claims, disputes or
actions actually filed, or any material litigation, claims, disputes or actions
which are threatened, concerning in each case, the Fuel Services or Power Supply
Services or the Authority's obligations relating thereto; (ii) any actual
refusal to grant, renew or extend, or any action pending or any action filed
with respect to, the granting, renewal or extension of any permit or any
material threatened action regarding the same; (iii) any dispute with any
Governmental Body relating to the Fuel Services or Power Supply Services or the
Authority's obligations relating thereto of Energy Manager or Authority; and
(iv) without regard to their materiality, all penalties or notices of violation
issued by any Governmental Body relating to Fuel Services or Power Supply
Services or the Authority's obligations relating thereto.
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ARTICLE 10 - INSURANCE
Energy Manager shall maintain with financially responsible insurance
companies insurance in such amounts and against such risks and losses as are
customary for companies engaged in the business of providing services or
undertaking activities similar to the Fuel Services and System Power Supply
Services to be provided hereunder.
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ARTICLE 11 - INDEMNIFICATION
11.1. INDEMNIFICATION. (A) Indemnification by the Energy Manager. The
Energy Manager agrees that, to the extent permitted by law, it will protect,
indemnify and hold harmless the Authority and its respective representatives,
trustees, officers, employees and subcontractors (as applicable in the
circumstances), (the "Authority Indemnified Parties") from and against (and pay
the full amount of) any Loss-and-Expense, and will defend the Authority
Indemnified Parties in any suit, including appeals, for personal injury to, or
death of, any person, or loss or damage to property arising out of any matter
for which Energy Manager is responsible under Section 6.8. The Energy Manager
shall not, however, be required to reimburse or indemnify any Authority
Indemnified Party for any Loss-and-Expense to the extent any such
Loss-and-Expense is due to (a) any matter for which the Authority has
responsibility under Section 6.8 hereof, (b) the negligence or other wrongful
conduct of any Authority Indemnified Party, (c) any Uncontrollable Circumstance,
(d) any act or omission of any Authority Indemnified Party judicially determined
to be responsible for or contributing to the Loss-and-Expense, or (e) any matter
for which the risk has been specifically allocated to the Authority hereunder.
An Authority Indemnified Party shall promptly notify the Energy Manager of the
assertion of any claim against it for which it is entitled to be indemnified
hereunder, shall give the Energy Manager the opportunity to defend such claim,
and shall not settle the claim without the approval of the Energy Manager. The
Energy Manager shall be entitled to control the handling of any such claim and
to defend or settle any such claim, in its sole discretion, with counsel of its
own choosing that is reasonably acceptable to the Authority Indemnified Parties;
provided, however, that, in the case of any such settlement, the Energy Manager
shall obtain written release of all liability of the Authority Indemnified
Parties, in form and substance reasonably acceptable to the Authority
Indemnified Parties. Notwithstanding the foregoing, each Authority Indemnified
Party shall have the right to employ its own separate counsel in connection
with, and to participate in (but, except as provided below, not control) the
defense of, such claim, but the fees and expenses of such counsel incurred after
notice to the Energy Manager of its assumption of the defense thereof shall be
at the expense of such Authority Indemnified Party unless:
(i) the employment of counsel by such Authority Indemnified Party has
been authorized by the Energy Manager;
(ii) counsel to such Authority Indemnified Party shall have reasonably
concluded that there may be a conflict on any significant issue
between the Energy Manager and such Authority Indemnified Party
in the conduct of the defense of such claim; or
(iii)the Energy Manager shall not in fact have employed counsel
reasonably acceptable to the Authority Indemnified Party to
assume the defense of such claim within twenty (20) days
following the receipt by the Energy
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Manager of the notice from the Authority Indemnified Party
regarding the assertion of the applicable claim,
in each of which cases the fees and expenses of counsel for such Authority
Indemnified Party shall be at the expense of the Energy Manager; provided,
however, that, with respect to clauses (ii) and (iii) of this sentence, the
Energy Manager shall not be obligated to pay the fees and expenses of more than
one law firm, plus local counsel if necessary in each relevant jurisdiction, for
all such Authority Indemnified Parties with respect to any claims arising out of
the same events or facts or the same series of events or facts. The Energy
Manager shall not be entitled, without the consent of such Authority Indemnified
Party, to assume or control the defense of any claim as to which counsel to such
Authority Indemnified Party shall have reasonably made the conclusion that there
may be a conflict on any significant issue between the Energy Manager and such
Authority Indemnified Party in the conduct of the defense of such claim as set
forth in clause (ii) above, provided that the foregoing limitation shall apply
only with respect to those issues for which there may be such a conflict. These
indemnification provisions are for the protection of the Authority Indemnified
Parties only and shall not establish, of themselves, any liability to third
parties. The provisions of this subsection 11.1(A) shall survive termination of
this Agreement.
(B) Indemnification by the Authority. The Authority agrees that to the
extent permitted by law, it will protect, indemnify and hold harmless the Energy
Manager and its Affiliates and their respective officers, directors,
Subcontractors (as applicable in the circumstances) and employees (the "Energy
Manager Indemnified Parties") from and against (and pay the full amount of) all
Loss-and-Expense, and will defend the Energy Manager Indemnified Parties in any
suit, including appeals, for personal injury to, or death of, any person, or
loss or damage to property arising out of any matter for which the Authority is
responsible under Section 6.8 hereof. The Authority shall not, however, be
required to reimburse or indemnify any Energy Manager Indemnified Party for any
Loss-and-Expense to the extent any such Loss-and-Expense is due to (a) any
matter for which the Energy Manager is responsible under Section 6.8 hereof, (b)
the negligence or other wrongful conduct of any Energy Manager Indemnified
Party, (c) any Uncontrollable Circumstance, (d) any act or omission of any
Energy Manager Indemnified Party judicially determined to be responsible for or
contributing to the Loss-and-Expense, (e) any matter for which the risk has been
specifically allocated to the Energy Manager hereunder. A Energy Manager
Indemnified Party shall promptly notify the Authority of the assertion of any
claim against it for which it is entitled to be indemnified hereunder, shall
give the Authority the opportunity to defend such claim, and shall not settle
the claim without the approval of the Authority. The Authority shall be entitled
to control the handling of any such claim and to defend or settle any such
claim, in its sole discretion, with counsel of its own choosing that is
reasonably acceptable to the Energy Manager Indemnified Party; provided,
however, that, in the case of any such settlement, the Authority shall obtain
written release of all liability of the Energy Manager Indemnified Party, in
form and substance reasonably acceptable to the Energy Manager Indemnified
Party. Notwithstanding the foregoing, each Manager Indemnified Party shall have
the right to employ its own separate
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counsel in connection with, and to participate in (but, except as provided
below, not control) the defense of, such claim, but the fees and expenses of
such counsel incurred after notice to the Authority of its assumption of the
defense thereof shall be at the expense of such Energy Manager Indemnified Party
unless:
(i) the employment of counsel by such Energy Manager Indemnified
Party has been authorized by the Authority;
(ii) counsel to such Energy Manager Indemnified Party shall have
reasonably concluded that there may be a conflict on any
significant issue between the Authority and such Energy Manager
Indemnified Party in the conduct of the defense of such claim; or
(iii)the Authority shall not in fact have employed counsel reasonably
acceptable to the Authority Indemnified Party to assume the
defense of such claim within twenty (20) days following the
receipt by the Authority of the notice from the Energy Manager
Indemnified Party regarding the assertion of the applicable
claim,
in each of which cases the fees and expenses of counsel for such Energy Manager
Indemnified Party shall be at the expense of the Authority; provided, however,
that, with respect to clauses (ii) and (iii) of this sentence, the Authority
shall not be obligated to pay the fees and expenses of more than one law firm,
plus local counsel if necessary in each relevant jurisdiction, for all such
Energy Manager Indemnified Parties with respect to any claims arising out of the
same events or facts or the same series of events or facts. The Authority shall
not be entitled, without the consent of such Energy Manager Indemnified Party,
to assume or control the defense of any claim as to which counsel to such Energy
Manager Indemnified Party shall have reasonably made the conclusion that there
may be a conflict on any significant issue between the Authority and such
Manager Indemnified Party in the conduct of the defense of such claim as set
forth in clause (ii) above, provided that the foregoing limitation shall apply
only with respect to those issues for which there may be such a conflict. These
indemnification provisions are for the protection of the Energy Manager
Indemnified Parties only and shall not establish, of themselves, any liability
to third parties. The provisions of this Section 11.1(B) shall survive
termination of this Agreement.
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ARTICLE 12 - NONDISCLOSURE
12.1. PROPRIETARY INFORMATION. (A) Energy Manager Request. The parties
hereto hereby acknowledge that the Energy Manager has a proprietary interest in
certain information that may be furnished pursuant to the provisions of this
Agreement. The Energy Manager acknowledges that the Authority may be required to
disclose information upon request under Applicable Law. The Energy Manager shall
have the right to request the Authority in writing not to publicly disclose any
information which the Energy Manager believes to be proprietary and not subject
to public disclosure under Applicable Law, any such request to be accompanied by
an explanation of its reasons for such belief. Any information which is the
subject of such a request shall be clearly marked on all pages, shall be bound,
and shall be physically separate from all non-proprietary information. At the
Energy Manager's request, the Authority and its agents, consultants and
employees (including the Consulting Engineer) given access to such information
shall execute and comply with the terms of a confidentiality agreement in a
mutually acceptable form, subject to Applicable Law.
(B) Authority Non-Disclosure. In the event the Authority receives a
request from the public for the disclosure of any information designated as
proprietary by the Energy Manager pursuant to subsection (A) of this Section,
the Authority (1) shall use reasonable efforts, consistent with Applicable Law,
to provide notice to the Energy Manager of the request prior to any disclosure,
and (2) shall use reasonable efforts, consistent with Applicable Law, to keep in
confidence and not disclose such information unless it is entitled to do so
pursuant to the provisions of subsection (C) of this Section. The Energy Manager
shall indemnify, hold harmless and defend the Authority against all
Loss-and-Expense incurred from the withholding from public disclosure of
information designated as proprietary by the Energy Manager or otherwise
requested by the Energy Manager to be withheld.
(C) Permitted Disclosures. Notwithstanding any confidential or
proprietary designation thereof by the Energy Manager, the Authority may
disclose any information, (1) which is known to the Authority without any
restriction as to disclosure or use at the time it is furnished, (2) which is or
becomes generally available to the public without breach of any agreement, (3)
which is received from a third party without limitation or restriction on such
third party or the Authority at the time of disclosure, (4) information with
respect to (a) Electricity purchases by LIPA by time of day, month and year, to
the extent available; and (b) prices paid by LIPA for capacity, energy and any
Ancillary Services contracted for under this Agreement; or (5) following notice
to the Energy Manager pursuant to subsection (B) of this Section, information
which, in the opinion of counsel for the Authority, is required to be or may be
disclosed under any Applicable Law, an order of a court of competent
jurisdiction, or a lawful subpoena.
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ARTICLE 13 - MISCELLANEOUS PROVISIONS
13.1. AGREEMENT. This Agreement consists of the terms and conditions
set forth in the body hereof and the Appendices and other attachments hereto.
This Agreement contains the entire agreement between the Parties with respect to
the subject matter hereof. In the event of a conflict, variation or
inconsistency between or among the Appendices, other attachments and the terms
and conditions set forth in the body hereof, the terms and conditions contained
in the body hereof shall govern.
13.2. RELATIONSHIP OF THE PARTIES. Except as otherwise expressly
provided herein, neither party to this Agreement shall have any responsibility
whatsoever with respect to services provided or contractual obligations assumed
by the other party hereto, and nothing in this Agreement shall be deemed to
constitute either party a partner, agent or legal representative of the other
party or to create any fiduciary relationship between the parties.
13.3. ASSIGNMENT AND TRANSFER. This Agreement may be assigned by either
party hereto only with the prior written consent of the other party, except that
without the consent of the other party (1) the Authority may make such
assignments, create such security interests in its rights hereunder and pledge
such monies receivable hereunder as may be required in connection with issuance
of Revenue Bonds; (2) the Authority may assign its rights, obligations and
interests hereunder, or transfer such rights and obligations by operation of
law, to any other governmental entity or to a subsidiary of the Authority
provided that the successor entity gives reasonable assurances to the Energy
Manager that it will fulfill the Authority's obligations hereunder; and (3) the
Energy Manager may assign its rights, obligations and interests hereunder to the
Parent or any Affiliate thereof, provided, however, that with respect to clause
(3) immediately above, the Energy Manager may not, without the consent of the
Authority, make any assignment or other transfer to any person of its rights and
obligations under this Agreement unless the Guaranty is and remains in full
force and effect and unless the Guarantor or a majority-owned direct or indirect
subsidiary of the Guarantor shall have control of and responsibility for the
obligations of the Energy Manager hereunder. Effective upon the Closing Date,
the Authority may assign its rights, obligations and interests hereunder to Long
Island Lighting Company (then a wholly-owned subsidiary of the Authority) and
the Energy Manager shall assign all of its rights, obligations and interests
hereunder to the Parent or any Affiliate thereof pursuant to clause 3 above.
13.4. APPROVAL OF SUBCONTRACTORS. The Authority shall have the right to
approve all Subcontractors engaged to perform any services to be provided
hereunder. Prior to the beginning of each Contract Year, Energy Manager shall
propose a list of pre-approved Subcontractors for the Authority's review and
approval, which shall specify the proposed categories of potential work under
contracts for each such proposed Sub-contractor. The Energy Manager also shall
furnish the Authority written notice of its intention to engage such
Subcontractors, together with all information requested to the extent reasonably
available
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to the Energy Manager pertaining to the proposed Subcontractor and subcontract
pertaining to the demonstrated responsibility of the proposed Subcontractor in
the following areas: (1) any conflicts of interest, (2) any record of felony
criminal convictions or pending felony criminal investigations, (3) any final
judicial or administrative finding or adjudication of illegal employment
discrimination, and (4) any final judicial or administrative finding or
adjudication of non-performance in contracts with the Authority or the State. In
its sole discretion, Authority may approve any proposed Subcontractor for such
Contract Year or for a designated shorter period or for a specific subcontract.
If a Subcontractor is approved for a Contract Year or shorter period, such
Subcontractor shall be deemed to be approved for the specified categories of
potential work for the duration of such Contract Year or shorter period unless
the Authority otherwise notifies the Manager. The approval or withholding
thereof by the Authority of any proposed Subcontractor shall not create any
liability of the Authority to the Energy Manager, such Subcontractor, third
parties or otherwise.
13.5. ACTIONS OF THE AUTHORITY IN ITS GOVERNMENTAL CAPACITY. Nothing in
this Agreement shall be interpreted as limiting the rights and obligations of
the Authority in its governmental or regulatory capacity, or as limiting the
right of the Energy Manager to bring any legal action against the Authority, not
based on this Agreement, arising out of any act or omission of the Authority in
its governmental or regulatory capacity.
13.6. NO THIRD PARTY BENEFICIARIES. Unless specifically set forth
herein, neither party to this Agreement shall have any obligation to any third
party other than Indemnified Parties as a result of the agreements contained
herein.
13.7. STATE LAW REQUIREMENTS. All contracts entered into by the
Authority are required under State law to contain certain terms and conditions,
as set forth in Appendix C hereto and the provisions of such Appendix C are
hereby deemed incorporated in this Agreement at this place. To the extent of any
conflict between any other provision of this Agreement and Appendix C, Appendix
C shall control. The Energy Manager shall comply with such terms and conditions
during the Term of this Agreement.
13.8. DISPUTE RESOLUTION.
13.8.1 Dispute Resolution. Any dispute arising out of or relating to
this Agreement shall be resolved in accordance with the procedures
specified in this Section, which shall constitute the sole and exclusive
procedures for the resolution of such disputes.
13.8.2 Negotiation and Non-Binding Mediation. The Parties agree to use
their best efforts to settle promptly any disputes or claims arising out of
or relating to this Agreement through negotiation conducted in good faith
between executives having authority to reach such a settlement. Either
party hereto may, by written notice to the
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other party, refer any such dispute or claim for advice or resolution by
mediation by an Independent Engineer, financial advisor or other suitable
mediator. The parties shall mutually agree on the selection of such
mediator. If the parties are unable to agree, the parties shall each
designate a qualified mediator who, together, shall choose the mediator for
the particular disputes or claim. If the mediator is unable, within 30 days
of such referral, to reach a determination as to the dispute that is
acceptable to the parties hereto, the matter shall be referred to
applicable Legal Proceedings.
All negotiations and mediation discussions pursuant to this paragraph
shall be confidential subject to Applicable Law and shall be treated as
compromise and settlement negotiations for purposes of Federal Rule of
Evidence 408 and applicable state rules of evidence.
13.8.3 Arbitration. Any dispute arising out of or relating to this
Agreement or the breach, termination, or validity thereof, for a
termination to except Change of Control or due to a bankruptcy or
insolvency or failure to provide, renew, reinstate or replace the credit
enhancement required pursuant to Section 13.15 which dispute has not been
resolved by a negotiation or mediation as provided in subsection 13.8.2
hereof within 30 days from the date that either negotiations or mediation
shall have been first requested, shall be settled by arbitration before
three independent and impartial arbitrators (the "Arbitrators") in
accordance with the then current rules of the American Arbitration
Association, except to the extent such rules are inconsistent with any
provision of this Agreement, in which case the provisions of this Agreement
shall be followed, and except that the arbitrations under this Agreement
shall not be administered by the American Arbitration Association. The
Arbitrators shall be (a) independent of the parties and disinterested in
the outcome of the dispute, provided that residents of Long Island shall
not be deemed to be interested merely by virtue of their residence on Long
Island, (b) attorneys, accountants investment bankers, commercial bankers
or engineers familiar with contracts governing the operation of electric
utility assets, and (c) qualified in the subject area of the issue in
dispute. The Arbitrators shall be chosen by the parties, with each party
choosing one arbitrator and those Arbitrators choosing the third
Arbitrator. Judgment on the award rendered by the Arbitrators may be
entered in any court in the State of New York having jurisdiction thereof.
If either party refused to participate in good faith in the negotiations or
mediation proceedings described in subsection 13.8.2 hereof, the other may
initiate arbitration at any time after such refusal without waiting for the
expiration of the applicable time period. Except as provided in subsection
13.8.4 hereof relating to provisional remedies, the Arbitrators shall
decide all aspects of any dispute brought to them including attorney
disqualification and the timeliness of the making of any claim.
13.8.4 Provisional Relief. Either party may, without prejudice to any
negotiation, mediation, or arbitration procedures, proceed in any court to
obtain provisional judicial relief if, in such party's sole discretion,
such action is necessary to
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avoid imminent irreparable harm, to provide uninterrupted electrical and
other services, or to preserve the status quo pending the conclusion of the
dispute procedures specified in this Section.
13.8.5 Awards. The Arbitrators shall have no authority to award
punitive damages or any other damages aside from the prevailing party's
actual and consequential damages plus interest at the Base Interest Rate
from the date such damages were incurred. The Arbitrators shall not have
the authority to make any ruling, finding, or award that does not conform
to the terms and conditions of this Agreement. The Arbitrators may award
reasonable attorneys' fees and costs of the arbitration. The Arbitrators'
award shall be in writing and shall set forth the factual and legal bases
for the award.
13.8.6 Information Exchange. The Arbitrators shall have the discretion
to order a pre-hearing exchange of information by the parties, including,
without limitation, the production of requested documents, the exchange of
summaries of testimony of proposed witnesses, and the examination by
disposition of parties. The parties hereby agree to produce all such
information as ordered by the Arbitrators and shall certify that they have
provided all applicable information and that such information was true,
accurate and complete.
13.8.7 Site of Arbitration. The site of any Arbitration brought
pursuant to this Agreement shall be either Mineola, New York or Hauppauge,
New York.
13.8.8 Precondition to Litigation. Except for claims for temporary
injunctive relief from a court of competent jurisdiction as described
above, neither party shall bring any action at law or in equity to enforce,
interpret, or remedy any breach of this Agreement without first complying
with the provisions of this Article 13.
13.8.9 Continuity of Service. Unless otherwise agreed to in writing or
prohibited by Applicable Law, the Parties shall continue to provide
service, honor commitments under this Agreement, and continue to make
payments in accordance with this Agreement during the course of dispute
resolution pursuant to Section 13.8 of this Agreement and during the
pendency of any action at law or in equity or any arbitration proceeding
relating hereto.
13.9. AMENDMENTS. No amendments or modifications of this Agreement
shall be valid unless evidenced in writing and signed by duly authorized
representatives of both Parties.
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13.10. NOTICES.
13.10.1 Notice Addresses. Any written notice under this Agreement
shall be deemed properly given if sent by registered or certified mail
return receipt requested, postage prepaid, or by nationally recognized
overnight delivery service or signature required upon signed receipt to the
address specified below, unless otherwise provided for in this Agreement:
To the Authority: LONG ISLAND POWER AUTHORITY
333 Earle Ovington Boulevard
Uniondale, NY 11553
Attn: Executive Director
With a copy to CHAIRMAN, LONG ISLAND POWER AUTHORITY
333 Earle Ovington Boulevard
Uniondale, NY 11553
To Energy Manager: LONG ISLAND LIGHTING COMPANY
175 East Old Country Road
Hicksville, New York 11801
Attn: Chief Executive Officer
13.10.2 Change of Addresses. Either Party may, by written notice to
the other Party, change the name or address of the person to receive
notices pursuant to this Agreement.
13.11. REPRESENTATIONS AND WARRANTIES.
13.11.1. Energy Manager Representations and Warranties. Energy
Manager, as of the date of this Agreement, makes the following
representations and warranties as the basis for its undertakings contained
herein:
(a) Energy Manager is duly organized, validly existing and in
good standing under the laws of the State of New York, is qualified to
do business under the laws of the State of New York, has the power and
authority to own its properties, to carry on its business as it now is
being conducted and to enter into this Agreement and carry out the
transactions contemplated hereby, and to perform and carry out all
covenants and obligations on its part to be performed under and
pursuant to this Agreement, and is duly authorized to execute and
deliver this Agreement and consummate the transactions herein
contemplated.
(b) The execution and delivery of this Agreement, the
consummation of the transactions contemplated herein and the
fulfillment of and compliance with
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the provisions of this Agreement do not materially conflict with or
constitute a material breach of or a material default under any of the
terms, conditions or provisions of any law, any order of any court or
other agency of government, the certificate of incorporation of Energy
Manager or any contractual limitation, partnership restriction or
outstanding trust indenture, deed of trust, mortgage, loan agreement,
other evidence of indebtedness or any other agreement or instrument to
which Energy Manager is a Party or by which it or any of its property
is bound or result in a material breach of or a material default under
any of the foregoing and this Agreement is the legal, valid and
binding obligation of Energy Manager enforceable in accordance with
its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(c) As of the Closing Date and throughout the Term of this
Agreement, Energy Manager will be in material compliance with, or will
have acted in good faith and used all reasonable efforts to be in
material compliance with, all laws, judicial and administrative
orders, rules and regulations with respect to the ownership and
operation of its facilities and the performance of its obligations
hereunder including but not limited to the following: all requirements
to obtain and comply with the conditions of Applicable Law.
13.11.2. Authority Representations and Warranties. Authority, as of
the date of this Agreement, makes the following representations and
warranties as the basis for its undertakings contained herein:
(a) Authority is a corporate municipal instrumentality and
political subdivision of the State of New York, has the corporate
power and authority to own its properties, to carry on its business as
now being conducted, and to enter into this Agreement and the
transactions contemplated herein and perform and carry out all
covenants and obligations on its part to be performed under and
pursuant to this Agreement, and is duly authorized to execute and
deliver this Agreement and consummate the transactions herein
contemplated.
(b) The execution and delivery of this Agreement, the
consummation of the transactions contemplated herein and the
fulfillment of and compliance with the provisions of this Agreement do
not materially conflict with or constitute a material breach of or a
material default under, any of the terms, conditions or provisions of
any law, any order of any court or other agency of government, or any
contractual limitation, corporate or partnership restriction or
outstanding trust indenture, deed of trust, mortgage, loan agreement,
other evidence of indebtedness or any other agreement or instrument to
which Authority is a party or by which it or any of its property is
bound or result in a material breach of or
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a material default under any of the foregoing and this Agreement is
the legal, valid and binding obligation of Authority enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(c) All corporate or other organization consents, authorizations,
and approvals, and all other actions required for Authority to
execute, deliver and perform its obligations hereunder have been
obtained or completed.
13.12. COUNTERPARTS. The Parties may execute this Agreement in
counterparts, which shall, in the aggregate, when signed by both Parties
constitute one and the same instrument; and, thereafter, each counterpart shall
be deemed an original instrument.
13.13. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any
applicable principles of conflict of law. Any action arising out of or relating
to this Agreement shall be brought in New York State Court.
13.14. CAPTIONS; APPENDICES. Titles or captions of the articles
contained in this Agreement are inserted only as a matter of convenience and for
reference, and in no way define, limit, extend, describe or otherwise affect the
scope or meaning of this Agreement or the intent of any provision hereof.
13.15. ENERGY MANAGER TO REMAIN AFFILIATE OF GUARANTOR; CREDIT
ENHANCEMENT IN CERTAIN CIRCUMSTANCES. (A) Limitations. The Energy Manager agrees
that at the Closing that it will become and thereafter it will remain an
Affiliate of the Guarantor.
(B) Material Decline in the Guarantor's Credit Standing. For purposes
of this Section, a "Material Decline in the Guarantor's Credit Standing" shall
be deemed to have occurred if (1) in the event that the Guarantor has long-term
senior debt outstanding which has a credit rating by a Rating Service, such
rating by a Rating Service is established or is reduced below investment grade
level or (2) in the event the Guarantor does not have long-term senior debt
outstanding which has a credit rating by a Rating Service and the Guarantor has
a credit rating by a Rating Service, such credit rating is established or
reduced below investment grade level, or (3) in the event the Guarantor does not
have long-term senior debt outstanding which has a credit rating by a Rating
Service and the Guarantor does not have a credit rating by a Rating Service, in
which event the Guarantor shall seek a credit rating for the Guaranty from a
Rating Service, such rating is established or is reduced below investment grade
level or if no rating is established.
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(C) Credit Enhancement. If, at any time during the Term hereof, a
Material Decline in the Guarantor's Credit Standing occurs, the Energy Manager
shall immediately notify the Authority thereof and, within 30 days after such
occurrence, shall provide credit enhancement of its obligations hereunder,
GENCO's obligations under the Power Supply Agreement and the Manager's
obligations under the Management Services Agreement at its sole cost and expense
in the form either of (1) any unconditional guarantee of all of the Energy
Manager's obligations hereunder, GENCO's obligations under the Power Supply
Agreement and the Manager's obligations under the Management Services Agreement
provided by a corporation or financial institution whose long-term senior debt
is or would be rated investment grade by a Rating Service or (2) an irrevocable
letter of credit in form and substance satisfactory to the Authority securing
the Energy Manager's obligations hereunder, GENCO's obligations under the Power
Supply Agreement and the Manager's obligations under the Management Services
Agreement in a face amount of $60,000,000 provided by a financial institution
whose long-term senior debt is rated investment grade by a Rating Service
provided that if any such letter of credit is drawn upon in the aggregate in an
amount equal to 50% of the face value of such letter of credit, the Manager
shall, within 30 days thereafter, supplement or replace such letter of credit
with an additional letter of credit such that the total amount of such letter of
credit then available equal $60 million. The amount of such letter of credit
shall be reduced by $26 million if the Management Services Agreement has
theretofore been or is thereafter terminated and by $4 million if the Power
Supply Agreement has theretofore been or is thereafter terminated, such
obligation to continue until the expiration or termination of this Energy
Management Agreement, the Power Supply Agreement and the Management Services
Agreement. The Energy Manager immediately shall notify the Authority of any
Material Decline in the Guarantor's Credit Standing.
13.16. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall be determined only by a court of competent
jurisdiction, and the Parties hereby agree to negotiate an equitable adjustment
to the invalid or unenforceable provisions with a view toward effecting the
purposes of this Agreement; the validity or enforceability of the remaining
provisions or portions or applications thereof, shall not be affected thereby.
13.17. RULES OF INTERPRETATION. The terms and provisions of this
Agreement shall be interpreted and construed as follows: (a) words of the
masculine gender shall include corresponding words of the feminine or neuter
genders and vice versa; (b) the plural shall include the singular and vice
versa; (c) unless the context indicates otherwise, all references herein to
Articles, Sections, paragraphs, exhibits, schedules, and Appendices shall refer,
respectively, to the Articles, Sections, paragraphs, exhibits, schedules and
Appendices of this Agreement; (d) the words "includes" or "including" mean
"including, but not limited to" and are not limiting; (e) any reference to an
agreement, a contract or any other document means the same as it may be amended,
modified, supplemented or replaced from time to time, unless otherwise noted;
(f) any reference to a Person includes such Person's successors and assigns;
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and (g) "ensure" shall not be construed as a guarantee, but shall imply only a
duty to use reasonable effort and care, consistent with Prudent Utility
Practice.
13.18. HEDGING POLICIES. The Energy Manager will not engage in any
hedging activities relating to the Fuel Services or System Power Supply Services
without express approval from the Boards of Directors of Energy Manager and its
Parent and without notifying and consulting with the Authority at least 60 days
prior to implementing such activities. In the event that approval for the use of
hedging activities is implemented, the incentive/disincentive program will be
reexamined by the parties to determine the appropriateness of the inclusion or
exclusion of the related costs, gain or losses and appropriate mutually
agreeable revisions thereto will be made.
13.19 ENERGY PRICING INFORMATION SYSTEM. Within 9 months after Contract
Date, Energy Manager shall recommend to Authority a plan, including function,
equipment, information to be supplied, procedures, and cost, for a methodology
and system to provide real-time and suitable historic information on capacity
and energy pricing and amounts purchased. Such methodology and system shall be
developed in a manner which provides data necessary for prospective suppliers of
capacity and energy to determine the market for sale of capacity and energy to
the Authority and shall be subject to approval by the Authority. To the extent
approved by the Authority, such system shall be installed and operated at the
expense of the Authority, subject to Cost Substantiation.
13.20 BINDING EFFECT. This Agreement shall become binding and effective
on the Closing Date and shall thereafter bind and inure to the benefit of the
parties hereto and any successor or assignee acquiring an interest hereunder in
compliance with the provisions of Section 13.3 hereof.
IN WITNESS WHEREOF, the Parties have executed this Agreement through
their duly authorized officers as of the date set forth in the preamble to this
Agreement.
LONG ISLAND POWER AUTHORITY
By:
---------------------
Name: Richard M. Kessel
Title: Chairman
By:
----------------
Name: Patrick Foye
Title: Deputy Chairman
LONG ISLAND LIGHTING COMPANY
By:
-----------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
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APPENDIX A
FUEL PURCHASE PERFORMANCE, INCENTIVE/DISINCENTIVE
The Authority and the Energy Manager shall share in savings realized or
additional costs incurred when comparing the actual costs of monthly natural gas
and oil purchases for generation with the respective natural gas and oil target
indices described herein. The amount of incentive or disincentive will be
determined monthly on a transaction by transaction basis. The maximum net annual
incentive or disincentive shall be limited to the provisions of Section 3.3 of
the Energy Management Agreement. All units of fuel shall be converted to
millions of British thermal units - dry ("MMBtu") for purposes of these
calculations.
1. NATURAL GAS PURCHASES
1.1 Benchmark Gas Index Price
An index shall be computed and expressed in dollars per MMBtu (the "Index
Price") for each monthly purchase arrangement for the three categories as
described below. The three categories are intended to incorporate all gas
purchases for generation without exception. There shall be no allowance for
losses and unaccounted-for gas between the City Gate and the billing meters at
each generating station. For this purpose, the term "Bid Week" is defined to
mean for the week in the prior month during which gas prices are established for
the current month.
a. The Index Price for gas purchases made after Bid Week for a duration of
less than one month ("Swing Gas Purchases") shall be based on the delivery
area and pipeline specific Daily Midpoint index published by Gas Daily for
the first business day of gas flow under the transaction (e.g., "Others -
Transco, Zone 6" index).
b. The Index Price for gas purchases made prior to or during Bid-Week with a
duration of one month or less ("Monthly Gas Purchases") shall be derived
separately for each pipeline source as the equally weighted average of (i)
the Gas Daily Price Guide Monthly Contract Index or City Gate Prices
Average of the high and low Bid Week posting for a specific pipeline and
region, as appropriate; and (ii) the price for a specific pipeline and
region, as appropriate, published in Inside FERC Gas Market Report as of
the first day of the month.
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c. The Index Price for gas purchases with a term greater than one month
("Long-Term Gas Purchases") shall be determined for each such contract for
Long-Term Gas Purchases as the index for Swing Gas Purchase or Monthly Gas
Purchases, as described above plus an adjustment to reflect the premium
paid for long-term supply (the "Long-Term Adjustment"). The Long-Term
Adjustment shall be computed annually as the difference between the
weighted average cost per MMBtu of Long-Term Purchases and the weighted
average cost of all other supplies. If the historical data for Long-Term
Gas Purchases for electric generation is inadequate, average costs for all
other long-term purchase contracts by the Energy Manager may be
substituted. Appropriate transportation costs will be added to each index
so determined.
1.2 Calculation of Incentive/Disincentive for Gas Purchases
A benchmark price shall be computed for each purchase (the "Gas Index
Benchmark") equal to 102% of the Index Price determined in Section 1.1 of this
Appendix. The "Actual Gas Cost" shall be computed for each purchase transaction
as the average cost per MMBtu of all costs associated with such transactions,
including commodity and demand charges, and excluding any penalties and fines
incurred by Energy Manager. Should the Actual Gas Cost be less than the Gas
Index Benchmark the Authority and the Energy Manager shall share the savings
equally. Should the Actual Gas Cost exceed the Gas Index Benchmark the Authority
and the Energy Manager shall share such excess cost equally. For each month the
amount of incentive or disincentive associated with each purchase transaction
shall be computed as the product of the resulting incentive or disincentive cost
per unit and the actual volume of gas purchased.
2. OIL PURCHASES
The target price for oil purchases expressed as dollars per MMBtu (the "Oil
Index Benchmark") shall be computed each month for each type of oil purchase for
each purchase transaction.
2.1 Residual Oil Purchases
The Oil Index Benchmark for residual oil purchases shall be computed as the
weighted average of applicable residual oil spot postings as described below,
and shall be determined separately for (nominal) 1.0% sulfur, 0.7% sulfur and
0.3% sulfur No. 6 residual fuel oil ("Residual Oil Purchase") depending on which
type of oil is delivered for each delivery based on the date on which each
delivery commences (the "Commencement of Discharge Date). All index prices for
each delivery shall be computed as the average of the spot postings for the
Commencement of
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Discharge Date, the two days prior to such date, and the two days following such
date (the "Residual Oil Index Period").
a. Forty percent of the International Heavy Fuel Oil Prices, Delivered New
York Spot, Cargoes 1.0% sulphur LP, or 0.7% sulphur LP, or 0.3% HP, price
as posted in Bloomberg Petroflash! at 5:00 PM Eastern Time for each day of
the Residual Oil Index Period.
b. Forty percent of the average of Cargoes, DEL NYH 1.0% sulphur LP. or 0.7%
sulphur LP, or 0.3% sulphur HP low/high prices as posted in Argus US
Products in Houston, at 5:00 PM Central Time, for each of day of the
Residual Oil Index Period.
c. Twenty percent of the average New York Cargo, No. 6 1% sulphur LP, or 0.7%
sulphur LP. or 0.3% sulphur HP low/high prices as posted in Platt's Oilgram
U.S. Marketscan price report at 5:00 PM Eastern Time for each day of the
Residual Oil Index Period.
In computing the Oil Index Benchmark the above indices will be increased to
include the actual transportation charge to each GENCO Generating Facility as
appropriate.
2.2 No. 2 Oil - Barge Delivery
For No. 2 oil purchases, the Oil Index Benchmark shall be equal to the average
of the three spot postings, as defined below, for each of the following days
(the "Daily Averages"): the Commencement of Discharge Date; the day before such
date, and the day after such date (the "No. 2 Oil Barge Index Period"). The
following postings for spot barge No. 2 oil ("Spot Postings") will be used to
determine the daily average for each of the referenced days:
a. The low "New York Barge No. 2" price as published in Platt's Oilgram U.S.
Marketscan price report at 5:00 PM Eastern Time for each day of the No. 2
Oil Index Period.
b. The "New York Heating/Gas Oil: 0.2% Sulphur" price as published in
Bloomberg Petroflash! At 5:00 PM Eastern Time for each day of the No. 2 Oil
Index Period.
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C. The low "DEL NYH No. 2" price as posted in Argus US Products in Houston, at
5:00 PM Central Time, for each of day of the No. 2 Oil Index Period.
In computing the Oil Index Benchmark the above indices will be increased to
include appropriate handling, terminalling, storage, and transportation charges
to each GENCO Generating Facility.
2.3 No. 2 Oil - Truck Delivery
For No. 2 oil purchases the target index shall be equal to the average of "low"
or "average" price, as appropriate, for each supplier of fuel oil, for Newark,
NJ **OPIS/Tape Gross Distillate Prices*" Hi Sul No. 2" as published in Oil Price
Information Service at the close of business Eastern Time on the Commencement of
Discharge Date, the day before such date and the date after such date (the "No.
2 Oil Truck Index Period").
The above target index will be modified to include appropriate handling,
terminalling, storage, and transportation charges to each GENCO Generating
Facility.
2.4 Kerosene - Barge Delivery
For kerosene purchases, the target index shall be equal to the average of the
New York Barge LS Jet Low Price as published in Platt's Oilgram U.S. Marketgram
price report at 5:00 PM Eastern Time effective for the Commencement of Discharge
Date, the day before such date, and the day after such date (the "Kerosene Index
Period").
In computing the Oil Index Benchmark the above indices will be modified to
include appropriate handling, terminalling, storage, and transportation charges
to each GENCO Generating Facility.
2.5 Calculation of Incentive/Disincentive for Oil Purchases
The "Actual Oil Cost" shall be computed for each purchase transaction as the
average cost per MMBtu of all costs associated with such transaction. Should the
Actual Oil Cost be less than the corresponding Oil Index Benchmark, LIPA and the
Energy Manager shall share the savings equally. Should the Actual Oil Cost
exceed the Oil Index Benchmark, the Authority and the Energy Manager shall share
such excess cost equally. For each month the amount of incentive
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or disincentive associated with each purchase transaction shall be computed as
the product of the resulting incentive or disincentive cost per unit and the
actual volume of oil purchased.
The net amount of incentive or disincentive payment will not exceed $5 million
on an annual basis.
3. SUBSTITUTION OF INDICES
In the event that any of the posted indices referenced herein cease to be
published, their basis of determination materially changes or new, more
appropriate indices are published, the parties may agree to substitute a
mutually agreeable index.
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APPENDIX B
SYSTEM POWER SUPPLY PERFORMANCE INCENTIVE/DISINCENTIVE
Recognizing that incentives for favorable fuel prices, and GENCO generating unit
efficiencies are provided as part of this or other agreements, the power supply
cost incentive/disincentive shall be based on the actual cost of off-system
power purchases, excluding purchases under long-term contracts in effect on the
Closing Date, in comparison to an indexed cost as described herein.
Each month, an indexed cost of purchased power shall be computed for on-peak and
off-peak purchases for each week during the month in the amount equal to the sum
of (i) the product of the quantities for each week in the month of on-peak
purchases and the corresponding Prices of Spot Electricity - East New York,
Weekly Index (on-peak) published weekly in Power Markets Week; (ii) the product
of the quantities for each week in the month of off-peak purchases and the
corresponding Prices of Spot Electricity - East New York, midpoint of the Weekly
Range (off-peak), published weekly in Power Markets Week; and (iii) the product
of total on-peak and off-peak purchases and a Basis Differential computed for a
12-month period prior to the Commencement Date (the "Target Purchase Cost"). The
Basis Differential shall be computed as the difference between the weighted
average per cost MWh of purchase indexed as described above, excluding the Basis
Differential component, and the actual cost of purchases per MWh. The parties
agree that in the event that any index ceases to be published, or there is a
substantial change in the manner in which the index is established, another
mutually agreeable index shall be substituted, and/or the Basis/Differential
shall be recomputed, as appropriate.
For each month, if the Actual Purchase Cost is less than the Target Purchase
Cost, the Authority shall pay Energy Manager 33% of the savings. Should the
Actual Purchase Cost exceed 101% of the Target Purchase Cost, Energy Manager
shall incur a penalty equal to 33% of such excess cost. In any other event, the
Authority shall reimburse Energy Manager for the Actual Purchase Cost with no
adjustment for incentive or penalty amounts. The net amount of incentive or
penalty will not exceed $2 million on an annual basis.
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APPENDIX C
PROVISIONS REQUIRED BY STATE LAW
1.1 ENERGY MANAGER TO COMPLY WITH LEGAL REQUIREMENTS. The Manager, in performing
its obligations under this Agreement, shall comply with all applicable laws and
regulations. All provisions required by such laws and regulations to be included
in this Agreement shall be deemed to be included in this Agreement with the same
effect as if set forth in full.
1.2 ENERGY MANAGER TO OBTAIN PERMITS, ETC. Except as otherwise instructed in
writing by the Authority, the Energy Manager shall obtain and comply with all
legally required licenses, consents, approvals, orders, authorizations, permits,
restrictions, declarations, and filings required to be obtained by the Authority
or the Energy Manager in connection with this Agreement.
1.3 WORKERS' COMPENSATION INSURANCE. The Energy Manager agrees that:
(a) It will secure Workers' Compensation and Disability Insurance and
keep insured during the life of this Agreement such employees as are required to
be insured by the provisions of Chapter 41 of the Laws of 1914, as amended,
known as the Worker's Compensation Law; and
(b) This Agreement shall be voidable at the election of the Authority
and of no effect unless the Energy Manager complies with the requirement in
paragraph (a) of this Section.
1.4 NO ASSIGNMENT WITHOUT CONSENT. The Energy Manager agrees that: (a) It is
prohibited from assigning, transferring, or otherwise disposing of this
Agreement, or of its rights or interests therein, or its power to execute such
Agreement to any person, company, partnership, or corporation, without the
previous written consent of the Authority. Assignments of this Agreement
expressly referred to in clause (3) of the first sentence of Section 13.3 of
this Agreement have been so consented to.
(b) If the prohibition contained in paragraph (a) above is violated,
the Authority may revoke and annul this Agreement and the Authority shall be
relieved from any and all liability and obligations hereunder to the Energy
Manager and to the person, company, partnership, or corporation to whom such
assignment, transfer, or other disposal shall have been made, and the Energy
Manager and such assignee or transferee shall forfeit and lose all the money
theretofore earned under this Agreement.
1.5 NON-DISCRIMINATION. (a) The Energy Manager shall not discriminate against
employees or applicants for employment because of race, creed, color, national
origin, sex, age,
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disability, or marital status, and will undertake or continue existing programs
of affirmative action to ensure that minority group persons and women are
afforded equal opportunity without discrimination. Such programs shall include,
but not be limited to, recruitment, employment, job assignment, promotion,
upgrading, demotion, transfer, layoff, termination, rates of pay or other forms
of compensation, and selection for training and retraining, including
apprenticeship and on-the-job training.
(b) At the request of the Authority, the Energy Manager shall request
each employment agency, labor union, or authorized representative of workers
with which it has a collective bargaining or other agreement or understanding
and which is involved in the performance of this Agreement to furnish a written
statement that such employment agency, labor union, or representative shall not
discriminate because of race, creed, color, national origin, sex, age,
disability, or marital status and that such union or representative will
cooperate in the implementation of the Energy Manager's obligations hereunder.
(c) The Energy Manager shall state, in all solicitations or
advertisements for employees placed by or on behalf of the Energy Manager in the
performance of this Agreement, that all qualified applicants will be afforded
equal employment opportunity without discrimination because of race, creed,
color, national origin, sex, age, disability, or marital status.
The Energy Manager shall submit an equal employment opportunity policy
statement to the Authority which shall contain, but not be limited to, the
provisions (a) through (c) of this section. (As required by NYCRR ss.142.1(d)(2)
and (3)).
(d) The Energy Manager will include provisions (a) through (c) of this
section in every subcontract or purchase order in such a manner that such
provisions will be binding upon each subcontractor or vendor as to its work in
connection with this Agreement.
(e) The Energy Manager shall furnish to the Authority such information
and reports regarding its compliance with the above requirements as the
Authority may from time to time request.
(f) The provisions of this section shall not be binding upon the Energy
Manager or any subcontractor in the performance of work or the provision of
services or any other activity that is unrelated, separate or distinct from this
Agreement, as expressed by its terms.
(g) The requirements of this section do not apply to any employment
outside the State of New York or application for employment outside the State of
New York or solicitations or advertisements therefor, or to any existing
programs of affirmative action regarding employment outside the State of New
York.
(h) Any disputes regarding this section shall be resolved as provided
in Section 316 of the New York State Executive Law.
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1.6 INTERNATIONAL BOYCOTT PROHIBITION. The Energy Manager expressly agrees and
certifies that neither the Energy Manager nor any person, firm, partnership, or
corporation which is substantially owned by or affiliated with the Energy
Manager has participated, is participating, or will participate in an
international boycott in violation of the provisions of the United States Export
Administration Act of 1969, as amended, or the Export Administration Act of
1979, as amended, or the regulations of the United States Department of Commerce
promulgated thereunder. The Energy Manager understands that such agreement and
certification constitutes a material term of this Agreement.
1.7 FAILURE OR REFUSAL TO TESTIFY. Upon the refusal of any person, including any
member, officer, or director of the Energy Manager, when called before a grand
jury, head of state department, temporary state commission or other state
agency, the organized crime task force in the department of law, head of a city
department, or other city agency, which is empowered to compel the attendance of
witnesses and examine them under oath, to testify in an investigation concerning
any transaction or contract had with the state, any political subdivision
thereof or of a public authority, to sign a waiver of immunity against
subsequent criminal prosecution or to answer any relevant question concerning
such transaction or contract:
(a) such person, and any firm, partnership, or corporation of which he
or she is a member, partner, director, or officer (including, if applicable, the
Energy Manager), shall be disqualified from thereafter selling to or submitting
bids to or receiving awards from or entering into any contracts with any public
authority or official thereof, for goods, work, or services, for a period of
five years after such refusal, or until a disqualification shall be removed
pursuant to law; and
(b) any and all contracts made with any public authority or official
thereof, since July 1, 1959 (including if applicable, this Agreement), by such
person and by any firm, partnership or corporation of which he is a member,
partner, director, or officer (including, if applicable, the Energy Manager),
may be canceled or terminated by the public authority without incurring any
penalty or damages on account of such cancellation or termination, but any
monies owing by the public authority for goods delivered or work done prior to
the cancellation or termination shall be paid.
1.8 MINORITY AND WOMEN-OWNED BUSINESS ENTERPRISE PROCEDURES
(a) DECLARATION OF POLICY AND STATEMENT OF GOALS. It is the policy of
the Authority to provide Minority and Women-Owned Business Enterprises
("M/WBEs") the greatest practicable opportunity to participate in the
Authority's contracting activity for the procurement of goods and services. To
effectuate this policy, the Energy Manager shall comply with the provisions of
this section and the provisions of Article 15-A of the New York State Executive
Law. The Energy Manager will use its best efforts to achieve the below-stated
M/WBE Goals set for the Agreement, and will cooperate in any efforts of the
Authority, or any
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government agency which may have jurisdiction, to monitor and assist the Energy
Manager's compliance with the Authority's M/WBE policy.
Minority-Owned Business Enterprise (MBE) Subcontracting Goal *%
Women-Owned Business Enterprise (WBE) Subcontracting Goal *%
(b) DEFINITIONS.
(1) "CERTIFICATION". The process conducted by the Director of the
Division of Minority and Women's Business Development in the
Department of Economic Development to verify that a business
enterprise qualifies for New York State Minority or Women-Owned
Business Enterprise status. To initiate the certification
process, contact one of the offices listed below.
ALBANY OFFICE: (518) 474-6342
State Capitol, 2nd Floor
Albany, New York 12224
NEW YORK CITY OFFICE
2 World Trade Center, 58th Floor
New York, New York 10047
(2) "CERTIFIED BUSINESS". A business enterprise which has been
approved by the Director for status as a MBE or WBE subsequent to
verification that the business enterprise is owned, operated, and
controlled by Minority Group Members, or women.
(3) "CONTRACT SCOPE OF WORK". For purposes of this section, this
means:
(i) Specific tasks required by the Agreement;
(ii) Services or products which must be provided to perform
specific tasks required by this Agreement; and
(iii)Components of any overhead costs billed to the
Authority pursuant to this Agreement.
(4) "DAY". A calendar state business day unless otherwise specified.
- --------
* To be specified at time of adoption of initial Annual T&D Budget.
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(5) "DIRECTOR". The Director of the Division of Minority and Women's
Business Development in the Department of Economic Development.
(6) "DIRECTORY". The Directory of Certified Businesses, prepared by
the Director.
(7) "GOAL". A percentage of participation, which is not a set aside
or quota, that represents a target toward which the Energy
Manager must aim in expending good faith efforts to subcontract
with or otherwise ensure the commercial involvement of minority
and women-owned businesses on this Agreement.
(8) "OFFICE" or "OFFICE OF MINORITY AND WOMEN'S BUSINESS
DEVELOPMENT". Office in the New York State Department of Economic
Development created by Article 15-A of the Executive Law.
(9) MINORITY GROUP MEMBER. A United States citizen or permanent
resident alien who is and can demonstrate membership in one of
the following groups:
(i) Black persons having origins in any of the Black African
racial groups;
(ii) Hispanic persons of Mexican, Puerto Rican, Dominican, Cuban,
Central or South American descent of either Indian or
Hispanic Origin, regardless of race;
(iii)Native American or Alaskan native persons having origins in
any of the original peoples of North America;
(iv) Asian and Pacific Islander persons having origins in any of
the Far East countries, South East Asia, the Indian
subcontinent or the Pacific Islands;
(v) Other groups which the Office may determine to be eligible
for M/WBE status.
(10) MINORITY-OWNED BUSINESS ENTERPRISE. A business enterprise,
including a sole proprietorship, partnership or corporation that
is:
(i) At least fifty-one percent owned by one or more Minority
Group Members;
(ii) An enterprise in which such minority ownership is real,
substantial and continuing;
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(iii)An enterprise in which such minority ownership has, and
exercises the authority to control independently, the
day-to-day business decisions of the enterprise for at least
one year; and
(iv) An enterprise authorized to do business in New York State
and is independently owned and operated.
(11) "SUBCONTRACT". An agreement in which a portion of the Energy
Manager's obligation under this Agreement is undertaken or
assumed.
(12) "WOMEN-OWNED BUSINESS ENTERPRISE". A business enterprise,
including a sole proprietorship, partnership or corporation that
is:
(i) At least fifty-one percent owned by one or more United
States citizens or permanent resident aliens who are women;
(ii) An enterprise in which the ownership interest of such women
is real, substantial and continuing;
(iii)An enterprise in which such women ownership has, and
exercises the authority to control independently, the
day-to-day business decisions of the enterprise for at least
one year; and
(iv) An enterprise authorized to do business in New York State
and is independently owned and operated.
(c) REQUIREMENTS.
(1) The Energy Manager shall search for, assess the capabilities of
and generally deal with potential M/WBE subcontractors in a fair and
responsive manner, allowing them the opportunity to participate in the
Contract Scope of Work.
(2) The Energy Manager will designate, and make known to the Authority
an M/WBE Officer who will have the responsibility for and authority to
effectively administer the M/WBE Program.
(3) The Energy Manager shall submit its Preliminary Subcontracting
Plan on a preliminary subcontracting plan form, which shall identify
the Certified Businesses it will utilize to meet its M/WBE Contract
Goals. Approval of any such firm is solely within the discretion of
the Authority. The Energy Manager will also designate an M/WBE Officer
who will have the responsibility for, and authority to, effectively
administer these procedures. If the Energy Manager believes it may be
unable to meet the Goals, the reasons shall be submitted in writing
with the form.
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(4) The Energy Manager may inspect the current New York State
Certification Directory of Minority and Women Owned Businesses,
prepared for use by state agencies and contractors in complying with
Executive Law Article 15-A, (the Directory) at the Authority's office.
In addition, printed or electronic copies of the Directory may be
purchased from the Office of Minority and Women's Business
Development.
(5) Firms certified as both MBE and WBE may count toward either the
MBE or WBE Goal on a single contract, but not both, regardless of
whether either Goal is thus exceeded. The Energy Manager must choose
the Goal to which the participation value is to be applied in the
preliminary Subcontracting Plan.
(6) Within 10 days following the adoption of the initial Annual T&D
Budget and in any event no later than 60 days prior to the anticipated
Closing Date, the Energy Manager shall submit a complete Utilization
Plan, which shall include identification of the M/WBEs which the
Energy Manager intends to use; the dollar amount of business with each
such M/WBE; the Contract Scope of Work which the Energy Manager
intends to have performed by such M/WBEs; and the commencement and end
dates of such performance. The Authority will review the plan and,
within 20 days of its receipt, issue a written acceptance of the plan
or comments on deficiencies in the plan.
(7) The Authority shall consider a partial or total waiver of Goal
requirements only upon the submission of a written request for a
waiver following the Energy Manager's unsuccessful good faith efforts
at compliance. Such waiver request may be made simultaneously with the
submission of the Utilization Plan.
(8) The Energy Manager shall include in each Subcontract, in such a
manner that the provisions will be binding upon each subcontractor,
all of the provisions herein including those requiring subcontractors
to make a good faith effort to solicit participation by M/WBEs.
(9) The Energy Manager shall keep records, canceled checks and
documents for at least one (1) year following completion of this
Agreement. These records, and canceled checks, documents or copies
thereof will be made available at reasonable times upon written
request by the Authority or any other authorized governmental entity.
(10) The Energy Manager shall submit monthly compliance reports
regarding its M/WBE utilization activity on a Compliance Report Form
acceptable to the Authority. Reports are due on the first business day
of each month, beginning 30 days after the Closing Date.
(11) The Authority will conduct compliance reviews for determination
of the Energy Manager's performance relative to meeting the specified
M/WBE Goal which may include review and inspection of documents
pertaining to the Energy Manager's efforts
7
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towards meeting the Goals and on-site interviews with personnel of
Energy Manager and its subcontractors. The Energy Manager will fully
cooperate to assist the Authority in this endeavor.
(12) The Energy Manager shall not use the requirements of this section
to discriminate against any qualified company or group of companies.
(d) CONDITIONS FOR SATISFYING M/WBE GOALS. M/WBE participation will be
counted toward the total Contract M/WBE Goals subject to the following
conditions:
(1) If the Energy Manager is unable to meet the Goals with Certified
Businesses by making all of the good faith efforts defined herein, the
Energy Manager shall actively solicit uncertified M/WBEs to satisfy the
Goals. Uncertified firms will be required to submit an application for
certification (to the Office of Minority and Women's Business
Development) and will be counted as contributing towards the contract
Goals only after they have been certified.
(2) The Energy Manager must keep records of efforts to utilize
certified M/WBE's including
(i) The firm's name, address and telephone number.
(ii) A description of the information provided to the M/WBE.
(iii) A written explanation of why an agreement with the M/WBE
was not obtained.
(3) Price alone will not be an acceptable basis for rejecting M/WBE
bids if any of the bids are reasonable.
(4) Geographical limitation in the M/WBE search is not an acceptable
reason for not meeting the M/WBE goal when traditionally non-local
firms have been generally utilized.
(5) the Authority reserves the right to reject any firm as counting
toward meeting the Energy Manager's M/WBE goal if, in the opinion of
the Authority, the facts as to that firm's business and technical
organization and practices justify the rejection.
(e) ENERGY MANAGER'S GOOD-FAITH EFFORTS. To satisfy the M/WBE
participation requirements, the Energy Manager agrees to make the
following good-faith efforts in a timely manner:
(1) Submission of a completed, acceptable Utilization Plan as
described herein.
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(2) Advertising in appropriate general circulation, trade and minority
and women-oriented publications.
(3) Written solicitations made in a timely manner of certified
minority and women- owned business enterprises listed in the
Directory.
(4) Attendance at meetings, if any, scheduled by the Authority with
certified M/WBEs capable of performing the Contract Scope of Work.
(5) Written notification to M/WBE trade associations located within
the region where the Contract Scope of Work will be performed.
(6) Structuring the Contract Scope of Work for purposes of
subcontracting with certified M/WBEs.
(7) Where certified M/WBEs have expressed an interest to the Energy
Manager in performing work that the Energy Manager normally performs
with its own sources and the Contract Scope of Work has not been fully
performed, the Energy Manager shall consider subcontracting such work
or portions of it to meet the M/WBE Goals.
1.9. COMMENCEMENT OF ACTIONS ON STATE PUBLIC WORKS CONTRACTS. The time within
which an action on this Agreement against the Energy Manager must be commenced
shall be computed from the date of completion of the physical work. The Energy
Manager may notify the Authority in writing, that such physical work has been
completed by specifying a completion date, which date shall be no more than
thirty days previous to the date of such notice, in which case the completion
date set forth in such notice shall be deemed to be the date of completion of
the physical work unless the Authority, within thirty days of receipt of such
notice, notifies the Energy Manager in writing of its disagreement. In the event
that the Energy Manager fails to send the notice provided for herein or the
Authority disagrees in the manner provided herein, the date of completion of the
physical work shall be determined in any other manner provided by law.
9
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EXHIBIT D
================================================================================
GENERATION PURCHASE RIGHT AGREEMENT
by and between
LONG ISLAND LIGHTING COMPANY,
AS SELLER,
AND
LONG ISLAND POWER AUTHORITY,
AS BUYER,
Dated as of June 26, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions...................................................... 2
Section 1.2 Rules of Construction.............................................4
ARTICLE 2
PURCHASE RIGHT
Section 2.1 Purchase Right....................................................4
Section 2.2 Exercisability....................................................5
Section 2.3 Method of Exercise................................................5
Section 2.4 Exercise Date.....................................................5
Section 2.5 Request for Confirmation..........................................5
Section 2.6 Effect of Notice..................................................6
Section 2.7 Closing Date......................................................6
Section 2.8 Payment and Delivery of Interests.................................6
Section 2.9 Provision of Corporate Records....................................6
Section 2.10 Non-Recourse.....................................................7
ARTICLE 3
THE PURCHASE PRICE
Section 3.1 Purchase Price....................................................7
Section 3.2 Arbitration.......................................................7
Section 3.3 Disclosure of Third Party Offers..................................7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Seller and Genco................8
Section 4.2 Provision of Additional Schedules upon Exercise..................14
Section 4.3 Representations and Warranties of Buyer..........................15
ARTICLE 5
COVENANTS
Section 5.1 Covenants of Seller..............................................15
Section 5.2 Covenants of Buyer...............................................18
Section 5.3 Additional Agreements............................................19
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<PAGE>
ARTICLE 6
GENERAL PROVISIONS
Section 6.1 Notices..........................................................20
Section 6.2 Headings.........................................................21
Section 6.3 Miscellaneous....................................................21
Section 6.4 Assignment.......................................................21
Section 6.5 Schedules........................................................21
Section 6.6 Waiver; Amendment................................................22
Section 6.7 Issue Taxes......................................................22
Section 6.8 Fees and Expenses................................................22
Section 6.9 Alternative Dispute Resolution...................................22
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<PAGE>
GENERATION PURCHASE RIGHT AGREEMENT
This GENERATION PURCHASE RIGHT AGREEMENT ("Agreement") is made and
entered into as of the 25th day of June 1997, by and between LONG ISLAND
LIGHTING COMPANY, a New York corporation ("Seller", also referred to herein as
"LILCO"), and LONG ISLAND POWER AUTHORITY, a corporate municipal instrumentality
and political subdivision of the State of New York ("Buyer", also referred to
herein as "LIPA"), acknowledged and agreed to, as of the Closing (as herein
defined), by __________________________*, a New York limited liability company
("Genco").
RECITALS
WHEREAS, Parent (as therein defined), Seller, Buyer, and LIPA
ACQUISITION CORP., a New York corporation ("LIPA Sub"), entered into an
AGREEMENT AND PLAN OF EXCHANGE AND MERGER (the "Merger Agreement"), dated as of
June 25, 1997, pursuant to which (i) LIPA Sub is to merge with and into Seller;
(ii) Seller undertakes to form an entity for the purpose of receiving certain
assets and properties of LILCO; and (iii) Seller is to enter into a generation
purchase right agreement in substantially the form of this Agreement.
WHEREAS, Genco will own and have all right, title and interest to
the Generating Facilities (as defined herein) at or prior to the Closing.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
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*Pursuant to the Merger Agreement, Seller will identify, prior to the
Closing (as therein defined), a limited liability company (formed by
Seller or one or more of its wholly-owned subsidiaries), which will
execute this Agreement as Genco and to which will be transferred at such
Closing the Generating Facilities.
<PAGE>
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions. All capitalized terms used in this
Agreement and not otherwise defined shall have the meanings assigned to them in
the Power Supply Agreement, dated as of the date hereof, between LILCO and
Buyer, attached to the Merger Agreement as Exhibit B (the "Power Supply
Agreement"). The following terms, as used herein, shall have the respective
meanings set forth in this Section 1.1:
"Additional Assets" means assets other than interests
in real property reasonably required for the Business (as
defined herein), including, without limitation any fuel supply
agreements (other than Basic Agreements), spare parts and fuel
inventory on site.
"Agreement" means this Generation Purchase Right
Agreement and all Exhibits and Schedules annexed hereto, as the
same may be amended from time to time.
"Audited Balance Sheet" has the meaning assigned to it
in Section 2.6 herein.
"Business" means the business of operating the
Generating Facilities (as defined herein) as it is operated on
the date hereof.
"Closing" has the meaning assigned to it in the Merger
Agreement.
"Closing Date" has the meaning assigned to it in
Section 2.7 herein.
"Confirmation" has the meaning assigned to it in
Section 2.5 herein.
"Contract" means any contract, agreement, purchase
order, lease, indenture, mortgage, loan agreement, note,
guarantee, commitment, undertaking or arrangement of any kind.
"Easements" has the meaning assigned to it in Section
5.3(d) herein.
"Engineer's Report" has the meaning assigned to it in
Section 2.1 herein.
"Exercise Date" has the meaning assigned to it in
Section 2.4 herein.
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<PAGE>
"Fair Market Value" means the amount that a willing
buyer and a willing seller, neither of whom is under any
compulsion to sell or to buy, would be willing to pay or
receive, as the case may be, in an all cash transaction in an
orderly market for the Interests; provided, however, that the
Additional Assets shall be deemed to have been transferred to
Genco prior to the Exercise Date.
"GAAP" means United States generally accepted
accounting principles.
"Generating Facilities" means the electric generating
facilities to be owned by Genco as defined in Section 1.27 of
the Power Supply Agreement.
"Generating Properties" has the meaning assigned to it
in Section 2.1 herein.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, including the Premerger
Notification Rules promulgated thereunder.
"Interests" means all of the limited liability company
interests (whether direct, indirect or contingent) in Genco.
"Investment Bankers" has the meaning assigned to it in
Section 3.1(a) herein.
"Laws" means, with respect to any Person, any foreign,
United States Federal, state or local laws, statutes,
ordinances, rules or regulations applicable to such Person.
"Liens" means, with respect to any asset, property or
right of any Person, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such
asset, property or right.
"Material Adverse Effect" means, with respect to a
Person, an event or circumstance which could reasonably be
expected to have a material adverse effect on the business,
operations, properties, financial condition, results of
operations or prospects of such Person.
"Permit" means any permit, license, approval, consent,
order or authorization of any Governmental Authority.
"Person" means, unless otherwise specified, a natural
person, corporation, society, partnership, joint venture,
unincorporated association or other entity, including a
Governmental Authority.
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<PAGE>
"Purchase Price" has the meaning assigned to it in
Section 3.1 herein.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder
by the Securities and Exchange Commission.
"Taxes" means all taxes, assessments and charges
imposed by any United States Federal, state or local taxing
authority or any foreign taxing authority, including, without
limitation, interest, penalties and additions thereto.
Certain other terms are defined elsewhere in this Agreement.
Section 1.2 Rules of Construction. Unless the context otherwise
requires:
(a) Words in the singular include the plural, and
words in the plural include the singular;
(b) Provisions apply to successive events and
transactions;
(c) An accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(d) "Herein", "hereof" and other words of similar
import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision of this
Agreement;
(e) Words in the masculine gender include the feminine
gender and words in feminine gender include the masculine
gender; and
(f) The Article and Section headings used or contained
in this Agreement are for convenience of reference only and
shall not affect the construction of this Agreement.
ARTICLE 2
PURCHASE RIGHT
Section 2.1 Purchase Right. Subject to the terms and conditions of
this Agreement, Seller hereby grants to Buyer the right to purchase all of the
outstanding Interests (the "Right") at the price, in the manner and at the time
specified in this Article 2. No later than nine months from the date hereof,
LIPA's consulting engineer will identify with respect to each of the existing
Generating Facilities, the specific size and
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<PAGE>
location of interests in real property required for the operation of such
Generating Facility (the "Generating Properties"), subject to any Request for
Confirmation pursuant to Section 2.5 (the "Engineer's Report"). Such property
shall be transferred to Genco at or prior to the Closing. To the extent that,
prior to the Exercise Date, Genco has any right, title or interest in real
property other than the Generating Properties, Genco may transfer such right,
title or interest to Seller or any affiliate or subsidiary of Seller, provided,
however, that the value of any such right, title or interest transferred by
Genco prior to the Closing shall not be reflected in the Purchase Price
calculated pursuant to Section 3.1 herein.
Section 2.2 Exercisability. Subject to the further terms of this
Agreement, the Right shall become exercisable at any time after the third
anniversary of the date of the Closing. The Right shall expire and cease to be
exercisable at 12:01 a.m. on the fourth anniversary of the Closing.
Section 2.3 Method of Exercise. The Right may be exercised only by
the giving of written notice to the Seller in such form and in such manner as is
prescribed in Section 6.1 herein. Notice must be accompanied by: (i)
certification by the Chairman or Executive Director of LIPA that the exercise of
the Right has been affirmatively approved by the vote of two thirds of all
members of the entire LIPA Board of Trustees; (ii) a copy of the related
resolutions of the LIPA Board of Trustees certified as true and correct by the
Chairman or Executive Director of LIPA; (iii) evidence reasonably satisfactory
to Seller of the approval of the exercise of the Right and of any financing
required to exercise the Right by the Public Authorities Control Board; and (iv)
Buyer's election either (x) to operate the Generating Facilities by itself or by
an Affiliate or (y) to retain Seller or an Affiliate of Seller to operate the
Generating Facilities pursuant to Section 5.3(c).
Section 2.4 Exercise Date. The date of exercise of the Right shall
be the date on which the Notice is delivered to the Seller, during normal
business hours, at its address as provided in Section 6.1 of this Agreement (the
"Exercise Date").
Section 2.5 Request for Confirmation. Seller shall be entitled to
appoint an additional independent consulting engineer to consider the Engineer's
Report and shall provide Buyer within thirty business days of the receipt of the
Engineer's Report either: (i) notice that it intends to waive Confirmation (as
herein defined); or (ii) a request for Confirmation, in which case a copy of the
report of Seller's independent consulting engineer shall be given to Buyer and
to its independent consulting engineer within 90 days of Seller's request for
Confirmation. In the event Seller requests Confirmation, the parties are to
select an independent consulting engineer to
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<PAGE>
identify with respect to each of the Generating Facilities the specific size and
location of land parcels required for the operation of such Generating Facility
(the "Confirmation") and such Confirmation will be conclusive and binding on the
parties.
Section 2.6 Effect of Notice.
(a) Upon receipt of the Notice, Buyer shall be legally
bound to purchase, and Seller shall be legally bound to sell,
all of the Interests, subject to: (i) the receipt of
Confirmation or Seller's waiver thereof; (ii) the provisions of
Section 4.2; (iii) Buyer's right not to purchase the Interests
if on the Closing Date any of the representations set forth in
Section 4.1 are inaccurate in any material respect; and (iv)
the other terms and conditions contained herein.
(b) Upon receipt of the Notice, Seller will: (i) cause
to be prepared and delivered to Buyer not later than the 90th
day after such receipt an audited balance sheet of Genco as of
the quarter-end immediately preceding the date of such exercise
(the "Audited Balance Sheet") and (ii) provide Buyer and the
Investment Bankers with reasonable access to the books and
records of Genco.
Section 2.7 Closing Date. The closing of this Agreement will be on a
date scheduled by LIPA not later than 90 days after the final determination of
the Purchase Price pursuant to Section 3.1 hereunder (the "Closing Date") at a
location to be agreed upon by the parties hereto following the Exercise Date.
The Closing Date may be extended by the written agreement of the parties hereto.
Section 2.8 Payment and Delivery of Interests. On the Closing Date,
Seller shall deliver to Buyer documents sufficient to cause the entire right,
title and interest in and to all outstanding Interests to be transferred of
record to Buyer and in consideration thereof Buyer shall pay to Seller an amount
in cash equal to the Purchase Price. All such payments and deliveries shall be
deemed to occur simultaneously as a single transaction and no such payment or
delivery shall be effective unless all such payments and deliveries have been
made.
Section 2.9 Provision of Corporate Records. Seller shall arrange as
soon as practicable following the Closing Date for transportation, at Seller's
cost, to Buyer of the records in Seller's possession relating to the assets of
Genco, including, without limitation, all agreements, litigation files and
filings with governmental agencies relating to the Generating Facilities, except
to the extent such items are already in the possession of Buyer.
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<PAGE>
Section 2.10 Non-Recourse. The sale and purchase of the Interests
transferred hereunder shall be made on an "as-is" basis without recourse to
Seller, and without representation, covenant or warranty by Seller, express or
implied, except in each case as expressly set forth in this Agreement. Seller
makes no representation and takes no responsibility with respect to the
financial condition of Genco. In particular, the parties hereby agree that,
without limiting the generality of the foregoing, Buyer assumes any and all
obligations pursuant to then existing Contracts of Genco, in addition to
assuming any and all obligations with respect to any pension, employment or
insurance arrangements maintained by Genco.
ARTICLE 3
THE PURCHASE PRICE
Section 3.1 Purchase Price. The purchase price for the Interests
("Purchase Price") shall be the Fair Market Value of the Interests, to be
determined as of the Exercise Date by two independent nationally recognized
investment banking firms experienced in the valuation of comparable property,
one of which shall be appointed by each of Buyer and Seller (collectively, the
"Investment Bankers") to negotiate and agree upon Fair Market Value. In
determining the Fair Market Value, the Investment Bankers shall consider all of
the terms of the Power Supply Agreement for the term of such agreement.
Section 3.2 Arbitration. If the Investment Bankers are not able to
agree on the Fair Market Value or such appropriate interest rate, then Buyer and
Seller will select a mutually agreeable independent nationally recognized
investment banking firm experienced in the valuation of comparable properties to
provide its determination of the Fair Market Value, which will be used to
determine the Purchase Price and will be conclusive and binding on the parties.
Section 3.3 Disclosure of Third Party Offers. If at any time within
six months of the Exercise Date and prior to the Closing Date Buyer has received
any binding or serious offers from any third party to purchase some or all of
the assets of Genco, Buyer shall disclose the terms and existence of such offers
to Seller and to the Investment Bankers. If Buyer agrees to any such third-party
offers and consummates such transaction within 3 months after the Closing Date,
Seller will pay to Buyer 50% of Buyer's reasonable incremental financing costs
(excluding interest or other costs of carry), if any, and including legal fees,
underwriter's compensation and other costs of issuance, specifically related to
such financing, if any, up to $2 million.
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<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Seller and Genco.
Except for the representation and warranty contained in Section 4.1(a), the
following representations and warranties are furnished solely for the purpose of
facilitating the determination of Fair Market Value and shall not preclude the
Investment Bankers from pursuing such due diligence as they require to perform
their obligations hereunder. Seller and Genco, jointly and severally, represent
and warrant to the Buyer at the Closing and on the Closing Date that, except as
disclosed to Buyer in writing on the date hereof and as updated in writing not
later than the date the Audited Balance Sheet is delivered and further updated
in writing by Seller prior to the determination of Fair Market Value (the
"Schedule"):
(a) Ownership of Interests. On the Closing Date,
Seller will own and hold, beneficially, the entire right, title
and interest in and to all of the then existing Interests free
and clear of all Liens. As of the Closing Date, there will be
no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating Genco to issue,
deliver or sell, or cause to be issued, delivered or sold,
additional Interests, or obligating Genco to grant, extend or
enter into any such agreement or commitment.
(b) Execution and Enforceability. Seller has and Genco
will have as of the Closing all requisite power and authority
to execute and deliver this Agreement and to perform each of
their obligations hereunder. Seller has and Genco will have as
of the Closing duly authorized the execution, delivery and
performance of this Agreement. This Agreement is the legal,
valid and binding obligation of Seller and will be the legal,
valid and binding obligation of Genco as of the Closing, and
(assuming that this Agreement has been duly authorized,
executed and delivered by Buyer) is enforceable against Seller
and Genco in accordance with its terms.
(c) Organization and Qualification of Genco. On the
Closing Date, Genco is a limited liability company duly
organized, validly existing and in good standing under the laws
of the State of New York and will have all requisite power and
authority to conduct its business as then conducted and to own
and lease its properties and assets. On the Closing Date, Genco
will be qualified to do business
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<PAGE>
and in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business then
requires such qualification.
(d) No Violations or Conflicts. Neither the execution
and delivery of this Agreement by Seller or Genco nor the
consummation of the transactions contemplated by this Agreement
(i) results in a violation or breach of, or constitutes a
default or an event of default under, any bond or other
material Contract, Permit, instrument or other obligation to
which Seller or Genco is a party, or (ii) violates any Laws,
writ, judgment, injunction or court decree.
(e) Consents and Approvals. Except as otherwise
provided in this Agreement, no consent, approval or
authorization of, or declaration, filing or registration with,
any Governmental Authority is required to be made or obtained
by Genco or Seller in connection with the execution, delivery
and performance of this Agreement by Genco or Seller. No
consent, approval or authorization by, or notice to, any other
Person is required to be made or obtained by Genco or Seller in
connection with the execution, delivery and performance of this
Agreement by Genco or Seller. On the Closing Date, all notices
or other actions required to be made or taken, if any, pursuant
to any applicable Laws to permit the closing of this Agreement
will have been made and taken.
(f) Compliance with Laws; Permits. The operations and
activities of Genco are in compliance with all Laws and neither
Seller or Genco has received any notice to the contrary. Genco
has all material Permits required for it to conduct the
Business and no material violations have been recorded in
respect of any Permits and no proceeding is pending or, to the
knowledge of Seller, threatened with respect to the limitation
or revocation of any Permit.
(g) Audited Balance Sheet. The Audited Balance Sheet
will, as of and for the periods ended on the applicable date,
fairly present, in all material respects, the financial
position and results of operations of Genco as of the dates and
for the periods presented therein in accordance with GAAP,
applied on a consistent basis during the periods concerned,
except as otherwise noted therein.
(h) Records. The books of account and records of
Genco fairly reflect, in all material respects, all of the
properties, assets, liabilities and transactions of Genco.
(i) Assets. On the Closing Date, Genco will have
good and marketable title (except to the extent that such assets
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<PAGE>
are leased) to all of the Generating Facilities free and clear
of any debts, Taxes, claims, options, liabilities, obligations
or Liens. On or before the Closing Date, Seller shall cause
Genco to deliver to Buyer copies of all deeds, endorsements,
assignments and other good and sufficient instruments to
evidence Genco's right, title and interest in and to any and
all of the Generating Facilities, as Buyer may reasonably
request.
(j) Sufficiency of Assets. On the Closing Date, Genco
will own, lease or otherwise have a right to the use of all
assets and properties relating to the Business. Except as set
forth on the Schedule, Parent and/or Genco have obtained all
consents required in order to maintain such leases and rights
to use in the context of a transfer of ownership of the
Interests.
(k) Properties. The Schedule sets forth a list of all
of the real property that is owned by a third party which is
leased to Genco and all real property that is owned by Genco.
Genco enjoys peaceful and undisturbed possession of all such
properties that are owned by Genco, and such properties are
free and clear of all debts, Taxes, claims, options,
liabilities, obligations and Liens.
(l) Environmental Protection. Environmental
Protection. Except as set forth in the Schedule or in
Parent SEC Reports (as defined in the Merger Agreement)
filed prior to the date hereof:
(i) Compliance. Genco is in material compliance
with all Environmental Laws (as defined in
Section 4.1(j)(vii)(B)) applicable to the
Generating Facilities; and neither Seller nor
Genco has received any communication (written or
oral), from any person or Governmental Authority
that alleges that Genco is not in such
compliance with applicable Environmental Laws.
(ii) Environmental Permits. Genco has obtained or
has applied for all material environmental
health and safety permits and all other
governmental licenses, permits, and
authorizations (collectively, the "Environmental
Permits") necessary for the construction of the
facilities constituting part of the Generating
Facilities or the ownership or operation of such
facility or the Generating Facilities, and all
such Environmental Permits are in good standing
or, where applicable, a renewal application has
been timely filed and is pending agency
approval, and Genco is in material compliance
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<PAGE>
with all terms and conditions of the
Environmental Permits.
(iii) Environmental claims. There is no material
Environmental Claim (as defined in Section
4.1(j)(vii)(A)) pending (A) against Genco, (B)
to the best knowledge of Seller and Genco,
against any person or entity whose liability for
any Environmental Claim Genco has or may have
retained or assumed either contractually or by
operation of law, or (C) against any real or
personal property or operations which Genco owns
or formerly owned or, to the best knowledge of
Seller and Genco, any real or personal property
or operations which Genco leases or manages or
formerly leased or managed, in whole or in part.
(iv) Releases. Genco has no knowledge of any
material Releases (as defined in Section
4.1(j)(vii)(D)) of any Hazardous Material (as
defined in Section 4.1(j)(vii)(C)), that would
be reasonably likely to form the basis of any
material Environmental Claim against Genco, or
against any person or entity whose liability for
any material Environmental Claim Genco has or
may have retained or assumed either
contractually or by operation of law.
(v) Predecessors. Seller and Genco have no
knowledge, with respect to any predecessor
of Genco's, of any material Environmental
Claim pending or threatened, or of any
Release of Hazardous Materials that would
be reasonably likely to form the basis of
any material Environmental Claim.
(vi) Disclosure. Seller and Genco have disclosed to
Buyer all material facts which they reasonably
believe form the basis of a material
Environmental Claim arising from (A) the cost of
Genco pollution control equipment currently
required or known to be required in the future
with respect to the Generating Facilities; (B)
current Genco remediation costs or Genco
remediation and site monitoring costs known to
be required in the future with respect to the
Generating Facilities; or (C) any other
environmental matter affecting Genco with
respect to the Generating Facilities.
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<PAGE>
(vii) As used in this Agreement:
(A) "Environmental Claim" means any
and all administrative, regulatory or
judicial actions, suits, demands, demand
letters, directives, claims, liens,
investigations, proceedings or notices of
noncompliance or violation (written or
oral) by any person or entity (including
any Governmental Authority) alleging
potential liability (including, without
limitation, potential responsibility for or
liability for enforcement, investigatory
costs, cleanup costs, governmental response
costs, removal costs, remedial costs,
natural resources damages, property
damages, personal injuries or penalties)
arising out of, based on or resulting from
(a) the presence, or Release or threatened
Release into the environment, of any
Hazardous Materials at any location,
whether or not owned, operated, leased or
managed by Genco and constituting a portion
of the Generating Facilities (for purposes
of this Section 4.1); or (b) circumstances
forming the basis of any violation, or
alleged violation, of any Environmental Law
with respect to the Generating Facilities;
or (c) any and all claims by any third
party seeking damages, contribution,
indemnification, cost recovery,
compensation or injunctive relief resulting
from the presence or Release of any
Hazardous Materials with respect to the
Generating Facilities.
(B) "Environmental Laws" means all
federal, state, local laws, ordinances,
rules and regulations relating to health
and safety, pollution, the environment
(including, without limitation, ambient
air, surface water, groundwater, land
surface or subsurface strata) or protection
of human health as it relates to the
environment including, without limitation,
laws and regulations relating to Releases
or threatened Releases of Hazardous
Materials, or otherwise relating to the
manufacture, processing, distribution, use,
treatment, storage, disposal, transport or
handling of Hazardous Materials.
(C) "Hazardous Materials" means (A)
any petroleum or petroleum products,
radioactive materials, asbestos in any form
that is or could become friable, urea
formaldehyde foam insulation, and
transformers or other equipment
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that contain dielectric fluid containing
polychlorinated biphenyls; and (B) any
chemicals, materials or substances which
are now defined as or included in the
definition of "hazardous substances",
"hazardous wastes", "hazardous materials",
"extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances",
"toxic pollutants", or words of similar
import, under any Environmental Law; and
(C) any other chemical, material, substance
or waste, exposure to which is now
prohibited, limited or regulated under any
Environmental Law in a jurisdiction in
which Genco operates the Generating
Facilities (for purposes of this Section
4.1).
(D) "Release" means any release,
spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal,
leaching or migration into the atmosphere,
surface or subsurface soil, surface water,
saltwater shoreline or floor bottom,
groundwater or property from or affecting
any of the Generating Facilities.
(m) Regulation as a Utility. Except as set forth in
the Schedule, Genco is not subject to any regulation as a
public utility or public service company (or similar
designation) by any state in the United States other than New
York or any foreign country.
(n) Undisclosed Liabilities. Except as and to the
extent set forth in the Audited Balance Sheet, as of the date
thereof, Genco did not have any liabilities required by GAAP to
be reflected on a balance sheet. Since such date, Genco has not
incurred any liabilities (whether absolute, accrued, contingent
or otherwise) required by GAAP to be reflected on a balance
sheet or set forth in the notes thereto, except such
liabilities which were incurred in the ordinary course of
business.
(o) Absence of Certain Changes. Since the Closing,
Genco has not (i) suffered any change in its business,
operations, financial condition or prospects, except such
changes which, in the aggregate, have not had and are not
reasonably likely to have a Material Adverse Effect, (ii)
incurred any long-term indebtedness for borrowed money or
guaranteed, assumed or endorsed the obligations of any third
party, (iii) sold, transferred or otherwise disposed of any
material asset, property or right or (iv) created or suffered
to exist any Lien on any Generating Facilities, other than
easements created pursuant to the Merger Agreement or the other
Basic Agreements.
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<PAGE>
(p) Conduct of Business of Genco. Since the
Closing, Genco has conducted its operations and affairs only in
accordance with the ordinary and usual course of business.
(q) Contracts and Commitments. The Schedule sets forth
a list and description of the following agreements, oral or
written, to which is a party or by which Genco is bound: (i)
all Contracts involving an obligation on the part of Genco of
more than $500,000 individually or more than $10 million in the
aggregate, (ii) all purchase orders in excess of $500,000
individually or more than $10 million in the aggregate, (iii)
all agreements under which Genco may be obligated to perform
services or expects to receive fees in excess of $500,000
individually or more than $10 million in thee aggregate, (iv)
all real and personal property leases involving annual payments
in excess of $500,000 individually or more than $10 million in
the aggregate, (v) all employment contracts with employees or
former employees of Genco, and (vi) all other material
agreements (the contracts and commitments identified in clauses
(i) through (vi) of this Section 4.1(q) being hereafter
collectively referred to as the "Commitments"). Neither Genco
nor any of its employee is in default or breach of any of the
Commitments, and, to the best knowledge of Seller, no other
party to any of the Commitments is in default or breach
thereof.
(r) Litigation. There is no claim, suit, litigation,
investigation or proceeding pending, or to the best knowledge
of Seller threatened, against Genco in any court, by any
governmental entity or before any arbitrator or other tribunal.
Neither Genco nor any of its employees is subject to any
outstanding action, order, writ, judgment, injunction or decree
of any court or governmental entity.
Section 4.2 Provision of Additional Schedules upon Exercise. The
Schedule provided on the date hereof pursuant to Section 4.1 is valid as of the
date hereof. On or before the date on which the Audited Balance Sheet is
delivered to Buyer, Seller will provide Buyer and each Investment Banker with an
updated Schedule valid as of the Exercise Date. If the Buyer determines that any
such update contains evidence of any change or event which has had a Material
Adverse Effect since the date hereof, Buyer must notify Seller within thirty
days of the delivery of such update if it intends to revoke its exercise of the
Right. Upon delivery of such notice, this Agreement shall immediately terminate
and no party shall have any further obligation or right hereunder. After the
expiration of such thirty day period, Buyer (unless it shall have prior to such
expiration delivered such notice) shall be legally bound by its exercise of the
Right.
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<PAGE>
Section 4.3 Representations and Warranties of Buyer. Except as
otherwise disclosed to Seller in writing, Buyer represents and warrants to the
Seller on the date hereof and on the Closing Date as follows:
(a) Power and Authority. Buyer has all requisite power
and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Buyer has duly authorized
the execution, delivery and performance of this Agreement. This
Agreement is the legal, valid and binding obligation of Buyer
and (assuming that this Agreement has been duly authorized,
executed and delivered by Seller) is enforceable against Buyer
in accordance with its terms.
(b) Applicability of HSR Act. Buyer is an agency of
the State of New York and is not a "corporation engaged in
commerce" within the meaning of the HSR Act as of either the
date hereof, the Exercise Date or the Closing Date.
ARTICLE 5
COVENANTS
Section 5.1 Covenants of Seller. After the date hereof and prior to
the Closing Date or earlier termination of this Agreement, Seller agrees on its
own behalf or agrees that it will cause Genco to act, as the case may be, as
follows, except as expressly contemplated or permitted in this Agreement or to
the extent the other parties hereto shall otherwise consent in writing:
(a) No transfer of Seller's interest in Genco without
Prior Approval. Seller is not permitted to transfer or to
permit its subsidiaries to transfer any or all of its or their
right, title and interest in and to all of the Interests,
except where the intended transferee: (i) is a direct or
indirect wholly owned subsidiary of Seller; (ii) executes and
delivers a copy of this Agreement to Buyer; and (iii) assumes
in writing all of Seller's obligations with respect hereto.
(b) Ordinary Course of Business. Genco shall carry on
its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use
all commercially reasonable efforts to preserve intact its
present business organization and goodwill and preserve the
goodwill and relationships with customers, suppliers and others
having business dealings with it. Genco may, with the prior
approval of Buyer, engage in transactions out of the ordinary
course of business relating to the Generating Facilities, such
approval not to be unreasonably withheld.
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<PAGE>
(c) No Change in Business. Genco shall not engage in
any new lines of business or make any material change in the
line of business in which it engages as of the date hereof
other than as contemplated or permitted by the Power Supply
Agreement.
(d) Maintenance of Assets. In the conduct of its
business, Genco shall endeavor to maintain all of its right,
title and interest in and to the Generating Facilities, which
shall include, without limitation:
(i) Capital Assets. All equipment, computers,
photocopy machines and other tangible personal
property owned by Genco and used by Genco in the
ordinary course of the Business, subject to
replacement or retirement in the ordinary course
of business;
(ii) Records and Documentation. All books, records,
files, working papers, correspondence, memoranda
and other documentation relating to any services
rendered by Genco in the Business and otherwise
related to the assets, properties and rights
referred to in clause (i) of this Section.
(e) No Acquisitions. Genco shall not acquire, or
publicly propose to acquire, or agree to acquire, by merger or
consolidation with, or by purchase or otherwise, a substantial
equity interest in or a substantial portion of the assets of,
any business or any corporation, partnership, association or
other business organization or division thereof, nor shall any
party acquire or agree to acquire, a material amount of assets
other than in the ordinary course of business.
(f) No Dispositions. Genco shall not sell, lease,
license or otherwise dispose of the Generating Facilities,
other than dispositions in the ordinary course of its business
and other than dispositions of less than $10 million in the
aggregate.
(g) Transmission, Generation. Except as required
pursuant to tariffs on file with the Federal Energy Regulatory
Commission as of the date hereof, in the ordinary course of
business consistent with past practice or as contemplated or
permitted by the Power Supply Agreement, Genco shall not (i)
commence construction of any additional electric generating
capacity, or (ii) obligate itself to purchase or otherwise
acquire, or to sell or otherwise dispose of, or to share, any
additional electric generating capacity.
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<PAGE>
(h) Cooperation, Notification. Commencing on the third
anniversary hereof, Genco shall: (i) during reasonable business
hours and upon reasonable notice, allow Buyer and its
authorized representatives to make such investigation of the
business, property, books and records of Genco, and to conduct
such examinations and to confer with the officers and employees
of Genco, as Buyer deems reasonably necessary for purposes of
verifying the accuracy of Genco's representations and
warranties hereunder and compliance with the terms hereof; (ii)
confer on a regular and frequent basis with one or more
representatives of Buyer to discuss, subject to applicable law,
material operational matters and the general status of its
ongoing operations; (iii) promptly notify Buyer of any
significant changes in its business, properties, assets,
condition (financial or other), results of operations or
prospects; (iv) advise Buyer of any change or event which has
had or, insofar as reasonably can be foreseen, is reasonably
likely to result in a Material Adverse Effect; and (v) promptly
provide Buyer with copies of all filings made by Genco with any
state or federal court, administrative agency, commission or
other Governmental Authority in connection with this Agreement
and the transactions contemplated hereby. Genco shall provide
similar access to each Investment Banker and the investment
bankers, if any, appointed pursuant to Section 3.2.
(i) Reasonable Access for Consulting Engineers. From
the date hereof until the completion of the Engineer's
Report pursuant to Section 2.1 and, if required, the receipt
of Confirmation pursuant to Section 2.5, LIPA's consulting
engineer shall have a right of unrestricted access to the
Generating Facilities at such times and for such purposes as
it reasonably deems necessary and desirable for the purpose
of preparing the Engineer's Report; provided, however, that:
(i) such access shall not be granted outside normal
business hours, except with reasonable notice;
(ii) such consulting engineer shall comply with any
on-site safety policies and procedures;
(iii) such access shall only be for the
purpose of preparing the Engineer's
Report and any information obtained
therefrom shall only be used for
such purpose; and
(iv) if Seller so requests, such access shall
only be granted subject to such consulting
engineer executing and complying with the
terms of a confidentiality agreement in a
mutually acceptable form, subject to any
applicable Laws.
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<PAGE>
(j) Third-Party Consents. Genco and Seller shall use
all commercially reasonable efforts to obtain all required
consents for the exercise of the Right. Genco shall promptly
notify Buyer of any failure or prospective failure to obtain
any such consents and, if requested by Buyer, shall provide
copies of all required consents obtained to Buyer.
(k) No Breach, Etc. Genco and Seller shall not
willfully take any action that would or is reasonably likely to
result in a material breach of any provision of this Agreement
or in any of its representations and warranties set forth in
this Agreement, being untrue on and as of the Closing Date.
(l) Tax-Exempt Status. Genco shall not take any action
that would likely jeopardize the qualification of Genco's
outstanding revenue bonds which qualify on the date hereof
under Section 142(a) of the Code as "exempt facility bonds" or
as tax-exempt industrial development bonds under Section
103(b)(4) of the Internal Revenue Code of 1954, as amended,
prior to the Tax Reform Act of 1986.
(m) Permits. Genco shall use reasonable efforts to
maintain in effect all existing permits for the Business.
(n) Transfer of Additional Assets. Prior to the
Closing Date, Parent will cause to be transferred to Genco,
to the extent controlled by Parent and not already owned by
Genco, any Additional Assets.
Section 5.2 Covenants of Buyer. After the Exercise Date and prior to
the Closing Date or earlier termination of this Agreement, Buyer agrees as
follows, except as expressly contemplated or permitted in this Agreement or to
the extent the other parties hereto shall otherwise consent in writing:
(a) Third-Party Consents. Buyer shall use all
commercially reasonable efforts to obtain all required
third-party consents. Buyer shall promptly notify Seller and
Genco of any failure or prospective failure to obtain any such
consents and, if requested by Seller or Genco, shall provide
copies of all such consents obtained to Seller and Genco.
(b) No Breach, Etc. Buyer shall not willfully take any
action that would or is reasonably likely to result in a
material breach of any provision of this Agreement or in any of
its representations and warranties set forth in this Agreement
being untrue on and as of the Closing Date.
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<PAGE>
(c) Buyer Actions. Buyer shall take only those
actions, from the date hereof until the Closing Date, that are
required or contemplated by this Agreement to be so taken by
Buyer, including, without limitation, the declaration, filing
or registration with, or notice to or authorization, consent or
approval of, any Governmental Authority.
Section 5.3 Additional Agreements.
(a) Notification of Certain Matters. Commencing on the
third anniversary hereof, each party hereto shall give prompt
notice to the other parties hereto of (i) the occurrence or
failure to occur of any event, which occurrence or failure
would be reasonably likely to cause any representation or
warranty of such party contained herein to be untrue or
inaccurate in any material respect at any time, (ii) any
material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or
satisfied by it hereunder, and (iii) any newly discovered fact
or circumstance that might reasonably be expected to have a
material effect on the accuracy of any representation or
warranty of such party contained herein.
(b) No Layoffs or Salary Cuts. For a period of two
years following the Closing Date, Buyer shall not cause or
permit to occur any layoffs or salary cuts to any non-union
Genco personnel.
(c) Management Contract. If Buyer elects in the
Exercise Notice to retain Seller or an Affiliate of Seller to
operate the Generating Facilities, the parties will negotiate
in good faith the terms and conditions of a mutually acceptable
agreement therefor.
(d) Easements. Prior to the Closing Date, Genco may
grant Seller an irrevocable and perpetual easement for the
installation, maintenance and access of and to any assets of
Seller or its affiliates or subsidiaries located on or under
such property, provided if Seller's use of such easement
materially interferes with either the physical operation of any
generating facilities or with Buyer's environmental compliance,
Seller shall compensate Buyer for the adverse impact on Buyer
of such interference.
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ARTICLE 6
GENERAL PROVISIONS
Section 6.1 Notices. All notices and other communications given or
made pursuant to this Agreement shall be in writing and shall be deemed to have
been duly given or made if (i) sent by registered or certified mail, return
receipt requested, or (ii) hand delivered, or (iii) sent by prepaid overnight
carrier, with a record of receipt, to the parties at the following addresses (or
at such other addresses as shall be specified by the parties by like notice):
(a) if to Buyer:
Richard Kessel
Chairman of the Board
Long Island Power Authority
333 Earle Ovington Blvd, Suite 403
Uniondale, NY 11553
with copies to:
Patrick Foye
Deputy Chairman of the Board
Long Island Power Authority
333 Earle Ovington Blvd, Suite 403
Uniondale, NY 11553
and to:
Winthrop, Stimpson, Putnam & Roberts
One Battery Park Plaza
New York, N.Y. 10004
Attn: Stephen R. Rusmisel
(b) if to Seller:
Long Island Lighting Company
175 East Old Country Road
Hicksville, N.Y. 11801
Attn: Chief Executive Officer
with copies to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attn: Thomas E. Constance
Each notice or communication shall be deemed to have been given on the date
received.
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<PAGE>
Section 6.2 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 6.3 Miscellaneous. This Agreement, together with the
Exhibits and Schedules annexed hereto: (i) constitute the entire agreement and
supersede all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
thereof; (ii) shall be binding upon and inure to the benefit of the parties
hereto and thereto and their respective successors and permitted assigns and,
except as expressly provided under the terms of any Exhibit, are not intended to
confer upon any other Person, any rights or remedies hereunder or thereunder;
(iii) shall be governed, including, without limitation, as to validity,
interpretation and effect, by the Laws of the State of New York, without regard
to the principles of conflicts of laws; and (iv) may be executed in two or more
counterparts which together shall constitute a single agreement.
Section 6.4 Assignment.
(a) Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the
other parties, except, in the case of Buyer, to LILCO and, in
the case of Seller, to any direct or indirect wholly owned
subsidiary or other legal entity of Seller to which it also
assigns all of the Interests. No party shall be relieved of any
liability arising hereunder in respect of any assignment
pursuant to this Section, unless such assignor has received a
written release expressly excepting such assignor from any
liability that may arise hereunder.
(b) Effective upon the Closing, Seller shall assign
its rights, obligations and interests hereunder to the
Parent.
Section 6.5 Schedules. Any information set forth on any Schedules
annexed hereto shall, to the extent applicable, be deemed to be included on each
other appropriate Schedule annexed to this Agreement.
Section 6.6 Waiver; Amendment. No waiver by any party hereto of any
term, condition or Obligation of this Agreement shall be valid unless in writing
and signed by the waiving party. No failure or delay by any party hereto at any
time to require any other party hereto to perform strictly in accordance with
the terms hereof shall preclude any party from requiring performance by such
other party hereto at any later time. No waiver of any one or several of the
terms, conditions or obligations of this Agreement, and no partial waiver
thereof, shall be construed as a
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<PAGE>
waiver of any of the other terms, conditions or obligations of this Agreement.
This Agreement may not be amended, changed or modified in any fashion except by
written instrument signed by each of the parties hereto.
Section 6.7 Issue Taxes. Buyer alone shall bear, to the extent
allowed by law, all documentary transfer, and similar taxes levied under the
laws of the United States of America or any State or local taxing authority
thereof or therein in connection with the sale of the Interests.
Section 6.8 Fees and Expenses. All fees, costs and expenses incurred
in connection with the execution and delivery of this Agreement shall be paid by
the party incurring such fees, costs or expenses; provided, however, that Buyer
shall pay all of the fees and expenses of the Investment Bankers and the
investment bankers, if any, selected pursuant to Section 3.2; provided, further,
that such fees and expenses shall have been agreed to by Buyer in advance (such
agreement not to be unreasonably withheld or delayed).
Section 6.9 Alternative Dispute Resolution
(a) Any dispute arising out of or relating to this Agreement, other than
disputes regarding the Purchase Price to be settled pursuant to Section 3.2
herein, shall be resolved in accordance with the procedures specified in this
Section, which shall constitute the sole and exclusive procedures for the
resolution of such disputes.
(b) The parties agree to use their best efforts to settle promptly any
disputes or claims arising out of or relating to this Agreement through
negotiation conducted in good faith between executives having authority to reach
such a settlement. If either party hereto shall so request, the parties shall
mutually agree on the selection of a mediator who shall mediate the negotiations
which shall be non-binding.
All negotiations and mediation discussions pursuant to this
paragraph are confidential and shall be treated as compromise and
settlement negotiations for purposes of Federal Rule of Evidence 408 and
applicable state rules of evidence.
(c) Any dispute arising out of or relating to this Agreement or the
breach, termination, or validity thereof, which dispute has not been resolved by
a negotiation or mediation as provided in paragraph (b) hereof within 60 days
from the date that either negotiations or mediation shall have been first
requested, shall be settled by binding arbitration before three independent and
impartial arbitrators in accordance with the then current rules of the American
Arbitration Association, except to the extent such rules are inconsistent with
any provision of this
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<PAGE>
Agreement, in which case the provisions of this Agreement shall be followed, and
except that the arbitrations under this Agreement shall not be administered by
the American Arbitration Association. The Arbitrators shall be (i) independent
of the parties and disinterested in the outcome of the dispute, (ii) attorneys,
accountants, investment bankers, commercial bankers or engineers familiar with
contracts governing the operation of electric utility assets, and (iii)
qualified in the subject area of the issue in dispute. For purposes of the
preceding sentence, residents of Long Island shall not be considered interested
merely by virtue of their residence. The Arbitrators shall be chosen by the
parties, with each party choosing one arbitrator and those arbitrators choosing
the third arbitrator. Judgment on the award rendered by the Arbitrators may be
entered in any court in the State of New York having jurisdiction thereof. If
either party refuses to participate in good faith in the negotiations or
mediation proceedings described in paragraph (b) hereof, the other may initiate
arbitration at any time after such refusal without waiting for the expiration of
the 60 day period. Except as provided in Paragraph D hereof relating to
provisional remedies, the Arbitrators shall decide all aspects of any dispute
brought to them including attorney disqualification and the timeliness of the
making of any claim.
(d) Either party may, without prejudice to any negotiation, mediation, or
arbitration procedures, proceed in any court to seek provisional judicial relief
if, in such party's sole discretion, such action is necessary to avoid imminent
irreparable harm, to provide uninterrupted electrical and other services, or to
preserve the status quo pending the conclusion of the dispute procedures
specified in this Section.
(e) The Arbitrators shall have no authority to award punitive damages or
any other damages aside from the prevailing party's actual and consequential
damages, plus interest thereon at the Best Interest Rate (as defined in the
Management Services Agreement), accrued from the date such damages were
incurred. The Arbitrators shall not have the authority to make any ruling,
finding, or award that does not conform to the terms and conditions of this
Agreement.
(f) The Arbitrators may award reasonable attorneys' fees and costs of the
arbitration.
(g) Any claim under this Agreement shall be time- barred, regardless of
any statute of limitations periods provided by state or federal law, unless
negotiation or mediation with respect thereto is commenced with respect to such
claim within twelve months after the basis for such claim has been discovered.
(h) The Arbitrators shall have the discretion to order a pre-hearing
exchange of information by the parties,
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<PAGE>
including, without limitation, the production of requested documents, the
exchange of summaries of testimony of proposed witnesses, and the examination by
deposition of parties. Each of the parties agrees to produce all such requested
documents and to deliver to the other a certificate, executed by a senior
executive of such party, stating that all such documents have been so produced.
(i) The site of any Arbitration brought pursuant to this Agreement shall
be Mineola or Hauppauge, New York.
(j) The Arbitrator's award shall be in writing and shall set forth the
factual and legal bases for the award.
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<PAGE>
IN WITNESS WHEREOF, each party hereto has duly executed this
Agreement as of the date first above written.
LONG ISLAND LIGHTING COMPANY, as Seller
By:______________________________
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
LONG ISLAND POWER AUTHORITY, as Buyer
By:______________________________
Name: Richard M. Kessel
Title: Chairman
By:______________________________
Name: Patrick Foye
Title: Deputy Chairman
Acknowledged and agreed to, as of the Closing, by:
GENCO
By:______________________________
Name:
Title:
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<PAGE>
EXHIBIT E
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GUARANTY AGREEMENT
from
BL HOLDING CORP.
to
LONG ISLAND POWER AUTHORITY
Dated
________, 199__
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT is made and dated _______, 199__, from BL
HOLDING CORP., a corporation organized and existing under the laws of the State
of New York (together with any permitted successors and assigns hereunder, the
"Guarantor"), to Long Island Power Authority (together with its subsidiaries and
other permitted assignees of the Agreements (as defined below), the
"Authority").
RECITALS
The Authority and various affiliates of the Guarantor, a New York
corporation, have entered into a series of agreements, including a Management
Services Agreement dated as of June 26, 1997 (the "Management Services
Agreement") whereby Long Island Lighting Company, as Manager, has agreed to
operate, maintain and manage the Authority's electricity transmission and
distribution system (the "T&D System"), a Power Supply Agreement dated as of
June 26, 1997 (the "Power Supply Agreement"), whereby GENCO has agreed to sell
capacity and energy to the Authority, and an Energy Management Agreement dated
as of June 26, 1997 (the "Energy Management Agreement") whereby the Energy
Manager has agreed to manage the System Power Supply and purchase Fuel for use
in the operation of the generating facilities of GENCO (collectively, the
"Agreements"), all as more particularly described therein.
Each of the Manager, the Energy Manager and GENCO (the "Subsidiaries")
is a subsidiary of the Guarantor.
The Authority will enter into the Agreements only if the Guarantor
guarantees the performance by the Manager of all of the Subsidiaries'
responsibilities and obligations under the Agreements as set forth in this
Guaranty Agreement ("the Guaranty").
In order to induce the execution and delivery of the Agreements by the
Authority and in consideration thereof, the Guarantor agrees as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS. For the purposes of this Guaranty, the
following words and terms shall have the respective meanings set forth as
follows. Any capitalized word or term used but not defined herein is used as
defined in the Agreements.
"Obligations" means the amounts payable by, the obligations to perform
of, and the covenants and agreements of, the Subsidiaries pursuant to the terms
of the Agreements as they may be amended from time to time.
"Transaction Agreement" means any agreement entered into by the
Subsidiaries or the Authority in connection with the transactions contemplated
by the Agreements, including the Acquisition Agreement, the Basic Agreements (as
defined in the Acquisition Agreement) and any amendments or supplements thereto.
SECTION 1.2. INTERPRETATION. In this Guaranty, unless the context
otherwise requires:
(A) References Hereto. The terms "hereby", "hereof", "herein",
"hereunder" and any similar terms refer to this Guaranty, and the term
"hereafter" means after, and the term "heretofore" means before, the date of
execution and delivery of this Guaranty.
(B) Gender and Plurality. Words of the masculine gender mean and
include correlative words of the feminine and neuter genders and words importing
the singular number mean and include the plural number and vice versa.
(C) Persons. Words importing persons include firms, companies,
associations, general partnerships, limited partnerships, trusts, business
trusts, corporations and other legal entities, including public bodies, as well
as individuals.
(D) Headings. The table of contents and any headings preceding the text
of the Articles, Sections and subsections of this Guaranty shall be solely for
convenience of reference and shall not constitute a part of this Guaranty, nor
shall they affect its meaning, construction or effect.
(E) Entire Agreement; Authority. This Guaranty and the Agreements
constitute the entire agreement between the parties hereto with respect to the
transactions contemplated by this Guaranty. Nothing in this Guaranty is intended
to confer on any person other than the
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Guarantor, the Authority and their successors and assigns as permitted hereunder
any rights or remedies under or by reason of this Guaranty.
(F) Counterparts. This Guaranty may be executed in any number of
original counterparts. All such counterparts shall constitute but one and the
same Guaranty.
(G) Applicable Law. This Guaranty shall be governed by and construed in
accordance with the applicable laws of the State of New York.
(H) Severability. If any clause, provision, subsection, Section or
Article of this Guaranty shall be ruled invalid by any court of competent
jurisdiction, the invalidity of any such clause, provisions, subsection, Section
or Article shall not affect any of the remaining provisions hereof, and this
Guaranty shall be construed and enforced as if such invalid portion did not
exist provided that such construction and enforcement shall not increase the
Guarantor's liability beyond that expressly set forth herein.
(I) Approvals. All approvals, consents and acceptances required to be
given or made by any party hereto shall be at the sole discretion of the party
whose approval, consent or acceptance is required.
(J) Payments. All payments required to be made by the Guarantor
hereunder shall be made in lawful money of the United States of America.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR
SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR. The
Guarantor hereby represents and warrants that:
(1) Existence and Powers. The Guarantor is duly organized and validly
existing as a corporation under the laws of the State of New York, with full
legal right, power and authority to enter into and perform its obligations under
this Guaranty.
(2) Due Authorization and Binding Obligation. The Guarantor has duly
authorized the execution and delivery of this Guaranty, and this Guaranty has
been duly executed and delivered by the Guarantor and constitutes the legal,
valid and binding obligation of the Guarantor, enforceable against the Guarantor
in accordance with its terms except insofar as such enforcement may be affected
by bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally.
(3) No Conflict. Neither the execution or delivery by the Guarantor of
this Guaranty nor the performance by the Guarantor of its obligations hereunder
(a) to the Guarantor's knowledge conflicts with, violates or results in a breach
of any law or governmental regulation applicable to the Guarantor, (b) conflicts
with, violates or results in a material breach of any term or condition of the
Guarantor's corporate charter or by-laws or any judgment, decree, agreement or
instrument to which the Guarantor is a party or by which the Guarantor or any of
its properties or assets are bound, or constitutes a default under any such
judgment, decree, agreement or instrument or (c) will result in the creation or
imposition of any material encumbrance of any nature whatsoever upon any of the
properties or assets of the Guarantor except as permitted hereby or by any
Transaction Agreement.
(4) No Governmental Approval Required. No approval, authorization,
order or consent of, or declaration, registration or filing with, any
governmental authority is required for the valid execution and delivery by the
Guarantor of this Guaranty, except such as shall have been duly obtained or
made.
(5) No Litigation. Except as disclosed in the Guarantor's filings with
the Securities and Exchange Commission pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, there is no action, suit or other
proceeding, at law or in equity, before or by any court or governmental
authority, pending or, to the Guarantor's knowledge, threatened against the
Guarantor which has a likelihood of an unfavorable decision, ruling or finding
that would materially and adversely affect the validity or enforceability of
this Guaranty.
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(6) No Legal Prohibition. The Guarantor has no knowledge of any
Applicable Law in effect on the date as of which this representation is being
made which would prohibit the performance by the Guarantor of this Guaranty.
(7) Consent to Agreements. The Guarantor is fully aware of and consents
to the terms and conditions of the Agreements.
(8) Consideration. This Guaranty is made in furtherance of the purposes
for which the Guarantor has been organized, and the assumption by the Guarantor
of its obligations hereunder will result in a material benefit to the Guarantor.
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ARTICLE III
GUARANTY COVENANTS
SECTION 3.1. GUARANTY TO THE AUTHORITY. The Guarantor hereby
absolutely, presently, irrevocably and unconditionally guarantees to the
Authority for the benefit of the Authority (1) the full and prompt payment when
due of each and all of the payments required to be credited or made by each of
the Subsidiaries under the Agreements (including all amendments and supplements
thereto) to, or for the account of, the Authority, and (2) the full and prompt
performance and observance of each and all of the Obligations. Notwithstanding
the unconditional nature of the Guarantor's obligations as set forth herein, the
Guarantor shall have the right to assert the defenses provided in Section 3.4
hereof against claims made under this Guaranty.
SECTION 3.2. RIGHT OF AUTHORITY TO PROCEED AGAINST GUARANTOR. This
Guaranty shall constitute a guaranty of payment and of performance and not of
collection, and the Guarantor specifically agrees that in the event of a failure
by any Subsidiary to pay or perform any Obligation guaranteed hereunder, the
Authority shall have the right to proceed first and directly against the
Guarantor under this Guaranty and without proceeding against such Subsidiary or
exhausting any other remedies against such Subsidiary which the Authority may
have. Without limiting the foregoing, the Guarantor agrees that it shall not be
necessary, and that the Guarantor shall not be entitled to require, as a
condition of enforcing the liability of the Guarantor hereunder, that the
Authority (1) file suit or proceed to obtain a personal judgment against any
Subsidiary, (2) make any other effort to obtain payment or performance of the
Obligations from the Subsidiary other than providing the Subsidiary with any
notice of such payment or performance as may be required by the terms of the
Agreements or required to be given to the Subsidiary under Applicable Law, (3)
foreclose against or seek to realize upon any security for the Obligations, or
(4) exercise any other right or remedy to which the Authority is or may be
entitled in connection with the Obligations or any security therefor or any
other guarantee thereof, except to the extent that any such exercise of such
other right or remedy may be a condition to the Obligations of the Subsidiaries
or to the enforcement of remedies under the Agreements. Upon any unexcused
failure by any Subsidiary in the payment or performance of any Obligation and
the giving of such notice or demand, if any, to the Subsidiaries as may be
required in connection with such Obligation, the liability of the Guarantor
shall be effective and shall immediately be paid or performed. Notwithstanding
the Authority's right to proceed directly against the Guarantor, the Authority
(or any successor) shall not be entitled to more than a single full performance
of the obligations in regard to any breach or non-performance thereof.
SECTION 3.3. GUARANTY ABSOLUTE AND UNCONDITIONAL. Except as set forth
in Section 3.4 hereof, the obligations of the Guarantor hereunder are absolute,
present,
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irrevocable and unconditional and shall remain in full force and effect until
the Subsidiaries shall have fully discharged the Obligations in accordance with
their respective terms, and except as provided in Section 3.4 hereof, shall not
be subject to any counterclaim, set-off, deduction or defense (other than full
and strict compliance with, or release, discharge or satisfaction of, such
Obligations) based on any claim that the Guarantor may have against the
Subsidiaries, the Authority or any other person. Without limiting the foregoing,
the obligations of the Guarantor hereunder shall not be released, discharged or
in any way modified by reason of any of the following (whether with or without
notice to, knowledge by or further consent of the Guarantor):
(1) the extension or renewal of this Guaranty or the Agreements
in accordance with the terms of each Agreement;
(2) any exercise or failure, omission or delay by the Authority
in the exercise of any right, power or remedy conferred on the
Authority with respect to this Guaranty or the Agreements except to
the extent such failure, omission or delay gives rise to an applicable
statute of limitations defense with respect to a specific claim;
(3) any permitted transfer or assignment of rights or obligations
under the Agreements or under any other Transaction Agreement by any
party thereto or any permitted assignment, conveyance or other
transfer of any of their respective interests in the GENCO Generating
Facilities or the T&D System or in, to or under any of the Transaction
Agreements;
(4) any permitted assignment for the purpose of creating a
security interest or mortgage of all or any part of the respective
interests of the Authority or any other person in any Transaction
Agreement or in the GENCO Generating Facilities or the T&D System;
(5) any renewal, amendment, change or modification in respect of
any of the Obligations or terms or conditions of any Transaction
Agreement;
(6) any failure of title with respect to all or any part of the
respective interests of any person in the GENCO Generating Facilities
or the T&D System;
(7) the voluntary or involuntary liquidation, dissolution, sale
or other disposition of all or substantially all the assets,
marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
moratorium, arrangement, composition with creditors or readjustment
of, or other similar proceedings against the Subsidiaries or the
Guarantor, or any of the property of either of them, or any allegation
or contest of the validity of this Guaranty or any other Transaction
Agreement in any such proceeding (it is specifically understood,
consented and agreed to that, to the extent permitted by law, this
Guaranty shall remain and continue in full force and effect and shall
be enforceable against the Guarantor to the
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same extent and with the same force and effect as if any such
proceeding had not been instituted and as if no rejection, stay,
termination, assumption or modification has occurred as a result
thereof, it being the intent and purpose of this Guaranty that the
Guarantor shall and does hereby waive all rights and benefits which
might accrue to it by reason of any such proceeding);
(8) except as permitted by Sections 4.1 or 4.2 hereof, any sale
or other transfer by the Guarantor or any Affiliate of any of the
capital stock or other interest of the Guarantor or any Affiliate in
the Subsidiaries now or hereafter owned, directly or indirectly, by
the Guarantor or any Affiliate, or any change in composition of the
interests in the Subsidiaries;
(9) any failure on the part of the Subsidiaries for any reason to
perform or comply with any agreement with the Guarantor;
(10) the failure on the part of the Authority to provide any
notice to the Guarantor which is not required to be given to the
Subsidiaries as a condition to the enforcement of Obligations pursuant
to the Agreements;
(11) any failure of any party to the Transaction Agreements to
mitigate damages resulting from any default by the Subsidiaries or the
Guarantor under any Transaction Agreement;
(12) the merger or consolidation of any party to the Transaction
Agreements into or with any other person, or any sale, lease,
transfer, abandonment or other disposition of any or all of the
property of any of the foregoing to any person;
(13) any legal disability or incapacity of any party to the
Transaction Agreements; or
(14) the fact that entering into any Transaction Agreement by the
Subsidiaries or the Guarantor was invalid or in excess of the powers
of such party.
Should any money due or owing under this Guaranty not be recoverable from the
Guarantor due to any of the matters specified in subparagraphs (1) through (14)
above, then, in any such case, such money, together with all additional sums due
hereunder, shall nevertheless be recoverable from the Guarantor as though the
Guarantor were principal obligor in place of the Subsidiaries pursuant to the
terms of the Agreements and not merely a guarantor and shall be paid by the
Guarantor forthwith. Notwithstanding anything to the contrary expressed in this
Guaranty, nothing in this Guaranty shall be deemed to amend, modify, clarify,
expand or reduce the Subsidiaries's rights, benefits, duties or obligations
under the Agreements. To the extent that any of the matters specified in
subparagraphs (1) through (6) and (8) through (14) would provide
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a defense to, release, discharge or otherwise affect the Subsidiaries's
Obligations, the Guarantor's obligations under this Guaranty shall be treated
the same.
SECTION 3.4. DEFENSES, SET-OFFS AND COUNTERCLAIMS. Notwithstanding any
provision contained herein to the contrary, the Guarantor shall be entitled to
exercise or assert any and all legal or equitable rights or defenses which the
Subsidiaries may have under the Agreements or under Applicable Law (other than
bankruptcy or insolvency of the Subsidiaries and other than any defense which
the Subsidiaries has expressly waived in the Agreements), and the obligations of
the Guarantor hereunder are subject to such counterclaims, set-offs or
deductions which the Subsidiaries is permitted to assert pursuant to the
Agreements if any. The Guarantor reserves the right to bring independent claims
against the Authority not arising from the Agreements, provided however, any
such claims shall not be used to set-off or deduct from any claims which the
Authority may have against the Guarantor arising from this Guaranty.
SECTION 3.5. WAIVERS BY THE GUARANTOR. The Guarantor hereby
unconditionally and irrevocably waives:
(1) notice from the Authority of its acceptance of this Guaranty;
(2) notice of any of the events referred to in Section 3.3 hereof
except to the extent that notice is required to be given as a
condition to the enforcement of Obligations;
(3) to the fullest extent lawfully possible, all notices which
may be required by statute, rule of law or otherwise to preserve
intact any rights against the Guarantor, except any notice to the
Subsidiaries required pursuant to the Agreements or Applicable Law as
a condition to the performance of any Obligation;
(4) to the fullest extent lawfully possible, any statute of
limitations defense based on a statute of limitations period which may
be applicable to guarantors (or parties in similar relationships)
which would be shorter than the applicable statute of limitations
period for the underlying claim;
(5) any right to require a proceeding first against the
Subsidiaries;
(6) any right to require a proceeding first against any person or
the security provided by or under any Transaction Agreement except to
the extent such Transaction Agreement specifically requires a
proceeding first against any person (except the Subsidiaries) or
security;
(7) any requirement that the Subsidiaries be joined as a party to
any proceeding for the enforcement of any term of any Transaction
Agreement;
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(8) the requirement of, or the notice of, the filing of claims by
the Authority in the event of the receivership or bankruptcy of the
Subsidiaries; and
(9) all demands upon the Subsidiaries or any other person and all
other formalities the omission of any of which, or delay in
performance of which, might, but for the provisions of this Section
3.5, by rule of law or otherwise, constitute grounds for relieving or
discharging the Guarantor in whole or in part from its absolute,
present, irrevocable, unconditional and continuing obligations
hereunder.
SECTION 3.6. PAYMENT OF COSTS AND EXPENSES. The Guarantor agrees to pay
the Authority on demand all reasonable costs and expenses, legal or otherwise
(including counsel fees), incurred by or on behalf of the Authority in
successfully enforcing by Legal Proceeding observance of the covenants,
agreements and obligations contained in this Guaranty against the Guarantor,
other than the costs and expenses that the Authority incurs in performing any of
its obligations under the Agreements, or other applicable Transaction Agreement
where such obligations are a condition to performance by the Subsidiaries of its
Obligations.
SECTION 3.7. SUBORDINATION OF RIGHTS. The Guarantor agrees that any
right of subrogation or contribution which it may have against the Subsidiaries
solely as a result of any payment or performance hereunder is hereby fully
subordinated to the rights of the Authority hereunder and under the Transaction
Agreements and that the Guarantor shall not recover or seek to recover any
payment made by it hereunder from the Subsidiaries until the Subsidiaries and
the Guarantor shall have fully and satisfactorily paid or performed and
discharged the Obligations giving rise to a claim under this Guaranty.
SECTION 3.8. SEPARATE OBLIGATIONS; REINSTATEMENT. The obligations of
the Guarantor to make any payment or to perform and discharge any other duties,
agreements, covenants, undertakings or obligations hereunder shall (1) to the
extent permitted by Applicable Law, constitute separate and independent
obligations of the Guarantor from its other obligations under this Guaranty, (2)
give rise to separate and independent causes of action against the Guarantor and
(3) apply irrespective of any indulgence granted from time to time by the
Authority. The Guarantor agrees that this Guaranty shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of the Subsidiaries is rescinded or must be otherwise restored by the Authority,
whether as a result of any proceedings in bankruptcy, reorganization or similar
proceeding, unless such rescission or restoration is pursuant to the terms of
the Agreements, or any applicable Transaction Agreement or the Subsidiaries's
enforcement of such terms under Applicable Law.
SECTION 3.9. TERM. This Guaranty shall remain in full force and effect
from the date of execution and delivery hereof until all of the Obligations of
the Subsidiaries have been fully paid and performed.
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ARTICLE IV
GENERAL COVENANTS
SECTION 4.1. MAINTENANCE OF CORPORATE EXISTENCE. (A) Consolidation,
Merger, Sale or Transfer. The Guarantor covenants that during the term of this
Guaranty it will maintain its corporate existence, will not dissolve or
otherwise dispose of all or substantially all of its assets and will not
consolidate with or merge into another entity or permit one or more other
entities to consolidate with or merge into it unless the successor is the
Guarantor and the conditions contained in clause (2) below are satisfied;
provided, however, that the Guarantor may consolidate with or merge into another
entity, or permit one or more other entities to consolidate with or merge into
it, or sell or otherwise transfer to another entity all or substantially all of
its assets as an entirety and thereafter dissolve if (1) the successor entity
(if other than the Guarantor) (a) assumes in writing all the obligations of the
Guarantor hereunder and, if required by law, is duly qualified to do business in
the State, and (b) delivers to the Authority an opinion of counsel to the effect
that its obligations under this Guaranty are legal, valid, binding and
enforceable subject to applicable bankruptcy and similar insolvency or
moratorium laws, and (2) any such transaction does not result in a Material
Decline in Credit Standing of the Guarantor, as defined in Section 9.1 of the
Management Services Agreement or if such transaction results in a Material
Decline in Credit Standing of the Guarantor, as defined in Section 9.1 of the
Management Services Agreement, the Successor Guarantor provided credit
enhancement as required by Section 9.1 of the Management Services Agreement.
(B) Continuance of Obligations. If a consolidation, merger or sale or
other transfer is made as permitted by this Section 4.1, the provisions of this
Section 4.1 shall continue in full force and effect and no further
consolidation, merger or sale or other transfer shall be made except in
compliance with the provisions of this Section 4.1. No such consolidation,
merger or sale or other transfer shall have the effect of releasing the initial
Guarantor from its liability hereunder unless a successor entity has assumed
responsibility for this Guaranty as provided in this Section 4.1. and if such
transaction results in a Material Decline in Credit Standing of the Guarantor as
defined in Section 9.1 of the Management Services Agreement, the Successor
Guarantor shall provide credit enhancement as required by Section 9.1 of the
Management Services Agreement.
SECTION 4.2. ASSIGNMENT. Without the prior written consent of the
Authority, this Agreement may not be assigned by the Guarantor, except pursuant
to Section 4.1 hereof.
SECTION 4.3. QUALIFICATION IN STATE. The Guarantor agrees that, so long
as this Guaranty is in effect, if required by law, the Guarantor will be duly
qualified to do business in the State.
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SECTION 4.4. CONSENT TO JURISDICTION. The Guarantor irrevocably: (1)
agrees that any suit, action or other legal proceeding arising out of this
Guaranty shall be brought in the courts of the State of New York; (2) consents
to the jurisdiction of such court in any such suit, action or proceeding; (3)
waives any objection which it may have to the laying of the jurisdiction of any
such suit, action or proceeding in any of such courts.
SECTION 4.5. BINDING EFFECT. This Guaranty shall inure to the benefit
of the Authority and any successors and assigns to whom the Authority may assign
its interests in the Agreements and shall be binding upon the Guarantor and its
successors and assigns.
SECTION 4.6. AMENDMENTS, CHANGES AND MODIFICATIONS. This Guaranty may
not be amended, changed or modified or terminated and none of its provisions may
be waived, except with the prior written consent of the Authority and of the
Guarantor.
SECTION 4.7. LIABILITY. It is understood and agreed to by the Authority
that nothing contained herein shall create any obligation of or right to look to
any director, officer, employee or stockholder of the Guarantor (or any
affiliate thereof) for the satisfaction of any obligations hereunder, and no
judgment, order or execution with respect to or in connection with this Guaranty
shall be taken against any such director, officer, employee or stockholder.
SECTION 4.8. NOTICES. Any notices or communications required or
permitted hereunder shall be in writing and shall be sufficiently given if sent
by registered or certified mail, return receipt requested, postage prepaid,
delivered in person, or sent by nationally recognized overnight delivery
service, signature required upon signed receipt, to the following addresses, or
to such other addresses as any of the recipients may from time to time designate
by notice given in writing.
If to the Guarantor: c/o Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Attn: Chief Executive Officer
If to the Authority: Long Island Power Authority
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: Executive Director
With copy to: Chairman, Long Island Power Authority
333 Earle Ovington Boulevard
Uniondale, New York 11553
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IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed in its name and on its behalf by its duly authorized officer as of the
date first above written.
BL HOLDING CORP.
as Guarantor
By_________________
Name:
Title:
Accepted and Agreed to by:
LONG ISLAND POWER AUTHORITY
By:______________________________
Name: Richard M. Kessel
Title: Chairman
By:______________________________
Name: Patrick Foye
Title: Deputy Chairman
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EXHIBIT F
LIABILITIES UNDERTAKING AND INDEMNIFICATION AGREEMENT
UNDERTAKING dated as of June 26, 1997 by LONG ISLAND LIGHTING COMPANY,
a New York corporation ("LILCO") and _________________________/1/ (the
"Transferee Subsidiaries"), in favor of LONG ISLAND POWER AUTHORITY, a corporate
municipal instrumentality and political subdivision of the State of New York
("LIPA") and, as of the closing of the Merger Agreement (as herein defined), the
LONG ISLAND LIGHTING COMPANY, a New York corporation (the "Surviving
Corporation"). All references herein to the Surviving Corporation shall mean
LILCO after the Effective Time (as defined in the Merger Agreement). All
references herein to LILCO shall mean Long Island Lighting Company prior to the
Effective Time.
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement and Plan of Exchange and Merger (the
"Merger Agreement") dated as of June 26, 1997 among Parent (used herein as
therein defined), LILCO, LIPA and LIPA Acquisition Corp., a New York corporation
("LIPA Sub"), LIPA Sub is to merge with and into LILCO;
WHEREAS, pursuant to the Merger Agreement, the assets and properties of
LILCO set forth on Schedule A thereto are to be transferred to the Transferee
Subsidiaries (the "Transferred Assets") and the balance of LILCO's assets and
properties are to be retained by the Surviving Corporation (the "Retained
Assets"); and
WHEREAS, in partial consideration therefor, the Merger Agreement
requires LILCO and each of the Transferee Subsidiaries to execute and deliver to
LIPA and the Surviving Corporation this Undertaking;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which by LILCO and the
Transferee Subsidiaries are hereby acknowledged, LILCO and the Transferee
Subsidiaries hereby agree as follows:
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/1/ Pursuant to the Merger Agreement (as herein defined), prior to the
Closing (as therein defined), LILCO will form one or more wholly owned
subsidiaries for the purpose of receiving certain of its assets, which
subsidiary or subsidiaries will enter into this Agreement.
<PAGE>
1. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to them in the Merger Agreement.
2. LILCO and the Transferee Subsidiaries, jointly and severally, hereby
undertake, assume and agree, subject to the limitations contained herein, to pay
or discharge, when due:
a. Unpaid debts, liabilities or obligations of Parent, LILCO, Surviving
Corporation or the Transferee Subsidiaries relating to the Transferred
Assets, including, without limitation, liabilities or obligations
relating to the Transferred Assets resulting or arising from: (i)
claims for personal injury or property damage, or (ii) non-
performance of any contract, commitment or obligation imposed by law
or otherwise; and
b. Except as provided in Section 6.8 of the Generation Purchase Right
Agreement, legal, accounting, investment banking, engineering and
similar fees or other transaction expenses ("Transaction Expenses")
incurred by Parent, LILCO or the Transferee Subsidiaries in connection
with the Merger Agreement and the other Basic Agreements or the
consummation of the transactions contemplated thereby; and
c. Taxes as defined in Schedule D imposed on Parent, LILCO or the
Transferee Subsidiaries or for which Parent, LILCO or the Transferee
Subsidiaries are responsible pursuant to paragraphs 3 and 4 of
Schedule D; and
d. Liabilities or obligations of Parent, LILCO, Surviving Corporation or
the Transferee Subsidiaries resulting or arising from any
non-performance by Parent, LILCO or the Transferee Subsidiaries of any
provision of the Merger Agreement or any other Basic Agreement; and
e. Debts, liabilities or obligations incurred by Parent or the Transferee
Subsidiaries after the Closing; and
f. Liabilities or obligations of Parent, LILCO, Surviving Corporation or
the Transferee Subsidiaries relating to severance, change of control
or similar payments payable to executives of LILCO in connection with
the Closing; and
g. Liabilities or obligations of Parent, LILCO, Surviving Corporation or
the Transferee Subsidiaries relating to the indemnification of Persons
who were officers or directors of LILCO prior to the Closing or
relating to any proxy or registration statement issued by LILCO or The
Brooklyn
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Union Gas Company or any affiliate or successor of either in
connection with the transactions contemplated by the Merger Agreement;
and
h. Liabilities or obligations of Parent, LILCO, Surviving Corporation or
the Transferee Subsidiaries relating to Company Dissenting Shares or
any other shares of any Person exercising their rights under Section
910 of the NYBCL; and
i. Liabilities (other than contingent liabilities) or obligations of
Surviving Corporation which would not otherwise be liabilities or
obligations assumed hereby by Parent and the Transferee Subsidiaries
and which should have been, in accordance with GAAP, reflected on the
Closing Date Balance Sheet but which were not so reflected; provided,
however, that no claim may be made pursuant to this clause (i) later
than fourteen months after the Closing Date;
j. Liabilities or obligations of LILCO, Surviving Corporation or the
Transferee Subsidiaries relating to or arising out of any filing or
other submission by LILCO or the Transferee Subsidiaries with any
Governmental Authority; and
k. Liabilities or obligations of LIPA or LIPA Sub relating to or arising
out of any information provided by LILCO or the Transferee
Subsidiaries to LIPA in writing for inclusion in any filing or other
submission by LIPA or LIPA Sub with any Governmental Authority or in
any offering document prepared by LIPA or LIPA Sub in connection with
any financing required to consummate the transactions contemplated by
the Merger Agreement; and
l. Liabilities or obligations of Parent, LILCO, Surviving Corporation or
the Transferee Subsidiaries relating to the debt Parent assumes
pursuant to Section 2.1(h) of the Merger Agreement, the New Parent
Preferred Stock issued pursuant to Section 1.4(d) of the Merger
Agreement and any federal or state securities laws liabilities,
including, without limitation, underwriter liability, related to such
debt or New Parent Preferred Stock.
m. Liabilities (including, without limitation, underwriter liability) or
obligations of Parent, LILCO, Surviving Corporation or Transferee
Subsidiaries relating to or arising out of the (i) investment by the
Exchange Agent of the Cash Purchase Price in Parent Common Stock and
(ii) delivery by the Exchange Agent of the Parent Shares.
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<PAGE>
3. Notwithstanding anything to the contrary contained above, the debts,
liabilities and obligations assumed by LILCO and the Transferee Subsidiaries
shall not include any:
a. Unpaid debts, liabilities or obligations of LIPA, LIPA Sub or the
Surviving Corporation relating to the Retained Assets, including,
without limitation, liabilities or obligations relating to the
Retained Assets resulting or arising from: (i) claims for personal
injury or property damage, or (ii) non- performance of any contract,
commitment or obligation imposed by law or otherwise; or
b. Transaction Expenses incurred by LIPA, LIPA Sub or the Surviving
Corporation in connection with the Merger Agreement and the other
Basic Agreements or the consummation of the transactions contemplated
thereby; or
c. Taxes as defined in Schedule D imposed on LIPA or LIPA Sub or for
which LIPA or LIPA Sub are responsible pursuant to paragraph 4 of
Schedule D; or
d. Liabilities or obligations of LILCO or the Transferee Subsidiaries
resulting or arising from any non- performance by LIPA, LIPA Sub or
the Surviving Corporation of any provision of the Merger Agreement or
the other Basic Agreements; or
e. Liabilities or obligations of LIPA, LIPA Sub or the Surviving
Corporation relating to the indemnification of Persons who are
officers or directors of the Surviving Corporation or relating to any
registration or official statement or other offering document issued
by LIPA, LIPA Sub or the Surviving Corporation in connection with any
financing required to consummate the transactions contemplated by the
Merger Agreement; or
f. Liabilities or obligations of LIPA, LIPA Sub or the Surviving
Corporation arising under the Merger Agreement or any other Basic
Agreement; or
g. Except as provided in Section 2(a), (c), (f), (g) and (i), debts,
liabilities or obligations of LIPA, LIPA Sub or the Surviving
Corporation relating to or arising out of acts or events occurring
after the Closing.
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<PAGE>
4. Nothing contained herein shall require LILCO or any Transferee
Subsidiary to pay or discharge any debt, liability or obligation to any third
party expressly assumed hereby so long as LILCO or such Transferee Subsidiary
shall in good faith contest or cause to be contested the amount or validity
thereof (and perform their obligations (to the extent applicable) pursuant to
Section 5 hereof), in which case LILCO or such Transferee Subsidiary, as the
case may be, shall give LIPA and the Surviving Corporation written notice of its
action and the basis therefor and keep LIPA and the Surviving Corporation
informed of the progress and disposition thereof.
5. a. Other than as specifically stated above, neither LILCO nor any of
the Transferee Subsidiaries assumes any debt, liability or obligation of the
Surviving Corporation by this Undertaking, and it is expressly understood and
agreed that all debts, liabilities and obligations not assumed hereunder by
LILCO or the Transferee Subsidiaries shall remain the sole obligation of the
Surviving Corporation, its successors and assigns and, subject to the provisions
of Paragraph 5(b) herein, no person, firm or corporation other than LIPA and the
Surviving Corporation shall have any rights under this Undertaking or the
provisions contained herein.
b. Effective upon the Closing Date, LILCO shall assign its rights,
obligations and interests hereunder to the Parent. LILCO agrees that it will not
transfer any of its assets to Parent or any of the Transferee Subsidiaries or to
any of their respective Affiliates unless and until Parent shall have assumed
all of LILCO's obligations hereunder.
6. a. LILCO and the Transferee Subsidiaries (jointly and severally, the
"Indemnifying Party") shall indemnify and hold harmless LIPA and LIPA Sub, and
their respective agents, representatives, employees, officers and directors
(each individually, an "Indemnified Party" and collectively, the "Indemnified
Parties") against any action, proceeding, claim, judgment, settlement, damage,
loss, injury, cost or expense, including, without limitation, reasonable fees
and expenses of attorneys and other professionals (collectively, "Loss"),
arising out of or relating to any debt, liability or obligation assumed by LILCO
and the Transferee Subsidiaries hereby.
b. An Indemnified Party seeking indemnification pursuant to Section
6(a) herein with respect to a claim, action or proceeding shall give prompt
notice to the Indemnifying Party of the assertion of any claim, or the
commencement of any action or proceeding, in respect of which indemnity may be
sought hereunder; provided that the failure to give such notice shall not affect
the Indemnified Party's rights to indemnification hereunder, except to the
extent that the Indemnifying Party is actually prejudiced thereby. The
Indemnifying Party shall be
-5-
<PAGE>
entitled to control the handling of any such claim and to defend or settle any
such claim, in its or their sole discretion, with counsel of its own choosing
that is reasonably acceptable to the Indemnified Party; provided, however, that,
in the case of any such settlement, the Indemnifying Party shall obtain written
release of all liability of the Indemnified Party, in form and substance
reasonably acceptable to the Indemnified Party. Notwithstanding the foregoing,
each Indemnified Party shall have the right to employ its own separate counsel
in connection with, and to participate in (but, except as provided below, not
control) the defense of, such claim, but the fees and expenses of such counsel
incurred after notice from the Indemnifying Party of its assumption of the
defense thereof shall be at the expense of such Indemnified Party unless:
(i) the employment of counsel by such Indemnified Party has been
authorized by the Indemnifying Party;
(ii) counsel to such Indemnified Party shall have reasonably concluded
that there may be a conflict on any significant issue between the
Indemnifying Party and such Indemnified Party in the conduct of
the defense of such claim; or
(iii) the Indemnifying Party shall not in fact have employed counsel
reasonably acceptable to the Indemnified Party to assume the
defense of such claim within twenty (20) days following the
receipt by the Indemnifying Party of the notice specified in the
first sentence of this Section 6(b), in each of which cases the
fees and expenses of counsel for such Indemnified Party shall be
at the expense of the Indemnifying Party;
provided, however, that, with respect to clauses (ii) and (iii) of this
sentence, the Indemnifying Party shall not be obligated to pay the fees and
expenses of more than one law firm, plus local counsel if necessary in each
relevant jurisdiction, for all such Indemnified Parties with respect to any
claims arising out of the same events or facts or the same series of events or
facts. The Indemnifying Party shall not be entitled, without the consent of such
Indemnified Party, to assume or control the defense of any claim as to which
counsel to such Indemnified Party shall have reasonably made the conclusion that
there may be a conflict on any significant issue between the Indemnifying Party
and such Indemnified Party in the conduct of the defense of such claim as set
forth in clause (ii) above, provided that the foregoing limitation shall apply
only with respect to those issues for which there may be such a conflict.
7. This Undertaking shall be governed by the laws of the State of New
York. Any dispute with respect to the interpretation or enforcement hereof shall
be submitted to an alternative dispute resolution procedure to be agreed by the
parties.
8. All notices and other communications given or made pursuant to this
Undertaking shall be given or made in accordance with Section 11.2 of the Merger
Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Undertaking has been executed as of the date
first above written.
LONG ISLAND LIGHTING COMPANY
By:
------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
IN WITNESS WHEREOF, this Undertaking has been executed as of the ____th
day of _______________, 19____.
[TRANSFEREE SUBSIDIARY]
By:
------------------------------
Name:
Title:
[TRANSFEREE SUBSIDIARY]
By:
-----------------------------
Name:
Title:
-7-
<PAGE>
EXHIBIT G
LIABILITIES UNDERTAKING AND INDEMNIFICATION AGREEMENT
UNDERTAKING dated as of June 26, 1997 by LONG ISLAND POWER AUTHORITY, a
corporate municipal instrumentality and political subdivision of the State of
New York ("LIPA") and, as of the closing of the Merger Agreement (as herein
defined), LONG ISLAND LIGHTING COMPANY, a New York corporation (the "Surviving
Corporation"), in favor of LONG ISLAND LIGHTING COMPANY, a New York corporation
("LILCO"), any successors and assigns of LILCO pursuant to paragraph 5(b) herein
and _________________________/2/ (the "Transferee Subsidiaries"). All references
herein to the Surviving Corporation shall mean LILCO after the Effective Time
(as defined in the Merger Agreement). All references herein to LILCO shall mean
Long Island Lighting Company prior to the Effective Time.
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement and Plan of Exchange and Merger (the
"Merger Agreement") dated as of June 26, 1997 among Parent (used herein as
therein defined), LILCO, LIPA and LIPA Acquisition Corp., a New York corporation
("LIPA Sub"), LIPA Sub is to merge with and into LILCO;
WHEREAS, pursuant to the Merger Agreement, the assets and properties of
LILCO set forth on Schedule A thereto are to be transferred to the Transferee
Subsidiaries (the "Transferred Assets") and the balance of LILCO's assets and
properties are to be retained by the Surviving Corporation (the "Retained
Assets"); and
WHEREAS, in partial consideration therefor, the Merger Agreement
requires LIPA and the Surviving Corporation to execute and deliver to LILCO and
to each of the Transferee Subsidiaries this Undertaking;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which by LIPA and the
Surviving Corporation are
- -----------
/2/ Pursuant to the Merger Agreement (as herein defined), prior to the
Closing (as therein defined), LILCO will form one or more wholly owned
subsidiaries for the purpose of receiving certain of its assets, which
subsidiary or subsidiaries will enter into this Agreement.
<PAGE>
hereby acknowledged, LIPA and the Surviving Corporation hereby agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to them in the Merger Agreement.
2. LIPA and the Surviving Corporation, jointly and severally, hereby
undertake, assume and agree, subject to the limitations contained herein, to pay
or discharge, when due any and all:
a. Unpaid debts, liabilities or obligations of LIPA, LIPA Sub or the
Surviving Corporation relating to the Retained Assets, including,
without limitation, liabilities or obligations relating to the
Retained Assets resulting or arising from: (i) claims for personal
injury or property damage, or (ii) non- performance of any contract,
commitment or obligation imposed by law or otherwise; and
b. Legal, accounting, investment banking, engineering and similar fees,
or other transaction expenses ("Transaction Expenses") incurred by
LIPA, LIPA Sub or the Surviving Corporation in connection with the
Merger Agreement and the other Basic Agreements or the consummation of
the transactions contemplated thereby; and
c. Taxes as defined in Schedule D imposed on LIPA or LIPA Sub or for
which LIPA or LIPA Sub are responsible pursuant to paragraph 4 of
Schedule D; and
d. Liabilities or obligations of LIPA, LIPA Sub or the Surviving
Corporation resulting or arising from any non-performance by LIPA,
LIPA Sub or the Surviving Corporation of any provision of the Merger
Agreement or the other Basic Agreements; and
e. Liabilities or obligations of LIPA, LIPA Sub or the Surviving
Corporation relating to the indemnification of Persons who are
officers or directors of the Surviving Corporation or relating to any
registration or official statement or other offering document issued
by LIPA, LIPA Sub or the Surviving Corporation in connection with any
financing required to consummate the transactions contemplated by the
Merger Agreement; and
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<PAGE>
f. Debts, liabilities or obligations of LIPA, LIPA Sub or the Surviving
Corporation relating to or arising out of acts or events occurring
after the Closing.
3. Notwithstanding anything to the contrary contained above, the debts,
liabilities and obligations assumed by LIPA and the Surviving Corporation shall
not include any:
a. Unpaid debts, liabilities or obligations of Parent, LILCO or the
Transferee Subsidiaries relating to the Transferred Assets, including,
without limitation, liabilities or obligations relating to the
Transferred Assets resulting or arising from: (i) claims for personal
injury or property damage, or (ii) non- performance of any contract,
commitment or obligation imposed by law or otherwise; or
b. Except as provided in Section 6.8 of the Generation Purchase Right
Agreement, Transaction Expenses incurred by Parent, LILCO or the
Transferee Subsidiaries in connection with the Merger Agreement or the
other Basic Agreements or the consummation of the transactions
contemplated thereby; or
c. Taxes as defined in Schedule D imposed on Parent, LILCO or the
Transferee Subsidiaries or for which Parent, LILCO or the Transferee
Subsidiaries are responsible pursuant to paragraphs 3 and 4 of
Schedule D; or
d. Liabilities or obligations of LILCO or the Transferee Subsidiaries
resulting or arising from any non- performance by LILCO or the
Transferee Subsidiaries of any provision of the Merger Agreement or
any other Basic Agreement; or
e. Liabilities or obligations of Parent, LILCO or the Transferee
Subsidiaries arising under the Merger Agreement or the other Basic
Agreements; or
f. Debts, liabilities or obligations incurred by Parent, LILCO or the
Transferee Subsidiaries after the Closing; or
g. Liabilities or obligations of Parent, LILCO or the Transferee
Subsidiaries relating to severance, change of control or similar
payments payable to executives of LILCO in connection with the
Closing; or
h. Liabilities or obligations of Parent, LILCO or the Transferee
Subsidiaries relating to the indemnification of Persons who were
officers or directors of LILCO
-3-
<PAGE>
prior to the Closing or relating to any proxy or registration
statement issued by LILCO or The Brooklyn Union Gas Company or any
affiliate or successor of either in connection with the transactions
contemplated by the Merger Agreement; or
i. Liabilities or obligations of Parent, LILCO or the Transferee
Subsidiaries relating to Company Dissenting Shares or any other shares
of any Person exercising their rights under Section 410 of the NYBCL;
or
j. Liabilities or obligations of LILCO or the Transferee Subsidiaries
relating to or arising out of any filing or other submission by
Parent, LILCO or the Transferee Subsidiaries with any Governmental
Authority; or
k. Liabilities or obligations of LIPA or LIPA Sub relating to or arising
out of any information provided by Parent, LILCO or the Transferee
Subsidiaries to LIPA in writing for inclusion in any filing or other
submission by LIPA or LIPA Sub with any Governmental Authority or in
any offering document prepared by LIPA or LIPA Sub in connection with
any financing required to consummate the transactions contemplated by
the Merger Agreement.
4. Nothing contained herein shall require LIPA or the Surviving
Corporation to pay or discharge any debt, liability or obligation to any third
party expressly assumed hereby so long as LIPA or the Surviving Corporation
shall in good faith contest or cause to be contested the amount or validity
thereof (and perform their obligations (to the extent applicable) pursuant to
Section 5 hereof), in which case LIPA or the Surviving Corporation, as the case
may be, shall give LILCO and the Transferee Subsidiaries written notice of its
action and the basis therefor and keep LILCO and the Transferee Subsidiaries
informed of the progress and disposition thereof.
5. a. Other than as specifically stated above, neither LIPA nor the
Surviving Corporation assumes any debt, liability or obligation of LILCO by this
Undertaking, and it is expressly understood and agreed that all debts,
liabilities and obligations not assumed hereunder by LIPA or the Surviving
Corporation shall remain the sole obligation of LILCO, its successors and
assigns and, subject to the provisions of Paragraph 5(b) herein, no person, firm
or corporation other than LILCO and the Transferee Subsidiaries shall have any
rights under this Undertaking or the provisions contained herein.
b. Effective upon the Closing Date, LILCO may assign its rights,
obligations and interests hereunder to the Parent or any affiliate thereof.
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<PAGE>
6. a. LIPA and the Surviving Corporation (jointly and severally, the
"Indemnifying Party") shall indemnify and hold harmless LILCO and the Transferee
Subsidiaries, and their respective agents, representatives, employees, officers
and directors (each individually, an "Indemnified Party" and collectively, the
"Indemnified Parties") against any action, proceeding, claim, judgment,
settlement, damage, loss, injury, cost or expense, including, without
limitation, reasonable fees and expenses of attorneys and other professionals
(collectively, "Loss"), arising out of or relating to any debt, liability or
obligation assumed by LIPA and the Surviving Corporation hereby.
b. An Indemnified Party seeking indemnification pursuant to Section
6(a) herein with respect to a claim, action or proceeding shall give prompt
notice to the Indemnifying Party of the assertion of any claim, or the
commencement of any action or proceeding, in respect of which indemnity may be
sought hereunder; provided that the failure to give such notice shall not affect
the Indemnified Party's rights to indemnification hereunder, except to the
extent that the Indemnifying Party is actually prejudiced thereby. The
Indemnifying Party shall be entitled to control the handling of any such claim
and to defend or settle any such claim, in its or their sole discretion, with
counsel of its own choosing that is reasonably acceptable to the Indemnified
Party; provided, however, that, in the case of any such settlement, the
Indemnifying Party shall obtain written release of all liability of the
Indemnified Party, in form and substance reasonably acceptable to the
Indemnified Party. Notwithstanding the foregoing, each Indemnified Party shall
have the right to employ its own separate counsel in connection with, and to
participate in (but, except as provided below, not control) the defense of, such
claim, but the fees and expenses of such counsel incurred after notice from the
Indemnifying Party of its assumption of the defense thereof shall be at the
expense of such Indemnified Party unless:
(i) the employment of counsel by such Indemnified Party has been
authorized by the Indemnifying Party;
(ii) counsel to such Indemnified Party shall have reasonably concluded
that there may be a conflict on any significant issue between the
Indemnifying Party and such Indemnified Party in the conduct of
the defense of such claim; or
(iii)the Indemnifying Party shall not in fact have employed counsel
reasonably acceptable to the Indemnified Party to assume the
defense of such claim within twenty (20) days following the
receipt by the Indemnifying Party of the notice specified in the
first sentence of this Section 6(b), in each of which
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<PAGE>
cases the fees and expenses of counsel for such Indemnified Party
shall be at the expense of the Indemnifying Party;
provided, however, that, with respect to clauses (ii) and (iii) of this
sentence, the Indemnifying Party shall not be obligated to pay the fees and
expenses of more than one law firm, plus local counsel if necessary in each
relevant jurisdiction, for all such Indemnified Parties with respect to any
claims arising out of the same events or facts or the same series of events or
facts. The Indemnifying Party shall not be entitled, without the consent of such
Indemnified Party, to assume or control the defense of any claim as to which
counsel to such Indemnified Party shall have reasonably made the conclusion that
there may be a conflict on any significant issue between the Indemnifying Party
and such Indemnified Party in the conduct of the defense of such claim as set
forth in clause (ii) above, provided that the foregoing limitation shall apply
only with respect to those issues for which there may be such a conflict.
7. This Undertaking shall be governed by the laws of the State of New
York. Any dispute with respect to the interpretation or enforcement hereof shall
be submitted to an alternative dispute resolution procedure to be agreed by the
parties.
8. All notices and other communications given or made pursuant to this
Undertaking shall be given or made in accordance with Section 11.2 of the Merger
Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Undertaking has been executed as of the date
first above written.
LONG ISLAND POWER AUTHORITY
By:
---------------------
Name: Richard M. Kessel
Title: Chairman
By:
---------------------
Name: Patrick Foye
Title: Deputy Chairman
IN WITNESS WHEREOF, this Undertaking has been executed as of the ____th
day of ___________, 19____.
LONG ISLAND LIGHTING COMPANY
By:
---------------------
Name:
Title:
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<PAGE>
EXHIBIT H
FORM OF CERTIFICATE OF DESIGNATION
The following provisions will be included in the certificate of
incorporation of Parent in effect at or before the Effective Time:
(1) Number and Designation of Series. A series consisting initially of
14,520,000 shares of the Preferred Stock of the par value of $25 per share
is designated "Preferred Stock, 7.95%, Series AA" (hereinafter called the
"Series AA Preferred Stock").
(2) Dividend Rate. The dividend rate per annum of the shares of Series
AA Preferred Stock is $1.9875 per share. Dividends shall be calculated on
the basis of a 30-day month and a year of 360 days.
(3) Dividend Payment Dates. The dividend payment dates for the shares
of Series AA Preferred Stock are the first days of March, June, September
and December; the initial dividend period for such shares shall commence on
the day when such shares are issued and thereafter the dividend periods for
such shares shall be the quarterly periods beginning on such dates
commencing _________ __, 199_ /1/.
(4) Optional Redemption. The Series AA Preferred Stock will not be
subject to optional redemption.
(5) Mandatory Redemption. Subject to the restrictions set forth in
section (6) of this subdivision (_), the Corporation shall redeem on June
1, 2000, all of the outstanding shares of Series AA Preferred Stock at $25
per share, plus accrued and unpaid dividends to the date of redemption. In
the case of a redemption of Series AA Preferred Stock as specified in this
section (5), the Company shall take action and provide the notice specified
in [insert reference to provisions similar to paragraph (d) of Subparagraph
"2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the
Restated Certificate of Incorporation of LILCO], with respect to optional
redemption of Preferred Stock.
(6) Restriction on Mandatory Redemption. Unless full cumulative
dividends for all past dividend periods and for the then current dividend
period shall have been paid or declared and set apart for payment in the
then outstanding Series AA Preferred Stock, the Corporation shall not
redeem pursuant to section (5) of this
- ----------
/1/ Insert first regular payment date occurring after issuance.
<PAGE>
subdivision (_) less than all of the then outstanding shares of Series AA
Preferred Stock.
The obligation of the Corporation to redeem shares as provided in
section (5) of this subdivision (_) shall be subject to any applicable
restrictions of law.
(7) Restrictions on Payments on Junior Stock. The Corporation shall
not declare or pay or set apart any dividend for the Common Stock or any
other class of stock ranking junior to the Series AA Preferred Stock, or
make any payment on account of, or set apart money for a sinking or
analogous fund for, the purchase, redemption or other retirement of the
Common Stock or any other class of stock ranking junior to the Series AA
Preferred Stock, or make any distribution in respect thereof, either
directly or indirectly, and whether in cash or property or obligations or
stock of the Corporation, unless at the date of declaration in the case of
any such dividend, or at the date of any such other payment, setting apart
or distribution, full cumulative dividends for all past dividend periods
and for the then current dividend period shall have been paid or declared
and set apart for payment on the then been paid or declared and set apart
for payment on the then outstanding Series AA Preferred Stock, other than
shares of Series AA Preferred Stock previously or then to be called for
redemption.
(8) Restrictions on Sinking Fund Payments on Other Stock. The
Corporation shall not redeem or purchase any shares ranking on a parity
with the Series AA Preferred Stock as to assets or dividends, pursuant to
any sinking fund requirement (which terms shall include any analogous
requirement) for the redemption or purchase of such shares, and shall not
set apart money for any such requirement, at any time when the redemption
required by section (5) of this subdivision (_) shall be in arrears; except
that, at any time when the redemption required by section (5) of this
subdivision (_) shall be in arrears and when arrears exist in respect of
any sinking fund or analogous requirement for any shares ranking as
aforesaid on a parity with the Series AA Preferred Stock, the Corporation
may redeem or purchase for the respective requirements shares of Series AA
Preferred Stock and such other shares, pro rata, as nearly as practicable,
according to the amounts in dollars of the arrears in the redemptions or
purchases required for the respective requirements.
(9) Acquisition of Series AA Preferred Stock. Except as hereinbefore
provided, the Corporation may, at its option, purchase, redeem or otherwise
acquire any shares of Series AA Preferred Stock.
(10) Redemption Upon Voluntary Dissolution, Liquidation, or Winding Up
of the Corporation. The applicable redemption price payable upon any
voluntary dissolution, liquidation, or winding up of the Corporation as
specified in [insert reference to provisions similar to the second
paragraph of paragraph (c) of
- 2 -
<PAGE>
Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH"
of the Restated Certificate of Incorporation of LILCO] shall be the par
value of the Series AA Preferred Stock.
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