<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 1-3571
LONG ISLAND LIGHTING COMPANY
Incorporated pursuant to the Laws of New York State
Internal Revenue Service - Employer Identification No. 11-1019782
333 Earle Ovington Boulevard, Suite 403,
Uniondale, New York 11553
(516) 222-7700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days
Yes X No
---
The total number of shares of the registrant's Common Stock $1 par value,
outstanding on June 30, 1998, was 100.
<PAGE>
Long Island Lighting Company
Page No.
--------
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Statement of Operations 2
Balance Sheet 3-4
Statement of Cash Flows 5
Notes to Financial Statements 6-12
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
Part II - OTHER INFORMATION 18
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities 18
Item 3 - Defaults upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signature 22
<PAGE>
LONG ISLAND LIGHTING COMPANY 2
STATEMENT OF OPERATIONS
(UNAUDITED)
(THOUSANDS OF DOLLARS - EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SUCCESSOR
COMPANY PREDECESSOR COMPANY
------------- ---------------------------------
THREE MONTHS
MAY 29, 1998 TO APRIL 1, 1998 TO ENDED
JUNE 30, 1998 MAY 28, 1998 JUNE 30, 1997
------------- ---------------------------------
<S> <C> <C> <C>
Revenue - Electric $ 202,739 $ 330,011 $ 560,086
EXPENSES
Operations - fuel and purchased power 66,787 91,762 148,586
Operations and maintenance 34,683 68,993 98,790
Depreciation and amortization 17,719 22,986 32,228
Base financial component amortization -- 16,014 25,243
Rate moderation component amortization -- (39,574) 9,198
Regulatory liability component amortization -- (14,048) (22,143)
Other regulatory amortization -- 14,694 4,082
Operating taxes 31,049 60,885 92,635
Federal income tax - current -- (79,081) 26,398
Federal income tax - deferred and other -- 1,219 8,571
------------- ------------- -------------
Total Expenses 150,238 143,850 423,588
------------- ------------- -------------
OPERATING INCOME 52,501 186,161 136,498
------------- ------------- -------------
OTHER INCOME AND (DEDUCTIONS)
Other income and deductions, net 5,396 89,205 4,163
Allowance for other funds used during construction -- 374 789
Federal income tax - current -- (62,303) --
Federal income tax - deferred and other -- (185,541) (630)
------------- ------------- -------------
Total Other Income and (Deductions) 5,396 (158,265) 4,322
------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INTEREST CHARGES 57,897 27,896 140,820
------------- ------------- -------------
INTEREST CHARGES AND (CREDITS)
Interest on long term debt 14,082 61,852 96,924
Interest on note payable to LIPA 20,563 -- --
Other interest 906 4,206 7,266
Allowance for borrowed funds used during construction (163) (540) (865)
------------- ------------- -------------
TOTAL INTEREST CHARGES 35,388 65,518 103,325
------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 22,509 (37,622) 37,495
Income from discontinued operations net of
taxes of zero, ($42,651), and $1,732, respectively -- 36,225 7,666
------------- ------------- -------------
NET INCOME (LOSS) 22,509 (1,397) 45,161
Preferred stock dividend requirements -- 8,037 12,968
------------- ------------- -------------
EARNINGS (LOSS) FOR COMMON STOCK 22,509 (9,434) 32,193
------------- ------------- -------------
AVERAGE COMMON SHARES OUTSTANDING 100 121,822,647 121,146,042
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 225,090 ($0.08) $ 0.26
DIVIDENDS DECLARED PER COMMON STOCK -- .445 .445
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LONG ISLAND LIGHTING COMPANY 3
BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------- --------------
June 30, 1998 March 31, 1998
(unaudited)
------------- --------------
<S> <C> <C>
Assets
Utility Plant
Electric $ 1,954,664 $ 4,031,510
Gas - 1,233,281
Common - 290,221
Construction work in progress 91,634 118,808
Nuclear fuel in process and in reactor 18,084 18,119
----------- -----------
2,064,382 5,691,939
Less- Accumulated depreciation and amortization 7,570 1,877,858
----------- -----------
Total Net Utility Plant 2,056,812 3,814,081
----------- -----------
Regulatory Assets
Base financial component, net of accumulated amortization of
$883,496 at March 31, 1998 - 3,155,334
Rate moderation component - 434,004
Shoreham post-settlement costs - 1,005,316
Shoreham nuclear fuel - 66,455
Unamortized cost of issuing securities - 159,941
Postretirement benefits other than pensions - 340,109
Regulatory tax asset - 1,737,932
Other - 192,763
----------- -----------
Total Regulatory Assets - 7,091,854
----------- -----------
Current Assets
Cash and cash equivalents 530,024 180,919
Special deposits - 95,790
Customer accounts receivable (less allowance for doubtful
accounts of $19,222 and $23,483) 167,644 297,889
Other accounts receivable 6,403 43,744
Accrued unbilled revenues 87,487 124,464
Materials and supplies at average cost - 54,883
Fuel oil at average cost - 32,142
Gas in storage at average cost - 14,634
Prepayments and other current assets 15,521 13,807
----------- -----------
Total Current Assets 807,079 858,272
----------- -----------
Promissory note receivable 1,078,467 -
----------- -----------
Designated funds 302,702 -
----------- -----------
Nonutility Property and Other investments 19,025 50,816
----------- -----------
Deferred Charges 55,862 85,702
----------- -----------
Acquisition adjustment (net of accumulated amortization
of $10,149 at June 30,1998) 4,041,790 -
----------- -----------
Total Assets $ 8,361,737 $11,900,725
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Long Island Lighting Company 4
Balance Sheet
(Thousands of Dollars)
Successor Predecessor
Company Company
------------ ------------
June 30, 1998 March 31, 1998
(unaudited)
------------ ------------
Capitalization
Long-term debt $ 3,331,074 $ 4,395,555
Unamortized discount on debt -- (13,606)
Note Payable - LIPA 4,769,052 --
------------ ------------
8,100,126 4,381,949
------------ ------------
Preferred Stock - redemption required -- 562,600
------------ ------------
Common stock -- 608,635
Premium on capital stock -- 1,146,425
Capital stock expense -- (47,501)
Retained earnings 22,509 956,092
Treasury stock, at cost -- (1,204)
------------ ------------
Total Common Shareowners' Equity 22,509 2,662,447
------------ ------------
Total Capitalization 8,122,635 7,606,996
------------ ------------
Regulatory Liabilities
Regulatory liability component -- 99,199
1989 Settlement credits -- 59,397
Regulatory tax liability -- 78,913
Other -- 151,922
------------ ------------
Total Regulatory Liabilities -- 389,431
------------ ------------
Current Liabilities
Current maturities of long-term debt -- 101,000
Current redemption requirements of preferred stock -- 139,374
Due to LIPA 55,009 --
Due to MarketSpan 128,125 --
Accounts payable and accrued expenses -- 228,583
LRPP payable -- 30,118
Accrued taxes 2,352 34,753
Accrued interest 19,820 146,607
Dividends payable -- 58,748
Class Settlement -- 60,000
Customer deposits 23,635 28,627
------------ ------------
Total Current Liabilities 228,941 827,810
------------ ------------
Deferred Credits
Deferred federal income tax - net -- 2,539,364
Class Settlement -- 46,940
Other 7,541 22,529
------------ ------------
Total Deferred Credits 7,541 2,608,833
------------ ------------
Operating Reserves
Pensions and other postretirement benefits -- 401,401
Claims and damages 2,620 66,254
------------ ------------
Total Operating Reserves 2,620 467,655
------------ ------------
Commitments and Contingencies
------------ ------------
Total Capitalization and Liabilities $ 8,361,737 $ 11,900,725
------------ ------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
LONG ISLAND LIGHTING COMPANY 5
STATEMENT OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Successor
Company Predecessor Company
--------------- ----------------------------------
Three Months
May 29, 1998 to April 1, 1998 to Ended
June 30, 1998 May 28, 1998 June 30, 1997
---------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Income $ 22,509 $ (1,397) $ 45,161
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 17,719 27,743 38,893
Base financial component amortization - 16,014 25,243
Rate moderation component amortization - (39,574) 9,198
Regulatory liability component amortization - (131,834) (22,143)
Other regulatory amortization - 14,858 13,052
Rate moderation component carrying charges - (6,411) (5,981)
Class Settlement - 2,018 4,199
Amortization of cost of issuing and redeeming securities 351 4,964 7,934
Federal income tax - deferred and other - 56,966 10,551
Allowance for other funds used during construction (163) (418) (958)
Pensions and Other Post Retirement Benefits - 12,873 -
Gas Cost Adjustment - 5,369 2,512
Other (1,110) 36,099 23,066
Changes in operating assets and liabilities
Accounts receivable, net (2,370) 53,765 58,525
Accrued unbilled revenues (12,846) 47,465 (1,580)
Materials and supplies, fuel oil and gas in storage - (31,238) (31,174)
Accounts payable and accrued expenses - 21,068 33,485
Net change in due to LIPA and MarketSpan (36,372) - -
Pensions and other post retirement benefits - (250,000) -
Accrued taxes 2,352 15,924 (8,087)
Accrued interest 19,820 (38,393) -
Class Settlement - (6,918) (10,639)
Special deposits - 66,492 (30,285)
Other 7,452 (54,725) (27,288)
Net Cash Provided by (used in) Operating Activities 17,342 (179,290) 133,684
Investing Activities
Construction and nuclear fuel expenditures (8,793) (66,493) (69,219)
Shoreham post settlement costs - (6,650) (11,983)
Establish designated funds (302,702) - -
Merger costs, net of cash transferred (62,159) - -
Other - (2,009) 221
----------- ---------- ---------
Net Cash Used in Investing Activities (373,654) (75,152) (80,981)
----------- ---------- ---------
Financing Activities
Proceeds from sale of common stock - 4,184 4,309
Acquisition of common stock (2,497,500) - -
Issuance of notes payable - 350,000 -
Proceeds of note payable - parent 4,949,528 - -
Repayment of note payable-parent (180,476) - -
Redemption of long-term debt (1,186,000) (100,000) -
Issuance of preferred stock - 75,000 -
Redemption of preferred stock (221,600) (116,390) -
Bond issuance costs (48,627) - -
Preferred stock dividends paid - (5,711) (12,968)
Common stock dividends paid - (54,147) (53,844)
Other (3,989) (2,749) (729)
----------- ---------- ---------
Net cash Provided by (used in) Financing Activities 811,336 150,187 (63,232)
----------- ---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 455,024 (104,255) (10,529)
Cash and cash equivalents at beginning of period 75,000 180,919 64,539
----------- ---------- ---------
Cash and cash equivalents at end of period $ 530,024 $ 76,664 $ 54,010
----------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Long Island Lighting Company 6
Notes to Financial Statements
For the Three Months Ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
1. Basis of Presentation
These Notes to Financial Statements reflect events subsequent to May 22,
1998, the date of the most recent Report of Independent Accountants,
through the date of this Report on Form 10-Q for the three months ended
June 30, 1998. These Notes to Financial Statements should be read in
conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations for the three months ended June 30,
1998 and the Long Island Lighting Company (the "Company" or LILCO)
Audited Financial Statements for the year ended March 31, 1998, and the
transition period from January 1, 1997 to March 31, 1997. In addition,
please refer to the discussion following regarding the change in control
of the Company on May 28, 1998.
The financial information as of June 30, 1998 and 1997 and for the
periods in the three months then ended is unaudited. However, in the
opinion of management, the financial statements include all adjustments,
consisting of normal recurring accruals, necessary for a fair
presentation of the financial statements for the periods presented.
Operating results for any of the periods presented are not necessarily
indicative of results to be expected for the entire year due to the
seasonal nature of the electric business.
2. Change in Control
On May 28, 1998, LIPA Acquisition Corp., a wholly-owned subsidiary of
Long Island Power Authority ("LIPA" or the "Authority"), was merged with
and into the Company (the "Merger") pursuant to an Agreement and Plan of
Merger dated as of June 26, 1997, by and among the Company, MarketSpan
Corporation (formerly known as BL Holding Corp., "MarketSpan"), LIPA and
LIPA Acquisition Corp., (the "Merger Agreement"). As a result of the
Merger, LIPA became the holder of 100 shares of the Company's common
stock, representing 100% of the outstanding voting securities of the
Company. The former holders of the Company's common stock, which was
widely held by the public, received a pro-rata share of (i) cash
consideration of $2,497,500,000 and (ii) 3,440,625 shares of the common
stock of MarketSpan, which were received by the Company in exchange for
certain assets of the Company transferred to subsidiaries of MarketSpan.
Pursuant to the Merger Agreement, the former holders of the Company's
common stock (other than holders of dissenting shares) were deemed to
have subscribed for additional shares of the common stock of MarketSpan,
with an aggregate purchase price equal to the cash consideration. In
order to effect the Merger, it was necessary to (i) retire all shares of
the Company's preferred stock, whether by conversion, redemption or
cancellation, and (ii) redeem certain of the Company's bonds, at an
additional cost to LIPA of approximately $1,556,900,000. The cash
consideration required for the Merger was obtained by LIPA from the
proceeds of the issuance and sale of its Electric System General Revenue
Bonds, Series 1998A and Electric System Subordinated Revenue Bonds,
Series 1 through Series 6. The proceeds from the sale of the bonds were
then passed by LIPA to the Company in exchange for a promissory note of
approximately $4,949,000,000. As a result of the Merger, there was a
change in control of the Company which effectively resulted in the
creation of a new reporting entity (the "Successor Company").
Accordingly, the accompanying financial statements for the periods prior
to and including May 28, 1998 (the "Predecessor Company") are not
comparable to the financial statements presented subsequent to May 28,
1998. A black line has been drawn on the accompanying financial
statements to distinguish between the Successor Company and Predecessor
Company
<PAGE>
Long Island Lighting Company 7
Notes to Financial Statements
For the Three Months Ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
balances and activity.
Pursuant to the Merger Agreement, on May 28, 1998, immediately prior to
the Merger, all of the assets of the Company employed in the conduct of
its gas distribution business and its non-nuclear electric generation
business, and all common assets used by the Company in the operation and
management of its electric transmission and distribution business and
its gas distribution business and/or its non-nuclear electric generation
business (the "Transferred Assets") were sold to MarketSpan and
transferred to the following wholly-owned subsidiaries of MarketSpan
(the "Transferee Subsidiaries") at MarketSpan's direction: MarketSpan
Gas Corporation (d/b/a Brooklyn Union), MarketSpan Trading Services LLC,
MarketSpan Generation LLC, MarketSpan Corporate Services LLC, MarketSpan
Utility Services LLC, and MarketSpan Electric Services LLC, each a New
York corporation or limited liability company, and MarketSpan Finance
Corporation, a Vermont corporation (the "Transfer"). The consideration
for the Transferred Assets consisted of (i) 3,440,625 shares of the
common stock of MarketSpan Corporation, (ii) 553,000 shares of the
Series B Preferred Stock of MarketSpan, (iii) 197,000 shares of the
Series C Preferred Stock of MarketSpan, and (iv) promissory notes of
$962,900,000. The interest rate and timing of principal and interest
payments on the promissory notes from MarketSpan are identical to the
terms of certain Predecessor Company indebtedness assumed by the
Successor Company in the Merger, but issued to finance assets
transferred to MarketSpan subsidiaries. MarketSpan will make principal
and interest payments to the Successor Company, when due, and the
Successor Company will transfer those amounts to debtholders.
The value of the consideration was determined by MarketSpan and the
Company to be equal to the net fair market value of the Transferred
Assets. The Transfer was effected by a Bill of Sale, dated as of May 28,
1998, made and executed by the Company and acknowledged by MarketSpan.
The remaining assets and liabilities of the Company acquired by LIPA
consist of: (i) the Company's electric transmission and distribution
system, (ii) its net investment in Nine Mile Point Nuclear Power
Station, Unit 2 ("NMP2"), (iii) certain regulatory assets and
liabilities associated with its electric business, (iv) allocated
accounts receivable and other assets and liabilities and (v)
substantially all of its long-term debt.
The financial statements for the Successor Company include the push down
of LIPA's basis, including costs related to the acquisition, in the
assets acquired and liabilities assumed. Because of the manner in which
the Successor Company's rates and charges will be established by LIPA,
the original net book value of the transmission and distribution and
nuclear generation assets acquired in the Merger is considered to be
their fair value. Because the New York State Public Service Commission
will no longer have regulatory oversight of the Successor Company, all
regulatory assets and liabilities, as well as the amortization of those
assets and liabilities, were eliminated from the financial statements
for the periods after May 29, 1998. The excess of the acquisition costs
over the fair value of the net assets acquired has been recorded as an
intangible asset titled "acquisition adjustment" and is being amortized
over a 35 year period, the weighted average useful life of the net plant
assets acquired.
<PAGE>
Long Island Lighting Company 8
Notes to Financial Statements
For the Three Months Ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
LIPA was established as a corporate municipal instrumentality of the
State of New York, constituting a political subdivision of the State,
created by Chapter 517 of the Laws of 1986. As such, it is a component
unit of the State and is included in the State's annual financial
statements. As a wholly-owned subsidiary of LIPA, the Successor Company
is exempt from Federal, state and local income taxes. In addition,
effective May 29, 1998, the Successor Company's financial statements
have been prepared in accordance with standards applicable to
governmental entities.
3. Discontinued Operations
The income statement of the Predecessor Company for the period April 1,
1998 to May 28, 1998 has been prepared to present the gas business (as
transferred to MarketSpan subsidiaries pursuant to the Merger Agreement)
as a discontinued operation, in accordance with the provisions of APB
30. The income statement for the three months ended June 30, 1997, has
also been restated to present the gas business in a similar manner.
The income from discontinued operations includes revenue from the gas
business of approximately $79,979,000 and $104,402,000 for the period
April 1, 1998 to May 28, 1998, and the three months ended June 30, 1997,
respectively.
4. Commitments and Contingencies
The cash consideration portion of the Merger Agreement was based upon
preliminary estimated values of the LIPA acquired assets and assumed
liabilities, as reflected in the financial records of the Predecessor
Company at May 28, 1998. The promissory notes from MarketSpan have been
adjusted at May 28, 1998 to reflect the refinement of estimated values
as of that date. The promissory notes from MarketSpan will be further
adjusted, pursuant to the Merger Agreement, based upon a final
determination of the actual value of acquired net assets as of that date
as agreed to by the Successor Company and MarketSpan.
5. Capitalization
On May 29,1998, the Company received approximately $4,949,000,000 from
LIPA in exchange for a promissory note. The interest rate on the note is
equal to the interest rate paid by LIPA on certain bonds issued to the
public ( 5.7% at June 30,1998) and the note will be repaid through
revenues collected by the Successor Company from electric customers. The
note is collateralized by those revenues. The proceeds of this note were
used primarily to (i) repay certain debt of $1,186,000,000, (ii) redeem
preferred stock of $339,100,000 (iii) establish certain restricted funds
of $311,495,000 and (iv) to acquire all of the then outstanding common
stock of the Company for $2,497,500,000.
6. Management Fees and Contract Costs
The expenses of the Successor Company for the period May 29,1998 to June
30,1998 reflect charges by LIPA of management fees equal to the LIPA
employee and overhead costs, as well as the costs of certain contracts
entered into by the Successor Company with MarketSpan for the management
of its
<PAGE>
Long Island Lighting Company 9
Notes to Financial Statements
For the Three Months Ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
assets.
7. Reclassifications
Certain prior period amounts have been reclassified in the financial
statements to conform with the current period presentation.
8. Rate Matters
Effective May 28, 1998, LIPA adopted a new rate structure for the
Successor Company which immediately reduced electric rates in its
service area by an average of 20%. Under current New York law, LIPA is
empowered to set rates for electric service in the Successor Company's
service area without being required by law to obtain the approval of the
New York State Public Service Commission (the "PSC") or any other State
regulatory body. However, LIPA has agreed, in connection with the
approval of the Merger by the New York State Public Authorities Control
Board (the "PACB"), that it will not impose any permanent increase, nor
extend or reestablish any portion of a temporary rate increase, in
average customer rates over a 12 month period in excess of 2.5% without
approval of the PSC, following a full evidentiary hearing. Another of
the PACB conditions requires that LIPA reduce average rates within the
Successor Company's service area by no less than 14% over a ten year
period commencing on the date when the Successor Company began providing
electric service, when measured against the Predecessor Company's base
rates in effect on July 16, 1997 (excluding the impact of the Shoreham
tax settlement, but adjusted to reflect emergency conditions and
extraordinary unforeseeable events.)
The LIPA Act requires that any bond resolution of the Authority contain
a covenant that it will at all times maintain rates, fees or charges for
the Successor Company sufficient to pay the costs of operation and
maintenance of facilities owned or operated for the Successor Company;
payments in lieu of taxes; renewals, replacements and capital additions;
the principal of and interest on any obligations issued pursuant to such
resolution as the same become due and payable, and to establish or
maintain any reserves or other funds or accounts required or established
by or pursuant to the terms of such resolution.
Absent emergency conditions and unforeseeable events, LIPA expects to
achieve an average rate reduction of no less than 14% over the ten year
period for customers of the Successor Company, commencing on the date of
the Merger and LIPA does not expect to need to increase average
Successor Company customer rates in excess of 2.5% over any 12 month
period during the ten-year period following the Merger. For purposes of
determining compliance with the 2.5% and 14% PACB conditions described
in the preceding paragraph, LIPA has interpreted the PACB conditions as
allowing the exclusion of increases in the cost of electricity paid by
Successor Company's customers related to the Shoreham settlement, other
pass-through adjustments and any decreases related to the RICO credits.
LIPA believes that it will be able to satisfy the 14% PACB condition and
that it will be able to obtain any PSC approvals necessary to comply
with its obligations under the LIPA Act and under the Authority's bond
resolutions. If either the PSC or the PACB were to disagree with LIPA's
interpretation of the PACB conditions, it may influence the timing and
size of rate increases
<PAGE>
Long Island Lighting Company 10
Notes to Financial Statements
For the Three Months Ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
implemented by LIPA and the Successor Company and/or require (i) the
modification of that portion of LIPA's plan of finance which
contemplates the accelerated retirement of debt, (ii) the withdrawal of
funds from the Rate Stabilization Fund to avoid or minimize rate
increases, or (iii) other action necessary to meet the conditions of the
PACB approval.
The average system revenue requirement based on the Successor Company's
initial base rates set by LIPA versus the Predecessor Company's
pre-Merger average system revenue requirements, are presented in the
table below.
AVERAGE SYSTEM REVENUES AND REDUCTIONS (1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Nassau/Rockaway Suffolk County
System Average Customers Customers
- -----------------------------------------------------------------------------------------------------------
Cents Cents Cents
per Percent per Percent per Percent
kWH Reduction kWH Reduction kWH Reduction
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Predecessor Company's
Pre-Merger Average System
Revenue Requirements 15.23 - 15.23 - 15.23 -
- -----------------------------------------------------------------------------------------------------------
Less: Successor Company's
Base Savings (2.53) 16.60 (2.53) 16.60 (2.53) 16.60
- -----------------------------------------------------------------------------------------------------------
Less: Shoreham Credits (.52) 3.40 (.66) 4.30 (.38) 2.50
----- ---- ----- ---- ----- ----
- -----------------------------------------------------------------------------------------------------------
Successor Company's Average
System Revenue
Requirements 12.18 20.00 12.04 20.90 12.32 19.10
----- ----- ----- ----- ----- -----
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
1 Reflects average revenues for all retail customers. All values exclude effects of RICO credits.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Successor Company's initial rates are largely based on the
Predecessor Company's pre-Merger rate design. In addition, the Successor
Company's rates include a fuel and purchased power cost adjustment
("FPPCA"), a payment in lieu of taxes ("PILOT") payments recovery rider,
the Shoreham Credits and provide for the Suffolk Surcharge.
The Successor Company's rates include the FPPCA to adjust rates to
reflect significant changes in the cost of fuel, purchased power and
related costs. The FPPCA is designed such that customers will not pay
for average annual increases above an established base fuel and
purchased power cost, or receive a credit for decreases below an
established base cost, of less than one percent per year. Expenses for
fuel and purchased power cost in excess of or below this level will be
recovered from or returned to customers beginning the following year.
Should fuel and purchased power costs increase in excess of five percent
cumulatively over the original base cost, the FPPCA will recover, from
that year forward, all costs in excess of the original base.
<PAGE>
Long Island Lighting Company 11
Notes to Financial Statements
For the Three Months Ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
The LIPA Act requires the Successor Company to make PILOTs to
municipalities and school districts equal to the property taxes that
would have been received by each such jurisdiction from the Predecessor
Company if the acquisition of the Successor Company by LIPA had not
occurred, and to make PILOTs for certain New York State and local taxes
which would otherwise have been imposed on the Predecessor Company. The
PILOT payments recovery rider allows for LIPA rate adjustments to
accommodate the State PILOTs.
Pre-Merger Rate Matters
In December 1997, the PSC approved the continuation of the following
Predecessor Company ratemaking mechanisms for the rate year ended
November 30, 1997: (a) the gas excess earnings mechanism whereby
earnings in excess of a return on common equity of 11.0% was allocated
equally between ratepayers and shareowners, with the ratepayers' share
of excess earnings credited to the regulatory asset created as a result
of costs associated with manufactured gas plant site investigation and
remediation costs; and (b) the electric Rate Moderation Component
("RMC") and the Long Island Lighting Company Ratemaking and Performance
Plan ("LRPP") mechanisms and performance incentive programs.
Electric
In April 1996, the PSC issued an order directing the Predecessor Company
to file financial and other information sufficient to provide a legal
basis for setting new rates for the three-year period 1997 through 1999.
In compliance with the order, the Predecessor Company submitted a
multi-year rate plan to be reviewed by the PSC. As an interim measure,
pending the consummation of the Merger or the adjudication of its
electric rate filing, the Predecessor Company submitted petitions in May
1997 and December 1997 requesting PSC approval to extend, through the
rate years ending November 30, 1996 and 1997, respectively, the
provisions of its 1995 electric rate order ( the "1995 Order"). These
petitions were approved by the PSC in December 1997 and April 1998,
respectively.
The basis of the 1995 Order included minimizing future electric rate
increases while continuing to provide for the recovery of the
Predecessor Company's regulatory assets and retaining consistency with
the rate moderation agreement objective of restoring the Predecessor
Company to financial health. The 1995 Order, which became effective
December 1, 1994, froze base electric rates, reduced the Predecessor
Company's allowed return on common equity from 11.6% to 11.0% and
modified or eliminated certain performance based incentives.
For the rate year ended November 30, 1997, the Predecessor Company
earned 12.7 basis points, or approximately $2.9 million, net of tax
effects, as a result of its performance under all incentive programs.
The deferred balances resulting from the net margin and expense
reconciliations, and earned performance-based incentives are netted at
the end of each rate year under the 1995 Order. The first $15 million of
the total deferral was recovered from or credited to ratepayers by
increasing or
<PAGE>
Long Island Lighting Company 12
Notes to Financial Statements
For the Three Months Ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
decreasing the RMC balance. Deferrals in excess of the $15 million, upon
approval of the PSC, were refunded to or recovered from the customers
through the FCA mechanism over a 12-month period. For the rate year
ended November 30, 1997, the amount to be returned to customers
resulting from the revenue and expense reconciliations,
performance-based incentive programs and associated carrying charges
totaled $4.1 million. Consistent with the mechanics of the LRPP, it is
anticipated that the entire balance of the deferral will be used to
reduce the RMC balance upon approval by the PSC of the Predecessor
Company's reconciliation filing which was submitted to the PSC in March
1998. For the rate year ended November 30, 1996, the Predecessor Company
recorded a net deferred LRPP credit of approximately $14.5 million which
was subsequently applied as a reduction to the RMC upon the PSC's
approval of the Predecessor Company's reconciliation filing in December
1996. For the rate year ended November 30, 1995, the Predecessor Company
recorded a net deferred credit of approximately $41 million. The first
$15 million of the deferral was applied as a reduction to the RMC while
the remaining portion of the deferral of $26 million will be returned to
customers through the fuel cost adjustment when approved by the PSC.
Another mechanism of the LRPP provided that earnings in excess of the
allowed return on common equity, excluding the impacts of the various
incentive and/or penalty programs, were used to reduce the RMC. For the
rate years ended November 30, 1997, 1996 and 1995, the Predecessor
Company earned $4.8 million, $9.1 million, and $6.2 million,
respectively, in excess of its allowed return on common equity. These
excess earnings were applied as reductions to the RMC.
Gas
In May 1997, the Predecessor Company submitted a petition requesting PSC
approval to extend through the rate year ending November 30, 1997, the
gas excess earnings sharing mechanism established in its prior
three-year gas rate settlement agreement which expired on November 30,
1996. Pursuant to this request, earnings in excess of a return on common
equity of 11.0% were to be allocated equally between customers and
shareowners with the customers' share of excess earnings credited to the
regulatory asset created as a result of costs associated with
manufactured gas plant ("MGP") site investigation and remediation costs.
This request was approved by the PSC in December 1997. As a result of
this mechanism, the customer's allocation of excess earnings amounted to
$6.3 million for the rate year ended November 30, 1997, and through the
date of the Merger, was to be applied to offset costs incurred to
investigate and remediate MGP sites. The prior gas rate settlement
provided that earnings in excess of a 10.6% return on common equity be
shared equally between the Predecessor Company's firm gas customers and
its shareowners. For the rate years ended November 30, 1996 and 1995,
the firm gas customers' portion of gas excess earnings totaled
approximately $10 million and $1 million, respectively. In 1997, the
Predecessor Company was granted permission by the PSC to apply the
customers' portion of the gas excess earnings and associated carrying
charges for the 1996 and 1995 rate years to the recovery of deferred
costs associated with post-retirement benefits other than pensions and
costs incurred for investigation and remediation of MGP sites.
<PAGE>
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Effective May 29, 1998, MarketSpan provides operations and management services
for the transmission and distribution system of the Successor Company through
a management services agreement. LIPA contracts for capacity from the fossil
fired generating plants of MarketSpan through a power supply agreement. Energy
is purchased by MarketSpan on the Successor Company's behalf through an energy
management agreement.
The following table combines the condensed results of operations of both the
Predecessor and Successor Companies in order to facilitate comparison of the
three months ended June 30,1998 and 1997.
<TABLE>
<CAPTION>
Successor Predecessor Predecessor
Company Company Total Company
--------- --------- --------- ---------
May 29,1998 to April 1, 1998 to April 1, 1998 to April 1, 1997 to
June 30,1998 May 28,1998 June 30, 1998 June 30, 1997
--------- --------- --------- ---------
(in millions) (in millions) (in millions) (in millions)
<S> <C> <C> <C> <C>
Electric Revenues $ 202,739 $ 330,011 $ 532,750 $ 560,086
Operating Expenses 150,238 143,850 294,088 423,588
Other Income and (Deductions) 5,396 (158,265) (152,869) 4,322
Interest Charges 35,388 65,518 100,906 103,325
Income (Loss) from
Continuing Operations $ 22,509 $ (37,622) (15,113) 37,495
</TABLE>
The table highlights the effects of the Merger, which include lower electric
revenues as a result of the Successor Company's rate reduction (approximately
20% for all customers effective May 29, 1998) and increased interest expense
during the period May 29, 1998 to June 30, 1998 as a result of the
recapitalization of the Successor Company with debt, instead of equity.
As a result of the Merger, the New York Public Service Commission does not
have jurisdiction over of the Successor Company with respect to the
determination of rates and charges. Rates and charges for the Successor
Company will be determined by LIPA. Therefore, adjustments were made on May
29, 1998 to eliminate all regulatory assets and liabilities on the balance
sheet; accordingly, the results of operations for the period May 29, 1998 to
June 30, 1998 exclude the amortization of such amounts. In addition,
adjustments were made by the Successor Company on May 29,1998 to eliminate
deferred tax assets and liabilities because of the tax exempt status of LIPA.
Therefore, the results of operations for the period May 29,1998 to June 30,
1998 do not include a provision for income taxes.
Three months ended June 30,1998 compared to the three months ended June
30,1997.
Earnings per Common Share
Net losses for the period April 1, 1998 to May 28, 1998 were $9.4 million or
$0.08 per common share as compared to earnings of $32.2 million or $0.26 per
common share for the three months ended June 30, 1997. The results for the
period April 1, 1998 to May 28, 1998 were negatively
<PAGE>
14
impacted by Merger-related expenses such as legal, accounting, financial and
tax consultants, certain severance payments made to Predecessor Company
officers, and federal income taxes resulting from the Merger. Theses items
were partially offset by the positive impact on earnings caused by the change
in method of amortizing the RMC discussed below.
Revenues
The decrease in electric revenues of approximately $27.3 million for the three
months ended June 30, 1998, when compared to the same period in 1997, was
principally the result of the 20% rate reduction, for all customers, effective
May 29, 1998 (approximately $40.4 million). Partially offsetting the reduction
in revenues, caused by the reduction in rates, were higher sales volumes
resulting from warmer weather experienced in the region during the three
months ended June 30, 1998.
Fuel and Purchased Power
Fuel and purchased power expense for the three months ended June 30,1998 and
1997, were as follows:
1998 1997
---------------- ----------------
(in millions) (in millions)
Oil $ 27 $ 18
Gas 43 52
Nuclear 2 4
Purchased 87 75
---------------- ----------------
Total $ 159 $ 149
---------------- ----------------
For the three months ended June 30, 1998, electric fuel costs increased from
the same period in 1997, principally because of the substitution of more
expensive purchased power for lower fuel cost energy generated by nuclear
power. During the 1998 period, the NMP2 Nuclear Facility was undergoing a
scheduled fuel outage. The increase in purchased power expense is the result
of increases in the quantity purchased combined with an increase in the
average unit price per Kilowatt hour.
As a result of a decrease in the price of fuel oil, combined with increases in
natural gas prices in 1998, generation with fuel oil became more cost
effective than generation with gas.
<PAGE>
15
Electric Energy Available
The percentage of total electric energy available, by type of fuel, for
electric operations for the three months ended June 30, 1998 and 1997 were as
follows:
1998 1997
---------------- ----------------
(in millions) (in millions)
Oil 22% 10%
Gas 33% 45%
Nuclear 3% 10%
Purchased 42% 35%
---------------- ----------------
Total 100% 100%
---------------- ----------------
Operations and Maintenance Expenses
Operations and maintenance (O&M) expenses, excluding fuel and purchased power,
amounted to $103.7 million for the three months ended June 30, 1998, compared
to $98.8 million for the same period in 1997. This increase is primarily due
to higher accruals for doubtful accounts and certain employee benefits.
Regulatory amortization
The amortization of various regulatory assets and liabilities were not
recorded by the Successor Company as a result of the adjustments made on May
29,1998, to eliminate the related regulatory assets and liabilities.
The RMC reflected the difference between the Predecessor Company's electric
revenue requirements under conventional ratemaking and the revenues provided
by its electric rate structure. In addition, the RMC was adjusted monthly for
the operation of the Predecessor Company's Fuel Moderation Component ("FMC")
mechanism and the difference between the Predecessor Company's share of actual
operating costs at NMP2 and amounts provided for in electric rates.
In the period ended June 30,1998, the Predecessor Company recorded a non-cash
credit to income of approximately $39.6 million, compared to a non-cash charge
of $9.2 million for the three months ended June 30, 1997. In December 1997,
the Predecessor Company petitioned the Public Service Commission ("PSC") to
change the monthly amortization of the RMC to a method designed to compensate
for the seasonality of the electric business. Accordingly, effective December
1, 1997, the Predecessor Company began recording RMC amortization on a
non-levelized basis. Previously, the Predecessor Company had amortized the RMC
on a straight line basis over each 12 month period beginning December 1. As a
result of the above change, for the period from April 1, 1998 to May 28, 1998,
the Predecessor Company recorded non-cash credits of $46.5 million more than
it would have under the previous methodology.
Federal Income Tax
The decrease in operating federal income tax expense of approximately $113
million for the three months ended June 30, 1998, when compared to the same
period in 1997, was principally the
<PAGE>
16
result of a decrease in operating pretax book income, various adjustments
related to the Merger, and the fact that the Successor Company is not subject
to Federal Income taxes.
The increase in non-operating federal income tax expense of approximately $247
million for the three months ended June 30, 1998, when compared to the same
period in 1997, was principally the result of an increase in non-operating
pretax income, various adjustments related to the Merger, the reversal of
previously recognized tax benefits because of the settlement of an IRS audit
for tax years 1981 through 1989, partially offset by the fact that the
Successor Company is not subject to Federal Income taxes.
Other Income and Deductions
Other income and deductions increased $90 million for the three months ended
June 30, 1998 (exclusive of income taxes) as compared to the three months
ended June 30, 1997, as a result of a $3 million increase in revenues related
to the Predecessor Company's fuel incentive program whereby the Predecessor
Company would recognize additional revenues (and earnings) when it produced
energy more efficiently than target levels established by the PSC. In
addition, in May 1998, the Predecessor Company reached a settlement with the
IRS with respect to an audit covering the years 1981 to 1989, and as a result,
released previously established reserves of approximately $117 million. The
release of these reserves had no impact on earnings as the reversal of the
reserve in May was offset by an increase in tax expense during this period.
The Predecessor Company also recognized approximately $36 million of merger
related expenses during the period April 1, 1998 to May 28, 1998.
Liquidity and Capital Resources
The Successor Company intends to refinance up to $1.8 billion of its long-term
debt in the twelve months subsequent to June 30, 1998. In addition, the
collection of electric revenues from customers is expected to be sufficient to
meet its operating needs and debt service requirements.
Impact of Year 2000
The Successor Company currently is purchasing new computer software to support
its activities and believes that these systems will be Year 2000 compliant.
Management also believes that, based on available information, it will be able
to manage its Year 2000 transition for systems and infrastructure, without any
material adverse effect on its business operations or financial prospects.
However, there can be no assurance that failure to resolve any issue relating
to such transition would not have a material adverse effect on the Successor
Company. The Successor Company has had discussions with MarketSpan, their
largest vendor, who is responsible for the management and operation of the
Successor Company's transmission and distribution system, and MarketSpan has
indicated that they have evaluated the extent to which modifications to its
computer software and database will be necessary to accommodate the year 2000.
A corporate-wide program has been established by MarketSpan to review all
software, hardware and associated compliance plans. MarketSpan also indicated
that contingency and business continuation plans are being prepared and will
be reviewed periodically.
MarketSpan expects to spend approximately $16.3 million to address the Year
2000 issue. As of June 30, 1998, $7.1 million has been expended in
investigating and modifying software. Their effort is scheduled to continue
into 1999 with completion expected at the end of June 30, 1999.
<PAGE>
17
The costs of the project and the date on which MarketSpan believes it will
complete the Year 2000 modifications are based on MarketSpan's management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources and other
factors. However, actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes and similar uncertainties.
MarketSpan believes that, with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed on time, the Year 2000
Issue could have a material adverse impact on the operations of the Successor
Company.
Cautionary Statement Regarding Forward-Looking Statements
This report contains statements which, to the extent they are not recitations
of historical fact, constitute "forward-looking statements" within the meaning
of the Securities Litigation Reform Act of 1996. In this respect, the words
"estimate," "project," "anticipate," "expect," "intend," "believe" and similar
expressions are intended to identify forward-looking statements. All such
forward-looking statements are intended to be subject to the safe harbor
protection provided by the Reform Act. A number of important factors affecting
the Registrant's business and financial results could cause actual results to
differ materially from those stated in the forward-looking statements. Those
factors include state and federal regulatory rate proceedings, competition,
and certain environmental matters each as discussed herein, in the
Registrant's Annual Report on Form 10-K filed May 28, 1998, for the year ended
March 31, 1998, or in other reports filed by the Registrant with the
Securities and Exchange Commission.
<PAGE>
18
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company has been named as a nominal defendant in a derivative suit
pending in the United States District Court for the Eastern District
Court of New York entitled Slyvester v. Catacosinos, et al, as well as in
four class actions pending in New York State Supreme Court, Nassau
County, entitled Gerson et al. v. Catacosinos, et al., Zitter, et al. v.
Catacosinos, et al., Roth, et al. v. Catacosinos, et al., Lipschutz, et
al. v. Catacosinos, et al. Former officers and directors of the Company
also have been named as defendants in each of these actions.
The complaints in these actions allege in substance that certain former
officers of the Company recently received excessive compensation which
totalled approximately $67 million in connection with the closing of
MarketSpan Corporation's merger with the Company and with the Long Island
Power Authority's acquisition of the common stock of the Company. The
class action complaints seek damages of an unspecified amount and one of
the complaints seeks to place approximately $67 million in a constructive
trust.
Because the cases are in a very early stage, at which no discovery has
yet taken place, the Company cannot express an opinion as to the
likelihood of any liability. The Company has notified MarketSpan
Corporation of its entitlement to indemnification pursuant to an
indemnification agreement dated June 26, 1997, for any losses the Company
suffers as a result of these litigations. The Company expects that
MarketSpan will honor the request for indemnification.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3(a) Restated Certificate of Incorporation of LILCO
3(b) Form of New By-laws of LILCO
3(c) Certificate of Assumed Name designating LIPA as the assumed name of LILCO
dated June, 1998
<PAGE>
19
10(a) Management Services Agreement dated as of June 26, 1997 between LILCO
and the Authority
10(b) Power Supply Agreement dated as of June 26, 1997 between LILCO and the
Authority
10(c) Energy Management Agreement dated as of June 26, 1997 between LILCO and
the Authority
10(d) Generation Purchase Rights Agreement dated June 26, 1997 between LILCO
and the Authority with counterpart executed by MarketSpan Generation LLC
as of May 28, 1998
10(e) Guaranty Agreement dated May 28, 1998 by MarketSpan Corporation (F/K/A
BL Holding Corp.); agreed to and accepted by the Authority
10(f) Liabilities Undertaking and Indemnification Agreement dated as of June
26, 1997 by LILCO and MarketSpan Electric Services LLC, MarketSpan
Generation LLC, MarketSpan Trading Services LLC, MarketSpan Utility
Services LLC, MarketSpan Gas Corporation (d/b/a Brooklyn Union),
MarketSpan Corporate Services and MarketSpan Finance Corporation
10(g) Liabilities Undertaking and Indemnification Agreement dated as of June
26, 1997 by the Authority and LILCO
10(h) Energy Management Agreement - Assignment and Assumption Agreement dated
as of May 28, 1998 by and between LILCO, MarketSpan Trading Services LLC
and MarketSpan Corporation (F/K/A BL Holding Corp.); acknowledged and
agreed to by the Authority and LIPA Acquisition Corp.
10(i) Management Services Agreement - Assignment and Assumption Agreement
dated as of May 28, 1998 by and between LILCO, MarketSpan Electric
Services LLC and MarketSpan Corporation (F/K/A BL Holding Corp.);
acknowledged and agreed to by the Authority and LIPA Acquisition Corp.
10(j) Power Supply Agreement - Assignment and Assumption Agreement dated as of
May 28, 1998 by and between LILCO, MarketSpan Generation LLC and
MarketSpan Corporation (F/K/A BL Holding Corp.); acknowledged and agreed
to by the Authority and LIPA Acquisition Corp.
10(k) Generation Purchase Rights Agreement - Assignment and Assumption
Agreement dated as of May 28, 1998 by and between LILCO, MarketSpan
Corporation (F/K/A BL Holding Corp.); acknowledged and agreed to by the
Authority and LIPA Acquisition Corp.
10(l) Operating Agreements - Assignment and Assumption Agreement dated as of
May 28, 1998 by and among the Authority, LIPA Acquisition Corp. and
MarketSpan Corporation (F/K/A BL Holding Corp.)
10(m) Collections Allocation and Segregation Agreement dated as of May 28,
1998 by and among the Authority, LIPA Acquisition Corp. and MarketSpan
Corporation (F/K/A BL Holding Corp.) and MarketSpan Trading Services LLC
10(n) 7.3% Promissory Note in favor of LILCO in the principal amount of
$397,000,000
<PAGE>
20
10(o) 8.20% Promissory Note in favor of LILCO in the principal amount of
$270,000,000
10(p) $28,375,000 Pollution Control Revenue Bonds (LILCO Projects) Series A
Promissory Note in favor of LILCO
10(q) $1,000,000 Industrial Development Revenue Bonds (LILCO Projects) Series
A Promissory Note in favor of LILCO
10(r) $1,000,000 Industrial Development Revenue Bonds (LILCO Projects) Series
B Promissory Note in favor of LILCO
10(s) $19,100,000 Pollution Control Revenue Bonds (LILCO Projects) Series B
Promissory Note in favor of LILCO
10(t) Pollution Control Revenue Bonds (LILCO Projects) Series 1982 Promissory
Note in favor of LILCO
10(u) Adjustable Rate Pollution Control Revenue Bonds (LILCO Projects) 1985
Series A Promissory Note in favor of LILCO
10(v) Adjustable Rate Pollution Control Revenue Bonds (LILCO Projects) 1985
Series B Promissory Note in favor of LILCO
10(w) Electric Facilities Revenue Bonds (LILCO Projects) 1989 Series A
Promissory Note in favor of LILCO
10(x) Electric Facilities Revenue Bonds (LILCO Projects) 1989 Series B
Promissory Note in favor of LILCO
10(y) Electric Facilities Revenue Bonds (LILCO Projects) 1990 Series A
Promissory Note in favor of LILCO
10(z) Electric Facilities Revenue Bonds (LILCO Projects) 1991 Series A
Promissory Note in favor of LILCO
10(aa) Electric Facilities Revenue Bonds (LILCO Projects) 1992 Series A
Promissory Note in favor of LILCO
10(bb) Electric Facilities Revenue Bonds (LILCO Projects) 1992 Series B
Promissory Note in favor of LILCO
10(cc) Electric Facilities Revenue Bonds (LILCO Projects) 1992 Series C
Promissory Note in favor of LILCO
10(dd) Electric Facilities Revenue Bonds (LILCO Projects) 1992 Series D
Promissory Note in favor of LILCO
<PAGE>
21
10(ee) Electric Facilities Revenue Bonds (LILCO Projects) 1993 Series A
Promissory Note in favor of LILCO
10(ff) Electric Facilities Revenue Bonds (LILCO Projects) 1993 Series B
Promissory Note in favor of LILCO
10(gg) Electric Facilities Revenue Bonds (LILCO Projects) 1994 Series A
Promissory Note in favor of LILCO
10(hh) Electric Facilities Revenue Bonds (LILCO Projects) 1995 Series A
Promissory Note in favor of LILCO
27 Financial Data Schedule UT for the three-month period ended June 30,
1998.
(B) REPORTS ON FORM 8-K
In its current report on Form 8-k dated May 28, 1998, pursuant to Item 1
thereof, the registrant reported the consummation of the merger of the LIPA
Acquisition Corp., a wholly owned subsidiary of Long Island Power Authority,
with and into the Registrant, and, pursuant to Item 2 thereof, the registrant
reported the disposition of all of the assets of the registrant employed in
the conduct of its gas distribution business and its non-nuclear electric
generating business, and all common assets used by the registrant in the
operation and management of its electric transmission and distribution
business and its gas distribution business and its non-nuclear electric
generating business to MarketSpan Corporation. The registrant also provided
unaudited pro forma financial information reflecting adjustments to the
historical financial statements of the registrant to give effect to such
transactions.
In its current report on Form 8-K dated June 16, 1998, pursuant to Item 4
thereof, the registrant reported a change in its certifying accountant
reflecting the dismissal of Ernst & Young LLP as the registrant's independent
auditors.
<PAGE>
22
SIGNATURE
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 thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY
(Registrant)
/s/ David Warren
David Warren
Chief Financial Officer
Dated: August 19, 1998
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
LONG ISLAND LIGHTING COMPANY
Under Section 807 of the Business Corporation Law
Pursuant to Section 807 of the Business Corporation Law of the State of New
York, the undersigned do hereby certify:
1. The name of the Corporation is Long Island Lighting Company (the
"Corporation").
2. The Certificate of incorporation of the Corporation was filed in the
office of the Secretary of State on December 31, 1910.
3. Restated Certificates of Incorporation of the Corporation under Section
807 of the Business Corporation Law were filed by the Department of State on
October 9, 1980 and November 22, 1993, respectively.
4. The Restated Certificate of Incorporation of the Corporation, as amended
and restated is further amended to: (i) eliminate the class of Preferred Stock
and each series thereof and the class of Preference Stock all of which were
redeemed by the Corporation or cancelled and convened into the right to receive
cash or shares of another corporation pursuant to the merger of LIPA Acquisition
Corp. with and into the Corporation, with the Corporation as the surviving
corporation made effective on May 28, 1998 by the filing of the Certificate of
Merger of LIPA Acquisition Corp. with and into the Corporation; (ii) reduce the
number of shares of Common Stock of the Corporation which the Corporation is
authorized to issue from one hundred and fifty-million (150,000,000) shares to
one thousand (1,000) shares and to reduce to the par value of such Common Stock
from five dollars ($5.00) per share to one dollar ($1.00) per share (iii) change
the number of directors of the Corporation; (iv) restrict the distribution of
the net earnings and assets of the corporation; (v) restrict the distribution of
any post dissolution assets of the Corporation; (vi) Amend the provisions
governing the Corporation's indemnification of directors, officers and other
persons, and (vii) change the post office address to which the Secretary of
State shall mail a copy of any service of process against the Corporation served
upon the Secretary of State.
5. The text of the Certificate of Incorporation of the Corporation, as
amended and supplemented by all certificates heretofore filed pursuant to law,
as now in force and effect,
1
<PAGE>
as further amended hereby, is hereby restated in a single certificate with such
further amendments to said certificate incorporated herein.
6. The entire text of the Restated Certificate of Incorporation of the
Corporation, as amended and supplemented by all certificates heretofore filed
pursuant to law, as further amended hereby, is hereby restated to read as
follows:
FIRST: The name of the Corporation is Long island Lighting Company.
SECOND: The office of the Corporation is to be located in Uniondale, County
of Nassau, State of New York.
THlRD: The purposes of the Corporation shall be as follows:
Manufacturing, using and supplying gas (herein defined, and intended
throughout this Restated Certificate of Incorporation to include, gas, either
manufactured, natural or mixed) and electricity, for producing light, heat or
power, and in lighting streets, avenues, public parks and places, and public and
private buildings, in the Counties of Suffolk, Nassau and Queens, in the State
of New York.
Engaging in any lawful act or activity for which corporations may be formed
under the Business Corporation Law but not in any act or activity for which the
consent or approval of any state department, official, board, agency or other
body is required without such consent or approval first being obtained or which
is not consistent with or permitted by the Long Island Power Authority Act.
In furtherance of the foregoing purposes, the Corporation shall have the
following powers:
To manufacture, use, acquire, purchase, store, transport, sell and deal in
gas and electricity.
To manufacture, use, acquire, purchase, store, sell and deal in derivatives
of gas or electricity; by-products of the manufacture, use and storage of gas or
electricity; water, and by-products of water, produced, treated, processed,
purified or desalinized in conjunction with the manufacture of gas or
electricity, instruments and devices for the production, conversion or
utilization of energy; energy produced or converted as a by-product or
derivative of or convenient adjunct to the manufacture and storage of gas or
electricity.
To purchase, acquire, make, sell, finance, and lease any and all machines,
instruments, substances, apparatus and equipment in furtherance of or convenient
to the sale of gas or electricity.
To purchase, take, receive, subscribe for, or otherwise acquire, own, hold,
vote, employ, sell, lend, lease, exchange, transfer or otherwise dispose of,
mortgage, pledge, use or otherwise deal in and with bonds and other obligations,
shares, or other securities or interests issued by others, whether engaged in
similar or differeht business, governmental, or other activities, all as more
fully set forth in Section 202 of the Business Corporation Law of New York
State.
2
<PAGE>
To exercise the aforesaid powers for any and all lawful purposes, and
generally to exercise all of the rights and powers conferred by the statutes of
the State of New York on corporations incorporated for the purpose of supplying
gas or electricity, or both, for light, heat and power, or by any other statutes
which are or may hereafter become applicable to such corporations.
In addition, to have and exercise all powers necessary or convenient to
effect any or all of the purposes for which the corporation is formed.
FOURTH: The aggregate number of shares of capital stock which the
Corporation is authorized to issue is one thousand (1,000) par value of one
dollar ($1.00) each, all of which shall consist of one class of common stock.
FIFTH: No holder of any shares of capital stock of the Corporation of any
class shall, as such holder, have any preemptive right or be entitled as a
matter of right to subscribe for or to purchase any other shares of capital
stock of or securities of the Corporation of any class which at any time may be
sold or offered for sale by the Corpotation.
SIXTH: The duration of the Corporation is to be perpetual.
SEVENTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against it may be served and the post office
address to which the Secretary of State shall mail a copy of any process against
it served upon him is: Long Island Lighting Company, 333 Earle Ovington Blvd.,
Suite 403, Uniondale, New York 11553, Attention: Secretary.
EIGHTH: The Board of Directors of the Corporation, none of whom need to be
stockholders, shall be fifteen (15) or such number as the Board of Directors of
the Corporation shall from time to time determine, but in no event less than
three (3).
NINTH: All of the net earnings and assets of the Corporation shall be
distributable only to Long Island Power Authority (the "Authority") and no part
of the net earnings or assets of the Corporation shall inure to the benefit of,
or be distributable to, the Corporation's directors, officers, or other private
persons, except that the Corporation shall be authorized and empowered to pay
reasonable compensation for services and goods rendered or provided and to make
payments and distributions in furtherance of the public utility related purposes
set forth in Article Third hereof.
TENTH: Upon dissolution of the Corporation, all of its assets remaining for
distribution after payment of obligations, or provisions for the same, shall be
distributed to the Authority or to such other political subdivision of the State
of New York as the Board of Directors of the Corporation shall determine.
ELEVENTH: The Corporation shall, to the fullest extent permitted by
applicable law, as amended from time to time, indemnify each person made, or
threatened to be made, a party to any action or proceeding, whether civil,
criminal, administrative or investigative ("Proceeding") by reason of the fact
that such person, such person's testator or intestate, is or was a director or
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officer of the Corporation at any time after May 28, 1998, or a trustee or
officer of the Authority or a director or officer of any subsidiary of the
Authority at any time, or, while such trustee, director or officer, serves or
served, at the request of the Corporation, the Authority or any subsidiary of
the Authority, any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, penalties, amounts paid in settlement and reasonable expenses (including
attorneys' fees, costs and charges) incurred in connection with such threatened
or pending Proceeding, or any appeal therein; provided that no such
indemnification shall be made if a judgment or other final adjudication adverse
to such person establishes that (i) his or her acts or omission were committed
in bad faith or involved intentional misconduct or a knowing violation of the
law, (ii) he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled or (iii) that his or her
acts violated Section 719 of the Business Corporation Law of the State of New
York, and provided further that no such indemnification shall be required with
respect to any settlement or other nonadjudicated disposition of any threatened
or pending Proceeding unless the Corporation has given its prior consent to such
settlement or other disposition.
The Corporation shall, from time to time, advance or promptly reimburse
upon kquest any director, officer or trustee seeking indemnification hereunder
the funds necessary for payment of expenses (including attorneys' fees, costs
and charges) reasonably incurred in connection with any threatened or pending
Proceeding in advance of the final disposition thereof upon receipt of a written
undertaking by or on behalf of such person to repay such amount if such person
is ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so advanced or reimbursed
exceed the amount to which such person is entitled.
Nothing herein shall limit or affect any right of any person otherwise than
hereunder to indemnification or to advancement of expenses (including attorneys'
fees, costs and charges) under any statute, rule, regulation, certificate of
incorporation, by-law, resolution of directors or shareholders, insurance
policy, contract or otherwise.
The Corporation is authorized to enter into agreements with any person,
including, without limitation, any of its directors or officers, to reflect or
confirm the rights and benefits contained in this Article Eleventh and to extend
other additional rights to indemnification and to advancement of expenses to any
such person to the fullest extent permitted by applicable law, and to set forth
procedures for any such person to obtain advancement of expenses and
indemnification, but the existence of any such agreement or the failure to enter
into any such agreement shall not adversely affect or limit the rights of any
such person pursuant to this Article Eleventh or otherwise.
If a request to be indemnified or for the advancement of expenses pursuant
to this Article Eleventh is not paid in full by the Corporation within thirty
(30) days after a written claim has been received by the Corporation, the person
seeking indemnification or advancement of expenses may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the person seeking indemnification or
advancement of expenses shall be entitled also to be paid the expenses of
prosecuting such claim. In any such judicial proceeding, the Corporation shall
have the burden of proving by the
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preponderance of the evidence that the person seeking indemnification or
advancement of expenses is not entitled to indemnification or advances
hereunder. Neither the failure of the Corporation (including its board of
directors, independent legal counsel or shareholders) to have made a
determination that the person seeking indemnification or advancement of expenses
is entitled to indemnification or advancement of expenses in the circumstances
nor an actual determination by the Corporation (including its board of
directors, independent legal counsel or shareholders) that the person seeking
indemnification or advancement of expenses is not so entitled shall be a defense
to an action or create a presumption that the person seeking indemnification or
advancement of expenses is not so entitled.
Nothing in this Article Eleventh shall restrict the power and the authority
of the Corporation to indemnify or advance expenses to, make indemnification
agreements and arrangements with, or maintain insurance on behalf of, any
employee or agent of the Corporation or any person (whether or not a director,
officer, trustee, employee or agent of the Corporation) who serves at the
request of the Corporation in any capacity with any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
If this Article Eleventh or any part hereof shall be held unenforceable in
any respect by a court of competent jurisdiction, it shall be deemed modified to
the minimum extent necessary to make it enforceable, and the remainder of this
Article Eleventh shall remain fully enforceable.
This Article Eleventh shall be given retroactive effect and the full
benefits hereof shall be available in respect of any alleged or actual
occurrences, acts or failures to act prior to the date of the adoption of this
Article Eleventh with respect to any trustee or officer of the Authority or any
director or officer of any subsidiary of the Authority other than the
Corporation. The right to indemnification or advancement of expenses under this
Article Eleventh shall be a contract right.
7. The foregoing restatement of the Certificate of Incorporation of the
Corporation was duly authorized by the Board of Directors of the Corporation and
by the sole shareholder of the Corporation pursuant to Section 307 of the
Business Corporation Law of the State of New York.
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IN WITNESS WHEREOF, the undersigned have signed and acknowledged this
certification this day 29 of May 1993 and affirm the statements contained herein
as true under the penalties of perjury.
LONG ISLAND LIGHTING COMPANY
By: /s/ Richard M. Kessel
---------------------------
Name Richard M. Kessel
Title: Chairman, President
and Chief Executive officer
By: /s/ Stanley B. Klimberg
---------------------------
Name: Stanley B. Klimberg
Title: Secretary
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BY-LAWS
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LONG ISLAND LIGHTING COMPANY
DOING BUSINESS AS LIPA
ARTICLE I
Shareholders
Section 1.01. Annual Meeting. The annual meeting of shareholders for the
election of directors and the transaction of such other business as may come
before it shall be held on such date in each calendar year, not later than the
120 days after the close of the Corporation's preceding fiscal year, and at such
place, as shall be fixed by the President and Chief Executive Officer of the
Corporation and stated in the notice or waiver of notice of the meeting.
Section 1.02. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, may be called at any time by the President and Chief
Executive Officer of the Corporation or by resolution of the Board of Directors.
Special meetings of shareholders shall be held at such place as shall be fixed
by the person or persons calling the meeting and stated in the notice or waiver
of notice of the meeting. At any special meeting only such business may be
transacted which is related to the purpose or purposes set forth in the notice
or waiver of notice of the meeting.
Section 1.03. Notice of Meetings of Shareholders. Whenever shareholders are
required or permitted to take any action at a meeting, written notice shall be
given stating the place, date and hour of the meeting and, unless it is the
annual meeting, indicating that it is being issued by or at the direction of the
person or persons calling the meeting. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called. A copy of the
notice of any meeting shall be given, personally or by mall, not less than ten
(10) nor more than fifty (50) days before the date of the meeting, to each
shareholder entitled to vote at such meeting. If mailed, such notice is given
when deposited in the United States mail, with postage thereon prepaid, directed
to the shareholder at his address as it appears on the record of shareholders,
or, if he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, then directed to
him at such other address. When a meeting is adjourned to another time or place,
it shall not be necessary to give any notice of the adjourned meeting if the
time and place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment, the Board of Directors fixes a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be given
to each shareholder of record on the new record date entitled to notice under
the next preceding paragraph.
Section 1.04. Waivers of Notice. Notice of meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy,
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without protesting prior to the conclusion of the meeting the lack of notice of
such meeting, shall constitute a waiver of notice by him.
Section 1.05. Quorum. The holders of one-third of the shares entitled to
vote thereat shall constitute a quorum at a meeting of shareholders for the
transaction of any business.
Section 1.06. Fixing Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty (50) nor less than ten (10) days before the date of such
meeting, nor more than fifty days prior to any other action. When a
determination of shareholders of record entitled to notice of or to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date under this section for the adjourned meeting.
Section 1.07. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Every proxy must be signed by
the shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except as otherwise provided in this section. The authority of the
holder of a proxy to act shall not be revoked by the incompetence or death of
the shareholder who executed the proxy unless, before the authority is
exercised, written notice of an adjudication of such incompetence or of such
death is received by the corporate officer responsible for maintaining the list
of shareholders. A proxy may be revoked, notwithstanding a provision making it
irrevocable, by a purchaser of shares without knowledge of the existence of the
provision unless the existence of the proxy and its irrevocability is noted
conspicuously on the face or back of the certificate representing such shares.
Section 1.08. Qualification of Voters Every shareholder of record shall be
entitled at every meeting of shareholders to one vote for every share standing
in his name on the record of shareholders, except as expressly provided
otherwise in this section and except as otherwise expressly provided in the
Certificate of Incorporation of the Corporation. Treasury shares and shares held
by another domestic or foreign corporation of any type or kind, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held by the Corporation, shall not be shares entitled to vote or
to be counted in determining the total number of outstanding shares.
Section 1.09. Vote of Shareholders. Directors shall be elected by a
plurality of the votes cast at a meeting of shareholders by the holders of
shares entitled to vote in the election. Whenever any corporate action, other
than the election of directors, is to be taken by vote of the shareholders, it
shall, except as otherwise required by the Business Corporation Law or by the
Certificate of Incorporation of the Corporation, be authorized by a majority of
the votes cast at a
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meeting of shareholders by the holders of shares entitled to vote thereon. The
vote upon any question before any shareholders' meeting need not be by ballot.
Section 1.10. Written Consent of Shareholders. Whenever shareholders are
required or permitted to take any action by vote, such action may be taken
without a meeting on written consent, setting forth the action so taken, signed
by the holders of all outstanding shares entitled to vote thereon. This
paragraph shall not be construed to alter or modify the provisions of any
section of the Business Corporation Law or any provision in the Certificate of
Incorporation of the Corporation not inconsistent with the Business Corporation
Law under which the written consent of the holders of less than all outstanding
shares is sufficient for corporate action. Written consent thus given by the
holders of all outstanding shares entitled to vote shall have the same effect as
a unanimous vote of shareholders.
ARTICLE II
Directors
Section 2.01. Management of Business; Qualifications of Directors. The
business of the Corporation shall be managed under the direction of its Board of
Directors. Directors need not be stockholders. The Board of Directors, in
addition to the powers and authority expressly conferred upon it by statute, by
the Certificate of Incorporation of the Corporation, by these By-Laws and
otherwise, is hereby empowered to exercise all such powers as may be exercised
by the Corporation, except as expressly provided otherwise by the Constitution
and statutes of the State of New York, by the Certificate of Incorporation of
the Corporation and by these By-Laws.
Section 2.02. Number. The number of directors which shall constitute the
entire Board of Directors shall be fifteen (15), but this number may be
increased and subsequently again increased or decreased by an amendment to these
By-Laws, except that the number shall never be less than three (3) and that no
decrease shall shorten the term of any incumbent director.
Section 2.03. Election and Term. At each annual meeting of shareholders,
directors shall be elected to hold office until the next annual meeting, subject
to the provisions of Section 2.05 hereof. Each director shall hold office until
the expiration of the term for which he is elected, and until his successor has
been elected and qualified.
Section 2.04. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors. Such resignation
shall take effect at the time specified therein, if any, or if no time is
specified therein, then upon receipt of such notice by the addressee; and,
unless otherwise provided therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 2.05. Removal of Directors. Any or all of the directors may be
removed at any time (a) for cause by vote of the shareholders or by action of
the Board of Directors or (b) without cause by vote of the shareholders, except
as expressly provided otherwise by Section 706 of the Business Corporation Law.
Section 2.06. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of
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Directors for any reason except.the removal of directors without cause may
be filled by vote of the Board of Directors. If the number of directors then in
office is less than a quorum, such newly created directorships and vacancies may
be filled by vote of a majority of the directors then in office. The Board of
Directors shall fill vacancies occurring in the Board of Directors by reason of
the removal of directors without cause. A director elected to fill a vacancy
shall hold office until the next meeting of shareholders at which the election
of directors is in the regular order of business, and until his successor has
been elected and qualified.
Section 2.07. Quorum and Vote of Directors. At all meetings of the Board of
Directors, a majority of the entire Board of Directors shall be necessary and
sufficient to constitute a quorum for the transaction of business. The vote of a
majority of the entire Board of Directors shall be the act of the Board of
Directors, except as expressly provided otherwise in these By-Laws and by the
statutes of the State of New York. A majority of the directors present, whether
or not a quorum is present, may adjourn any meeting of the Board of Directors to
another time and place.
Section 2.08. Annual Meeting. The newly elected Board of Directors shall
meet immediately following the adjournment of the annual meeting of shareholders
in each year at the same place and no notice of such meeting shall be necessary.
Section 2.09. Regular Meetings. Regular meetings of the Board of Directors
may be held at such times and places as shall from time to time be fixed by the
Board of Directors and held upon notice to the directors.
Section 2.10. Special Meetings. Special meetings may be called at any time
by the President and Chief Executive Officer of the Corporation or by resolution
of the Board of Directors. Special meetings shall be held at such places as
shall be fixed by the person or persons calling the meeting and stated in the
notice or waiver of notice of the meeting. Special meetings of the Board of
Directors shall be held upon notice to the directors. Notice of a special
meeting need not be given to any director who submits a signed waiver of notice
whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
Unless waived, notice of each special meeting of the Board of Directors, stating
the time and place of the meeting, shall be given to each director by delivered
letter, by telegram or by personal communication either over the telephone or
otherwise, in each such case not later than the second day prior to the meeting,
or by mailed letter deposited in the United States mail with postage thereon
prepaid not later than the seventh day prior to the meeting. Notices of special
meetings of the Board of Directors and waivers thereof need not state the
purpose or purposes of the meeting.
Section 2.11. Committees. The Board of Directors, by resolution adopted by
a majority of the entire Board of Directors, may designate from among its
members committees, each consisting of three (3) or more directors, and each of
which, to the extent provided in the resolution, shall have all the authority of
the Board of Directors, except that no such committee shall have authority as to
the following matters:
(1) The submission to shareholders of any action that needs shareholders'
approval under the Business Corporation Law.
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(2) The filling of vacancies in the Board of Directors or in any
committee.
(3) The fixing of compensation of the directors for serving on the Board
of Directors or on any committee.
(4) The amendment or repeal of the By-Laws, or the adoption of new
By-Laws.
(5) The amendment or repeal of any resolution of the Board of Directors
which by its terms shall not be so amendable or repealable.
The Board of Directors may designate one (1) or more directors as alternate
members of any such committee, who may replace any absent member or members at
any meeting of such committee. Each such committee shall serve at the pleasure
of the Board of Directors. Regular meetings of any such committee shall be held
at such times and places as shall from time to time be fixed by such committee
and held upon notice to the committee members. Special meetings may be called at
any time by any officer of the Corporation or any member of such committee.
Notice of each special meeting of each such committee shall be given (or waived)
in the same manner as notice of a special meeting of the Board of Directors. A
majority of the members of any such committee shall constitute a quorum for the
transaction of business and the act of a majority of the members of such
committee shall be the act of the committee.
ARTICLE III
Officers
Section 3.01. Election or Appointment; Number. The officers of the
Corporation shall be elected or appointed by the Board of Directors. The
officers shall be a President and Chief Executive Officer, a Chief Financial
Officer, an Executive Director, a General Counsel, a Secretary and such other
officers, as the Board of Directors may from time to time determine. Any person
may hold two or more offices at the same time, except the offices of President
and Secretary. Any officer may, but no officer need, be chosen from among the
Board of Directors.
Section 3.02. Term. Subject to the provisions of Section 3.03 hereof, all
officers shall be elected or appointed to hold office until the meeting of the
Board of Directors following the next annual meeting of shareholders, and each
officer shall hold office for the term for which he is elected or appointed and
until his successor has been elected or appointed and qualified. The Board of
Directors may require any officer to give security for the faithful performance
of his duties.
Section 3.03. Removal. Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors with or without cause. The
removal of an officer without cause shall be without prejudice to his contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights.
Section 3.04. Authority. The President and Chief Executive Officer of the
Corporation shall direct the policy of the Corporation on behalf of the Board of
Directors. The other officers shall have the authority, perform the duties and
exercise the powers in the management of the Corporation usually incident to the
offices held by them, respectively, and/or such other
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authority, duties and powers as may be assigned to them from time to time by the
Board of Directors.
ARTICLE IV
Capital Stock
Section 4.01. Stock: Certificated and Uncertificated Shares. The shares of
the Corporation shall be represented by certificates or shall be uncertificated
shares. Certificates shall be signed by the President and Chief Executive
Officer and the Secretary of the Corporation, and may be sealed with the seal of
the Corporation or a facsimile thereof.
Section 4.02. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by the laws of the State of New York and in these By-Laws.
Transfers of stock shall be made on the books of the Corporation (a) in the case
of certificated shares, only by the person named in the stock certificate or by
such person's attorney lawfully constituted in writing and upon the surrender of
the certificate therefor, which shall be canceled before the new certificate
shall be issued, or (b) in the case of uncertificated shares, only by the person
named on the books of the Corporation as the registered owner of the
uncertificated share or by such person's attorney lawfully constituted in
writing.
Section 4.03. Registered Holders. The Corporation shall be entitled to
treat and shall be protected in treating the persons in whose names shares or
any warrants, rights or options stand on the record of shareholders, warrant
holders, rights holders or option holders, as the case may be, as the owners
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to, or interest in, any such share, warrant, right or option on the
part of any other person, whether or not the Corporation shall have notice
thereof, except as expressly provided otherwise by the statutes of the State of
New York.
Section 4.04. New Certificates. The Corporation may issue a new certificate
for shares in the place of any certificate theretofore issued by it, alleged to
have been lost or destroyed, and the Board of Directors may, in its discretion,
require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond sufficient (in the judgment of
the directors) to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such certificate
or the issuance of such new certificate. A new certificate may be issued without
requiring any bond when, in the judgment of the directors, it is proper so to
do.
ARTICLE V
Miscellaneous
Section 5.01. Offices. The principal office of the Corporation shall be in
Uniondale, County of Nassau, and State of New York. The Corporation may also
have offices at other places, within and/or without the State of New York.
Section 5.02. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal New York".
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Section 5.03. Checks. All checks or demands for money shall be signed by
such person or persons as the Board of Directors may from time to time
determine.
Section 5.04. Fiscal Year. The fiscal year of the Corporation shall begin
[the first day of January in each year, and shall end on the thirty-first day of
December of such year].
Section 5.05. Books and Records. The Corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders, Board of Directors and each committee thereof, if any, and
shall keep at the office of the Corporation in the State of New York or at the
office of its transfer agent or registrar in the State of New York, a record
containing the names and addresses of all shareholders, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof Any of the foregoing books, minutes or records may be in written
form or in any other form capable of being converted into written form within a
reasonable time.
Section 5.06. Duty of Directors. A director shall perform his duties as a
director, including his duties as a member of any committee of the Board of
Directors upon which he may serve, in good faith and with that degree of care
which an ordinarily prudent person in a like position would use under similar
circumstances in accordance with the provisions of Section 717 of the Business
Corporation Law and the provisions of Section 73 and Section 74 of the Public
Officers Law. In the event that there shall be any conflict between the Business
Corporation Law and the Public Officers Law, the provisions of the Public
Officers Law shall control and govern the performance of a director's duty as a
director of the Corporation.
Section 5.07. Indemnification of Trustees, Directors and Officers. The
Corporation shall, to the fullest extent permitted by applicable law, as amended
from time to time, indemnify each person made, or threatened to be made, a party
to any action or proceeding, whether civil, criminal, administrative or
investigative ("Proceeding") by reason of the fact that such person, such
person's testator or intestate, is or was a director or officer of the
Corporation, or a trustee or officer of Long Island Power Authority (the
"Authority") or a director or officer of any subsidiary of the Authority, or,
while such director, officer or trustee, serves or served, at the request of the
Corporation, the Authority or any subsidiary of the Authority, any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses (including attorneys' fees, costs and
charges) incurred in connection with such threatened or pending Proceeding, or
any appeal therein; provided that no such indemnification shall be made if a
judgment or other final adjudication adverse to such person establishes that (i)
his or her acts or omission were committed in bad faith or involved intentional
misconduct or a knowing violation of the law, (ii) he or she personally gained
in fact a financial profit or other advantage to which he or she was not legally
entitled or (iii) that his or her acts violated Section 719 of the Business
Corporation Law of the State of New York, and provided further that no such
indemnification shall be required with respect to any settlement or other
nonadjudicated disposition of any threatened or pending Proceeding unless the
Corpcration has given its prior consent to such settlement or other disposition.
The Corporation shall, from time to time, advance or promptly reimburse
upon request any director, officer or trustee seeking indemnification hereunder
the funds necessary for
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payment of expenses (including attorneys' fees, costs and charges) reasonably
incurred in connection with any threatened or pending Proceeding in advance of
the final disposition thereof upon receipt of a written undertaking by or on
behalf of such person to repay such amount if such person is ultimately found
not to be entitled to indemnification or, where indemnification is granted, to
the extent the expenses so advanced or reimbursed exceed the amount to which
such person is entitled.
Nothing herein shall limit or affect any right of any person otherwise than
hereunder to indemnification or to advancement of expenses (including attorneys,
fees, costs and charges) under any statute, rule, regulation, certificate of
incorporation, by-law, resolution of directors or shareholders, insurance
policy, contract or otherwise.
The Corporation is authorized to enter into agreements with any person,
including, without limitation, any of its directors or officers, to reflect or
confirm the rights and benefits contained in this Section 6.07 and to extend
other additional rights to indemnification and to advancement of expenses to any
such person to the fullest extent permitted by applicable law, and to set forth
procedures for any such person to obtain advancement of expenses and
indemnification, but the existence of any such agreement or the failure to enter
into any such agreement shall not adversely affect or limit the rights of any
such person pursuant to this Section 5.07 or otherwise.
If a request to be indemnified or for the advancement of expenses pursuant
to this Section 5.07 is not paid in full by the Corporation within thirty (30)
days after a written claim has been received by the Corporation, the person
seeking indemnification or advancement of expenses may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the person seeking indemnification or
advancement of expenses shall be entitled also to be paid the expenses of
prosecuting such claim. In any such judicial proceeding, the Corporation shall
have the burden of proving by the preponderance of the evidence that the person
seeking indemnification or advancement of expenses is not entitled to
indemnification or advances hereunder. Neither the failure of the Corporation
(including its board of directors, independent legal counsel or shareholders) to
have made a determination that the person seeking indemnification or advancement
of expenses is entitled to indemnification or advancement of expenses in the
circumstances nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel or shareholders) that the person
seeking indemnification or advancement of expenses is not so entitled shall be a
defense to an action or create a presumption that the person seeking
indemnification or advancement of expenses is not so entitled.
Nothing in this Section 5.07 shall restrict the power and the authority of
the Corporation to indemnify or advance expenses to, make indemnification
agreements and arrangements with, or maintain insurance on behalf of, any
employee or agent of the Corporation or any person (whether or not a director,
officer, trustee, employee or agent of the Corporation) who serves at the
request of the Corporation in any capacity with any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
-8-
<PAGE>
If this Section 5.07 or any part hereof shall be held unenforceable in any
respect by a court of competent jurisdiction, it shall be deemed modified to the
minimum extent necessary to make it enforceable, and the remainder of This
Section 5.07 shall remain fully enforceable.
This Section 5.07 shall be given retroactive effect and the full benefits
hereof shall be available in respect of any alleged or actual occurrences, acts
or failures to act prior to the date of the adoption of this Section 5.07 with
respect to any trustee or officer of the Authority or any director or officer of
any subsidiary of the Authority other than the Corporation. The right to
indemnification or advancement of expenses under this Section 5.07 shall be a
contract right.
Section 5.08. Entire Board of Directors. As used in these By-Laws, the term
"entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.
Section 5.09. Amendment of By-Laws. These By-Laws may be amended or
repealed and new By-Laws adopted by the Board of Directors or by vote of the
holders of the shares at the time entitled to vote in the election of any
directors, except that any amendment by the Board changing the number of
directors shall require the vote of a majority of the entire Board of Directors
and except that any By-Law adopted by the Board of Directors may be amended or
repealed by the shareholders entitled to vote thereon as provided in the
Business Corporation Law. If any By-Law regulating an impending election of
directors is adopted, amended or repealed by the Board of Directors, there shall
be set forth in the notice of the next meeting of shareholders for the election
of directors the By-Law so adopted, amended or repealed, together with a concise
statement of the changes made.
Section 5.10. Section Headings and Statutory References. The headings of
the Articles and Sections of these By-Laws have been inserted for convenience of
reference only and shall not be deemed to be a part of these By-Laws.
-9-
<PAGE>
[STAMP]
F980605000725
[STAMP] ICC
NEW YORK
DEPARTMENT OF STATE
FILED JUN 05 1998
TAX $ NONE
BY: JAH
NASSAU
Restated Certificate of Incorporation
of
LONG ISLAND LIGHTING COMPANY
pursuant to Section 802 of the NYS Business Corporation Law
Filed By: WINTHROP, STIMSON, PUTNAM & ROBERTS
One Battery Park Plaza
New York, NY n 10004-1490
- ---------- [STAMP]
Filed
June 5, 4:09PM 98
- ----------
INTERCOUNTY - 18
<PAGE>
New York State
DEPARTMENT OF STATE
CORPORATE AND STATE RECORDS DIVISION
- --------------------------------------------------------------------------------
CORPORATION-CERTIFICATE OF ASSURED NAME
(Pursuant to Section [ILLEGIBLE] General Business Law)
- --------------------------------------------------------------------------------
1. Corporation name LONG ISLAND LIGHTING COMPANY
2. Law corporation formed under: [x] [ILLEGIBLE] [ ] Not-for-Profit
[ ] Education [ ] Business
[ ] Other (specify)
-------------------------------------------------------
3. Assumed name LIPA
4. Principle place 333 Earie Ovington Boulevard, Suite 403
of business in No. and Street
New York State* Uniondale, New York 11553 Nassau
City State Zip Code County
* [ ] If [ILLEGIBLE], check [ILLEGIBLE] and insert principal
out-of-state address above.
5. Counties in which business will be conducted under assumed name.
[ ] All counties
[ ] If not all, circle which counties below
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albany [ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE] New York City [ILLEGIBLE] [ILLEGIBLE] Schuylar [ILLEGIBLE]
Allegheny [ILLEGIBLE] Franklin [ILLEGIBLE] Bronx [ILLEGIBLE] [ILLEGIBLE] Seneca [ILLEGIBLE]
[ILLEGIBLE] Columbus [ILLEGIBLE] [ILLEGIBLE] Kings Ontario Rockford [ILLEGIBLE] Washington
[ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE] New York Orange St. Lawrence Suffolk* [ILLEGIBLE]
[ILLEGIBLE] Delaware [ILLEGIBLE] [ILLEGIBLE] Queens* [ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE]
[ILLEGIBLE] Duchess [ILLEGIBLE] [ILLEGIBLE] Richmond [ILLEGIBLE] Schennectady [ILLEGIBLE] Wyoming
[ILLEGIBLE] Erie [ILLEGIBLE] [ILLEGIBLE]* Niagara [ILLEGIBLE] [ILLEGIBLE] Tompkins [ILLEGIBLE]
</TABLE>
*[AN ASTERISK INDICATES CIRCLED COUNTIES IN PRINTED MATERIAL]
6. The address of each business within New York State where business is or
will be conducted under assumed name - list on reverse. If a business
location in New York State, check box [ ].
Corporate officer signature /s/ [ILLEGIBLE]
------------------------------------------
Type name and office Seth D. Hulkower, Executive Director Equivalent
to Vice President
------------------------------------------------
ACKNOWLEDGEMENT (Must be completed)
State of New York County of New York ss.:
On May 28 1998 before me personally come Seth Hulkower to me known, who
being by me duly sworn, did depose and say that he/she is the Executive Director
of Long Island Lighting Company the corporation described in the foregoing
certification, and acknowledges that he/she executed the same by order of the
Board of Directors of such corporation.
/s/ Lauren Solinando
----------------------------------------
Lauren Solinando
Notary Public, State of New York
No. [ILLEGIBLE]
Qualified in Suffolk County
Commission Expires March 20, 2000
================================================================================
For Department of State use only
Filer's name Intercounty Clearance Corporation Date Filed______________________
--------------------------------
Filer's address 440 Ninth Avenue New York NY 10001
No. and Street City State Zip Code
================================================================================
Intercountry - 18
<PAGE>
510 Park Avenue 655 Mill Rose
No. and Street No. and Street
West Babylon, New York Bewlett, New York
City State City State
11704 Suffolk 11357 Nassau
Zip Code County Zip Code County
================================================================================
2400 Sunrise Highway 175 Last Old Country Road
No. and Street No. and Street
Bellmore New York Hicksville, New York
City State City State
11701 Suffolk 11801 Nassau
Zip Code County Zip Code County
================================================================================
1650 Islip Avenue 1800 Old Walt Whitman Road
No. and Street No. and Street
Brentwood, New York Mellville, New York
City State City State
11717 Suffolk 11747 Suffolk
Zip Code County Zip Code County
================================================================================
Montauk Highway 250 Old Country Road
No. and Street No. and Street
Bridgehampton, New York Mineola, New York
City State City State
11932 Suffolk 11501 Nassau
Zip Code County Zip Code County
================================================================================
2045 Route 112 460 East Main Street
No. and Street No. and Street
Garden City, New York Patchogue, New York
City State City State
11727 Suffolk 11772 Suffolk
Zip Code County Zip Code County
================================================================================
600 Stewart Avenue 600 Doctor's Path
No. and Street No. and Street
Garden City, New York Riverhead, New York
City State City State
11530 Nassau 11901 Nassau
Zip Code County Zip Code County
================================================================================
Use continuation sheet if necessary
[ILLEGIBLE]
STATE OF NEW YORK 26E-72
DEPARTMENT OF STATE JJW
FILED
AMT. OF CHECK $ 205
FILING FEE $ 25
TAX $
COUNTY FEE $150 INTERCOUNTY - 18
3 COPY $30
CERT $
SPEC HANDLE $
BY: JJW
<PAGE>
================================================================================
MANAGEMENT SERVICES AGREEMENT
between
LONG ISLAND POWER AUTHORITY
and
LONG ISLAND LIGHTING COMPANY
Dated as of
June 26, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
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
(0) 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) Parents 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
SECT1ON 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
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:
1
<PAGE>
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 Aureement. 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.
2
<PAGE>
(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.
(0) 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. REPRSENTATIONS 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, a 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, 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;
(0) 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;
(1) 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 nondiscriminatory 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. K.11 (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 am. 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. Afl
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. 3.4
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 i.nsifrers 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 procedure& 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
a 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 (8 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). 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 TAD 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, ware
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,
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 IMPROVEMENT
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 Parry 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 Manger 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
am! 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 Improvement 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 (+ or -) 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 cast 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 or 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. (I) 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
swing 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; 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 (0 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. (I) 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, a 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 - A 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 prehearing exchange of information by the parties, including, without
limitation, 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 tune 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(BX2), 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 .he 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 parry 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 /s/ Richard M. Kessel
----------------------------------
Name: Richard M. Kessel
Title: Chairman
By /s/ Patrick Foye
----------------------------------
Name: Patrick Foye
Title: Deputy Chairman
LONG ISLAND LIGHTING COMPANY
By /s/ W. J. Catacosinos
----------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
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APPENDICES
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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
rats 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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"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.
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<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.
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<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 or 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.l 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 tide 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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(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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<PAGE>
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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<PAGE>
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:
- --------------------------------------------------------------------------------
Cost Component Cost Index
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cost Component Growth Indices
- --------------------------------------------------------------------------------
Distribution Cost
- - 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
- --------------------------------------------------------------------------------
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
<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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(D) Reporting/Proof of Performance
1. Compliance
2. Budget
3. Inventory
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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 Avenge Annual Interruption Frequency Index (SAIFI) and Customer Avenge
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>
===============================================================================================
SAIFI Levels CAIDI Levels
Operating =======================================================================
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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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.
=========================================================
Minimum Reliability Standard
0perating ==============================
Division SAIFI CAIDI
Queens-Nassau 1.53 1.31
- ---------------------------------------------------------
Central 1.71 1.59
- ---------------------------------------------------------
West Suffolk 1.90 1.33
- ---------------------------------------------------------
East Suffolk 2.45 1.49
=========================================================
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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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),
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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
S200,OOO.
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.
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<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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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.
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<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
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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 illustration
Sub-contract Labor 0.0 0.0 0.0 purposes
Professional Fees 0.0 0.0 0.0
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
--------------------------------------------
Third Party Cost F 257.0 241.2 223.4 (D+E)
G 116.0 121.3 119.4
--------------------------------------------
Actual Total Costs H 373.0 362.4 342.8 (F+G)
--------------------------------------------
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 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)or zero
--------------------------------------------
Total Q $378.0 $360.6 $ 351.1 (O+P)
============================================
</TABLE>
Included for illustration
<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; ax~
(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,
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or marital status, and will undertake or continue existing programs of
affirmative action to ensure that minority group persons and women arc 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;
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<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
13-6
<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 Form acceptable to the
Authority. Reports
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<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.
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<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 tiny 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. C.2
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<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
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(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) Law 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
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(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
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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
(1) 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 am! 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
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6. DSM/Energy Efficiency Program Communications
7. Billing Inserts and Customer Comnxnunications
(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 am! 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
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(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
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POWER SUPPLY AGREEMENT
between
LONG ISLAND LIGHTING COMPANY
and
LONG ISLAND POWER AUTHORITY
Dated as of June 26, 1997
<PAGE>
TABLE OF CONTENTS
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
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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 .................................. 25
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
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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
APPENDIX F - PERFORMANCE INCENTIVES/DISINCENTIVES .......................... F-1
I. DMNC Incentive/Disintentives .................................. F-2
II. Availability Incentive/Disincentive ........................... F-2
III. Property Tax Incentive ........................................ F-4
IV. Heat Rate Incentive/Disincentive .............................. F-5
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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).
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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;
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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.
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 Capacity" 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.
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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 or which were
entered into in accordance with the provisions of Section 6.1 of the
Acquisition Agreement on or prior to the Closing Daze.
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; size 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
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over the Generating Facilities or the electrical energy produced by
those facilities or this Agreement other than LIPA.
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.
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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.
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.
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1.52. "Person" means, unless otherwise specified, any individual,
corporation, firm companies, trusts, business trusts, legal entities,
general partnership, limited partnership, joint venture, association,
joint-stock company, trust, limited liability company unincorporated
organization, government or any agency or political subdivision therein
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 act.
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 Service, 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 Generating 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 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 mark capacity and
energy purchases made by the Energy Manager on behalf of LIPA, and a
load control programs or measure adopted by LIPA.
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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 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
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below a 0.85 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 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 Electricity Customers while observing established reliability criteria.
GENCO will contribute to any LIPA 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) capita] 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 - REGULATlON
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
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be 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
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plant 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 Credit. 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
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option 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 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 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
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agreed 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. The 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 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 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
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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.
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, Hat 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:
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============== ========= ====================== ======================
Capacity Block Year* Units Approximate Summer
Capacity DMNC
============== ========= ====================== ======================
1 7-9 Far Rockaway 4 300 MW
Glenwood 4 & 5
-------------- --------- ---------------------- ----------------------
2 10-11 E.F.Barrett l & 2 380 MW
-------------- --------- ---------------------- ----------------------
3 12-13 Pt.Jefferson 3 & 4 380 MW
-------------- --------- ---------------------- ----------------------
4 14-15 Northport l 380 MW
============== ========= ====================== ======================
*Year Seven begins on the sixth anniversary of the Closing Date.
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:
========================= ========================
Year Option Exercised Fixed Cost Reduction
========================= ========================
11 12.5%
------------------------- ------------------------
12 25.0%
------------------------- ------------------------
13 37.5%
------------------------- ------------------------
14 50.0%
------------------------- ------------------------
15 62.5%
========================= ========================
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
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<PAGE>
GENCO may use any capacity released pursuant to this option to bid on new LIPA
capacity requirements or on LIPA 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 from non-ramped down and ramped down units during
the term of this Agreement shall be shared based on the following schedule:
============================ =====================
Non Ramped Down Capacity Ratio: LIPA/GENCO
---------------------------- ---------------------
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%
============================ =====================
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 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.
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<PAGE>
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.
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
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<PAGE>
Merger Agreement shall not constitute a Change of Control of GENCO for
purposes of this provision.
(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
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<PAGE>
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
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 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 panics 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.
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<PAGE>
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 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 thin! 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
- -- 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.
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<PAGE>
(f) Information Exchange. The Arbitrators shall have the discretion to
order a prehearing 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.
(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
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 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
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<PAGE>
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 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 Metering Equipment, if any, to calculate the correct amount of
Electricity Delivered. LIPA shall furnish the most recent test and
calibration documentation for LIPA 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
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<PAGE>
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 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
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. 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 metering equipment. If
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<PAGE>
LIPA's meters are utilized, an adjustments for supercompressibility
(following AGA standards) and base pressure should be made to such
meter readings, as applicable.
(b) If LIPA 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 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
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(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 Approval
applicable to the Generating Facilities.
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) 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 fort in Article 19.
16.1.3. Accounting Controls. GENCO shall provide all accounting,
bookkeeping, an 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
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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.
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
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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.
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
- 31 -
<PAGE>
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,
(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 non-proprietary 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,
- 32 -
<PAGE>
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 2O.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.
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 order 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
- 33 -
<PAGE>
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 IRA) and GENCO shall assign all of
its rights, obligations and interests hereunder to the Guarantor or any
affiliate thereof.
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.
- 34 -
<PAGE>
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 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. Notice. 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:
- 35 -
<PAGE>
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.
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.
-36-
<PAGE>
(c) As of the Closing Daze 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 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 paint 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 other 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.
-37-
<PAGE>
(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. Tides 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.
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
-38-
<PAGE>
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.
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: /s/ Richard M. Kessell
---------------------------------
Name: Richard M. Kessell
Title: Chairman
By: /s/ Patrick Foye
---------------------------------
Name: Patrick Foye
Title: Deputy Chairman
LONG ISLAND LIGHTING COMPANY
By: /s/ Dr. William Castacosinos
---------------------------------
Name: Dr. William Catacosinos
Title: Chief Executive Officer
- 40 -
<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>
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 Stare Up / Shut Down Wear and Tear
Rates
================================================================================
Unit $/start (per unit) For starts above
(per unit)
================================================================================
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
================================================================================
B-l
<PAGE>
Variable Rates (f) Internal Combustion Units for Fired Hours of Operation
================================================================================
Unit $/MWH For generation*
(per Unit) above (per unit)
================================================================================
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.
Steam Unit Fuel Swaps
================================================================================
Maximum per day per month per year Cost swaps above
================================================================================
Northport Unit
- --------------------------------------------------------------------------------
185 MW Unit
================================================================================
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.
==========================================
Unit Name Name Plate
Rating (MW)
==========================================
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
- ------------------------------------------
E.F. Barrett 2 175
- ------------------------------------------
Far Rockaway 4 100
==========================================
==========================================
Unit Name Name Plate
Rating (MW)
==========================================
Internal Combustion Units
- ------------------------------------------
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-l 16
- ------------------------------------------
Port Jefferson G-l 16
- ------------------------------------------
W. Babylon 4 52
- ------------------------------------------
Southhold 1 14
- ------------------------------------------
So. Hampton 1 12
- ------------------------------------------
Montauk 2-4 6
==========================================
C-l
<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 Loadings
=================================================
- -------------------------------------------------
Northport
- -------------------------------------------------
Port Jefferson
- -------------------------------------------------
E. F. Barrett
- -------------------------------------------------
Glenwood
- -------------------------------------------------
Far Rockaway
=================================================
Ramp Rates:
=================================================
Unit Ramp Rates
=================================================
Northport
- -------------------------------------------------
Port Jefferson
- -------------------------------------------------
E. F. Barrett
- -------------------------------------------------
Glenwood
- -------------------------------------------------
Far Rockaway
=================================================
Start-Up Times:
================================================================================
Unit Cold > 90 hrs Warm Hot < 24 hrs
================================================================================
Northport
- --------------------------------------------------------------------------------
Port Jefferson
- --------------------------------------------------------------------------------
E. F. Barrett
- --------------------------------------------------------------------------------
Glenwood
- --------------------------------------------------------------------------------
Far Rockaway
================================================================================
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.
================================================================================
Unit Base Load (MW) (1) Peak Load (MW) (1)
================================================================================
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
================================================================================
Note: 1. At 80(degrees)
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:
AH
AF=--
PH
where:
AH = Available Hours are the sum of in-service hours and reserve shutdown
hours in the period. In-serwce 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 devated, 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>
================================================================================
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 MANAGEMENT ................................................... 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
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
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 ................................................... 13
(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".
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:
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<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 election of directors of the Energy
Manager or the Guarantor, as the case may be (including
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<PAGE>
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.
"Commencing 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 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.
-3-
<PAGE>
"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.
"Fuel Management Fee" means the Fuel Management Fee payable under Section
3.2.1.
-4-
<PAGE>
"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.
"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
-5-
<PAGE>
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 the 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.
"New York Power Pool" or "NYPP" means the member system currently
comprising of Consolidated Edison Company of New York, Inc., Central Hudson Gas
and
-6-
<PAGE>
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 hereof 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 hereto), 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.
"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.
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"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.
"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
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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 contacts with one or
more
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 Authority and Energy Manager agree to the contract Such Interruptible Gas
Supplies will be
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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 GENCO Generating
Facilities, and (iii) the Local Transportation Charge and (b) the delivered
cost of oil for use in GENCO's Generating Facilities.
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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 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 Cots. 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 or sale of Electricity for a term in excess of three
months shall be entered into without the prior written consent of the Authority.
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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 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
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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 hereunder or otherwise. The Energy Manager
is unconditionally and absolutely obligated to pay or deposit such moneys
as directed by the Authority.
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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 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.
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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 accounts in such bank or banks as the .Authority
may direct and upon such terms and conditions as may be specified by the
Authority.
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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 assume that, to the extent within the Energy Manager's
control, no liens are filed against a 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
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
during the Term which materially and adversely affects
(i) the condition or operations of the T&D System or the System Power
Supply,
(ii) the financial condition of the Authority,
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(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
7.2.14(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 either 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.
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
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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 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;
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(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.
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.
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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 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
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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 replacanent(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 [ ]
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 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 the Animal Settlement Statement.
93. FUEL CONSUMPTION REPORTS. Fifteen (15) Business Days following the end
of each month, Energy Manager shall submit to Authority a [ ] 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 [ ] 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, [ ] or extend, or any action pending or any action filed with respect to,
the granting, renewal 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 [ ] 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
[ ] 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
responsibilities 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 Parry 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
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 a 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 Parry; 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 counsel in connection with, and to
participate in (but, except as provided below, not control) the
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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$) 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 preapproved 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 to the Energy Manager pertaining to the proposed Subcontractor and
subcontract pertaining to
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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 Subcoractor, 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 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
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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 in 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 parry 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 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.
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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 his 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. 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 the provisions of this Agreement do
not materially conflict with or constitute a
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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 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
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terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and 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. Tides 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.
(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
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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 provision 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; 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
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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: /s/ RICHARD M. KESSEL
---------------------------------
Name: Richard M. Kessel
Title: Chairman
By: /s/ PATRICK FOYE
---------------------------------
Name: Patrick Foye
Title: Deputy Chairman
LONG ISLAND LIGHTING COMPANY
By: /s/ DR. WILLIAM J. CATACOSINOS
---------------------------------
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.
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
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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 a 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 avenge 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 Discharge Date, the two days prior to such date, and the two
days following such date (the "Residual Oil Index Period").
2
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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.
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.
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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. Marketscan
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 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.
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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 (pound) 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, disability, or marital status, and will undertake or continue
existing programs of affirmative
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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 (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 contract 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 MAYBE 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.
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* 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 4 opportunity to participate in the Contract
Scope of Work.
(2) The Energy Manager will designate, and make known to the Authority an
MAYBE Officer who will have the responsibility for and authority to
effectively administer the MAYBE 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 dares 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 meaning the specified MAYBE Goal
which may include review and inspection of documents pertaining to the
Energy Manager's efforts towards meeting the Goals and on-site interviews
with personnel of Energy Manager and
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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 MAYBE GOALS. MAYBE 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 MAYBE 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 MAYBE 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 MAYBE 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.
(2) Advertising in appropriate general circulation, trade and minority and
women-oriented publications.
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(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 MAYBE 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.
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===============================================================================
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
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Page
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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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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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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 Marketspan Generation LLC*, 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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"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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"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
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the existing Generating Facilities, the specific size and 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
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Confirmation. In the event Seller requests Confirmation, the parties are to
select an independent consulting engineer to 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,
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except to the extent such items are already in the possession of Buyer.
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
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fees, underwriter's compensation and other costs of issuance, specifically
related to such financing, if any, up to $2 million.
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
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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 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.
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(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.
(h) Assets. On the Closing Date, Genco will have good and
marketable title (except to the extent that such assets 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 Gencol'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.
(1) 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
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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 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
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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.
(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,
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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 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
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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.
(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
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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.
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.
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(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.
(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.
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(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.
(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;
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(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.
(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
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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.
(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
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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.
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
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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.
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
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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 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.
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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 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
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<PAGE>
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, 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:/s/ Dr. William J. Catacosinos
---------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
LONG ISLAND POWER AUTHORITY, as Buyer
By:/s/ Richard M. Kessel
---------------------------------
Name: Richard M. Kessel
Title: Chairman
By:/s/ Patrick Fove
---------------------------------
Name: Patrick Foye
Title: Deputy Chairman
Acknowledged and agreed to, as of the Closing, by:
MARKETSPAN GENERATION LLC
By:
-------------------------------------
Name: Joseph E. Fontana
Title: Vice President
<PAGE>
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
GUARANTY AGREEMENT
from
MARKETSPAN CORPORATION
to
LONG ISLAND POWER AUTHORITY
Dated
May 28, 1998
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- --------------------------------------------------------------------------
<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT is made and dated as of May 28,
1998, from MARKETSPAN CORPORATION, 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 permanent 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 June 26, 1997, as supplemented (the
"Management Services Agreement"), whereby MarketSpan Energy Management, LLC,
as Manager (the "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 June 26, 1997, as supplemented (the
"Power Supply Agreement"), whereby MarketSpan Generation, LLC ("Genco") has
agreed to sell capacity and energy to the Authority, an Energy Management
Agreement dated June 26, 1997, as supplemented (the "Energy Management
Agreement") whereby MarketSpan Energy Management, LLC (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.
The Agreements when entered into pursuant to the terms of an
Agreement and Plan of Merger dated as of June 26, 1997 by and among the
Authority, Long Island Lighting Company, the Guarantor and LIPA Acquisition
Corp. (the "Acquisition Corp").
Each of the Manager, the Energy Manager and GENCO (the
"Subsidiaries") is a subsidiary of the Guarantor.
The Authority entered into the Agreements only upon the
condition that the Guarantor guarantee 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 of the foregoing, the
Guarantor agrees as follows:
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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.
"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 Guarantor, the
Authority and their successors and assigns as permitted hereunder any rights
or remedies under or by reason of this Guaranty.
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<PAGE>
(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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<PAGE>
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. 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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<PAGE>
(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.
5
<PAGE>
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, irrevocable and unconditional and shall remain in full
force and effect until the Subsidiaries shall
6
<PAGE>
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 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
7
<PAGE>
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' 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
a defense to, release, discharge or otherwise affect the Subsidiaries'
Obligations, the Guarantor's obligations under this Guaranty shall be treated
the same.
8
<PAGE>
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;
(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
<PAGE>
(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' 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.
10
<PAGE>
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.
11
<PAGE>
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: MarketSpan Corporation
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
12
<PAGE>
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.
MARKETSPAN CORPORATION
as Guarantor
By /s/ Joseph E. Fontana
--------------------------------------
Name: Joseph E. Fontana
Title: Vice President
Accepted and Agreed to by:
LONG ISLAND POWER AUTHORITY
By:
--------------------------
Name: Richard M. Kessel
Title: Chairman
13
<PAGE>
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.
MARKETSPAN CORPORATION
as Guarantor
By
--------------------------------------
Name:
Title:
Accepted and Agreed to by:
LONG ISLAND POWER AUTHORITY
By: /s/ Richard M. Kessel
--------------------------
Name: Richard M. Kessel
Title: Chairman
<PAGE>
LIABILITIES UNDERTAKING AND INDEMNIFICATION AGREEMENT
UNDERTAKING dated as of June 26, 1997 by LONG ISLAND LIGHTING
COMPANY, a New York corporation ("LILCO") and MARKETSPAN ELECTRIC SERVICES LLC,
a New York limited liability company formerly known as BL TD MANAGEMENT
LLC, MARKETSPAN GENERATION LLC, a New York limited liability company formerly
known as BL GENERATION LLC, MARKETSPAN TRADING SERVICES LLC, a New York limited
liability company formerly known as BL ENERGY MANAGEMENT LLC, MARKETSPAN UTILITY
SERVICES LLC, a New York limited liability company formerly known as BL UTILITY
SERVICES LLC, MARKETSPAN GAS CORPORATION (DBA BROOKLYN UNION), a New York
corporation formerly known as BL GAS, INC., MARKETSPAN CORPORATE SERVICES LLC, a
New York limited liability company formerly known as BL CORPORATE SERVICES LLC
and MARKETSPAN FINANCE CORPORATION (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
<PAGE>
hereby acknowledged, LILCO and the Transferee Subsidiaries 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. 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
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<PAGE>
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 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
1. 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.
-3-
<PAGE>
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.
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
-4-
<PAGE>
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.
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 6 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
-5-
<PAGE>
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 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
-6-
<PAGE>
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.
-7-
<PAGE>
IN WITNESS WHEREOF, this Undertaking has been executed as of
the date first above written.
LONG ISLAND LIGHTING COMPANY
By: /s/ Dr. William J. Catacosinos
------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
IN WITNESS WHEREOF, this Undertaking has been executed as of
the 28th day of May, 1998.
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Joseph E. Fontana
------------------------------
Name: Joseph E. Fontana
Title: Vice President
MARKETSPAN GENERATION LLC
By: /s/ Joseph E. Fontana
------------------------------
Name: Joseph E. Fontana
Title: Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Joseph E. Fontana
------------------------------
Name: Joseph E. Fontana
Title: Vice President
MARKETSPAN GAS CORPORATION
(DBA BROOKLYN UNION)
By: /s/ Joseph E. Fontana
------------------------------
Name: Joseph E. Fontana
Title: Vice President
-8-
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Joseph E. Fontana
------------------------------
Name: Joseph E. Fontana
Title: Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Joseph E. Fontana
------------------------------
Name: Joseph E. Fontana
Title: Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Joseph E. Fontana
------------------------------
Name: Joseph E. Fontana
Title: Vice President
-9-
<PAGE>
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 MARKETSPAN ELECTRIC SERVICES LLC, a New
York limited liability company formerly known as BL TD MANAGEMENT LLC,
MARKETSPAN GENERATION LLC, a New York limited liability company formerly known
as BL GENERATION LLC, MARKETSPAN TRADING SERVICES LLC, a New York limited
liability company formerly known as BL ENERGY MANAGEMENT LLC, MARKETSPAN
UTILITY SERVICES LLC, a New York limited liability company formerly known as
BL UTILITY SERVICES LLC, MARKETSPAN GAS CORPORATION (DBA BROOKLYN UNION), a
New York corporation formerly known as BL GAS, INC., MARKETSPAN CORPORATE
SERVICES LLC, a New York limited liability company formerly known as BL
CORPORATE SERVICES LLC and MARKETSPAN FINANCE CORPORATION (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;
<PAGE>
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 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: /s/ Richard M. Kessel
-------------------------------
Name: Richard M. Kessel
Title: Chairman
By: /s/ Patrick Foye
-------------------------------
Name: Patrick Foye
Title: Deputy Chairman
IN WITNESS WHEREOF, this Undertaking has been executed as of
the 28th day of May, 1998.
LONG ISLAND LIGHTING COMPANY
By: /s/ Seth Hulkower
--------------------------------
Name: Seth Hulkower
Title: Executive Director
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<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of May 28, 1998 (this
"ASSIGNMENT AGREEMENT"), by and between LONG ISLAND LIGHTING COMPANY, a New
York corporation ("LILCO"), MARKETSPAN TRADING SERVICES LLC, a New York
limited liability company formerly known as BL ENERGY MANAGEMENT LLC ("Energy
Manager") and MARKETSPAN CORPORATION, a New York corporation formerly known as
BL HOLDING CORP. ("MKT"), and acknowledged and agreed to by LONG ISLAND POWER
AUTHORITY, a corporate municipal instrumentality and political subdivision of
the State of New York ("LIPA") and LIPA ACQUISITION CORP., a New York
corporation and a wholly owned subsidiary of LIPA ("LIPA Sub").
W I T N E S S E T H
WHEREAS, LIPA, LILCO, MKT and LIPA Sub are parties to that certain
Agreement and Plan of Merger, dated as of June 26, 1997 (the "Merger
Agreement");
WHEREAS, in connection with the transactions contemplated by the
Merger Agreement, LIPA and LILCO entered into an Energy Management Agreement,
dated as of June 26, 1997 (as amended and supplemented up to and including the
Closing Date as therein defined, the "EMA"), Section 13.3 of which provided
that, effective upon the Closing Date, LILCO shall assign all of its rights,
obligations and interests thereunder to MKT or any affiliate thereof;
WHEREAS, MKT hereby directs LILCO to assign to Energy Manager, its
wholly owned subsidiary, all rights, obligations and interests under the EMA
to be assigned pursuant to Section 13.3 thereof;
WHEREAS, in connection with the Merger Agreement and in accordance
with the requirements of Section 13.3 of the EMA, MKT will, prior to the
Effective Time (as defined in the Merger Agreement), execute a Guaranty
Agreement, in substantially the form of the Guaranty Agreement attached to the
Merger Agreement as Exhibit E, pursuant to which MKT will, among other things,
guarantee the obligations of Energy Manager under the EMA;
NOW THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1 . Definitions. Capitalized terms used herein and not otherwise defined
herein have the respective meanings given in the Merger Agreement.
2. Assignment by LILCO to Energy Manager. Pursuant to the direction
of MKT, LILCO hereby assigns to Energy Manager all of its rights,
obligations and interests under the EMA.
1
<PAGE>
3. Assumption of Liabilities and Obligations by Energy Manager.
Energy Manager hereby agrees to assume all liabilities and obligations
of LILCO under the EMA.
4. Substitution of Energy Manager Where LILCO Appears. The EMA is hereby
deemed amended, such that Energy Manager is substituted for LILCO as
a named party, as the context may indicate, for all purposes under such
Agreement and all references to LILCO in such Agreement shall be
deemed to refer to Energy Manager.
5. Acknowledgment by LIPA and LIPA Sub of Assumption, Assignment and
Substitution. LIPA and LIPA Sub each hereby acknowledge and confirm
that all of the liabilities, obligations, benefits and rights of
LILCO under the EMA shall inure hereby to the benefit of Energy
Manager under such Agreement.
6. Counterparts. This Assignment Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, LILCO, LIPA, LIPA Sub, MKT and Energy Manager
have caused this Assignment Agreement to be signed by their respective
officers thereunto duly authorized as of the date first written above.
LONG ISLAND LIGHTING COMPANY MARKETSPAN TRADING SERVICES LLC
By: /s/ Leonard P. Novello By: /s/ Joseph E. Fontana
---------------------------------- --------------------------------
Name: Leonard P. Novello Name: Joseph E. Fontana
Title: Senior Vice President/ Title: Vice President
General Counsel
MARKETSPAN CORPORATION
By: /s/ Joseph E. Fontana
----------------------------------
Name: Joseph E. Fontana
Title: Vice President
Acknowledged and Agreed to by:
LONG ISLAND POWER AUTHORITY LIPA ACQUISITION CORP.
By: /s/ Seth Hulkower By: /s/ Seth Hulkower
---------------------------------- --------------------------------
Name: Seth Hulkower Name: Seth Hulkower
Title: Executive Director Title: Executive Director
2
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of May 28, 1998 (this
"ASSIGNMENT AGREEMENT"), by and between LONG ISLAND LIGHTING COMPANY, a New York
corporation ("LILCO"), MARKETSPAN ELECTRIC SERVICES LLC, a New York limited
liability company formerly known as BL TD MANAGEMENT LLC ("Manager") and
MARKETSPAN CORPORATION, a New York corporation formerly known as BL HOLDING
CORP. ("MKT"), and acknowledged and agreed to by LONG ISLAND POWER AUTHORITY, a
corporate municipal instrumentality and political subdivision of the State of
New York ("LIPA") and LIPA ACQUISITION CORP., a New York corporation and a
wholly owned subsidiary of LIPA ("LIPA Sub").
WITNESSETH
WHEREAS, LIPA, LILCO, MKT and LIPA Sub are parties to that certain
Agreement and Plan of Merger, dated as of June 26, 1997 (the "Merger
Agreement");
WHEREAS, in connection with the transactions contemplated by the Merger
Agreement, LIPA and LILCO entered into a Management Services Agreement, dated as
of June 26, 1997 (as amended and supplemented up to and including the Closing
Date as therein defined, the "MSA"), Section 9.7 of which provided that,
effective upon the Closing Date, LILCO shall assign all of its rights,
obligations and interests thereunder to MKT or any affiliate thereof;
WHEREAS, MKT hereby directs LILCO to assign to Manager, its wholly
owned subsidiary, all rights, obligations and interests under the MSA to be
assigned pursuant to Section 9.7 thereof;
WHEREAS, in connection with the Merger Agreement and in accordance with
the requirements of Section 9.7 of the MSA, MKT will, prior to the Effective
Time (as defined in the Merger Agreement), execute a Guaranty Agreement, in
substantially the form of the Guaranty Agreement attached to the Merger
Agreement as Exhibit E, pursuant to which MKT will, among other things,
guarantee the obligations of Manager under the MSA;
NOW THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined herein
have the respective meanings given in the Merger Agreement.
2. Assignment by LILCO to Manager. Pursuant to the direction of MKT, LILCO
hereby assigns to Manager all of its rights, obligations and interests
under the MSA.
3. Assumption of Liabilities and Obligations by Manager. Manager hereby agrees
to assume all liabilities and obligations of LILCO under the MSA.
1
<PAGE>
4. Substitution of Manager Where LILCO Appears. The MSA is hereby deemed
amended, such that Manager is substituted for LILCO as a named party, as
the context may indicate, for all purposes under the MSA and all references
to LILCO in the MSA shall be deemed to refer to Manager.
5. Acknowledgment by LIPA and LIPA Sub of Assumption, Assignment and
Substitution. LIPA and LIPA Sub each hereby acknowledge and confirm that
all of the liabilities, obligations, benefits and rights of LILCO under the
MSA shall inure hereby to the benefit of Manager under the MSA.
6. Counterparts. This Assignment Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, LILCO, LIPA, LIPA Sub, MKT and Manager have caused
this Assignment Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
LONG ISLAND LIGHTING COMPANY MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Leonard P. Novello By: /s/ Joseph E. Fontana
-------------------------------- ---------------------------
Name: Leonard P. Novello Name: Joseph E. Fontana
Title: Senior Vice President/General Counsel Title: Vice President
MARKETSPAN CORPORATION
By: /s/ Joseph E. Fontana
-------------------------------
Name: Joseph E. Fontana
Title: Vice President
Acknowledged and Agreed to by:
LONG ISLAND POWER AUTHORITY LIPA ACQUISITION CORP.
By: /s/ Seth Hulkower By: /s/ Seth Hulkower
------------------------------- -----------------------------
Name: Seth Hulkower Name: Seth Hulkower
Title: Executive Director Title: Executive Director
2
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of May 28, 1998
(this "ASSIGNMENT AGREEMENT"), by and between LONG ISLAND LIGHTING
COMPANY, a New York corporation ("LILCO"), MARKETSPAN GENERATION LLC, a
New York limited liability company formerly known as BL GENERATION LLC
("Genco") and MARKETSPAN CORPORATION, a New York corporation formerly
known as BL HOLDING CORP. ("MKT"), and acknowledged and agreed to by LONG
ISLAND POWER AUTHORITY, a corporate municipal instrumentality and
political subdivision of the State of New York ("LIPA") and LIPA
ACQUISITION CORP., a New York corporation and a wholly owned subsidiary
of LIPA ("LIPA Sub").
WITNESSETH
WHEREAS, LIPA, LILCO, MKT and LIPA Sub are parties to that
certain Agreement and Plan of Merger, dated as of June 26, 1997 (the
"Merger Agreement");
WHEREAS, in connection with the transactions contemplated by the
Merger Agreement, LIPA and LILCO entered into a Power Supply Agreement,
dated as of June 26, 1997 (as amended and supplemented up to and
including the Closing Date as therein defined, the "PSA"), Section 21.3
of which provided that, effective upon the Closing Date, LILCO shall
assign all of its rights, obligations and interests thereunder to MKT or
any affiliate thereof;
WHEREAS, MKT hereby directs LILCO to assign to Genco, its
wholly-owned subsidiary, all rights, obligations and interests under the
PSA to be assigned pursuant to Section 21.3 thereof;
WHEREAS, in connection with the Merger Agreement and in
accordance with the requirements of Section 21.3 of the PSA, MKT will,
prior to the Effective Time (as defined in the Merger Agreement),
execute a Guaranty Agreement, in substantially the form of the Guaranty
Agreement attached to the Merger Agreement as Exhibit E, pursuant to
which MKT will, among other things, guarantee the obligations of Genco
under the PSA;
NOW THEREFORE, in consideration of the premises, the covenants
and agreements contained herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties
hereto, intending to be legally bound hereby, agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined herein have the respective meanings given in the Merger
Agreement.
2. Assignment by LILCO to Genco. Pursuant to the direction of MKT,
LILCO hereby assigns to Genco all of its rights, obligations
and interests under the PSA.
1
<PAGE>
3. Assumption of Liabilities and Obligations by Genco. Genco hereby agrees
to assume all liabilities and obligations of LILCO under the PSA.
4. Substitution of Genco Where LILCO Appears. The PSA is hereby deemed
amended, such that Genco is substituted for LILCO as a named party,
as the context may indicate, for all purposes under the PSA and all
references to LILCO in the PSA shall be deemed to refer to Genco.
5. Acknowledgment by LIPA and LIPA Sub of Assumption, Assignment and
Substitution. LIPA and LIPA Sub each hereby acknowledge and confirm
that all of the liabilities, obligations, benefits and rights of
LILCO under the PSA shall inure hereby to the benefit of Genco under
the PSA.
6. Counterparts. This Assignment Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, LILCO, LIPA, LIPA Sub, MKT and Genco have caused
this Assignment Agreement to be signed by their respective officers thereunto
duty authorized as of the date first written above.
LONG ISLAND LIGHTING COMPANY MARKETSPAN GENERATION LLC
By: /s/ Leonard P. Novello By: /s/ Joseph E. Fontana
_______________________ _______________________
Name: Leonard P. Novello Name: Joseph E. Fontana
Title: Senior Vice President/General Counsel Tile: Vice President
MARKETSPAN CORPORATION
By: /s/ Joseph E. Fontana
______________________
Name: Joseph E. Fontana
Title: Vice President
Acknowledged and Agreed to by:
LONG ISLAND POWER AUTHORITY LIPA ACQUISITION CORP.
By: /s/ Seth Hulkower By: /s/ Seth Hulkower
_______________________ _______________________
Name: Seth Hulkower Name: Seth Hulkower
Title: Executive Director Title: Executive Director
2
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of May 28, 1998 (this
"ASSIGNMENT AGREEMENT"), by and among LONG ISLAND POWER AUTHORITY, a corporate
municipal instrumentality and political subdivision of the State of New York
("LIPA"), LIPA ACQUISITION CORP., a New York corporation and a wholly owned
subsidiary of LIPA ("Acquisition Corp."), and MARKETSPAN CORPORATION a New
York corporation, formerly named BL Holding Corp. ("Parent").
WITNESSETH
WHEREAS, LIPA, Acquisition Corp., Long Island Lighting Company
("LILCO") and Parent are parties to that certain Agreement and Plan of
Merger, dated as of June 26, 1997, as supplemented and/or amended through the
date hereof (as so supplemented and/or amended, the "Merger Agreement");
WHEREAS, in connection with the transactions contemplated by the
Merger Agreement, LIPA and LILCO entered into a Management Services Agreement,
dated as of June 26, 1997, as supplemented through the date hereof (as so
supplemented, the "MSA"), a Power Supply Agreement, dated as of June 26,
1997, as supplemented through the date hereof (as so supplemented, the
"PSA"), an Energy Management Agreement, dated as of June 26, 1997, as
supplemented through the date hereof (as so supplemented, the "EMA") (the
MSA, the PSA and the EMA are collectively referred to herein as the
"Operating Agreements");
WHEREAS, in connection with the Merger Agreement, LILCO executed a
Liabilities Undertaking and Indemnification Agreement, dated as of June 26,
1997 (the "Parent Liabilities Undertaking"), and prior to the Effective Time
(as defined in the Merger Agreement), certain Transferee Subsidiaries (as
defined in the Merger Agreement) will also have executed a substantially
similar Liabilities Undertaking and Indemnification Agreement (together with
the Parent Liabilities Undertaking, the "MarketSpan Parties Liabilities
Undertaking");
WHEREAS, in connection with the Merger Agreement, LIPA executed a
Liabilities Undertaking and Indemnification Agreement, dated as of June 26,
1997 (the "LIPA Liabilities Undertaking");
WHEREAS, in connection with the Merger Agreement, Parent will, prior
to the Effective Time, execute a Guaranty Agreement, in substantially the
form of the Guaranty Agreement attached to the Merger Agreement as Exhibit E;
WHEREAS, in connection with the Merger Agreement, certain rights and
obligations were granted to LIPA and undertaken by LIPA, respectively,
pursuant to Schedule B (Principles
<PAGE>
and Procedures for Finalizing the Transferred Assets Schedule), Schedule E
(Employment Matters), and Schedule F (Grant of Future Rights);
WHEREAS, pursuant to the Merger Agreement, Acquisition Corp. will
merge with and into LILCO (the "Merger"), with the result that LILCO will be
the surviving corporation and become a wholly owned subsidiary of LIPA;
NOW THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
herein have the respective meanings given in the Merger Agreement.
2. Assumption of LIPA Repayment Obligation. Acquisition Corp. agrees to
assume, effective as of the Effective Time, and agrees to pay in full,
all of LIPA's obligations to repay amounts advanced by the State of New
York and the Power Authority of the State of New York prior to the
Effective Time, being an aggregate amount of approximately $28 million.
3. Assumption of Liabilities and Obligations by Acquisition Corp.
Acquisition Corp. agrees to assume, effective as of the Effective Time,
all liabilities and obligations of LIPA under each of the Operating
Agreements, the LIPA Liabilities Undertaking, Paragraph 5 of Schedule B,
Schedule E, and Schedule F (collectively, the "Assumed Liabilities").
4. Assignment by LIPA to Acquisition Corp. LIPA hereby assigns to
Acquisition Corp. each of the Operating Agreements.
5. Addition of Acquisition Corp. Where LIPA Appears. (a) The Merger
Agreement, including each of the Schedules thereto, each of the
Operating Agreements, the LIPA Liabilities Undertaking, the MarketSpan
Parties Liabilities Undertaking, and the Guaranty is each hereby deemed
amended, effective as of the Effective Time, such that Acquisition Corp.
is added as a named party in addition to LIPA, in each case as the
context may indicate, for all purposes under such Agreements and all
references to LIPA in such Agreements shall be deemed to refer to
Acquisition Corp. as well.
6. Acknowledgment of Acquisition Corp. Assumption, Assignment and
Substitution; Release. Parent hereby acknowledges and confirms that,
effective as of the Effective Time, all of the liabilities, obligations,
benefits and rights of LIPA under the Operating Agreements, the BHC
Parties Liabilities Undertaking, and the Guaranty shall inure to the
benefit of Acquisition Corp. under those Agreements. Parent also hereby
agrees to release LIPA from any and all obligations under the Operating
Agreements and with respect to the Assumed Liabilities and to look only
to LILCO in respect thereof after the Effective Time.
<PAGE>
7. Counterparts. This Assignment Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
8. Survival. This Assignment Agreement shall survive the Closing.
IN WITNESS WHEREOF, LIPA, Acquisition Corp., and Parent have caused
this Assignment Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
LONG ISLAND POWER AUTHORITY
By: /s/ [illegible]
-------------------------------
LIPA ACQUISITION CORP.
By: /s/ [illegible]
-------------------------------
MARKETSPAN CORPORATION
By: /s/ [illegible]
-------------------------------
3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COLLECTIONS ALLOCATION AND SEGREGATION AGREEMENT
among
LONG ISLAND POWER AUTHORITY,
LIPA ACQUISITION CORP.,
and
MARKETSPAN TRADING SERVICES, LLC,
as Manager
Dated as of
May 28, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COLLECTIONS ALLOCATION AND SEGREGATION AGREEMENT
This COLLECTIONS ALLOCATION AND SEGREGATION AGREEMENT, dated
as of May 28, 1998 (this "Agreement"), by and among LONG ISLAND POWER
AUTHORITY, a corporate municipal instrumentality and political subdivision of
the State of New York (the "Authority"), party of the first part, LIPA
ACQUISITION CORP., a corporation organized and existing under the laws of the
State of New York (the "Subsidiary"), party of the second part, MARKETSPAN
CORPORATION, a corporation organized and existing under the laws of the State
of New York ("MarketSpan"), party of the third part, and MARKETSPAN ENERGY
MANAGEMENT, LLC, a limited liability company organized and existing under the
laws of the State of New York, as the successor Manager under the Management
Services Agreement mentioned hereinbelow (the "Manager"), party of the fourth
part (capitalized terms used herein and not otherwise explicitly defined have
the meanings ascribed to them in the Management Services Agreement);
WITNESSETH:
WHEREAS, the Authority and Long Island Lighting Company
("LILCO") entered into a certain Management Services Agreement, dated as of
June 26, 1997, (as amended and supplemented the "Management Services
Agreement"), under which LILCO, as Manager, agreed (i) to operate and maintain
the T&D System, and (ii) in connection with the aforementioned duties and
responsibilities, to collect certain amounts due and owing to the Authority;
and
WHEREAS, on May 13, 1998 the Authority adopted its Electric
System General Revenue Bond Resolution (as amended and supplemented from time
to time, the "Bond Resolution"), pursuant to which, among other things, the
Authority may issue its bonds, notes or other evidences of indebtedness from
time to time, including $3,449,527,638.05 aggregate initial principal amount of
Electric System General Revenue Bonds, Series 1998A (the "Series 1998A Bonds");
and
WHEREAS, on May 20, 1998 the Authority adopted its Electric
System General Subordinated Revenue Bond Resolution, pursuant to which, among
other things, the Authority may issue its bonds, notes or other evidences of
indebtedness from time to time, including $1,500,000,000 aggregate principal
amount of Electric System Subordinated Revenue Bonds, Series 1, 2, 3, 4, 5 and
6 (the "Initial Subordinated Indebtedness" and, together with the Series 1998A
Bonds, the "1998 Bonds"); and
WHEREAS, in conjunction with the issuance of the 1998 Bonds,
the Subsidiary will succeed to the rights and interests of the Authority under
the Management Services Agreement and MarketSpan Energy Management, LLC will
succeed LILCO as Manager under the Management Services Agreement; and
<PAGE>
WHEREAS, under the Management Services Agreement, (a) the
Manager is required to use its best efforts to collect on a timely basis (i)
all amounts due Subsidiary 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 (ii) other monies owed to the Subsidiary pursuant
to the operation of the T&D System; and (b) it is expected that gas customers
of MarketSpan (or another Affiliate of the Manager) and the T&D System electric
customers will be billed in a single statement and, 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 amounts owed by such customer with respect to electric service
and gas service; and
WHEREAS, the parties hereto desire to clarify and implement
provisions of the Management Services Agreement relating to the allocation and
segregation of (i) amounts due the Subsidiary and collected by the Manager or
any Subcontractor pursuant to the Management Services Agreement, and (ii)
amounts due MarketSpan (or other Affiliates of the Manager) and collected by
the Manager or any Subcontractor in respect of gas service;
NOW, THEREFORE, the Authority, the Subsidiary, MarketSpan and
the Manager agree as follows:
Section 1. Daily Customer Remittances. Subject to Section 3
of this Agreement, all amounts remitted to the Manager or any Subcontractor by
T&D System electric customers (including combination electric and gas
customers) shall be (a) segregated from all other funds within the custody,
control or possession of the Manager or such Subcontractor, and (b) on the
Business Day of such collection, deposited (for overnight clearing, if in the
form of checks) into a separate bank account, established by and for the sole
benefit of the Subsidiary (except to the extent of MarketSpan's interest in the
Gas Payment or Gas Overpayment, as defined below), into which only such
remittances are deposited from time to time (such account hereinafter referred
to as the "Customer Remittance Account").
Section 2. Disbursements from Customer Remittance Account.
Not later than 10:00 A.M., New York time, on each Business Day, the Manager
shall (i) calculate the proportion of remittances (i.e., cash and the amount
drawn as checks) in respect of electric service to total remittances received
by the Manager during the preceding five (5) Business Days (on each such date
of calculation, the "Five-Day Electric Percentage"), (ii) transfer from the
Customer Remittance Account to the Revenue Fund established and maintained
pursuant to the Bond Resolution (the "Revenue Fund") an amount equal to the
product of (x) the amount deposited on the preceding Business Day into the
Customer Remittance Account ("Yesterday's Receipts") times (y) the Five-Day
Electric Percentage (the "Revenue Fund Payment"), and (iii) transfer from the
Customer Remittance Account, to or upon the order of MarketSpan, the excess (if
any) of Yesterday's Receipts over the Revenue Fund Payment (the "Gas Payment").
Section 3. Weekly Reconciliation and True-Up. (a) On each
Business Day, the Manager shall determine, in accordance with the
Management Services Agreement, (i) the
-2-
<PAGE>
amount deposited in the Customer Remittance Account on the preceding Business
Day constituting actual collections in respect of electric service, and (ii)
the amount deposited in the Customer Remittance Account on the preceding
Business Day constituting actual collections in respect of gas service.
(b) On Monday of each week (or, if such Monday is not a
Business Day, on the immediately succeeding Business Day), before any cash
collected by the Manager or any Subcontractors from customers on such day
("Monday Cash") is deposited in the Customer Remittance Account, the Manager
shall: (i) deposit in the Revenue Fund, for each Business Day of the preceding
week (each a "Business Day of the Preceding Week"), an amount of Monday Cash
equal to the excess (if any) of (A) the amount transferred from the Customer
Remittance Account pursuant to clause (iii) of Section 2 of this Agreement on
such Business Day of the Preceding Week, over (B) the amount determined
pursuant to clause (ii) of Section 3(a) of this Agreement for each such
Business Day of the Preceding Week (each a "Gas Overpayment"), together with
interest on each Gas Overpayment calculated at the Base Interest Rate (such
interest to be calculated on the basis of a 360-day year consisting of twelve
30-day months); and (ii) pay to or upon the order of MarketSpan, for each
Business Day of the Preceding Week, an amount of Monday Cash equal to the
excess (if any) of (A) the amount transferred from the Customer Remittance
Account pursuant to clause (ii) of Section 2 of this Agreement on each such
Business Day of the Preceding Week, over (B) the amount determined pursuant to
clause (i) of Section 3(a) of this Agreement for such Business Day of the
Preceding Week (each an "Electric Overpayment"), together with interest on each
Electric Overpayment calculated at the Base Interest Rate (such interest to be
calculated on the basis of a 360-day year consisting of twelve 30-day months).
To the extent (if any) that Monday Cash is insufficient at any time to make the
deposit and/or payment then required pursuant to the preceding sentence, then
such Monday Cash shall be so applied pro rata according to the amounts of such
requirements and (x) MarketSpan shall pay (or cause to be paid) to the
Subsidiary, from funds other than those within the custody or possession of the
Manager pursuant to the Management Services Agreement or this Agreement, the
resulting deposit deficiency (provided, however, that such payment by
MarketSpan shall not be deposited in the Revenue Fund), and (y) the Subsidiary
shall pay to or upon the order of MarketSpan, from funds of the Subsidiary
other than those in the Revenue Fund or within the custody or possession of the
Manager, the resulting payment deficiency.
Section 4. Manager Restrictions and Limitations; Books,
Records and Accounts. (a) In connection with the collections, deposits and
payments contemplated by Sections 1 and 3 of this Agreement, the Manager and
any Subcontractor (x) shall act solely as an agent for the Subsidiary, (y)
shall have no right or claim to either the Customer Remittance Account or the
Revenue Fund or the amounts and monies deposited therein or, pursuant to the
Management Services Agreement and this Agreement, required to be deposited
therein, and (z) shall have no right to assert a claim of set-off, recoupment,
abatement, counterclaim of deduction for any amounts which may be owed to the
Manager or with respect to any other matter in dispute.
-3-
<PAGE>
(b) Proper, accurate and complete books, records and accounts
regarding the aforementioned collections, deposits and payments (and the
determinations required by Section 3 of this Agreement) shall be prepared and
maintained by the Manager in accordance with Sections 4.9(C) and 4.15(F) of the
Management Services Agreement.
Section 5. No Recourse to Revenue Fund. No provision of the
Management Services Agreement or of this Agreement shall confer, or be deemed
to confer, upon the Manager, the Subsidiary or MarketSpan any title, recourse
or right to or interest in the Revenue Fund or the amounts on deposit therein,
and the Manager, the Subsidiary and MarketSpan do hereby irrevocably disavow,
waive and forfeit any such title, recourse, right or interest (whether pursuant
to contract or arising by operation of law).
Section 6. Term of Ageement. This Agreement shall become
effective upon execution hereof by all the parties hereto and shall remain in
effect, until the expiration or earlier termination of the Management Services
Agreement.
Section 7. Affirmation of Bond Resolution and Management
Services Agreement. Except as expressly stated herein, no provisions of this
Agreement shall, or be deemed to intend to, amend, nullify, supersede, repeal
or waive any agreement, term or provision whatsoever contained or set forth in
the Bond Resolution or in the Management Services Agreement.
Section 8. Counterparts. This Agreement may be executed in
any number of original counterparts, all of which shall constitute but one and
the same instrument.
Section 9. Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
applicable to contracts executed, and to be entirely performed, within the
State of New York, without regard to or application of rules or principles of
conflicts of laws.
Section 10. Captions. Titles or captions of the sections of
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.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their duly authorized officers or representatives,
all as of the date first above written.
LONG ISLAND POWER AUTHORITY
By: /s/ David P. Warren
---------------------------------
Name:
Title:
LIPA ACQUISITION CORP.
By: /s/ David P. Warren
---------------------------------
Name:
Title:
MARKETSPAN CORPORATION
By:
---------------------------------
Name:
Title:
MarketSpan ENERGY MANAGEMENT, LLC,
as Manager
By: [**MarketSpan SUB**],
its managing member
By:
---------------------------------
Name:
Title:
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their duly authorized officers or representatives,
all as of the date first above written.
LONG ISLAND POWER AUTHORITY
By:
---------------------------------------
Name: David P. Warren
Title: Chief Financial Officer
LIPA ACQUISITION CORP.
By:
---------------------------------------
Name: David P. Warren
Title: Chief Financial Officer
MARKETSPAN CORPORATION
By: /s/ Joseph E. Fontana
---------------------------------------
Name: Joseph E. Fontana
Title: Vice President
MARKETSPAN ENERGY MANAGEMENT, LLC,
as Manager
By: MARKETSPAN CORPORATION,
its managing member
By: /s/ Joseph E. Fontana
---------------------------------------
Name: Joseph E. Fontana
Title: Vice President
-5-
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old
Country Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION,
a Vermont corporation (collectively, the "Obligors"), hereby jointly and
severally promise to pay to LONG ISLAND LIGHTING COMPANY, a New York
corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee") the principal
amount of THREE HUNDRED NINETY SEVEN MILLION Dollars ($397,000,000.00) (as
such amount may be reduced to reflect the aggregate principal amount of
Debentures (as defined below) outstanding following an exchange offer by
MarketSpan Corporation therefor), on June 15, 1999 and to pay interest thereon
from December 15, 1997, semi-annually on December 15 and June 15 in each year
commencing June 15, 1998, at a rate per annum equal to 7.30%, until the
principal hereof is paid.
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof. Upon the
occurrence of a Material Decline in Parent's Credit Standing (as such term is
defined in Section 2.1(f)(ii) of the Merger Agreement) this Promissory Note
(i) shall be secured by a letter of credit provided by MarketSpan Corporation,
at its sole cost and expense, and (ii) may be economically defeased by
MarketSpan Corporation, in each case as provided under Section 2.1(f) of the
Merger Agreement.
The terms and conditions of this Promissory Note shall be determined by
reference to the debt and other obligations of the Obligee under the
Debentures, 7.30% Series Due 1999, which were issued by the Obligee under the
Fourth Supplemental Indenture, dated as of July 1, 1992, to the Indenture
between the Obligee and State Street Bank and Trust Company (as successor to
The Connecticut Bank and Trust Company, National Association), as Trustee,
dated as of November 1, 1986 (the "Debentures"). All provisions of the
Debentures relating to the payment by the Obligee of principal, interest,
premium and any other amounts payable thereunder, including, without
limitation, all provisions relating to any acceleration of any such payment
obligations for any reason, are hereby incorporated herein and made a part
hereof, except that, for purposes of such incorporation by reference, (i) all
references to the "Company" shall be deemed to be references to the Obligors,
(ii) all references to the "Holders" or the "Trustee" shall be deemed to be
references to the Obligee, (iii) all references to the "Securities" shall be
deemed
<PAGE>
to be references to this Promissory Note and (iv) all dates specified therein
for payments shall be deemed to be the respective dates thirty (30) days prior
thereto. In addition to the events and circumstances included in the
definition of the term "Events of Default" incorporated herein from the
Debentures, such term, as used in this Promissory Note, shall include the
occurrence of any Event of Default under the Debentures.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the Debentures in any way that would
increase the payment obligations of the Obligees hereunder, without the prior
written consent of MarketSpan Corporation. No failure or delay on the part of
the Obligee in exercising any of its right, powers or privileges hereunder
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable out-of-pocket
costs and expenses (including reasonable fees and expenses of counsel)
incurred by the Obligee and its successor and assigns in enforcing this
Promissory Note.
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the
Obligee, assign or otherwise transfer their obligations under this Promissory
Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
2
<PAGE>
MARKETSPAN CORPORATION
By: /s/Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
3
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARXETSPAN FINANCE CORPORATION
By: /s/Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old
Country Road, Hicksville, New York 11801, and MARKETSPAN FINANCE
CORPORATION, a Vermont corporation (collectively, the "Obligors"), hereby
jointly and severally promise to pay to LONG ISLAND LIGHTING COMPANY, a New
York corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee") the principal
amount of TWO HUNDRED SEVENTY MILLION Dollars ($270,000,000.00) (as such
amount may be reduced to reflect the aggregate principal amount of Debentures
(as defined below) outstanding following an exchange offer by MarketSpan
Corporation therefor), on February 15, 2023 and to pay interest thereon from
February 15, 1998, semi-annually on February 15 and August 15 in each year
commencing August 15, 1998, at a rate per annum equal to 8.20%, until the
principal hereof is paid.
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof. Upon the
occurrence of a Material Decline in Parent's Credit Standing (as such term is
defined in Section 2.1(f)(ii) of the Merger Agreement) this Promissory Note
(i) shall be secured by a letter of credit provided by MarketSpan Corporation,
at its sole cost and expense, and (ii) may be economically defeased by
MarketSpan Corporation, in each case as provided under Section 2.1(f) of the
Merger Agreement.
The terms and conditions of this Promissory Note shall be determined by
reference to the debt and other obligations of the Obligee under the
Debentures, 8.20% Series Due 2023, which were issued by the Obligee under the
First Supplemental Indenture, dated as of March 1, 1993, to the Indenture
between the Obligee and The Chase Manhattan Bank (as successor to Chemical
Bank), as Trustee, dated as of November 1, 1992 (the "Debentures"). All
provisions of the Debentures relating to the payment by the Obligee of
principal, interest, premium and any other amounts payable thereunder,
including, without limitation, all provisions relating to any acceleration of
any such payment obligations for any reason, are hereby incorporated herein
and made a part hereof, except that, for purposes of such incorporation by
reference, (i) all references to the "Company" shall be deemed to be
references to the Obligors, (ii) all references to the "Holders" or the
"Trustee" shall be deemed to be references to the Obligee, (iii) all
references to the "Securities" shall be deemed to be references to this
Promissory Note and (iv) all dates
<PAGE>
specified therein for payments shall be deemed to be the respective dates
thirty (30) days prior thereto. In addition to the events and circumstances
included in the definition of the term "Events of Default" incorporated herein
from the Debentures, such term, as used in this Promissory Note, shall include
the occurrence of any Event of Default under the Debentures.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the Debentures in any way that would
increase the payment obligations of the Obligees hereunder, without the prior
written consent of MarketSpan Corporation. No failure or delay on the part of
the Obligee in exercising any of its right, powers or privileges hereunder
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable out-of-pocket
costs and expenses (including reasonable fees and expenses of counsel)
incurred by the Obligee and its successor and assigns in enforcing this
Promissory Note.
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the
Obligee, assign or otherwise transfer their obligations under this Promissory
Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
2
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
---------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
3
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION, a
Vermont corporation (collectively, the "Obligors"), hereby jointly and severally
promise to pay, on or before the dates set forth below, the amounts set forth
below, to LONG ISLAND LIGHTING COMPANY, a New York corporation, with its
principal place of business at 333 Earle Ovington Boulevard, Suite 403,
Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island Power
Authority and LIPA Acquisition Corp., as amended and/or supplemented through the
date hereof (as so amended and/or supplemented, the "Merger Agreement"), and is
subject to the terms and provisions thereof relating hereto. Upon the occurrence
of a Material Decline in Parent's Credit Standing (as such term is defined in
Section 2.1(f)(ii) of the Merger Agreement) this Promissory Note (i) shall be
secured by a letter of credit provided by MarketSpan Corporation, at its sole
cost and expense, and (ii) may be economically defeased by MarketSpan
Corporation, in each case as provided under Section 2.1(f) of the Merger
Agreement.
The terms and conditions of this Promissory Note shall be determined by
reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of December 1, 1976, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the $28,375,000 Pollution Control
Revenue Bonds (Long Island Lighting Company Projects), Series A issued by
NYSERDA, and the related Note issued by the Obligee thereunder (collectively,
the "NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 100.000% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents (the "Applicable Percentage").
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the
<PAGE>
"Trustee" shall be deemed to be references to the Obligee, (iii) all references
to the "Note" shall be deemed to be references to this Promissory Note, (iv) all
references to amounts payable shall be deemed to be references to such amount
multiplied by the Applicable Percentage, (v) all dates specified therein for
payments shall be deemed to be the respective dates thirty (30) days prior
thereto, (vi) the principal amount hereof shall bear interest commencing on the
date thirty (30) days prior to the immediately preceding Interest Payment Date
under the NYSERDA Financing Documents, (vii) the initial Interest Payment Date
hereunder shall be May 28, 1998 and (viii) the obligation of the Obligors to
make any payment of principal of premium, if any, and interest on, this
Promissory Note shall NOT be deemed satisfied and discharged to the extent of
any payment made by the Bank under the Letter of Credit. In addition to the
events and circumstances included in the definition of the term "events of
default" incorporated herein from the Participation Agreement, such term, as
used in this Promissory Note, shall include the occurrence of any event of
default under the Participation Agreement. In the event that the amount of
interest paid by the Obligors on any Interest Payment Date hereunder differs
from the amount of interest otherwise payable by the Obligee on the immediately
succeeding Interest Payment Date (the "Obligee Payment Date") under the NYSERDA
Financing Documents (whether or not any of the obligations under the NYSERDA
Financing Documents remain outstanding) multiplied by the Applicable Percentage
(the "NYSERDA Interest"), the amount of such difference shall be paid by the
appropriate party to the other, within five (5) Business Days following the
Obligee Payment Date, so that the total interest paid hereunder shall equal the
total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or provisions
of this Promissory Note may be waived, altered, modified or amended except as
the Obligee may consent in a writing duly signed for and on its behalf. The
Obligee agrees that it shall not agree to any alteration, modification or
amendment of any of the NYSERDA Financing Documents in any way that would
increase the payment obligations of the Obligees hereunder, without the prior
written consent of MarketSpan Corporation. No failure or delay on the part of
the Obligee in exercising any of its rights, powers or privileges hereunder
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing this
Promissory Note.
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the Obligee,
assign or otherwise transfer their obligations under this Promissory Note.
2
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York
corporation or limited liability company, with its principal place of business
at 175 East Old Country Road, Hicksville, New York 11801, and MARKETSPAN
FINANCE CORPORATION, a Vermont corporation (collectively, the "Obligors"),
hereby jointly and severally promise to pay, on or before the dates set forth
below, the amounts set forth below, to LONG ISLAND LIGHTING COMPANY, a New
York corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of December 1, 1976, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the $1,000,000 Industrial Development
Revenue Bonds (Long Island Lighting Company Projects), Series A issued by
NYSERDA, and the related Note issued by the Obligee thereunder (collectively,
the "NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 100.000% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents (the "Applicable Percentage").
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the
<PAGE>
"Trustee" shall be deemed to be references to the Obligee, (iii) all
references to the "Note" shall be deemed to be references to this Promissory
Note, (iv) all references to amounts payable shall be deemed to be references
to such amount multiplied by the Applicable Percentage, (v) all dates
specified therein for payments shall be deemed to be the respective dates
thirty (30) days prior thereto, (vi) the principal amount hereof shall bear
interest commencing on the date thirty (30) days prior to the immediately
preceding Interest Payment Date under the NYSERDA Financing Documents, (vii)
the initial Interest Payment Date hereunder shall be May 28, 1998 and (viii)
the obligation of the Obligors to make any payment of principal of premium, if
any, and interest on, this Promissory Note shall NOT be deemed satisfied and
discharged to the extent of any payment made by the Bank under the Letter of
Credit. In addition to the events and circumstances included in the definition
of the term "events of default" incorporated herein from the Participation
Agreement, such term, as used in this Promissory Note, shall include the
occurrence of any event of default under the Participation Agreement. In the
event that the amount of interest paid by the Obligors on any Interest Payment
Date hereunder differs from the amount of interest otherwise payable by the
Obligee on the immediately succeeding Interest Payment Date (the "Obligee
Payment Date") under the NYSERDA Financing Documents (whether or not any of
the obligations under the NYSERDA Financing Documents remain outstanding)
multiplied by the Applicable Percentage (the "NYSERDA Interest"), the amount
of such difference shall be paid by the appropriate party to the other, within
five (5) Business Days following the Obligee Payment Date, so that the total
interest paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
2
<PAGE>
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York
corporation or limited liability company, with its principal place of business
at 175 East Old Country Road, Hicksville, New York 11801, and MARKETSPAN
FINANCE CORPORATION, a Vermont corporation (collectively, the "Obligors"),
hereby jointly and severally promise to pay, on or before the dates set forth
below, the amounts set forth below, to LONG ISLAND LIGHTING COMPANY, a New
York corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of December 1, 1976, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the $1,000,000 Industrial Development
Revenue Bonds (Long Island Lighting Company Projects), Series B issued by
NYSERDA, and the related Note issued by the Obligee thereunder (collectively,
the "NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 100.000% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents (the "Applicable Percentage").
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the
<PAGE>
"Trustee" shall be deemed to be references to the Obligee, (iii) all
references to the "Note" shall be deemed to be references to this Promissory
Note, (iv) all references to amounts payable shall be deemed to be references
to such amount multiplied by the Applicable Percentage, (v) all dates
specified therein for payments shall be deemed to be the respective dates
thirty (30) days prior thereto, (vi) the principal amount hereof shall bear
interest commencing on the date thirty (30) days prior to the immediately
preceding Interest Payment Date under the NYSERDA Financing Documents, (vii)
the initial Interest Payment Date hereunder shall be May 28, 1998 and (viii)
the obligation of the Obligors to make any payment of principal of premium, if
any, and interest on, this Promissory Note shall NOT be deemed satisfied and
discharged to the extent of any payment made by the Bank under the Letter of
Credit. In addition to the events and circumstances included in the definition
of the term "events of default" incorporated herein from the Participation
Agreement, such term, as used in this Promissory Note, shall include the
occurrence of any event of default under the Participation Agreement. In the
event that the amount of interest paid by the Obligors on any Interest Payment
Date hereunder differs from the amount of interest otherwise payable by the
Obligee on the immediately succeeding Interest Payment Date (the "Obligee
Payment Date") under the NYSERDA Financing Documents (whether or not any of
the obligations under the NYSERDA Financing Documents remain outstanding)
multiplied by the Applicable Percentage (the "NYSERDA Interest"), the amount
of such difference shall be paid by the appropriate party to the other, within
five (5) Business Days following the Obligee Payment Date, so that the total
interest paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
2
<PAGE>
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION, a Vermont
corporation (collectively, the "Obligors"), hereby jointly and severally
promise to pay, on or before the dates set forth below, the amounts set forth
below, to LONG ISLAND LIGHTING COMPANY, a New York corporation, with its
principal place of business at 333 Earle Ovington Boulevard, Suite 403,
Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating hereto.
Upon the occurrence of a Material Decline in Parent's Credit Standing (as such
term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided under
Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the First
Supplemental Participation Agreement", dated as of October 1, 1979, to the
Participation Agreement dated as of December 1, 1976, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the $19,100,000 Pollution Control
Revenue Bonds (Long Island Lighting Company Projects), Series B issued by
NYSERDA, and the related Note issued by the Obligee thereunder (collectively,
the "NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 100.000% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents (the "Applicable Percentage").
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be
<PAGE>
references to the Obligors (jointly and severally), (ii) all references to the
"Authority" or the "Trustee" shall be deemed to be references to the Obligee,
(iii) all references to the "Note" shall be deemed to be references to this
Promissory Note, (iv) all references to amounts payable shall be deemed to be
references to such amount multiplied by the Applicable Percentage, (v) all
dates specified therein for payments shall be deemed to be the respective dates
thirty (30) days prior thereto, (vi) the principal amount hereof shall bear
interest commencing on the date thirty (30) days prior to the immediately
preceding Interest Payment Date under the NYSERDA Financing Documents, (vii)
the initial Interest Payment Date hereunder shall be May 28, 1998 and (viii)
the obligation of the Obligors to make any payment of principal of premium, if
any, and interest on, this Promissory Note shall NOT be deemed satisfied and
discharged to the extent of any payment made by the Bank under the Letter of
Credit. In addition to the events and circumstances included in the definition
of the term "events of default" incorporated herein from the Participation
Agreement, such term, as used in this Promissory Note, shall include the
occurrence of any event of default under the Participation Agreement. In the
event that the amount of interest paid by the Obligors on any Interest Payment
Date hereunder differs from the amount of interest otherwise payable by the
Obligee on the immediately succeeding Interest Payment Date (the "Obligee
Payment Date") under the NYSERDA Financing Documents (whether or not any of the
obligations under the NYSERDA Financing Documents remain outstanding)
multiplied by the Applicable Percentage (the "NYSERDA Interest"), the amount of
such difference shall be paid by the appropriate party to the other, within
five (5) Business Days following the Obligee Payment Date, so that the total
interest paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the
Obligee, assign or otherwise transfer their obligations under this Promissory
Note.
2
<PAGE>
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New
York corporation or limited liability company, with its principal place
of business at 175 East Old Country Road, Hicksville, New York 11801,
and MARKETSPAN FINANCE CORPORATION, a Vermont corporation (collectively,
the "Obligors"), hereby jointly and severally promise to pay, on or
before the dates set forth below, the amounts set forth below, to LONG
ISLAND LIGHTING COMPANY, a New York corporation, with its principal
place of business at 333 Earle Ovington Boulevard, Suite 403, Uniondale,
New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of
the Agreement and Plan of Merger dated as of June 26, 1997 by and among
MarketSpan Corporation (formerly known as BL Holding Corp.), the
Obligee, Long Island Power Authority and LIPA Acquisition Corp., as
amended and/or supplemented through the date hereof (as so amended
and/or supplemented, the "Merger Agreement"), and is subject to the
terms and provisions thereof relating hereto. Upon the occurrence of a
Material Decline in Parent's Credit Standing (as such term is defined in
Section 2.1(f)(ii) of the Merger Agreement) this Promissory Note (i)
shall be secured by a letter of credit provided by MarketSpan
Corporation, at its sole cost and expense, and (ii) may be economically
defeased by MarketSpan Corporation, in each case as provided under
Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of October 1, 1982, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Pollution Control Revenue Bonds
(Long Island Lighting Company Projects), Series 1982 issued by NYSERDA, and
the related Note issued by the Obligee thereunder (collectively, the "NYSERDA
Financing Documents"). The payment obligations of the Obligors hereunder shall
equal 3.6047% of all such debt and other obligations of the Obligee under the
NYSERDA Financing Documents, or such other percentage as may be finally
determined in accordance with Section 2.1(e) of the Merger Agreement (the
"Applicable Percentage"). In the event that the Applicable Percentage changes,
as provided above, following the date hereof, the appropriate party shall pay
to the other, within five (5) Business Days (as defined in the NYSERDA
Financing Documents) following such change, all such amounts as shall be due
upon the application of the Applicable Percentage retroactively to the date
hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the "Trustee" shall be deemed to be
references to the Obligee, (iii) all references to the "Note" shall be deemed
to be references to this Promissory Note, (iv) all references to amounts
payable shall be deemed to be references to such amount multiplied by the
Applicable Percentage, (v) all dates specified therein for payments shall be
deemed to be the respective dates thirty (30) days prior thereto, (vi) the
principal amount hereof shall bear interest commencing on the date thirty (30)
days prior to the immediately preceding Interest Payment Date under the
NYSERDA Financing Documents, (vii) the initial Interest Payment Date hereunder
shall be September 1, 1998 and (viii) the obligation of the Obligors to make
any payment of principal of premium, if any, and interest on, this Promissory
Note shall NOT be deemed satisfied and discharged to the extent of any payment
made by the Bank under the Letter of Credit. In addition to the events and
circumstances included in the definition of the term "events of default"
incorporated herein from the Participation Agreement, such term, as used in
this Promissory Note, shall include the occurrence of any event of default
under the Participation Agreement. In the event that the amount of interest
paid by the Obligors on any Interest Payment Date hereunder differs from the
amount of interest otherwise payable by the Obligee on the immediately
succeeding Interest Payment Date (the "Obligee Payment Date") under the
NYSERDA Financing Documents (whether or not any of the obligations under the
NYSERDA Financing Documents remain outstanding) multiplied by the Applicable
Percentage (the "NYSERDA Interest"), the amount of such difference shall be
paid by the appropriate party to the other, within five (5) Business Days
following the Obligee Payment Date, so that the total interest paid hereunder
shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York
corporation or limited liability company, with its principal place of business
at 175 East Old Country Road, Hicksville, New York 11801, and MARKETSPAN
FINANCE CORPORATION, a Vermont corporation (collectively, the "Obligors"),
hereby jointly and severally promise to pay, on or before the dates set forth
below, the amounts set forth below, to LONG ISLAND LIGHTING COMPANY, a New
York corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of December 1, 1985, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Adjustable Rate Pollution Control
Revenue Bonds (Long Island Lighting Company Project), 1985 Series A issued by
NYSERDA, and the related Corporation Note issued by the Obligee thereunder
(collectively, the "NYSERDA Financing Documents"). The payment obligations of
the Obligors hereunder shall equal 3.5933% of all such debt and other
obligations of the Obligee under the NYSERDA Financing Documents, or such
other percentage as may be finally determined in accordance with Section 2.1(e)
of the Merger Agreement (the "Applicable Percentage"). In the event that
the Applicable Percentage changes, as provided above, following the date
hereof, the appropriate party shall pay to the other, within five (5) Business
Days (as defined in the NYSERDA Financing Documents) following such change,
all such amounts as shall be due upon the application of the Applicable
Percentage retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
(A) any acceleration of any such payment obligations for any reason and (B)
any fees or other expenses relating to letters of credit, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the "Trustee" shall be deemed to be
references to the Obligee, (iii) all references to the "Corporation Note"
shall be deemed to be references to this Promissory Note, (iv) all references
to amounts payable shall be deemed to be references to such amount multiplied
by the Applicable Percentage, (v) all dates specified therein for payments
shall be deemed to be the respective dates thirty (30) days prior thereto,
(vi) the principal amount hereof shall bear interest commencing on the date
thirty (30) days prior to the immediately preceding Interest Payment Date
under the NYSERDA Financing Documents, (vii) the initial Interest Payment Date
hereunder shall be August 1, 1998 and (viii) the obligation of the Obligors to
make any payment of principal of premium, if any, and interest on, this
Promissory Note shall NOT be deemed satisfied and discharged to the extent of
any payment made by the Bank under the Letter of Credit. In addition to the
events and circumstances included in the definition of the term "events of
default" incorporated herein from the Participation Agreement, such term, as
used in this Promissory Note, shall include the occurrence of any event of
default under the Participation Agreement. In the event that the amount of
interest paid by the Obligors on any Interest Payment Date hereunder differs
from the amount of interest otherwise payable by the Obligee on the
immediately succeeding Interest Payment Date (the "Obligee Payment Date")
under the NYSERDA Financing Documents (whether or not any of the obligations
under the NYSERDA Financing Documents remain outstanding) multiplied by the
Applicable Percentage (the "NYSERDA Interest"), the amount of such difference
shall be paid by the appropriate party to the other, within five (5) Business
Days following the Obligee Payment Date, so that the total interest paid
hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28,1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 1 1801, and MARKETSPAN FINANCE CORPORATION, a
Vermont corporation (collectively, the "Obligors"), hereby jointly and severally
promise to pay, on or before the dates set forth below, the amounts set forth
below, to LONG ISLAND LIGHTING COMPANY, a New York corporation, with its
principal place of business at 333 Earle Ovington Boulevard, Suite 403,
Uniondale, New York 11553 (the "Obligee"),
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island Power
Authority and LIPA Acquisition Corp., as amended and/or supplemented through the
date hereof (as so amended and/or supplemented, the "Merger Agreement"), and is
subject to the terms and provisions thereof relating hereto. Upon the occurrence
of a Material Decline in Parent's Credit Standing (as such term is defined in
Section 2.1(f)(ii) of the Merger Agreement) this Promissory Note (i) shall be
secured by a letter of credit provided by MarketSpan Corporation, at its sole
cost and expense, and (ii) may be economically defeased by MarketSpan
Corporation, in each case as provided under Section 2.1(f) of the Merger
Agreement.
The terms and conditions of this Promissory Note shall be determined by
reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of December 1, 1985, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Adjustable Rate Pollution Control
Revenue Bonds (Long Island Lighting Company Project), 1985 Series B issued by
NYSERDA, and the related Corporation Note issued by the Obligee thereunder
(collectively, the "NYSERDA Financing Documents"). The payment obligations of
the Obligors hereunder shall equal 3.5933% of all such debt and other
obligations of the Obligee under the NYSERDA Financing Documents, or such other
percentage as may be finally determined in accordance with Section 2.1(e) of
the Merger Agreement (the "Applicable Percentage"). In the event that the
Applicable Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
(A) any acceleration of any such payment obligations for any reason and (B) any
fees or other expenses relating to letters of credit, are hereby incorporated
herein and made a part hereof, except that, for purposes of such incorporation
by reference, (i) all references to the "Corporation" shall be deemed to be
references to the Obligors (jointly and severally), (ii) all references to the
"Authority" or the "Trustee" shall be deemed to be references to the Obligee,
(iii) all references to the "Corporation Note" shall be deemed to be references
to this Promissory Note, (iv) all references to amounts payable shall be deemed
to be references to such amount multiplied by the Applicable Percentage, (v) all
dates specified therein for payments shall be deemed to be the respective dates
thirty (30) days prior thereto, (vi) the principal amount hereof shall bear
interest commencing on the date thirty (30) days prior to the immediately
preceding Interest Payment Date under the NYSERDA Financing Documents, (vii) the
initial Interest Payment Date hereunder shall be August 1, 1998 and (viii) the
obligation of the Obligors to make any payment of principal of premium, if any,
and interest on, this Promissory Note shall NOT be deemed satisfied and
discharged to the extent of any payment made by the Bank under the Letter of
Credit. In addition to the events and circumstances included in the definition
of the term "events of default" incorporated herein from the Participation
Agreement, such term, as used in this Promissory Note, shall include the
occurrence of any event of default under the Participation Agreement. In the
event that the amount of interest paid by the Obligors on any Interest Payment
Date hereunder differs from the amount of interest otherwise payable by the
Obligee on the immediately succeeding Interest Payment Date (the "Obligee
Payment Date") under the NYSERDA Financing Documents (whether or not any of the
obligations under the NYSERDA Financing Documents remain outstanding) multiplied
by the Applicable Percentage (the "NYSERDA Interest"), the amount of such
difference shall be paid by the appropriate party to the other, within five (5)
Business Days following the Obligee Payment Date, so that the total interest
paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or provisions
of this Promissory Note may be waived, altered, modified or amended except as
the Obligee may consent in a writing duly signed for and on its behalf. The
Obligee agrees that it shall not agree to any alteration, modification or
amendment of any of the NYSERDA Financing Documents in any way that would
increase the payment obligations of the Obligees hereunder, without the prior
written consent of MarketSpan Corporation. No failure or delay on the part of
the Obligee in exercising any of its rights, powers or privileges hereunder
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing this
Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the Obligee,
assign or otherwise transfer their obligations under this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION, a
Vermont corporation (collectively, the "Obligors"), hereby jointly and
severally promise to pay, on or before the dates set forth below, the amounts
set forth below, to LONG ISLAND LIGHTING COMPANY, a New York corporation, with
its principal place of business at 333 Earle Ovington Boulevard, Suite 403,
Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided under
Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of December 1, 1989, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1989 Series A issued by NYSERDA, and
the related Corporation Note issued by the Obligee thereunder (collectively,
the "NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 37.3650% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger Agreement
(the "Applicable Percentage"). In the event that the Applicable Percentage
changes, as provided above, following the date hereof, the appropriate party
shall pay to the other, within five (5) Business Days (as defined in the
NYSERDA Financing Documents) following such change, all such amounts as shall
be due upon the application of the Applicable Percentage retroactively to the
date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the "Trustee" shall be deemed to be references
to the Obligee, (iii) all references to the "Corporation Note" shall be deemed
to be references to this Promissory Note, (iv) all references to amounts
payable shall be deemed to be references to such amount multiplied by the
Applicable Percentage, (v) all dates specified therein for payments shall be
deemed to be the respective dates thirty (30) days prior thereto, (vi) the
principal amount hereof shall bear interest commencing on the date thirty (30)
days prior to the immediately preceding Interest Payment Date under the NYSERDA
Financing Documents, (vii) the initial Interest Payment Date hereunder shall be
August 1, 1998 and (viii) the obligation of the Obligors to make any payment of
principal of premium, if any, and interest on, this Promissory Note shall NOT
be deemed satisfied and discharged to the extent of any payment made by the
Bank under the Letter of Credit. In addition to the events and circumstances
included in the definition of the term "events of default" incorporated herein
from the Participation Agreement, such term, as used in this Promissory Note,
shall include the occurrence of any event of default under the Participation
Agreement. In the event that the amount of interest paid by the Obligors on any
Interest Payment Date hereunder differs from the amount of interest otherwise
payable by the Obligee on the immediately succeeding Interest Payment Date (the
"Obligee Payment Date") under the NYSERDA Financing Documents (whether or not
any of the obligations under the NYSERDA Financing Documents remain
outstanding) multiplied by the Applicable Percentage (the "NYSERDA Interest"),
the amount of such difference shall be paid by the appropriate party to the
other, within five (5) Business Days following the Obligee Payment Date, so
that the total interest paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on the
part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the
Obligee, assign or otherwise transfer their obligations under this Promissory
Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
--------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
--------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
--------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
--------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
--------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
--------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES
LLC
By: /s/ Kathleen A. Marion
--------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE
CORPORATION
By: /s/ Kathleen A. Marion
--------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION, a Vermont
corporation (collectively, the "Obligors"), hereby jointly and severally promise
to pay, on or before the dates set forth below, the amounts set forth below, to
LONG ISLAND LIGHTING COMPANY, a New York corporation, with its principal place
of business at 333 Earle Ovington Boulevard, Suite 403, Uniondale, New York
11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island Power
Authority and LIPA Acquisition Corp., as amended and/or supplemented through the
date hereof (as so amended and/or supplemented, the "Merger Agreement"), and is
subject to the terms and provisions thereof relating hereto. Upon the occurrence
of a Material Decline in Parent's Credit Standing (as such term is defined in
Section 2.1(f)(ii) of the Merger Agreement) this Promissory Note (i) shall be
secured by a letter of credit provided by MarketSpan Corporation, at its sole
cost and expense, and (ii) may be economically defeased by MarketSpan
Corporation, in each case as provided under Section 2.1(f) of the Merger
Agreement.
The terms and conditions of this Promissory Note shall be determined by
reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of December 1, 1989, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1989 Series B issued by NYSERDA, and the
related Corporation Note issued by the Obligee thereunder (collectively, the
"NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 37.3650% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the "Trustee" shall be deemed to be references
to the Obligee, (iii) all references to the "Corporation Note" shall be deemed
to be references to this Promissory Note, (iv) all references to amounts payable
shall be deemed to be references to such amount multiplied by the Applicable
Percentage, (v) all dates specified therein for payments shall be deemed to be
the respective dates thirty (30) days prior thereto, (vi) the principal amount
hereof shall bear interest commencing on the date thirty (30) days prior to the
immediately preceding Interest Payment Date under the NYSERDA Financing
Documents, (vii) the initial Interest Payment Date hereunder shall be August 1,
1998 and (viii) the obligation of the Obligors to make any payment of principal
of premium, if any, and interest on, this Promissory Note shall NOT be deemed
satisfied and discharged to the extent of any payment made by the Bank under the
Letter of Credit. In addition to the events and circumstances included in the
definition of the term "events of default" incorporated herein from the
Participation Agreement, such term, as used in this Promissory Note, shall
include the occurrence of any event of default under the Participation
Agreement. In the event that the amount of interest paid by the Obligors on any
Interest Payment Date hereunder differs from the amount of interest otherwise
payable by the Obligee on the immediately succeeding Interest Payment Date (the
"Obligee Payment Date") under the NYSERDA Financing Documents (whether or not
any of the obligations under the NYSERDA Financing Documents remain outstanding)
multiplied by the Applicable Percentage (the "NYSERDA Interest"), the amount of
such difference shall be paid by the appropriate party to the other, within five
(5) Business Days following the Obligee Payment Date, so that the total interest
paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or provisions
of this Promissory Note may be waived, altered, modified or amended except as
the Obligee may consent in a writing duly signed for and on its behalf. The
Obligee agrees that it shall not agree to any alteration, modification or
amendment of any of the NYSERDA Financing Documents in any way that would
increase the payment obligations of the Obligees hereunder, without the prior
written consent of MarketSpan Corporation. No failure or delay on the part of
the Obligee in exercising any of its rights, powers or privileges hereunder
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing this
Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the Obligee,
assign or otherwise transfer their obligations under this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES
LLC
By: /s/ Kathleen A. Marion
-----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES
LLC
By: /s/ Kathleen A. Marion
-----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES
LLC
By: /s/ Kathleen A. Marion
-----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES
LLC
By: /s/ Kathleen A. Marion
-----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE
CORPORATION
By: /s/ Kathleen A. Marion
-----------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28,1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION, a
Vermont corporation (collectively, the "Obligors"), hereby jointly and
severally promise to pay, on or before the dates set forth below, the amounts
set forth below, to LONG ISLAND LIGHTING COMPANY, a New York corporation, with
its principal place of business at 333 Earle Ovington Boulevard, Suite 403,
Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided under
Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of May 1, 1990, between New York State Energy
Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1990 Series A issued by NYSERDA, and
the related Corporation Note issued by the Obligee thereunder (collectively,
the "NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 74.8400% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (1) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the "Trustee" shall be deemed to be references
to the Obligee, (iii) all references to the "Corporation Note" shall be deemed
to be references to this Promissory Note, (iv) all references to amounts
payable shall be deemed to be references to such amount multiplied by the
Applicable Percentage, (v) all dates specified therein for payments shall be
deemed to be the respective dates thirty (30) days prior thereto, (vi) the
principal amount hereof shall bear interest commencing on the date thirty (30)
days prior to the immediately preceding Interest Payment Date under the NYSERDA
Financing Documents, (vii) the initial Interest Payment Date hereunder shall be
May 28, 1998 and (viii) the obligation of the Obligors to make any payment of
principal of premium, if any, and interest on, this Promissory Note shall NOT
be deemed satisfied and discharged to the extent of any payment made by the
Bank under the Letter of Credit. In addition to the events and circumstances
included in the definition of the term "events of default" incorporated herein
from the Participation Agreement, such term, as used in this Promissory Note,
shall include the occurrence of any event of default under the Participation
Agreement. In the event that the amount of interest paid by the Obligors on any
Interest Payment Date hereunder differs from the amount of interest otherwise
payable by the Obligee on the immediately succeeding Interest Payment Date (the
"Obligee Payment Date") under the NYSERDA Financing Documents (whether or not
any of the obligations under the NYSERDA Financing Documents remain
outstanding) multiplied by the Applicable Percentage (the "NYSERDA Interest"),
the amount of such difference shall be paid by the appropriate party to the
other, within five (5) Business Days following the Obligee Payment Date, so
that the total interest paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on the
part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the
Obligee, assign or otherwise transfer their obligations under this Promissory
Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES
LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE
CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION, a Vermont
corporation (collectively, the "Obligors"), hereby jointly and severally promise
to pay, on or before the dates set forth below, the amounts set forth below, to
LONG ISLAND LIGHTING COMPANY, a New York corporation, with its principal place
of business at 333 Earle Ovington Boulevard, Suite 403, Uniondale, New York
11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided under
Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of January 1, 1991, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1991 Series A issued by NYSERDA, and
the related Corporation Note issued by the Obligee thereunder (collectively,
the "NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 29.2000% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger Agreement
(the "Applicable Percentage"). In the event that the Applicable Percentage
changes, as provided above, following the date hereof, the appropriate party
shall pay to the other, within five (5) Business Days (as defined in the
NYSERDA Financing Documents) following such change, all such amounts as shall
be due upon the application of the Applicable Percentage retroactively to the
date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the "Trustee" shall be deemed to be references
to the Obligee, (iii) all references to the "Corporation Note" shall be deemed
to be references to this Promissory Note, (iv) all references to amounts payable
shall be deemed to be references to such amount multiplied by the Applicable
Percentage, (v) all dates specified therein for payments shall be deemed to be
the respective dates thirty (30) days prior thereto, (vi) the principal amount
hereof shall bear interest commencing on the date thirty (30) days prior to the
immediately preceding Interest Payment Date under the NYSERDA Financing
Documents, (vii) the initial Interest Payment Date hereunder shall be May 28,
1998 and (viii) the obligation of the Obligors to make any payment of principal
of premium, if any, and interest on, this Promissory Note shall NOT be deemed
satisfied and discharged to the extent of any payment made by the Bank under the
Letter of Credit. In addition to the events and circumstances included in the
definition of the term "events of default" incorporated herein from the
Participation Agreement, such term, as used in this Promissory Note, shall
include the occurrence of any event of default under the Participation
Agreement. In the event that the amount of interest paid by the Obligors on any
Interest Payment Date hereunder differs from the amount of interest otherwise
payable by the Obligee on the immediately succeeding Interest Payment Date (the
"Obligee Payment Date") under the NYSERDA Financing Documents (whether or not
any of the obligations under the NYSERDA Financing Documents remain outstanding)
multiplied by the Applicable Percentage (the "NYSERDA Interest"), the amount of
such difference shall be paid by the appropriate party to the other, within five
(5) Business Days following the Obligee Payment Date, so that the total interest
paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on the
part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing this
Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the
Obligee, assign or otherwise transfer their obligations under this Promissory
Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES
LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE
CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York
corporation or limited liability company, with its principal place of business
at 175 East Old Country Road, Hicksville, New York 11801, and MARKETSPAN
FINANCE CORPORATION, a Vermont corporation (collectively, the "Obligors"),
hereby jointly and severally promise to pay, on or before the dates set forth
below, the amounts set forth below, to LONG ISLAND LIGHTING COMPANY, a New
York corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of February 1, 1992, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1992 Series A issued by NYSERDA, and
the related Corporation Note issued by the Obligee thereunder (collectively,
the "NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 16.5650% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Corporation" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the "Trustee" shall be deemed to be references
to the Obligee, (iii) all references to the "Corporation Note" shall be deemed
to be references to this Promissory Note, (iv) all references to amounts
payable shall be deemed to be references to such amount multiplied by the
Applicable Percentage, (v) all dates specified therein for payments shall be
deemed to be the respective dates thirty (30) days prior thereto, (vi) the
principal amount hereof shall bear interest commencing on the date thirty (30)
days prior to the immediately preceding Interest Payment Date under the
NYSERDA Financing Documents, (vii) the initial Interest Payment Date hereunder
shall be July 1, 1998 and (viii) the obligation of the Obligors to make any
payment of principal of premium, if any, and interest on, this Promissory Note
shall NOT be deemed satisfied and discharged to the extent of any payment made
by the Bank under the Letter of Credit. In addition to the events and
circumstances included in the definition of the term "events of default"
incorporated herein from the Participation Agreement, such term, as used in
this Promissory Note, shall include the occurrence of any event of default
under the Participation Agreement. In the event that the amount of interest
paid by the Obligors on any Interest Payment Date hereunder differs from the
amount of interest otherwise payable by the Obligee on the immediately
succeeding Interest Payment Date (the "Obligee Payment Date") under the
NYSERDA Financing Documents (whether or not any of the obligations under the
NYSERDA Financing Documents remain outstanding) multiplied by the Applicable
Percentage (the "NYSERDA Interest"), the amount of such difference shall be
paid by the appropriate party to the other, within five (5) Business Days
following the Obligee Payment Date, so that the total interest paid hereunder
shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York
corporation or limited liability company, with its principal place of business
at 175 East Old Country Road, Hicksville, New York 11801, and MARKETSPAN
FINANCE CORPORATION, a Vermont corporation (collectively, the "Obligors"),
hereby jointly and severally promise to pay, on or before the dates set forth
below, the amounts set forth below, to LONG ISLAND LIGHTING COMPANY, a New
York corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of February 1, 1992, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1992 Series B issued by NYSERDA, and
the related Company Note issued by the Obligee thereunder (collectively, the
"NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 16.5650% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Company" or the
"Corporation" shall be deemed to be references to the Obligors (jointly and
severally), (ii) all references to the "Authority" or the "Trustee" shall be
deemed to be references to the Obligee, (iii) all references to the "Company
Note" shall be deemed to be references to this Promissory Note, (iv) all
references to amounts payable shall be deemed to be references to such amount
multiplied by the Applicable Percentage, (v) all dates specified therein for
payments shall be deemed to be the respective dates thirty (30) days prior
thereto, (vi) the principal amount hereof shall bear interest commencing on
the date thirty (30) days prior to the immediately preceding Interest Payment
Date under the NYSERDA Financing Documents, (vii) the initial Interest Payment
Date hereunder shall be July 1, 1998 and (viii) the obligation of the Obligors
to make any payment of principal of premium, if any, and interest on, this
Promissory Note shall NOT be deemed satisfied and discharged to the extent of
any payment made by the Bank under the Letter of Credit. In addition to the
events and circumstances included in the definition of the term "events of
default" incorporated herein from the Participation Agreement, such term, as
used in this Promissory Note, shall include the occurrence of any event of
default under the Participation Agreement. In the event that the amount of
interest paid by the Obligors on any Interest Payment Date hereunder differs
from the amount of interest otherwise payable by the Obligee on the
immediately succeeding Interest Payment Date (the "Obligee Payment Date")
under the NYSERDA Financing Documents (whether or not any of the obligations
under the NYSERDA Financing Documents remain outstanding) multiplied by the
Applicable Percentage (the "NYSERDA Interest"), the amount of such difference
shall be paid by the appropriate party to the other, within five (5) Business
Days following the Obligee Payment Date, so that the total interest paid
hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN, CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION, a Vermont
corporation (collectively, the "Obligors"), hereby jointly and severally promise
to pay, on or before the dates set forth below, the amounts set forth below, to
LONG ISLAND LIGHTING COMPANY, a New York corporation, with its principal place
of business at 333 Earle Ovington Boulevard, Suite 403, Uniondale, New York
11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island Power
Authority and LIPA Acquisition Corp., as amended and/or supplemented through the
date hereof (as so amended and/or supplemented, the "Merger Agreement"), and is
subject to the terms and provisions thereof relating hereto. Upon the occurrence
of a Material Decline in Parent's Credit Standing (as such term is defined in
Section 2.1(f)(ii) of the Merger Agreement) this Promissory Note (i) shall be
secured by a letter of credit provided by MarketSpan Corporation, at its sole
cost and expense, and (ii) may be economically defeased by MarketSpan
Corporation, in each case as provided under Section 2.1(f) of the Merger
Agreement.
The terms and conditions of this Promissory Note shall be determined by
reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of August 1, 1992, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1992 Series C issued by NYSERDA, and the
related Company Note issued by the Obligee thereunder (collectively, the
"NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 30.6450% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Company" or the
"Corporation" shall be deemed to be references to the Obligors (jointly and
severally), (ii) all references to the "Authority" or the "Trustee" shall be
deemed to be references to the Obligee, (iii) all references to the "Company
Note" shall be deemed to be references to this Promissory Note, (iv) all
references to amounts payable shall be deemed to be references to such amount
multiplied by the Applicable Percentage, (v) all dates specified therein for
payments shall be deemed to be the respective dates thirty (30) days prior
thereto, (vi) the principal amount hereof shall bear interest commencing on the
date thirty (30) days prior to the immediately preceding Interest Payment Date
under the NYSERDA Financing Documents, (vii) the initial Interest Payment Date
hereunder shall be July 1, 1998 and (viii) the obligation of the Obligors to
make any payment of principal of premium, if any, and interest on, this
Promissory Note shall NOT be deemed satisfied and discharged to the extent of
any payment made by the Bank under the Letter of Credit. In addition to the
events and circumstances included in the definition of the term "events of
default" incorporated herein from the Participation Agreement, such term, as
used in this Promissory Note, shall include the occurrence of any event of
default under the Participation Agreement. In the event that the amount of
interest paid by the Obligors on any Interest Payment Date hereunder differs
from the amount of interest otherwise payable by the Obligee on the immediately
succeeding Interest Payment Date (the "Obligee Payment Date") under the NYSERDA
Financing Documents (whether or not any of the obligations under the NYSERDA
Financing Documents remain outstanding) multiplied by the Applicable Percentage
(the "NYSERDA Interest"), the amount of such difference shall be paid by the
appropriate party to the other, within five (5) Business Days following the
Obligee Payment Date, so that the total interest paid hereunder shall equal the
total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or provisions
of this Promissory Note may be waived, altered, modified or amended except as
the Obligee may consent in a writing duly signed for and on its behalf. The
Obligee agrees that it shall not agree to any alteration, modification or
amendment of any of the NYSERDA Financing Documents in any way that would
increase the payment obligations of the Obligees hereunder, without the prior
written consent of MarketSpan Corporation. No failure or delay on the part of
the Obligee in exercising any of its rights, powers or privileges hereunder
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing this
Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the
Obligee, assign or otherwise transfer their obligations under this Promissory
Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN
GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES
LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or
limited liability company, with its principal place of business at 175 East
Old Country Road, Hicksville, New York 11801, and MARKETSPAN FINANCE
CORPORATION, a Vermont corporation (collectively, the "Obligors"), hereby
jointly and severally promise to pay, on or before the dates set forth below,
the amounts set forth below, to LONG ISLAND LIGHTING COMPANY, a New York
corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of August 1, 1992, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1992 Series D issued by NYSERDA, and
the related Company Note issued by the Obligee thereunder (collectively, the
"NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 30.6450% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
any acceleration of any such payment obligations for any reason, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Company" or the
"Corporation" shall be deemed to be references to the Obligors (jointly and
severally), (ii) all references to the "Authority" or the "Trustee" shall be
deemed to be references to the Obligee, (iii) all references to the "Company
Note" shall be deemed to be references to this Promissory Note, (iv) all
references to amounts payable shall be deemed to be references to such amount
multiplied by the Applicable Percentage, (v) all dates specified therein for
payments shall be deemed to be the respective dates thirty (30) days prior
thereto, (vi) the principal amount hereof shall bear interest commencing on
the date thirty (30) days prior to the immediately preceding Interest Payment
Date under the NYSERDA Financing Documents, (vii) the initial Interest Payment
Date hereunder shall be July 1, 1998 and (viii) the obligation of the Obligors
to make any payment of principal of premium, if any, and interest on, this
Promissory Note shall NOT be deemed satisfied and discharged to the extent of
any payment made by the Bank under the Letter of Credit. In addition to the
events and circumstances included in the definition of the term "events of
default" incorporated herein from the Participation Agreement, such term, as
used in this Promissory Note, shall include the occurrence of any event of
default under the Participation Agreement. In the event that the amount of
interest paid by the Obligors on any Interest Payment Date hereunder differs
from the amount of interest otherwise payable by the Obligee on the
immediately succeeding Interest Payment Date (the "Obligee Payment Date")
under the NYSERDA Financing Documents (whether or not any of the obligations
under the NYSERDA Financing Documents remain outstanding) multiplied by the
Applicable Percentage (the "NYSERDA Interest"), the amount of such difference
shall be paid by the appropriate party to the other, within five (5) Business
Days following the Obligee Payment Date, so that the total interest paid
hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE
CORPORATION
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York
corporation or limited liability company, with its principal place of business
at 175 East Old Country Road, Hicksville, New York 11801, and MARKETSPAN
FINANCE CORPORATION, a Vermont corporation (collectively, the "Obligors"),
hereby jointly and severally promise to pay, on or before the dates set forth
below, the amounts set forth below, to LONG ISLAND LIGHTING COMPANY, a New
York corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of November 1, 1993, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1993 Series A issued by NYSERDA, and
the related Company Note issued by the Obligee thereunder (collectively, the
"NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 32.1000% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
(A) any acceleration of any such payment obligations for any reason and (B)
any fees or other expenses relating to letters of credit, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Company" or the
"Corporation" shall be deemed to be references to the Obligors (jointly and
severally), (ii) all references to the "Authority" or the "Trustee" shall be
deemed to be references to the Obligee, (iii) all references to the "Company
Note" shall be deemed to be references to this Promissory Note, (iv) all
references to amounts payable shall be deemed to be references to such amount
multiplied by the Applicable Percentage, (v) all dates specified therein for
payments shall be deemed to be the respective dates thirty (30) days prior
thereto, (vi) the principal amount hereof shall bear interest commencing on
the date thirty (30) days prior to the immediately preceding Interest Payment
Date under the NYSERDA Financing Documents, (vii) the initial Interest Payment
Date hereunder shall be May 28, 1998 and (viii) the obligation of the Obligors
to make any payment of principal of premium, if any, and interest on, this
Promissory Note shall NOT be deemed satisfied and discharged to the extent of
any payment made by the Bank under the Letter of Credit. In addition to the
events and circumstances included in the definition of the term "events of
default" incorporated herein from the Participation Agreement, such term, as
used in this Promissory Note, shall include the occurrence of any event of
default under the Participation Agreement. In the event that the amount of
interest paid by the Obligors on any Interest Payment Date hereunder differs
from the amount of interest otherwise payable by the Obligee on the
immediately succeeding Interest Payment Date (the "Obligee Payment Date")
under the NYSERDA Financing Documents (whether or not any of the obligations
under the NYSERDA Financing Documents remain outstanding) multiplied by the
Applicable Percentage (the "NYSERDA Interest"), the amount of such difference
shall be paid by the appropriate party to the other, within five (5) Business
Days following the Obligee Payment Date, so that the total interest paid
hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the Obligee,
assign or otherwise transfer their obligations under this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE
CORPORATION
By: /s/ Kathleen A. Marion
------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28,1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York
corporation or limited liability company, with its principal place of
business at 175 East Old Country Road, Hicksville, New York 11801, and
MARKETSPAN FINANCE CORPORATION, a Vermont corporation (collectively, the
"Obligors"), hereby jointly and severally promise to pay, on or before the
dates set forth below, the amounts set forth below, to LONG ISLAND LIGHTING
COMPANY, a New York corporation, with its principal place of business at 333
Earle Ovington Boulevard, Suite 403, Uniondale, New York 11553 (the
"Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of November 1, 1993, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1993 Series B issued by NYSERDA, and
the related Company Note issued by the Obligee thereunder (collectively, the
"NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 32.1000% of all such debt and other obligations of
the Obligee under the NYSERDA Financing Documents, or such other percentage as
may be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
(A) any acceleration of any such payment obligations for any reason and (B)
any fees or other expenses relating to letters of credit, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Company" or the
"Corporation" shall be deemed to be references to the Obligors (jointly and
severally), (ii) all references to the "Authority" or the "Trustee" shall be
deemed to be references to the Obligee, (iii) all references to the "Company
Note" shall be deemed to be references to this Promissory Note, (iv) all
references to amounts payable shall be deemed to be references to such amount
multiplied by the Applicable Percentage, (v) all dates specified therein for
payments shall be deemed to be the respective dates thirty (30) days prior
thereto, (vi) the principal amount hereof shall bear interest commencing on
the date thirty (30) days prior to the immediately preceding Interest Payment
Date under the NYSERDA Financing Documents, (vii) the initial Interest Payment
Date hereunder shall be May 28, 1998 and (viii) the obligation of the Obligors
to make any payment of principal of premium, if any, and interest on, this
Promissory Note shall NOT be deemed satisfied and discharged to the extent of
any payment made by the Bank under the Letter of Credit. In addition to the
events and circumstances included in the definition of the term "events of
default" incorporated herein from the Participation Agreement, such term, as
used in this Promissory Note, shall include the occurrence of any event of
default under the Participation Agreement. In the event that the amount of
interest paid by the Obligors on any Interest Payment Date hereunder differs
from the amount of interest otherwise payable by the Obligee on the
immediately succeeding Interest Payment Date (the "Obligee Payment Date")
under the NYSERDA Financing Documents (whether or not any of the obligations
under the NYSERDA Financing Documents remain outstanding) multiplied by the
Applicable Percentage (the "NYSERDA Interest"), the amount of such difference
shall be paid by the appropriate party to the other, within five (5) Business
Days following the Obligee Payment Date, so that the total interest paid
hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-------------------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS CORPORATION
(d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC, MARKETSPAN GENERATION
LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN UTILITY SERVICES LLC, and
MARKETSPAN ELECTRIC SERVICES LLC, each a New York corporation or limited
liability company, with its principal place of business at 175 East Old Country
Road, Hicksville, New York 11801, and MARKETSPAN FINANCE CORPORATION, a Vermont
corporation (collectively, the "Obligors"), hereby jointly and severally promise
to pay, on or before the dates set forth below, the amounts set forth below, to
LONG ISLAND LIGHTING COMPANY, a New York corporation, with its principal place
of business at 333 Earle Ovington Boulevard, Suite 403, Uniondale, New York
11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island Power
Authority and LIPA Acquisition Corp., as amended and/or supplemented through the
date hereof (as so amended and/or supplemented, the "Merger Agreement"), and is
subject to the terms and provisions thereof relating hereto. Upon the occurrence
of a Material Decline in Parent's Credit Standing (as such term is defined in
Section 2.1(f)(ii) of the Merger Agreement) this Promissory Note (i) shall be
secured by a letter of credit provided by MarketSpan Corporation, at its sole
cost and expense, and (ii) may be economically defeased by MarketSpan
Corporation, in each case as provided under Section 2.1(f) of the Merger
Agreement.
The terms and conditions of this Promissory Note shall be determined by
reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of October 1, 1994, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1994 Series A issued by NYSERDA, and the
related Company Note issued by the Obligee thereunder (collectively, the
"NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 8.6000% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
(A) any acceleration of any such payment obligations for any reason and (B) any
fees or other expenses relating to letters of credit, are hereby incorporated
herein and made a part hereof, except that, for purposes of such incorporation
by reference, (i) all references to the "Company" shall be deemed to be
references to the Obligors jointly and severally), (ii) all references to the
"Authority" or the "Trustee" shall be deemed to be references to the Obligee,
(iii) all references to the "Company Note" shall be deemed to be references to
this Promissory Note, (iv) all references to amounts payable shall be deemed to
be references to such amount multiplied by the Applicable Percentage, (v) all
dates specified therein for payments shall be deemed to be the respective dates
thirty (30) days prior thereto, (vi) the principal amount hereof shall bear
interest commencing on the date thirty (30) days prior to the immediately
preceding Interest Payment Date under the NYSERDA Financing Documents, (vii) the
initial Interest Payment Date hereunder shall be May 28, 1998 and (viii) the
obligation of the Obligors to make any payment of principal of premium, if any,
and interest on, this Promissory Note shall NOT be deemed satisfied and
discharged to the extent of any payment made by the Bank under the Letter of
Credit. In addition to the events and circumstances included in the definition
of the term "events of default" incorporated herein from the Participation
Agreement, such term, as used in this Promissory Note, shall include the
occurrence of any event of default under the Participation Agreement. In the
event that the amount of interest paid by the Obligors on any Interest Payment
Date hereunder differs from the amount of interest otherwise payable by the
Obligee on the immediately succeeding Interest Payment Date (the "Obligee
Payment Date") under the NYSERDA Financing Documents (whether or not any of the
obligations under the NYSERDA Financing Documents remain outstanding) multiplied
by the Applicable Percentage (the "NYSERDA Interest"), the amount of such
difference shall be paid by the appropriate party to the other, within five (5)
Business Days following the Obligee Payment Date, so that the total interest
paid hereunder shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or provisions
of this Promissory Note may be waived, altered, modified or amended except as
the Obligee may consent in a writing duly signed for and on its behalf. The
Obligee agrees that it shall not agree to any alteration, modification or
amendment of any of the NYSERDA Financing Documents in any way that would
increase the payment obligations of the Obligees hereunder, without the prior
written consent of MarketSpan Corporation. No failure or delay on the part of
the Obligee in exercising any of its rights, powers or privileges hereunder
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing this
Promissory Note.
<PAGE>
This Promissory Note is binding upon the Obligors and their successors
and assigns and is for the benefit of the Obligee and its successors and
assigns. The Obligors may not, without the prior written consent of the Obligee,
assign or otherwise transfer their obligations under this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and substantive
laws of such State without giving effect to the choice of law rules.
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES
LLC
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE
CORPORATION
By: /s/ Kathleen A. Marion
------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<PAGE>
PROMISSORY NOTE
May 28, 1998
FOR VALUE RECEIVED, MARKETSPAN CORPORATION, MARKETSPAN GAS
CORPORATION (d/b/a BROOKLYN UNION), MARKETSPAN TRADING SERVICES LLC,
MARKETSPAN GENERATION LLC, MARKETSPAN CORPORATE SERVICES LLC, MARKETSPAN
UTILITY SERVICES LLC, and MARKETSPAN ELECTRIC SERVICES LLC, each a New York
corporation or limited liability company, with its principal place of business
at 175 East Old Country Road, Hicksville, New York 11801, and MARKETSPAN
FINANCE CORPORATION, a Vermont corporation (collectively, the "Obligors"),
hereby jointly and severally promise to pay, on or before the dates set forth
below, the amounts set forth below, to LONG ISLAND LIGHTING COMPANY, a New
York corporation, with its principal place of business at 333 Earle Ovington
Boulevard, Suite 403, Uniondale, New York 11553 (the "Obligee").
This Promissory Note is one of a series of Promissory Notes issued
pursuant to the purchase price adjustment provisions of Section 2.1 of the
Agreement and Plan of Merger dated as of June 26, 1997 by and among MarketSpan
Corporation (formerly known as BL Holding Corp.), the Obligee, Long Island
Power Authority and LIPA Acquisition Corp., as amended and/or supplemented
through the date hereof (as so amended and/or supplemented, the "Merger
Agreement"), and is subject to the terms and provisions thereof relating
hereto. Upon the occurrence of a Material Decline in Parent's Credit Standing
(as such term is defined in Section 2.1(f)(ii) of the Merger Agreement) this
Promissory Note (i) shall be secured by a letter of credit provided by
MarketSpan Corporation, at its sole cost and expense, and (ii) may be
economically defeased by MarketSpan Corporation, in each case as provided
under Section 2.1(f) of the Merger Agreement.
The terms and conditions of this Promissory Note shall be determined
by reference to the debt and other obligations of the Obligee under the
Participation Agreement dated as of August 1, 1995, between New York State
Energy Research and Development Authority ("NYSERDA") and the Obligee (the
"Participation Agreement"), relating to the Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), 1995 Series A issued by NYSERDA, and
the related Company Note issued by the Obligee thereunder (collectively, the
"NYSERDA Financing Documents"). The payment obligations of the Obligors
hereunder shall equal 32.8000% of all such debt and other obligations of the
Obligee under the NYSERDA Financing Documents, or such other percentage as may
be finally determined in accordance with Section 2.1(e) of the Merger
Agreement (the "Applicable Percentage"). In the event that the Applicable
Percentage changes, as provided above, following the date hereof, the
appropriate party shall pay to the other, within five (5) Business Days (as
defined in the NYSERDA Financing Documents) following such change, all such
amounts as shall be due upon the application of the Applicable Percentage
retroactively to the date hereof.
<PAGE>
All provisions of the NYSERDA Financing Documents relating to the
payment by the Obligee of principal, interest, premium and any other amounts
payable thereunder, including, without limitation, all provisions relating to
(A) any acceleration of any such payment obligations for any reason and (B)
any fees or other expenses relating to letters of credit, are hereby
incorporated herein and made a part hereof, except that, for purposes of such
incorporation by reference, (i) all references to the "Company" shall be
deemed to be references to the Obligors (jointly and severally), (ii) all
references to the "Authority" or the "Trustee" shall be deemed to be
references to the Obligee, (iii) all references to the "Company Note" shall
be deemed to be references to this Promissory Note, (iv) all references to
amounts payable shall be deemed to be references to such amount multiplied by
the Applicable Percentage, (v) all dates specified therein for payments shall
be deemed to be the respective dates thirty (30) days prior thereto, (vi) the
principal amount hereof shall bear interest commencing on the date thirty (30)
days prior to the immediately preceding Interest Payment Date under the
NYSERDA Financing Documents, (vii) the initial Interest Payment Date hereunder
shall be May 28, 1998 and (viii) the obligation of the Obligors to make any
payment of principal of premium, if any, and interest on, this Promissory Note
shall NOT be deemed satisfied and discharged to the extent of any payment made
by the Bank under the Letter of Credit. In addition to the events and
circumstances included in the definition of the term "events of default"
incorporated herein from the Participation Agreement, such term, as used in
this Promissory Note, shall include the occurrence of any event of default
under the Participation Agreement. In the event that the amount of interest
paid by the Obligors on any Interest Payment Date hereunder differs from the
amount of interest otherwise payable by the Obligee on the immediately
succeeding Interest Payment Date (the "Obligee Payment Date") under the
NYSERDA Financing Documents (whether or not any of the obligations under the
NYSERDA Financing Documents remain outstanding) multiplied by the Applicable
Percentage (the "NYSERDA Interest"), the amount of such difference shall be
paid by the appropriate party to the other, within five (5) Business Days
following the Obligee Payment Date, so that the total interest paid hereunder
shall equal the total NYSERDA Interest.
Each of the Obligors hereby waives presentment for payment, demands,
notice of dishonor and protest of this Promissory Note and any right to assert
setoff of any of its obligations hereunder against any amounts owing by the
Obligee thereto. The Obligors further agree that none of the terms or
provisions of this Promissory Note may be waived, altered, modified or amended
except as the Obligee may consent in a writing duly signed for and on its
behalf. The Obligee agrees that it shall not agree to any alteration,
modification or amendment of any of the NYSERDA Financing Documents in any way
that would increase the payment obligations of the Obligees hereunder, without
the prior written consent of MarketSpan Corporation. No failure or delay on
the part of the Obligee in exercising any of its rights, powers or privileges
hereunder shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
The Obligors agree to pay on demand any and all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) incurred by the Obligee and its successor and assigns in enforcing
this Promissory Note.
2
<PAGE>
This Promissory Note is binding upon the Obligors and their
successors and assigns and is for the benefit of the Obligee and its
successors and assigns. The Obligors may not, without the prior written
consent of the Obligee, assign or otherwise transfer their obligations under
this Promissory Note.
This Promissory Note has been delivered in the State of New York and
shall be construed and enforced in accordance with the internal and
substantive laws of such State without giving effect to the choice of law
rules.
3
<PAGE>
MARKETSPAN CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GAS CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN GENERATION LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
4
<PAGE>
MARKETSPAN CORPORATE SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ Kathleen A. Marion
-----------------------------
Name: Kathleen A. Marion
Title: Secretary and Vice President
5
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Income, Balance Sheet and Statement of Cash Flows, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,056,812
<OTHER-PROPERTY-AND-INVEST> 19,025
<TOTAL-CURRENT-ASSETS> 807,079
<TOTAL-DEFERRED-CHARGES> 55,862
<OTHER-ASSETS> 302,702
<TOTAL-ASSETS> 8,361,737
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 22,509
<TOTAL-COMMON-STOCKHOLDERS-EQ> 22,509
0
0
<LONG-TERM-DEBT-NET> 3,331,074
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 4,769,052
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 239,102
<TOT-CAPITALIZATION-AND-LIAB> 8,361,737
<GROSS-OPERATING-REVENUE> 532,750
<INCOME-TAX-EXPENSE> (77,862)
<OTHER-OPERATING-EXPENSES> 371,950
<TOTAL-OPERATING-EXPENSES> 294,088
<OPERATING-INCOME-LOSS> 238,668
<OTHER-INCOME-NET> (152,869)
<INCOME-BEFORE-INTEREST-EXPEN> 85,793
<TOTAL-INTEREST-EXPENSE> 100,906
<NET-INCOME> 21,112
8,037
<EARNINGS-AVAILABLE-FOR-COMM> 13,075
<COMMON-STOCK-DIVIDENDS> 54,147
<TOTAL-INTEREST-ON-BONDS> 96,497
<CASH-FLOW-OPERATIONS> (161,948)
<EPS-PRIMARY> $0
<EPS-DILUTED> $0
</TABLE>
