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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
December 31, 1995
FOR THE FISCAL YEAR ENDED ________________________________________________
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE OF 1934
FOR THE TRANSITION PERIOD FROM TO
0-15472
COMMISSION FILE NUMBER: __________________________________________________
ENVIRONMENTAL POWER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
04-2782065
DELAWARE (IRS EMPLOYER
(STATE OR OTHER JURISDICTION IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
500 MARKET STREET, PORTSMOUTH, NH 03801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(603) 431-1780
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [_]
State the aggregate market value for the voting stock held by non-affiliates
of the Registrant. The aggregate market value, computed by reference to the
closing price of such stock on March 21, 1996, was $1,877,000.
Indicate the number of shares outstanding of each of Registrant's classes of
common stock, as of the last practicable date: On March 21, 1996, there were
outstanding 11,026,783 shares of Common Stock, $.01 par value, of the
Registrant.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission and delivered to shareholders in connection with the
Annual Meeting of Shareholders to be held on June 3, 1996 are incorporated by
reference into Part III of this Annual Report filed on Form 10-K. The portions
of the Proxy Statement under the headings "Report of the Compensation
Committee" and the "Stock Performance Graph" are not incorporated by reference
and are not a part of this Form 10-K Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Environmental Power Corporation ("EPC" or the "Company"), a Delaware
Corporation, owns a 22-year leasehold interest in an approximately 85 Mw (net)
waste coal-fired electric generating facility (the "Scrubgrass Project")
located in Pennsylvania, the lease for which commenced on June 30, 1994. Until
December 31, 1994 the Company also held varying ownership interests (80% to
43%) in and oversaw the operation of an approximately 51 Mw (net) waste coal-
fired electric generating facility (the "Sunnyside Project") located in Utah.
Both facilities sell power under long-term contracts to specified Utility
Companies whose contracts have been approved by the respective Public Utility
Commission. In the case of these projects, the Company either acting alone or
in conjunction with others had selected and arranged for the acquisition of
the site, obtained control over their waste coal fuel sources, negotiated
contracts for the design and construction of the facilities and the sale of
their output to the utilities purchasing the power, arranged for financing,
and negotiated contracts for the operation and maintenance of the projects.
The Company has one additional project (the "Milesburg Project") in the
development stage, but believes that it has limited opportunities for
additional similar project development in the United States for the
foreseeable future.
The Company was incorporated in Massachusetts in November 1982 as Cresci
Associates, Inc. and reincorporated in Delaware in September 1986. In recent
years, the Company has concentrated its efforts on the three waste coal
projects referred to above, two of which became operational and a third which
is in the development stage. From 1983 to 1990 the Company acquired,
developed, operated in certain cases, and sold five hydroelectric power
facilities in Maine, Vermont and Connecticut.
THE COMPANY'S PROJECTS
The following summaries outline the Company's projects and their development
status (including the Sunnyside Project in which the Company held an ownership
interest until December 31, 1994). In reading the summaries, the following
points should be kept in mind:
--"Megawatt" (Mw) is a measure of electrical power equal to 1,000,000 watts
and is used to measure a project's capacity for output.
--"Kilowatt-hour" (Kwh) is a measure of electrical energy equal to a
continuous generation of 1,000 watts for one hour and is used to measure a
project's output over a period of time. Projection estimates for waste
coal facilities are based on a plant capacity factor and engineering
estimates of plant heat rates and values for the heat content of specific
fuels to be used. There can be no assurance that the facilities will
perform as represented herein, however the design/build and operating and
maintenance agreements generally include certain performance guarantees.
WASTE COAL
The burning of coal mining residue has become technically, environmentally
and economically feasible. Coal mining operations have historically produced a
substantial amount of residue, herein called waste coal or tailings, which
were considered unusable dulates in conventional furnaces because the high
percentage of rock or other substances negatively affecting combustion of the
coal and the low BTU volume per ton increased material handling costs and
reduced output of equipment. The development of the circulating fluidized bed
combustion system ("CFB") made the use of tailings as fuel technically and
economically feasible. In a CFB system, fuel is burned in a hot, turbulent bed
of ash, sand and, usually, limestone.
Rapid flow of upward moving air suspends fuel and bed particles in a
"fluidized" manner during combustion, creating a turbulence which causes the
tailings to break up, and allows for a more complete combustion of the coal as
well as a greater opportunity for a reaction of sulfur with the limestone.
Further, the
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circulating nature of CFB is designed to separate larger particulate from
stack gases and to reintroduce the material back into the combustor for more
complete burn and greater reaction with the limestone. Lower temperatures and
longer residence time of the fuel in the combustor decreases the formation of
nitrogen oxide.
The Company obtains coal tailings primarily from coal mining companies on a
long-term basis because coal tailings are plentiful and generally create
environmental hazards, such as acid drainage, when not disposed of properly.
SCRUBGRASS PROJECT
The Scrubgrass Project located on a 600 acre site in Venango County,
Pennsylvania is an approximately 85 Mw (net) waste coal-fired electric
generating station (the "Facility") which has been constructed by Bechtel
Power Corporation. The construction contract provided for a guaranteed net
electrical output of 82.85 Mw. Final completion was achieved by the contractor
in June 1994.
On June 30, 1994, Buzzard Power Corporation ("Buzzard"), a wholly owned
subsidiary of the Company, entered into an agreement to lease the Facility
from Scrubgrass Generating Company, L.P. (the "Lessor"), a joint venture of
PG&E Enterprises and Bechtel Enterprises Inc. The lease provides for an
initial term of 22 years with a renewal option for up to 3 years. Pursuant to
the lease, the Lessor assigned to Buzzard all principal project agreements and
its rights and obligations thereunder including, but not limited to the power
purchase agreement, operations and maintenance agreement, limestone
agreements, ground lease agreements, fuel agreements and transportation and
materials handling agreements. The Company has pledged Buzzard's stock to the
Lessor as security for Buzzard's performance of its obligations as lessee.
Buzzard has entered into a management services contract with U.S. Generating
Company, a joint venture of PG&E Enterprises and Bechtel Enterprises Inc., to
manage the project.
Electric output is being sold to Pennsylvania Electric Company ("PENELEC")
pursuant to a 25-year agreement, which commenced in 1993, at a fixed average
rate of approximately 4.68 cents/Kwh and escalates at 5% per year for the
calendar years 1994-1999. Commencing in the year 2000 and through 2012, the
agreement provides for a rate equal to the greater of a scheduled rate or a
rate based on the PJM Billing Rate (the monthly average of the hourly rates
for purchases by the General Public Utilities Group ("GPU") from, or sale by
GPU to, the Pennsylvania-New Jersey-Maryland Interconnection). For the years
2013 through 2015 and 2016 through 2018, if the renewal term option is
exercised, the agreement provides for a rate equal to the lower of the average
monthly PJM Billing Rate or the rate paid for calendar year 2012 adjusted
annually by the percentage change in the Gross National Product Deflator less
1%. On June 8, 1993, the Facility was declared by PENELEC to have reached
commercial operation.
The Facility is being operated by U.S. Operating Services Company pursuant
to a 15-year Operations and Maintenance Agreement ("O & M"). A budget for all
operational expenses including a fixed management fee is approved annually.
Failure to achieve approved annual budgets can result in operator liability
and/or termination of the O & M. The Scrubgrass Project owns or has under
contract sufficient fuel to operate the facility for approximately 25 years.
A Limestone Purchase and Sale Agreement with Quality Aggregates, Inc. has
been entered into to supply the Scrubgrass Project with limestone for an
initial term of five years which, in December 1995, was extended through the
year 2000 and which may be extended up to 15 additional years. The project
also maintains agreements with initial terms of 15 years for the
transportation and handling of fuel, ash and limestone with Savage Industries,
Inc. Costs established under these agreements will escalate at partially fixed
and partially indexed rates.
All revenues earned by the Scrubgrass Project are deposited into an account
administered by a disbursement agent. Before Buzzard can receive cash
generated by the project, all operating expenses, base lease payments
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(which include the Lessor's debt as described below), certain maintenance
reserve payments and other subordinated payments must be satisfied. Buzzard,
as lessee, is required to pay the Lessor, in addition to a specified base
rent, consisting of all of the Lessor's debt service and related fees and
expenses, an additional rent of 50 percent of the net cash flows Buzzard
receives from project operations. Buzzard is not required to fund operating
losses, or otherwise invest further, from financing sources outside the
project.
Until December 22, 1995, the Lessor's debt consisted of $135.6 million of
variable rate tax-exempt bonds maturing in 2012, a $20.8 million term loan
maturing in 2005, $4.2 million of demand debt and $2.4 million of junior
subordinated debt maturing in 1999. The Lessor entered into interest rate
swaps which have the effect of fixing the interest rate until May 18, 1996 at
approximately 3.72% on the tax-exempt bonds and over the life of the $20.8
million term loan at 6.42%. After May 18, 1996, the specified base rent will
reflect the affect of floating rates on the Lessor's tax-exempt bonds. On
December 22, 1995, the Lessor restructured certain of its project debt, the
primary effect of which was to extend the term of its demand debt and a
portion of its junior subordinated debt through 2004. As a result of the
Lessor's debt restructuring, Buzzard extended the term of $4 million of
current liabilities through 2004. See Notes A, B, E, F and G to consolidated
financial statements for additional information regarding the Scrubgrass
project.
SUNNYSIDE PROJECT
Sunnyside is an approximately 51 Mw (net) waste coal-fired facility at a
site located adjacent to the Sunnyside Coal Mine in Carbon County, Utah which
was constructed by Parsons Main, Inc., ("PMI"). The facility reached
commercial operation on November 19, 1993. The project is owned by Sunnyside
Cogeneration Associates ("SCA"), a joint venture in which EPC owned an
approximate 70% interest until September 28, 1994 and thereafter an
approximate 40% interest until December 31, 1994, at which time the Company
sold its remaining interest in SCA.
In connection with the sale, the Company received consideration of $2.79
million in cash on January 5, 1995 and promissory notes aggregating $3.25
million, bearing interest at 10% per annum. Interest is payable to the Company
quarterly and principal of $312,500 was received by the Company on September
30, 1995, principal of $1,187,500 is due on December 31, 1996 and the
remaining principal of $1,750,000 is due on December 31, 1997. In addition, in
1994, the Company also recorded a receivable related to a purchase price
adjustment, as provided for in the Purchase and Sale Agreement, of
approximately $1.1 million, of which $708,000 was received in April 1995. The
remaining receivable balance is being disputed through litigation with the
purchasers. The Company also retained certain inchoate rights, including
potential refundable sales taxes arising out of activities prior to the date
of the sale. During 1995, the Company received refunds aggregating $1.1
million in final settlements for all such sales tax refunds. See Notes to
Consolidated Financial Statements for further discussion.
MILESBURG PROJECT
On April 30, 1987, the Company purchased, for an aggregate purchase price of
$5,400,000, all of the outstanding capital stock of Milesburg Energy, Inc.
("MEI"), the company which controlled the development rights to an existing 43
Mw (net) oil-fired facility, which was retired from service in 1984. In
connection with the stock purchase, the Company paid $100,000 in cash and
issued promissory notes totaling $5,120,000 and a subsidiary of the Company
assumed pre-acquisition MEI liabilities totaling $180,000. The notes payable,
pre-acquisition liabilities and other liabilities incurred subsequent to the
purchase become payable only under certain conditions, the most significant of
which relate to the closing of construction financing and commencement of
construction for the project. The Company plans to convert or replace this
facility to use waste coal.
MEI has executed a 30 year power purchase agreement with West Penn Power
Company ("WPPC") for the sale of all of the facility's electrical output with
a fixed capacity rate component and an additional fluctuating rate component
which is derived from WPPC's avoided energy cost. The power purchase agreement
was approved by the Public Utilities Commission of the State of Pennsylvania
("PUC"), and was subsequently appealed to the Commonwealth Court of
Pennsylvania by certain industrial customers, the Office of the
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Consumer Advocate and WPPC. The PUC subsequently ordered the rates contained
in the power purchase agreement to be recalculated due to the later start-up
date for this project necessitated by the delays caused by the appeal. This
order has been appealed by the same litigants through various courts,
including the United States Supreme Court, and upheld in every case in favor
of MEI. In August 1995, the PUC issued a tentative order for final contract
rates. The order has been temporarily stayed by mutual agreement of MEI and
WPPC pending settlement discussions.
In 1990, as a result of the uncertainties related to approval of the power
contract and the rates provided therein and the Company's working capital
position which, at that time, could have prevented it from continuing to fund
development efforts, management provided a reserve of $940,144 against its
investment in the project. However, the Company has continued to invest monies
in an effort to protect its legal and contractual interests and to support its
ability to commence construction in the event of a favorable resolution to the
power purchase agreement. MEI is currently seeking the sale of the project or
partnership of the project with an entity that would provide equity financing
for development and construction. There can be no assurance that MEI will be
successful in selling the project, finding a partner or in further
developmental efforts or that the project will reach commercial operation. See
Notes to Consolidated Financial Statements for additional information
regarding this project.
SEGMENT FINANCIAL INFORMATION
Reportable operating results relating to the Company's electric generating
facilities for the years ended December 31, 1995 and 1994 and their related
percentage to total operations are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------------------------
SCRUBGRASS SCRUBGRASS SUNNYSIDE
---------------- ---------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
----------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Power Generation Revenues.. $40,693,465 100% $18,182,301 59% $12,522,288 41%
Income (Loss) from Opera-
tions..................... $(1,139,101) (1) $(2,982,816) (1) $ 2,196,327 (1)
</TABLE>
- --------
(1) Percentage omitted as (loss) income from segment operations vary
significantly from consolidated operating loss shown in accompanying
consolidated financial statements.
COMPETITION
Utilities, contractors, and equipment suppliers, as well as other
organizations similar to the Company, have entered or are attempting to enter
the alternative energy market. Many of these companies have substantially
greater resources than the Company.
The primary bases of competition are quality of development plans, ability
(including financial ability) of the developer to complete the project and the
price to be paid for the development opportunity. In certain cases,
competitive bidding for a development opportunity or bidding for supplying
electric energy to utilities is required. Competition for attractive
development opportunities is expected to be intense as there are a number of
competitors in the industry interested in the limited number of such
opportunities.
REGULATION
The Company's projects are subject to regulation under federal and state
energy laws and regulations and federal, state and local environmental and
mining laws and regulations. The Company's facilities are either self-
certified as a qualifying facility under the Public Utility Regulatory
Policies Act of 1978 ("PURPA"), or formally certified as a qualifying facility
by the Federal Energy Regulatory Commission ("FERC"). Pursuant to PURPA, FERC
has promulgated regulations which exempt certain qualifying facilities from
the Federal Power Act of 1920, the Public Utility Holding Company Act of 1935,
and, except under certain limited circumstances, state laws regulating the
rates charged by electric utilities. In order to qualify under PURPA, the
Company's
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facilities must meet certain size, fuel and ownership requirements and/or co-
generate. In addition to regulation of qualifying facilities, PURPA requires
that electric utilities purchase electric energy produced by qualifying
facilities at negotiated rates or at a price equal to the incremental or
avoided cost that would have been incurred by the utility if it were to
generate the power itself or purchase it from another source.
The Company's projects must also comply with applicable federal, state and
local laws relating to the protection of the environment, primarily in the
areas of water and air pollution. As regulations are enacted or adopted the
Company cannot predict the effect of compliance therewith on its business.
Failure to comply with all applicable requirements could result in required
modifications to facilities including the inability to operate during periods
of non-compliances. The Company is responsible to ensure compliance of its
facilities with all applicable requirements and, accordingly, attempts to
minimize these risks by dealing with reputable contractors.
The Company is not presently subject to regulation under the Public Utility
Holding Company Act of 1935. The Company does not presently intend to engage
in any activities that would cause it to be so regulated.
EMPLOYEES
As of December 31, 1995, the Company had four full-time and two part-time
employees. The loss of any of its executive officers could have a material
adverse effect on the Company. None of the Company's employees are represented
by a collective bargaining agreement. The Company considers relations with its
employees to be good.
ITEM 2. PROPERTIES
The Company, through a subsidiary, leases the Scrubgrass waste coal-fired
electric generating facility located on approximately 600 acres in Venango
County, Pennsylvania. The Company, through a subsidiary, owns the
decommissioned Milesburg oil-fired electric generating facility located on
approximately 10 acres in Centre County, Pennsylvania. The Company, through a
subsidiary, owns approximately 80 acres in Fayette County, Pennsylvania for
which it has abandoned efforts to develop electric generating facilities
utilizing coal mine-fire technology. (See "The Company's Projects" above under
Item 1 for a description of various property rights the Company has or is
seeking with respect to its present and proposed projects).
The Company is a tenant pursuant to a three-year lease, which commenced in
February 1996, at its headquarters in Portsmouth, New Hampshire for which
current monthly payments are $1,300.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company is involved in various
lawsuits. The Company is not engaged in any litigation which management
believes would, if resolved adversely to the Company, have a material impact
on the financial position or results of operations of the Company.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Common Stock of the Company (the "Common Stock") is traded over-the-
counter on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") Small-Cap Market under the symbol POWR. As of March 21,
1996 there were approximately 300 holders of record of the Common Stock.
Insofar as many of the shares are held in street name, the Company believes
that the number of beneficial holders is substantially higher.
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The following table shows the quarterly high and low bid prices on the over-
the-counter market for 1994 and 1995 as reported in the NASDAQ Small-Cap
Market. Such bid prices reflect inter-dealer prices, without retail mark-up,
bid down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
YEAR PERIOD HIGH LOW
---- ------ ------ ----
<C> <S> <C> <C>
1994 First Quarter........................................... 9/16 1/2
Second Quarter.......................................... 3/4 1/2
Third Quarter........................................... 5/8 1/2
Fourth Quarter.......................................... 5/8 1/2
1995 First Quarter........................................... 5/8 7/16
Second Quarter.......................................... 9/16 1/4
Third Quarter........................................... 1/2 7/16
Fourth Quarter.......................................... 7/16 5/32
</TABLE>
In December 1995, the Company declared and paid a dividend of 8 cents per
share. Prior to that date, the policy of the Company had been to retain
earnings, if any, for use in its business. In March 1996, the Company declared
a first quarter dividend of 3 cents per share. The Company has initiated a
quarterly dividend policy which is subject to review and reconsideration by
the Board of Directors each quarter. During 1995, the Company acquired 498,100
shares of treasury stock through open market purchases at an average price of
$.19 per share. No such shares were acquired during 1994. For additional
information with respect to treasury shares acquired in private transactions
see Note K of Notes to Consolidated Financial Statements.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1995 are derived from the audited consolidated financial statements of the
Company. The data should be read in conjunction with the consolidated
financial statements and notes thereto and the other financial information
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1995 1994 1993 1992 1991
------- ------- -------- -------- --------
(000'S OMITTED EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA :
Power generation revenues....... $40,693 $30,705 $ 1,571 $ -- $ --
------- ------- -------- -------- --------
Costs and expenses:
Operating expenses............. 16,975 16,123 1,088 -- --
Lease expense.................. 23,020 10,538 -- -- --
General and administrative
expenses...................... 3,668 2,998 1,613 831 534
Depreciation and amortization.. 167 3,018 428 44 43
Increase (reduction) of
expenses from litigation
settlement.................... -- -- -- 84 (257)
------- ------- -------- -------- --------
43,830 32,677 3,129 959 320
------- ------- -------- -------- --------
Operating loss.................. (3,137) (1,972) (1,558) (959) (320)
------- ------- -------- -------- --------
Other income (expense):
Gain on sale of
affiliate/project............. -- 3,946 -- 44 --
Other income................... 1,593 5,465 1 1 115
Interest income................ 468 695 161 72 169
Realized gain on sale of
marketable debt securities.... -- -- 1,678 -- --
Minority interest.............. -- 1,866 -- -- --
Equity in net loss of
affiliate..................... -- (84) -- -- --
Interest expense............... (107) (8,830) (1,376) (13) (4)
------- ------- -------- -------- --------
1,954 3,058 464 104 280
------- ------- -------- -------- --------
(Loss) Income before income
taxes and cumulative effect of
accounting change.............. (1,183) 1,086 (1,094) (855) (40)
Income tax (benefit) expense.... (448) 416 (414) (177) (7)
Cumulative effect of accounting
change......................... -- -- -- -- 4,765
------- ------- -------- -------- --------
Net (loss) income............. $ (735) $ 670 $ (680) $ (678) $ 4,732
======= ======= ======== ======== ========
Net (loss) income per share
before cumulative effect of
accounting change.............. $ (0.07) $ 0.06 $ (0.11) $ (0.12) $ (0.03)
Net (loss) income per share..... (0.07) 0.06 (0.11) (0.12) 0.49
Weighted average number of
shares outstanding............. 10,649 11,321 8,592 7,586 9,200
<CAPTION>
1995 1994 1993 1992 1991
------- ------- -------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA :
Total assets.................... $45,226 $35,962 $149,788 $301,285 $147,819
Working capital (deficit)....... 3,224 1,212 7,201 (484) 1,251
Long-term obligations........... 24,405 11,533 130,360 104,425 46,138
Deferred gain(1)................ 6,322 6,631 6,785 -- --
Deferred revenue(1)............. 3,065 2,826 -- -- --
Liabilities and net proceeds of
project transferred under
contractual arrangement........ -- -- -- 189,962 92,888
Shareholders' equity............ 2,797 4,443 3,303 5,443 6,232
</TABLE>
- --------
(1) See Notes A and B of Notes to Financial Statements.
The Company declared and paid a dividend of $.08 per share in 1995. Prior to
1995 the Company had not declared or paid any dividends.
9
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
On December 31, 1995, the Company had cash and cash equivalents of
$1,011,822 as compared to $356,527 at December 31, 1994. The increase is
primarily due to the 1995 receipt of a portion of the proceeds from the 1994
sale of the Company's remaining interest in the Sunnyside project together
with the receipt of sales tax refunds related to the Sunnyside project
construction period.
On December 31, 1995, the Company had working capital of $3,223,507 compared
to $1,211,927 at December 31, 1994. The increase is primarily due to the
receipt of proceeds from the sale of the Company's remaining interest in
Sunnyside, the receipt of sales tax refunds related to the Sunnyside project
and the restructuring of debt related to the Scrubgrass project which allowed
the Company to record such obligations as non-current.
Receivable from utility relates to the Scrubgrass project and was $6,536,506
at December 31, 1995 as compared to $5,370,098 at December 31, 1994.
The current portion of notes receivable was $1,673,091 at December 31, 1995
as compared to $375,608 at December 31, 1994. The increase is primarily due to
the maturity of the current portion of notes receivable related to the sale of
the Sunnyside project and notes receivable related to the Scrubgrass project.
Receivable from sale of affiliate relates to the Sunnyside project and was
$276,444 at December 31, 1995 compared to $3,853,400 at December 31, 1994. The
decrease is primarily related to the receipt in 1995 of a portion of such
proceeds.
Other current assets were $1,112,152 and $1,785,531 at December 31, 1995 and
1994, respectively. The decrease is due primarily to receipt in 1995 of
construction management and overhead receivables related to the Scrubgrass
project.
Deferred income tax assets at December 31, 1995 were $5,543,229 as compared
to $4,995,245 as of December 31, 1994. The increase is due to the income tax
benefit recorded in 1995.
Non-current notes receivable declined to $1,868,409 at December 31, 1995 as
compared with $3,263,164 at December 31, 1994. This is primarily due to the
maturity of the current portion of notes receivable related to the sale of the
Sunnyside project and notes receivable related to the Scrubgrass project.
Accrued power generation revenue increased to $15,161,689 at December 31,
1995 as compared to $5,311,324 at December 31, 1994. This relates to the
Scrubgrass project and represents a receivable recorded as a result of the
straight-line accounting treatment of certain revenues under the power
purchase agreement.
Other assets were $661,311 at December 31, 1995 as compared to $419,412 at
December 31, 1994. The increase is primarily due to deferred financing costs
incurred for the partial debt restructuring related to Scrubgrass project.
Accounts payable and accrued expenses decreased from $6,969,386 at December
31, 1994 to $6,338,160 at December 31, 1995. The decline is primarily due to
the payment of Scrubgrass project related liabilities.
Other current liabilities at December 31, 1995 were $2,298,686 as compared
to $3,559,851 at December 31, 1994. The decrease is primarily related to the
non-current reclassification of certain Scrubgrass related liabilities as a
result of the completion of a refinancing, in December 1995, by the Lessor of
the Scrubgrass project.
Deferred gain, net decreased to $6,322,419 at December 31, 1995 from
$6,630,830 at December 31, 1994. The decline is due to the 1995 amortization
of a deferred gain related to the Scrubgrass project, which is being amortized
on a straight-line basis over 22 years.
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Secured promissory notes payable and other borrowings increased from
$5,971,270 at December 31, 1994 to $8,543,767 at December 31, 1995. The
increase is primarily due to the reclassification of current liabilities
related to the Scrubgrass project as a result of a partial project refinancing
completed in December 1995 by the Lessor.
Accrued lease expense was $15,161,689 at December 31, 1995 as compared to
$5,311,324 at December 31, 1994. This relates to the Scrubgrass project and
represents an accrued expense recorded as a result of the straight-line
accounting treatment of the lease expense over the initial 22 year lease term.
Deferred revenue was $3,064,964 at December 31, 1995 compared to $2,825,972
at December 31, 1994. The increase relates to the Scrubgrass project and
represents the deferral of power generation revenues pursuant to conditions
set forth in the power purchase agreement. The Company defers such revenues
until earned, which is expected to occur primarily during fiscal 1996.
RESULTS OF OPERATIONS
General
In 1995, the Company derived revenues primarily from power generation at the
Scrubgrass project and from other income primarily as a result of sales tax
refunds related to the Sunnyside project. In 1994, the Company derived
revenues primarily from power generation at the Scrubgrass and Sunnyside
projects and other income related to the sale of its remaining interest in the
Sunnyside project. In 1993, the Company derived revenues primarily from power
generation at the Sunnyside project and other income primarily from short-term
investment interest.
The Company has been developing alternative energy projects which during
1993 did not produce operating revenues until November 19, 1993 at which time
the Sunnyside project commenced commercial operations. The net loss in 1995 is
primarily due to operating losses from the Scrubgrass project. Net income in
1994 is primarily due to the gain and other income realized as a result of the
sale of the Sunnyside project. The net loss in 1993 was primarily due to
annual operating expenses in excess of power generation revenues generated
since November 19, 1993 at the Sunnyside project.
Revenues & Expenses
Power generation revenues in 1995 were $40,693,465, all of which were from
the Scrubgrass project which the Company commenced leasing on June 30, 1994.
Revenues in 1994 were $30,704,589, which represent power generation revenues
from the Sunnyside project until September 28, 1994 after which time the
Company commenced reporting its investment in Sunnyside on the equity method,
together with revenues from the Scrubgrass project which the Company commenced
leasing on June 30, 1994. Revenues in 1993 were $1,570,649 and represent less
than two months of power generation at the Sunnyside project.
Operating expenses for 1995 relate to the Scrubgrass project and were
$16,975,186 as compared to operating expenses for 1994 which were $16,122,617
which relate to the Scrubgrass and Sunnyside projects for six and nine months,
respectively. The operating expenses for 1993 were $1,088,334, representing
less than two months of Sunnyside project operations.
Lease expense relates to the Scrubgrass project and was $23,020,132 in 1995
as compared to $10,537,623 in 1994. There is no such expense in 1993 since the
lease was entered into on June 30, 1994.
General and administrative expenses in 1995 were $3,668,066 and include
twelve months of Scrubgrass operations. Comparatively, general and
administrative expenses in 1994 were $2,998,325 and include six months of
Scrubgrass operations and nine months of Sunnyside operations. General and
administrative expenses were $1,613,041 in 1993 and include less than two
months of Sunnyside operations.
11
<PAGE>
Depreciation and amortization decreased from $3,017,766 in 1994 to $167,333
in 1995 primarily due to the absence of such expenses related to the Sunnyside
project, which was sold in 1994. Depreciation and amortization was $427,615 in
1993 and related principally to two months of Sunnyside project operations.
Gain on sale of affiliate for 1994 was $3,945,494 and represents the gain on
the sale of the Company's remaining interest in the Sunnyside project.
Other income for 1995 was $1,592,814 and consisted primarily of Sunnyside
project sales tax refunds of $1.1 million related to activities prior to the
date of sale of the project. In addition, other income in 1995 included fee
income related to the Scrubgrass project and approximately $308,000 from a
deferred gain related to the Scrubgrass project, which is being recognized on
a straight-line basis over the initial 22-year lease term. Other income for
1994 was $5,465,418 and consisted primarily of the recognition in 1994 of
construction management and interest income related to the Sunnyside project.
On September 28, 1994 the remaining equity bridge loans to the Sunnyside
project were converted to equity, thereby reducing the Company's equity
ownership in the project below 50%. Until that date the Company had eliminated
such intercompany income from its consolidated financial statements for
accounting purposes. After that date the Company reported its investment in
the Sunnyside project on the equity method and such intercompany income was
recorded as deferred revenue. On December 31, 1994 the Company recognized such
deferred revenue as a result of the sale of the Sunnyside project.
Interest income decreased from $695,142 in 1994 to $468,626 in 1995
primarily due to the absence of the earnings on investment balances related to
the Sunnyside project. Interest income of $161,227 in 1993 was primarily
related to earnings on investment balances related to the Sunnyside project.
Interest expense decreased from $8,829,893 in 1994 to $106,783 in 1995. The
decrease was primarily due to the absence in 1995 of such expenses related to
the Sunnyside project which was sold in 1994. Interest expense was $1,375,625
in 1993 and was primarily related to the Sunnyside project which commenced
commercial operations on November 19, 1993.
In 1994, income from gain on sale of affiliate, minority interest and equity
in net loss of affiliate aggregated $5,726,799 and was related to the
Sunnyside project.
Realized gain on sale of marketable debt securities of $1,677,916 in 1993
relates to the Sunnyside project and represents the reportable gain arising
from the sale of such securities.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note B of Notes to Financial Statements for recently issued accounting
standards which are required to be adopted in 1996.
LIQUIDITY AND CAPITAL RESOURCES
1995
The Company's principal source of cash to continue its general corporate
activities in 1995 was from proceeds received pursuant to the sale of the
Sunnyside project and the receipt of sales tax refunds related to the
Sunnyside project arising out of activities prior to the date of the sale and
interest income.
1996
The Company's principal source of cash to continue its general corporate
activities in 1996 will be from the receipt of note proceeds pursuant to the
sale of the Sunnyside project, current cash balances, interest income earned
on short-term investments and from cash flows, if any, from the Scrubgrass
project. Various Scrubgrass contractual obligations may require that any cash
flows from the Scrubgrass project be used to increase certain reserve accounts
and/or be used to fund contractual obligations of the project and, therefore,
may not be available to the Company. As of December 31, 1995 there were no
such deficiencies. Management continues to implement a cost reduction program
in an effort to significantly reduce general corporate overhead.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in the following Index to Financial
Statements are filed as a part of this annual report under Item 14--Exhibits,
Index to Financial Statements, and Reports on Form 8-K.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
<S> <C>
Independent Auditors' Report............................................. F-1
Consolidated Balance Sheets at December 31, 1995 and 1994................ F-2
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994 and 1993..................................................... F-3
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995,
1994 and 1993........................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993..................................................... F-5
Notes to Consolidated Financial Statements............................... F-6
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
N/A
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors of the Company may be found in the
section captioned "Occupations of Directors" appearing in the definitive Proxy
Statement to be delivered to shareholders in connection with the Annual
Meeting of Shareholders to be held on June 3, 1996. Such information is
incorporated herein by reference.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joseph E. Cresci........... 53 Chairman and Chief Financial Officer
Donald A. Livingston....... 52 President and Chief Operating Officer
Bayard R. Kraft, III....... 44 Treasurer, Secretary and Chief Executive Officer
</TABLE>
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
Joseph E. Cresci, a founder of the Company, has served as Chairman and Chief
Executive Officer since the Company's inception in 1982, as Treasurer of the
Company from its inception until September 1987 and as President from
inception until September 1991. From 1976 to 1982, Mr. Cresci was President
and Chief Executive Officer of G.E. Stimpson Co., Inc. and Stimpson Systems,
Inc., a distributor of office and printing products. From 1972 to 1975, Mr.
Cresci was President of Ogden Recreation, Inc., a subsidiary of Ogden Corp.
(NYSE) where he was responsible for the operation of racing facilities, a
hotel/resort, a parking company and a promotions company providing services to
large crowd facilities. Mr. Cresci was Executive Vice President and Chief
Operating Officer of Garden State Racing Association from 1969 to 1972. From
1967 to 1969, he was an associate lawyer with the Philadelphia law firm of
Townsend, Elliott and Munson. Mr. Cresci holds a B.A. degree from Princeton
University and a law degree from Cornell Law School and is a member of the
Pennsylvania and Massachusetts Bar Associations.
13
<PAGE>
Donald A. Livingston, a founder of the Company, has served as President and
Chief Operating Officer since September 1991, and as Executive Vice President
from the Company's inception until September 1991. From 1974 to 1982, Mr.
Livingston was President and Chief Executive Officer of Green Mountain
Outfitters, Inc., a manufacturer and distributor of large plastic parts.
During the three previous years, he was a partner in the financial services
firm of Capital Resources, Inc., where he was involved in obtaining debt and
equity funds, and negotiating mergers and acquisitions. Mr. Livingston was a
registered representative in the retail stock brokerage business with Baxter,
Blyden and Selheimer from 1967 to 1971 and Bellamah, Neuhauser & Barrett from
1965 to 1967.
Bayard R. Kraft, III, who will be leaving the Company effective March 29,
1996, has served as Chief Financial Officer of the Company since May, 1989, as
the Treasurer of the Company since September, 1987, as the Controller of the
Company since April, 1985 and as Secretary since June, 1989. From 1976 to 1985
he was a senior accountant with the certified public accounting firm of Van
Blarcom and Harrison, specializing in auditing, income tax preparation and
planning, and management advisory services. He attended Stetson University and
the University of Vermont.
William D. Linehan, who will replace Bayard R. Kraft III as Treasurer, Chief
Financial Officer and Secretary of the Company effective March 29, 1996, was
most recently employed since 1993 as a manager in the audit and consulting
practice of Moody, Cavanaugh and Company, where he specialized in providing
audit, tax advisory and business consulting services to closely-held
corporations. From 1991 to 1993, Mr. Linehan was the Controller of Technology
Procurement, Inc., and later the Secretary and Treasurer of Computer Finance
and Rental, Inc., a corporation formed in 1993 after a corporate
reorganization of Technology Procurement, Inc., where he was responsible for
managing the accounting and financial activities of these corporations, which
both were distributors and lessors of computer equipment and related
peripheral products. From 1987 to 1991, Mr. Linehan was employed in the middle
market audit and consulting practice of KPMG Peat Marwick, where he advanced
to the position of supervisor and specialized in providing audit and
management advisory services to publicly-traded and privately-held growth
companies. Mr. Linehan, who received a Bachelor of Science Degree in
Accountancy from Bentley College in 1987, is a Certified Public Accountant in
the Commonwealth of Massachusetts and a member of the American Institute of
Certified Public Accountants and the Massachusetts Society of Certified Public
Accountants.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item may be found in the section captioned
"Compensation and Other Information Concerning Directors and Officers"
appearing in the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held on June 3, 1996.
Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found in the sections captioned
"Principal Holders of Voting Securities" and "Election of Directors" appearing
in the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held June 3, 1996.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found in the section captioned
"Compensation and Other Information Concerning Directors and Officers"
appearing in the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held June 3, 1996.
Such information is incorporated herein by reference.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, INDEX TO FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
The following documents are filed as part of this annual report:
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-1
Consolidated Balance Sheets at December 31, 1995 and 1994................ F-2
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994 and 1993..................................................... F-3
Consolidated Statements of Shareholders' Equity for Years Ended December
31, 1995, 1994 and 1993................................................. F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993..................................................... F-5
Notes to Consolidated Financial Statements............................... F-6
</TABLE>
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules for the Company and
its subsidiaries are filed as part of this annual report:
No schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are required under the
related instructions or are applicable, and therefore have been omitted.
(a) 3. EXHIBITS
The following Exhibits are included in this report:
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION
NUMBER DESCRIPTION REFERENCE PAGE
------- ----------- ------------- ----
<C> <S> <C> <C>
3.01 Certificate of Incorporation, as amended. A
4.01 Certificate of Designation as filed with the
Secretary of State of Delaware. Q
4.02 Bylaws of the Registrant, as amended. AB
5.01 Opinion of Townley & Updike as to the legality
of Shares of Common Stock being registered. AA
10.03 Cash Bonus Plan A
10.12 Stock Purchase Agreement for 20,000 shares of
common stock of Milesburg Energy, Inc., between
Environmental Power Corporation and Neil W.
Hedrick, Richard Mase and Sylvia B. Mase, dated
April 30, 1987. G
10.13 Non-recourse Secured Note of Environmental
Power Corporation to Neil W. Hedrick, Richard
Mase and Sylvia B. Mase for $220,000, dated
April 30, 1987. G
10.14 Non-recourse Secured Note of Environmental
Power Corporation to Neil W. Hedrick, Richard
Mase and Sylvia B. Mase for $4,900,000, dated
April 30, 1987. G
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION
NUMBER DESCRIPTION REFERENCE PAGE
------- ----------- ------------- ----
<C> <S> <C> <C>
10.15 Note of Milesburg Energy, Inc., to Antrim
Mining, Inc., for $41,000, dated April 30,
1987. G
10.16 Note of Milesburg Energy, Inc., to Richard Mase
and Sylvia B. Mase for $139,000, dated April
30, 1987. G
10.17 Electric Energy Purchase Agreement between West
Penn Power Company and Milesburg Energy, dated
February 25, 1987. F
10.57 1990 Stock Plan with forms of Incentive Stock
Option Agreement and Non-Qualified Stock Option
Agreement. Q
10.63a Allonge to Promissory Note between Commonwealth
Bank and Milesburg Energy, Inc., dated December
6, 1993. AB
10.63b Amendment to Promissory Note between
Commonwealth Bank and Milesburg Energy, Inc.,
dated October 26, 1994. AC
10.66 Stock Purchase Agreement, dated as of December
15, 1990, by and among Environmental Power
Corporation, Scrubgrass Power Corporation and
Falcon Power Corporation. Schedules and similar
attachments of the Purchase and Sale Agreement
have been omitted; the Company agrees to
furnish supplementally a copy of any omitted
schedule to the Securities and Exchange
Commission upon request. T
10.67 Appendix I to the Amended and Restated
Participation Agreement, dated as of December
22, 1995, among Buzzard Power Corporation,
Scrubgrass Generating Company, L.P.,
Environmental Power Corporation, Bankers Trust
Company and Credit Lyonnais, which Appendix
defines terms used and not otherwise defined in
the Stock Purchase Agreement filed as Exhibit
2.1.
10.69 Transfer Agreement, dated as of December 19,
1991, between Environmental Power Corporation
and Scrubgrass Generating Company, L.P. V
10.70 Stock Pledge Agreement, dated December 19,
1991, between Environmental Power Corporation
and Scrubgrass Generating Company, L.P. V
10.71 Amended and Restated Participation Agreement,
dated as of December 22, 1995, among Buzzard
Power Corporation, Scrubgrass Generating
Company, L.P., Environmental Power Corporation,
Bankers Trust Company and Credit Lyonnais.
10.72 Lease between Equinox Resort Associates, L.P.,
and Environmental Power Corporation, dated May
14, 1993. AB
10.73 Director Option Plan. AB
10.74 Order and Stipulation of Settlement, dated as
of January 24, 1994, between Environmental
Power Corporation and Drexel Burnham Lambert,
Inc. AB
10.80 Lease Agreement between Scrubgrass Generating
Company, L.P., a Delaware limited partnership,
as Lessor, and Buzzard Power Corporation, a
Delaware corporation, as Lessee, dated as of
June 17, 1994. Schedules and similar
attachments, listed in the Lease have been
omitted; the Company agrees to furnish
supplementally a copy of any omitted schedule
to the Securities and Exchange Commission upon
request. AC
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION
NUMBER DESCRIPTION REFERENCE PAGE
------- ----------- ------------- ----
<C> <S> <C> <C>
10.81 Purchase and Sale Agreement by and among NRG
Sunnyside Inc. and B&W Sunnyside L.P. and
Kaiser Systems, Inc., Kaiser Power of
Sunnyside, Inc., Sunnyside Power Corporation
and Environmental Power Corporation, dated
December 31, 1994. Schedules and similar
attachments of the Purchase and Sale Agreement
have been omitted; the Company agrees to
furnish supplementally a copy of any omitted
schedule to the Securities and Exchange
Commission upon request. AC
11 Computation of Earnings per Share
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
28.02 Order of Pennsylvania Public Utility Commission
in connection with Milesburg Energy, Inc.,
adopted September 21, 1989. R
</TABLE>
17
<PAGE>
Incorporation References:
A Previously filed as part of Registration Statement No. 33-9808 (the
"Registration Statement"), filed with the Securities and Exchange
Commission on October 28, 1986.
B Previously filed as part of Amendment No. 1 to Registration Statement
No. 33- 9808, filed with the Securities and Exchange Commission on
November 17, 1986.
F Previously filed as part of the Company's Annual Report on Form 10-K
for the year ended December 31, 1986, filed with the Securities and
Exchange Commission on March 30, 1987.
G Previously filed as part of the Company's Report on Form 8-K, filed
with the Securities and Exchange Commission on May 15, 1987.
Q Previously filed as part of the Company's Report on Form 8-K, filed
with the Securities and Exchange Commission on February 7, 1990.
R Previously filed as part of the Company's Annual Report on Form 10-K
for the year ended December 31, 1989, filed with the Securities and
Exchange Commission on November 14, 1990.
T Previously filed as part of the Company's Report on Form 8-K, dated
December 28, 1990.
V Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 1991, filed with the Securities Exchange
Commission on April 12, 1992.
AB Previously filed as part of the Company's Report on form 10-K for the
year ended December 31, 1993.
AC Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 1994.
(b) REPORTS ON FORM 8-K
Not Applicable.
18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Dated: Environmental Power Corporation
March 21, 1996
/s/ Joseph E. Cresci
By: _________________________________
Joseph E. Cresci,
Chairman and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Joseph E. Cresci Chairman, Chief March 21, 1996
- ------------------------------------- Executive Officer,
JOSEPH E. CRESCI & Director
(Principal
Executive Officer)
/s/ Donald A. Livingston President & Chief March 21, 1996
- ------------------------------------- Operating Officer
DONALD A. LIVINGSTON
/s/ Bayard R. Kraft Treasurer, Chief March 21, 1996
- ------------------------------------- Financial Officer &
BARARD R. KRAFT III Secretary
(Principal
Financial Officer)
/s/ Edward Koehler Director March 21, 1996
- -------------------------------------
EDWARD KOEHLER
/s/ Peter J. Blampied Director March 21, 1996
- -------------------------------------
PETER J. BLAMPIED
/s/ Robert I. Weisberg Director March 21, 1996
- -------------------------------------
ROBERT I. WEISBERG
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Environmental Power Corporation
We have audited the accompanying consolidated balance sheets of
Environmental Power Corporation and subsidiaries as of December 31, 1995 and
1994 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Environmental Power
Corporation and subsidiaries at December 31, 1995 and 1994 and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
March 5, 1996
F-1
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents--Note B.................. $ 1,011,822 $ 356,527
Restricted cash--Note B............................ 1,250,338 --
Receivable from utility............................ 6,536,506 5,370,098
Notes receivable................................... 1,673,091 375,608
Receivable from sale of affiliate--Note A ......... 276,444 3,853,400
Other current assets--Note C....................... 1,112,152 1,785,531
----------- -----------
TOTAL CURRENT ASSETS............................. 11,860,353 11,741,164
PROPERTY, PLANT AND EQUIPMENT, NET--Notes A, B, D and
I................................................... 7,075,907 7,026,804
DEFERRED INCOME TAX ASSET--Notes B and J............. 5,543,229 4,995,245
LEASE RIGHTS, NET--Notes A and B..................... 3,055,526 3,204,531
NOTES RECEIVABLE--Note A............................. 1,868,409 3,263,164
ACCRUED POWER GENERATION REVENUE--Note B............. 15,161,689 5,311,324
OTHER ASSETS--Notes A and E.......................... 661,311 419,412
----------- -----------
$45,226,424 $35,961,644
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses--Note F...... $ 6,338,160 $ 6,969,386
Other current liabilities--Note G.................. 2,298,686 3,559,851
----------- -----------
TOTAL CURRENT LIABILITIES........................ 8,636,846 10,529,237
DEFERRED GAIN, NET--Note B........................... 6,322,419 6,630,830
SECURED PROMISSORY NOTES PAYABLE AND OTHER
BORROWINGS--Notes A and H........................... 8,543,767 5,971,270
ACCRUED LEASE EXPENSE--Note B........................ 15,161,689 5,311,324
DEFERRED REVENUE--Notes A and B...................... 3,064,965 2,825,972
MAINTENANCE RESERVE--Note B.......................... 699,429 250,000
SHAREHOLDERS' EQUITY--Note K:
Preferred Stock ($.01 par value; 1,000,000 shares
authorized; 18,740 shares issued at December 31,
1994)............................................. -- 187
Common Stock ($.01 par value; 20,000,000 shares
authorized; 12,145,423 shares and 10,602,179
shares issued at December 31, 1995 and 1994,
respectively; 11,547,323 shares and 10,582,179
shares outstanding at December 31, 1995 and 1994,
respectively)..................................... 121,454 106,822
Additional paid-in capital......................... 12,592,808 13,963,993
Unearned compensation.............................. (66,941) (147,281)
Accumulated deficit................................ (8,847,585) (8,112,974)
----------- -----------
3,799,736 5,810,747
Less: 598,100 and 100,000 common shares held in
treasury, at cost, at December 31, 1995 and
1994, respectively............................ (168,395) (75,000)
18,740 preferred shares held in treasury, at cost,
at December 31, 1994............................. -- (890,860)
Notes receivable from officers.................... (834,032) (401,876)
----------- -----------
2,797,309 4,443,011
----------- -----------
$45,226,424 $35,961,644
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
POWER GENERATION REVENUES............... $40,693,465 $30,704,589 $ 1,570,649
----------- ----------- -----------
Costs and expenses:
Operating expenses.................... 16,975,186 16,122,617 1,088,334
Lease expense--Notes A, B and L ...... 23,020,132 10,537,623 --
General and administrative expenses... 3,668,066 2,998,325 1,613,041
Depreciation and amortization--Note
B.................................... 167,333 3,017,766 427,615
----------- ----------- -----------
43,830,717 32,676,331 3,128,990
----------- ----------- -----------
OPERATING LOSS.......................... (3,137,252) (1,971,742) (1,558,341)
----------- ----------- -----------
Other income (expense):
Other income--Note A.................. 1,592,814 5,465,418 600
Interest income....................... 468,626 695,142 161,227
Interest expense--Note I.............. (106,783) (8,829,893) (1,375,625)
Gain on sale of affiliate/project--
Note A............................... -- 3,945,494 --
Minority interest--Note A............. -- 1,866,017 --
Equity in net loss of affiliate....... -- (84,712) --
Realized gain on sale of marketable
debt securities...................... -- -- 1,677,916
----------- ----------- -----------
1,954,657 3,057,466 464,118
----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES....... (1,182,595) 1,085,724 (1,094,223)
INCOME TAX (BENEFIT) EXPENSE--Notes B
and J.................................. (447,984) 415,894 (413,849)
----------- ----------- -----------
NET (LOSS) INCOME....................... $ (734,611) $ 669,830 $ (680,374)
=========== =========== ===========
NET (LOSS) INCOME PER SHARE--Note B..... $ (0.07) $ 0.06 $ (0.11)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED COMMON UNREALIZED NOTES
STOCK STOCK ADDITIONAL LOSS ON RECEIVABLE
($.01 PAR ($.01 PAR PAID-IN MARKETABLE UNEARNED ACCUMULATED TREASURY FROM
VALUE) VALUE) CAPITAL SECURITIES COMPENSATION DEFICIT STOCK OFFICERS
--------- --------- ----------- ---------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1993................... $ 187 $ 76,108 $13,580,847 -- -- $(8,102,430) $(111,742) --
Net Loss............... (680,374)
Exercise of options.... 29,573 383,146 $(401,876)
Purchase of preferred
shares................ (890,860)
Purchase of common
shares................ (214,268)
Issuance of restricted
stock................. 1,141 $(227,621) 251,010
Unrealized losses on
non-current marketable
securities............ $(390,325)
----- -------- ----------- --------- --------- ----------- --------- ---------
BALANCE AT DECEMBER 31,
1993................... 187 106,822 13,963,993 (390,325) (227,621) (8,782,804) (965,860) (401,876)
----- -------- ----------- --------- --------- ----------- --------- ---------
Net Income............. 669,830
Unrealized loss related
to affiliate sold..... 390,325
Amortization of
unearned
compensation--Note K.. 80,340
----- -------- ----------- --------- --------- ----------- --------- ---------
BALANCE AT DECEMBER 31,
1994................... 187 106,822 13,963,993 -- (147,281) (8,112,974) (965,860) (401,876)
----- -------- ----------- --------- --------- ----------- --------- ---------
Net Loss............... (734,611)
Preferred stock
retired............... (187) (890,673) 890,860
Exercise of options.... 14,632 443,274 (432,156)
Purchase of common
shares................ (93,395)
Amortization of
unearned
compensation--Note K.. 80,340
Dividends paid--Note
K..................... (923,786)
----- -------- ----------- --------- --------- ----------- --------- ---------
BALANCE AT DECEMBER 31,
1995................... $ -- $121,454 $12,592,808 $ -- $ (66,941) $(8,847,585) $(168,395) $(834,032)
===== ======== =========== ========= ========= =========== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................... $ (734,611) $ 669,830 $ (680,374)
Adjustments to reconcile net (loss)
income to net cash provided by (used
in) operating activities:
Gain on sale of marketable debt
securities.......................... -- -- (1,677,916)
Depreciation and amortization........ 167,333 3,017,766 427,615
Deferred income taxes................ (547,984) 415,894 (413,849)
Amortization of deferred gain........ (308,411) (154,205) --
Minority interest.................... -- (1,866,017) --
Gain on sale of interest in
affiliate........................... -- (3,945,494) --
Amortization of unearned
compensation........................ 80,340 80,340 --
Equity in net loss of affiliate...... -- 84,712 --
Payment of debt issuance costs....... -- -- (570,705)
Other income......................... (77,982) (5,460,367) 35,358
Accrued power generation revenue..... (9,850,365) (5,311,324) --
Accrued lease expense................ 9,850,365 5,311,324 --
Changes in operating assets and
liabilities:
Increase in receivable from
utility............................ (1,166,408) (4,393,710) --
Decrease (increase) in receivable
from sale of affiliate............. 3,576,956 (3,853,400) --
Increase in notes receivable........ -- (701,272) --
Decrease (increase) in other
current assets..................... 610,151 (2,173,384) (1,333,947)
Increase in accounts payable and
accrued expenses................... 803,436 1,821,548 739,273
Increase in deferred revenue........ 238,993 2,825,972 --
(Decrease) increase in other
current liabilities................ (1,187,668) 1,798,035 1,240,094
Decrease in income taxes payable.... -- -- (168,000)
Increase in maintenance reserve..... 449,429 250,000 --
----------- ------------ ------------
Cash provided by (used in)
operating activities.............. 1,903,574 (11,583,752) (2,402,451)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction of cash as a result of
conversion to equity method of
accounting for investment in
affiliate........................... -- (5,872,438) --
Conversion to equity method of
accounting for investment in
affiliate........................... -- 3,496,675 --
Proceeds from notes receivable....... 312,500 -- --
Purchase of marketable debt
securities.......................... -- -- (10,665,575)
Sale of marketable debt securities... -- -- 9,611,625
Lease rights expenditures............ -- 415,974 (417,689)
Restricted deposits and other
assets.............................. (316,899) 1,098,560 (1,913,417)
Property, plant & equipment
expenditures........................ (66,449) (165,741) (14,640,780)
----------- ------------ ------------
Cash used in investing activities.. (70,848) (1,026,970) (18,025,836)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from tax exempt borrowings
and equity bridge loans............. -- 4,229,336 28,994,286
Payment of secured promissory notes
payable and other borrowings........ (186,000) (327,500) (54,115)
Dividends paid....................... (923,786) -- --
Purchase of treasury stock........... (93,395) -- (203,423)
Proceeds from sale of common stock... 25,750 -- 570
----------- ------------ ------------
Cash (used in) provided by
financing activities.............. (1,177,431) 3,901,836 28,737,318
----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................... 655,295 (8,708,886) 8,309,031
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR.............................. 356,527 9,065,413 756,382
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR................................. $ 1,011,822 $ 356,527 $ 9,065,413
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BUSINESS AND ORGANIZATION
Business: Environmental Power Corporation ("EPC" or the "Company") owns a
22-year leasehold interest in an approximately 85 Mw (net) waste coal-fired
electric generating facility (the "Scrubgrass Project") located in
Pennsylvania, the lease for which commenced on June 30, 1994. Until December
31, 1994, the Company had varying ownership interests (80% to 43%) in, and
oversaw the operation of, an approximately 51 Mw (net) waste coal-fired
electric generating facility located in Utah. Both facilities sell power under
long-term contracts to specified utility companies whose contracts have been
approved by the respective Public Utility Commission. In the case of these two
projects, the Company, either acting alone or in conjunction with others, has
selected and arranged for the acquisition of the site, obtained control over
their waste coal fuel sources, negotiated contracts for the design and
construction of the facilities and the sale of their output to the utilities
purchasing the power, arranged for financing, and negotiated contracts for the
operation and maintenance of the projects. The Company has one additional
project (the "Milesburg Project") in the development stage.
Scrubgrass
The Scrubgrass Project located on a 600 acre site in Venango County,
Pennsylvania, is an approximately 85 Mw (net) waste coal-fired electric
generating station (the "Facility") which has been constructed by Bechtel
Power Corporation. The construction contract provided for a guaranteed net
electrical output of 82.85 Mw. Final completion was achieved by the contractor
in June 1994.
On June 30, 1994, Buzzard Power Corporation ("Buzzard"), a wholly owned
subsidiary of the Company, entered into an agreement to lease the Facility
from Scrubgrass Generating Company, L.P. (the "Lessor"), a joint venture of
PG&E Enterprises, Inc. and Bechtel Enterprises. The lease provides for an
initial term of 22 years with a renewal option for up to 3 years. Pursuant to
the lease, the Lessor assigned to Buzzard all principle project agreements and
its rights and obligations thereunder including, but not limited to, the power
purchase agreement, operations and maintenance agreement, limestone
agreements, ground lease agreements, fuel agreements and transportation and
materials handling agreements. The Company has pledged Buzzard's stock to the
Lessor as security for Buzzard's performance of its obligations as lessee. The
project is managed by U.S. Generating Company, a joint venture of PG&E
Enterprises and Bechtel Enterprises, Inc.
Electric output is being sold to Pennsylvania Electric Company ("PENELEC")
pursuant to a 25-year agreement, which commenced in 1993, at a fixed average
rate of approximately 4.68 cents/Kwh and escalates at 5% per year for the
calendar years' 1994-1999. Commencing in the year 2000 and through 2012, the
agreement provides for a rate equal to the greater of a scheduled rate or a
rate based on the PJM Billing Rate (the monthly average of the hourly rates
for purchases by the General Public Utilities Group ["GPU"] from, or sale by
GPU to, the Pennsylvania-New Jersey-Maryland Interconnection). For the years
2013 through 2015 and 2016 through 2018, if the renewal term option is
exercised, the agreement provides for a rate equal to the lower of the average
monthly PJM Billing Rate or the rate paid for calendar year 2012 adjusted
annually by the percentage change in the Gross National Product Deflator, less
1%. On June 8, 1993, the Facility was declared by PENELEC to have reached
commercial operation.
The Facility is being operated by U.S. Operating Services Company pursuant
to a 15-year Operations and Maintenance Agreement ("O & M"). A budget for all
operational expenses, including a fixed management fee, is approved annually.
Failure to achieve approved annual budgets can result in operator liability
and/or termination of the O & M. The Scrubgrass Project owns or has under
contract sufficient fuel to operate the facility for approximately 25 years.
A Limestone Purchase and Sale Agreement with Quality Aggregates, Inc. has
been entered into to supply the Scrubgrass Project with limestone for an
initial term of five years which, in December 1995, was extended through the
year 2000, and which may be extended up to 15 additional years. The project
also maintains agreements with initial terms of 15 years for the
transportation and handling of fuel, ash and limestone with Savage Industries,
Inc. Costs established under these agreements will escalate at partially fixed
and partially indexed rates.
F-6
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE A--BUSINESS AND ORGANIZATION--(CONTINUED)
All revenues earned by the Scrubgrass Project are deposited into an account
administered by a disbursement agent. Before Buzzard can receive cash
generated by the project, all operating expenses, base lease payments (which
include the Lessor's debt as described below), certain maintenance reserve
payments and other subordinated payments must be satisfied. Buzzard, as
lessee, is required to pay the Lessor, in addition to a specified base rent
consisting of all of the Lessor's debt service and related fees and expenses,
an additional rent of 50 percent of the net cash flows Buzzard receives from
project operations. Buzzard is not required to fund operating losses or
otherwise invest further from financing sources outside the project.
Until December 22, 1995, the Lessor's debt consisted of $135.6 million of
variable rate tax-exempt bonds maturing in 2012, a $20.8 million term loan
maturing in 2005, $4.2 million of demand debt and $2.4 million of junior
subordinated debt maturing in 1999. The Lessor entered into interest rate
swaps which have the effect of fixing the interest rate until May 18, 1996, at
approximately 3.72% on the tax-exempt bonds and over the life of the $20.8
million term loan at 6.42%. After May 18, 1996, the specified base rent will
reflect the effect of floating rates on the Lessor's tax-exempt bonds. On
December 22, 1995, the Lessor restructured certain of its project debt, the
primary effect of which was to extend the term of its demand debt and a
portion of its junior subordinated debt through 2004. As a result of the
Lessor's debt restructuring, Buzzard extended the term of $4 million of
current liabilities through 2004 (See Notes B, E, F and G).
Sunnyside
Sunnyside is an approximately 51 Mw (net) waste coal-fired facility at a
site located adjacent to the Sunnyside Coal Mine in Carbon County, Utah, that
was constructed by Parsons Main, Inc. ("PMI"). The facility reached commercial
operation on November 19, 1993. The project is owned by Sunnyside Cogeneration
Associates ("SCA"), a joint venture in which EPC owned an approximate 70%
interest until September 28, 1994, and thereafter an approximate 40% interest
until December 31, 1994, at which time the Company sold its remaining interest
in SCA.
In connection with the sale, the Company received consideration of $2.79
million in cash on January 5, 1995, and promissory notes aggregating $3.25
million, bearing interest at 10% per annum. Interest is payable to the Company
quarterly and principal of $312,500 was received by the Company on September
30, 1995, principal of $1,187,500 is due December 31, 1996, and the remaining
principal of $1,750,000 is due December 31, 1997. In addition, in 1994, the
Company also recorded a receivable related to a purchase price adjustment, as
provided for in the Purchase and Sale Agreement, of approximately $1.1
million, of which $708,000 was received in April 1995. The remaining
receivable balance is being disputed through litigation with the purchasers.
The Company also retained certain inchoate rights, including potential
refundable sales taxes arising out of activities prior to the date of the
sale. During 1995, the Company received refunds aggregating $1.1 million in
final settlements for all such sales tax refunds, which have been included in
other income in the accompanying statements of operations.
In 1994 as a result of the sale of its interest in SCA, the Company recorded
a gain on the sale of approximately $3.9 million and recognized other income
for management services and interest income aggregating approximately $5.5
million which is included in other income on the accompanying consolidated
statements of operations. The Company had previously earned these management
fees and interest income from services and loans provided to SCA but such
amounts had been eliminated in consolidation prior to the sale.
Milesburg
On April 30, 1987, the Company purchased, for an aggregate purchase price of
$5,400,000, all the outstanding capital stock of Milesburg Energy, Inc.
("MEI"), the Company which controlled the development rights to an existing 43
Mw (net) oil-fired facility, which was retired from service in 1984. In
connection with
F-7
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE A--BUSINESS AND ORGANIZATION--(CONTINUED)
the stock purchase, the Company paid $100,000 in cash and issued promissory
notes totaling $5,120,000 and asubsidiary assumed pre-acquisition MEI
liabilities totaling $180,000. The notes payable, pre-acquisition liabilities
and other liabilities incurred subsequent to the purchase become payable only
under certain conditions, the most significant of which relate to the closing
of construction financing and commencement of construction for the project.
The Company plans to convert or replace this facility to use waste coal. (See
Notes D and H). MEI has executed a 30-year power purchase agreement with West
Penn Power Company ("WPPC") for the sale of all of the facility's electrical
output with a fixed capacity rate component and an additional fluctuating rate
component which is derived from WPPC's avoided energy cost. The power purchase
agreement was approved by the Public Utilities Commission of the State of
Pennsylvania ("PUC") and was subsequently appealed to the Commonwealth Court
of Pennsylvania by certain industrial customers, the Office of the Consumer
Advocate and WPPC. The PUC subsequently ordered the rates contained in the
power purchase agreement to be recalculated due to the later start-up date for
this project necessitated by the delays caused by the appeal. This order has
been appealed by the same litigants through various courts, including the
United States Supreme Court, and upheld in every case in favor of MEI. In
August 1995, the PUC issued a tentative order for final contract rates. The
order has been temporarily stayed by mutual agreement of MEI and WPPC pending
settlement discussions.
In 1990, as a result of the uncertainties related to approval of the power
contract and the rates provided therein and the Company's working capital
position which, at that time, could have prevented it from continuing to fund
development efforts, management provided a reserve of $940,144 against its
investment in the project. However, the Company has continued to invest monies
in an effort to protect its legal and contractual interests and to support its
ability to commence construction in the event of a favorable resolution to the
power purchase agreement. MEI is currently seeking the sale of the project or
partnership of the project with an entity that would provide equity financing
for development and construction. There can be no assurance that MEI will be
successful in selling the project, finding a partner or in further
developmental efforts or that the project will reach commercial operation (See
Notes D, H and I).
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Environmental Power Corporation and its wholly owned and
majority owned subsidiaries. The equity method of accounting had been used for
any subsidiary in which the Company held less than a majority interest. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Flows: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. In
1995, non-cash investing and financing activities include the retirement of
preferred treasury shares ($890,860), the issuance of a non-current obligation
to refinance a trade obligation ($250,000), the issuance of a secured note
payable ($2,435,000) to refinance certain trade obligations ($1,184,662) and
provide restricted cash for plant maintenance ($1,250,338), the exchange of
notes receivable for the purchase of the Company's common stock ($439,156) and
the issuance of notes receivable to refinance accrued interest receivable
($63,228). In 1993, non-cash investing and financing activities include the
issuance of a note payable to the DBL trust for $1,850,000 (discounted value
of $1,608,217) and the Company's purchase of preferred treasury shares
($890,860) and the exchange of a note receivable to purchase common stock of
$10,845.
F-8
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Concentrations of Credit Risk: The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash
equivalents, notes receivable and receivables from utility. The Company's cash
equivalents represent certificates of deposit issued from high quality
financial institutions. Notes receivable represent amounts due from the
acquirers of the Company's interest in the Sunnyside project. The Company
believes these acquirers are credit worthy entities which, to date, have paid
all obligations as they've matured under such notes receivable. Receivable
from Utility represent amounts due from its sole customer PENELEC, a public
utility with a credit rating of A- by Standard & Poors, pursuant to the terms
of the 22 year power purchase agreement.
Restricted Cash: Restricted cash includes all cash held by the disbursement
agent for the Scrubgrass project pursuant to project agreements which require
requisition and/or certification by the Lessor or bank to withdraw (See Note
A).
Property, Plant and Equipment: Property, plant and equipment are stated at
cost less accumulated depreciation. Depreciation of the Sunnyside power
generating facility, which was sold on December 31, 1994, was computed using
the straight-line method over a composite life of 35 years. Significant
renewals and betterments that increase the useful lives of the assets are
capitalized; maintenance and dispositions are recorded in current operations
as incurred. Facility Under Development represents project acquisition costs
and costs incurred during the development stage of the Milesburg project.
Other costs include professional services, salaries and other costs that are
directly related to the Milesburg project. In addition, certain indirect costs
are also allocated to the Milesburg project. If and when the facility becomes
operational, such costs will be amortized over the useful life of the project.
Accumulated costs of development projects may be expensed in the year that it
becomes probable, in management's opinion, that the costs will not be
recovered. Depreciation on office equipment and furniture is computed using
the straight-line method over five years.
Deferred Financing Costs: In 1995, the Company incurred $300,000 in
connection with the restructuring of certain debt related to the Scrubgrass
project. Such costs are being amortized over nine years, the life of the debt
(See Note E). The Company amortized deferred financing costs related to the
Sunnyside project over the terms of the Sunnyside project debt. From November
19, 1993, to September 28, 1994, the date through which SCA was consolidated
into the Company's operations, the Company charged the amortization of such
costs to operations. Until November 19, 1993, the Company capitalized the
amortization of such deferred Sunnyside financing costs in property, plant and
equipment.
Lease Rights: Lease Rights are recorded at cost and are being amortized over
the 22-year lease term related to the Scrubgrass Project. Accumulated
amortization related to the lease rights was $223,534 and $74,529 at December
31, 1995 and 1994, respectively.
Accrued Power Generation Revenue and Accrued Lease Expense: As discussed in
Note A, the Company has entered into a long term agreement, to provide
electricity to PENELEC, which provides for scheduled rate increases. In
accordance with generally accepted accounting principles, revenue has been
recorded on the straight-line basis over the 22-year lease term. The accrual
for power generation revenue is limited to the amount of accrued lease
expense, as described below. Therefore, no amount for the straight-lining of
future revenues, which would result in profits, has been provided for in the
consolidated financial statements. Accrued power generation revenue was
$15,161,689 and $5,311,324 at December 31, 1995 and 1994, respectively, and
represents that portion of revenue earned that has not yet been received.
As discussed in Note A, the Company has entered into a long-term lease
agreement for the Scrubgrass Project which provides for scheduled lease
expense increases. In accordance with generally accepted accounting
principles, lease expense has been recorded on the straight-line basis over
the 22-year lease term. Accrued lease expense was $15,161,689 and $5,311,324
at December 31, 1995 and 1994, respectively, and represents that portion of
lease expense that has not yet been paid.
F-9
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Deferred Gain: The sale of the Scrubgrass Project by the Company on December
28, 1990, was not treated as a sale for financial accounting purposes. This
was originally due to the existence of an option which enabled the Company to
reacquire Buzzard and to lease the project for a substantial portion of its
commercial operation. This option constituted a significant continuing
involvement by the Company which provided evidence that it had retained
substantial risks or rewards of ownership of the project. In December 1993,
the Company agreed to a modification to the proposed form of lease thereby
relinquishing the fair market value purchase option. Accordingly, the Company
removed from the balance sheet the gross assets and liabilities of the
Scrubgrass project and recorded a deferred gain of $6,785,035 arising from the
original sale of the project in 1990. The deferred gain is being amortized
over the 22-year minimum lease term, which commenced on June 30, 1994.
Accumulated amortization of the deferred gain at December 31, 1995 and 1994,
was $462,616 and $154,205, respectively.
Deferred Revenue: Deferred revenue of $3,064,965 and $2,825,972 at December
31, 1995 and 1994, respectively, represents amounts received for power
generation from the Scrubgrass project at rates in excess of forecasted rates
as set forth in the power purchase agreement. The Company defers such revenues
until earned which is expected to occur during 1996.
Maintenance Reserve: The Company records the expense of major equipment
overhauls related to the Scrubgrass Project on a straight-line basis using
management's best estimate of future outlays. Amounts are charged to expense
and are credited to the reserve in anticipation of future outlays for major
overhauls.
Income Taxes: The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This standard requires, among other things, recognition of future tax
benefits, measured by enacted tax rates, attributable to deductible temporary
differences between financial bases of assets and liabilities, and net
operating loss carryforwards to the extent that realization of such benefits
is more likely than not. Deferred income taxes are recognized for temporary
differences between financial statement and income tax bases of assets and
liabilities and net operating loss carryforwards for which the Company expects
income tax benefits will be realized in future years.
Income (loss) Per Share: The Company computes its earnings per common share
using the modified treasury stock method ("modified method") in accordance
with Accounting Principles Board Opinion No. 15. The modified method is used
when the number of shares obtainable upon exercise of outstanding options,
warrants and their equivalents exceed 20% of the Company's outstanding common
stock. Under this method, all options, warrants and their equivalents are
assumed exercised (whether dilutive or antidilutive) with aggregate proceeds
used to purchase up to 20% of the Company's outstanding common stock and the
remainder invested in US government securities. If the combined effect of the
assumed exercise is dilutive, all options, warrants and their equivalents are
included in the computation.
Primary income (loss) per share is computed by dividing net income (loss),
increased by the assumed earnings on US government security purchases, divided
by the weighted average number of shares of Common Stock and dilutive common
stock equivalents outstanding (10,649,161, 11,321,178 and 8,591,564 shares for
the years ended December 31, 1995, 1994 and 1993, respectively).
Shares issuable in connection with stock options and stock purchase warrants
are considered common stock equivalents. Common stock equivalents are
considered dilutive of earnings but not losses for this purpose when the
exercise price is below the average market price of the Company's Common Stock
for the period. The weighted average number of shares outstanding during the
period is increased by the excess of the shares to be issued over the shares
that could have been purchased from the proceeds of the exercise of the stock
options and
F-10
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
warrants using the average market price of the Company's Common Stock during
the period the stock options and warrants are outstanding. For the year ended
December 31, 1995, there were no such common stock equivalents since they were
antidilutive.
Fully diluted income (loss) per share is computed based on the weighted
average number of shares of Common Stock outstanding, dilutive common stock
equivalents outstanding and convertible preferred stock outstanding after
adjustment for the related dividends on preferred stock and the assumed
earnings on US government security purchases (10,649,161, 11,321,178 and
8,591,564 for the years ended December 31, 1995, 1994 and 1993, respectively).
Common stock equivalents are considered dilutive of earnings but not losses
for this purpose when the exercise price is below the higher of the market
price of the Company's Common Stock at the end of the period or the average
price of the Company's Common Stock for the period. The closing market price
of the Company's Common Stock on December 31, 1995 was $.31.
Recently Issued Accounting Standards: In March 1995, the FASB issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." This standard is effective for the Company's
financial statements beginning in 1996. SFAS No. 121 establishes the
accounting for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. In
the opinion of the Company's management, it is not anticipated that the
adoption of SFAS No. 121 will have a material effect on the financial position
or results of operations of the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995, and adoption of the
measurement and recognition provisions for nonemployee transactions no later
than after December 15, 1995. The new standard defines a fair value method of
accounting for the issuance of stock options and other equity instruments.
Under the fair value method, compensation is measured at the grant date based
on the fair value of the award and is recognized over the service period,
which is usually the vesting period. Pursuant to SFAS No. 123, companies are
encouraged, but not required, to adopt the fair value method of accounting for
employee stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," but would be required to
disclose in a note to the financial statements pro forma net income and per
share amounts as if the company had applied the new method of accounting. SFAS
No. 123 also requires increased disclosures for stock-based compensation
arrangements regardless of the method chosen to measure and recognize
compensation for employee stock-based arrangements. The Company has not yet
determined if it will elect to change to the fair value method, nor has it
determined the effect the new standard will have on its financial position or
operating results and per share results should it elect to make such a change.
Reclassification: Certain amounts in 1994 and 1993 have been reclassified to
conform with the current period presentation.
F-11
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--OTHER CURRENT ASSETS
At December 31, 1995 and 1994, other current assets consist of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Interest receivable.................................. $ 139,319 --
Construction management and overhead receivable...... -- $ 688,601
Prepaid expenses..................................... 380,138 397,363
Note receivable and accrued interest due from
officer............................................. 103,612 98,482
Fuel inventory....................................... 484,991 588,066
Deposits............................................. 4,092 13,019
---------- ----------
$1,112,152 $1,785,531
========== ==========
</TABLE>
NOTE D--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated
depreciation and consists of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Power generating facilities:
Facility Under Development--Milesburg............ $7,981,987 $7,910,584
Less Reserve for Non-recovery of Costs--
Milesburg....................................... (940,144) (940,144)
---------- ----------
7,041,843 6,970,440
---------- ----------
Office:
Equipment and furniture.......................... 92,009 216,382
Less accumulated depreciation.................... 57,945 160,018
---------- ----------
34,064 56,364
---------- ----------
$7,075,907 $7,026,804
========== ==========
</TABLE>
Salary costs of certain employees capitalized as part of project costs in
1994 above amounted to approximately $32,740. Certain other indirect costs
also capitalized as part of project costs above amounted to approximately
$124,437 in 1994. These costs were allocated to the projects based on the
relationship of direct salary costs to total salary costs. There were no such
costs capitalized in 1995.
NOTE E--OTHER ASSETS
Other assets consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Scrubgrass project receivables............................. $261,311 $244,412
Deferred financing costs--Note B........................... 300,000 --
Hamilton investment........................................ 100,000 175,000
-------- --------
$661,311 $419,412
======== ========
</TABLE>
Scrubgrass project receivables represent deposits in connection with fuel
reserves under long-term leases.
F-12
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--OTHER ASSETS--(CONTINUED)
Hamilton investment represents an investment in the stock of Hamilton
Technologies, Inc. ("Hamilton"), a privately held Massachusetts developer of
computer aided software engineering (CASE) software. In 1994 the Company
provided a reserve against its investment of $75,000. In 1995 the Company
increased the reserve to $150,000.
NOTE F--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Accounts payable....................................... $3,437,670 $4,807,106
Accrued expenses....................................... 2,900,490 2,162,280
---------- ----------
$6,338,160 $6,969,386
========== ==========
</TABLE>
Accounts payable at December 31, 1995 and 1994 includes $2,505,085 and
$2,805,844, respectively, which are related to Scrubgrass project operations.
Accrued expenses at December 31, 1995 and 1994 includes $2,672,912 and
$2,021,066, respectively, which are related to Scrubgrass project operations.
NOTE G--OTHER CURRENT LIABILITIES
Other current liabilities consist of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Scrubgrass note payable................................ $ 300,000 --
DBL note payable....................................... -- $1,475,000
Scrubgrass working capital loan........................ 1,628,143 1,607,811
Other.................................................. 370,543 477,040
---------- ----------
$2,298,686 $3,559,851
========== ==========
</TABLE>
The Scrubgrass note payable represents the current portion of an obligation
related to the Scrubgrass project (See Note H).
The DBL note payable represents the current portion of a non-interest
bearing note payable to the DBL Liquidating Trust (See Note K).
The Scrubgrass project working capital loan represents borrowings under a
working capital loan agreement. In 1994, Buzzard entered into a Lessee Working
Capital Loan Agreement with the Lessor whereby the Lessor has provided Buzzard
with a $4 million line of credit for seasonal working capital requirements for
the Scrubgrass project.
F-13
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--SECURED PROMISSORY NOTES PAYABLE AND OTHER BORROWINGS
Secured promissory notes payable and other borrowings at December 31, 1995
and 1994, consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Milesburg borrowings................................... $5,858,767 $5,858,768
Scrubgrass notes payable............................... 2,435,000 --
Other.................................................. 250,000 112,502
---------- ----------
$8,543,767 $5,971,270
========== ==========
</TABLE>
The Milesburg borrowings are noninterest-bearing and payable only under
certain conditions, the most significant of which relates to the closing of
construction financing and commencement of construction for the Milesburg
project. Borrowings of $5,120,000 are collateralized by all of the common
stock of MEI (See Note A).
The Scrubgrass notes payable represent the non-current portion of an
obligation related to the Scrubgrass project (See Note G).
Other borrowings represent selling expenses incurred in connection with the
sale of the Sunnyside project which are payable upon receipt of the principal
proceeds from the notes receivable which become due December 31, 1997 (See
Note A).
NOTE I--INTEREST CAPITALIZED
Interest costs for the years ended December 31, 1995, 1994, and 1993 consist
of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ---------- ----------
<S> <C> <C> <C>
Total interest costs incurred............... $119,696 $8,850,266 $8,380,791
Amount included in operations............... 106,783 8,829,893 1,375,625
-------- ---------- ----------
Amounts capitalized in development and
construction of projects................... $ 12,913 $ 20,373 $7,005,166
======== ========== ==========
</TABLE>
Interest costs incurred for 1993 are net of interest earnings of $3,032,767
on unexpended Sunnyside construction funds held by the trustee.
Total interest paid during the years ended December 31, 1995, 1994 and 1993
amounted to $111,913, $11,109,122 and $11,047,106, respectively.
Interest costs incurred for 1994 and 1995 do not include debt service
included in lease expense related to the Scrubgrass project.
NOTE J--INCOME TAXES
The income tax (benefit) expense for the years ended December 31, 1995, 1994
and 1993 consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Current:
Federal..................................... $100,000 -- --
Deferred:
Federal..................................... (477,175) $350,227 $(348,435)
State....................................... (70,809) 65,667 (65,414)
--------- -------- ---------
$(447,984) $415,894 $(413,849)
========= ======== =========
</TABLE>
F-14
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--INCOME TAXES--(CONTINUED)
A reconciliation between the actual income tax (benefit) expense and the
income tax (benefit) expense computed by applying the statutory federal income
tax rate to the (loss) income before income taxes for the years ended December
31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Federal tax (benefit) expense at 34%........ $(402,082) $368,880 $(372,035)
State tax (benefit) expense, net of federal
tax........................................ (46,734) 43,340 (43,331)
Nondeductible portion of meals and
entertainment.............................. 832 3,674 1,517
--------- -------- ---------
$(447,984) $415,894 $(413,849)
========= ======== =========
</TABLE>
At December 31, 1995 and 1994, the components of the net deferred income tax
asset are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued lease expense............................... $5,757,502 $2,018,303
Accrued expenses.................................... 322,572 123,501
Deferred tax effect of the sale of the Scrubgrass
project for which the gain was deferred for
financial reporting purposes....................... 918,578 1,303,793
Federal and state net operating loss carryforwards.. 3,748,800 4,720,079
Federal alternative minimum tax credit
carryforwards...................................... 137,390 37,390
Deferred compensation............................... 70,548 --
Reserve for non-recovery of certain project costs
not currently deductible for income tax purposes... 435,908 435,908
Deferred revenue.................................... 1,164,591 1,073,870
---------- ----------
12,555,889 9,712,844
---------- ----------
Deferred tax liabilities:
Accrued power generation revenue.................... 5,757,502 2,108,303
Installment sale--Sunnyside......................... 1,255,158 2,699,296
---------- ----------
7,012,660 4,717,599
---------- ----------
Deferred income tax asset--net...................... $5,543,229 $4,995,245
========== ==========
</TABLE>
The Company's net operating loss carryforwards of $9,737,591 expire between
2003 and 2010. The Company's alternative minimum tax credit carryforwards do
not expire and can be credited against future regular taxes to the extent they
exceed alternative minimum taxes. Of the Company's two major development
projects, Sunnyside was sold on December 31, 1994, and Scrubgrass became fully
operational on June 30, 1994, at which time the Company commenced leasing the
project (See Note A). Management believes that it is more likely than not that
future income resulting from operations of the Scrubgrass project will be
sufficient to realize the recorded tax benefits resulting from the Company's
net operating loss carryforwards and reversing temporary differences.
Alternatively, management believes that the Company could implement tax
planning strategies, including the sale or disposition of its lease rights to
the Scrubgrass project to generate sufficient income to realize the recorded
tax benefits. For these reasons, the Company has not recorded a valuation
allowance against its deferred tax asset balance as of December 31, 1995 and
1994.
NOTE K--SHAREHOLDERS' EQUITY
Under the Company's 1986 and 1990 Stock Plans and 1993 Director Plan, the
Company reserved 5,020,540 shares of common stock for issuance upon exercise
of outstanding options in connection with awards or direct
F-15
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K--SHAREHOLDERS' EQUITY--(CONTINUED)
purchases of stock. The Company also reserved 375,000 shares for issuance upon
exercise of outstanding options granted outside of such plans. Options granted
under these plans were intended to constitute incentive stock options under
the Internal Revenue Code of 1986 or non-qualified options principally at an
option price of 100 percent of the fair market value of the common stock on
the date of the grant (110 percent of the fair market value in the case
officers or other employees holding 10% or more of the Company's common stock
for the 1990 plan). All options are fully vested. Options expire on the 10th
anniversary from the date of the grant. At December 31, 1995, options for all
of the stock reserved under the 1986 and 1990 plans have been granted. Of the
500,000 options under the 1993 Director Plan, 435,000 remain available for
grant.
Stock option transactions during 1995, and 1994 are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
SHARES PRICE
---------- -----------
<S> <C> <C>
Balance at January 1, 1994.......................... 1,963,244 $.125- .625
Options granted..................................... 60,000 .5625
---------- -----------
Balance at December 31, 1994........................ 2,023,444 .125- .625
Options granted..................................... 30,000 .25-.4375
Options canceled.................................... (250,000) .5625
Options exercised................................... (1,463,244) .125- .625
---------- -----------
Balance at December 31, 1995........................ 340,000 $ .14-.5625
========== ===========
</TABLE>
During 1992, the Company authorized a program to purchase shares or certain
warrants for its outstanding Common Stock through market or other
transactions. As of December 31, 1995, the Company has purchased 988,356
shares, including 498,100 shares purchased during 1995, and warrants to
purchase 600,000 shares for an aggregate of $569,404 at an average price of
$.36 per share.
During 1993 the Company issued 594,356 shares of restricted common stock to
executive officers. The shares are subject to a three-year vesting period
based upon continued employment through November 1996. Unearned compensation
has been charged for the market value of the restricted common stock when
shares were issued. The unearned compensation is amortized ratably over the
restricted period. The unamortized compensation value is $66,941 at December
31, 1995 and 1994. During 1995 and 1994, $80,340 of unearned compensation was
amortized and recorded in the respective statements of operations.
Notes receivable from officers for shares purchased in connection with the
1990 Stock Plan amounted to $834,032 and $401,876 at December 31, 1995 and
1994, respectively, and are classified as a deduction from shareholders'
equity. The notes bear interest at a floating rate, payable monthly, and
principal is payable upon demand by the Company.
In March 1996, the Company purchased 520,540 shares of common stock from a
resigning executive officer for $287,876 representing all of the officer's
holdings in the Company. The Company's note receivable from the officer in the
amount of $72,876 was deducted from the purchase price.
Pursuant to an agreement with Drexel Burnham Lambert Incorporated ("Drexel")
dated January 26, 1990, the Company issued to Drexel 18,740 shares of non-
voting Series A Convertible Preferred Stock, $.01 par value per share (the
Preferred Stock). The Preferred Stock was convertible into common stock at a
ratio of 1:181 and had a liquidation value of $1,874,000. Dividends on the
Preferred Stock accrued at a rate of 14% per annum (total of $1,030,812 at
December 31, 1993) and were payable either in cash out of funds legally
available therefore or, at the option of the Company, in additional shares of
Preferred Stock. On January 24, 1994, the Company entered into an agreement
with Drexel's successor, The DBL Liquidating Trust ("The Trust") under which
the Company acquired the Preferred Stock.
F-16
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the agreement the Company acquired the Trust's rights to all of its
Preferred Stock. In addition, the Company was not required to pay dividends
accrued on such Preferred Stock. The agreement also provided that the Company
pay the Trust an aggregate of $1,850,000 over 30 monthly installments
beginning January 1994. During 1994, the Company made monthly installments
aggregating $300,000. On December 31, 1994, the parties agreed to settle the
remaining outstanding obligation for $1,475,000 which was paid on January 5,
1995 and at which time the Preferred Stock was retired (See Note G).
In December 1995, the Company declared and paid a dividend to the
shareholders of its common stock at the rate of $.08 per share totalling
$923,786. On March 4, 1996, the Company declared a first quarter dividend of
$.03 per share.
NOTE L--COMMITMENTS
Corporate
The Company is obligated to make payments under various operating leases for
office space and automotive vehicles. The Company is also obligated under
leases or other agreements relating to the Scrubgrass project (see Note A).
Future minimum payments due under non-cancelable leases in effect at
December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996................................. $41,385
1997................................. 26,063
1998................................. 21,510
1999................................. 1,500
-------
Total.............................. $90,458
=======
</TABLE>
Rent expense totaled $70,722, $56,397 and $74,771 in 1995, 1994 and 1993,
respectively.
Scrubgrass Project
Pursuant to the lease agreement for the Scrubgrass Project the Company is
obligated to make estimated minimum lease payments at December 31, 1995, over
the remaining 20.5 year base term of the lease as follows:
<TABLE>
<S> <C>
1996............................ $ 12,237,000
1997............................ 12,618,000
1998............................ 13,544,000
1999............................ 13,799,000
2000............................ 14,523,000
Thereafter...................... 385,916,000
------------
Total........................... $452,637,000
============
</TABLE>
Lease expense in 1995 and 1994 was $23,020,132 and $10,537,623,
respectively.
F-17
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE L--COMMITMENTS--(CONTINUED)
In addition, the Company has been assigned various long-term noncancelable
obligations under contractual agreements for fuel handling and excavation,
limestone supply, and waste disposal. The contractual terms are generally for
5 to 15 years and provide for renewal options.
Future minimum payments due under these noncancelable obligations at
December 31, 1995, are as follows: (See Notes A and F).
<TABLE>
<S> <C>
1996.............................. $ 703,000
1997.............................. 731,000
1998.............................. 760,000
1999.............................. 790,000
2000.............................. 821,000
Thereafter........................ 2,438,000
----------
Total............................. $6,243,000
==========
</TABLE>
NOTE M--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The carrying amount and the estimated fair value of financial instruments is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents........................ $ 1,011,822 $ 1,011,822
Other current assets............................. 10,848,531 10,848,531
Notes receivable................................. 1,868,409 1,868,409
Other assets..................................... 15,823,000 15,723,000
Liabilities:
Accounts payable and accrued expenses............ 6,338,160 6,338,160
Other current liabilities........................ 2,298,686 2,298,686
Long-term debt:
Secured promissory notes payable and other
borrowing....................................... 8,543,767 8,543,767
Other liabilities................................ 15,161,689 15,161,689
</TABLE>
F-18
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE M--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
The carrying amount and the estimated fair value of financial instruments is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents........................ $ 356,527 $ 356,527
Other current assets............................. 11,384,637 11,384,637
Notes receivable................................. 3,263,164 3,263,164
Other assets..................................... 5,730,736 5,555,736
Liabilities:
Accounts payable and accrued expenses............ 6,969,386 6,969,386
Other current liabilities........................ 3,559,851 3,559,851
Long-term debt:
Secured promissory notes payable and other
borrowing....................................... 5,971,270 5,971,270
Other liabilities................................ 5,311,324 5,311,324
</TABLE>
F-19
<PAGE>
EXECUTION COPY
APPENDIX I
TO THE
AMENDED AND RESTATED PARTICIPATION AGREEMENT
AGREED DEFINITIONS
Capitalized terms used in the Transaction Documents shall, unless the
context otherwise requires or they are otherwise defined therein, have the
meanings set forth herein. All references herein to any agreements shall be to
such agreement as amended or modified to the date of reference and include all
schedules and exhibits attached thereto and all parties include permitted
successors and assigns. All references to a particular entity shall include a
reference to such entity's successors and permitted assigns. Except as
otherwise required by the context, such definitions shall be equally
applicable to the singular or plural forms of the terms defined. All
references to a law shall include any amendment or modification to such law.
"Abandonment" shall mean:
(a) the cessation of operation of the Project pursuant to the decision of
Lessor (such Abandonment shall be deemed to occur either upon receipt by
Agent of notice from Lessor of such decision or upon the date specified in
such notice, such date to be no later than one month after such decision);
or
(b) the cessation of operation of the Project for a continuous period of
at least 120 days; provided that (i) an Abandonment shall not be deemed to
have occurred if such cessation is caused by an Event of Force Majeure so
long as (A) Lessor is making a good faith effort (1) to correct the causes
of such cessation and intends in good faith to continue with the operation
of the Project or (2) to collect proceeds of insurance or of a governmental
taking and (B) Lessor notifies Agent in writing during such 120-day period
and within each 60-day period thereafter during which such cessation
continues that such cessation has occurred and is continuing, which notice
shall state that Lessor is making a good faith effort described in the
preceding clause (A) and shall describe such effort, and (ii)
notwithstanding compliance with the preceding clause (i), an Abandonment
shall be deemed to occur upon notice from Agent to Lessor given not earlier
than 90 days after the date of receipt by the Disbursement Agent of
proceeds of insurance or of a governmental taking in respect of such Event
of Force Majeure if operation of the Project has not resumed by the date of
delivery of such notice to the Lessor or if Lessor is not using such
proceeds to prosecute diligently the repair or restoration of the Project.
"Accounts" shall mean the Lessee Accounts and the Lessor Accounts.
"Additional Contract" shall mean any material contract or undertaking to
which Lessor or Lessee is a party or of which it is a beneficiary providing
for (i) the sale or exchange by Lessor or Lessee of any of the Facility's
electrical output or (ii) relating in any way to the Facility or the Site
(including, without limitation, the acquisition of Fuel), which contract or
undertaking is entered into after the Closing Date, including without
limitation, any contracts or agreements referred to in any Principal Project
Agreement.
"Additional Rent" shall have the meaning attributed thereto in Section
3.01(b) of the Amended and Restated Lease.
"Additional Rent Percentage" shall mean 50%.
"Advance Payment" shall mean the amount set forth in the Advance Payment
Certificate.
"Advance Payment Certificate" shall mean a duly executed and completed
certificate in the form of Exhibit 5.02(b) of the Amended and Restated
Disbursement Agreement.
1
<PAGE>
"Affiliate" shall mean, with respect to any designated Person, each Person
that, directly or indirectly, controls or is controlled by or is under common
control with such designated Person and, without limiting the generality of
the foregoing, shall include (a) any Person that beneficially owns or holds 5%
or more of any class of voting securities of such designated Person or 5% or
more of the equity interest in such designated Person and (b) any Person of
which such designated Person beneficially owns or holds 5% or more of any
class of voting securities or in which such designated Person beneficially
owns or holds 5% or more of the equity interest. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or
otherwise.
"After Tax Basis" shall mean, with respect to any payment received or deemed
to have been received by any Person, the amount of such payment supplemented
by a further payment to such Person so that the sum of the two payments shall,
after deducting all Taxes and other charges, payable by reason of the receipt
or accrual of such payments (taking into account any permanent credits and
current deductions actually arising therefrom) computed at the highest Federal
and state marginal statutory tax rates in effect at the time that the payment
is made or accrued, be equal to the amount which is to be received on an
after-tax basis.
"Agent" shall mean the "Agent" as defined in the preamble to the Amended and
Restated Reimbursement Agreement.
"Agent Default Notice" shall mean a duly executed and completed notice in
the form of Exhibit 11.01(a)(1) to the Amended and Restated Disbursement
Agreement.
"Agent Post Default Disbursement Certificate" shall mean a duly executed and
completed certificate in the form of Exhibit 11.01(a)(3) to the Amended and
Restated Disbursement Agreement.
"Agent Release Notice" shall mean a duly executed and completed notice in
the form of Exhibit 5.02(d)(1) to the Amended and Restated Disbursement
Agreement.
"Alteration" shall mean any accessory, equipment or device affixed to or
installed in, or any alteration, improvement, upgrade, modification or
addition to, the Facility not originally incorporated in the Facility during
the construction thereof, except for any such alteration, improvement,
modification or addition effected pursuant to the Transmission Line EPC
Contract, the Facility EPC Contract, or any vendor warranty.
"Amended and Restated Collateral Assignments of Partnership Interests" shall
have the meaning set forth in the Amended and Restated Reimbursement
Agreement.
"Amended and Restated Disbursement Agreement" shall mean the Amended and
Restated Disbursement and Security Agreement, dated December 22, 1995, by and
among Lessor, Lessee, the Disbursement Agent and Agent.
"Amended and Restated Lease" shall mean the Amended and Restated Lease
Agreement, dated December 22, 1995, by and between Lessor and Lessee.
"Amended and Restated Lessee Working Capital Loan Agreement" shall mean the
Amended and Restated Lessee Working Capital Loan Agreement, dated December 22,
1995, by and between Lessee and Lessor.
"Amended and Restated Participation Agreement" shall mean the Amended and
Restated Participation Agreement, dated December 22, 1995, by and among Agent,
Lessor, Lessee, the Bond Trustee, EPC and the Disbursement Agent.
"Amended and Restated Reimbursement Agreement" shall mean the Amended and
Restated Reimbursement and Loan Agreement, dated December 22, 1995, by and
among the Borrower, NatWest, the Agent and the Banks listed on Schedule I
thereto.
2
<PAGE>
"Amortization Account" shall mean the Amortization Account established
pursuant to Section 2.02(b) of the Amended and Restated Disbursement
Agreement.
"Amortization Sub-Account" shall mean the Amortization Sub-Account
established pursuant to Section 2.02(b) of the Amended and Restated
Disbursement Agreement.
"Amortization Sub-Account Disbursement Certificate" shall mean a duly
executed and completed certificate in the form of Exhibit 21.02(a) to the
Amended and Restated Disbursement Agreement.
"Applicable Rate" shall mean, for any period, (i) with respect to amounts
due pursuant to the Amended and Restated Reimbursement Agreement, Basic Rent
(Principal) and the debt portion of Stipulated Loss Value a per annum rate
equal to the respective rate of interest applicable during such period to the
Senior Debt and (ii) with respect to Basic Rent (Equity) and the equity
portion of Stipulated Loss Value, shall mean 17% (on an After Tax Basis).
"Appraisal Procedure" means the following procedure for determining any
amount in dispute under the Amended and Restated Lease:
(i) Lessor and Lessee shall attempt to agree upon a single appraiser, but
failing agreement within 20 days, each of Lessor and Lessee shall nominate
an appraiser and the two appraisers shall nominate a third appraiser (but
failing agreement, a third appraiser shall be appointed by the American
Arbitration Association). If a single appraiser is appointed, he shall
determine the applicable value which shall be binding on Lessor and Lessee,
and the costs of such appraiser shall be shared by Lessor and Lessee
equally. If three appraisers are appointed, the three appraised values
shall be mathematically averaged and the two appraised values closest to
such mathematical average shall then be mathematically averaged and such
two appraisal mathematical average shall be binding on Lessor and Lessee.
Lessor and Lessee shall each bear the cost of their own appraisals and
share equally the cost of the third appraisal.
(ii) If either party fails to appoint an appraiser within the time
required, the determination of the appraiser appointed by the other party
shall be final.
(iii) All appraisers appointed under this Appraisal Procedure shall be
experienced in the appraisal of electric generating facilities; provided
that any such appraiser used with respect to any appraisal regarding only
the Site may be an independent appraiser experienced in the appraisal of
industrial sites.
"Asbestos" shall have the meaning provided under any relevant Environmental
Laws and shall include, without limitation, asbestos fibers and friable
asbestos, as such terms are defined under the relevant Environmental Laws.
"Assigned Documents" shall have the meaning set forth in the Project
Mortgage.
"Assigned Rights" shall have the meaning set forth in Section 11.2(a)(i) of
the Amended and Restated Participation Agreement.
"Assignment of Power Purchase Agreement" shall mean the Assignment of Power
Purchase Agreement, dated as of December 15, 1990, between SPC and Lessor.
"Assumed Tax Consequences" shall have the meaning set forth in Section I of
the Tax Indemnity Agreement.
"Authority" shall mean the Venango County Industrial Development Authority.
"Authorized Officer" of any Person shall mean the authorized representative
of such Person responsible for its financial affairs or, in his or her
absence, the chief operating officer of such Person.
"Available Cash Flow Account" shall mean the Available Cash Flow Account
established pursuant to Section 2.03(c) of the Amended and Restated
Disbursement Agreement.
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"Bank Parties" shall mean the Disbursement Agent, Agent, the Bond LOC
Issuer, the Contract LOC Issuer and the Banks.
"Bankruptcy Law" shall mean Title 11, United States Code, and any other
Federal or state insolvency, reorganization, moratorium or similar law for the
relief of debtors.
"Banks" shall have the meaning set forth in the preamble to the Amended and
Restated Reimbursement Agreement.
"Base Rate" shall mean, at any time, the higher of the Prime Rate or the
Federal Funds Rate. Each change in any interest rate provided for in the
Transaction Documents based upon the Base Rate resulting from a change in the
Prime Rate or the Federal Funds Rate shall take effect automatically and
without necessity of further action by any Person at the time of such change
in the Prime Rate or the Federal Funds Rate, as the case may be.
"Basic Rent" shall mean, with respect to any Rent Payment Date or any other
date on which Basic Rent (Interest) is due, the Basic Rent (Equity), the Basic
Rent (Interest) and the Basic Rent (Principal), if any, due on such date.
"Basic Rent (Equity)" shall mean that portion of each installment of Basic
Rent set forth on Schedule I to the Amended and Restated Lease for such
category.
"Basic Rent (Interest)" shall mean that portion of each installment of Basic
Rent which provides for the payment of interest due on the Senior Debt on any
payment date.
"Basic Rent (Principal)" shall mean that portion of each installment of
Basic Rent set forth on Schedule I to the Amended and Restated Lease for such
category, which provides for principal payments due with respect to the Senior
Debt (except the Working Capital Loans) on the applicable payment date as such
amount may be increased or decreased in accordance with Section 3.01(a)(ii) of
the Amended and Restated Lease.
"Basic Term" shall mean, with respect to the Amended and Restated Lease, the
period commencing on the Lease Commencement Date, and ending on the twenty-
second anniversary of the Lease Commencement Date, subject to earlier
termination and renewal pursuant to the terms of the Amended and Restated
Lease.
"Bechtel Power" means Bechtel Power Corporation, a Nevada corporation.
"Bond Documents" shall mean the collective reference to the Bonds, the Bond
Purchase Agreement, the Indenture, the Installment Sale Agreement, the
Remarketing Agreement, the Installment Sale Agreement Assignment and all other
documents and instruments executed and delivered pursuant to or in connection
with any of the foregoing.
"Bond Issuer" shall mean the Venango County Development Authority, a public
instrumentality of the Commonwealth of Pennsylvania.
"Bond Issuer Fees" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Bond Letter of Credit" shall mean an irrevocable letter of credit issued by
the Bond LOC Issuer substantially in the form of Exhibit B to the Amended and
Restated Reimbursement Agreement, including any increase in the amount thereof
or additional letter of credit made or issued pursuant to Section 2.01 of the
Amended and Restated Reimbursement Agreement.
"Bond LOC Issuer" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Bond Pledge Agreement" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
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"Bond Purchase Agreement" shall have the meaning set forth in the Amended
and Restated Reimbursement Agreement.
"Bond Trustee" shall mean Bankers Trust Company, as trustee under the
Indenture, and its successors and assigns in such capacity appointed in the
manner provided in the Indenture.
"Bonds" shall mean the Bond Issuer's Resource Recovery Revenue Bonds,
Scrubgrass Partnership Project, Series 1990A and 1990B, and any additional
bonds issued pursuant to the Indenture.
"Borrower" shall mean Lessor in its capacity as borrower under the Loan
Documents.
"Borrower Environmental Liability Reserve Account" shall mean the Borrower
Environmental Liability Reserve Account established pursuant to Section
2.02(f) of the Amended and Restated Disbursement Agreement.
"Borrowing" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Business Day" shall mean any day on which commercial banks located in
cities in which the principal offices of the Disbursement Agent, Agent, the
Bond Trustee and the Remarketing Agent are located are not authorized or
required to close and, if such day relates to a borrowing of, a payment or
prepayment of or a Conversion of or into, or an Interest Period for, a
Eurodollar Rate Loan or a notice by Agent with respect to any such borrowing
payment, prepayment, Conversion or Interest Period, which day is also a day on
which dealings in Dollar deposits are carried out in the London interbank
market.
"Buzzard Stock Pledge Agreement" shall have the meaning set forth in the
Amended and Restated Reimbursement Agreement.
"Calculation Date" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Capital Lease" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Claims" shall mean all losses, claims, damages or liabilities (including
legal fees and costs of investigation and defense thereof), joint or several.
"Closing Date" shall mean December 28, 1990.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean the property and interests pledged to Agent or
Disbursement Agent for the benefit of the Bank Parties pursuant to the
Security Documents.
"Consents" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Construction Account" shall mean the Construction Account established
pursuant to Section 2.02(a) of the Amended and Restated Disbursement
Agreement.
"Contingent Obligation" of any Person, shall mean (a) the undrawn face
amount of all letters of credit issued for the account of such Person and (b)
any obligation of such Person guaranteeing or in effect guaranteeing any Debt,
leases, dividends, letters of credit or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any obligation
of such Person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (A) for the purchase or payment of any such
primary obligation or (B) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or
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services primarily for the purpose of assuring the obligee under any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the
obligee under such primary obligation against loss in respect thereof;
provided that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business.
"Contract Letter of Credit" shall mean an irrevocable letter of credit
issued by the Contract LOC Issuer substantially in the form of Exhibit C to
the Amended and Restated Reimbursement Agreement for the benefit of the Power
Purchaser.
"Contract LOC Issuer" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Contractual Obligation" shall mean, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking
to which such Person is a party or by which it or any of its property is
bound.
"Conversion" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Conversion Date" shall mean June 30, 1994.
"Custodian" shall mean any receiver, trustee, debtor in possession,
assignee, custodian, liquidator or similar official under any Bankruptcy Law.
"Damage" shall mean loss, loss of use, permanent failure to function in
accordance with the Facility design as set forth in the Facility EPC Contract
or the Transmission Line EPC Contract, wearing out, destruction, condemnation,
transfer in lieu of condemnation, confiscation, theft, seizure or requisition
of use or title, excluding, however, any such occurrence which does not cause
any diminution in the value, utility or useful life of the Project or any
impairment of the Qualifying Facility status of the Facility or of the
interests of Lessor, or the Bank Parties.
"Date of Issuance" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Debt" of any Person, shall mean (a) indebtedness for borrowed money or the
deferred purchase price of property or services (excluding obligations under
agreements for the purchase of goods and services in the normal course of
business that are not more than 30 days past due, but including obligations
under agreements relating to the issuance of performance letters of credit or
acceptance financing), (b) obligations as lessee under Capital Leases; (c)
Contingent Obligations, in each case of such Person, and (d) obligations under
any agreement providing for a swap, ceiling and/or floor rate, contingent
participation or other hedging mechanism with respect to any Debt of such
Person.
"Debt Service" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Debt Service Coverage Ratio" shall have the meaning set forth in the
Amended and Restated Reimbursement Agreement.
"Debt Service Loans" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Default" when used in, or with reference to, any agreement without other
reference, shall mean any event that, with the giving of notice or lapse of
time, or both, would, unless cured or waived, become an Event of Default under
such agreement.
"Default Notice Withdrawal" shall mean a duly executed and completed notice
in the form of Exhibit 11.01(a)(2) to the Amended and Restated Disbursement
Agreement.
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"Default Rate" shall mean, at any time, (a) with respect to amounts due
under the Amended and Restated Reimbursement Agreement, Basic Rent (Principal)
and the debt portion of Stipulated Loss Value, an interest rate per annum
equal to the lesser of the Base Rate plus two percent (2%) or the highest rate
permitted by any Requirement of Law, (b) with respect to amounts due under the
Amended and Restated Lease as Basic Rent (Equity) and the equity portion of
Stipulated Loss Value, shall be 19% (on an After Tax Basis) and (c) with
respect to amounts due under any other Transaction Document, an interest rate
per annum equal to the lesser of the Base Rate plus two percent (2%) or the
highest rate permitted by any Requirement of Law.
"Determination Date" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Disbursement Agent" shall mean Bankers Trust Company, in its capacity as
disbursement agent under the Amended and Restated Disbursement Agreement,
together with its successors and permitted assigns in such capacity.
"Disbursement Certificate" shall mean a duly executed and completed
certificate in the form of Exhibit 5.02(a)(1) to the Amended and Restated
Disbursement Agreement.
"Distributions" shall mean, with respect to any Person, the declaration or
payment of any dividend or the making of any other distribution of any nature
(whether in cash, property, securities or otherwise) to its shareholders,
partners or the holders of any equity interest in such Person, or the
redemption, retirement, purchase or other acquisition directly or indirectly,
for a consideration, of any shares of any class of its capital stock or of any
partnership or other equity interest now or hereafter outstanding or the
setting aside of any funds for any of the foregoing purposes.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Easements" shall mean such easements, if any, required to provide to Lessor
or Lessee and their respective agents and employees access to the Site, the
Facility, water, transportation, utilities and other services necessary for
the construction, operation and maintenance of the Facility or the delivery of
electricity to the Power Purchaser.
"East Bay" shall mean East Bay Model Engineer's Society, a California
corporation.
"East Bay Stock Pledge Agreement" shall have the meaning set forth in the
Amended and Restated Reimbursement Agreement.
"Economic Return" shall mean with respect to any Partner, its anticipated
effective after-tax economic yield (calculated using the multiple investment
sinking fund analysis) and total after-tax cash flow.
"Effective Date" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Effective Date Projections" shall mean the projections of operating results
for the Project delivered to the Agent on the Effective Date, as the same may
be amended in accordance with the Amended and Restated Reimbursement
Agreement.
"Eminent Domain Proceeds" shall have the meaning ascribed thereto in Section
10.13 of the Amended and Restated Reimbursement Agreement.
"Employee Benefit Plan" shall mean a "plan" as such term is defined in
Section 3(3) of ERISA or Section 4975 of the Code.
"Enhancement Certificate" shall mean a duly executed and completed
certificate in the form of Exhibit 8.04(a) to the Amended and Restated
Disbursement Agreement.
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"Enhancement Consent Certificate" shall mean a duly executed and completed
certificate in the form of Exhibit 8.04(b) to the Amended and Restated
Disbursement Agreement.
"Environmental Discharge" shall mean any discharge or release of Hazardous
Materials, pollutants, effluents or emissions of any kind in violation of any
relevant Environmental Law.
"Environmental Law" shall mean any federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law now or
hereafter in effect and in each case as amended, and any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Hazardous Materials, including, without limitation, (i) the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601, et seq. ("Superfund"); the Superfund Amendments and
Reauthorization Act, Public Law 99-499, 100 Stat. 1613 ("SARA"); the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the National
Environmental Policy Act, 42 U.S.C. Section 4321; the Safe Drinking Water Act,
42 U.S.C. Section 300f, et seq.; the Toxic Substances Control Act, 15 U.S.C.
Section 2601; the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801; the Federal Water Pollution Control Act., 33 U.S.C. Section 1251, et
seq.; the Clean Air Act, 42 U.S.C. 7401, et seq.; and, in each case, the
regulations promulgated in connection therewith; (ii) Environmental Protection
Agency regulations pertaining to Asbestos (including 40 C.F.R. Part 61,
Subpart M); Occupational Safety and Health Administration regulations
pertaining to Asbestos (including 29 C.F.R. Sections 1910.1001 and 1926.58);
(iii) the following laws of the Commonwealth of Pennsylvania: Air Pollution
Control Act, 35 P.S. (S) 4001 et seq., Clean Streams Law, 35 P.S. 5 691.1 et
seq., Dam Safety and Encroachments Act, 32 P.S. (S) 693.1 et seq., Hazardous
Sites Cleanup Act, 35 P.S. (S) 6020.101 et seq., Low Level Radioactive Waste
Disposal Act, 35 P.S. (S) 7130.101 et seq., Pesticide Control Act, 3 P.S.
(S) 111.24 et seq., Radiation Protection Act, 35 P.S. (S) 7110.101, Safe
Drinking Water Act, 35 P.S. (S) 721.1 et seq., Solid Waste Management Act, 35
P.S. (S) 6018.401 et seq., Storage Tank and Spill Prevention Act, 35 P.S.
(S) 6021.101 et seq., and Worker and Community Right-to-Know Act, 35 P.S. (S)
7301 et seq.; and (iv) any state and local laws and regulations pertaining to
Hazardous Materials and/or Asbestos.
"Environmental Liability" shall mean (i) the cost actually incurred by the
Lessor or the Lessee, as appropriate, pursuant to any governmental agency or
court order or settlement, (ii) any damages payable to any governmental agency
or third party by the Lessor or the Lessee, as appropriate, pursuant to any
governmental agency or court order or settlement, and (iii) reasonable legal
and other expenses incurred to defend, settle or otherwise respond to any
action, notice or investigation by any governmental agency or court, with
respect to the environmental clean up of the former Eclipse oil refinery site
that are incurred as a result of the Lessor or the Lessee, as appropriate,
holding, or having held, an easement for, or operating, the Transmission Line
across the Property.
"Environmental Notice" shall mean any complaint, order, citation, letter,
inquiry, notice or other written communication from any Person affecting or
relating to:
(a) Lessor;
(b) Lessee;
(c) the Site or any part thereof or any interest therein; or
(d) any activity or operations at any time conducted by Lessor, Lessee or
any other Person on or in connection with the Site or any part thereof or
any interest therein;
in each case with regard to the occurrence or presence of or exposure to or
possible or threatened or alleged occurrence or presence of or exposure to
Environmental Discharges, Hazardous Materials or Petroleum Products,
including, without limitation:
(i) the existence of any contamination or possible or threatened
contamination;
(ii) remediation of any Environmental Discharge, Hazardous Materials or
Petroleum Products in connection with the Site or any part thereof; and
(iii) any violation or alleged violation of any relevant Environmental
Law.
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"EPC" means Environmental Power Corporation, a Delaware corporation.
"EPC Group" shall mean Lessee, EPC and any Affiliate of either of them.
"EPC Group Default" shall mean a Default under the Amended and Restated
Lease arising solely from (i) an event described in Section 13.01(d) of the
Amended and Restated Lease (other than with respect to Article VI of the
Amended and Restated Lease), or in Section 13.01(j) or (k) of the Amended and
Restated Lease; (ii) a breach by a member of the EPC Group of a representation
or warranty relating to any member of the EPC Group as to matters solely
within the knowledge or control of the EPC Group or as to actions taken by any
member of the EPC Group; or (iii) an EPC Group member's failure to perform
under any Transaction Document, including the Amended and Restated Lease, any
obligation of such Person which is contemplated by the Transaction Documents
to be observed or performed by one or more members of the EPC Group and which
has not been delegated to or assumed by another party pursuant to any
Transaction Document, but excluding any obligation, the failure to perform
which is a result of a Project Risk.
"EPC Parties" shall mean, collectively, EPC, Sunnyside Cogeneration
Associates, a Utah joint venture, Kaiser Power of Sunnyside Inc., a Delaware
corporation, Kaiser Systems, Inc., a Delaware corporation and Sunnyside Power
Corp., a Utah corporation.
"Equipment" shall, for purposes of the Tax Indemnity Agreement, mean every
asset comprising the Facility other than the improvements, and for all other
purposes, shall have the meaning set forth in the Security Documents.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean, with respect to any person, each other person,
trade or business (whether or not incorporated) which would be required to be
aggregated with such person under Sections 414(b), (c), (m), or (o) of the
Code.
"Estate" shall mean, collectively, James R. Walsh, acting as trustee for the
bankruptcy estate of Benjamin Coal Company, and the bankruptcy estate of
Benjamin Coal Company.
"Eurodollar Rate Loan" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Event of Default" when used in, or with reference to, any agreement without
other reference, shall mean an event of default as defined in, or pursuant to,
the terms of such agreement.
"Event of Eminent Domain" means any compulsory transfer or taking or
transfer under threat of compulsory transfer or taking of any material part of
the Collateral by any agency, department, authority, commission, board,
instrumentality or political subdivision of the Commonwealth of Pennsylvania
or the United States or any other entity vested with the power of
condemnation.
"Event of Force Majeure" shall mean an event of Force Majeure (as defined in
the Facility EPC Contract and O&M Agreement) or "force majeure" (as defined in
the Power Purchase Agreement).
"Event of Loss" means any of the following events: (i) loss of all or
substantially all of the Project or the use thereof due to destruction, damage
beyond economical repair or rendition of the Project permanently unfit for
normal use for any reason whatsoever (other than if it is merely not
economically feasible to maintain, use or
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operate); (ii) anything which results in an insurance settlement with respect
to the Project on the basis of a total loss or constructive total loss
thereof; and (iii) the condemnation or taking or requisitions of title or use
for a period in excess of 6 months by any Governmental Authority which
constitutes the taking of all or substantially all of the Project or all or
such a substantial portion of the Site such that the remainder is not
sufficient to permit operation of the Project on a commercially feasible
basis.
"Excess Cash Flow" shall mean, for any Period, Project Revenues remaining
after application through item Seventh of Section 13.01(c)(ii) of the Amended
and Restated Reimbursement Agreement.
"Excluded Payments" shall mean (i) any indemnity or other liability,
obligation or amount (including, without limitation, any liability insurance
payments) that is paid or payable to Lessor or any other Person in compliance
with the Amended and Restated Participation Agreement or the Tax Indemnity
Agreement, whether paid or payable thereunder or under the Amended and
Restated Lease, (ii) any proceeds of liability or casualty insurance
maintained separately (in addition to that required to be maintained under the
Amended and Restated Lease or the Amended and Restated Reimbursement
Agreement, by Lessor for its benefit to the extent such insurance is permitted
by the Amended and Restated Lease or the Amended and Restated Reimbursement
Agreement, (iii) proceeds resulting from the exercise of the rights of Lessor
to enforce payments against Lessee and others of any of the foregoing amounts
or proceeds by a proceeding not involving any exercise of the remedies
provided for in Section 13.02 of the Amended and Restated Lease and (iv) any
proceeds of the foregoing clauses (i), (ii) and (iii).
"Existing Term Loans" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Facility" shall mean the bituminous waste coal and coal burning facility
located in Venango County, Pennsylvania, designed to produce a net electrical
power output of approximately 85 megawatts, constructed on the Site pursuant
to the Facility EPC Contract and the Transmission Line EPC Contract,
consisting of two atmospheric circulating, fluidized bed boilers, a single
condensing steam turbine, a baghouse for particulate control, a wet-cooling
tower and related facilities, including the Transmission Line and the
Interconnection Facilities. The Facility includes the Facility Site and all
easements and other appurtenances thereto and all equipment, appliances,
machinery, buildings, structures, improvements and transmission lines
constructed pursuant to the Facility EPC Contract and the Transmission Line
EPC Contract, all as more particularly described in Exhibit A to the Amended
and Restated Lease, and all Alterations thereto or replacements thereof, all
fixtures, piping, attachments, appliances, equipment, machinery and other
articles attached thereto or used in connection therewith and all Lessor Spare
Parts and all Parts which may from time to time be incorporated in or
installed in or attached thereto, other than, in each case, Parts to which
Lessee or another Person has title pursuant to Section 5.03 or 5.05 of the
Amended and Restated Lease.
"Facility EPC Contract" shall mean the Contract for Engineering, Procurement
and Construction of the Scrubgrass Power Plant, dated December 21, 1990, by
and between Facility EPC Contractor and Lessor, providing for engineering,
procurement and construction services in connection with the Facility.
"Facility EPC Contractor" shall mean Bechtel Power Corporation, a Nevada
corporation, in its status as contractor under the Facility EPC Contract.
"Facility Site" shall mean that portion of the Site and all easements and
other appurtenances thereto on which the Facility is constructed, as more
particularly described in Exhibit C to the Amended and Restated Lease.
"Fair Market Value" shall mean the value of the item to be valued (and if
such item is the Facility, inclusive of the Site and the Principal Project
Agreements) in an arm's-length transaction between an informed and willing
purchaser under no compulsion to buy and an informed and willing seller under
no compulsion to sell.
"Falcon" shall mean Falcon Power Corporation, a California corporation.
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"Federal Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended, or any other federal bankruptcy code hereafter in effect.
"Federal Funds Rate" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Fees" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"FERC" shall mean the Federal Energy Regulatory Commission or any successor
entity or analogous federal Governmental Authority.
"Final Determination" shall have the meaning set forth in Section 7.03(f) of
the Tax Indemnity Agreement for purposes of such Agreement and for all other
purposes shall mean a judgment, order or other binding decision of any court,
agency or other tribunal having jurisdiction in the premises which is not
subject to further appeal or for which the applicable appeal period has
expired without any appeal being brought.
"First Amendment to O&M Agreement" shall mean the First Amendment to
Operation and Maintenance Agreement dated December 22, 1995 between the Lessee
and Operator.
"Fixed Rental Renewal Term" shall mean a three year term following the
expiration of the Basic Term of the Amended and Restated Lease, in accordance
with the terms of Section 9.01 of the Amended and Restated Lease.
"Fuel" shall mean (a) the bituminous and coal waste, conforming to all
applicable specifications at the Facility, used or intended to be used as fuel
for the Facility, and (b) coal which may be used to operate the Facility in
accordance with Governmental Approvals and any Requirement of Law, which
Lessor either owns or has the right to use.
"Fuel Agreements" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"GAAP" shall mean generally accepted accounting principles in the United
States of America from time to time as set forth in (a) the opinions and
pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and (b) Statements and pronouncements of the
Financial Accounting Standards Board.
"General Partners" shall mean Pine, Falcon, SPC and all other Persons
admitted as general partners of Lessor pursuant to the terms of the
Partnership Agreement.
"Governmental Approvals" shall mean any authorization, consent, approval,
license, franchise, lease, ruling, order, permit, tariff, rate, certification,
exemption, variance, filing or registration by or with any Governmental
Authority or legal or administrative body, domestic or foreign, federal, state
or local, relating to the construction, ownership, operation or maintenance of
the Project or to the execution, delivery or performance of any Principal
Project Agreement.
"Governmental Authority" shall mean any Federal, state, local, municipal or
regional government, governmental department, authority, commission, bureau,
instrumentality, board, agency, court, tribunal or other administrative or
regulatory body, officer or entity, including any zoning body, building
inspector, health or safety inspector or fire marshal, and any arbitrator with
authority to bind a party at law.
"Governmental Rule" shall mean any law, rule, regulation, ordinance, order,
code, interpretation, judgment or similar form of decision of any Governmental
Authority.
"Guaranty" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing in any manner any Debt of any
other Person or in any manner providing for the payment
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of any Debt of any other Person or otherwise protecting the holder of such
Debt against loss (whether by virtue of partnership arrangements, by agreement
to keep-well, to pay or purchase such Debt or to advance or supply funds for
the payment or purchase of such Debt, to purchase, sell or lease (as lessee or
lessor) property, assets, goods, securities or services, or to take-or-pay or
otherwise), provided, that the term "Guaranty" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guaranty" used as a verb has a correlative meaning.
"Hazardous Materials" shall mean Asbestos, polychlorinated biphenyls (PCBs),
Petroleum Products and any toxic or hazardous materials and substances, wastes
or contaminants, as any of those terms are defined from time to time in or for
the purpose of any relevant Environmental Law.
"Hedge Account" shall mean the Hedge Account established pursuant to Section
2.02(g) of the Amended and Restated Disbursement Agreement.
"Improvements" shall, for the purposes of the Tax Indemnity Agreement, have
the meaning set forth therein and for all other purposes, shall have the
meaning set forth in the Project Mortgage.
"Indemnifiable Tax Loss" shall have the meaning given in Section 4.01 of the
Tax Indemnity Agreement.
"Indemnitee" shall mean (A) each of (i) Lessor and each Partner thereof,
(ii) the Bond Trustee, the Disbursement Agent, Agent (both in their individual
and their trust capacities), (iii) each Bank, (iv) the LOC Issuers, (B) the
respective successors, assigns, agents, shareholders, officers, directors or
employees of the foregoing and (C) any Affiliate of any thereof.
"Indenture" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Independent Engineer" shall mean (a) R.W. Beck and Associates or (b) such
other engineering consultant, satisfactory to Lessor and Agent that is engaged
to examine the plans and specifications of the Project, changes in such plans
and specifications and cost breakdowns and estimates, to make periodic
inspections of the construction and operation of the Project on behalf of the
Bank Parties, and to advise and render reports to the Bank Parties concerning
the same, or otherwise to perform such services with respect to the Project as
the Bank Parties from time to time may request.
"Installment Sale Agreement" shall have the meaning set forth in the Amended
and Restated Reimbursement Agreement.
"Installment Sale Agreement Assignment" shall mean the Installment Sale
Agreement Assignment, dated as of December 15, 1990, between SPC and the
Lessor.
"Insurance Account" shall mean the Insurance Account established pursuant to
Section 2.02(c) of the Amended and Restated Disbursement Agreement.
"Insurance Consultant" shall mean any insurance consultant retained by Agent
from time to time with respect to insurance coverage for the Project in
accordance with Section 10.04 of the Amended and Restated Reimbursement
Agreement.
"Insurance Proceeds" has the meaning specified in Section 13.02 of the
Amended and Restated Reimbursement Agreement.
"Insurance Proceeds Disbursement Certificate" shall mean a duly executed and
completed certificate in the form of Exhibit 9.02(a) to the Amended and
Restated Disbursement Agreement.
"Interconnection Facilities" shall mean such electrical interconnection
facilities as are necessary for the Facility to be capable of delivering
electrical power to the Power Purchaser in accordance with the Power Purchase
Agreement.
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"Interest Period" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Interest Rate Protection Agreement" shall have the meaning set forth in the
Amended and Restated Reimbursement Agreement.
"Junior Debt" shall mean any Debt and other obligations of Lessor to any
Partner or Affiliate of any Partner and any Debt of Lessee incurred in
connection with the Settlement Agreement, not exceeding $4,000,000 in the
aggregate, or any Debt and other obligations of Lessor to any other Person as
may be approved by Agent (regardless of the principal amount thereof), in each
case evidenced by an instrument or instruments subordinated to the payment of
the Obligations and the rights of the LOC Issuers, the Banks and the holders
of the Notes under the Amended and Restated Reimbursement Agreement by
provisions substantially in the form of Exhibit E to the Amended and Restated
Reimbursement Agreement or incorporating such provisions by reference.
"Law" shall mean any statute, law, rule, code, ordinance, decision,
regulation, ruling, guideline, order, permit or other governmental act.
"Lease Commencement Date" shall mean June 30, 1994.
"Lease Participant" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Lease Term" shall have the meaning set forth in the Amended and Restated
Lease.
"Lease Termination Date" shall mean the last day of the Lease Term, or any
earlier date on which the Amended and Restated Lease terminates in accordance
with its terms.
"Lee Lease" shall mean, collectively, the Agreement, dated February 12,
1981, by and between Philip Lee and Doris E. Lee and Benjamin Coal Company,
and the Agreement, dated February 6, 1976, by and between Philip Lee and Doris
E. Lee and Benjamin Coal Company.
"Lessee" shall mean Buzzard Power Corporation, a Delaware corporation, or
any other Person who is Lessee under the Amended and Restated Lease.
"Lessee Account Collateral" shall have the meaning specified in Section 3.01
of the Amended and Restated Disbursement Agreement.
"Lessee Accounts" shall mean the Operating Account, the Maintenance Reserve
Account, the Available Cash Flow Account and the Lessee Environmental
Liability Reserve Account, created in accordance with the terms of the Amended
and Restated Disbursement Agreement.
"Lessee Available Cash" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Lessee Collateral" shall have the meaning specified in Section 11.2(a)(ii)
of the Amended and Restated Participation Agreement.
"Lessee Environmental Liability Reserve Account" shall mean the Lessee
Environmental Liability Reserve Account established pursuant to Section
2.03(d) of the Amended and Restated Disbursement Agreement.
"Lessee Parent" shall mean EPC.
"Lessee Security Agreement" shall have the meaning set forth in the Amended
and Restated Reimbursement Agreement.
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"Lessee Working Capital Loan" shall have the meaning set forth in the
Amended and Restated Lessee Working Capital Loan Agreement.
"Lessor" shall mean Scrubgrass Generating Company, L.P., a Delaware limited
partnership in its capacity as Lessor under the Amended and Restated Lease.
"Lessor Account Collateral" shall have the meaning specified in Section 3.02
of the Amended and Restated Disbursement Agreement.
"Lessor Accounts" shall mean the Construction Account, the Amortization
Account, the Amortization Sub-Account, the Insurance Account, the Lessor
Revenues Account, the Rent Suspense Account, the Borrower Environmental
Liability Reserve Account and the Hedge Account, created in accordance with
the terms of the Amended and Restated Disbursement Agreement.
"Lessor Collateral" shall mean, collectively, the "Collateral" as defined in
Section 2.1(a) of the Security Agreement and the "Mortgaged Property" as
defined in the Project Mortgage.
"Lessor Default Notice" shall mean a duly executed and completed notice in
the form of Exhibit 11.02(a)(1) to the Amended and Restated Disbursement
Agreement.
"Lessor Group" shall mean Lessor, each General Partner and the Operator and
the Manager (but only so long as the Operator and the Manager are Affiliates
of the Lessor or any General Partner), and any Affiliate of any of them.
"Lessor Lien" shall mean any Lien on the Collateral or any part thereof
which results from (i) nonpayment by Lessor or any Partner of any taxes
imposed on or measured by its net income or the net income of the consolidated
group of taxpayers, of which it is a part or (ii) any act or failure to act of
or claim against Lessor or any Partner arising out of events or conditions not
related or connected to any transaction contemplated by the Transaction
Documents.
"Lessor Post-Default Disbursement Certificate" shall mean a duly executed
and completed certificate in the form of Exhibit 11.02(a)(2) to the Amended
and Restated Disbursement Agreement.
"Lessor QF Casualty" shall have the meaning set forth in Section 7.2 of the
Amended and Restated Participation Agreement.
"Lessor Release Notice" shall mean a duly executed and completed notice in
the form of Exhibit 5.02(d)(2) to the Amended and Restated Disbursement
Agreement.
"Lessor Revenues Account" shall mean the Lessor Revenues Account established
pursuant to Section 2.02(d) of the Amended and Restated Disbursement
Agreement.
"Lessor Spare Parts" shall mean the spare parts for the Facility furnished
to Lessee by Lessor on the Lease Commencement Date.
"Letters of Credit" shall mean, in the singular, the Bond Letter of Credit
or the Contract Letter of Credit, as the context requires, and in the plural,
the collective reference to the Bond Letter of Credit and the Contract Letter
of Credit.
"Lien" shall mean any mortgage, pledge, lien, security interest, deed of
trust or other charge or encumbrance of any kind, or any other similar type of
preferential arrangement (including, without limitation, any agreement to give
any of the foregoing, any conditional sale or other title retention agreement,
any lease in the nature thereof and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction).
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"Limestone Agreement(s)" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Limited Partners" shall mean the Persons or entities admitted to the
Partnership at any time and from time to time as limited partners.
"Loan Documents" shall mean the Amended and Restated Reimbursement
Agreement, the Notes, the Letters of Credit, the Security Documents, and any
Interest Rate Protection Agreement.
"Loans" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"LOC Issuer" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Loss Payment Date" shall have the meaning set forth in Section 7.01 of the
Amended and Restated Lease.
"Maintenance Reports" shall have the meaning set forth in Section 4.02 of
the Amended and Restated Lease.
"Maintenance Reserve Account" shall mean the Maintenance Reserve Account
established pursuant to Section 2.03(b) of the Amended and Restated
Disbursement Agreement.
"Maintenance Reserve Account Reduction Certificate" shall mean a duly
executed and completed certificate in the form of Exhibit 8.02(d) to the
Amended and Restated Disbursement Agreement.
"Majority Banks" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Majority of the Limited Partners" shall have the meaning set forth in the
Partnership Agreement.
"Management Costs" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Material Adverse Effect" shall have the meaning set forth in the Amended
and Restated Reimbursement Agreement.
"Memorandum of Amended and Restated Lease" shall mean the Memorandum of
Amended and Restated Lease, dated December 22, 1995, between the Lessor and
the Lessee.
"Monthly Distribution Date" shall have the meaning set forth in the Amended
and Restated Reimbursement Agreement for the term "Payment Date."
"Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation.
"Mortgaged Property" shall have the meaning set forth in the Project
Mortgage.
"Multiemployer Plan" shall mean a Plan which is a "multiemployer plan" as
such term is defined in Section 4001(a)(3) of ERISA.
"NatWest" shall mean National Westminster Bank Plc, acting through its New
York branch.
"Net Cash Flow" shall mean, for any Period, Project Revenues remaining after
application through item Third of Section 13.01(c)(i) of the Amended and
Restated Reimbursement Agreement.
"New Term Loans" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
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"Nonseverable Alteration" shall mean any Alteration which cannot be readily
removed from the Facility without causing material damage to or reducing the
fair market value, residual value, utility or economic useful life of the
Facility that the Facility would have had if such Alteration had never been
made.
"Notes" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Notice Provisions" shall mean Schedule IV to the Amended and Restated
Participation Agreement.
"Obligations" shall mean, collectively, Lessor's obligations pursuant to the
Transaction Documents.
"OECD" shall mean Organization for Economic Cooperation and Development.
"Officer's Certificate" shall mean, in respect of any corporation, a
certificate of the President, any Vice President or the Treasurer of the
corporation and, in respect of any partnership, a certificate of a general
partner or other authorized representative of such partnership.
"O&M Agreement" shall mean the Operation and Maintenance Agreement, dated as
of December 21, 1990, by and between Lessor and Bechtel Power and assigned by
Bechtel Power to Operator pursuant to an Assignment and Assumption Agreement
dated as of January 1, 1992, as amended by First Amendment to O&M Agreement or
any substitute agreement for the operation and maintenance of the Facility
that shall have been approved by the Majority Banks in their sole discretion.
"Omnibus Reaffirmation Agreement" shall have the meaning set forth in the
Amended and Restated Reimbursement Agreement.
"Operating Account" shall mean the Operating Account established pursuant to
Section 2.03(a) of the Amended and Restated Disbursement Agreement.
"Operating Budget" shall have the meaning set forth in Section 10.12 of the
Amended and Restated Reimbursement Agreement.
"Operating Expenses" shall mean, for any Period after the Conversion Date,
the operating and maintenance expenses of the Project incurred by Lessor or
Lessee for such Period, including, but not limited to, insurance premiums,
indemnity payments paid directly or indirectly to any Person who is not a
Lease Participant and licensing taxes, and excluding amounts to be deposited
in the Maintenance Reserve Account, Subordinated Operating Expenses, Junior
Debt, Debt Service, Basic Rent (Equity), Supplemental Rent (Equity) and
Additional Rent; provided, however, that in no event shall Operating Expenses
include fees and costs incurred by Lessor or Lessee in connection with the
adjustment of Rent and Stipulated Loss Value under Section 3.04(c) of the
Amended and Restated Lease, in excess of $10,000 in any twelve month period.
"Operating Logs" shall have the meaning set forth in Section 4.02 of the
Amended and Restated Lease.
"Operator" shall mean U.S. Operating Services Company, a California general
partnership, in its status as the operator of the Facility, and any successor
operator.
"Part" shall mean any part, appliance, instrument, appurtenance, accessory,
furnishing or other property of any nature necessary or useful to the
operation, maintenance, service or repair of the Facility, including any
Alteration.
"Partial Event of Eminent Domain" shall have the meaning ascribed thereto in
Section 13.03 of the Amended and Restated Reimbursement Agreement.
"Participants" shall mean, collectively, Lessee, Lessor, the Bond Trustee,
the Disbursement Agent, Agent, the LOC Issuers and EPC (but only in any period
during which EPC is obligated under Section 9.1 of the Amended and Restated
Participation Agreement), and reference to a Participant shall be to any one
of the Participants.
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"Partners" shall mean, collectively, the General Partners and all Limited
Partners from time to time of Lessor, and reference to a Partner shall be to
any one of the Partners.
"Partnership" shall mean Scrubgrass Generating Company, L.P., a Delaware
limited partnership.
"Partnership Agreement" shall mean the First Amended and Restated Limited
Partnership Agreement of Scrubgrass Generating Company, L.P., dated as of
January 14, 1993, by and among Pine, Falcon and SPC and certain limited
partner(s).
"Partnership Interest" shall have the meaning set forth in the Partnership
Agreement.
"Payment Date" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Period" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Permitted Investments" shall mean any of the following:
(i) Direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States of America
and which shall mature within one year from the date of acquisition
thereof;
(ii) Obligations of state and local government and municipal bond
issuers, which are rated at least AA or Aa or the equivalent thereof by S&P
or Moody's, but excluding any such obligation, the obligor of which is
either an entity qualifying as charitable under Section 501(c)(3) of the
Code or a non-profit corporation, unless such obligation is supported by a
letter of credit issued by a bank incorporated in an OECD member country;
(iii) Full faith and credit obligations of state or local government bond
issuers which are rated at least AA or Aa or the equivalent thereof by S&P
or Moody's;
(iv) Commercial paper of any bank which is incorporated in an OECD member
country, which commercial paper is rated at least A-1+ or P-1 or the
equivalent thereof by S&P or Moody's;
(v) Certificates of deposit of any bank or bank holding company of any
bank (including the Bond Trustee) whose outstanding secured long term debt
is rated at least AA or Aa or the equivalent thereof by S&P or Moody's;
(vi) Tax-exempt money market funds; and
(vii) Guaranteed investment contracts approved by the Majority Banks.
"Permitted Liens" shall have the meaning, with respect to Lessor, set forth
in Section 11.02 of the Amended and Restated Reimbursement Agreement and, with
respect to Lessee, shall mean any of the following:
(i) Liens specifically permitted by, or created by, the Lessee Security
Agreement or any other Transaction Document;
(ii) Liens in respect of property or assets of Lessee imposed by law,
which were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' liens and other similar liens arising in the
ordinary course of business, and (x) which do not in the aggregate detract
from the value of such property or assets or impair the use thereof in the
operation of the business of Lessee or (y) which are being contested in
good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to such
Lien; provided, however, that adequate reserves with respect thereto shall
be maintained on the books of Lessee in accordance with GAAP;
(iii) Liens for taxes which are either not yet due, are due but payable
without penalty or are being contested in good faith by appropriate
proceedings conducted with due diligence, if adequate reserves for such
taxes have been established and are being maintained;
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(iv) Liens in connection with worker's compensation, unemployment
insurance or other social security obligations;
(v) Any exceptions to title which are contained in the title insurance
policies delivered to Agent pursuant to Section 8.01(f) of the Amended and
Restated Reimbursement Agreement;
(vi) Liens securing purchase money obligations which do not in the
aggregate exceed $500,000 at any one time outstanding; or
(vii) Liens to which the Majority Banks have consented in writing.
"Permitted Transfers" shall mean (a) sales, transfers, assignments or other
dispositions which (i) are to Persons, approved by the Majority Banks (which
approval shall not be unreasonably withheld), who assume all obligations of
Lessor and under the other Loan Documents and (ii) after giving effect
thereto, do not result in the occurrence of any Default or Event of Default
under any Transaction Document, (b) any sale, transfer, assignment or other
disposition of a limited partner interest in Lessor or (c) any sale, transfer,
assignment or other disposition of a general partner interest permitted by
Section 10.02 of the Amended and Restated Reimbursement Agreement.
"Persons" shall mean an individual, corporation, partnership, joint venture,
trust, association or unincorporated organization, or a government or any
agency or political subdivision thereof.
"Petroleum Products" shall mean gasoline, diesel fuel, motor oil, waste or
used oil, heating oil, kerosene and any other petroleum products or any
fraction thereof.
"Pine" shall mean Pine Power Leasing, Inc., a Delaware corporation.
"Plan" shall mean any pension plan that is covered by Title IV of ERISA in
respect of which Lessor or a "Controlled Group" (within the meaning of Section
4001(a)(14) of ERISA) or a Person under common control with Lessor is an
"employer" as defined in Section 3(5) of ERISA.
"Plan Assets" shall mean assets of any Plan (other than a governmental plan
within the meaning of Section 414(d) of the Code) as such term "plan assets"
is interpreted ((i) with respect to any Bank or any of their assignees,
transferees or pledgees, at the time a Note (or interest therein) is acquired,
assigned, transferred or pledged; or (ii) with respect to any Partner, or any
of its assignees, transferees, or pledgees, at the time a Partnership Interest
(or interest therein) is acquired, assigned, transferred or pledged under the
Partnership Agreement, the Amended and Restated Participation Agreement, or
under any other Transaction Document to which such person is a party but only
to the extent of the funds) by the Internal Revenue Service and United States
Department of Labor in regulations, rulings, releases or bulletins and by
decisions of courts in cases arising under ERISA or the Code.
"Power Purchase Agreement" shall mean the Agreement for the Sale of Electric
Energy from the Scrubgrass Generating Plant, dated as of August 7, 1987, as
amended by Supplemental Agreement, dated February 22, 1989, Letter Agreement,
dated March 28, 1989, Second Supplemental Agreement, dated September 27, 1989,
Letter Agreement dated March 7, 1990, Letter Agreement, dated March 9, 1990,
Third Supplemental Agreement, dated August 13, 1990, and Amendment to Third
Supplemental Agreement, dated as of November 27, 1990, and the Letter
Agreement dated December 20, 1990 as assigned to Lessor pursuant to the
Assignment of Power Purchase Agreement and any other Additional Contract
relating to the sale of electric output from the Facility.
"Power Purchaser" shall mean Pennsylvania Electric Company, a public utility
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania.
"Present Value" shall mean, with respect to Basic Rent, the value at the
date of calculation, of the remaining payments of Basic Rent to be made during
the Basic Term, discounted at the Default Rate, or with respect to Section
3.04(e) of the Amended and Restated Lease, the Applicable Rate.
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<PAGE>
"Prime Rate" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Principal Project Agreements" shall mean the Power Purchase Agreement, the
Facility EPC Contract, the Transmission Line EPC Contract, the Partnership
Agreement, the O&M Agreement, the Project Management Agreement, the Amended
and Restated Lease, the Limestone Agreements, the Fuel Agreements, the
Transportation Agreements, the Settlement Agreement Documents and all
Additional Contracts.
"Principal Project Participants" shall mean Lessor, the Operator, the
Project Manager, the Power Purchaser, the General Partners, Lessee and EPC.
"Proceedings" shall mean, collectively, any proceeding by or against Lessor,
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property.
"Project" shall mean, collectively, the Facility and the Site.
"Project Costs" shall mean the costs and expenses incurred by Lessor in
connection with the development, financing, design, engineering, acquisition,
construction, assembly, inspection, testing, completion and start-up of the
Facility, including, without limitation, interest on Loans, Unpaid Drawings
and Fees accrued prior to the Conversion Date, funding of aggregate
Distributions of approximately $7,400,000 for the purpose of financing the
acquisition of SPC stock by Falcon (including the related payment obligations
incurred pursuant to Section 1.3 of the Stock Purchase Agreement) and all
other capitalized fees and expenditures, including all items of cost
includable within "Costs" (as defined in the Indenture).
"Project Management Agreement" shall mean the Management Services Agreement,
dated as of December 15, 1990, by and between Lessor and the Project Manager
providing for certain management services with respect to the Project.
"Project Management Compensation" shall have the meaning set forth in the
Project Management Agreement.
"Project Manager" shall mean U.S. Generating Company, a California general
partnership.
"Project Mortgage" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Project Revenues" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Project Risk" shall mean any failure of the Project to generate sufficient
revenue to pay all operating costs and expenses of the Project and amounts
owed under any Transaction Document by reason of events outside the exclusive
responsibility and control of either the Lessor Group or the EPC Group,
including without limitation, any Event of Force Majeure or the non-
performance by or the commencement of Proceedings involving any party (other
than by any member of the EPC Group or the Lessor Group) in connection with a
Principal Project Agreement.
"Property" shall mean the portions of the properties in Sugarcreek Township,
Venango County, Pennsylvania owned by ACV Power Corporation, Shaw Industries,
Inc., Edward Andres and Louis Kraft that the Transmission Line crosses.
"Proportionate Share" shall have the same meaning as the term "Partnership
Interest," as such term is defined in the Partnership Agreement.
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"Prudent Utility Practices" shall mean those practices, methods, equipment,
specifications and standards of safety and performance, as the same may change
from time to time, as are commonly used by electric generation stations in
Pennsylvania of a type and size similar to the Facility as good, safe and
prudent engineering practices in connection with the design, construction,
operation, maintenance, repair and use of electrical and other equipment,
facilities and improvements of such electrical station, with commensurate
standards of safety, performance, dependability, efficiency and economy.
Prudent Utility Practices are not intended to be limited to the optimum
practice or method to the exclusion of all others, but rather to be a spectrum
of possible practices and methods.
"Public Utility" shall mean an "electric utility" or an "electric utility
holding company," as such terms are used in PURPA and the regulations
thereunder (18 CFR Part 292), or any wholly or partially-owned direct or
indirect subsidiary of any "electric utility" or "electric utility holding
company," as such terms are so used, or any similar entity (including without
limitation a "public utility," as such term is defined in the Federal Power
Act, or a "holding company," a "subsidiary company," an affiliate" of a
"holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, subject to regulation under the Federal Power Act except
those portions that relate to Qualifying Facilities, the Public Utility
Holding Company Act of 1935, as amended, the Pennsylvania Public Utility Act
or any other comparable Federal, state or local law or regulation.
"Purchase Price" shall mean the purchase price described in Section 1.3 of
the Stock Purchase Agreement.
"PURPA" shall mean the Public Utility Regulatory Policies Act of 1978, as
amended.
"Qualifying Facility" shall mean (i) a cogeneration facility meeting all of
the requirements for a "qualifying cogeneration facility" or (ii) so long as
neither Lessor nor the Project shall be subject to regulation as an "electric
utility," "electric corporation," "electrical company," "public utility,"
"public utility holding company" or similar entity pursuant to the Public
Utility Holding Company Act of 1935, the Federal Power Act or any other
Governmental Rule, except as set forth in 18 C.F.R. (S) 292.601 or 18 C.F.R.
(S) 292.602, a facility meeting all of the requirements for a "qualifying
small power production facility" set forth in PURPA and in Part 292 of the
rules and regulations of FERC under PURPA.
"Ratable Share" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Refinancing" shall mean any subsequent or additional financing with respect
to the Project which is not contemplated by or pursuant to the Loan Documents.
"Regulatory Records" shall have the meaning set forth in Section 4.02 of the
Amended and Restated Lease.
"Remarketing Agent" shall have the meaning set forth in the Indenture.
"Remarketing Agreement" shall mean the Remarketing Agent's Agreement, dated
as of December 15, 1990, by and between Lessor and the Remarketing Agent with
respect to the Bonds, and any future remarketing agreements between Lessor and
the Remarketing Agent with respect to the issuance of any additional Bonds
after the Closing Date.
"Renewal Term" shall mean, with respect to the Amended and Restated Lease,
the Fixed Rental Renewal Term.
"Rent" shall mean, collectively, Basic Rent, Additional Rent and
Supplemental Rent.
"Rent Payment Date" shall mean the dates set forth on Schedule I to the
Amended and Restated Lease.
"Rent Suspense Account" shall mean the account of Lessor maintained in
accordance with Section 2.02(e) of the Amended and Restated Disbursement
Agreement.
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"Required Maintenance Reserve Account Balance" shall mean $3,000,000, or
such lesser amount as may be established from time to time pursuant to Section
8.02(d) of the Amended and Restated Disbursement Agreement.
"Requirement of Law" shall mean, as to any Person, the certificate of
incorporation and by-laws or partnership agreements or other organizational or
governing documents of such Person, and any law, treaty, executive order, rule
or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its properties or to which such Person or any of its properties is
subject, including, without limitation, Environmental Laws and zoning, use and
building codes, laws, regulations and ordinances.
"Reserved Areas" shall mean that portion of the Site which does not include
the Facility Site, as more particularly described in Exhibit E to the Amended
and Restated Lease.
"Scrubgrass Stock Pledge Agreement" shall have the meaning set forth in the
Amended and Restated Reimbursement Agreement.
"Secured Obligations" shall mean Lessor's obligations to the Bank Parties
under the Transaction Documents.
"Securities" shall mean any shares, stock, bonds, debentures, notes,
evidences or indebtedness or any other instruments commonly known as
"securities."
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
similar or successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission hereunder, all as the same may be in effect
at the time.
"Security Agreement" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Security Documents" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Segregated Lessor Revenues" shall have the meaning set forth in the Amended
and Restated Reimbursement Agreement.
"Senior Debt" means the Debt evidenced by the Notes and the Bonds.
"Settlement Agreement" shall mean the Agreement dated December 22, 1995
among USGen, the Operator, EPC, the Lessee and the Lessor.
"Settlement Agreement Documents" shall mean, collectively, the Settlement
Agreement, the Settlement Notes and the First Amendment to O&M Agreement.
"Settlement Notes" shall mean, collectively, the Promissory Note dated
December 22, 1995 issued by the Lessee to USGen in the amount of $900,000, the
Promissory Note dated December 22, 1995 issued by the Lessee to USGen in the
amount of $152,000, the Promissory Note dated December 22, 1995 issued by the
Lessee to USGen in the amount of $429,000, the Promissory Note dated December
22, 1995 issued by the Lessee to USGen in the amount of $300,000 and the
Promissory Note dated December 22, 1995 issued by the Borrower to EPC in the
amount of $452,000.
"Severable Alteration" shall mean any Alteration which can be readily
removed from the Facility without causing material damage to or reducing the
Fair Market Value, residual value, utility or economic useful life of the
Facility.
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"Site" shall mean the real property described in the Project Mortgage and in
Exhibit B to the Amended and Restated Lease, including the Facility Site and
the Reserved Areas.
"SPC" shall mean Scrubgrass Power Corp., a Pennsylvania corporation.
"Stipulated Loss Value" shall mean as of any Rent Payment date, the amount
set forth opposite such date on Schedule IV to the Amended and Restated Lease;
provided, however, that notwithstanding such Schedule IV or any other
provision of the Amended and Restated Lease, Stipulated Loss Value as of any
date, together with any other amounts required to be paid to Lessor under the
Amended and Restated Lease on such date, under any circumstances and in any
event, shall be in an amount at least sufficient to pay in full, as of any day
of payment, the aggregate unpaid principal amount of all Senior Debt, together
with all unpaid interest and premium or penalty, if any, thereon accrued, as
of such date of payment.
"Stock Pledge Agreements" shall mean the Scrubgrass Stock Pledge Agreement,
the Buzzard Stock Pledge Agreement, and the East Bay Stock Pledge Agreement.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement, dated as
of December 15, 1990, by and among Falcon, EPC and SPC pursuant to which
Falcon purchased the stock of SPC from EPC.
"Subordinated O&M Payments" shall mean any fees or other amounts payable to
Operator pursuant to the O&M Agreement that are expressly subordinated in
accordance with the terms of Section 2 of Exhibit B to the O&M Agreement.
"Subordinated Operating Expenses" shall mean any Management Costs or
Subordinated O&M Payments.
"Subsidiary" shall have the meaning set forth in the Amended and Restated
Reimbursement Agreement.
"Supplemental Rent" shall mean collectively, (i) Supplemental Rent (Senior
Debt), (ii) Supplemental Rent (Equity) and (iii) the amount required to be
paid on each respective Rent Payment Date for the purposes indicated in
clauses Tenth through Sixteenth of Section 13.01(c)(ii) of the Amended and
Restated Reimbursement Agreement (without regard to the amount of funds
actually available for such purposes on any Rent Payment Date).
"Supplemental Rent (Equity)" shall mean any and all amounts, liabilities and
obligations (other than Basic Rent and Additional Rent) that Lessee assumes or
agrees to pay to or on behalf of (A) Lessor and each Partner thereof, (B)
their respective successors, assigns, agents, shareholders, officers,
directors, employees, and (C) any Affiliate of any thereof under the Amended
and Restated Participation Agreement, the Amended and Restated Lease or any
other Transaction Document, including payment of indemnity amounts due from
Lessee pursuant to the Power Purchase Agreement or any other Principal Project
Agreement assigned to Lessee pursuant to the Amended and Restated Lease.
"Supplemental Rent (Senior Debt)" shall mean (i) when due, all amounts which
Lessor is required to pay as principal and interest on the Working Capital
Loans, (ii) when due, or when no due date is specified, on demand, all amounts
(other than Basic Rent (Interest) and Basic Rent (Principal)) which Lessee
assumes the obligation to pay or agrees to pay (whether or not specifically
denominated as Supplemental Rent (Senior Debt)) to Agent, the LOC Issuers, the
Banks, the Bond Trustee or the Disbursement Agent, under any Transaction
Document, (iii) when due under the Indenture or the Amended and Restated
Reimbursement Agreement (or the Amended and Restated Disbursement Agreement),
as the case may be, any premium or other prepayment penalty or other amount
with respect to the Bonds, and (iv) on demand, and in any event on the next
Rent Payment Date next succeeding the date such amount shall be due and
payable under any Transaction Document, to the extent permitted by Requirement
of Law, interest (computed on the same basis as the Senior Debt) at a rate per
annum equal to the Default Rate on any payment of Supplemental Rent (Senior
Debt) not paid when due for any period for which the same shall be overdue.
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"Tax Assumptions" shall have the meaning assigned thereto by Section 1 of
the Tax Indemnity Agreement.
"Tax Claim" shall have the meaning set forth in Section 10.2(f) of the
Amended and Restated Participation Agreement.
"Tax Indemnity Agreement" shall mean the Tax Indemnity Agreement, dated as
of June 30, 1994, by and between Lessor, Lessee and the other parties thereto,
as amended by First Amendment to Tax Indemnity Agreement, dated December 22,
1995.
"Taxes" shall have the meaning ascribed thereto in Section 5.17(a) of the
Amended and Restated Reimbursement Agreement, or, in the context of Section
10.2 of the Amended and Restated Participation Agreement, as set forth
therein.
"Term Indebtedness" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Term Loans" shall mean Existing Term Loans and New Term Loans.
"Transaction Costs" shall mean, collectively, those costs described as
payable by Lessor pursuant to Section 15.01 of the Amended and Restated
Reimbursement Agreement, Section 15.8 of the Amended and Restated
Participation Agreement and Section 9 of the Bond Purchase Agreement.
"Transaction Documents" shall mean the Principal Project Agreements, the
Bond Documents, the Loan Documents, the Amended and Restated Lease, the
Amended and Restated Participation Agreement and the Amended and Restated
Lessee Working Capital Loan Agreement.
"Transmission Line" shall have the meaning set forth in the Transmission
Line EPC Contract.
"Transmission Line EPC Contract" shall mean the Contract for Engineering,
Procurement and Construction of a 115 KV Power Transmission Line, dated as of
November 30, 1990, by and between Lessor and the Transmission Line EPC
Contractor, providing for engineering, procurement and construction services
in connection with the electrical interconnection facilities of the Project.
"Transmission Line EPC Contractor" shall mean Blair Electric Service
Company.
"Transportation Agreements" shall mean the Hauling Agreement between
McCleary-Christie Trucking, Inc., a Pennsylvania corporation, and Lessor,
dated December 15, 1990, and any other agreement entered into (or assigned) at
any time and from time to time by Lessor or Lessee relating to the
transportation of Fuel, limestone, ash or related materials.
"USGen" shall mean U.S. Generating Company, a California general
partnership.
"Unpaid Drawings" shall have the meaning set forth in the Amended and
Restated Reimbursement Agreement.
"Useful Life" of the Facility shall mean the economic useful life of the
Facility as set forth in any appraisal.
"Working Capital Advance" and "Working Capital Loan" shall both mean a Loan
to Lessor pursuant to Section 5.05 of the Amended and Restated Reimbursement
Agreement.
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EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
AMONG
BUZZARD POWER CORPORATION,
AS LESSEE
SCRUBGRASS GENERATING COMPANY, L.P.,
AS LESSOR
ENVIRONMENTAL POWER CORPORATION,
BANKERS TRUST COMPANY,
AS BOND TRUSTEE
BANKERS TRUST COMPANY,
AS DISBURSEMENT AGENT
CREDIT LYONNAIS,
ACTING THROUGH ITS NEW YORK BRANCH,
AS AGENT FOR THE LOC ISSUERS AND THE BANKS
DATED DECEMBER 22, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions; Rules of Construction;
Original Participation Agreement
<TABLE>
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<C> <S> <C>
Section 1.1. Definitions; Rules of Construction.......................... 2
Section 1.2. Original Participation Agreement............................ 2
ARTICLE II
Agreement to Participate; Effective Date
Section 2.1. Agreement to Participate.................................... 2
Section 2.2. Time and Place of Closing................................... 3
ARTICLE III
Conditions of Closing
Section 3.1. Closing Conditions.......................................... 3
ARTICLE IV
Intentionally Omitted
ARTICLE V
Intentionally Omitted
ARTICLE VI
Representations and Warranties
Section 6.1. Representations and Warranties of Lessor.................... 6
Section 6.2. Representations and Warranties of Lessee.................... 6
Section 6.3. Representations and Warranties of EPC....................... 8
Section 6.4. Representations and Warranties of Bond Trustee.............. 11
Section 6.5. Representations and Warranties of Disbursement Agent........ 11
ARTICLE VII
Covenants of Lessor
Section 7.1. Defend Title................................................ 12
Section 7.2. Lessor QF Casualty.......................................... 12
</TABLE>
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ARTICLE VIII
Covenants of Lessee
<TABLE>
<CAPTION>
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<C> <S> <C>
Section 8.1. Reporting Requirements................................... 12
Section 8.2. Certificate; Other Information........................... 13
Section 8.3. Corporate Existence...................................... 14
Section 8.4. Notices.................................................. 14
Section 8.5. Further Assurances, etc.................................. 14
Section 8.6. Inspection of Property................................... 14
Section 8.7. Conduct of Business...................................... 15
Section 8.8. Limitation on Debt....................................... 15
Section 8.9. Limitations on Liens..................................... 15
Section 8.10. Prohibition of Fundamental Changes....................... 15
Section 8.11. Prohibition on Disposition of Assets..................... 15
Section 8.12. Transactions with Affiliates and Others.................. 15
Section 8.13. Defend Title............................................. 15
Section 8.14. Plans.................................................... 16
Section 8.15. No Amendments or Assignments; Compliance................. 16
Section 8.16. Payment of Taxes and Claims.............................. 16
Section 8.17. Books and Records........................................ 16
Section 8.18. Maintenance of Adequate Fuel Supply...................... 16
Section 8.19. Additional Contracts..................................... 16
Section 8.20. Guarantees............................................... 17
Section 8.21. Abandonment.............................................. 17
Section 8.22. Investments.............................................. 17
Section 8.23. Change of Name; Office................................... 17
Section 8.24. Restricted Payments...................................... 17
Licenses and Governmental Approvals; Maintenance of
Section 8.25. Properties............................................... 17
Section 8.26. No Subsidiaries.......................................... 17
Section 8.27. ERISA Plan............................................... 17
Section 8.28. Environmental Matters.................................... 17
Section 8.29. No Contracts with Utilities.............................. 18
Section 8.30. Compliance with Transaction Documents.................... 18
Section 8.31. Compliance with Laws..................................... 18
Operations and Maintenance Agreement and Management
Section 8.32. Services Agreement....................................... 18
Section 8.33. Qualifying Facility...................................... 18
Section 8.34. Covenants of the Lessee.................................. 18
Section 8.35. Lessee Consent to Transaction Documents.................. 18
ARTICLE IX
Covenants of EPC
Section 9.1. Reporting Requirements; Audits........................... 19
Section 9.2. Corporate Existence...................................... 19
Section 9.3. Notices.................................................. 19
Section 9.4. Further Assurances, etc.................................. 20
Section 9.5. No Amendments or Assignments; Compliance................. 20
Section 9.6. Separate Operation of Lessee............................. 20
</TABLE>
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ARTICLE X
Indemnity
<TABLE>
<CAPTION>
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<S> <C> <C>
Section 10.1. Indemnity..................................................... 21
Section 10.2. General Tax Indemnification................................... 23
Section 10.3. Manner of Indemnification..................................... 28
ARTICLE XI
Lease Termination Covenants
Section 11.1. Lessee Agreement to Lease Termination......................... 28
Section 11.2. Lease Termination Covenants................................... 28
ARTICLE XII
Assignment
Section 12.1. Benefit of Agreement, Etc. ................................... 29
Section 12.2. Transfer of Interests of Lessor............................... 29
ARTICLE XIII
Intentionally Omitted
ARTICLE XIV
Limitation on Recourse
ARTICLE XV
Miscellaneous
Section 15.1. Notices....................................................... 30
Section 15.2. Governing Law................................................. 30
Section 15.3. Headings...................................................... 30
Section 15.4. Counterparts.................................................. 30
Section 15.5. Survival of Agreements........................................ 30
Section 15.6. Confidentiality............................................... 30
Section 15.7. Severability.................................................. 31
Section 15.8. Transaction Costs............................................. 31
Section 15.9. Lessor Obligations Not Limited by Amended and Restated Lease.. 31
Section 15.10. Performance of Obligations to Bank Parties.................... 31
Section 15.11. Intentionally Omitted......................................... 31
Section 15.12. Financial Statements.......................................... 31
</TABLE>
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<TABLE>
<C> <S>
Schedule I Transaction Documents in Effect on Effective Date
Schedule II INTENTIONALLY OMITTED
Schedule III Consents, Permits to be Obtained after Effective Date
Schedule IV Notice Provisions
Schedule V Lessee Disclosure Schedule
Schedule VI EPC Disclosure Schedule
Exhibit A Amended and Restated Lease
Exhibit B INTENTIONALLY OMITTED
Exhibit C Tax Indemnity Agreement
Exhibit D Amended and Restated Lessee Working Capital Loan Agreement
Appendix I Definitions
</TABLE>
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EXHIBIT 10.71
AMENDED AND RESTATED PARTICIPATION AGREEMENT
This AMENDED AND RESTATED PARTICIPATION AGREEMENT (hereinafter referred to
as the "Participation Agreement" or "this Agreement"), dated December 22,
1995, is entered into by and among:
(a)Buzzard Power Corporation, a Delaware corporation ("Lessee"),
(b)Scrubgrass Generating Company, L.P., a Delaware limited partnership
("Lessor"),
(c)Environmental Power Corporation, a Delaware corporation ("EPC"),
(d) Bankers Trust Company ("Bond Trustee"), not in its individual capacity
but solely as trustee under the Indenture,
(e) Bankers Trust Company ("Disbursement Agent," in its capacity as
disbursement agent and not as representative of any entity or person),
and
(f) Credit Lyonnais, acting through its New York Branch ("Credit
Lyonnais"), as agent for the Bond LOC Issuer, the Contract LOC Issuer
and the Banks listed on Schedule I attached to the Amended and Restated
Reimbursement Agreement (as defined in Appendix I hereto)
(collectively, the "Banks"), ("Agent").
WHEREAS, Lessee, Lessor, EPC, Bond Trustee, Disbursement Agent, National
Westminster Bank Plc, acting through its New York Branch ("NatWest"), as
issuer of certain letters of credit under the Original Reimbursement Agreement
(as defined below) (NatWest in such capacity, the "Original LOC Issuer") and
NatWest as agent for the Original LOC Issuer and the Banks listed on Schedule
I to the Original Reimbursement Agreement (as defined below) (such Banks, the
"Original Banks") (NatWest in such capacity, the "Original Agent") are parties
to a Participation Agreement dated as of December 15, 1990, as amended by
Amendment Number One to Participation Agreement dated as of July 15, 1991,
Amendment Number Two to Participation Agreement dated as of December 19, 1991,
Amendment Number Three to Participation Agreement dated as of November 30,
1992, and Amendment Number Four to Participation Agreement dated as of June
17, 1994 (as so amended or otherwise modified and supplemented and as in
effect immediately before the amendment and restatement thereof contemplated
hereby becomes effective, the "Original Participation Agreement") which sets
forth certain agreements and relationships between and among themselves
relating to the construction, financing, leasing, and operation of a coal and
coal-waste fired approximately 85 megawatt (net) small power production plant
to be located in Venango County, Pennsylvania, as more particularly described
on Exhibit A to the Lease (the "Facility"), and the real property on which it
is located (the "Site");
WHEREAS, the Lessor, the Original Banks, the Original LOC Issuer and the
Original Agent are parties to a Reimbursement and Loan Agreement dated as of
December 15, 1990 (as amended, supplemented and otherwise modified and in
effect to but excluding the date hereof, the "Original Reimbursement
Agreement"), which provides for, among other things, the making of loans to
and the issuance of letters of credit for the account of the Lessor, all to be
secured by all of the Lessor's right, title and interest in and to, inter
alia, the Project and all Project Revenues (as each such term is defined in
the Original Participation Agreement) or other proceeds therefrom;
WHEREAS, NatWest has resigned as Agent under (and as defined in) the
Original Participation Agreement, the Original Reimbursement Agreement and
certain other documents entered into in connection therewith;
WHEREAS, the Original Banks have appointed Credit Lyonnais, acting through
its New York Branch, as successor Agent under (and as defined in) the Original
Participation Agreement, the Original Reimbursement Agreement and certain
other documents entered into in connection therewith (and the Lessor has
acknowledged and ratified such appointment);
WHEREAS, the Lessor, the Banks, the Original LOC Issuer and Credit Lyonnais,
as Agent, have entered into the Amended and Restated Reimbursement Agreement
(as defined in Appendix I hereto), providing for the amendment and restatement
of the Original Reimbursement Agreement;
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WHEREAS, it is a condition precedent to the effectiveness of the Amended and
Restated Reimbursement Agreement that the parties hereto enter into this
Agreement; and
WHEREAS, the parties hereto desire to amend and restate the Original
Participation Agreement in certain respects as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
Definitions; Rules of Construction;
Original Participation Agreement
Section 1.1. Definitions; Rules of Construction. Capitalized terms used
herein shall, unless the context otherwise requires or they are otherwise
defined herein, have the meanings set forth in Appendix I hereto. References
in this Agreement to articles, sections, paragraphs and clauses are to
articles, sections, paragraphs and clauses of this Agreement unless otherwise
indicated. All references herein to any agreement shall be to such agreement
as properly amended or modified to the date of reference. All references to a
particular entity shall include a reference to such entity's successors and
permitted assigns. Except as otherwise required by the context, such
definitions shall be equally applicable to the singular or plural forms of the
terms defined. The words "herein," "hereof" and "hereunder" shall refer to
this Agreement as a whole and not to any particular section or subsection of
this Agreement.
Section 1.2. Original Participation Agreement. Effective on the Effective
Date, the Original Participation Agreement shall automatically, without any
further notice, consent or other act, be amended and restated hereby and to
the extent this Participation Agreement restates the Original Participation
Agreement, the Original Participation Agreement is restated and to the extent
this Participation Agreement amends the Original Participation Agreement, the
Original Participation Agreement is amended.
ARTICLE II
Agreement to Participate; Effective Date
Section 2.1. Agreement to Participate. In reliance on the agreements,
representations, warranties and covenants contained in or made pursuant to
this Agreement and the other Transaction Documents, and subject to the terms
and conditions set forth in this Agreement, the parties hereto agree as
follows:
(a) On the Effective Date. Subject to fulfillment, satisfaction or waiver
in accordance with the terms thereof, prior to or on the Effective Date, of
the conditions set forth in Section 3.1 hereof and in Section 8.01 of the
Amended and Restated Reimbursement Agreement, on the Effective Date:
(i) Lessor, Agent, NatWest and the Banks, severally and not jointly,
will enter into the Amended and Restated Reimbursement Agreement;
(ii) Lessor, Agent, Lessee, Falcon, SPC, East Bay, EPC and USGen will
enter into the Omnibus Reaffirmation Agreement;
(iii) Lessor and Lessee will enter into the Amended and Restated
Lease and the Memorandum of Amended and Restated Lease;
(iv) Each of Lessor, Lessee, Disbursement Agent and Agent will enter
into the Amended and Restated Disbursement Agreement; and
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(v) The Participants will enter into such other agreements,
certificates and other documents and take such other actions as are
necessary to institute the foregoing and consummate the transactions
contemplated thereby to be consummated on the Effective Date.
Section 2.2. Time and Place of Closing. The closing of the events occurring
on the Effective Date shall take place on the Effective Date, at the offices
of Skadden, Arps, Slate, Meagher & Flom, 1440 New York Avenue, N.W.,
Washington, D.C., or at such other time and place as the parties to this
Agreement shall agree.
ARTICLE III
Conditions of Closing
Section 3.1. Closing Conditions. The obligation of each of Agent, the LOC
Issuers and the Banks to enter into the Transaction Documents to which it is a
party on the Effective Date shall be subject to the fulfillment, satisfaction
or waiver, prior to or on the Effective Date and in accordance with the
Amended and Restated Reimbursement Agreement, of each condition set forth in
Section 8.01 of the Amended and Restated Reimbursement Agreement. In addition,
the obligations of each Participant to enter into the Transaction Documents to
which it is a party on the Effective Date shall be subject to the fulfillment
or satisfaction of the following conditions precedent by each other
Participant, or the waiver of such conditions by each Participant receiving
the benefit thereof:
(a) Execution and Delivery of Transaction Documents; Existing Transaction
Documents. Each Participant shall have full power and authority to execute
and deliver the Transaction Documents to which it is a party, to enter into
the transactions contemplated thereby and to perform its obligations
thereunder. Those Transaction Documents in effect on the Effective Date (as
set forth on Schedule I hereto) shall have been duly authorized, executed
and delivered by the parties thereto, shall be in form and substance
satisfactory to each Participant, and shall be in full force and effect and
shall not have been amended, modified or supplemented except as may have
been agreed to in writing by each of the parties thereto.
(b) No Material Change. Since the date of their most recent balance
sheets and financial statements, no material adverse change shall have
occurred in the status of the business, operations, condition (financial or
otherwise) or prospects of Lessor, Lessee, the Bond Trustee and the
Disbursement Agent.
(c) No Change in Law; Violation of Law. There shall have been no change
in any existing Law, nor any new Law proposed or promulgated, the impact of
which in either case would materially and adversely affect the Project; and
no Requirement of Law shall be in effect or shall have occurred the effect
of which is to prevent any party to this Agreement or any other Transaction
Document from fulfilling its obligations hereunder or thereunder. The
obligations of each Participant to execute and deliver the Transaction
Documents to which it is a party, to enter into the transactions
contemplated thereby and to perform its obligations thereunder shall not
violate or contravene any Requirement of Law.
(d) No Litigation. No action, proceeding or investigation shall have been
instituted or be threatened, nor shall any action before any Governmental
Authority have been instituted or be threatened, nor shall any order,
judgment or decree have been issued or proposed to be issued by any
Governmental Authority, each to set aside, restrain, enjoin or prevent the
consummation of this Agreement or the transactions contemplated hereby or
by the other Transaction Documents or that would have a material adverse
effect on the Project or on the ability of any party to this Agreement or
any of the other Transaction Documents to perform its obligations hereunder
and thereunder.
(e) Consents and Approvals. (i) All actions, consents, waivers,
exemptions, franchises, Governmental Approvals and rights (A) that are both
required to be taken, given or obtained, as the case may be, by or from any
Governmental Authority, and necessary to be taken, given or obtained by the
Effective Date or (B) that are in the opinion of Lessor, the Bank Parties
or Lessee, or the special counsel of
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any such party, advisable in connection with the operation of the Project
and the lease of the Facility and the Site and that are or should be
capable of being taken, given or obtained as of the Effective Date, shall
have been duly taken, given or obtained, as the case may be, shall be in
full force and effect on the Effective Date, shall not be subject to any
pending proceedings or appeals (administrative, judicial or otherwise) and
either the time within which any appeal from any such proceeding may be
taken or review thereof may be obtained shall have expired or no review
thereof may be obtained or appeal therefrom taken, and shall be adequate to
authorize the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents and the performance by each
of the Participants of its obligations under this Agreement and such of the
other Transaction Documents to which it is a party.
(ii) There shall not have occurred any event which would adversely
affect the anticipated delivery or issuance of, and when needed, all
filings, notices and registrations or other actions with respect to any
Government Authority necessary, required or appropriate in connection
with the execution, delivery and performance of this Agreement or the
other Transaction Documents or any transactions contemplated herein or
therein or in any other agreement entered into in connection herewith
or therewith, including without limitation all environmental
Governmental Approvals necessary or appropriate for the Project; and no
approval of any other Person that has not been obtained shall be
required to be obtained in connection with the Project as of the
Effective Date, whether in connection with an agreement binding on any
party to a Transaction Document or otherwise.
(f) Representations and Warranties True. Each of the representations and
warranties made in Article VI hereof by each of the Participants shall be
true and correct on the Effective Date as though made on and as of the
Effective Date.
(g) No Default. There shall exist no Default or Event of Default under
any Transaction Document.
(h) Officers' Certificates. Each of the Participants (other than the
Agent and the LOC Issuer) shall have delivered an Officer's Certificate, to
the effect that (i) the representations and warranties of such party
contained in this Agreement and in any other Transaction Document are true
and correct on and as of the Effective Date as though made on and as of the
Effective Date, (ii) each Transaction Document to which it is a party
entered into on the Effective Date has been duly authorized, executed and
delivered by it and (iii) each of the obligations of such party to be
performed by it on or prior to the Effective Date pursuant to the terms of
this Agreement has been duly performed or waived by the other Participants.
(i) Authorization by Parties to this Agreement. All action required to be
taken by or on behalf of each Participant to authorize the execution,
delivery and performance of this Agreement and the other Transaction
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken and
each Participant (other than Agent, the LOC Issuers and the Banks) shall
have delivered certified copies of its charter documents and by-laws, if
any, and certified resolutions authorizing the execution, delivery and
performance of each of the Transaction Documents to which it is a party,
and certificates of the incumbency and specimen signatures of the officers
of such party signing any such Transaction Documents, and any other
certificates and other evidence to such effect as the other parties to this
Agreement and their counsel may reasonably request shall have been
delivered.
(j) Authorization by Certain Other Parties. All action required to be
taken by or on behalf of any party to the Transaction Documents (other than
the Participants) to authorize the execution, delivery and performance of
the Transaction Documents to which it is a party and the consummation of
the transactions contemplated thereby shall have been duly and validly
taken and such certificates, opinions and other evidence to such effect as
each Participant and the special counsel of each Participant may reasonably
request shall have been delivered.
(k) Insurance. All insurance required as of the Effective Date by Section
10.04 of the Amended and Restated Reimbursement Agreement shall be in
effect, as demonstrated by evidence satisfactory to Lessor and the Bank
Parties; and there shall have been delivered to Lessor and the Bank Parties
copies of insurance
4
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certificates required as of the Effective Date pursuant to Section 8.01(i)
of the Amended and Restated Reimbursement Agreement.
(l) Opinions. Opinions of the firm or legal counsel set forth below in
substantially the form and substance heretofore agreed upon by the parties
hereto and as to such other matters as may be requested by Lessor, Agent,
Bond Trustee, Disbursement Agent and Lessee shall have been delivered to
Lessor, the Banks, Agent, Disbursement Agent and Bond Trustee:
(i) Hunton & Williams, special counsel to Lessee and EPC;
(ii) Buchanan Ingersoll, P.C., special Pennsylvania counsel to Lessor
and Lessee;
(iii) Hunton & Williams, special counsel to Lessor;
(iv) Hawkins, Delafield & Wood, special counsel to Bond Trustee and
Disbursement Agent;
(v) Richard M. Loomis, Esq., counsel to Pine; and
(vi) Richard C. Jones, Esq., counsel to Falcon and SPC.
(m) Engineering Reports. There shall have been delivered to the Bank
Parties and Lessor a report of the Independent Engineer, satisfactory to
the recipients and covering such matters as they may request.
(n) Security Interest. Each of the Security Documents then required by
the provisions of this Agreement, the Amended and Restated Reimbursement
Agreement or any Requirement of Law, to have been executed and delivered
shall have been duly filed, recorded and/or registered in each jurisdiction
as may be required or appropriate by Law to establish, perfect, protect and
preserve the rights, titles, interests, remedies, powers, privileges, Liens
and security interests of the Bank Parties or Lessor thereunder or in
respect thereof, and any giving of notice (including filing financing
statements under the Uniform Commercial Code) or the taking of any other
action to such end (whether similar or dissimilar) required by law shall
have been given or taken, and the Bank Parties and Lessor shall have
received evidence satisfactory to them as to any such filing, recording,
registration, giving of notice and/or other action; no further acts shall
be required to perfect the Lien of the Security Documents on the
Collateral; and there shall have been delivered evidence satisfactory to
the Participants and their special counsel to the effect that they have
acquired the perfected security interests intended to be created pursuant
to the Security Documents.
(o) Title Policies. The policies of title insurance insuring the Project
Mortgage shall have been endorsed as of the Effective Date as described in
Section 8.01(f) of the Amended and Restated Reimbursement Agreement.
(p) Forms of Documents; Proceedings. All agreements, certificates,
opinions and other instruments to be delivered under this Agreement shall
be in form and substance satisfactory, and all proceedings taken in
connection therewith and with this Agreement shall be satisfactory, to the
Participants and to the special counsel of each Participant.
ARTICLE IV
Intentionally Omitted
ARTICLE V
Intentionally Omitted
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ARTICLE VI
Representations and Warranties
Section 6.1. Representations and Warranties of Lessor. Lessor makes the
representations and warranties of Article IX of the Amended and Restated
Reimbursement Agreement as if they were fully set forth herein.
Section 6.2. Representations and Warranties of Lessee. Lessee represents and
warrants as follows:
(a) Lessee hereby represents and warrants as of the Effective Date the
following:
(i) Organization and Good Standing. Lessee is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to do business and in good
standing in each jurisdiction in which the failure so to qualify would
adversely affect its business, properties or financial condition.
Lessee has all requisite corporate power and authority to own, or hold
under lease, and operate its properties, to carry on its business as it
is now conducted and as contemplated by the Transaction Documents and
to enter into and perform its obligations under this Agreement and the
other Transaction Documents to which it is or will be a party.and every
other document delivered in connection herewith or therewith to which
it is or will be a party. There are no agreements, written or oral,
between Lessee and any person relating to or affecting the capital
stock of Lessee, except for the Buzzard Stock Pledge Agreement.
(ii) Due Authorization; No Conflicts. The execution, delivery and
performance by Lessee of this Agreement and the other Transaction
Documents and every other document delivered in connection herewith or
therewith to which it is or will be a party have been duly and
effectively authorized by all necessary corporate action of Lessee. No
other corporate proceedings are necessary to authorize the execution
and delivery by Lessee of this Agreement or the other Transaction
Documents to which it is or will be a party or the transactions
contemplated herein or therein; and this Agreement and each of the
other Transaction Documents and every other document delivered in
connection herewith or therewith, to which it is or will be a party is
the valid and binding obligation of Lessee, enforceable in accordance
with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or similar laws from time to time in
effect that affect creditors' rights generally or by general principles
of equity. Neither the execution and delivery of this Agreement or any
of the other Transaction Documents to which Lessee is or will be a
party nor the consummation of the transactions contemplated hereby or
thereby nor compliance by Lessee with any of the provisions hereof or
thereof will (A) violate, or conflict with, or result in a breach of
any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required
by, or result in the creation of any Lien upon any of the properties or
assets of Lessee under any of the terms, conditions or provisions of,
the Articles of Incorporation or By-Laws of Lessee in effect on the
Effective Date or any note, bond, mortgage, indenture, deed of trust,
license, agreement or other instrument or obligation to which Lessee is
a party at the Effective Date, or by which Lessee or any of its
properties or assets may be bound or affected as of the Effective Date,
or (B) violate any order, writ, injunction, decree, arbitral award,
statute, rule or regulation applicable at the Effective Date to Lessee
or any of its properties or assets.
(iii) No Consent Required. (A) No Governmental Approval and no
filing, recording or registration with any Governmental Authority is
now, or under existing Law in the future will be, required or necessary
on Lessee's behalf to authorize the execution and delivery of this
Agreement or the other Transaction Documents to which Lessee is or will
be a party or (except as listed on Schedule III) the taking of any
future action contemplated hereby or thereby or for the legality,
validity, binding effect or enforceability thereof, except such thereof
as have been duly obtained and are in full force and effect and
documented to the satisfaction of the other parties hereto and listed
on Schedule III; and (B) Lessee has no reason to believe that any
Governmental Approval or recording, registration or filing required to
be obtained by Lessee that is necessary for the taking of any future
action contemplated hereby or by the other Transaction Documents will
not be obtained or completed in due course no later
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than the date required for the taking of such action to permit the
operation of the Facility as contemplated by the Transaction Documents
and the Effective Date Projections.
(iv) No Default under Other Agreements. Lessee is not in default, and
no condition exists that with notice or lapse of time or both would
constitute a default, under any mortgage, deed of trust, indenture or
other instrument or agreement to which it is or will be a party or by
which it or any of its properties or assets may be bound, that might
have a material adverse effect on it or on any of the transactions
contemplated hereby or by the other Transaction Documents to which it
is or will be a party.
(v) Litigation. (A) There is no (x) litigation, proceeding, labor
dispute, arbitration or government investigation pending or, so far as
known to Lessee, threatened with respect to or otherwise relating to
Lessee or the properties or assets of Lessee, or, to the best of the
knowledge of Lessee, the Project, the transactions contemplated by this
Agreement or personnel employed by Lessee with reference to actions
taken by it in connection with the Project, in such capacities, or (y)
valid basis known to Lessee for any litigation of the type described in
clause (x) above, or any other litigation, proceeding or investigation
or valid basis therefor known to Lessee which if adversely determined
could, in any one case or in the aggregate, have a material adverse
effect on Lessee or the Project or the properties or assets of Lessee;
and (B) there are no decrees, injunctions or orders of any court or
government department or agency or arbitral awards outstanding against
Lessee or the properties or assets of Lessee.
(vi) Compliance with Law. (A) Lessee has complied in all material
respects with and is in all material respects in compliance with all
Requirements of Law; (B) Lessee has received no written notice to the
effect that, or otherwise been advised in writing that, it is not in
compliance with any Requirement of Law or Governmental Approval; (C)
Lessee has no reason to believe that any currently existing
circumstances are likely to result in violations by Lessee of any such
Requirement of Law which could in any one case or in the aggregate,
have an adverse effect on the Project; and (D) to the best of the
knowledge of Lessee, there is not now pending any proceeding, hearing
or investigation with respect to the adoption of amendments or
modifications to any existing Requirement of Law or Governmental
Approval with respect to such matters which, if adopted, would
adversely affect Lessee or the Project.
(vii) Disclosure. The representations and warranties of Lessee
contained in the Transaction Documents to which it is a party executed
prior to the Effective Date, or in any certificates and agreements
furnished in connection with any such Transaction Document were true
and correct when made and no such representation by Lessee in any such
Transaction Document contained any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements
contained therein not misleading. The representations and warranties of
Lessee contained in the Transaction Documents executed on the Effective
Date to which it is a party, or in any certificates or agreements
furnished in connection with any such Transaction Document, are true
and correct and no such representation by Lessee contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements contained therein not misleading.
There is no fact peculiar to Lessee or the Project and known to Lessee
that materially adversely affects or in the future may (so far as
Lessee can now reasonably foresee) materially adversely affect the
business, property or assets, or financial condition, of Lessee or the
Project that has not been set forth herein or therein.
(viii) Tax Returns. (A) Other than in respect of 1994 Federal and
State income tax returns, Lessee has properly filed or caused to be
filed all Federal, state and other income tax returns and reports and
all other material tax returns and reports that are required to have
been filed and has paid or caused to be paid all Taxes shown to be due
or payable on such returns or on any assessment received by it, to the
extent that such Taxes have become due and payable (except to the
extent being contested in good faith with due diligence by appropriate
proceedings and for the payment of which reserves have been provided to
the extent required under GAAP); (B) there are no outstanding
agreements or waivers extending any statutory period of limitations
applicable to any Federal, state or other income tax return
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or other material tax return of Lessee for any period; (C) Lessee is
not a party to any pending action or proceeding by any Governmental
Authority for the assessment of any Tax, and no claim for assessment or
collection of any Tax has been asserted against it that has not been
paid; and (D) there are no tax Liens upon any property or assets of
Lessee except for property taxes not yet due.
(ix) No Other Agreements. Lessee is not a party to any agreement or
understanding, written or oral, that would vary any of the terms and
conditions of the Transaction Documents, and, to the best of Lessee's
knowledge, there are no agreements or understandings that are relevant
in any material respect to the transactions contemplated by this
Agreement that have not been disclosed in writing to the other parties
hereto.
(x) No Public Offering. Other than in respect of a potential sale of
all of the assets and stock of EPC, each of its Affiliates, and the
Lessee in connection with a private stock or asset sale in 1994,
neither Lessee, nor any affiliate (within the meaning of the Securities
Act) of Lessee, nor any Person authorized to act on behalf of Lessee
has, directly or indirectly, offered any security relating to Lessee or
the Project or solicited any offers to buy any such interest or
otherwise negotiated with respect thereto with any Person.
(xi) Brokers' or Finders' Fees. Except as disclosed on Schedule V
hereto, neither Lessee nor its Affiliates has made any contract or had
any dealings with or entered into, nor will enter into, any agreement,
arrangement or understanding with any broker, leasing agent, finder or
similar Person with respect to this Agreement, any Transaction Document
or the transactions contemplated herein or therein which will result in
the obligation of Lessor, any Bank Party or any other Participant to
pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated herein or therein.
(xii) Compliance with Transaction Documents, Etc. To the best of
Lessee's knowledge, except for amendments set forth in the definitions
of the respective documents set forth in Appendix I, copies of which
have been provided to Lessor and Agent by Lessee or some other Person,
the Transaction Documents in effect on the Effective Date have not been
modified or amended as of the Effective Date and are in full force and
effect; to the best of Lessee's knowledge, there is no default on the
part of any party under any of such documents; to the best of Lessee's
knowledge no event that would constitute a Default or Event of Default
under the Amended and Restated Reimbursement Agreement has occurred and
is continuing which default or event has not been cured or been waived
in accordance with the Amended and Restated Reimbursement Agreement; as
of the date hereof, Lessee has the right, power, and ability to comply
with all of the terms of such documents to which it is a party and all
conditions to the continued effectiveness of such documents required to
be satisfied by it as of the date hereof have been satisfied.
(xiii) No Utility Ownership of Lessee; No Investment Company. Lessee
has not performed any act or failed to perform any act that would cause
it to be deemed by any Governmental Authority to be subject to finance,
organizational or rate regulation as an "electric utility", "electric
corporation", "electrical company", "public utility", "public utility
holding company", or similar entity under any Requirement of Law, and
no person controlled by such entity has any direct or indirect
ownership or equity interest in the Lessee or right to acquire the
same. The Lessee is not an "investment company" or a company
"controlled by" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xiv) ERISA. Neither Lessee nor any of its ERISA Affiliates maintains
or contributes to (or has any obligation to contribute to) any Plan or
has any liability under Title IV of ERISA by reason of the termination
of any Plan or the withdrawal from any Multiemployer Plan. Lessee does
not maintain any Employee Benefit Plan.
Section 6.3. Representations and Warranties of EPC. EPC represents and
warrants as follows:
(a) Organization and Good Standing. EPC is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to do business and in good
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standing in each jurisdiction in which the failure so to qualify would
adversely affect its business, properties or financial condition. EPC has
all requisite corporate power and authority to own, or hold under lease,
and operate its properties, to carry on its business as it is now conducted
and as contemplated by the Transaction Documents and to enter into and
perform its obligations under this Agreement and the other Transaction
Documents to which it is or will be a party and every other document
delivered in connection herewith or therewith to which it is or will be a
party. There are no agreements, written or oral, between EPC and any person
relating to or affecting the capital stock of Lessee, except for the
Buzzard Stock Pledge Agreement.
(b) Due Authorization; No Conflicts. The execution, delivery and
performance by EPC of this Agreement and the other Transaction Documents
and every other document delivered in connection herewith or therewith to
which it is or will be a party have been duly and effectively authorized by
all necessary corporate action of EPC. No other corporate proceedings are
necessary to authorize the execution and delivery by EPC of this Agreement
or the other Transaction Documents to which it is or will be a party or the
transactions contemplated herein or therein; and this Agreement and each of
the other Transaction Documents and every other document delivered in
connection herewith or therewith, to which it is or will be a party is the
valid and binding obligation of EPC, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency or similar laws from time to time in effect that
affect creditors' rights generally or by general principles of equity.
Except as disclosed on Schedule VI hereto, neither the execution and
delivery of this Agreement or any of the other Transaction Documents to
which EPC is or will be a party nor the consummation of the transactions
contemplated hereby or thereby nor compliance by EPC with any of the
provisions hereof or thereof will (A) violate, or conflict with, or result
in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance
required by, or result in the creation of any Lien upon any of the
properties or assets of EPC or the Project or the transactions contemplated
by the Transaction Documents under any of the terms, conditions or
provisions of, the Articles of Incorporation or By-Laws of EPC in effect on
the Effective Date or any note, bond, mortgage, indenture, deed of trust,
license, agreement or other instrument or obligation to which EPC is a
party at the Effective Date, or by which EPC or any of its properties or
assets or the Project or the transactions contemplated by the Transaction
Documents may be bound or affected as of the Effective Date, or (B) violate
any order, writ, injunction, decree, arbitral award, statute, rule or
regulation applicable at the Effective Date to EPC or any of its properties
or assets or to the Project or the transactions contemplated by the
Transaction Documents.
(c) No Consent Required. (A) No Governmental Approval and no filing,
recording or registration with any Governmental Authority is now, or under
existing Law in the future will be, required or necessary on EPC's behalf
to authorize the execution and delivery of this Agreement or the other
Transaction Documents to which EPC is or will be a party or (except as
listed on Schedule III) the taking of any future action contemplated hereby
or thereby or for the legality, validity, binding effect or enforceability
thereof, except such thereof as have been duly obtained and are in full
force and effect and listed on Schedule III; and (B) EPC has no reason to
believe that any Governmental Approval or recording, registration or filing
required to be obtained by EPC that is necessary for the taking of any
future action contemplated hereby or by the other Transaction Documents
will not be obtained or completed in due course no later than the date
required for the taking of such action to permit the operation of the
Facility as contemplated by the Transaction Documents and the Effective
Date Projections.
(d) No Default under Other Agreements. Except as disclosed on Schedule VI
hereto, EPC is not in default, and no condition exists that with notice or
lapse of time or both would constitute a default, under any mortgage, deed
of trust, indenture or other instrument or agreement to which it is a party
or by which it or any of its properties or assets may be bound, that could
have a material adverse effect on the Project or on any of the transactions
contemplated hereby or by the other Transaction Documents to which it is a
party; and EPC is not in violation of any Requirements of Law that could
have a material adverse effect on the Project or on any of the transactions
contemplated hereby or under any of the other Transaction Documents to
which it is a party.
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(e) Litigation. (A) Except as disclosed on Schedule VI to this Agreement,
there is no (x) litigation, proceeding, labor dispute, arbitration or
government investigation pending or, so far as known to EPC, threatened
with respect to or otherwise relating to EPC or, to the best of EPC's
knowledge, the Project or the transactions contemplated by this Agreement
or the other Transaction Documents or personnel employed by EPC with
reference to actions taken by it in connection with the Project, in such
capacities, or (y) valid basis known to EPC for any litigation of the type
described in clause (x) above, or any other litigation, proceeding or
investigation or valid basis therefor known to EPC which if adversely
determined could, in any one case or in the aggregate, have a material
adverse effect on EPC or the Project; and (B) there are no decrees,
injunctions or orders of any court or government department or agency or
arbitral awards outstanding against EPC relating to EPC or, to the best of
EPC's knowledge, the Project or the transactions contemplated by the
Transaction Documents.
(f) Compliance with Law. (A) EPC has complied in all material respects
with all Requirements of Law relating to the Project or the transactions
contemplated by the Transaction Documents, EPC has received no written
notice to the effect that, or otherwise been advised in writing that, it is
not in compliance with any Requirement of Law or Governmental Approval
relating to the Project or the transactions contemplated by the Transaction
Documents, and EPC has no reason to believe that any currently existing
circumstances are likely to result in violations by EPC of any such
Requirement of Law which could in any one case or in the aggregate, have an
adverse effect on the obligations or performance of EPC under any
Transaction Document or the Project; and (B) to the best of the knowledge
of EPC, there is not now pending any proceeding, hearing or investigation
with respect to the adoption of amendments or modifications to any existing
Requirement of Law or Governmental Approval with respect to such matters
which, if adopted, would adversely affect the obligations or performance of
EPC under any Transaction Document or the Project.
(g) Disclosure. The representations and warranties of EPC contained in
the Transaction Documents to which it is a party executed prior to the
Effective Date, or in any certificates or agreements furnished in
connection with any such Transaction Document were true and correct when
made and no such representation by EPC contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements contained therein not misleading. The representations and
warranties of EPC contained in the Transaction Documents executed on the
Effective Date to which it is a party, or in any certificates or agreements
furnished in connection with any such Transaction Document, are true and
correct and no such representation by EPC contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained therein not misleading. There is no fact peculiar to
EPC or the Project and known to EPC that materially adversely affects or in
the future could (so far as EPC can now reasonably foresee) materially
adversely affect the Project or the obligations or performance of EPC under
the Transaction Documents.
(h) No Other Agreements. EPC is not a party to any agreement or
understanding, written or oral, that would vary any of the terms and
conditions of the Transaction Documents, and, to the best of EPC's
knowledge, there are no agreements or understandings that are relevant in
any material respect to the transactions contemplated by this Agreement
that have not been disclosed in writing to the other parties hereto.
(i) Brokers' or Finders' Fees. Except as disclosed on Schedule VI hereto,
neither EPC nor its Affiliates has made any contract or had any dealings
with or entered into, nor will enter into, any agreement, arrangement or
understanding with any broker, leasing agent, finder or similar Person with
respect to this Agreement, any Transaction Document or the transactions
contemplated herein or therein which will result in the obligation of
Lessor, any Bank Party or any other Participant to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated herein or therein.
(j) Compliance with Transaction Documents, Etc. To the best of EPC's
knowledge, except for any amendments made in accordance with the terms of
this Agreement, the Transaction Documents to which it is a party in effect
on the Effective Date have not been modified or amended as of the Effective
Date and are in full force and effect; to the best of EPC's knowledge,
there is no default on the part of any party
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under any of such documents; as of the date hereof, all conditions to the
continued effectiveness of such documents required to be satisfied by EPC
as of the date hereof have been satisfied.
(k) No Utility Ownership of EPC. EPC is not and will not be, after giving
effect to the transaction contemplated by this Agreement, deemed by any
Governmental Authority to be subject to finance, organizational or rate
regulation as an "electric utility", "electric corporation", "electrical
company", "public utility", "public utility holding company" or similar
entity under any Requirement of Law, and, except as described on Schedule
VI hereto, to the best knowledge of EPC, no person controlled by such
entity has any direct or indirect ownership or equity interest in EPC or
right to acquire the same.
(l) No Public Offering. Other than in respect of a potential sale of all
of the assets and stock of EPC, each of its Affiliates, and the Lessee in
connection with a private stock or asset sale in 1994, neither EPC, nor any
affiliate (within the meaning of the Securities Act) of EPC, nor any Person
authorized to act on behalf of EPC has, directly or indirectly, offered any
security relating to the Lessee or the Project or solicited any offers to
buy any such interest or otherwise negotiated with respect thereto with any
Person.
(m) Financial Statements. EPC has delivered to Lessor and Agent copies of
the unaudited balance sheet and statements of income, cash flow and changes
in financial condition of EPC of and as of September 30, 1995, certified by
an Authorized Officer of EPC. Such financial statements fairly represent
the financial condition of EPC as of and at such date.
(n) [INTENTIONALLY OMITTED.]
Section 6.4. Representations and Warranties of Bond Trustee. Bond Trustee
represents and warrants as follows:
(a) Organization and Good Standing. Bond Trustee is a trust company duly
organized, validly existing and in good standing under the laws of the
State of New York and is duly qualified to do business and in good standing
in each jurisdiction in which the failure so to qualify would adversely
affect its business, properties or financial condition. Bond Trustee has
all requisite corporate power and authority to enter into and perform its
obligations under this Agreement and the other Transaction Documents to
which it is a party and every other document delivered in connection
herewith or therewith to which it is a party.
(b) Due Authorization; No Conflicts. The execution, delivery and
performance by Bond Trustee of this Agreement and the Indenture and every
other document delivered in connection herewith or therewith to which it is
a party have been duly authorized by all necessary corporate action of Bond
Trustee. This Agreement and the Indenture and every other document
delivered in connection herewith or therewith, to which it is a party is
the valid and binding obligation of Bond Trustee, enforceable in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency or similar laws from time to time in effect that
affect creditors' rights generally or by general principles of equity.
(c) No Consent Required. To the best of its knowledge, no Governmental
Approval and no filing, registration or recording is now, or under existing
Law in the future will be, required or necessary on its behalf to authorize
the execution and delivery of this Agreement or the Indenture or the taking
of any future action contemplated hereby or thereby or for the legality,
validity, binding effect or enforceability thereof.
Section 6.5. Representations and Warranties of Disbursement
Agent. Disbursement Agent represents and warrants as follows:
(a) Organization and Good Standing. Disbursement Agent is a trust company
duly organized, validly existing and in good standing under the laws of the
State of New York and is duly qualified to do business and in good standing
in each jurisdiction in which the failure so to qualify would adversely
affect its business, properties or financial condition. Disbursement Agent
has all requisite corporate power and authority to enter into and perform
its obligations under this Agreement and the other Transaction Documents to
which it is a party and every other document delivered in connection
herewith or therewith to which it is a party.
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(b) Due Authorization; No Conflicts. The execution, delivery and
performance by Disbursement Agent of this Agreement and the Disbursement
Agreement and every other document delivered in connection herewith or
therewith to which it is a party have been duly authorized by all necessary
corporate action of Disbursement Agent. This Agreement and the Disbursement
Agreement and every other document delivered in connection herewith or
therewith, to which it is a party is the valid and binding obligation of
Disbursement Agent, enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency or
similar laws from time to time in effect that affect creditors' rights
generally or by general principles of equity.
(c) No Consent Required. To the best of its knowledge, no Governmental
Approval and no filing, registration or recording is now, or under existing
law in the future will be, required or necessary on its behalf to authorize
the execution and delivery of this Agreement or the Disbursement Agreement
or the taking of any future action contemplated hereby or thereby or for
the legality, validity, binding effect or enforceability thereof.
ARTICLE VII
Covenants of Lessor
Section 7.1. Defend Title. Lessor will at all times at its own cost and
expense warrant and defend its title to the Project and the Easements against
the claims and demands of all Persons whomsoever, and will not create or
suffer to exist any Lien against the Project and the Easements, except
Permitted Liens.
Section 7.2. Lessor QF Casualty. If a change in the direct or indirect
ownership or activities of Lessor after the Effective Date could result in a
termination of or could adversely affect the Qualifying Facility status of the
Facility (a "Lessor QF Casualty"), Lessor shall, or shall cause the Partner
whose activities have caused such Lessor QF Casualty to, as the case may be,
immediately at its own expense (a) take such action as may be required to
restore the Qualifying Facility status of the Facility, (b) in the case of a
Partner, sell all or part of its interest to a third party, or (c) take such
other action as may be necessary to prevent Lessee, Lessor, any Bank Party, or
any other Partner of Lessor, as the case may be, from being materially
adversely affected as a result of the cessation of the Qualifying Facility
status. Lessor shall indemnify Lessee, any Bank Party, and any other Partner
of Lessor for added costs, expenses and losses incurred by reason of such
Lessor QF Casualty.
ARTICLE VIII
Covenants of Lessee
Section 8.1. Reporting Requirements. Lessee shall furnish to Lessor and
Agent:
(a) as soon as practicable and in any event within 60 days after the end
of the first, second and third quarterly accounting periods of each fiscal
year of Lessee (commencing with the quarter ending September 30, 1995), an
unaudited balance sheet of Lessee as of the last day of such quarterly
period and the related unaudited statements of income, cash flow, and
changes in financial position of Lessee for such quarterly period and (in
the case of second and third quarterly periods) for the portion of the
fiscal year ending with the last day of such quarterly period, setting
forth in each case (without related footnotes) in comparative form
corresponding unaudited figures from the preceding fiscal year, commencing
in fiscal year 1994, all in reasonable detail and satisfactory in scope to
Lessor and the Agent and accompanied by a written statement of an
Authorized Officer of Lessee to the effect that such financial statements
fairly represent Lessee's financial condition and results of operations;
(b) as soon as practicable and in any event within 120 days after the end
of each fiscal year of Lessee (commencing with the fiscal year ended
December 31, 1995), a balance sheet of Lessee as of the end of such year
and the related statements of income, cash flow, and changes in financial
position of Lessee, for
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such year, which financial statements shall include an accounting of
revenues (if any) received under the Power Purchase Agreement and other
income received during such year setting forth in each case in comparative
form corresponding figures from the preceding fiscal year, in each case
accompanied by an audit report (with the accompanying management letter)
thereon of a firm of independent public accountants reasonably satisfactory
to Lessor and Agent;
(c) simultaneously with the filing thereof with the Internal Revenue
Service, a copy of Lessee's Federal income tax return;
(d) during the Lease Term, all written communications amending, modifying
or affecting any Governmental Approvals then required to be in effect,
certified as a true copy thereof by a duly authorized representative of
Lessee; and
(e) from time to time, with reasonable promptness, such further
information regarding the business, affairs and financial condition of
Lessee, as Lessor or Agent may reasonably request.
Section 8.2. Certificate; Other Information. Lessee shall furnish or cause
to be furnished to Lessor and Agent the following:
(a) concurrently with the delivery of the audited financial statements
referred to in Section 8.1 with respect to periods after the Effective
Date, a certificate of the independent public accountants that certified
such financial statements stating that in making the examination necessary
for the audit thereof no knowledge was obtained of any Default or Event of
Default under the Amended and Restated Lease, except as specified in such
certificate;
(b) concurrently with the delivery of the unaudited financial statements
referred to in Section 8.1 with respect to periods after the Effective
Date, an Officer's Certificate of Lessee stating that Lessee during the
period covered by such financial statements has observed and performed in
all material respects all of its covenants and other agreements and
satisfied in all material respects every condition contained in the Amended
and Restated Lease and this Agreement and the other Transaction Documents
to be observed, performed or satisfied by it, and that Lessee has obtained
no knowledge of any Default or Event of Default by Lessee under any
Transaction Document at any time during such period or on the date of such
certificate, or, if such has occurred, specifying the nature and status
thereof, the period of existence thereof and what action Lessee has taken
or proposes to take to remedy such Default or Event of Default by Lessee
under any Transaction Document;
(c) promptly upon receipt thereof, copies of the following notices,
reports or certificates delivered pursuant to the Transaction Documents:
(i) with respect to periods after the Effective Date, all
communications delivered to or by Lessee under any of the Principal
Project Agreements, except for communications of a nature or category,
if any, as to which non-delivery has been approved in writing by Lessor
or Agent, as the case may be;
(ii) with respect to periods after the Effective Date, all material
communications made pursuant to the Power Purchase Agreement; and
(iii) with respect to periods after the Effective Date, notice of any
material claim by either party to the Power Purchase Agreement against
the other;
(d) promptly upon receipt thereof, a copy of each report delivered to
Lessee by the independent public accountants that certify Lessee's
financial statements in connection with any annual or interim audit of its
books;
(e) promptly, such additional financial and other information with
respect to Lessee or the Facility or the Site as Lessor or Agent, as the
case may be, may from time to time reasonably request; and
(f) as soon as practicable and in any event within 45 days after the end
of each month, operating statements for such month, which operating
statements shall include information as the Agent may reasonably request.
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Section 8.3. Corporate Existence. Lessee covenants that, so long as it has
any obligation under any Transaction Document other than under this Section
8.3, it will at all times cause to be done all things necessary to maintain,
preserve and renew its existence as a corporation organized under the laws of
a state of the United States of America.
Section 8.4. Notices. Lessee shall promptly upon obtaining knowledge of any
of the following occurrences, deliver to Lessor and Agent, in sufficient
quantities for each of the Banks, notice in writing of the following:
(a) notice of any Default or Event of Default under the Amended and
Restated Lease or any Transaction Document, specifically stating that a
Default or an Event of Default, as the case may be, has occurred and
describing such Default or Event of Default;
(b) the occurrence of any Event of Eminent Domain, a certificate of
Lessee setting forth the details thereof and the action which Lessee is
taking or proposes to take with respect thereto;
(c) the occurrence of any casualty, damage or loss to or in respect of
the Project in an amount greater than $10,000, notice thereof, together
with copies of any document relating thereto (including copies of any
claim) in possession or control of Lessee or any agent of Lessee;
(d) any litigation or proceeding affecting Lessee, the Site or the
Facility involving claims of $10,000 or more or relating to any injunction
or similar action against any material aspect of the Project;
(e) the cancellation of any insurance required to be maintained pursuant
to Article VI of the Amended and Restated Lease;
(f) the assertion of any Default or Event of Default under any Principal
Project Agreement or the occurrence of an Event of Loss;
(g) any change in the business, operations, property, prospects or
financial or other conditions of any Principal Project Participant which
could materially adversely affect the Project or such Principal Project
Participant's ability to perform its obligations, if any, under any
Principal Project Agreement to which it is a party and of an actual change
of law, rule or regulation which has or would have a Material Adverse
Effect;
(h) promptly upon the giving or receipt thereof by Lessee, a copy of each
written notice or demand given by or received by Lessee under this
Agreement, the Amended and Restated Lease or any other Transaction
Document;
(i) any assertion by any Governmental Authority or other Person that the
Site, the Project or any portion thereof or the operation thereof does not
comply in a material respect with a Requirement of Law or Governmental
Approval; and
(j) an event or circumstance that with the passage of time of the giving
of notice would result in a loss of the Qualifying Facility status of the
Facility.
Section 8.5. Further Assurances, etc. Lessee shall take or cause to be taken
all action required to maintain and preserve the Lien of the Lessee Security
Agreement. Lessee will promptly and duly cause to be taken, executed,
acknowledged or delivered all such further acts, conveyances, documents and
assurances (including, without limitation, any financing statements,
continuation statements or similar filings) as any party hereto or to the
Transaction Documents may from time to time reasonably request in order more
effectively to carry out the intent and purposes of this Agreement and the
Transaction Documents and the transactions contemplated hereby or thereby.
Section 8.6. Inspection of Property. Lessee shall permit or cause to be
permitted any Person designated in writing by Lessor or any Bank Party as a
Person acting on its behalf to visit and inspect the Facility, including the
Operating Logs, Maintenance Records, and Regulatory Records at such Person's
expense and after reasonable notice, and to discuss the affairs, finances and
accounts of Lessee with the officers and employees of the manager of the
Facility or Lessee, as the case may be, and their officers and employees, and
to discuss the
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reports of the accountants of Lessee with such accountants (provided, however,
that a representative of Lessee shall have the right to be present at such
discussions), all at such reasonable times and as often as Lessor or any Bank
Party may reasonably request. During the Lease Term, Lessee will also permit
or cause to be permitted any Independent Engineer to visit and inspect the
Facility, at the expense of the Bank Parties and after reasonable notice, at
such reasonable times and as often as Agent may reasonably request. In the
event an Independent Engineer certifies that, in its professional opinion,
there are substantial defects in the Facility, upon receipt of a copy of such
certification giving the details of such substantial defects, Lessee shall
either give or cause to be given to Lessor and Agent a reasonably detailed
written explanation of the reasons why each such defect does not require
correction or shall correct or cause to be corrected each such defect within a
reasonable time.
Section 8.7. Conduct of Business. Lessee shall at all times engage solely in
the business of leasing the Site and the Facility, as the same may be modified
from time to time as permitted by the Transaction Documents. Lessee will do or
cause to be done all things necessary and desirable to (i) promptly and
diligently enforce its rights under the O&M Agreement and each other
Transaction Document in which it has rights, by assignment or otherwise, and
(ii) comply in all respects with all Requirements of Law and Governmental
Approvals applicable to it.
Section 8.8. Limitation on Debt. Lessee shall not at any time incur or in
any manner become liable with respect to or permit to remain outstanding any
Debt, except (a) unsecured current liabilities (not the result of borrowing)
incurred in the ordinary course of business of Lessee for current purposes,
not represented by any note or other evidence of Debt to the extent not in
excess of $100,000 at any one time outstanding, (b) Debt of the Lessee arising
under the Amended and Restated Lease, (c) Debt incurred pursuant to the
Amended and Restated Lessee Working Capital Loan Agreement, (d) Debt that may
be incurred on or after the Effective Date by the Lessee pursuant to the
Agreement, dated November 30, 1992, among the Lessor, the Lessee, the Agent
and U.S. Generating Company, and (e) Debt incurred in connection with the
Settlement Agreement.
Section 8.9. Limitations on Liens. Lessee shall not create or suffer to
exist or permit any Lien upon or with respect to any of its properties except
liens of the type described in clauses (iii), (iv) and (vii) of the definition
of Permitted Liens, and Lessee shall not create or suffer to exist or permit
any Lien upon or with respect to any of the Collateral except Permitted Liens
and Lessor Liens.
Section 8.10. Prohibition of Fundamental Changes. Lessee will not: (i) enter
into any transaction of merger or consolidation, (ii) change its form of
organization, (iii) liquidate or dissolve itself (or suffer any liquidation or
dissolution), or (iv) change its business from that of leasing an electric
generating facility which is a Qualifying Facility.
Section 8.11. Prohibition on Disposition of Assets. Lessee shall not sell,
lease (as lessor), transfer or otherwise dispose of any of the Collateral
except as permitted by Article V of the Amended and Restated Lease or sell,
lease (as lessor), transfer or otherwise dispose of any of its assets except
as permitted by Section 10.02 of the Amended and Restated Lease.
Section 8.12. Transactions with Affiliates and Others. Notwithstanding any
other provision of this Agreement, Lessee shall not (i) directly or
indirectly, purchase, acquire, exchange or lease any property from, or sell,
transfer or lease any property to, or borrow any money from, or enter into any
management or similar fee agreement with, any Affiliate or any officer,
director or employee of Lessee, or (ii) enter into any other transaction or
arrangement or make any payment to or otherwise deal with, in the ordinary
course of business or otherwise, any Affiliate of Lessee except, in the cases
of both clauses (i) and (ii) of this Section 8.12, transactions contemplated
by the Transaction Documents.
Section 8.13. Defend Title. Lessee shall at all times during the Lease Term,
at its own cost and expense warrant and defend its leasehold title to the
Facility and the Site and its easement rights to the Easements against the
claims and demands of all Persons whomsoever, except with respect to Permitted
Liens and Lessor Liens.
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Section 8.14. Plans. Lessee shall cause to be maintained at all times at the
Facility an accurate and complete set of operation and maintenance manuals,
vendor manuals and an accurate and complete set of "as built" drawings for the
Facility and an "as built" survey of the Facility Site, as and when required
by the Transaction Documents, which shall be amended and supplemented from
time to time to reflect on a current basis all improvements, additions and
modifications to the Facility, and a copy of the Operator's daily logs for not
less than the prior three years of operation.
Section 8.15. No Amendments or Assignments; Compliance. Lessee shall not
amend, modify, waive compliance with or accept a waiver of compliance with any
provision of, terminate, assign any rights under, or consent to the assignment
by any other Person of any right such Person may have under, or agree to, or
permit or exercise any right in respect of any amendment, modification,
termination or waiver of compliance with any provision of, or any such
assignment of any rights under, any Transaction Document to which it is a
party (other than as required by the terms of such Transaction Document)
without the prior written consent of Lessor and Agent and the parties hereto
agree that no such amendment, modification, waiver, termination, assignment or
agreement shall be binding or effective without such consent, provided,
however, that in any event, unless an Event of Default has occurred and is
continuing under the Amended and Restated Reimbursement Agreement, Lessee
shall have the right to the exclusion of Agent, to (a) amend, modify,
terminate, and give any waivers or consents under, or otherwise exercise any
and all rights with respect to the Amended and Restated Lessee Working Capital
Loan Agreement and the Tax Indemnity Agreement, and (b) amend the Amended and
Restated Lease to make adjustments to Basic Rent (Equity) as contemplated by
Section 3.04 thereof.
Section 8.16. Payment of Taxes and Claims. Lessee shall before delinquency
pay and discharge or cause to be paid and discharged all taxes, assessments
and governmental charges or levies lawfully imposed upon it or upon its income
or profits or upon any of the Collateral and all lawful claims or obligations
that, if unpaid, would become a Lien upon the Collateral, real or personal, or
upon any part thereof; provided that Lessee shall not be required to pay or
cause to be paid any such tax, assessment, charge, levy, claim or obligation
if (a) the applicability, validity or amount thereof shall currently be
diligently contested in good faith by appropriate proceedings timely
instituted and diligently pursued, (b) Lessee sets aside on its books adequate
reserves with respect to the contested items in accordance with GAAP, (c)
during the period of such contest, the enforcement of any contested item is
effectively stayed and (d) in the sole determination of each of Lessor and
Agent, the non-payment of such contested item will not result in a material
risk of loss to the Project and will not affect Lessee's ability to fulfill
its obligations under the Amended and Restated Lease, this Agreement, the
Lessee Security Agreement or any other Transaction Document to which it is a
party. Lessee shall promptly pay or cause to be paid any valid, final judgment
enforcing any such tax, assessment, charge, levy or claim and cause the same
to be satisfied of record unless such judgment is then being appealed and
enforcement thereof is stayed pending appeal.
Section 8.17. Books and Records. Lessee shall, at all times keep or cause to
be kept proper books and records of all of its business and financial affairs
and all of the business and financial affairs of the Project in accordance
with GAAP. Lessee shall keep its books and records at the address set forth
for it in the Notice Provisions unless it has given notice of any such change
in accordance with the terms of Section 8.23 hereof.
Section 8.18. Maintenance of Adequate Fuel Supply. Lessee shall at all times
maintain a supply of Fuel and limestone adequate for the operation of the
Facility for a period from the Effective Date to the scheduled maturity date
of the Bonds.
Section 8.19. Additional Contracts. Lessee shall not enter into any
agreements of any nature, except Additional Contracts, without the prior
written consent of Lessor. In the event that Lessee proposes to enter into any
Additional Contract, prior to the execution of such Additional Contract,
Lessee shall (a) use its best efforts to enable Lessor to become a party to
such Additional Contract in lieu of Lessee, at the option of Lessor, and (b)
use its best efforts to cause the party or parties to such Additional Contract
(other than Lessee) to simultaneously enter into a consent and agreement with
respect to such Additional Contract similar in form and substance to the
Consents.
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Section 8.20. Guarantees. Except as contemplated by the Transaction
Documents, Lessee shall not agree, contingently or otherwise, to purchase or
repurchase the Debt of, or assume, Guaranty (directly or indirectly or by
instrument having the effect of assuring another's payment or performance of
any obligation or capability of so doing, or otherwise), endorse or otherwise
become or remain liable, directly or indirectly, in connection with the
obligations, stock or dividends of any Person except by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.
Section 8.21. Abandonment. Lessee shall not permit any Abandonment or
otherwise cease to diligently pursue the operation of the Project or
materially and voluntarily reduce the operation of the Project (except to the
extent required by customary maintenance procedures).
Section 8.22. Investments. Lessee shall not make any investments (whether by
purchase of stock, bonds, notes or other Securities, loan, advance or
otherwise) other than Permitted Investments.
Section 8.23. Change of Name; Office. Lessee shall not change its name or
the location of its chief executive office or commence doing business under
any other name or at any other office except on 30 days' prior written notice
to Lessor and Agent.
Section 8.24. Restricted Payments. Lessee shall not declare or pay any
dividends on, or make any other distribution or payment on account of, or
redeem, retire, purchase or otherwise acquire, directly or indirectly, any
shares of any class of stock of Lessee, whether now or hereafter outstanding,
or make any other distribution in respect thereof, either directly or
indirectly, whether in cash, property or in obligations of Lessee; provided,
however, that Lessee may make such distributions from funds made available to
Lessee pursuant to item Seventeenth of Section 5.02(a)(Y) of the Disbursement
Agreement.
Section 8.25. Licenses and Governmental Approvals; Maintenance of
Properties. Without limiting its express obligations contained elsewhere
herein, Lessee shall at all times preserve and keep in force and effect all
rights, franchises, licenses and permits necessary or material to the conduct
of its business, the operation of the Project or the maintenance of its
existence and will maintain and keep its property and the Collateral in good
repair, working order and condition (except for normal wear and tear), and
from time to time during the Lease Term, as specified in Articles IV and V of
the Amended and Restated Lease, make all needful and proper repairs, renewals
and replacements so that the leasing, operation and maintenance of the
Facility and the Site and any other business material to Lessee carried on in
connection therewith may be properly and advantageously conducted at all
times.
Section 8.26. No Subsidiaries. Lessee shall not acquire or create any
Subsidiary.
Section 8.27. ERISA Plan. Lessee shall comply in all respects with the
applicable provisions of ERISA and the regulations and interpretations
thereunder. Neither Lessee nor any of its ERISA Affiliates shall maintain or
have any obligation to contribute to any Plan or shall have any liability
under Title IV or ERISA by reason of the termination of any Plan or the
withdrawal from any Multiemployer Plan.
Section 8.28. Environmental Matters. (a) Lessee shall comply with all
Environmental Laws applicable to ownership, operation or use of the Site or
the Project, and shall cause the Operator and all tenants and other persons
occupying the Site or the Project to comply with all such Environmental Laws,
shall immediately pay or cause to be paid all costs and expenses incurred in
such compliance, and shall keep or cause to be kept the Site and the Project
free and clear of any Liens imposed pursuant to such Environmental Laws.
Lessee shall not generate, use, treat, store, release, transfer, discharge or
dispose of, or permit the generation, use, treatment, storage, release,
transfer, discharge or disposal of Hazardous Materials on the Site or the
Project, or transport or permit the transportation of Hazardous Materials to
or from the Site or the Project except in compliance with all applicable
Environmental Laws.
(b) Agent and Lessor shall each have the right but not the obligation to
participate in, as a party if it so elects, any legal proceeding or action
initiated in connection with any Environmental Notice. Without the
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prior written consent of the Majority Banks, Lessee shall not enter into
any settlement, consent or compromise with respect to any Environmental
Notice that might impair the value of the Collateral; provided, however,
that such prior consent shall not be necessary for Lessee to take any
removal or remedial action if ordered by a court of competent jurisdiction
or if the presence of Hazardous Materials at the Site or the Project poses
an immediate significant threat to the health, safety or welfare of any
individual or otherwise requires an immediate removal or remedial response.
(c) During the Lease Term, Lessee shall conduct, or cause to be
conducted, any investigation, study, sampling and testing, and undertake
any cleanup, removal, remedial or other action necessary to remove and
clean up all Hazardous Materials from the Site of the Facility in
accordance with the requirements of all applicable Environmental Laws and
in accordance with orders and directives of all Governmental Authorities.
Section 8.29. No Contracts with Utilities. Except for the Transaction
Documents, Lessee shall not enter into any contract or arrangement in which
any Utility is a party or has a material interest, except for contracts or
arrangements in the ordinary course of business of such Utility under standard
tariffs or negotiated rates approved or on file with and allowed to go into
effect by a regulatory authority having jurisdiction, unless Lessee (i)
delivers to Lessor in connection therewith an opinion of counsel acceptable to
Lessor to the effect that entering into such contract or arrangement will not
adversely affect the status of the Facility as a Qualifying Facility; and (ii)
obtains the written consent of Lessor in connection therewith. For the
purposes of this Section, "Utility" shall mean an "electric utility" or an
"electric utility holding company," as such terms are used in PURPA and the
regulations thereunder (18 CFR Part 292).
Section 8.30. Compliance with Transaction Documents. Subject to Section
8.32, Lessee shall comply with and cause the Operator to comply with the terms
of all Transaction Documents as necessary for the operation of the Facility in
accordance with the standards set forth therein, and shall pursue and enforce
its rights under, and will not waive compliance with or forbear or delay in
exercising its rights under any of the Principal Project Agreements.
Section 8.31. Compliance with Laws. Lessee shall not use or operate (or
permit to be used or operated) the Facility, the Site or the Easements in
violation of any Requirements of Law or in violation of any certificate,
license, Governmental Approval or registration relating to the Facility or the
Site. Lessee shall do or cause to be done all things necessary to obtain and
to maintain in full force and effect all Government Approvals that are
necessary from time to time (i) to conduct its business as currently conducted
and as proposed to be conducted, (ii) to produce and sell electric energy,
(iii) for the leasing, operation, management and use of the Facility as a
Qualifying Facility, and (iv) to perform its obligations under the Transaction
Documents.
Section 8.32. Operations and Maintenance Agreement and Management Services
Agreement. (a) Lessee shall maintain the O&M Agreement in full force and
effect and shall not terminate or replace the Operator under the O&M Agreement
without the prior written consent of Lessor and Agent.
(b) Lessee shall maintain the Project Management Agreement in full force
and effect and shall not terminate or replace the Project Manager under the
Project Management Agreement without the prior written consent of Lessor
and Agent.
Section 8.33. Qualifying Facility. Lessee shall not engage in any activities
or, to the extent within its control, permit any actions or omissions that
would cause the Project to fail to meet the criteria for a Qualifying
Facility.
Section 8.34. Covenants of the Lessee. The covenants and agreements of or
with respect to the Lessee under this Article VIII shall remain in full force
and effect until the Lease Termination Date.
Section 8.35. Lessee Consent to Transaction Documents. Lessee hereby
acknowledges and consents to all the terms and provisions of the Transaction
Documents, it being understood that such consent shall not be
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construed to require its consent to any future supplement to, or amendment,
waiver, or modification of the terms of any such Transaction Documents.
ARTICLE IX
Covenants of EPC
During any period during which Lessee or EPC has any obligation under any
Transaction Document EPC covenants as follows:
Section 9.1. Reporting Requirements; Audits. (a) EPC shall furnish to Lessor
and Agent:
(i) as soon as practicable and in any event within 60 days after the end
of the first, second and third quarterly accounting periods of each fiscal
year of EPC (commencing with the quarter ending September 30, 1995), an
unaudited balance sheet of EPC as of the last day of such quarterly period
and the related unaudited statements of income, cash flow, and changes in
financial position of EPC for such quarterly period and (in the case of
second and third quarterly periods) for the portion of the fiscal year
ending with the last day of such quarterly period, setting forth in each
case (without related footnotes) in comparative form corresponding
unaudited figures from the preceding fiscal year, commencing in fiscal year
1994;
(ii) as soon as practicable and in any event within 120 days after the
end of each fiscal year of EPC (commencing with the fiscal year ended
December 31, 1995), a balance sheet of EPC as of the end of such year and
the related statements of income, cash flow, and changes in financial
position of EPC for such year, in each case accompanied by an audit report
(with the accompanying management letter) thereon of a firm of independent
public accountants reasonably satisfactory to Lessee, Lessor and Agent;
(iii) within five (5) days after the filing thereof a copy of all filings
by EPC required by any Requirement of Law, including securities laws; and
(iv) from time to time, with reasonable promptness, such further
information regarding the business, affairs and financial condition of EPC,
as Lessor or Agent may reasonably request.
(b) EPC shall allow Lessor and Agent, or either of them, to cause an audit
to be made of the books and financial records of EPC, at Lessor's or the
Agent's expense, by auditors designated by such Persons and reasonably
acceptable to EPC; and EPC shall, upon the request of Lessor and Agent, or
either of them, cause its own accountants to conduct such an audit, at EPC's
expense.
Section 9.2. Corporate Existence. EPC covenants that, so long as it has any
obligation under any Transaction Document other than under this Section 9.2,
it will (a) not commence a voluntary case under the Federal Bankruptcy Code,
file a petition seeking to take advantage of any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or readjustment of debts
or otherwise apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or all
or a substantial part of its property, (b) not merge, reorganize or
consolidate into or with any other entity, unless the surviving entity (i)
assumes all of the obligations and liabilities and agrees to perform all of
the duties of EPC under each of the Transaction Documents to which EPC is a
party, and (ii) if such surviving entity holds any stock of Lessee, deliver to
Lessor and Agent an opinion of counsel, in form and substance and from counsel
satisfactory to Lessor and Agent, to the effect that such merger,
reorganization or consolidation will not have any adverse effect on the status
of the Facility as a Qualifying Facility, and (c) not voluntarily liquidate or
dissolve, merge, reorganize or consolidate, or otherwise change its corporate
structure in such a way as to change or impair its corporate existence, or
take any action toward such end, except in accordance with clause (b) above.
Section 9.3. Notices. EPC shall promptly upon obtaining knowledge of any of
the following occurrences, deliver to Lessor and Agent notice in writing of
the following:
(a) notice of any Default or Event of Default under any Transaction
Document, specifically stating that a Default or an Event of Default, as
the case may be, has occurred and describing such Default or Event of
Default;
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(b) any litigation or proceeding affecting EPC, or relating to any
injunction or similar action against any material aspect of the Project.
(c) the assertion of any Default or Event of Default under any Principal
Project Agreement or the occurrence of an Event of Loss;
(d) any assertion by any Governmental Authority or other Person that EPC,
in connection with the consummation or performance of any Transaction
Document to which it is a party, the Site, the Project or any portion
thereof or the operation thereof does not comply in a material respect with
a Requirement of Law or Governmental Approval; and
(e) an event or circumstance relating to Lessee or EPC that with the
passage of time of the giving of notice would result in a loss of the
Qualifying Facility status of the Facility.
Section 9.4. Further Assurances, etc. EPC will promptly and duly cause to be
taken, executed, acknowledged or delivered all such further acts, conveyances,
documents and assurances (including, without limitation, any financing
statements, continuation statements or similar filings) as any party hereto or
to the Transaction Documents to which EPC is a party may from time to time
reasonably request in order more effectively to carry out the intent and
purposes of this Agreement and the Transaction Documents to which EPC is a
party and the transactions contemplated hereby or thereby.
Section 9.5. No Amendments or Assignments; Compliance. EPC shall not amend,
modify, waive compliance with or accept a waiver of compliance with any
provision of, terminate, assign any rights under, or consent to the assignment
by any other Person of any right such Person may have under, or agree to, or
permit or exercise any right in respect of any amendment, modification,
termination or waiver of compliance with any provision of, or any such
assignment of any rights under, any Transaction Document to which it is a
party (other than as required by the terms of such Transaction Document)
without the prior written consent of Lessor and Agent and the parties hereto
agree that no such amendment, modification, waiver, termination, assignment or
agreement shall be binding or effective without such consent, provided,
however, EPC may, without the consent of any other person, contractually
assign its right to receive any or all dividends distributed from time to time
by Lessee to EPC in accordance with Section 8.24 hereof.
Section 9.6. Separate Operation of Lessee. EPC at all times when it is the
record or beneficial owner of a majority of the capital stock of Lessee, shall
at all times until the Obligations shall have been discharged in full, cause
the business of EPC to be conducted separately and independently from the
business of Lessee. In furtherance of such obligation, but without limiting
its generality, EPC shall:
(a) cause (i) either the chief executive officer or chief financial
officer of Lessee to be a person who is not an officer of EPC and (ii) the
board of directors of Lessee to be not identical with the officers or
directors of EPC;
(b) maintain its principal executive office and any other offices
physically separate and apart from any office of the Lessee;
(c) maintain its books, records and accounts separate and apart from the
books, records and accounts of Lessee;
(d) maintain its funds and other assets separate and apart from the funds
and assets of the Lessee, without commingling of any kind;
(e) not enter into any agreement, contract, arrangement or understanding
of any kind with Lessee or any officer or director of Lessee, other than in
an arm's-length transaction as between unrelated parties;
(f) maintain the separate and distinct corporate existence of Lessee;
(g) not consolidate the operations of Lessee for any purpose, including
financial reporting, or refer to Lessee in any internal or external
communication as a division or other unit of EPC or otherwise indicate that
the assets, rights or obligations of Lessee under any Transaction Document,
in respect of the Project or
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otherwise are assets, rights or obligations of EPC; provided, that EPC may
consolidate the preparation of tax returns and the payment of taxes with
that of Lessee and any other subsidiary of EPC;
(h) observe all corporate formalities as a shareholder of Lessee,
including the holding of annual meetings to elect the directors of Lessee
and maintenance of minutes;
(i) not, as the shareholder of Lessee, vote the capital stock of Lessee
in favor of any resolutions approving the commencement of any proceeding
which would constitute an Event of Default under Section 13.01 of the
Amended and Restated Lease; and
(j) disclose all material facts relating to the formation and
capitalization of Lessee in appropriate public announcements as required by
any Requirement of Law, which disclosure shall include the statement that
certain assets have been transferred to Lessee and will not be available to
meet the claims of the creditors of EPC.
ARTICLE X
Indemnity
Section 10.1. Indemnity.
(a) Claims. Except to the extent provided in Section 10.1(b), from and after
the Lease Commencement Date, Lessee hereby indemnifies each Indemnitee
against, and agrees to protect, save and keep harmless each such Indemnitee
from and against, on an After-Tax Basis, any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, suits, costs,
expenses, disbursements, causes of action and other legal proceedings of
whatsoever nature, including legal fees and expenses, of whatsoever kind and
nature (any of the foregoing being called a "Claim") imposed on, incurred by
or asserted against such Indemnitee (whether because of an act or omission by
such Indemnitee or otherwise (including without limitation negligence of any
Indemnitee), whether or not also indemnified against by any other Person under
any other document, whether or not the transactions contemplated hereby are
consummated, whether or not the Amended and Restated Lease has terminated or
expired, and whether or not based on strict liability or otherwise) in any way
relating to or arising out of (i) the Project and any other property relating
to the transactions contemplated by the Transaction Documents or any portion
thereof or interest therein or the imposition of any Lien other than Lessor
Liens (or incurrence of any liability to refund or pay over any amount as a
result of the Lien) on all or any part thereof or any interest in any thereof
(including, without limitation, any claim or penalty arising from (A)
violations of Laws or actions in tort, (B) latent or other defects, whether or
not discoverable by such Indemnitee, Lessee or any other Person, (C) loss of
or damage to any property or the environment, (D) contaminants, Hazardous
Materials or other waste, (E) death of or injury to any Person, or (F) any
claim for patent, trademark or copyright infringement), (ii) the construction,
requisition, acquisition, acceptance, rejection, delivery, non-delivery,
transport, assembly, possession, repossession, control, condition,
dismantling, return, abandonment, installation, storage, replacement,
manufacture, subleasing, modification, transfer of title, rebuilding, rental,
importation, exportation, acquisition, purchase, sale, financing, refinancing,
leasing, ownership, maintenance, repair, redelivery, alteration, insuring,
control, use, operation or disposition of all or any part of the Project and
any other property relating to the transactions contemplated by the
Transaction Documents or any portion thereof or interest therein, (iii) the
Transaction Documents or the issuance of the Senior Debt or any other document
executed and delivered in connection with the consummation or confirmation of
the transactions contemplated by the Transaction Documents or any Indemnitee's
interest in any of the foregoing, or the execution, amendment, supplement,
issuance or delivery of any of the foregoing, or (A) the enforcement by any
Indemnitee of any of its rights thereunder or any transaction contemplated
thereby, (B) payments made pursuant to any of the foregoing, (C) any action or
inaction by Lessee or Lessor in connection with any thereof or (D) the sale of
electricity or steam or other products from the Project, (iv) the Collateral
or the respective property, or the income or other proceeds received with
respect to the property, held by Agent under the Security Documents and
Disbursement Agent under the Disbursement Agreement, (v) the enforcement of
any agreement, restriction or legal requirement
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affecting the Project and any other property relating to the transactions
contemplated by the Transaction Documents or any portion thereof or interest
therein, (vi) any right of any Bank Party to receive payment from Lessor as
indemnification under the Amended and Restated Reimbursement Agreement, (vii)
any claim for any finder's fee, brokerage commission or similar compensation
in connection with the transactions contemplated by the Transaction Documents,
or (viii) otherwise with respect to or in connection with the transactions
contemplated by the Transaction Documents, whether similar or dissimilar to
any of the foregoing.
(b) Exclusions from General Indemnity. The provisions of Section 10.1(a) and
the indemnities contained therein shall not extend to any Claim with respect
to any particular Indemnitee:
(i) to the extent that such Claim arises from acts, omissions or events
which occur after the date on which all obligations of Lessee (including
those under Section 8.01 of the Amended and Restated Lease) shall have
terminated; or
(ii) to the extent that such Claim arises from the willful misconduct or
gross negligence of such Indemnitee, other than the gross negligence or
willful misconduct imputed to such Indemnitee (A) as a result of its
ownership of or other interest in the Project and any other property
relating to the transactions contemplated by the Transaction Documents or
any portion thereof or interest therein or (B) as a result of Lessee's
acting on behalf of such Indemnitee; or
(iii) which is a Tax, it being understood that Section 10.2 and the Tax
Indemnity Agreement exclusively provide for the Lessee's liability with
respect to Taxes; or
(iv) with respect to Lessor or any Partner, as the case may be, to the
extent that such Claim arises out of a Lessor QF Casualty or a voluntary
offer or sale of its interest in the Project by Lessor or such Partner to
any Person other than Lessee; or
(v) with respect to Lessor or any Partner or affiliate of either thereof
to the extent that such Claim arises from the incorrectness of any
representation or warranty of such Person contained in or made pursuant to
this Agreement or any of the other Transaction Documents; or
(vi) with respect to Lessor or any Partner or affiliate of either thereof
to the extent that such Claim arises from the failure of such Person to
perform or observe any covenant, agreement or condition on its part
required to be performed or observed in this Agreement or any other
Transaction Document (except to the extent such failure was caused by a
failure by Lessee or any affiliate thereof to perform its obligations under
any Transaction Documents, but excluding from this exception any nonwillful
failure by Lessee to cause compliance by another Person with any terms of
any.Transaction Document where such compliance has been delegated or
assigned to such other Person); or
(vii) notwithstanding the terms of the last sentence of Section 8.01(c)
of the Amended and Restated Lease, and only in the event that EPC owns all
of the voting common stock of Lessee, with respect to Lessor, any Partner
or any affiliate thereof to the extent that such Claim results from any
matters whatsoever as to which such Person caused such Claim or knew of the
existence of or factual basis for such Claim; except that this exclusion
from Lessee's indemnification obligations shall not apply with respect to
any Claim arising under clauses (a)(i)(B), (C) and (D) above to the extent
such Claim was known to Lessee and not disclosed to Lessor or any Partner.
(c) No Guaranty. Nothing act forth in this Section 10.1 shall constitute a
guaranty by Lessee that the Facility will have any particular useful life or
residual value at the end of the Lease Term.
(d) Notice and Actions. If any Indemnitee or Lessee shall have knowledge of
any Claim hereby indemnified against, such Indemnitee or Lessee, as the case
may be, shall give prompt written notice thereof in reasonable detail
describing such Claim to Lessee or such Indemnitee, as the case may be, but
(i) neither a failure by Lessee so to notify an Indemnitee nor a failure by an
Indemnitee so to notify Lessee shall relieve Lessee from any liability which
it may have to such Indemnitee, and (ii) nothing contained in this sentence
shall be construed to limit the right of Lessee to pursue any claim it may
have against such Indemnitee in a court of law or otherwise. Lessee may, at
its expense, resist and defend any action, suit or proceeding in respect of
which
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Lessee would be required to indemnify hereunder, or cause the same to be
resisted and defended, by counsel for the insurer of the liability or by
counsel designated by Lessee and reasonably approved by such Indemnitee. In
the event Lessee assumes the defense of any such action, any Indemnitee shall
have the right to employ separate counsel in such action and participate
therein, and the fees and expenses of such counsel shall be at the expense of
such Indemnitee except that such fees and expenses shall be for the account of
Lessee if (x) the employment of such counsel has been specifically authorized
by Lessee, or (y) the named parties to such action (including any impleaded
parties) include both such Indemnitee and Lessee and representation of such
Indemnitee and Lessee by the same counsel would be inappropriate under
applicable standards of professional conduct due to actual or potential
conflicting interests between them. Lessee shall not be liable for any
settlement of any such action effected without its consent (which consent
shall not be unreasonably withheld), but if such action is settled with the
consent of Lessee or if there is a final judgment against the Indemnitee in
any such action, Lessee agrees to indemnify and hold harmless any Indemnitee
from and against any loss or liability by reason of such settlement or
judgment hereby indemnified against. Notwithstanding any of the foregoing to
the contrary, Lessee shall not be entitled to assume responsibility for and
control of any such judicial or administrative proceedings (1) while a Default
or Event of Default under any Transaction Document shall have occurred and be
continuing, (2) if such proceedings will involve a material danger of the
sale, forfeiture or loss of, or the creation of any material Lien (other than
a Permitted Lien) on, the Project or any other property relating to the
transactions contemplated by the Transaction Documents or any portion thereof
or interest therein, or (3) if such proceedings will involve the potential
imposition of criminal liability on any Indemnitee. Upon the payment in full
of any indemnities pursuant to this Section 10.1 by Lessee, it shall be
subrogated to any right of the Indemnitee in respect of the matter against
which indemnity shall have been given. Nothing under this Section 10.1 shall
give any right to any Person other than Lessee and the Indemnitees, including
any right of subrogation.
Section 10.2. General Tax Indemnification. (a) Except as provided in Section
10.2(c), and subject to the Lessee's contest rights under Section 10.2(f),
from and after the Lease Commencement Date, Lessee agrees to pay and assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After-Tax Basis, from and against any and all fees
(including, without limitation, license, filing, recording, documentation and
registration fees), taxes, impositions, levies, assessments, impositions,
duties or other charges or withholdings of any nature whatsoever (together
with any related interest, penalties, fines or additions to tax), including,
without limitation, rental, income, sales, use, transfer, leasing, property,
value added, ad valorem, excise (including, without limitation, any excise
Taxes imposed by section 4975 of the Code), receipts, stamp, withholding,
franchise or license taxes, imposed on or with respect to or asserted against
any Indemnitee, the Lessee, the Project or any component or Part thereof or
any other property relating to the transactions contemplated by the
Transaction Documents, the Senior Debt, the Collateral or any portion of any
of the foregoing or any Indemnitee's interest in any of the foregoing, by any
Federal, state or local taxing authority in the United States (including any
territory or possession of the United States) or any foreign country or
political subdivision thereof or any international authority, upon or with
respect to (i) the Project and any other property relating to the transactions
contemplated by the Transaction Documents or any portion thereof or interest
therein, (ii) the construction, requisition, acquisition, acceptance,
rejection, delivery, non-delivery, transport, assembly, possession,
repossession, control, condition, dismantling, return, abandonment,
installation, storage, replacement, manufacture, subleasing, modification,
transfer of title, rebuilding, rental, importation, exportation, acquisition,
purchase, sale, financing, refinancing, leasing, ownership, maintenance,
repair, redelivery, alteration, insuring, control, use, or operation of all or
any part of the Project and any other property relating to the transactions
contemplated by the Transaction Documents or any portion thereof or interest
therein, (iii) the rental payments (including, without limitation, all Basic
Rent, Supplemental Rent, and Additional Rent), receipts or earnings arising
from the Project and any other property relating to the transactions
contemplated by the Transaction Documents or any portion thereof or interest
therein, or payable pursuant to the Amended and Restated Lease, or any other
payment or right to receive payment pursuant to the Transaction Documents
(including, without limitation, any payment of principal, interest, discount
or premium on or with respect to the Senior Debt), (iv) the Transaction
Documents or the issuance of the Senior Debt or any other document executed
and delivered in connection with the consummation or confirmation of the
transactions contemplated by the Transaction Documents or any Indemnitee's
interest in any of the foregoing, or the execution, amendment, supplement,
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issuance or delivery of any of the foregoing, (v) the Collateral or the
property, or the income or other proceeds received with respect to the
property, held by Agent under the Security Documents or by Disbursement Agent
under the Disbursement Agreement, (vi) any taxes on any Bank Parties required
to be paid by Lessor under the Amended and Restated Reimbursement Agreement,
or (vii) otherwise with respect to or in connection with the transactions
contemplated by the Transaction Documents (all the foregoing being herein
collectively called "Taxes" or, separately, a "Tax").
(b) In addition to the foregoing and without limitation thereto, except as
provided in Section 10.2(c) and subject to the Lessee's contest rights under
Section 10.2(f), Lessee hereby agrees to pay and assume liability for, and to
protect, defend, save and keep harmless each Indemnitee, on an After-Tax
Basis, from and against:
(i) Any ad valorem or other Pennsylvania real property Taxes attributable
to a reassessment including, without limitation, any reassessment resulting
from (x) any event that occurs on the Lease Commencement Date (including,
without limitation, the change in the ownership of the interests in the
Partnership that takes place on the Lease Commencement Date and (y) a
failure to complete construction of the Facility before any date which
would result in a reassessment;
(ii) Pennsylvania sales, transfer, use or rental taxes (and any related
withholdings, interest, penalties, fines or additions to tax) imposed under
existing Law upon Lessor or on or with respect to its acquisition of the
Facility or the Site or with respect to the acquisition of the Facility or
the lease thereof to Lessee; and
(iii) Excise tax liability arising under Section 4975 of the Code as a
consequence of the initial purchase of Senior Debt or lending of funds on
the Closing Date or the Effective Date with the general account assets of
an insurance company being deemed to be Plan Assets giving rise to a
"prohibited transaction."
(c) The provisions of Subsections (a) or (b) of this Section 10.2 shall not
apply to, and Lessee shall not have any liability to any Indemnitee under
Subsections (a) or (b) with respect to:
(i) Taxes to the extent on, based on, with respect to, or measured by,
gross income (which are in lieu of net income taxes), net income (except to
the extent necessary to make any payment required to be made on an After-
Tax Basis) or in the nature of capital stock Taxes, franchise, net worth,
or conduct of business Taxes, or the environmental Tax set forth in Section
59A of the Code (other than Taxes in the nature of sales, use, rental or
transfer or similar Taxes).
(ii) Taxes that are minimum Taxes or Taxes on any item of tax preference.
(iii) Taxes imposed on or with respect to an Indemnitee that result from
(A) any voluntary transfer by such Indemnitee of any interest in the
Project or the Partnership or any portion of any of the foregoing or any
interest arising out of the Transaction Documents or the Senior Debt unless
such transfer shall have occurred in connection with, or as a result of an
Event of Default under any Transaction Document, (B) any involuntary
transfer of any of the foregoing interests in connection with any
bankruptcy or other proceeding for the relief of debtors in which such
Indemnitee is the debtor or any foreclosure by a creditor of such
Indemnitee with respect to any obligation unrelated to the Project or (C)
any transfer of any interest in such Indemnitee (other than any transfer of
any interest in such Indemnitee while an Event of Default has occurred).
(iv) Taxes imposed on an Indemnitee, to the extent such Taxes result
solely and directly from the willful misconduct or gross negligence of such
Indemnitee.
(v) Taxes to the extent imposed on any Indemnitee as a direct result of
the willful failure of such Indemnitee, or any entity related or affiliated
with such Indemnitee, to file timely and properly any return or any form,
certificate or other document which would have entitled such Indemnitee to
an exemption from, or reduction in, a tax indemnified against under this
Section 10.2, or other tax benefit with respect to such Tax to the extent
such benefit, had it been available, would have been taken into account in
determining any indemnity payable under this Section 10.2; provided,
however, that this Section 10.2(c)(v) shall not apply unless (A) Lessee
shall timely have requested in writing that the Indemnitee take the
specific action which forms the basis for potential exculpation of the
Lessee hereunder and (B) the Indemnitee shall have
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determined in good faith that the action so requested by Lessee is not
improper, which determination shall be made on a timely basis.
(vi) Except as otherwise provided in the Amended and Restated
Reimbursement Agreement with respect to Lessor indemnification obligations
to the Bank Parties which indemnification obligations Lessee agrees to pay
to Lessor as Supplemental Rent (Senior Debt), Taxes to the extent imposed
on gross or net income of a Participant other than the Bank Parties by way
of withholding on gross income under Sections 871, 881, 1441 or 1442 of the
Code.
(vii) Any Tax imposed on the Bond Trustee or an affiliate with respect
thereto measured by or with respect to, any trustee fees or expenses for
services rendered in its capacity as trustee under the Indenture.
(viii) Any Tax to the extent that such Tax arises from acts, omissions or
events which occur after the date on which all obligations of Lessee
(including those under Section 8.01 of the Amended and Restated Lease)
shall have terminated.
(ix) Any Taxes that would not have been imposed but for the inaccuracy or
breach of any representation, warranty or covenant by the Indemnitee;
provided, that this subclause shall not apply to any Indemnitee that is a
Bank Party.
(x) Any Taxes that have been actually paid by virtue of being included in
Transaction Costs or in the Purchase Price.
(xi) Any Tax to the extent such Tax is actually utilized by the
Indemnitee or an affiliate with respect thereto as a credit against Taxes
not indemnified under this Section 10.2 and otherwise payable by such
Indemnitee or an Affiliate thereof.
(xii) Any Taxes imposed on or with respect to an indemnitee or an
Affiliate thereof to the extent of the excess of such Taxes over the amount
of such Taxes that would have been imposed (or, if less, that would have
been subject to indemnification under this Section 10.2) had there not been
a transfer by a predecessor in interest of such Indemnitee or Affiliate of
any interest in the Partnership, the Project, the Site, or any part thereof
or any interest arising under any Transaction Document or the Senior Debt
or any interest in any Indemnitee or any Affiliate; provided, however, that
this exclusion (xii) shall not apply to any transfer by Falcon that is
required by any Requirement of Law or Governmental Approval to preserve the
Facility's status as a Qualifying Facility, or to any other transfers by
any Person occurring on or prior to the Lease Commencement Date.
Notwithstanding anything herein to the contrary, none of the foregoing
exceptions shall apply with respect to any Tax imposed under or pursuant to
section 4975 of the Code.
(d) If any report, return or statement is required to be filed with respect
to any Tax imposed on an Indemnitee that is subject to indemnification under
this Section 10.2, Lessee shall timely prepare and (if legally permitted to do
so) file the same (except for any such report, return or statement which such
Indemnitee has notified Lessee that such Indemnitee intends to prepare and
file). If requested by Lessee in writing, such Indemnitee shall (subject to
reimbursement of such Indemnitee's out-of-pocket expenses) furnish Lessee with
such information reasonably necessary to prepare and file such returns as is
within such Indemnitee's control and not within the control of Lessee. Lessee
shall, if permitted by law, timely file such report, return or statement and
send a copy of such report, return or statement to such Indemnitee. If Lessee
is not so permitted to file such report, return or statement, Lessee shall
timely notify such Indemnitee of such requirement and prepare and deliver such
report, return or statement to such Indemnitee for filing by such Indemnitee
and within a reasonable time prior to the time such report, return or
statement is to be filed Lessee shall, to the extent permitted by law, cause
all billings of such Taxes to be made to such Indemnitee in care of Lessee,
make payment thereof and, from time to time on written request of such
Indemnitee, furnish written evidence of such payment.
(e) Any Tax indemnified hereunder shall be paid by Lessee directly when due
to the applicable taxing jurisdiction if direct payment is permitted or to an
Indemnitee as provided in the succeeding sentence. Except as otherwise
provided in this Section 10.2, all amounts payable to an Indemnitee hereunder
(including any amount
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payable to an Indemnitee to hold it harmless on an After-Tax Basis for the
payment of any Tax by such Indemnitee or by Lessee on behalf of such
Indemnitee) shall be paid no later than the later to occur of (i) 10 days
after such Indemnitee's demand therefor (which demand shall set forth in
reasonable detail the computation of the amount payable) or (ii) the date the
Tax to which such amount payable hereunder relates is due or is to be paid, in
immediately available funds. Lessee shall furnish promptly upon written
request such data as any Indemnitee may reasonably request of the Lessee to
enable such Indemnitee to comply with the requirements of any taxing
jurisdiction arising out of such Indemnitee's participation in the
transactions contemplated by this Agreement. Each Indemnitee shall promptly
forward to the Lessee any notice, bill or advice received by it concerning any
Tax for which it seeks indemnification hereunder. If Lessee shall pay any
amount directly to the appropriate taxing authority, within a reasonable
period of time after the date of each payment by Lessee of any Tax which is
indemnifiable hereunder, Lessee shall furnish to such Indemnitee the original
or a certified copy of a receipt for Lessee's payment of such Tax or such
other evidence of payment of such Tax as is reasonably acceptable to such
Indemnitee.
(f) Contest; Refunds. In the event a taxing jurisdiction makes a claim with
respect to any Tax or if any proceeding shall be commenced against any
Indemnitee (including a written notice of such proceeding) for any Tax for
which Lessee may have an indemnity obligation under this Section 10.2 (a "Tax
Claim"), Lessee may contest such Tax Claim as set forth herein. In the event
any Indemnitee receives written notice of a Tax Claim which may be indemnified
under this Section 10.2 or if any proceeding shall be commenced against any
Indemnitee (including a written notice of such proceeding) for any Tax, as to
which the Lessee may have an indemnity obligation pursuant to Section 10.2, or
if the Indemnitee shall determine that any Tax as to which the Lessee may have
an indemnity obligation pursuant to Section 10.2 hereof may be payable, such
Indemnitee (i) shall promptly notify Lessee thereof in writing (provided,
however, that the failure to give such notice shall not relieve Lessee of its
obligations hereunder), and (ii) shall not take any action with respect to
such claim or Tax without the consent of the Lessee for 30 days after the
receipt of such notice by the Lessee; provided, however, that, if such
Indemnitee shall be required by law or regulation to take action prior to the
end of such 30-day period, such Indemnitee shall, in such notice to the
Lessee, so inform the Lessee, and such Indemnitee shall not take any action
with respect to such claim or Tax without the consent of the Lessee before the
date such Indemnitee shall be required to take any such action. So long as
title to or interest in the Project or any part thereof is not subjected to a
material risk of loss or forfeiture or the imposition of a Lien on the Project
or Lessee provides a bond or makes other provisions reasonably satisfactory to
each Indemnitee to protect its interest and there is no risk of the imposition
of civil or criminal penalties, Lessee may at its own expense defend against,
and contest in its name (if permitted by law) the imposition of, or request
such Indemnitee to contest the imposition of, any Tax Claim by (i) resisting
payment thereof, if Lessee in its reasonable discretion shall determine such
course of action to be appropriate, (ii) not paying the same except under
protest, if protest is necessary and proper, or (iii) if payment shall be
made, using reasonable efforts to obtain a refund thereof in appropriate
administrative and judicial proceedings, subject to the preconditions that (A)
no Event of Default under the Amended and Restated Lease has occurred and is
continuing, (B) the proposed tax deficiencies relating to such Tax Claim for
the year in question and when aggregated with all other taxable years affected
thereby are at least $50,000, (C) Lessee shall have acknowledged its liability
to such Indemnitee for an indemnity payment as a result of such Tax Claim if
such Indemnitee shall not prevail in the contest (provided, however, that such
acknowledgment shall not preclude the Lessee from raising a defense to
liability under this Agreement if a court of competent jurisdiction has
rendered a decision articulating the cause of such Tax, and the cause is not
one for which the Lessee is responsible to pay any indemnity under this
Agreement) and (D) such Indemnitee has been provided with an opinion of
independent tax counsel selected by Lessee and reasonably acceptable to the
Indemnitee (the cost of which shall be borne by Lessee) to the effect that a
reasonable basis in law or in fact (or in the case of an appeal from a lower
court decision, a more likely than not probability of success) exists that
such Indemnitee will prevail in such contest (or appeal). Notwithstanding the
foregoing, Lessee may not elect to assume responsibility for contesting a Tax
Claim (or if made, such election shall no longer be binding) if an Indemnitee
makes a good faith determination that the control of the contest by Lessee
would materially adversely affect its dealings with the taxing authorities
proposing the Tax Claim, or would otherwise adversely affect the outcome of
such contest and so notifies Lessee of such determination. Further, in no
event shall Lessee be
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permitted to contest the imposition of any tax for which Lessor would be
obligated to indemnify a Bank Party pursuant to the Amended and Restated
Reimbursement Agreement. In the event of such a determination and
notification, a contest under this Section 10.2(f) shall be conducted by such
Person and in such form as the Indemnitee shall determine in its sole
discretion, after considering in good faith any views offered by Lessee with
respect thereto.
In no event shall any Indemnitee be required or Lessee permitted to contest
the imposition of any Tax for which Lessee may be obligated to indemnify
pursuant to this Section 10.2 unless (i) Lessee shall have agreed to pay and
shall pay to such Indemnitee on demand on an After-Tax Basis all reasonable
costs and expenses that such Indemnitee incurs in connection with contesting
such Tax Claim (including without limitation, all costs, expenses, reasonable
legal and accounting fees and disbursements) and (ii) if such contest shall be
conducted in a manner requiring the payment of the Tax Claim, Lessee shall
have advanced the amount thereof to such Indemnitee on an interest-free basis
and with no additional net after-tax cost to such Indemnitee (and such
Indemnitee shall pay to the Lessee any net realized tax benefits due to any
imputed interest deduction (net of imputed income) arising from such interest-
free advance from the Lessee plus the tax benefit from making any such
payment). If the Indemnitee is at any time required to include in income the
amount of any such advanced amount or any amount with respect thereto, Lessee
shall at that time pay to the Indemnitee the amount by which the Indemnitee's
federal, state and local income tax liability is increased on account of such
inclusion and the payment with respect thereto.
Notwithstanding anything contained in this Section 10.2 to the contrary, in
no event shall any Indemnitee be required or Lessee permitted to contest any
Tax Claim if the subject matter thereof shall be of a continuing nature and
shall have previously been decided unfavorably pursuant to the contest
provisions of this Section 10.2 unless there shall have been a change in the
Law (which, for the purposes of this paragraph, shall mean amendments to
statutes or administrative regulations, administrative rulings and court
decisions), and such Indemnitee shall have received an opinion of independent
tax counsel selected by Lessee and reasonably acceptable to the Indemnitee
setting forth the facts and legal analysis on which it is based and furnished
at Lessee's sole expense, to the effect that as a result of such change in the
law it is more likely than not that the position to be taken by such
Indemnitee in the contest of such Tax Claim will prevail. In no event shall an
Indemnitee be required to appeal any adverse decision of a court of competent
jurisdiction beyond the first level of appeals.
Notwithstanding the foregoing provisions of this Section 10.2, an
Indemnitee, in its sole discretion (by written notice to Lessee) may
unconditionally waive its rights to the indemnities set forth in this Section
10.2 with respect to any Tax Claim, and refrain (and direct Lessee to refrain)
from contesting such Tax Claim, in which event Lessee shall not have any
liability to the Indemnitee hereunder with respect to such Tax Claim, it being
understood that any such waiver shall be without prejudice to the rights of
the Indemnitee with respect to any other Tax Claim.
Upon receipt by an Indemnitee of a repayment or refund of all or any part of
any Tax indemnified against hereunder which Lessee has paid or for which
Lessee shall have reimbursed any Indemnitee pursuant to this Section 10.2
(provided, however, that any repayment or refund that an Indemnitee would have
received but for a counterclaim or other claim with respect to any Tax not
indemnifiable by the Lessee hereunder (a "deemed refund" or "deemed receipt")
shall be treated as received by such Indemnitee pursuant to this sentence),
such Indemnitee shall pay to Lessee as promptly as practicable (but in no
event more than 10 days) after the receipt thereof, the amount of such
repayment or refund (including any deemed refund or deemed receipt) plus any
interest received by such Indemnitee on such amounts net of Taxes thereon plus
the amount of any tax savings realized by such Indemnitee as a result of the
payment made to Lessee; provided, however, that an Indemnitee shall not be
obligated to make any such payment to the extent the amount of such payment
would exceed the amount of all payments of Taxes which Lessee shall have
previously made directly to or for the benefit of such Indemnitee or for which
Lessee shall have previously reimbursed such Indemnitee pursuant to this
Section 10.2, less the amount of all prior payments by such Indemnitee to
Lessee pursuant to this Section 10.2 and less any
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unreimbursed expenses incurred by such Indemnitee in obtaining such repayment
or refund. Any Taxes that are imposed on any Indemnitee as a result of a
disallowance or reduction of any refund or repayment of Taxes referred to in
the preceding sentence as to which such Indemnitee previously had made a
payment to Lessee required hereby shall be treated as Taxes for which Lessee
is obligated to indemnify such Indemnitee pursuant to the provisions of this
Section 10.2.
(g) Any amount payable to Lessee pursuant to the terms of this Section 10.2
shall not be paid to Lessee if at the time of such payment an Event of Default
shall have occurred and be continuing under the Amended and Restated Lease. At
such time as there shall not be continuing any such Event of Default, such
amount shall be paid to Lessee to the extent not previously applied against
Lessee's obligations hereunder, without interest.
Section 10.3. Manner of Indemnification. Upon Lessee becoming liable to any
Indemnitee under this Article X, Lessee shall promptly submit or cause to be
submitted to Lessor and while the Senior Debt is outstanding, Agent, a
certificate providing a sufficient basis for Agent or Lessor to prepare a
Disbursement Certificate or other certificate pursuant to the Amended and
Restated Disbursement Agreement or the Amended and Restated Reimbursement
Agreement, as appropriate, to be submitted to Agent or the Disbursement Agent,
as appropriate.
ARTICLE XI
Lease Termination Covenants
Section 11.1. Lessee Agreement to Lease Termination. Lessee hereby
acknowledges and agrees, for the benefit of each party hereto, that (a) upon
the occurrence of any Default under the Amended and Restated Lease which is an
EPC Group Default, Lessor may, at its option which may be exercised in its
sole discretion upon the consent of the Majority Banks under the Amended and
Restated Reimbursement Agreement, or (b) at any time, upon the concurrence of
Lessee, EPC, if it then holds the common stock of Lessee, and the Majority
Banks, may terminate the Amended and Restated Lease and, concurrently
therewith, assume all of Lessee's obligations thereunder or replace Lessee as
"lessee" under the Amended and Restated Lease with any Person chosen by
Lessor. Upon election by Lessor to so terminate Lessee's rights in and to the
Amended and Restated Lease, Lessee shall cooperate with Lessor to effect an
orderly transfer to Lessor or any successor Lessee of any assets relating to
the Project of which Lessee has possession or in which Lessee has any rights.
Section 11.2. Lease Termination Covenants. Agent, Bond Trustee and the other
parties hereto hereby acknowledge and agree that Lessor, upon agreement with
Lessee or otherwise, may terminate the Amended and Restated Lease, or consent
to the termination of the Amended and Restated Lease in accordance with the
terms of the Transaction Documents; provided that, prior to such termination,
no Event of Default under the Loan Documents shall exist and after giving
effect to the transactions contemplated by this Section, no Default or Event
of Default under the Loan Documents shall exist, and, provided further that:
(a) Prior to or contemporaneously with the effective date of such
termination:
(i) Lessor shall, if necessary, have completed such actions which
shall, in the reasonable judgment of Agent and Bond Trustee, be
necessary or advisable, such that each of the contracts, arrangements
or other rights transferred to Lessee pursuant to the Amended and
Restated Lease (the "Assigned Rights") shall become the property of
Lessor or a replacement lessee subject to no Lien other than Permitted
Liens;
(ii) Lessor shall (a) have completed such actions which shall, in the
reasonable judgment of Agent and Bond Trustee be necessary or
advisable, such that Lessor or a replacement lessee shall own, free and
clear of any Liens other than the Permitted Liens, the collateral
subject to the Lessee Security
28
<PAGE>
Agreement (the "Lessee Collateral") or (b) make such alternative
arrangements as shall be satisfactory to Agent and Bond Trustee;
(iii) There shall have been entered into such other amendments of and
modifications to the Transaction Documents or such additional documents
or instruments as shall be necessary or advisable in the reasonable
judgment of Agent to grant to the Bank Parties or a trustee on behalf
of the Bank Parties, as the case may be, such security interests and
other rights which shall be on a basis consistent with the interests
and rights of the Bank Parties in the Security Documents;
(iv) Lessor shall have delivered to Agent and Bond Trustee an opinion
of counsel in form and substance reasonably satisfactory to Agent and
Bond Trustee, addressed to Bond Trustee and all Bank Parties, to the
effect that, after giving effect to such termination and all other
actions taken in connection therewith (including, without limitation,
the arrangements contemplated by this Section 11.2), (1) the Facility
continues to qualify and be certified as a Qualifying Facility exempt
from regulation under certain federal and state Laws pursuant to PURPA
and such certification shall continue to be in full force and effect,
(2) the Lien of the Security Documents on the Collateral remains
perfected and the priority thereof has not been impaired, (3) all
Governmental Approvals and agreements necessary for operation of the
Project are and will be in full force and effect, and (4) such other
matters as the Bank Parties may request.
(b) On or prior to the date of termination of the Amended and Restated
Lease, Lessor and Agent shall have entered into such supplemental security
arrangements as will be effective to create, in favor of Agent or a trustee
for the benefit of the Bank Parties legal, valid and enforceable mortgage
Liens on or security interests in and to the Assigned Rights and Lessee
Collateral and such liens and security interests shall constitute perfected
Liens on and perfected security interests in such Assigned Rights and
Lessee Collateral prior and superior to all other Liens other than
Permitted Liens (the "Supplemental Security Arrangements") and Lessor shall
have delivered to each of the Bank Parties, an opinion of counsel in form
and substance satisfactory to Agent with respect to the creation,
perfection and priority of such Liens and such other matters as the Bank
Parties may request.
ARTICLE XII
Assignment
Section 12.1. Benefit of Agreement, Etc. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
Section 12.2. Transfer of Interests of Lessor. A General Partner may not, so
long as any Senior Debt remains outstanding, make any transfer or assignment
of all or any portion of its general partnership interest in Lessor and
corresponding rights or obligations under the Transaction Documents, except in
a Permitted Transfer. A General Partner may, following the payment in full and
discharge of all Senior Debt, transfer or assign all or any portion of its
general partnership interest in Lessor and corresponding rights or obligations
under the Principal Project Agreements then in effect, subject to the terms
and conditions of the Partnership Agreement. Subject to the terms of the
Partnership Agreement, each Limited Partner may transfer all or any portion of
its Partnership Interest at any time.
ARTICLE XIII
Intentionally Omitted
29
<PAGE>
ARTICLE XIV
Limitation on Recourse
Anything herein to the contrary notwithstanding, the obligations of Lessor
hereunder and under the other Transaction Documents, are special obligations
of Lessor and do not constitute a debt or obligation of (and no recourse shall
be had with respect thereto against) any Partner or Affiliate of Lessor, or
any shareholder, partner, officer or director of any such Partner or any such
Affiliate; no action shall be brought against any Partner or any Affiliate
thereof or any shareholder, partner, officer or director of any thereof as
such, and any judicial proceedings any Participant may institute against
Lessor shall be limited to seeking the preservation, enforcement, foreclosure
or other sale or disposition of the Liens and security interest now or at any
time hereafter securing the repayment of the Loans and performances by Lessor
of its other covenants and obligations hereunder and under the Transaction
Documents; no judgment for any deficiency upon the obligations of Lessor under
the Transaction Documents shall be obtainable by any Participant against
Lessor or any Partner or Affiliate of Lessor or any shareholder, partner,
officer or director of any thereof; provided that nothing in this Article XIV
shall be construed to limit in any respect the validity and enforceability
against any Partner of its obligations under the Security Documents to which
it is a party as an obligor (and not merely as a signatory for another Person)
or any of the rights of any Participant against Lessee or EPC under any other
Transaction Document.
ARTICLE XV
Miscellaneous
Section 15.1. Notices. Any notices and other communications required or
permitted under the terms and provisions of this Agreement shall be sufficient
if delivered in accordance with the Notice Provisions set forth in Schedule IV
hereto.
Section 15.2. Governing Law. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the State of New
York.
Section 15.3. Headings. The Table of Contents and headings in this Agreement
are strictly for the purpose of convenience and general reference only and
shall not affect the meaning or interpretation of any of the provisions of
this Agreement.
Section 15.4. Counterparts. This Agreement may be executed in one or more
counterparts, and each of which when so executed and delivered shall be deemed
an original for all purposes but all of which together shall constitute but
one and the same instrument.
Section 15.5. Survival of Agreements. Subject to any provisions of the
Transaction Documents which impose limitations as to liability solely between
Lessor, Lessee and EPC (without regard to the rights of the Agent, the LOC
Issuers and the Banks which remain unaffected by any such limitations), the
representations, warranties and agreements (including indemnities) of the
parties to this Agreement and the parties' obligations under this Agreement
shall survive the execution and delivery of this Agreement and the expiration
or rescission of any of the Transaction Documents and shall be and continue in
full force and effect notwithstanding any investigations made by or on behalf
of any of the parties hereto.
Section 15.6. Confidentiality. Each party to this Agreement agrees that,
except as may be required by Law, and except for disclosure to the other
parties to the Transaction Documents, it will not make any public announcement
with respect to, and will use its best efforts in accordance with its
customary business practices not otherwise to disclose the participation of
any Partner (other than itself) in the Facility or publicly disclose the
existence or terms of this Agreement unless such announcement or disclosure
has been previously consented to in writing by the Lessor, which consent may
be withheld in its discretion.
30
<PAGE>
Section 15.7. Severability. If any clause, provision, paragraph or section
of this Agreement shall be held illegal or invalid by any court, the
invalidity of such clause, provision, paragraph or section shall not affect
any of the remaining clauses, provisions, paragraphs or sections of this
Agreement, and this Agreement shall be construed and enforced as if such
illegal or invalid clause, provision, paragraph or section had not been
contained in this Agreement. If any agreement or obligation contained in this
Agreement shall be held to be in violation of Law, then such agreement or
obligation shall be deemed to be the agreement or obligation of the party
thereto to the full extent permitted by Law.
Section 15.8. Transaction Costs. Lessor shall pay or cause to be paid all of
the reasonable out-of-pocket costs, expenses and ongoing costs and expenses
incurred by Disbursement Agent, the Banks, the LOC Issuers and the Agent in
connection with the consummation of the transactions contemplated by this
Agreement and in accordance with Section 15.01 of the Amended and Restated
Reimbursement Agreement. Lessor shall also pay or cause to be paid by Lessee
all of the reasonable out-of-pocket costs, expenses and ongoing costs and
expenses of the following incurred in connection with the consummation of the
transactions contemplated by this Agreement:
(a) Hunton & Williams, special counsel to Lessor,
(b) Buchanan Ingersoll, P.C., special local Pennsylvania counsel to
Lessor and Lessee,
(c) Bond Trustee,
(d) Hawkins, Delafield & Wood, counsel to Disbursement Agent and Bond
Trustee, and
(e) Hunton & Williams, special counsel to Lessee and EPC.
All costs incurred by any other party in connection with the consummation of
the transactions contemplated by this Agreement shall be borne by such party
or as otherwise provided in any agreement entered into in connection herewith.
Section 15.9. Lessor Obligations Not Limited by Amended and Restated
Lease. No provision in the Amended and Restated Lease or any other Transaction
Document pertaining to a limitation or disclaimer of any obligations,
representations or responsibilities of Lessor solely as between Lessor and
Lessee shall in any way limit or affect any obligations or responsibilities
Lessor may incur with respect to other persons hereunder or under any other
Transaction Documents.
Section 15.10. Performance of Obligations to Bank Parties. To the extent
that provisions of this Agreement purport to alter, modify or otherwise affect
any provisions of the Amended and Restated Reimbursement Agreement, such
provisions of this Agreement (other than Article XIV) shall be of no effect to
the extent they adversely affect the Bank Parties, and as to any such
provisions, the terms of the Amended and Restated Reimbursement Agreement
shall control in all respects. The provisions of this Agreement which require,
or permit action by, the consent, approval or authorization of, the furnishing
of any document, paper or information to, or the performance of any other
obligation to any of the Bank Parties, shall not be effective, and the
Sections hereof containing such provisions shall be read as though there were
no such requirements or permissions, after all the Obligations and all amounts
due under the Security Documents shall have been paid in full in accordance
with their terms and the Lien of the Security Documents shall have terminated
in accordance with the terms thereof.
Section 15.11. Intentionally Omitted.
Section 15.12. Financial Statements. All financial statements and reports to
be delivered under this Agreement shall be made or prepared in accordance with
GAAP (including principles of consolidation where appropriate but excluding
footnote disclosure or interim financial statements) and on a consistent
basis.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be
executed by their duly authorized officers and attested on the date first
above written.
LESSOR: Scrubgrass Generating Company, L.P.,
a Delaware limited partnership
By: _________________________________
Name:
Title:
AGENT: Credit Lyonnais, acting through its
New York Branch as Agent,
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
LESSEE: Buzzard Power Corporation, a
Delaware corporation
By: _________________________________
Name:
Title:
DISBURSEMENT AGENT: Bankers Trust Company
By: _________________________________
Name:
Title:
BOND TRUSTEE: Bankers Trust Company
By: _________________________________
Name:
Title:
EPC: Environmental Power Corporation
By___________________________________
Name:
Title:
[AMENDED AND RESTATED PARTICIPATION AGREEMENT]
32
<PAGE>
EXHIBIT 11
ENVIRONMENTAL POWER CORPORATION
COMPUTATION OF EARNINGS PER SHARE
DECEMBER 31, 1995
<TABLE>
<S> <C>
Weighted average number of shares................................. 10,649,161
===========
Net loss for the year............................................. $ (734,611)
===========
Loss per share--primary and fully diluted......................... $ (.07)
===========
</TABLE>
<PAGE>
EXHIBIT 21
<TABLE>
<S> <C>
SUBSIDIARIES OF THE REGISTRANT:
Buzzard Power Corporation
Incorporated in Delaware December 12, 1990................................
Sunnyside Power Corporation
Incorporated in Utah September 21, 1987...................................
Kaiser Power of Sunnyside, Inc.
Incorporated in Delaware March 26, 1986...................................
Kaiser Systems, Inc.
Incorporated in Delaware March 26, 1986...................................
Milesburg Energy, Inc.
Incorporated in Pennsylvania September 30, 1986...........................
Coal Dynamics Corporation
Incorporated in Pennsylvania March 21, 1986...............................
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Shareholders of
Environmental Power Corporation;
We consent to the incorporation by reference in Registration Statement No.
33-70078 of Environmental Power Corporation on Form S-8 of our report dated
March 5, 1996 appearing in the Annual Report on Form 10-K of Environmental
Power Corporation for the year ended December 31, 1995.
Deloitte & Touche LLP
New York, New York
March 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,011,822
<SECURITIES> 0
<RECEIVABLES> 8,486,041
<ALLOWANCES> 0
<INVENTORY> 484,991
<CURRENT-ASSETS> 11,860,353
<PP&E> 7,133,852
<DEPRECIATION> 57,945
<TOTAL-ASSETS> 45,226,424
<CURRENT-LIABILITIES> 8,636,846
<BONDS> 0
0
0
<COMMON> 121,454
<OTHER-SE> 2,675,855
<TOTAL-LIABILITY-AND-EQUITY> 45,226,424
<SALES> 40,693,465
<TOTAL-REVENUES> 42,754,905
<CGS> 16,975,186
<TOTAL-COSTS> 43,663,384
<OTHER-EXPENSES> 167,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,783
<INCOME-PRETAX> (1,182,595)
<INCOME-TAX> (447,984)<F1>
<INCOME-CONTINUING> (734,611)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (734,611)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
<FN>
<F1>Income Tax is Shown as a Benefit
</FN>
</TABLE>
