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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
For the fiscal year ended December 31, 1996
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from to
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Commission File Number 0-15472
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Environmental Power Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2782065
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 Market Street, Suite 1-E, Portsmouth, New Hampshire 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 registrant's 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 April 4, 1997, was $2,667,154.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the last practicable date: On April 4, 1997 there were
11,076,783 outstanding 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 30, 1997 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 (individually "EPC" or consolidated "the
Company"), a Delaware Corporation, owns a 22 year leasehold interest in an
approximately 83 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 (100% to approximately 40%) 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. Since December 31, 1994, the Company's power
generation revenues have come solely from the Scrubgrass Project.
EPC 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 located 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
Coal mining operations have historically produced a substantial amount
of residue, herein called waste coal or tailings, which were considered unusable
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
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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 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 on a long-term basis primarily from
active mining operations and from reclaiming insitu deposits from prior coal
------
mining activities. The 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 83 Mw (net) waste coal-fired electric
generating station (the "Facility") which has been constructed by Bechtel Power
Corporation. The construction contract, which was completed by the contractor in
June 1994, provided for a guaranteed net electrical output of 82.85 Mw.
On June 30, 1994, Buzzard Power Corporation ("Buzzard"), a wholly owned
subsidiary of EPC, 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. EPC 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 ("U.S. Gen"), a joint
venture of PG&E Enterprises and Bechtel Enterprises Inc., to manage the
Scrubgrass Project.
Electric output is being sold to Pennsylvania Electric Company
("PENELEC") pursuant to a 25-year agreement, which commenced in 1993, at fixed
rates averaging 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 the calendar year 2012 adjusted annually by
the percentage change in the Gross National Product Deflator less 1%. On
June 8, 1993, the Facility reached commercial operation.
The Facility is being operated by US 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.
Buzzard, as assignee, entered into a Limestone Purchase and Sale
Agreement with Quality Aggregates, Inc. 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 Scrubgrass Project also maintains an agreement with an initial term
of 15 years for the transportation of fuel, ash and limestone with Savage
Industries, Inc. The costs established under this agreement will escalate at
partially fixed and partially indexed rates.
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Buzzard's revenues earned by the Scrubgrass Project are deposited into
an account administered by a disbursement agent. Before Buzzard can receive cash
generated by the Scrubgrass 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 sources outside of the Scrubgrass 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 had the effect of fixing the interest rate on the tax-exempt bonds until
May 18, 1996 at approximately 3.72% and fixing the interest rate over the life
of the $20.8 million term loan at 6.42%. After May 18, 1996, the Company's
specified base rent was incurred based on floating rates on the Lessor's tax-
exempt bonds ranging from 3.2% to 3.85%. 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. In connection with the Lessor's debt restructuring, Buzzard also
extended the term of $4 million of its own current liabilities through 2004.
In March 1996, the Company received proceeds of $900,000 from Bechtel
Power Corporation in final settlement of certain warranty and start-up matters
which is included in other income in the accompanying consolidated statement of
operations. See Notes A, B, E, F, G, H and L to the Consolidated Financial
Statements for additional information regarding the Scrubgrass Project.
During the fourth quarter of 1996, after learning about a generator
failure at an electric generating facility with an identical generator to the
Scrubgrass facility, the manufacturer asked the Company to perform certain tests
to determine the Scrubgrass generator's condition. Based on the results of these
tests, which became available during the first quarter of 1997, the Company
believes the Scrubgrass facility's generator exhibits certain conditions which
indicate that a similar failure might occur at some time in the future.
Accordingly, the Company is investigating courses of action to remedy this
situation which have not been finalized at the time of filing this Form 10-K.
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note O to the Consolidated Financial Statements for
further discussion of this matter.
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 Sunnyside Project is owned by Sunnyside
Cogeneration Associates ("SCA"), a joint venture in which the Company owned
varying majority interests from 100% to approximately 70% 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 was due on December 31, 1996 and the remaining
principal of $1,750,000 is due on December 31, 1997. However, as more fully
described under Item 3 - Legal Proceedings, the purchasers of the Company's
interest in SCA have entered into a legal proceeding with the Company. Pending
the resolution of the legal proceeding, the purchasers have withheld their
scheduled payments of principal and interest due on the promissory notes since
June 1996. As of December 31, 1996, the purchasers have principal and interest
payments in arrears of $1,187,500 and $221,318, respectively. In addition, the
Company recorded in 1994 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 balance of purchase price
adjustment is also being disputed in
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the legal proceeding with the purchasers. The Company also retained certain
inchoate rights, including potential refundable sales taxes and certain legal
settlements, arising out of activities prior to the date of the sale. The
retained rights were fully satisfied after the Company received sales tax
refunds aggregating $1.1 million and $42,078 in 1995 and 1996, respectively, and
received $540,000 to settle a legal proceeding in 1996. See Notes A, B, G, H and
N to the 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 electric generating 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 relates to the closing of construction
financing and commencement of construction for the Milesburg Project. If this
project is developed, the Company would replace this facility with a waste coal-
fired electric generating facility.
In 1987, MEI 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 intervenors. During the lengthy appeals
process, which extended beyond certain contract milestone dates in the power
purchase agreement, WPPC requested that its original petition to approve the
power purchase agreement be dismissed by the PUC since the power purchase
agreement had expired by its own terms. In September 1989, in response to MEI's
efforts to preserve its contractual rights, the PUC, by court order, ordered
WPPC to execute a new power purchase agreement with MEI. The new power purchase
agreement would include extended contract milestone dates and rates which would
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
industrial intervenors and WPPC 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 had been
temporarily stayed by mutual agreement of MEI and WPPC pending discussions
pertaining to a buy-out of the power purchase agreement which began in October
1995 and have not yet been finalized. However, MEI recently lifted the stay and
is proceeding to finalize the terms of the power purchase agreement.
Despite ongoing efforts to reach a buy-out arrangement with WPPC, the
Company has continued to invest its financial resources to protect its legal and
contractual interests and to support its ability to commence construction in the
event that a buy-out arrangement under mutually agreeable terms cannot be
reached with WPPC. In July 1996, in furtherance of these objectives, the Company
entered into a joint development agreement with U.S. Gen. U.S. Gen is a joint
venture of PG&E Enterprises and Bechtel Enterprises, Inc. and has considerable
experience as one of America's largest independent power companies. In addition,
the Company and U.S. Gen have a history of working together in the co-
development and ongoing operation of the Scrubgrass Project which has now been
operating profitably for more than a year. As a result of the joint development
agreement, the Company has greater financial and technical resources available
to pursue the development of the Milesburg Project. Since the signing of the
joint development agreement, the Company and U.S. Gen have been pursuing various
development activities and are continuing ongoing discussions with WPPC
concerning a possible buy-out of the power purchase agreement. The Company plans
to continue efforts towards both the development of the Milesburg Project and
the negotiation of a buy-out of the power purchase agreement until it becomes
apparent which alternative will be in the best interest of the Company and its
shareholders. In that regard, the Company's development efforts have increased
in 1996. Under the terms of the joint development agreement, U.S. Gen has the
responsibility to manage the development activities and finance a majority of
the development period expenses prior to financial closing. Based on the
progress made in recent development activities and buy-out negotiations,
management believes that it is more likely than not that the Company
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will recover its net investment in the Milesburg Project. However, there can be
no assurance that the Milesburg Project will be successfully developed, that the
Company will receive a buy-out proposal, or that the Company will realize any
value from the Milesburg Project. See Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Factors That
May Affect Future Results and Notes A, B, D and H to the Consolidated Financial
Statements for additional information regarding this project.
Competition
The Company generates electricity using alternative energy sources which
is sold on a wholesale basis to utilities under contracted rates established in
power purchase agreements. There are a large number of suppliers in the
wholesale market and a surplus of capacity which has led to intense competition
in this market. The principal sources of competition in this market include
traditional utilities who have excess capacity, energy brokers and traders,
contractors, equipment suppliers and other independent power producers who have
entered, or are attempting to enter the energy market. Competition in this
industry is substantially based on price with competitors discovering lower cost
alternatives to providing electricity. Presently, the Company does not believe
it will be significantly impacted by competition in the wholesale energy market
since its revenues are subject to contracted rates which are substantially fixed
for several years. However, the contracted rates in the later years of the
Scrubgrass and Milesburg power purchase agreements switch to rates which vary
more closely with existing market conditions. Should ensuing competition in the
later years of the Company's power purchase agreements create downward pressure
on wholesale energy rates, the Company's profitability could be impacted.
The Company also competes in the market to develop power generation
facilities. The primary bases of competition in this market 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 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. Many of the companies competing in this market
have substantially greater resources than the Company. The Company believes its
project development experience and its experience in creating strategic
alignments with other development firms with greater financial and technical
resources could enable it to continue to compete effectively in the development
market when opportunities arise. However, the Company believes it has limited
opportunities for additional project development in the United States for the
foreseeable future.
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 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 for ensuring compliance of its
facilities with all applicable requirements and, accordingly, attempts to
minimize these risks by dealing with reputable contractors.
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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.
The Commonwealth of Pennsylvania has recently passed legislation which
significantly restructures the electric industry, primarily in the retail
market, beginning in 1997. Presently, none of this recently passed legislation
directly impacts the Company. However, the Company cannot predict whether its
operating or development activities will be indirectly impacted by any such
legislation in the future.
Employees
As of December 31, 1996 and at the time of making this filing, the
Company had four full-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 is 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 development 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 the
current monthly payments are $1,400.
Item 3. LEGAL PROCEEDINGS
On May 3, 1996, B&W Sunnyside L.P., NRG Sunnyside Inc., NRG Energy Inc.,
and Sunnyside Cogeneration Associates (collectively the "Plaintiffs") filed a
complaint, which was amended on June 27, 1996, against the Company and three of
its wholly-owned subsidiaries (collectively in this Item 3 hereafter "the
Company") in Seventh District Court for Carbon County, State of Utah. The
amended complaint alleges that the Company breached the purchase and sale
agreement by which the Company transferred all of its interest in SCA, a joint
venture which owned and operated a nominal 51 megawatt waste coal fired facility
located in Carbon County, Utah. The amended complaint also alleges that the
Company made certain misrepresentations in connection with the purchase and sale
agreement. As a result of the alleged breaches of contract and
misrepresentations, the Plaintiffs allege that they suffered damages in an
unspecified amount that exceed the aggregate outstanding principal and interest
balances due to the Company by B&W Sunnyside L.P. and NRG Sunnyside, Inc. under
certain notes receivable, which amounted to $2,937,500 and $221,318,
respectively at December 31, 1996 (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources"). In addition to alleging unspecified damages, the Plaintiffs also
request rescission of the purchase and sale agreement. On July 30, 1996, in
response to the Plaintiffs' amended complaint, the Company filed an answer and
counterclaim. In the answer to the amended complaint, the Company denied all
material allegations of the amended complaint and asserted numerous affirmative
defenses. In the counterclaim, the Company alleges numerous causes of action
against the Plaintiffs which include breach of contract, breach of the
promissory notes, intentional, malicious and willful breach of contract,
intentional tort, interference and misrepresentation. Through the counterclaim,
the Company seeks remedies which include: (1) compensatory, consequential and
punitive damages; (2) acceleration and immediate payment in full of the
promissory notes; and (3) injunctions which require the Plaintiffs to continue
making payments under the promissory notes during the pendency of this action
and until the promissory notes are paid in full and
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which enjoin the Plaintiffs from continuing certain malicious and intentional
actions that are alleged in the counterclaim, together with interest, reasonable
attorney's fees, costs and other such relief as the court deems proper. On
August 30, 1996, the Plaintiffs filed a reply to the Company's counterclaim in
which they denied all material allegations of the counterclaim and asserted
numerous affirmative defenses. The Company plans to vigorously defend against
the amended complaint and vigorously pursue the causes of action stated in the
counterclaim. The matter is currently in the discovery stage.
The Company is involved in various additional lawsuits. However, other
than the aforementioned litigation involving the sale of the Company's interest
in SCA, the Company is not engaged in any other 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.
PART II
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 April 4, 1997
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.
The following table shows the quarterly high and low bid prices on the
over-the-counter market for 1995 and 1996 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
---- ------ ---- ---
<S> <C> <C> <C>
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
1996 First Quarter 11/16 1/4
Second Quarter 1-5/16 5/8
Third Quarter 31/32 7/16
Fourth Quarter 1-3/16 7/16
</TABLE>
In December 1995, the Company declared and paid a dividend of 8 cents
per share. Prior to that date, the Company's policy had been to retain earnings,
if any, for use in its business. Beginning during 1996, the Company initiated a
quarterly dividend policy which is subject to review and consideration by the
Board of Directors each quarter. In respect of this dividend policy, the Company
declared and paid quarterly dividends of 3 cents per share and a special year
end dividend of 2 cents per share resulting in aggregate dividends of 14 cents
per share during 1996. The payment of any future dividends will depend on the
Board of Directors' evaluation based on the Company's then current and projected
operating performance and capital requirements. See Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
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During 1995, the Company acquired 498,100 shares of treasury stock
through open market purchases at an average price of $.19 per share. No open
market purchases were made during 1996 or 1994. For additional information with
respect to treasury shares acquired in private transactions, see Note K of Notes
to Consolidated Financial Statements.
In November 1996, NASDAQ proposed changes in the listing requirements
for the SmallCap Market. Under the existing rules, issuers with securities
trading below a $1 minimum bid price (such as the Company) may remain listed if
they meet an alternative test based on the market value of public float and
capital and surplus. The proposed changes would eliminate this alternative to
the $1 bid price requirement. If the proposed rules become effective, and the
bid price of the Company's stock remains below $1, the Company's Common Stock
would no longer be eligible for listing in the NASDAQ Small-Cap Market.
Item 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1996,
included on the following page, are derived from the audited consolidated
financial statements of the Company. The data should be read in conjunction with
the consolidated financial statements and other financial information included
elsewhere herein.
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<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- ---------- ----------
(000's omitted except per share data)
Results of Operations Data:
<S> <C> <C> <C> <C> <C>
Power generation revenues $ 47,854 $ 40,693 $ 30,705 $ 1,571 $ ---
--------- --------- --------- ---------- ----------
Costs and expenses:
Operating expenses 18,190 16,975 16,123 1,088 ---
Lease expense 24,964 23,020 10,538 --- ---
General and administrative expenses 3,062 3,668 2,998 1,613 831
Depreciation and amortization 205 167 3,018 428 44
Litigation settlement --- --- --- --- 84
--------- --------- --------- ---------- ----------
46,421 43,830 32,677 3,129 959
--------- --------- --------- ---------- ----------
Operating income (loss) 1,433 (3,137) (1,972) (1,558) (959)
Other income (expense):
Other Income 484 1,285 5,311 1 1
Interest income 499 468 695 161 72
Interest expense (165) (107) (8,830) (1,376) (13)
Amortization of deferred gain 308 308 154 --- ---
Warranty income 900 --- --- --- ---
Realized gain on sale of marketable securities --- --- --- 1,678 ---
Gain on sale of affiliate/project --- --- 3,946 --- 44
Minority interest --- --- 1,866 --- ---
Equity in net loss of affiliate --- --- (84) --- ---
--------- --------- --------- ---------- ----------
2,026 1,954 3,058 464 104
--------- --------- --------- ---------- ----------
Income (loss) before income taxes 3,459 (1,183) 1,086 (1,094) (855)
Income tax (expense) benefit (1,894) 448 (416) 414 177
--------- --------- --------- ---------- ----------
Net income (loss) $ 1,565 $ (735) $ 670 $ (680) $ (678)
========= ========= ========= ========== ==========
Net income (loss) per share $ 0.14 $ (0.07) $ 0.06 $ (0.11) $ (0.12)
Dividends paid per share $ 0.14 $ 0.08 $ --- $ --- $ ---
Weighted average number of shares outstanding 11,322 10,649 11,321 8,592 7,586
Balance Sheet Data:
Total assets $ 52,503 $ 45,226 $ 35,962 $ 149,788 $ 301,285
Working capital (deficit) 3,847 3,224 1,212 7,201 (484)
Long-term obligations 34,337 24,405 11,533 130,360 104,425
Deferred gain (1) 6,014 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
Shareholders' equity 2,680 2,797 4,443 3,303 5,443
</TABLE>
___________
(1) See Notes A and B of Notes to Consolidated Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview of the Company
The Company owns a 22 year leasehold interest in an approximately 83 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 (100% to
approximately 40%) in and oversaw the operation of an approximately 51 Mw (net)
waste coal-fired electric generating facility (the "Sunnyside Project") located
in Utah. 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
following Management's Discussion and Analysis of Financial
11
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Condition and Results of Operations compares the Company's results of operations
for the years ending December 31, 1996, 1995 and 1994. However, the following
factors should be considered when reading this information which make the
results of operations for each of these periods very different.
Sunnyside Operations - The Company owned varying majority interests from
100% to approximately 70% in the Sunnyside Project until September 28, 1994
and thereafter owned an approximate 40% interest until December 31, 1994
when the Company sold its remaining interest in the Sunnyside Project.
Accordingly, during the year ended December 31, 1994, the Company
consolidated the results of operations of its majority interests in the
Sunnyside Project until September 28, 1994 and reported its approximate 40%
interest in the Sunnyside Project during the period from September 28, 1994
to December 31, 1994 under the equity method. As a result of the sale of its
interest in the Sunnyside Project, 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 $5.3 million which is
included in other income in the Company's 1994 consolidated statement 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 either eliminated in consolidation or deferred prior to the sale.
Scrubgrass Operations - The Company commenced a 22 year lease of the
Scrubgrass Project on June 30, 1994. Accordingly, the Company's results of
operations include six months of operations of the Scrubgrass Project in
1994 and a full year of operations of the Scrubgrass Project for each of
1995 and 1996.
Cautionary Statement
This Annual Report on Form 10K contains "forward-looking statements", as
defined by the Private Securities Litigation Reform Act of 1995, in order to
provide investors with prospective information about the Company. For this
purpose, any statements which are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors which could cause the Company's actual results to differ materially from
those indicated by the forward looking statements. These factors include,
without limitation, those set forth below under the caption "Certain Factors
That May Affect Future Results".
Results of Operations
Year ended December 31, 1996 ("1996") compared with the year ended
December 31, 1995 ("1995")
Net income in 1996 amounted to $1,565,279 or 14 cents per share as
compared to a net loss of $734,611 or 7 cents per share in 1995. The overall
increase is primarily attributable to favorable operating performance of the
Scrubgrass Project, the recognition of certain revenues of $3,064,965 which were
previously deferred under the Scrubgrass power purchase agreement, the
settlement of a warranty issue related to the Scrubgrass Project for $900,000
and the settlement of a legal proceeding for approximately $340,000, net of
legal fees. In light of the Company's favorable earnings in 1996, the Company
paid dividends in 1996 of $1,549,250 or 14 cents per share as compared to
dividends paid in 1995 of $923,786 or 8 cents per share.
Power generation revenues in 1996 amounted to $47,853,639 as compared to
$40,693,465 in 1995. The overall increase in power generation revenues during
1996 is primarily attributable to the recognition of certain revenues of
$3,064,965 which were previously deferred under the Scrubgrass power purchase
agreement and an increase in the power generation and contracted rates billed to
the utility. The increase in power generation occurred primarily because the
plant operated at 90.6% of its capacity in 1996 as compared to 85.3% of its
capacity in 1995. The overall increase in power generation revenues was offset
in part by a reduction in the revenue recorded as a result of the straight-line
accounting treatment of certain revenues under the power purchase agreement
which amounted to $9,294,789 in 1996 as compared to $9,850,365 in 1995. All
power generation revenues earned by the Company in 1996 and 1995 related to the
Scrubgrass Project.
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Operating expenses in 1996 amounted to $18,190,037 as compared to
$16,975,186 in 1995. The overall increase is primarily due to higher fuel costs
and operator fees because of the higher capacity rate in 1996 and the
recognition of maintenance expenses associated with the anticipated repair of
the Scrubgrass generator (See Note O to the consolidated financial statements
for a further discussion of the repair to the Scrubgrass generator). During
1996, due to maintenance modifications and additional operating experience, fuel
costs were only 27% of power generation revenues, as compared to 30% of power
generation revenues in 1995. Moreover, the operating expenses incurred during
the 1995 annual plant outage were significantly greater by comparison to those
incurred during the 1996 annual plant outage. For both of these reasons, the
increase in 1996 operating expenses was not as significant as the increase in
power generation revenues.
Lease expense in 1996 amounted to $24,963,407 as compared to $23,020,132
in 1995. The overall increase in lease expense during 1996 is primarily due to
an increase in equity rents paid to the lessor based on the favorable
performance of the Scrubgrass plant in 1996. The increase is partially offset by
a decrease in the lease expense recorded as a result of the straight-line
accounting treatment of lease expenses ($9,294,789 in 1996 as compared to
$9,850,365 in 1995) and the lowering of interest rates which occurred in 1996
and which reduced the lessor's loan costs that were passed through to the
Company in its facility lease expenses.
General and administrative expenses in 1996 amounted to $3,061,931 as
compared to $3,668,066 in 1995. The overall decrease in general and
administrative expenses during 1996 is primarily due to the Company's efforts to
reduce its corporate overhead expenses. The Company's major steps to reduce its
corporate overhead in 1996 included a consolidation of its Vermont and New
Hampshire offices into one office in New Hampshire, a reduction in its executive
officer compensation and a reduction in its employee headcount by an equivalent
of two full-time employees. However, during 1996, the Company continued to incur
substantial management and professional fees to negotiate certain contractual
matters and defend its position in certain legal matters. Accordingly, the full
effect of the Company's efforts to reduce corporate overhead expenses has not
yet been shown in its 1996 operating results.
Warranty income in 1996 amounted to $900,000 and resulted from a
settlement with an engineering and construction contractor for the Scrubgrass
plant which was received in March 1996. There was no warranty income in 1995.
Other income in 1996 consisted primarily of proceeds from a legal
settlement of $540,000 and Sunnyside Project sales tax refunds of approximately
$42,000 arising out of activities prior to the date of sale. Other income in
1995 consisted primarily of Sunnyside Project sales tax refunds of $1.1 million
arising out of activities prior to the date of sale and fee income related to
the Scrubgrass Project. The other income in 1996 and 1995 were both offset in
part by the provisions made for the continued decline in value of the Company's
preferred stock investment in Hamilton Technologies, Inc., a privately held
Massachusetts developer of computer aided software engineering (CASE) software.
Income tax expense in 1996 amounted to $1,894,035 as compared to an
income tax benefit of $447,984 in 1995. The income tax expense resulted
primarily from the Company's favorable earnings during 1996. Furthermore, in
1996, the Company's deferred state income tax expense includes a charge related
to state net operating loss carryforwards which have expired and a charge
related to a valuation allowance which was established because the Company
estimates that it may not realize all of the recorded tax benefits of its state
net operating loss carryforwards. The Company's effective tax rate on its 1996
earnings amounted to 54.8% as compared to an effective tax benefit rate of 37.9%
on its net loss in 1995. The increase in the 1996 effective tax rate is
primarily as a result of the additional charges to deferred state tax expense
and because the taxability of temporary differences reversing in 1996 occurred
in states with higher tax rates.
Year ended December 31, 1995 ("1995") compared with the year ended
December 31, 1994 ("1994")
Power generation revenues in 1995 amounted to $40,693,465 as compared to
$30,704,589 in 1994. In 1995, power generation revenues were all attributable to
the Scrubgrass Project. In 1994, the Company's power generation revenues were
attributable to operations of the Sunnyside Project until September 28, 1994
($12,522,288) and six months
13
<PAGE>
of operations of the Scrubgrass Project ($18,182,301). The overall increase in
power generation revenues during 1995 is primarily attributable to a full year
of operations of the Scrubgrass Project and an increase in the power generation
and contracted rates billed to the utility for the Scrubgrass Project. The
increase in power generation occurred primarily because the Scrubgrass plant
operated at 85.3% of its capacity in 1995 as compared to 83.4% of its capacity
in 1994.
Operating expenses in 1995 were $16,975,186 and related to the operation
of the Scrubgrass Project for twelve months as compared to operating expenses of
$16,122,617 in 1994 which related to the operation of the Scrubgrass and
Sunnyside Projects for six and nine months, respectively. The overall increase
is primarily due to the change in the mix of operating activities between
projects during each period.
Lease expense in 1995 amounted to $23,020,132 as compared to $10,537,623
in 1994. Lease expense, which relates to the Scrubgrass Project, reflected an
increase in 1995 primarily due to a full year of operations of the Scrubgrass
Project.
General and administrative expenses in 1995 were $3,668,066 and include
the operation of the Scrubgrass Project for twelve months as compared to
operating expenses of $2,998,325 in 1994 which include the operation of the
Scrubgrass and Sunnyside Projects for six and nine months, respectively. The
overall increase is primarily due to the change in the mix of operating
activities between projects during each period.
Depreciation and amortization amounted to $167,333 in 1995 as compared to
$3,017,766 in 1994. The decrease is primarily attributable to the absence of
depreciation on the Sunnyside facility in 1995.
Other income in 1995 was $1,284,403 and consisted primarily of Sunnyside
Project sales tax refunds of $1.1 million arising out of activities prior to the
date of sale and fee income related to the Scrubgrass Project. Other income in
1994 was $5,311,213 and consisted primarily of the recognition of construction
management and interest income related to the Sunnyside Project when such
project was sold.
Interest income amounted to $468,626 in 1995 as compared to $695,142 in
1994. The decrease is primarily due to the absence of the earnings on investment
balances related to the Sunnyside Project.
Interest expense amounted to $106,783 in 1995 as compared to $8,829,893
in 1994. The decrease was primarily attributable to the absence of Sunnyside
Project debt obligations in 1995 since the Company's interest in the Sunnyside
Project was sold in 1994.
In 1994, the aggregate income from gain on sale of affiliate, minority
interest and equity in net loss of affiliate amounted to $5,726,799, which
related to the Sunnyside Project which was sold in December 1994.
1997 Outlook
During the fourth quarter of 1996, after learning about a generator failure
at an electric generating facility with an identical generator to the Scrubgrass
facility, the manufacturer asked the Company to perform certain tests to
determine the Scrubgrass generator's condition. Based on the results of these
tests, which became available during the first quarter of 1997, the Company
believes the Scrubgrass facility's generator exhibits certain conditions which
indicate that a similar failure might occur at some time in the future. In light
of these test results, the generator manufacturer has recommended that the
Company perform a complete rewind on the Scrubgrass facility's generator during
its 1997 annual plant outage which is scheduled to begin in April 1997. While
the extent of damage to the generator will not be known until the generator is
disassembled and inspected during the 1997 annual plant outage, based on the
generator test results, the generator manufacturer has advised the Company that
the complete rewind currently appears to be the best course of action to repair
the anticipated damage, and to ensure the operation of the generator on a long-
term basis. As a result of the recommended generator repair, the Company
currently estimates it would incur an additional expense of approximately
$660,000 to perform the rewind procedure, $564,000 of which was recorded in 1996
(See Note O to the consolidated financial statements), and would expect to lose
net revenues which average approximately $80,000 per day for each additional day
the facility is inoperative during the scheduled outage. Presently, the
manufacturer of the generator
14
<PAGE>
has indicated that the rewind is expected to take no longer than 44 days, which
would necessitate that the Scrubgrass plant be shutdown for 35 days longer than
the original shutdown planned by the facility operator. The impact of the repair
and extended shutdown on the Company's operating results and/or cash flows could
be mitigated by a shortening of the repair period, recovery from the generator
manufacturer, proceeds from insurance coverage, and/or modifications to the
Scrubgrass Project's financing. However, there can be no assurance that any of
such mitigating factors will occur. See "Certain Factors That May Affect Future
Results" below.
Until the generator repair is completed, it is not possible to accurately
predict its effect on the Company's results of operations in 1997. However,
without giving effect to the negative impact of the generator repair on the
Company's 1997 operating results, the Company's management expects that the
Company would still be less profitable in 1997 as compared to 1996. In 1996, the
Company enjoyed the benefit of certain non-recurring revenues including the
recognition of $3,064,965 of revenues which were previously deferred under the
Scrubgrass power purchase agreement, the settlement of a warranty issue related
to the Scrubgrass Project for $900,000 and the settlement of a legal proceeding
for approximately $340,000, net of legal fees. In addition, the Company expects
to incur additional lease expense in 1997 of approximately $790,000 as a result
of a principal payment due on one of the Lessor's term loans. However, the
Company expects that the absence of the 1996 non-recurring revenues and the
impact of the additional 1997 lease expense would be partially offset by some
factors with a favorable impact on its results of operations in 1997. These
factors include an increase in certain power generation revenues resulting from
an approximate 5% increase in the contracted rates charged for energy produced
by the Scrubgrass Project, a reduction in lease expense from anticipated lower
equity rents and bank fees, and a reduction of general and administrative
expenses largely because approximately $800,000 of such expenses incurred in
1996 are not expected to recur in 1997. Furthermore, the Company expects that a
material portion of its 1997 expenses will continue to consist of non-cash
items, including deferred income taxes, maintenance reserves, and depreciation
and amortization. As such, although there can be no assurance that the Company
will continue to pay future dividends, the Company expects that its cash
generated from operations will continue to be greater than its operating
results, which would enhance the likelihood that cash resources would be
available for the payment of dividends.
Recently Issued Accounting Standards
See Note B to the Consolidated Financial Statements for recently issued
accounting standards which are required to be adopted in 1997.
Liquidity and Capital Resources
Operating Activities
Operating activities continue to be the Company's principal source of
liquidity with cash provided by operating activities amounting to $2,319,272 in
1996 as compared to $2,007,186 in 1995. During 1996, the Company primarily
generated cash from operating activities from the operating profits of the
Scrubgrass Project, from investment earnings, from the settlement of a warranty
issue related to the Scrubgrass Project for $900,000 and from the settlement of
a legal proceeding for approximately $340,000, net of legal fees. During 1995,
the Company's cash from operating activities primarily came from proceeds
received from the sale of Sunnyside Project, from investment earnings and from
the receipt of sales tax refunds related to the Sunnyside Project arising out of
activities prior to the date of the sale. The following changes in operating
assets and liabilities most notably impacted cash provided by operating
activities:
Receivable from utility - The Company's receivable from utility relates to
the Scrubgrass Project and amounted to $5,892,879 as of December 31, 1996
as compared to $6,536,506 as of December 31, 1995. The decrease is largely
attributable to a nonrecurring receivable amounting to $545,000 at December
31, 1995 which primarily pertained to the utility's payment of a portion of
the contracted rates for energy produced by the Scrubgrass plant in excess
of 80 Mw in any hour.
15
<PAGE>
Deferred income tax asset - The Company's deferred income tax asset
amounted to $3,840,105 as of December 31, 1996 as compared to $5,543,229 as
of December 31, 1995. The decrease is largely attributable to the
utilization of net operating loss carryforwards and the reversal of the tax
benefits associated with deferred revenue which were both recorded for the
year ended December 31, 1996.
Other current liabilities- The Company's other current liabilities amounted
to $3,188,758 as of December 31, 1996 as compared to $2,298,686 at December
31, 1995. The increase is primarily due to additional borrowings from the
working capital loan to pay Scrubgrass expenses. The Company believes that
the balance of the working capital loan was lower than average as of
December 31, 1995 since the Company had just refinanced approximately $4
million of its current liabilities in December 1995. The increase was
offset in part by the repayment of the current portion of the Scrubgrass
note obligation in the amount of $300,000.
Deferred gain, net - The Company's deferred gain, net amounted to
$6,014,008 as of December 31, 1996 as compared to $6,322,419 as of December
31, 1995. The decline is due to the amortization of the deferred gain
related to the Scrubgrass Project, which is being amortized on a straight-
line basis over 22 years.
Deferred revenue - The Company's deferred revenue, which represents power
generation revenues of the Scrubgrass Project which were deferred pursuant
to conditions set forth in the power purchase agreement, amounted to $0 as
of December 31, 1996 as compared to $3,064,965 as of December 31, 1995. The
decrease is attributable to power generation revenues which were earned
during the year ended December 31, 1996.
Maintenance reserve - The Company's maintenance reserve, which relates to
the Scrubgrass Project, increased to $1,533,829 as of December 31, 1996
from $699,429 as of December 31, 1995 due to scheduled reserves provided
for the ongoing maintenance of the plant and an additional provision in
light of the anticipated repair to the generator.
Investing Activities
The Company utilized $343,070 and $174,460 for investing activities
during the years ended December 31, 1996 and 1995, respectively. The Company's
investing activities are concentrated primarily in the following areas:
Notes receivable - The Company presently has notes receivable related to
the 1994 sale of the Sunnyside Project and related to fees earned in 1995
for the Scrubgrass Project. The Company collected $482,681 from notes
receivable related to the Scrubgrass Project in 1996 and collected $312,500
from notes receivable related to the Sunnyside Project in 1995. The notes
receivable related to the Sunnyside Project, with a principal balance of
$2,937,500 and accrued interest balance of $221,318 as of December 31,
1996, are the subject of a legal proceeding. See Certain Factors That May
Impact Future Results, Item 3 and Note N to the Company's consolidated
financial statements for further information.
Restricted cash - The Company is presently required to make scheduled
deposits to a major maintenance fund to ensure that funds are available in
the future for scheduled maintenance procedures. During 1996, scheduled
deposits and interest earned on the major maintenance fund aggregated
$614,561.
Property plant and equipment - The Company invested $257,059 in 1996 and
$66,449 in 1995 in property plant and equipment expenditures. The
expenditures primarily relate to development activities for the Company's
Milesburg Project for which development efforts increased in 1996.
16
<PAGE>
Financing Activities
The Company utilized $1,809,500 and $1,177,431 in financing activities
during the years ended December 31, 1996 and 1995, respectively. The Company's
financing activities are concentrated primarily in the following areas:
Dividends - The Company declared and paid its first dividend of 8 cents per
share in December 1995 which amounted to $923,786. Prior to that date, the
Company's policy had been to retain earnings, if any, for use in its
business. Beginning in 1996, the Company initiated a quarterly dividend
policy which is subject to review and consideration by the Board of
Directors each quarter. In respect of this dividend policy, the Company
declared and paid quarterly dividends of 3 cents per share and a special
year end dividend of 2 cents per share resulting in aggregate dividends of
$1,549,250 paid in 1996.
Treasury Stock - The Company from time to time makes purchases of its own
common stock. During 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 collected by reducing the proceeds
paid to the officer for the common stock. The Company also paid $93,395 for
open market purchases made during 1995.
Notes payable - The Company presently has long-term obligations related to
its Milesburg Project and Scrubgrass Project in the amount of $5,858,767
and $2,487,813, respectively. The Company also had short-term installment
obligations related to its Sunnyside Project and Milesburg Project which
were fully satisfied by aggregate payments of $112,500 and $186,000 during
1996 and 1995, respectively. The Milesburg Project long-term obligations
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. The next
installment for the Scrubgrass Project long-term obligation is not due
until 1998.
1997 Outlook
During 1997, the Company expects that its principal sources of cash to fund
its business activities will be from available cash balances, investment
earnings and cash which may become available from the Scrubgrass Project. As
discussed in Note A to the consolidated financial statements, the Company is not
able to receive cash from the Scrubgrass Project until all operating expenses,
base lease payments (which include the Lessor's debt service), certain
maintenance reserve payments and other subordinated payments of the Scrubgrass
Project are first satisfied. Furthermore, as described in this Item under
Results of Operations - 1997 Outlook and in Note O to the consolidated financial
statements, the Company expects to make significant repairs to the generator of
the Scrubgrass Project during its 1997 annual plant outage. If the Company were
required to fund the proposed generator repairs and lost net revenues on an
immediate basis, the Company would expect to experience a significant cash
shortfall beginning shortly after the 1997 annual plant outage. However, based
on recent discussions with the Scrubgrass Project's lending institutions and
generator manufacturer, the Company currently expects that it may be able to
spread the financial impact of the generator repair over a period ranging from
four to six years through debt financing or through extended terms with the
generator manufacturer. Furthermore, in light of the favorable performance of
the Scrubgrass Project which is expected to resume once the necessary generator
repairs are made, the Company expects that the Scrubgrass Project will be
capable of supporting the increases in the debt service requirements proposed
under the generator repair financing scenarios without compromising any of its
existing debt covenants. As such, the Company expects that it will receive
sufficient cash from the Scrubgrass Project, which when combined with its
available cash balances and investment earnings, would be sufficient to sustain
it business activities on a long-term basis. However, there can be no assurance
that the financial impact of the generator repair can be spread over a number of
years or that the favorable performance of the Scrubgrass Project will continue.
See "Certain Factors That May Affect Future Results" below.
17
<PAGE>
Certain Factors That May Affect Future Results
The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements made in
this Annual Report on Form 10-K.
Ownership of Single Operating Asset
The Company owns a 22 year leasehold interest in the Scrubgrass Project,
an approximate 83 Mw (net) waste-coal fired electric generating facility located
in Pennsylvania, the lease for which commenced on June 30, 1994. Presently, all
the Company's operating revenues are attributable to power generation from the
Scrubgrass Project. Accordingly, the Company's operations are largely dependent
upon the successful and continued operation of the Scrubgrass Project. In
particular, if the Scrubgrass Project experiences unscheduled shutdowns of
significant duration, the Company's results of operations will be materially
adversely affected.
Dependence Upon Key Employees
The success of the Company is largely dependent upon a staff of four
employees, including three executive officers. The loss of any of these
employees could adversely effect the Company's operations.
Third Party Project Management
The Company has entered into a management services agreement with U.S.
Gen to manage the Scrubgrass Project and a 15-year operations and maintenance
agreement with US Operating Services to operate the facility. Under the terms of
these agreements, there are provisions which limit the Company's participation
in the management and operation of the Scrubgrass Project, and provisions which
provide for recourse against the manager and operator for unsatisfactory
performance. However, the Company does not exercise control over the operation
or management of the Scrubgrass Project. As such, decisions may be made
affecting the Scrubgrass Project, notwithstanding the Company's opposition,
which may have an adverse affect on the Company.
Scheduled and Unscheduled Shutdowns
The Scrubgrass Project from time to time experiences both scheduled and
unscheduled shutdowns. Periodically, the Scrubgrass Project incurs scheduled
shutdowns in order to perform maintenance procedures to equipment that cannot be
performed while the equipment is operating. Occasionally, the Scrubgrass
Project may also incur unscheduled shutdowns or may be required to operate at
reduced capacity levels following the detection of equipment malfunctions, or
following minimum generation orders received by the utility. During periods
when the Scrubgrass Project is shutdown or operating at reduced capacity levels,
the Company may incur losses due to the loss of its operating revenues and/or
due to additional costs which may be required to complete any maintenance
procedures. It is not possible for the Company to predict the frequency of
future unscheduled shutdowns or to predict the extent of maintenance which may
be required during shutdowns related to equipment maintenance. As previously
discussed in this Item 7, the Scrubgrass Plant is scheduled to shut down in
April 1997 for its annual plant outage. During this scheduled outage, the plant
operator will be performing significant repairs to the generator. The Company's
expected operating results could be affected if the duration of the outage or
the maintenance expenses incurred during the outage exceed the Company's
expectations.
Legal Proceedings
As discussed in Item 3 and Note N to the Company's consolidated financial
statements, the Company is involved in a legal proceeding with the purchasers of
the Company's interest in the Sunnyside Project which was sold in 1994. Pending
the resolution of the legal proceeding, the purchasers have withheld scheduled
payments of principal and interest due on the promissory notes since June 1996,
which amounted to $1,187,500 and $221,318, respectively as of December 31, 1996.
In addition, the Company recorded in 1994 a receivable related to a purchase
price adjustment, as provided for in the Purchase and Sale Agreement, of
approximately $1.1 million, of
18
<PAGE>
which $708,000 was received in April 1995. The balance of purchase price
adjustment is also being disputed in the legal proceeding with the purchasers.
Although the Company's cash provided by operating activities has been sufficient
to fund the Company's investing and financing activities, the withholding of
scheduled principal and interest payments has adversely affected the Company's
cash flow. At this time, while management believes the Company's position in
this litigation is meritorious, the Company cannot predict whether it will
prevail in the litigation and to what extent it will incur professional fees to
defend its position in the litigation. An unfavorable resolution and/or
extensive professional fees to defend the litigation could adversely affect the
Company's results of operations.
Financial Results
To date the Company has incurred substantial losses, primarily due to its
development activities, which have resulted in an accumulated deficit of
$7,282,306 as of December 31, 1996. In addition, except during 1996 when the
Scrubgrass Project became profitable, the Company has incurred losses in recent
years. Financial results can be affected by numerous factors, including without
limitation general economic conditions, cyclic industry conditions, the amount
and rate of growth of expenses, transportation and quality of raw materials,
inflation, levels of energy rates, uncertainties relating to government and
regulatory policies, the legal environment and volatile and unpredictable
developments. The Company believes it is well positioned to handle such matters
as they may arise during the course of its future business activities. However,
there can be no assurance that the Company will be profitable in the future.
Development Uncertainties
The Company is currently pursuing efforts towards either the development
of the Milesburg Project or the negotiation of a buy-out of the Milesburg
Project's power purchase agreement with West Penn Power Company. However, there
can be no assurance that the Milesburg Project will be successfully developed,
that the Company will receive a buy-out proposal, or that the Company will
realize any value from the Milesburg Project. In the event the Company and its
joint development partner, U.S. Gen, seek to continue development efforts, there
can be no assurance that the Company will be able to obtain all of the necessary
site agreements, fuel supply contracts, design/build agreements, power sales
contracts, licenses, environmental and other permits, local government approvals
or financing commitments required for the successful completion of this project.
To date, the Company's efforts to develop the Milesburg Project have been
proceeding on schedule. However, the failure to accomplish any of the
aforementioned steps could materially increase the cost or prevent the
successful completion of the Milesburg Project, or cause the Company to abandon
the Milesburg Project and incur the loss of its investment to date, which could
materially impact the Company's business and results of operations.
Project Financing
The Milesburg Project, if successfully developed, will require
substantial financing. Presently, the Company has discussed financing proposals
with certain financing sources and believes the Milesburg Project could be
financed. However, there can be no assurance that such financing can be
successfully arranged. Any such financing is likely to be collateralized by the
assets of the Milesburg Project, with repayment to be from the revenues
attributable to the Milesburg Project. The Company may also be required to
guarantee all or a portion of the project debt or may be required to give up
significant equity interests in the Milesburg Project in order to arrange the
financing.
Potential Liability, Damages and Insurance
The Company's power generation activities involve significant risks to
the Company for environmental damage, equipment damage and failures, personal
injury and fines and costs imposed by regulatory agencies. In the event a
liability claim is made against the Company, or if there is an extended outage
or equipment failure or damage at the Company's power plant for which it is
inadequately insured or subject to a coverage exclusion, and
19
<PAGE>
the Company is unable to defend such claim successfully or obtain
indemnification or warranty recoveries, there may be a material adverse effect
on the Company.
Circulating Fluidized Bed Technology
The Company's Scrubgrass Project employs circulating fluidized bed
technology to produce electricity. Certain aspects of this technology, as well
as the conversion of waste products into electricity, are relatively new areas
being explored by the alternative energy market in the last ten years.
Accordingly, this technology carries greater risk than more established methods
of power generation such as hydropower. As such, the long-term costs and
implications of maintaining this technology have not been established by
historical industry data.
Customer Concentration
The Company's power generation revenues are earned under a long-term
power purchase agreement with one customer, Pennsylvania Electric Company. The
Company expects that the concentration of its revenues with this customer will
continue for the foreseeable future. Although, the Company's Milesburg Project
is in the development stage and presents an opportunity in the future for the
Company to expand its revenue sources and lessen its revenue concentration.
However, there can be no assurance that the Milesburg Project will be
successfully developed.
Interest Rates
The Company's subsidiary, as a lease cost of the Scrubgrass facility, is
required to fund the Lessor's debt service which primarily consists of $135.6
million of variable rate tax-exempt bonds maturing in 2012, a $20.8 million term
loan maturing in 2005, a $9.5 million variable rate term loan maturing in 2004
and $1.3 million in remaining junior subordinated debt obligations which mature
through 2004. The Company's subsidiary is also required to fund a variable rate
working capital loan and a $2.5 million variable rate term loan maturing in
2004. The Lessor entered into interest rate swaps which had the effect of
fixing the interest rate on the tax-exempt bonds until May 18, 1996 at
approximately 3.72% and fixing the interest rate over the life of the $20.8
million term loan at 6.42%. After May 18, 1996, the Company's specified base
rent was incurred based on floating rates on the Lessor's tax-exempt bonds. As
such, except for the Lessor's $20.8 million term loan and $1.3 million remaining
junior subordinated debt obligations, the Company will be required to fund debt
service consisting of rates which will vary with market conditions. Presently,
the Company is not able to predict how future interest rates will affect its
lease expense or debt service. Should market interest rates rise significantly,
the Company's operating results may be significantly impacted. Notwithstanding,
the Company believes the Lessor has good relationships with the project lenders
who would continue to support lending terms which would not have a material
adverse affect on the operating results of the Scrubgrass Project. However,
there can be no assurance that the Lessor could renegotiate its credit
facilities under terms which would ensure continuing profitable operating
results of the Scrubgrass Project.
Fuel Quality
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. The
coal tailings are burned in the Scrubgrass facility using a circulating
fluidized bed combustion system. During the circulating fluidized bed combustion
process, the coal tailings are treated with other substances such as limestone
to facilitate the breakdown of the coal tailings and the resulting power
generation process. Depending on the quality of the coal tailings, the facility
operator may need to add additional coal tailings or other substances to create
the appropriate consistency of fuel for maximum power generation. Therefore, the
cost of generating power is directly impacted by the quality of the coal
tailings which supply the Scrubgrass power generation facility. The facility
operator maintains certain controls over obtaining higher quality coal tailings.
However certain conditions, such as poor weather, can create situations where
the facility operator has less control
20
<PAGE>
over the quality of the coal tailings. The Company cannot predict the extent to
which poor fuel quality may impact its future operating results.
Competition
The Company generates electricity using alternative energy sources which
is sold on a wholesale basis to utilities under contracted rates established in
power purchase agreements. There are a large number of suppliers in the
wholesale market and a surplus of capacity which has led to intense competition
in this market. The principal sources of competition in this market include
traditional utilities who have excess capacity, energy traders and brokers,
contractors, equipment suppliers and other independent power producers who have
entered, or are attempting to enter the energy market. Competition in this
industry is substantially based on price with competitors discovering lower cost
alternatives to providing electricity. Presently, the Company does not believe
it will be significantly impacted by competition in the wholesale energy market
since its revenues are subject to contracted rates which are substantially fixed
for several years. However, the contracted rates in the later years of the
Scrubgrass Project and Milesburg Project power purchase agreements switch to
rates which vary more closely with existing market conditions. Should ensuing
competition in the later years of the Company's power purchase agreements create
downward pressure on wholesale energy rates, the Company's profitability could
be impacted.
The Company also competes in the market to develop power generation
facilities. The primary bases of competition in this market 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 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. Many of the companies competing in this market
have substantially greater resources than the Company. The Company believes its
project development experience and its experience in creating strategic
alignments with other development firms with greater financial and technical
resources could enable it to continue to compete effectively in the development
market as development opportunities arise. However, the Company believes it has
limited opportunities for additional project development in the United States
for the foreseeable future.
Regulation
The Company's projects benefit from regulation under federal and state
energy laws and regulations which require electric utilities to purchase energy
produced by qualifying facilities. The Company also benefits from and must
comply with certain regulations enacted pursuant to the Public Utility
Regulatory Policies Act of 1978 ("PURPA") exempting certain qualifying
facilities from certain provisions of the Federal Power Act of 1920, the Public
Utility Holding Company Act of 1935, and, except under certain limited
circumstances, state laws regulating the wholesale rates charged by electric
utilities. The Company cannot predict the affect on its business if these laws
or regulations are amended or repealed.
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 Commonwealth of Pennsylvania has recently passed legislation which
significantly restructures the electric industry, primarily in the retail
market, beginning in 1997. Presently, none of this recently passed legislation
directly impacts the Company. However, the Company cannot predict whether its
operating or development activities will be indirectly impacted by any such
legislation in the future.
21
<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
----
<S> <C>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
Independent Auditor's Report F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996,
1995 and 1994 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 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 30, 1997. 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 54 Chairman and Chief Executive Officer
Donald A. Livingston 54 President and Chief Operating Officer
William D. Linehan 31 Treasurer, Secretary and Chief Financial 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
22
<PAGE>
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.
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.
William D. Linehan has served as Treasurer, Secretary and Chief Financial
Officer of the Company since March 29, 1996. Prior to his employment with the
Company, Mr. Linehan was most recently employed since 1993 as 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.
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 30, 1997.
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 30, 1997.
Such information is incorporated herein by reference.
23
<PAGE>
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 30, 1997.
Such information is incorporated herein by reference.
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
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996,
1995 and 1994 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
(a)2. Financial Statement Schedules
The Company is not required to file any financial statement schedules
which are outlined in Article 5 of the Securities and Exchange Commission
regulations.
(a)3. Exhibits
The following Exhibits are included in this report:
<TABLE>
<CAPTION>
Exhibit Incorporation
Number Description Reference
------ ----------- ---------
<S> <C> <C>
3.01 Certificate of Incorporation, as amended. A
4.02 Bylaws of the Registrant, as amended. AB
10.01 Joint Development Agreement among Milesburg Energy, Inc., U.S. Gen and AE
Environmental Power Corporation dated July 30, 1996 (a written request for
confidential treatment of certain proprietary information in this agreement has
been filed with the United States Securities and Exchange Commission)
10.03 Cash Bonus Plan A
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
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.
10.13 Non-resource Secured Note of Environmental Power Corporation to Neil W.
Hedrick, Richard Mase and Sylvia B. Mase for $220,000, dated April 30,
1987.
10.14 Non-resource Secured Note of Environmental Power Corporation to Neil W.
Hedrick, Richard Mase and Sylvia B. Mase for $4,900,000, dated April 30,
1987.
10.15 Note of Milesburg Energy, Inc., to Antrim Mining, Inc., for $41,000,
dated April 30, 1987.
10.16 Note of Milesburg Energy, Inc., to Richard Mase and Sylvia B. Mase for
$139,000, dated April 30, 1987.
10.17 Electric Energy Purchase Agreement between West Penn Power Company and
Milesburg Energy, dated February 25, 1987.
10.18 Agreement for the Sale of Electric Energy from the Scrubgrass Generating
Plant by and between Pennsylvania Electric Company and Scrubgrass Power
Corporation dated August 7, 1987 which was assigned by Scrubgrass Power
Corporation to Scrubgrass Generating Company, L.P. on December 15, 1990
and assigned by Scrubgrass Generating Company, L.P. to Buzzard Power
Corporation on June 17, 1994.
10.19 Supplemental Agreement for the Sale of Electric Energy from the
Scrubgrass Generating Plant by and between Pennsylvania Electric Company
and Scrubgrass Power Corporation dated February 22, 1989, as amended by
letter agreement dated March 28, 1989, which was assigned by Scrubgrass
Power Corporation to Scrubgrass Generating Company, L.P. on December 15,
1990 and assigned by Scrubgrass Generating Company, L.P. to Buzzard
Power Corporation on June 17, 1994.
10.20 Second Supplemental Agreement for the Sale of Electric Energy from the
Scrubgrass Generating Plant by and between Pennsylvania Electric Company
and Scrubgrass Power Corporation dated September 27, 1989 which was
assigned by Scrubgrass Power Corporation to Scrubgrass Generating
Company, L.P. on December 15, 1990 and assigned by Scrubgrass Generating
Company, L.P. to Buzzard Power Corporation on June 17, 1994.
10.21 Third Supplemental Agreement for the Sale of Electric Energy from the
Scrubgrass Generating Plant by and between Pennsylvania Electric Company
and Scrubgrass Power Corporation dated August 13, 1990 which was
assigned by Scrubgrass Power Corporation to Scrubgrass Generating
Company, L.P. on December 15, 1990 and assigned by Scrubgrass Generating
Company, L.P. to Buzzard Power Corporation on June 17, 1994.
10.22 Amendment to the Third Supplemental Agreement for the Sale of Electric
Energy from the Scrubgrass Generating Plant by and between Pennsylvania
Electric Company and Scrubgrass Power Corporation dated November 27,
1990 which was assigned by Scrubgrass Power Corporation to Scrubgrass
Generating Company, L.P. on December 15, 1990 and assigned by Scrubgrass
Generating Company, L.P. to Buzzard Power Corporation on June 17, 1994.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
10.23 Letter Agreement dated December 20, 1990 amending the Agreement for the
Sale of Electric Energy from the Scrubgrass Generating Plant by and
between Pennsylvania Electric Company and Scrubgrass Power Corporation
dated August 7, 1987, as amended and supplemented from time to time
through November 27, 1990, which was assigned by Scrubgrass Power
Corporation to Scrubgrass Generating Company, L.P. on December 15, 1990
and assigned by Scrubgrass Generating Company, L.P. to Buzzard Power
Corporation on June 17, 1994.
10.57 1990 Stock Plan with forms of Incentive Stock Option Agreement and Non-
Qualified Stock Option Agreement.
10.60 Management Services Agreement by and between Scrubgrass Generating
Company, L.P. and PG&E-Bechtel Generating Company dated December 15,
1990 which was assigned by Scrubgrass Generating Company, L.P. to
Buzzard Power Corporation on June 17, 1994. PG&E-Bechtel Generating
Company has assigned its rights to this agreement ultimately to U.S.
Gen. Exhibit A to this agreement was omitted because it was previously
filed as Exhibit 10.67.
10.61 Agreement for Operation and Maintenance of the Scrubgrass Cogeneration
Plant between Scrubgrass Generating Company, L.P. and Bechtel Power
Corporation dated December 21, 1990 which was assigned by Scrubgrass
Generating Company, L.P. to Buzzard Power Corporation on June 17, 1994.
Bechtel Power Corporation has assigned its rights to this agreement
ultimately to U.S. Operating Services Company.
10.62 First Amendment to the Agreement for Operation and Maintenance of the
Scrubgrass Cogeneration Plant between Buzzard Power Corporation and U.S.
Operating Services Company dated December 22, 1995.
10.67 Appendix I to the Amended and Restated Participation Agreement, dated as AD
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 other contracts.
10.69 Transfer Agreement, dated as of December 19, 1991, between Environmental V
Power Corporation and Scrubgrass Generating Company, L.P.
10.70 Stock Pledge Agreement, dated December 19, 1991, between Environmental V
Power Corporation and Scrubgrass Generating Company, L.P
10.71 Amended and Restated Participation Agreement, dated as of December 22, AD
1995, among Buzzard Power Corporation, Scrubgrass Generating Company,
L.P., Environmental Power Corporation, Bankers Trust Company and Credit
Lyonnais.
10.73 Director Option Plan. AB
10.80 Amended and Restated 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
December 22, 1995. Schedules and similar attachments listed in the Lease
have been omitted and the Company agrees to furnish supplementally a
copy of any omitted schedule or attachment to the Securities and
Exchange Commission upon request.
</TABLE>
26
<PAGE>
10.81 Purchase and Sale Agreement by and among NRG Sunnyside Inc. and B&W AC
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.
10.82 Lease between Meadow Holdings Corporation and Environmental Power
Corporation, dated February 20, 1996.
10.83 Amended and Restated Disbursement and Security Agreement between
Scrubgrass Generating Company, L.P., as Lessor, Buzzard Power
Corporation, as Lessee, Bankers Trust Company as Disbursement Agent and
Credit Lyonnais acting through its New York Branch as Agent, dated as of
December 22, 1995. Schedules and similar attachments listed in this
agreement have been omitted and the Company agrees to furnish
supplementally a copy of any omitted schedule or attachment to the
Securities and Exchange Commission upon request.
10.84 Amended and Restated Lessee Working Capital Loan Agreement between
Scrubgrass Generating Company, L.P., as Lender, and Buzzard Power
Corporation, as Lessee, dated as of December 22, 1995.
11 Computation of Earnings per Share
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
99.01 Order of Pennsylvania Public Utility Commission in connection with
Milesburg Energy, Inc., adopted September 21, 1989.
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.
V Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 1991.
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.
AD Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 1995.
AE Previously filed as part of the Company's Report on Form 10-Q for the
period ended September 30, 1996.
(b) Reports on Form 8-K
Not Applicable.
27
<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
April 14, 1997 By /s/ Joseph E. Cresci
-------------------------------
Joseph E. Cresci, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act 1934, this
report has been signed below by the following persons on behalf of registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Joseph E. Cresci Chairman, Chief April 14, 1997
- -------------------------- Executive Officer,
Joseph E. Cresci & Director (Principal
Executive Officer)
/s/ Donald A. Livingston President & Chief April 14, 1997
- -------------------------- Operating Officer
Donald A. Livingston
/s/ William D. Linehan Treasurer, Chief April 14, 1997
- -------------------------- Financial Officer
William D. Linehan & Secretary (Principal
Financial Officer)
/s/ Peter J. Blampied Director April 14, 1997
- --------------------------
Peter J. Blampied
/s/ Edward E. Koehler Director April 14, 1997
- --------------------------
Edward E. Koehler
/s/ Robert I. Weisberg Director April 14, 1997
- --------------------------
Robert I. Weisberg
</TABLE>
28
<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, 1996 and 1995 and the
related statements of operations, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of Environmental Power
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
New York, New York
March 19, 1997
F-1
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1996 1995
----------------- -----------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents (Note B) $ 1,178,524 $ 1,011,822
Restricted cash (Note B) 1,864,899 1,250,338
Receivable from utility 5,892,879 6,536,506
Notes receivable (Note A) 2,973,629 1,673,091
Receivable from sale of affiliate (Note A) 276,444 276,444
Other current assets (Note C) 1,132,791 1,008,540
----------------- -----------------
TOTAL CURRENT ASSETS 13,319,166 11,756,741
PROPERTY, PLANT AND EQUIPMENT, NET (Notes A, B, D and I) 7,312,299 7,075,907
DEFERRED INCOME TAX ASSET (Notes B and J) 3,840,105 5,543,229
LEASE RIGHTS, NET (Notes A and B) 2,906,523 3,055,526
NOTES RECEIVABLE (Note A) 85,190 1,868,409
ACCRUED POWER GENERATION REVENUE (Note B) 24,456,478 15,161,689
OTHER ASSETS (Notes A and E) 583,383 764,923
----------------- -----------------
$ 52,503,144 $ 45,226,424
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note F) $ 6,283,775 $ 6,338,160
Other current liabilities (Note G) 3,188,758 2,298,686
----------------- -----------------
TOTAL CURRENT LIABILITIES 9,472,533 8,636,846
DEFERRED GAIN, NET (Note B) 6,014,008 6,322,419
SECURED PROMISSORY NOTES PAYABLE
AND OTHER BORROWINGS (Notes A and H) 8,346,580 8,543,767
ACCRUED LEASE EXPENSE (Note B) 24,456,478 15,161,689
DEFERRED REVENUE (Notes A and B) -- 3,064,965
MAINTENANCE RESERVE (Note B) 1,533,829 699,429
----------------- -----------------
TOTAL LIABILITIES 49,823,428 42,429,115
SHAREHOLDERS' EQUITY (Note K)
Preferred Stock ($.01 par value; 1,000,000 shares authorized; no shares
issued at December 31, 1996 and December 31, 1995, respectively) -- --
Common Stock ($.01 par value; 20,000,000 shares authorized;
12,195,423 shares and 12,145,423 shares issued at
December 31, 1996 and December 31, 1995, respectively;
11,076,783 shares and 11,547,323 shares outstanding at
December 31, 1996 and December 31, 1995, respectively) 121,954 121,454
Additional paid-in capital 11,057,495 12,592,808
Accumulated deficit (7,282,306) (8,847,585)
----------------- -----------------
3,897,143 3,866,677
Treasury stock (1,118,640 and 598,100 common shares, at cost, as of
December 31, 1996 and December 31, 1995, respectively) (456,271) (168,395)
Notes receivable from officers (761,156) (834,032)
Unearned compensation -- (66,941)
----------------- -----------------
2,679,716 2,797,309
----------------- -----------------
$ 52,503,144 $ 45,226,424
================= =================
</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
-------------------------------------------------------------
1996 1995 1994
----------------- ------------------ ------------------
POWER GENERATION REVENUES $ 47,853,639 $ 40,693,465 $ 30,704,589
----------------- ------------------ ------------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Operating expenses 18,190,037 16,975,186 16,122,617
Lease expense (Notes A, B and L) 24,963,407 23,020,132 10,537,623
General and administrative expenses 3,061,931 3,668,066 2,998,325
Depreciation and amortization 205,341 167,333 3,017,766
----------------- ------------------ ------------------
46,420,716 43,830,717 32,676,331
----------------- ------------------ ------------------
OPERATING INCOME (LOSS) 1,432,923 (3,137,252) (1,971,742)
OTHER INCOME (EXPENSE):
Other income (Note A) 484,295 1,284,403 5,311,213
Interest income 498,975 468,626 695,142
Interest expense (Note I) (165,290) (106,783) (8,829,893)
Amortization of deferred gain (Note B) 308,411 308,411 154,205
Warranty income (Note A) 900,000 -- --
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)
----------------- ------------------ ------------------
2,026,391 1,954,657 3,057,466
----------------- ------------------ ------------------
INCOME (LOSS) BEFORE INCOME TAXES 3,459,314 (1,182,595) 1,085,724
INCOME TAX (EXPENSE) BENEFIT (Notes B and J) (1,894,035) 447,984 (415,894)
----------------- ------------------ ------------------
NET INCOME (LOSS) $ 1,565,279 $ (734,611) $ 669,830
================= ================== ==================
PRIMARY AND FULLY DILUTIVE EARNINGS (LOSS) PER
COMMON SHARE (Note B) $ 0.14 $ (0.07) $ 0.06
================= ================== ==================
DIVIDENDS PAID $ 1,549,250 $ 923,786 $ --
================= ================== ==================
DIVIDENDS PAID PER COMMON SHARE $ 0.14 $ 0.08 $ --
================= ================== ==================
</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
Stock Stock Additional Loss on
($.01 Par ($.01 Par Paid-in Marketable Unearned
Value) Value) Capital Securities Compensation
----------- ------------ -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 $ 187 $ 106,822 $ 13,963,993 $ (390,325) $ (227,621)
Net income
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 0 (147,281)
Net loss
Preferred stock retired (187) (890,673)
Exercise of options 14,632 443,274
Purchase of common shares
Amortization of unearned
compensation (Note K) 80,340
Dividends paid (Note K) (923,786)
----------- ------------ -------------- ----------------- ----------------
BALANCE AT DECEMBER 31, 1995 0 121,454 12,592,808 0 (66,941)
Net income
Exercise of options 500 13,937
Purchase of common shares
Amortization of unearned
compensation (Note K) 66,941
Dividends paid (Note K) (1,549,250)
----------- ------------ -------------- ----------------- ----------------
BALANCE AT DECEMBER 31, 1996 $ 0 $ 121,954 $ 11,057,495 $ 0 $ 0
=========== ============ ============== ================= ================
<CAPTION>
Notes
Receivable
Accumulated Treasury From
Deficit Stock Officers
-------------- ------------- ---------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 $ (8,782,804) $ (965,860) $ (401,876)
Net income 669,830
Unrealized loss related to affiliate
sold
Amortization of unearned
compensation (Note K)
-------------- ------------- ---------------
BALANCE AT DECEMBER 31, 1994 (8,112,974) (965,860) (401,876)
Net loss (734,611)
Preferred stock retired 890,860
Exercise of options (432,156)
Purchase of common shares (93,395)
Amortization of unearned
compensation (Note K)
Dividends paid (Note K)
-------------- ------------- ---------------
BALANCE AT DECEMBER 31, 1995 (8,847,585) (168,395) (834,032)
Net income 1,565,279
Exercise of options
Purchase of common shares (287,876) 72,876
Amortization of unearned
compensation (Note K)
Dividends paid (Note K)
-------------- ------------- ---------------
BALANCE AT DECEMBER 31, 1996 $ (7,282,306) $ (456,271) $ (761,156)
============== ============= ===============
</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
-------------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,565,279 $ (734,611) $ 669,830
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 205,341 167,333 3,017,766
Deferred income taxes 1,703,124 (547,984) 415,894
Amortization of deferred gain (308,411) (308,411) (154,205)
Amortization of unearned compensation 66,941 80,340 80,340
Accrued power generation revenue (9,294,789) (9,850,365) (5,311,324)
Accrued lease expense 9,294,789 9,850,365 5,311,324
Other expense (income) 100,000 (77,982) (5,460,367)
Minority interest --- --- (1,866,017)
Gain on sale of interest in affiliate --- --- (3,945,494)
Equity in net loss of affiliate --- --- 84,712
Changes in operating assets and liabilities:
Decrease (increase) in receivable from utility 643,627 (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)
(Increase) decrease in other current assets (124,251) 713,763 (2,074,902)
(Decrease) increase in accounts payable and
accrued expenses (54,385) 803,436 1,821,548
(Decrease) increase in deferred revenue (3,064,965) 238,993 2,825,972
Increase (decrease) in other current liabilities 752,572 (1,187,668) 1,798,035
Increase in maintenance reserve 834,400 449,429 250,000
-------------- -------------- --------------
Net cash provided by (used in) operating activities 2,319,272 2,007,186 (11,485,270)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the collection of notes receivable 482,681 312,500 ---
Increase in restricted cash (614,561) --- ---
Decrease (increase) in other assets 45,869 (420,511) 1,000,078
Property, plant and equipment expenditures (257,059) (66,449) (165,741)
Reduction in 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
Lease rights expenditures --- --- 415,974
-------------- -------------- --------------
Net cash used in investing activities (343,070) (174,460) (1,125,452)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend payments (1,549,250) (923,786) ---
Repayment of secured promissory notes payable and
other borrowings (112,500) (186,000) (327,500)
Purchase of treasury stock (287,876) (93,395) ---
Proceeds from the collection of notes receivable from officers 72,876 --- ---
Proceeds from other borrowings 52,813 --- ---
Proceeds from the issuance of common stock 14,437 25,750 ---
Proceeds from tax exempt borrowings and equity bridge loans --- --- 4,229,336
-------------- -------------- --------------
Net cash (used in) provided by financing activities (1,809,500) (1,177,431) 3,901,836
-------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 166,702 655,295 (8,708,886)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,011,822 356,527 9,065,413
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,178,524 $ 1,011,822 $ 356,527
============== ============== ==============
</TABLE>
See Note B for supplemental disclosure of noncash investing and financing
activities.
See notes to consolidated financial statements.
F-5
<PAGE>
NOTE A--BUSINESS AND ORGANIZATION
Business: Environmental Power Corporation (individually "EPC" or
consolidated "the Company") owns a 22 year leasehold interest in an
approximately 83 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 (100% to approximately 40%) 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 83 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 EPC, 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, 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. EPC has pledged Buzzard's stock to the Lessor as security
for Buzzard's performance of its obligations as lessee. The Scrubgrass Project
is managed by U.S. Gen, 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 fixed
rates averaging 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 the calendar year 2012 adjusted annually by
the percentage change in the Gross National Product Deflator less 1%. On June 8,
1993, the Facility reached commercial operation.
The Facility is being operated by US 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.
Buzzard, as assignee, entered into a Limestone Purchase and Sale
Agreement with Quality Aggregates, Inc. 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 Scrubgrass Project also maintains an agreement with an initial term
of 15 years for the transportation of fuel, ash and limestone with
F-6
<PAGE>
Savage Industries, Inc. The costs established under this agreement will escalate
at partially fixed and partially indexed rates.
Buzzard's revenues earned by the Scrubgrass Project are deposited into
an account administered by a disbursement agent. Before Buzzard can receive cash
generated by the Scrubgrass 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 sources outside of the Scrubgrass 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 had the effect of fixing the interest rate on the tax-exempt bonds until
May 18, 1996 at approximately 3.72% and fixing the interest rate over the life
of the $20.8 million term loan at 6.42%. After May 18, 1996, the Company's
specified base rent was incurred based on floating rates on the Lessor's
tax-exempt bonds ranging from 3.2% to 3.85%. 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. In connection with the Lessor's debt restructuring, Buzzard also
extended the term of $4 million of its own current liabilities through 2004.
In March 1996, the Company received proceeds of $900,000 from Bechtel
Power Corporation in final settlement of certain warranty and start-up matters
which is included in other income in the accompanying consolidated statement of
operations.
Sunnyside
The Sunnyside Project 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 Sunnyside Project is owned by
Sunnyside Cogeneration Associates ("SCA"), a joint venture in which the Company
owned varying majority interests from 100% to approximately 70% 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 was due on December 31, 1996 and the remaining
principal of $1,750,000 is due on December 31, 1997. However, as more fully
described in Note N, the purchasers of the Company's interest in SCA have
entered into a legal proceeding with the Company. Pending the resolution of the
legal proceeding, the purchasers have withheld all payments of principal and
interest due on the promissory notes since June 1996. As of December 31, 1996,
the purchasers have principal and interest payments in arrears of $1,187,500 and
$221,318, respectively. In addition, the Company recorded in 1994 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 balance of purchase price adjustment is also being disputed in
the legal proceeding with the purchasers. The Company also retained certain
inchoate rights, including potential refundable sales taxes and certain legal
settlements arising out of activities prior to the date of the sale. The
retained rights were fully satisfied after the Company received sales tax
refunds aggregating $1.1 million and $42,078 in 1995 and 1996, respectively, and
received $540,000 to settle a legal proceeding in 1996, which have all been
included in other income in the accompanying consolidated 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
F-7
<PAGE>
approximately $5.3 million which is included in other income on the accompanying
consolidated statement 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 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 relates to the closing of construction financing and commencement of
construction for the Milesburg Project. If this project is developed, the
Company would replace this facility with a waste coal-fired electric generating
facility.
In 1987, MEI 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 intervenors. During the lengthy appeals
process, which extended beyond certain contract milestone dates in the power
purchase agreement, WPPC requested that its original petition to approve the
power purchase agreement be dismissed by the PUC since the power purchase
agreement had expired by its own terms. In September 1989, in response to MEI's
efforts to preserve its contractual rights, the PUC, by court order, ordered
WPPC to execute a new power purchase agreement with MEI. The new power purchase
agreement would include extended contract milestone dates and rates which would
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
industrial intervenors and WPPC 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 had been
temporarily stayed by mutual agreement of MEI and WPPC pending discussions
pertaining to a buy-out of the power purchase agreement which began in October
1995 and have not yet been finalized However, MEI recently lifted the stay and
is proceeding to finalize the terms of the power purchase agreement.
Despite ongoing efforts to reach buy-out arrangement with WPPC, the
Company has continued to invest its financial resources to protect its legal and
contractual interests and to support its ability to commence construction in the
event that a settlement under mutually agreeable terms cannot be reached with
WPPC. In July 1996, in furtherance of these objectives, the Company entered into
a joint development agreement with U.S. Gen. U.S. Gen, a joint venture of PG&E
Enterprises and Bechtel Enterprises, Inc., has considerable experience as one of
America's largest independent power companies. In addition, the Company and U.S.
Gen have a history of working together in the co-development and ongoing
operation of the Scrubgrass Project which has now been operating profitably for
more than a year. As a result of the joint development agreement, the Company
has greater financial and technical resources available to pursue the
development of the Milesburg Project. Since the signing of the joint development
agreement, the Company and U.S. Gen have been pursuing various development
activities and are continuing ongoing discussions with WPPC concerning a
possible buy-out of the power purchase contract. The Company plans to continue
efforts towards both the development of the Milesburg Project and the
negotiation of a buy-out of the power purchase agreement until it becomes
apparent which alternative will be in the best interest of the Company and its
shareholders. In that regard, the Company's development efforts have increased
in 1996. Under the terms of the joint development agreement, U.S. Gen has the
responsibility to manage the development activities and finance a majority of
the development period expenses prior to financial closing. Based on the
progress made in recent development activities and buy-out negotiations,
management believes that it is more likely than not that the Company will
recover its net investment in the Milesburg Project. However, there can be no
assurance that the Milesburg Project will be successfully developed, that the
Company will receive a buy-out proposal, or that the Company will realize any
value from the Milesburg Project.
F-8
<PAGE>
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. All significant intercompany accounts and
transactions have been eliminated in consolidation. In 1994, the Company used
the equity method to account for its investment in SCA when the Company held
less than a majority interest in SCA.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect 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).
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 receivable from utility. The Company's cash
equivalents represent certificates of deposit issued from reputable 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 have the ability to pay the scheduled
note obligations (See Note N regarding the Company's legal proceeding with the
acquirers of the Sunnyside Project). Receivable from Utility represent amounts
due from the Company's 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). The Company makes scheduled deposits to restricted cash accounts
which are restricted primarily for approved capital expenditures and scheduled
maintenance procedures.
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 while
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. 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 for
office equipment and furniture is computed using the straight-line method over
five years. Leasehold improvements are amortized using the straight-line method
over the asset's useful life or the remaining lease term, whichever period is
less.
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
F-9
<PAGE>
(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. Accumulated amortization related to deferred financing costs was
$35,670 and $0 at December 31, 1996 and 1995, respectively.
Lease Rights: Lease Rights are recorded at cost and are being amortized
over the 22 year lease term related to the Scrubgrass facility. Accumulated
amortization related to the lease rights was $372,537 and $223,534 at December
31, 1996 and 1995, 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
$24,456,478 and $15,161,689 at December 31, 1996 and 1995, 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 $24,456,478 and $15,161,689 at December 31, 1996
and 1995, respectively, and represents that portion of lease expense that has
not yet been paid.
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 Scrubgrass 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 Scrubgrass 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 Scrubgrass 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, 1996 and 1995 was
$771,027 and $462,616, respectively.
Deferred Revenue: Deferred revenue represents amounts received for
power generation from the Scrubgrass Project at rates in excess of forecasted
rates as set forth in the power sales agreement which are being deferred until
earned. As of December 31, 1995, the Company had deferred revenue of $3,064,965
which was all earned 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 ("SFAS") 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 the financial statement and income tax 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 the financial statement and income
tax bases of assets and liabilities
F-10
<PAGE>
and net operating loss carryforwards for which the Company expects income tax
benefits will be realized in future years.
Earnings (Loss) Per Common Share: The Company computes its earnings
(loss) per common share by dividing net income (loss) for the period by the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding during the period. For purposes of calculating primary
earnings (loss) per share, the Company considers its shares issuable in
connection with stock options to be dilutive common stock equivalents when the
exercise price is less than the average market price of the Company's common
stock for the period. The weighted average number of shares of common stock and
dilutive common stock equivalents for the calculation of primary earnings (loss)
per share was 11,265,853, 10,649,161 and 11,321,178 for the years ended December
31, 1996, 1995 and 1994, respectively. For purposes of calculating fully diluted
earnings (loss) per share, the Company considers its shares issuable in
connection with stock options to be dilutive common stock equivalents when the
exercise price is less than 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 weighted average number of shares of common
stock and dilutive common stock equivalents for the calculation of fully diluted
earnings (loss) per share was 11,321,901, 10,649,161 and 11,321,178 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Long-Lived Assets: Effective January 1, 1996, the Company adopted SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". 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. Pursuant to SFAS No. 121,
the Company is required to evaluate the recoverability of the carrying value of
its Long-Lived Assets based on considerations such as the underlying fair market
value of the asset or the estimated future cash flows expected to result from
the use of the asset and its eventual disposition. In situations where the
Company estimates that it will not recover the carrying value of the Long-Lived
Asset, the Company is required to recognize an impairment loss. The adoption of
SFAS No. 121 had no effect on the Company's consolidated financial position or
results of operations.
Stock Options: Effective January 1, 1996, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 123 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 elected to
continue to account for its stock option transactions under the principles of
Accounting Principles Board Opinion No. 25 and has disclosed in Note K of its
consolidated financial statements the pro forma net income and per share amounts
as if the Company had applied the provisions of SFAS No. 123.
New Accounting Standard: In October 1996, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities". SOP 96-1, which is effective for the
Company's financial statements beginning in 1997, provides that environmental
remediation liabilities should be accrued when the criteria for SFAS No. 5,
"Accounting for Contingencies", are met. In the opinion of the Company's
management, the adoption of SOP 96-1 will not have a material effect on the
Company's consolidated financial position or results of operations.
Reclassification: Certain amounts in 1995 and 1994 have been
reclassified to conform with the current period presentation.
F-11
<PAGE>
NOTE C -- OTHER CURRENT ASSETS
Other current assets consists of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- ----------------
<S> <C> <C>
Interest receivable $237,926 $139,319
Fuel inventory 741,290 484,991
Prepaid expenses 150,469 380,138
Deposits 1,675 4,092
Other 1,431 -------
-------------- ------------------
$ 1,132,791 $ 1,008,540
============== ==================
</TABLE>
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost less accumulated depreciation
and consists of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Power generating facilities:
Facility under development - Milesburg $8,224,348 $7,981,987
Less: Reserve for non-recovery of costs - Milesburg (940,144) (940,144)
-------------- ---------------
7,284,204 7,041,843
-------------- ---------------
Office:
Equipment and furniture 106,707 92,009
Less: Accumulated depreciation (78,612) (57,945)
-------------- ---------------
28,095 34,064
============== ===============
$7,312,299 $7,075,907
============== ===============
</TABLE>
During 1996 and 1994, the Company capitalized salary costs and indirect
costs aggregating $48,983 and $157,177, respectfully, for project development
activities. The indirect costs were allocated to the project development
activities based on overhead rates applied to direct salary costs incurred for
such activities. There were no salary costs or indirect costs capitalized in
1995.
NOTE E -- OTHER ASSETS
Other assets consists of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
Scrubgrass Project receivable $ 210,619 $ 261,311
Deferred financing costs - Note B 264,330 300,000
Note receivable and accrued interest due from officer 108,434 103,612
Hamilton investment --------- 100,000
-------------- ---------------
$ 583,383 $ 764,923
============== ===============
</TABLE>
Scrubgrass Project receivables represent deposits in connection with fuel
reserves under long term leases.
F-12
<PAGE>
Hamilton investment represents a $250,000 investment in the preferred stock of
Hamilton Technologies, Inc. ("Hamilton"), a privately held Massachusetts
developer of computer aided software engineering (CASE) software. During each of
1994 and 1995, the Company made provisions of $75,000 to reserve against the
continued decline in the value of this investment. During 1996, the Company made
a provision of $100,000 to reserve against the remaining value of this
investment.
NOTE F -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following as of December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Accounts payable $3,356,239 $3,437,670
Accrued expenses 2,927,536 2,900,490
--------- ---------
$6,283,775 $6,338,160
========== ==========
</TABLE>
Accounts payable at December 31, 1996 and 1995 includes $2,613,968 and
$2,505,085, respectively which are related to Scrubgrass Project operations.
Accrued expenses at December 31, 1996 and 1995 includes $2,502,424 and
$2,672,912, respectively which are related to Scrubgrass Project operations.
NOTE G -- OTHER CURRENT LIABILITIES
Other current liabilities consists of the following as of December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Scrubgrass working capital loan $2,696,143 $1,628,143
Sunnyside borrowings 250,000 -----
Scrubgrass note payable ----- 300,000
Other 242,615 370,543
---------- ----------
$3,188,758 $2,298,686
========== ==========
</TABLE>
The Scrubgrass note payable represents the current portion of an obligation
related to the Scrubgrass Project (See Note H). The current portion of this
obligation was paid in January 1996.
The Sunnyside borrowings represent selling expenses 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 Notes
A and N).
The Scrubgrass working capital loan represents outstanding borrowings under
a Lessee Working Capital Loan Agreement with the Lessor whereby the Lessor has
provided Buzzard with a $4 million line of credit for the ongoing working
capital requirements of the Scrubgrass Project. The outstanding borrowings under
the Lessee Working Capital Loan Agreement incur interest at the LIBOR rate plus
1.125% (ranging from 6.44% to 6.75% during 1996).
F-13
<PAGE>
NOTE H -- SECURED PROMISSORY NOTES PAYABLE AND OTHER BORROWINGS
Secured promissory notes payable and other borrowings consists of the
following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ------------
<S> <C> <C>
Milesburg Project obligations $5,858,767 $5,858,767
Scrubgrass Project note payable 2,487,813 2,435,000
Sunnyside Project obligations ------- 250,000
---------- ----------
$8,346,580 $8,543,767
========== ==========
</TABLE>
The Milesburg Project obligations 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. Milesburg Project obligations of $5,120,000 are collateralized by all
of the common stock of MEI (See Note A).
The Scrubgrass Project note payable represents the non-current portion
of an obligation related to the Scrubgrass Project (See Note G). The scheduled
aggregate annual repayments for the Scrubgrass Project note obligation are
$77,677 in 1998, $77,677 in 1999, $72,708 in 2000, $398,587 in 2001 and
$1,861,164 thereafter.
The Sunnyside Project obligations represent selling expenses 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 Notes A and N). The obligations were reclassified to other current
liabilities in 1996.
NOTE I -- INTEREST CAPITALIZED
Interest costs consists of the following for the years ended December 31, 1996,
1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ------------- -----------------
<S> <C> <C> <C>
Total interest costs incurred $ 176,795 $ 119,696 $8,850,266
Amounts included in operations 165,290 106,783 8,829,893
-------------- -------------- -----------------
Amounts capitalized in development and construction
of projects $ 11,505 $ 12,913 $ 20,373
============== ================ ================
</TABLE>
Total interest paid during the years ended December 31, 1996, 1995 and 1994
amounted to $148,052, $111,913 and $11,109,122, respectively.
Interest costs incurred for each period presented do not include debt
service related to the Scrubgrass Project which is included in lease expense.
F-14
<PAGE>
NOTE J -- INCOME TAXES
Income tax expense (benefit) consists of the following for the years ended
December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------- -----------------
<S> <C> <C> <C>
Current:
Federal $ 22,229 $ 100,000 --
State 168,682 -- --
-------------- --------------- ---------------
Total current tax expense 190,911 100,000 --
-------------- --------------- ---------------
Deferred:
Federal 879,370 (477,175) $ 350,227
State 823,754 (70,809) 65,667
-------------- --------------- ---------------
Total deferred tax expense (benefit) 1,703,124 (547,984) 415,894
-------------- --------------- --------------
$ 1,894,035 $ (447,984) $ 415,894
============== =============== ==============
</TABLE>
In 1996, the Company's deferred state income tax expense includes a
charge of $205,382 related to state net operating loss carryforwards which have
expired. In addition, the Company estimates that it may not realize all of the
recorded tax benefits of its state net operating loss carryforwards and
accordingly, has provided a valuation allowance in the amount of $299,745 in its
1996 provision for deferred state income taxes.
The components of the net deferred income tax asset as of December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued lease expense $ 9,927,716 $ 5,757,502
Accrued expenses 763,836 322,572
Deferred tax effect of the sale of the Scrubgrass Project for which
the gain was deferred for financial reporting purposes 1,200,111 918,578
Federal and state net operating loss carryforwards 2,800,565 3,748,800
Federal alternative minimum tax credit carryforwards 131,394 137,390
Deferred compensation --- 70,548
Reserve for non-recovery of certain project costs not currently
deductible for income tax purposes 433,794 435,908
Deferred revenue --- 1,164,591
------------- ---------------
15,257,416 12,555,889
------------- ---------------
Deferred tax liabilities:
Accrued power generation revenue 9,927,716 5,757,502
Installment sale-Sunnyside 1,198,801 1,255,158
Other 92,962 ---
------------- ---------------
11,219,479 7,012,660
------------- ---------------
Deferred income tax asset-net 4,037,937 5,543,229
Valuation allowance, net of federal benefit (197,832) ---
============= ===============
$ 3,840,105 $ 5,543,229
============= ===============
</TABLE>
F-15
<PAGE>
A reconciliation between the actual income tax expense (benefit) and the
income tax expense (benefit) computed by applying the statutory federal income
tax rate to the income (loss) before income taxes, for the years ended December
31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ------------- -----------------
<S> <C> <C> <C>
Federal tax expense (benefit) at 34% $1,176,167 $(402,082) $368,880
State tax expense (benefit), net of federal tax 655,008 (46,734) 43,340
Deferred compensation 60,471 -- --
Nondeductible portion of meals and entertainment 1,873 832 3,674
Other 516 -- --
============= =============== ================
$1,894,035 $(447,984) $415,894
============= =============== ================
</TABLE>
The Company's net operating loss carryforwards of $7,616,260 expire
between 2003 and 2008. The Company's alternative minimum tax credit
carryforwards of $131,394 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, the Sunnyside Project was sold on
December 31, 1994, and the Scrubgrass Project became fully operational on June
30, 1994, at which time the Company commenced leasing the Scrubgrass Project
(See Note A). Management believes that it is more likely than not that future
income resulting from the 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, except for the valuation allowance against the recorded tax benefits of
certain state net operating carryforwards in the amount of $299,745, the Company
has not recorded a valuation allowance against its deferred tax asset balances
as of December 31, 1996 and 1995.
NOTE K -- SHAREHOLDERS' EQUITY
Stock Options
The Company has reserved 175,000 shares of common stock for issuance upon
exercise of stock options which are outstanding under the Company's 1986 and
1990 Stock Plans, 500,000 shares of common stock for issuance upon exercise of
stock options which are outstanding or may be granted under the Company's 1993
Director Plan, and 80,000 shares of common stock for the issuance of stock
options granted outside of such plans. The 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 at the date of grant and expire on the 10th anniversary
of the date of grant. As of December 31, 1996, the Company has options for
405,000 shares available for grant under the 1993 Director Plan and no shares
available for grant under either of the 1986 or 1990 Stock Plans.
F-16
<PAGE>
Stock option transactions during 1996, 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 2,023,244 .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
Options granted 60,000 .6875-1.00
Options exercised (50,000) .14 - .4375
-------------- ---------------
Balance at December 31, 1996 350,000 .25 - 1.00
============== ===============
</TABLE>
The following table summarizes information about the Company's options
outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
Outstanding Weighted-Average
Exercise and Remaining
Price Exerciseable Contractual Life
-----------------------------------------------------
<S> <C> <C>
$ .2500 20,000 8.46 years
.4375 185,000 5.18 years
.5625 75,000 7.13 years
.6250 10,000 7.42 years
.6875 30,000 9.33 years
.8125 10,000 9.42 years
.9375 10,000 9.50 years
1.0000 10,000 9.42 years
-----------------------------------------------------
$ .5214 350,000 6.57 years
=====================================================
</TABLE>
Under the provisions of Accounting Principles Board Opinion ("APB") No.
25, the Company does not recognize compensation expense for stock option awards
since the underlying options have exercise prices equal to 100 percent of the
fair market value of the common stock on the date of 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). However, pursuant to the
provisions of SFAS No. 123, the Company is required to calculate the fair market
value of its stock options using different criteria from the provisions of APB
No. 25. Using the fair market value criteria required by SFAS No. 123 to
calculate compensation expense on stock options granted during 1996 and 1995,
the Company would have incurred proforma net income of $1,549,676 and proforma
net earnings per share of $.14 in 1996, and proforma net loss of $737,994 and
proforma net loss per share of $.07 in 1995.
The estimated fair market values of the Company's options granted during
1996 and 1995 were $.43 per share and $.18 per share, respectively. The fair
market values were calculated using the Binomial Option Pricing Model assuming a
dividend yield of 12%, an expected volatility of 104.65%, a risk free interest
rate of 5.99% and an expected useful life of 5 years.
F-17
<PAGE>
Other Equity Transactions
During 1993 the Company issued 594,356 shares of restricted common
stock to executive officers. The shares were subject to a three year vesting
period based upon continued employment through November, 1996. The Company
incurred unearned compensation for the market value of the restricted common
stock when the shares were issued and amortized the unearned compensation
ratably over the restricted period. During 1996, 1995 and 1994, the Company
amortized unearned compensation of $66,941, $80,340 and $80,340, respectively,
in the statement of operations.
The Company has notes receivable from officers for shares purchased in
connection with the Company's 1990 Stock Plan which amounted to $761,156 and
$834,032 at December 31, 1996 and 1995, respectively, and which are classified
as a reduction of shareholders' equity. The notes are payable upon demand and
bear interest at a floating rate which is payable monthly.
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 collected by reducing the proceeds paid to the officer for
the common stock.
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. Under the terms of 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.
In December 1995, the Company declared and paid a dividend of 8 cents
per share. Prior to that date, the Company's policy had been to retain earnings,
if any, for use in its business. Beginning during 1996, the Company initiated a
quarterly dividend policy which is subject to review and consideration by the
Board of Directors each quarter. In respect of this dividend policy, the Company
declared and paid quarterly dividends of 3 cents per share and a special year
end dividend of 2 cents per share resulting in aggregate dividends of 14 cents
per share during 1996.
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).
F-18
<PAGE>
Future minimum payments due under non-cancelable leases in effect at
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 30,302
1998 21,848
1999 1,500
-----------
Total $ 53,650
===========
</TABLE>
Rent expense totaled $44,868, $70,722 and $56,397 in 1996, 1995 and 1994,
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, 1996, over
the remaining 19.5 year base term of the lease as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 12,421,000
1998 13,269,000
1999 13,531,000
2000 14,265,000
2001 13,687,000
Thereafter 373,322,000
---------------
Total $ 440,495,000
===============
</TABLE>
Lease expense in 1996, 1995 and 1994 was $24,963,407, $23,020,132 and
$10,537,623, respectively.
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, 1996 are as follows (See Notes A and F):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 679,000
1998 706,000
1999 734,000
2000 763,000
2001 794,000
Thereafter 1,303,000
--------------
Total $ 4,979,000
==============
</TABLE>
F-19
<PAGE>
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 following tables summarize the carrying amount and estimated fair value
of financial instruments as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------
Carrying Estimated
Amount Fair Value
-------------- ---------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 1,178,524 $ 1,178,524
Other current assets 12,140,642 12,140,642
Notes receivable 85,190 85,190
Other assets 25,039,861 25,039,861
Liabilities:
Accounts payable and accrued expenses 6,283,775 6,283,775
Other current liabilities 3,188,758 3,188,758
Long-term debt:
Secured promissory notes payable and other borrowings 8,346,580 8,346,580
Other liabilities 24,456,478 24,456,478
<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 10,744,919 10,744,919
Notes receivable 1,868,409 1,868,409
Other assets 15,926,612 15,826,612
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 borrowings 8,543,767 8,543,767
Other liabilities 15,161,689 15,161,689
</TABLE>
F-20
<PAGE>
NOTE N -- LEGAL PROCEEDINGS
On May 3, 1996, B&W Sunnyside L.P., NRG Sunnyside Inc., NRG Energy Inc.,
and Sunnyside Cogeneration Associates (collectively the "Plaintiffs") filed a
complaint, which was amended on June 27, 1996, against the Company and three of
its wholly-owned subsidiaries (collectively hereafter in Note N "the Company")
in Seventh District Court for Carbon County, State of Utah. The amended
complaint alleges that the Company breached the purchase and sale agreement by
which the Company transferred all of its interest in Sunnyside Cogeneration
Associates, a joint venture which owned and operated a nominal 51 megawatt waste
coal fired facility located in Carbon County, Utah. The amended complaint also
alleges that the Company made certain misrepresentations in connection with the
purchase and sale agreement. As a result of the alleged breaches of contract and
misrepresentations, the Plaintiffs allege that they suffered damages in an
unspecified amount that exceed the aggregate outstanding principal and interest
balances due to the Company by B&W Sunnyside L.P. and NRG Sunnyside, Inc. under
certain notes receivable, which amounted to $2,937,500 and $221,318,
respectively at December 31, 1996. In addition to alleging unspecified damages,
the Plaintiffs also request rescission of the purchase and sale agreement. On
July 30, 1996, in response to the Plaintiffs' amended complaint, the Company
filed an answer and counterclaim. In the answer to the amended complaint, the
Company denied all material allegations of the amended complaint and asserted
numerous affirmative defenses. In the counterclaim, the Company alleges numerous
causes of action against the Plaintiffs which include breach of contract, breach
of the promissory notes, intentional, malicious and willful breach of contract,
intentional tort, interference and misrepresentation. Through the counterclaim,
the Company seeks remedies which include: (1) compensatory, consequential and
punitive damages; (2) acceleration and immediate payment in full of the
promissory notes; and (3) injunctions which require the Plaintiffs to continue
making payments under the promissory notes during the pendency of this action
and until the promissory notes are paid in full and which enjoin the Plaintiffs
from continuing certain malicious and intentional actions that are alleged in
the counterclaim, together with interest, reasonable attorney's fees, costs and
other such relief as the court deems proper. On August 30, 1996, the Plaintiffs
filed a reply to the Company's counterclaim in which they denied all material
allegations of the counterclaim and asserted numerous affirmative defenses. The
Company plans to vigorously defend against the amended complaint and vigorously
pursue the causes of action stated in the counterclaim. The matter is currently
in the discovery stage.
NOTE O -- FOURTH QUARTER OPERATING RESULTS
During the fourth quarter of 1996, after learning about a generator
failure at an electric generating facility with an identical generator to the
Scrubgrass facility, the manufacturer asked the Company to perform certain tests
to determine the Scrubgrass generator's condition. Based on the results of these
tests, which became available during the first quarter of 1997, the Company
believes the Scrubgrass facility's generator exhibits certain conditions which
indicate that a similar failure might occur at some time in the future. In light
of these test results, the generator manufacturer has recommended that the
Company perform a complete rewind on the Scrubgrass facility's generator during
its 1997 annual plant outage which is scheduled to begin in April 1997. While
the extent of damage to the generator will not be known until the generator is
disassembled and inspected during the 1997 annual plant outage, based on the
generator test results, the generator manufacturer has advised the Company that
the complete rewind currently appears to be the best course of action to repair
the anticipated damage, and to ensure the operation of the generator on a
long-term basis. As a result of the recommended generator repair, the Company
currently estimates it would incur an additional expense of approximately
$660,000 to perform the rewind and would expect to lose net revenues which
average approximately $80,000 per day for each additional day the facility is
inoperative during the scheduled outage. Presently, the manufacturer of the
generator has indicated that the rewind is expected to take no longer than 44
days, which would necessitate that the Scrubgrass plant be shutdown for 35 days
longer than the original shutdown planned by the facility operator. The impact
of the repair and extended shutdown on the Company's operating results and/or
cash flows could be mitigated by a shortening of the repair period, recovery
from the generator manufacturer, proceeds from insurance coverage, and/or
modifications to the Scrubgrass Project's financing. Shortly before issuing its
consolidated financial statements, the Company received an offer from the
generator manufacturer to finance the cost of the recommended rewind in six
equal installments of $110,000, without interest, over a five year period. As of
F-21
<PAGE>
December 31, 1996, the Company recorded the present value of the future
installments to finance the rewind, discounted at the Scrubgrass Project's
incremental borrowing rate (6.75%), which amounted to $564,000. The Company has
included the current installment of $110,000 in its accounts payable and accrued
expenses and the present value of the long-term installments of $454,000 in its
maintenance reserve in the accompanying balance sheet as of December 31, 1996.
F-22
<PAGE>
EXHIBIT 10.12
PURCHASE AND SALE AGREEMENT
---------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1: Definitions and Terms 1
SECTION 2: Purchase and Sale of the Shares and Closing 3
SECTION 3: Conditions to the Obligations of Purchaser 4
SECTION 4: Conditions 5
SECTION 5: Conditions to the Obligations of Seller 6
SECTION 6: Seller's Representations and Warranties 7
SECTION 7: Post-Closing Covenants 13
SECTION 8: Representations and Warranties of Purchaser 15
SECTION 9: Purchaser's Agreements; Events of Default; Remedies 16
SECTION 10: General Indemnity 19
SECTION 11: Notices 23
SECTION 12: Miscellaneous 23
</TABLE>
LIST OF EXHIBITS
- ----------------
EXHIBIT 2.1 PLEDGE
DISCLOSURE EXHIBIT
EXHIBIT 6.11 PROJECT AGREEMENTS
EXHIBIT 6.15 FINANCIALS
EXHIBIT 6.22 BANK ACCOUNTS
EXHIBIT 7.2 WASTE REMOVAL CONTRACT
<PAGE>
PURCHASE AND SALE AGREEMENT
---------------------------
This Purchase and Sale Agreement ("this Purchase Agreement") is made and entered
into this 30th day of April, 1987 between Neil W. Hedrick, Richard Mase and
Sylvia B. Mase (collectively, "Seller") and Environmental Power Corporation, a
Delaware corporation ("Purchaser").
RECITALS
--------
(1) Seller owns 20,000 shares of the issued and outstanding common stock,
par value $1.00, of Milesburg Energy, Inc., a Pennsylvania corporation ("MEI").
(2) MEI is in the process of developing a waste-coal fired electric plant
consisting of a circulating fluidized bed boiler and related facilities having a
maximum design capacity of 36.5 to 43 megawatts to be erected at a site known as
West Penn Power Company's Milesburg Power Station in Centre County, Pennsylvania
("Project").
(3) Purchaser is purchasing the Shares (defined below) on the terms and
conditions herein set forth.
NOW, THEREFORE, it is agreed:
SECTION 1
Definitions and Terms
Unless otherwise specified, capitalized terms shall have the meanings set
forth in this Section 1 as follows:
1
<PAGE>
1.1 Affiliate: Any person directly or indirectly controlling, controlled
---------
by or under common control with another person.
1.2 Closing: The closing of the purchase and sale of the Shares on the
-------
Closing Date.
1.3 Closing Date: The date and time: April 30, 1987 at 10 a.m.
------------
1.4 Electric Energy Purchase Agreement: Agreement between MEI and West
----------------------------------
Penn Power Company ("West Penn") relating to the purchase of energy from the
Project.
1.5 Exhibit Agreements: The agreements listed on Exhibit 6.11.
------------------
1.6 Financials: As defined in Section 6.15.
----------
1.7 Governmental Authorization: Any consent, right, exemption,
--------------------------
concession, permit, license, authorization, certificate, order, franchise,
determination, or approval from any governmental body, agency, public
corporation or authority.
1.8 Land Sale Agreement: Agreement between Antrim Mining, Inc. ("Antrim")
-------------------
and West Penn relating to land upon which the Project is to be constructed and
certain improvements and equipment thereon.
1.9 Lien: Any mortgage, pledge, lien, charge, security interest or lease
----
in the nature thereof (including any conditional sale agreement, equipment trust
agreement or other title retention agreement) or other encumbrance of whatsoever
nature; but excluding taxes not yet due and payable.
2
<PAGE>
1.10 MEI: Milesburg Energy, Inc., a Pennsylvania corporation.
---
1.11 Notes: As defined in Section 2.
------
1.12 Pledge: As defined in Section 2.
---------------------------------
1.13 Purchase Price: $5,220,000.
--------------
1.14 Purchaser: Environmental Power Corporation, a Delaware corporation.
---------
1.15 Seller: Neil W. Hedrick, Richard Mase and Sylvia B. Mase.
------
1.16 Shares: 20,000 shares of the common stock, $1.00 par value, of MEI,
------
constituting all of the issued and outstanding shares of the capital stock of
MEI.
SECTION 2
Purchase and Sale of the Shares and Closing
-------------------------------------------
2.1 Purchaser shall purchase from Seller, and Seller shall sell to
Purchaser, on the Closing Date, the Shares for the Purchase Price, payable
$100,000 by check or wire transfer ("Initial Payment") and the balance by
delivery of Purchaser's non-negotiable, non-interest bearing promissory notes,
one in the principal amount of $220,000 ("Note 1") and one in the principal
amount of $4,900,000 ("Note 2"), collectively, the "Notes".
Upon satisfaction of Condition I (defined below), Note 1 shall be due and
payable, and upon satisfaction of Condition II (defined below), Note 2 shall be
due and payable. The Notes shall be without recourse to the Purchaser and shall
be secured
3
<PAGE>
by a pledge of the Shares pursuant to a pledge agreement ('"Pledge") attached
and marked Exhibit 2.1.
2.2 The Closing shall take place at the offices of Rackemann, Sawyer &
Brewster, One Financial Center, Boston, Massachusetts, on the Closing Date.
2.3 Notwithstanding anything herein to the contrary, unless prior to
December 31, 1987, Antrim shall have (a) entered into the Land Sale Agreement in
form and substance satisfactory to Purchaser and (b) obtained all governmental
approvals related to zoning, subdivision and other so-called land use control
laws necessary to (i) transfer to the purchaser under the Land Sales Agreement
title to the property covered by the Land Sale Agreement and (ii) permit the
construction of the Project (the "Recision Condition"), then the Initial Payment
shall be forthwith refunded to Purchaser, the Notes cancelled, if Seller shall
not have caused the Shares to be transferred to its name pursuant to the terms
of the Pledge, they shall be transferred to Seller and thereafter all
obligations of Purchaser and Seller to each other under this Purchase Agreement
shall terminate without recourse.
SECTION 3
Conditions to the Obligations of Purchaser
------------------------------------------
The obligation of the Purchaser to close on the Closing Date shall be
subject to the satisfaction of the following conditions precedent, each of which
may be waived in writing at the discretion of the Purchaser. The Purchaser's
sole recourse.
4
<PAGE>
for non-fulfillment of any of the following conditions shall be to terminate
this Purchase Agreement.
3.1 This Purchase Agreement and all other agreements entered into or
undertaken in connection with the transactions contemplated hereby shall have
been duly authorized by all necessary corporate action of MEI.
3.2 At the Closing, Seller shall deliver, free and clear of all liens,
encumbrances, claims and other charges or every kind, certificates for the
Shares, in negotiable form, with stock powers attached.
3.3 At the Closing, Seller shall deliver resignations of all officers and
directors of MEI. Seller shall cause full possession and control of all the
assets and properties of MEI to be delivered to the successor officers and
directors.
3.4 Purchaser shall have received an opinion from counsel to Seller and
MEI as to certain corporate and other matters in form and substance acceptable
to Purchaser.
SECTION 4
Conditions
----------
Following are the conditions which must be satisfied prior to payment of
the Notes:
Condition 1: The Electric Energy Purchase Agreement shall be in full force
and effect, neither party thereto shall be in default under any material
provision thereunder and the conditions set forth in Section 5.3(f), (g), (h)
and (i)
5
<PAGE>
therein shall have been satisfied by MEI and the Recision Condition shall have
been satisfied.
Condition 2: The occurrence of the Financial Closing Date, as that term is
defined in the Electric Energy Purchase Agreement and the actual release of
funds for construction of the Project.
The Seller's sole recourse for non-fulfillment of Condition 1 or Condition
2 shall be to terminate this Purchase Agreement.
SECTION 5
Conditions to the Obligations of Seller
---------------------------------------
The obligation of the Seller to close on the Closing Date shall be subject
to the satisfaction of the following conditions precedent, each of which may be
waived in writing at the discretion of the Seller. The Seller's sole recourse
for non-fulfillment of any of the following conditions shall be to terminate
this Purchase Agreement.
5.1 This Purchase Agreement and all other agreements entered into or
undertaken in connection with the transactions contemplated hereby shall have
been duly authorized by all necessary corporate action of Purchaser.
5.2 Purchaser shall pay the Purchase Price.
5.3 Seller shall have received an opinion, from counsel to Purchaser as to
certain corporate matters in form and substance acceptable to Seller.
6
<PAGE>
SECTION 6
Seller's Representations and Warranties
---------------------------------------
Except as set forth in the Disclosure Exhibit, Seller hereby represents and
warrants to Purchaser as follows:
6.1 MEI is validly existing as a corporation and in good standing under
the laws of the Commonwealth of Pennsylvania.
6.2 MEI has full corporate power and authority to own and operate its
properties, to carry on its business as presently conducted, and to enter into
and perform its obligations under this Purchase Agreement, the Exhibit
Agreements and all other agreements entered into or undertaken in connection
with the transactions contemplated hereby.
6.3 No Governmental Authorization of or by, or the giving of notice to, or
the registration with or the taking of any other action in respect of, any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, and no filing, recording, publication or
registration in any public office or any other place, is now required or
necessary to authorize the execution and delivery of this Purchase Agreement or
any of the Exhibit Agreements.
6.4 Neither the execution and delivery of this Purchase Agreement or any
of the Exhibit Agreements to which Seller or MEI is a party, the performance of
their respective obligations thereunder, nor the consummation by either of the
transactions contemplated thereby will conflict with or result in any breach of,
or constitute a default under, or result in the creation or
7
<PAGE>
imposition of any Lien upon any property or assets of the Seller or MEI under
any applicable law, rule, regulation, judgment or order, the charter documents
of MEI or any indenture, mortgage, deed of trust, or other instrument or
agreement to which the Seller or MEI is a party or by which either of them may
be bound or to which any of their respective properties or assets may be
subject.
6.5 The execution, delivery and performance by Seller or MEI, as the case
may be, of this Purchase Agreement and any of the Exhibit Agreements have been
duly authorized by all necessary action. Assuming the due authorization,
execution and delivery thereof by each of the other parties thereto, each such
agreements constitute legal, valid and binding obligations of Seller or MEI, as
the case may be, enforceable in accordance with their terms subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally.
6.6 Neither Seller nor MEI is in default under any mortgage, deed of
trust, indenture or other material instrument or agreement to which either is a
party or by which either or any of their respective properties or assets may be
bound, which default might have a material adverse effect on Seller or MEI or on
any of the transactions contemplated hereby.
6.7 There are no pending or, to the best of Seller's knowledge, threatened
suits or proceedings against Seller or MEI, which, if determined adversely,
would adversely affect the business or financial condition of Seller or MEI or
the consummation of the transactions contemplated by this Purchase
8
<PAGE>
Agreement including, without limitation, the development of the Project.
6.8 Seller, at the Closing, will have good and marketable title to the
Shares and MEI will have good and marketable title to its assets, in each case,
free and clear of all Liens.
6.9 The conduct of MEI's business is in compliance with all laws,
ordinances, rules, regulations or orders applicable thereto, other than laws,
ordinances, rules, regulations or orders with which a failure to comply, in any
case or in the aggregate, would not have a material adverse effect on the
development and operation of the Project.
6.10 Neither Seller nor MEI is a holding company, or a subsidiary or
affiliate of a holding company, or a public utility, within the meaning of the
Public Utility Holding Company Act of 1935, as amended, or a public utility
within the meaning of the Federal Power Act, as amended.
6.11 Seller has given Purchaser true, correct and complete copies of all
contracts to which either MEI or Seller is a party and which relate to the
development, management and operation of the Project. Except for the contracts
listed on Exhibit 6.11, there are no contracts, agreements or understandings
between MEI or Seller and any other person, whether or not reduced to writing
and related to the development, management or operation of the Project and in
the case of MEI alone, whether or not related to the development management or
operation of the project. All contracts which relate to the development,
operation or management of the
9
<PAGE>
Project entered into by Antrim have been duly and effectively assigned to MEI
and all consents of any third parties in connection therewith have been obtained
by MEI.
6.12 The minute book of MEI, as made available to Purchaser and its
representatives, contains accurate records of all meetings of and corporate
actions or written consents by the stockholders and the Board of Directors of
MEI.
6.13 The authorized capital stock of MEI consists of 100,000 shares of
$1.00 par value common stock of which 20,000 shares are issued and outstanding.
All of such shares have been validly issued and are fully paid and non-
assessable. MEI has no obligation to issue or deliver shares of its common
stock to any person whether upon exercise of subscription rights, options,
warrants, conversion rights, or otherwise.
6.14 MEI has no equity interest in any other corporation, firm or
partnership.
6.15 The un-audited balance sheet ("Financials") attached as Exhibit 6.15
is correct and presents fairly the financial position of MEI as of the date
thereof and is stated and has been prepared on a basis substantially consistent
with generally accepted accounting principles applied on a basis consistent with
that of preceding periods.
6.16 Since the date of the Financials, MEI has not declared or paid any
dividend on, or made any other distribution in respect of, any shares of its
outstanding capital stock and has not issued or sold any shares of its capital
stock.
10
<PAGE>
6.17 Except as and to the extent reflected or reserved against in the
Financials, MEI has no liabilities or obligations of any nature, whether
accrued, absolute or contingent or otherwise, including, without limitation, all
federal, state and local tax liabilities due or to become due with respect to
any period prior thereto.
6.18 Except as reflected in or adequately reserved against in the
Financials, since the date of the Financials, there has not been (i) any change
in the financial condition, assets, liabilities, results of operations, business
or prospects of MEI, (ii) any damage, destruction, or loss whether or not
covered by insurance affecting the property, business or prospects of MEI, (iii)
any labor dispute, (iv) any entry into any material commitment or transaction
(including, without limitation, any borrowing or capital expenditure) other than
the transactions contemplated by this Purchase Agreement, and those entered into
in the ordinary course of business, or (v) any other event or condition of any
character, which, in the case of all of the foregoing, individually or in the
aggregate, has been or may be materially adverse in relation to the financial
condition, business or prospects of MEI.
6.19 MEI has filed all Federal, State and local income, excise or
franchise tax returns, real estate and personal property tax returns, sales and
use tax returns and other tax returns required to be filed by it and have paid
all taxes owing by it except taxes which have accrued and for which adequate
provision had been made in the Financials. Neither
11
<PAGE>
the United States federal income tax liability nor any state tax liabilities of
MEI have ever been examined, audited or settled. Neither the Internal Revenue
Service nor any other tax authority is now asserting or, to the best of Seller's
knowledge, threatening to assert against MEI any deficiency or claim for
additional taxes or interest thereon or penalties in connection therewith.
6.20 MEI has no employees and no plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement payments,
profit sharing or other similar employee benefit arrangements.
6.21 MEI has not, since its organization, engaged in an activity other
than the development of the Project.
6.22 There is set forth in Exhibit 6.22 a true and complete list of each
bank in which MEI has an account together with the account number and a list of
all persons authorized to draw thereon.
6.23 Neither Seller nor MEI has retained, employed or authorized any
broker or finder to act on their behalf in connection with the consummation of
the transactions contemplated hereby. Seller shall pay any fees due such broker
or finder and shall hold Purchaser and MEI harmless and indemnified from and
against any and all claims of such broker or finder.
6.24 No statement of fact made by or on behalf of Seller or MEI in this
Purchase Agreement or in any certificate or schedule furnished to Purchaser
pursuant thereto, or otherwise
12
<PAGE>
delivered by or in behalf of Seller to Purchaser contains any untrue statement
of a material fact or omits to state any material fact necessary to make
statements contained therein or herein not misleading.
SECTION 7
Post-Closing Covenants
----------------------
7.1 After the Closing Date, Neil W. Hedrick shall, without compensation
other than the Purchase Price, continue his involvement in the development
process which shall include, without limitation, consultation with Purchaser,
attendance at meetings with Governmental Authorities and Project meetings, and
generally keeping abreast of Project development. Purchaser will reimburse Neil
W. Hedrick only for his reasonable out-of-pocket expenses incurred in attending
meetings at Purchaser's request.
7.2 Promptly after the Closing Date, Purchaser shall cause MEI and Seller
shall cause R.N.S. Services, Inc. ("RNS"), to begin negotiation in good faith
and shall use their best efforts to promptly enter into agreements pursuant to
which RNS, or another entity controlled by Seller and affiliated with RNS, will
supply Purchaser with all waste-coal, limestone and ash removal required for
operation of the Project on substantially the same terms set forth on Exhibit
7.2 and on such other terms as the parties may agree, provided if the parties
conclude that the terms of such agreements, either individually or in the
aggregate, will jeopardize the status of
13
<PAGE>
the Project as a qualified small power production facility or, in any event, if
the parties fail to agree on the final terms of and execute such agreements
prior to November 1, 1987, then the obligations of Purchaser and Seller to each
other under this Section 7.2 shall terminate without recourse; provided,
however, such termination shall not terminate any rights either party may have
against the other for failing to negotiate toward such agreements in good faith
which rights may be exercised either before or after November 1, 1987.
7.3 Upon the satisfaction of the Recision Condition, Seller shall cause
Antrim to assign all of Antrim's interest in the Land Sales Agreement to MEI and
Purchaser shall cause MEI to reimburse Antrim for all fees paid to West Penn and
attorneys and other professionals by Antrim after the date of this Purchase
Agreement of Antrim's in connection with the Land Sales Agreement as of that
date. At such time as MEI acquires the real property described in the Land
Sales Agreement, MEI shall assume Antrim's indemnity obligations to West Penn
under Land Sales Agreement and shall hold Antrim harmless in connection
therewith. If such acquisition occurs prior to the Financial Closing Date,
Purchaser shall assume Antrim's indemnity obligations as a co-indemnitor,
provided Purchaser's obligations thereunder, whenever arising, shall terminate
on the Financial Closing Date
7.4 After the Closing, each of Purchaser and Seller will take such further
action and execute and deliver such further instruments and documents as either
shall reasonably request to carry out the purposes of the Purchase Agreement.
14
<PAGE>
SECTION 8
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser hereby represents and warrants to Seller as follows:
8.1 Purchaser is validly existing as a corporation in good standing under
the laws of the State of Delaware.
8.2 Purchaser has full corporate power and authority to own and operate
its properties, to carry on its business as presently conducted, and to enter
into and perform its obligations under this Purchase Agreement, the Notes and
the Pledge.
8.3 Neither the execution and delivery of this Purchase Agreement, the
Notes or the Pledge, the performance of its obligations thereunder, nor the
consummation of the transactions contemplated thereby, will conflict with or
result in any breach of, or constitute a default under, or result in the
creation or imposition of any lien upon any of its property or assets under, any
applicable law, rule, regulation, judgment or order, its charter documents or
any indenture, mortgage, deed of trust, or other instrument or agreement to
which it is a party or by which it may be bound or to which any of its property
or assets may be subject.
8.4 The execution, delivery and performance by Purchaser of this Purchase
Agreement, the Notes and the Pledge have been duly authorized by all necessary
corporate action. Assuming the due authorization, execution and delivery
thereof by each of the other parties thereto, each such agreement constitutes a
15
<PAGE>
legal, valid and binding obligation of Purchaser, enforceable in accordance with
its terms subject to applicable bankruptcy, insolvency and similar laws
affecting creditor's rights generally.
8.5 Purchaser has not retained, employed or otherwise authorized any
broker or finder to act on its behalf in connection with the consummation of the
transactions contemplated hereby.
SECTION 9
Purchaser's Agreements
Events of Default; Remedies
---------------------------
9.1 Purchaser agrees to perform, or cause MEI to perform, the following
after the Closing:
(a) Proceed with all due diligence to develop the Project after the
Closing and comply in all material respects with the Electric Energy Purchase
Agreement;
(b) Within 30 days after the Closing, appoint, and at all times thereafter
shall maintain, one person who will act as Project Manager. The initial Project
Manager will be Brent Blauch, and Seller shall be notified from time to time as
to any change of the Project Manager.
(c) By August 1, 1987, furnish to Sellers such evidence of the
qualifications and financial condition of the architect or engineer selected to
prepare (or supervise the preparation of) the Plans and Specifications as West
Penn may reasonably request, together with a description of the scope of the
work to be performed by such architect or engineer and a true and
16
<PAGE>
complete copy of the proposed contract with the architect or engineer who shall
prepare (or supervise the preparation of) the Plans and Specifications.
(d) By October 1, 1987, furnish to Sellers, the preliminary construction
Plans and Specifications for the Project as required by the Electric Energy
Purchase Agreement and copies of all licenses, permits, applications and
correspondence with regulatory agencies having jurisdiction over the design,
construction or operation of the Project.
(e) By November 1, 1987, furnish to Seller a copy of a proposed contract
with the general contractor for the construction of the Project, together with
evidence of the general contractor's qualifications and financial conditions.
(f) By March 1, 1988, furnish to Seller a recognized institutional
lender's commitment to provide initial construction financing for the Project
(which may include customary conditions to such institution's obligations to
lend) or such other evidence satisfactory to Seller concerning initial
construction financing for the Project.
9.2 If Purchaser or MEI shall fail to perform, when due, any of the
obligations in Section 9.1, Seller shall have the right to take any action,
incur any expense or pay any amount that Seller, in its sole discretion, deems
necessary or appropriate to perform those obligations prior to the time the
failure to perform would constitute a default under the Electric Energy Purchase
Agreement. In connection with the exercise of Seller's rights under this
Section 9.2, Purchaser
17
<PAGE>
shall give Seller access to all records of MEI and to the extent they relate
exclusively to the development of the Project, the records of Purchaser
9.3 Any of the following shall be an Event of Default:
(a) Purchaser shall fail to pay the Notes when due.
(b) Purchaser shall fail, prior to the Financial Closing Date, to
reimburse Seller for any and all expenses incurred or amounts paid by Seller in
exercising its rights under Section 9.2.
(c) (i) Purchaser becomes subject to a decree or order for relief in a
voluntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law; or (ii) Purchaser becomes
subject to a decree or other order adjudging Purchaser bankrupt or insolvent or
(iii) a court approves as properly filed a petition seeking, or Purchaser
commences a proceeding for, reorganization, arrangement, adjustment or
composition under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or (iv) a decree or order is entered
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of Purchaser or of any substantial part of its property
or ordering the winding up or liquidation of Purchaser's affairs, and, in all
such cases, any such decree or order for relief or any other such decree or
order shall continue unstayed and in effect for a period of sixty (60)
consecutive days.
18
<PAGE>
(d) Except (i) as security for financing, (ii) in connection with a sale
and leaseback arrangement, or (iii) to an affiliate of Purchaser, without the
prior consent of Seller (which consent shall not be unreasonably withheld)
a. MEI conveys, or contracts to convey, the land upon which the Project
is to be constructed.
b. MEI sells, assigns, or otherwise transfers the Electric Energy
Purchase Agreement or any part of the Project.
c. Purchaser sells, assigns, pledges, grants a security interest in, or
otherwise transfers the shares.
9.4 If an Event of Default occurs and is continuing prior to the payment
of the Notes, Seller, as its sole and exclusive remedy, may exercise the rights
provided in the Pledge Agreement.
SECTION 10
General Indemnity
-----------------
10.1 The Seller will indemnify and hold the Purchaser harmless against and
in respect of:
(a) any and all damage, loss, liability or deficiency resulting from any
misrepresentation, breach of representation or warranty under Section 6 or
nonfulfillment of any covenant or agreement on the part of the Seller to be
performed or observed (other than performance of any covenant or agreement
assigned to Purchaser pursuant to this Purchase Agreement); or from any
misrepresentation in or omission from any Exhibit or other written statement,
list, certificate or instrument
19
<PAGE>
furnished to Purchaser by the Seller pursuant to this Purchase Agreement; and
(b) any and all actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, judgments, costs and other expenses
(including, without limitation, reasonable audit and legal fees) incident to any
of the foregoing.
10.2 The Purchaser will indemnify and hold the Seller harmless against and
in respect of:
(a) any and all damage, loss, liability or deficiency resulting from any
misrepresentation, breach of representation or warranty under Section 8;
(b) any and all actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, judgments, costs and other expenses
(including, without limitation, reasonable audit and legal fees) incident to the
foregoing.
10.3 MEI will indemnify and hold Seller harmless against and in respect
of;
(a) any and all damages, loss, liability or deficiency resulting from
MEI's failure to satisfy any liability set forth in the Disclosure Exhibit or
reflected or reserved against in the Financials; and
(b) any and all actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, judgments, costs and other expenses
(including, without limitation, reasonable audit and legal fees) resulting
therefrom.
20
<PAGE>
10.4 The indemnifying party shall satisfy any and all claims for
indemnification properly asserted by the indemnified party pursuant to this
Section 10 within forty-five (45) days after receipt of written notice of such
claim for indemnification.
10.5 The indemnified party shall notify the indemnifying party of any
claim or demand by a third party which the indemnified party has determined has
given rise to or could reasonably give rise to a claim for indemnification and
the indemnifying party shall have a reasonable time (not to exceed ten days)
after receipt of such notice in which to retain counsel satisfactory to the
indemnified party to defend such third party claim or demand on behalf of the
indemnified party. If satisfactory counsel is so obtained, the indemnified party
shall make available to the indemnifying party and its agents and
representatives all records and other materials which are reasonably required in
the defense of such third party claim or demand and shall otherwise cooperate
with and assist the indemnifying party in the defense of such third party claim
or demand; and so long as the indemnifying party is defending such third party
claim or demand in good faith, the indemnified party shall not settle or
compromise such third party claim or demand. If the indemnifying party fails to
retain counsel to defend such third party claim or demand in good faith, the
indemnified party shall have the right, but not the obligation, to defend,
settle or compromise such third party claim or demand. If the indemnifying party
fails to
21
<PAGE>
defend in good faith any third party claim or demand for which the indemnified
party is entitled to indemnification hereunder, the indemnifying party shall pay
all legal fees and other costs and expenses incurred by the indemnifying party
as same become due and the indemnifying party shall pay on demand any judgment
or other resulting obligation of such third party claim or demand.
10.6 Any claim made pursuant to this Section 10 must be made in writing on
or before the third anniversary of the satisfaction of Condition 2. No
indemnifying party shall have any liability under this Section 10 until the
aggregate of all claims exceeds $10,000, and in no event shall Seller's
liability exceed the Purchase Price, Purchaser's liability exceed $50,000 or
MEI's liability exceed the amount of any liabilities reserved or reflected in
the Financials or disclosed in the Disclosure Exhibit.
10.7 Upon payment of any indemnity pursuant to this Section 10 the
indemnifying party shall be subrogated to any rights of the the indemnified
party in respect of the matter against which such indemnity was given. Nothing
contained in this Section 10 or elsewhere in this Purchase Agreement shall be
deemed to confer any right in favor of, or create any obligation of the
indemnifying party to anyone whomsoever except the indemnified party.
10.8 If there is more than one person comprehended by the term Seller, the
liability of the Seller shall be joint and several, but no individual Seller
shall be liable to Purchaser
22
<PAGE>
for an amount in excess of an amount which bears the same relationship to the
Purchase Price as the shares owned by such Seller bears to the Shares.
SECTION 11
Notices
-------
Except as otherwise provided herein, all notices and other communications
required under the terms and provisions hereof shall be in writing and shall be
come effective when delivered by hand, by courier, or received by telex,
telecopier, telegram or registered first class mail, postage prepaid, addressed
as follows:
If to Purchaser, at: Environmental Power Corporation
53 State Street
Boston, MA 02109
Attn: Joseph E. Cresci, President
with a copy to: Joseph L. Serafini, Esq.
Rackemann, Sawyer & Brewster
One Financial Center
Boston, MA 02111
If to Seller, at: c/o Antrim Mining, Inc.
P. O. Box 38
Blossburg, PA 16912
Attn: Neil W. Hedrick, Richard Mase
and Sylvia B. Mase
with a copy to: Robert L. Diamond, Esq.
Varnum, Riddering, Schmidt & Howlett
171 Monroe Avenue, N.W.
Grand Rapids, MI 49703
SECTION 12
Miscellaneous
-------------
12.1 This Purchase Agreement shall in all respects be governed by, and
construed in accordance with, the laws of the
23
<PAGE>
Commonwealth of Massachusetts including without limitation all matters of
construction, validity and performance.
12.2 The terms of this Purchase Agreement shall not be altered, modified,
amended, supplemented or terminated in any manner whatsoever except by written
instrument signed by the party against which such alteration, modification,
amendment, supplement or termination is sought.
12.3 This Purchase Agreement shall be binding upon and inure to the
benefit of the parties hereto, their successors and assigns.
12.4 Section headings and the table of contents are for convenience only
and shall not be construed as a part of this Purchase Agreement. All references
herein to numbered sections, unless otherwise indicated, are to sections of this
Purchase Agreement.
12.5 This Purchase Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original for all purposes, but all such counterparts shall together constitute
but one and the same instrument.
12.6 If any term or provision hereof or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or such provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable any remaining terms and provisions
hereof or the application of such term or provision
24
<PAGE>
to circumstances other than those as to which it is held invalid or
unenforceable. To the extent permitted by applicable law, the parties hereto
hereby waive any provision of law which renders any term or provision hereof
invalid or unenforceable in any respect.
Executed under seal as of the date first above written.
ENVIRONMENTAL POWER CORPORATION
/s/ Neil W. Hedrick
----------------
Neil W. Hedrick By: /s/ Donald A. Livingston
-----------------------
Executive Vice President
/s/ Richard Mase
-------------
Richard Mase
/s/ Sylvia B. Mase
--------------
Sylvia B. Mase
25
<PAGE>
EXHIBIT 2.1
PLEDGE AGREEMENT
AGREEMENT made April 30, 1987, between Environmental Power Corporation
("Pledgor") and Neil W. Hedrick, Richard Mase and Sylvia B. Mase (collectively,
"Pledgee").
RECITAL
For good and valuable consideration from Pledgee, the receipt and
sufficiency of which is acknowledged, Pledgor has agreed to pledge certain stock
with Pledgee as security for the payment and performance of his obligations to
Pledgee under a certain Non-Recourse Secured Note I dated April 30, 1987, in the
amount of $220,000 and a certain Non-Recourse Secured Note II dated April 30,
1987 in the amount of $4,900,000 (collectively the "Notes").
NOW, THEREFORE, it is agreed:
1. Pledge. As security for the payment by Pledgor of the Notes, Pledgor
------
hereby grants and transfers a security interest to Pledgee in instruments of the
following description:
20,000 shares of common stock, $1.00 par value per share, of Milesburg
Energy, Inc., a Pennsylvania corporation ("MEI"), represented by
certificate(s) number ____, ____ and ____
duly endorsed in blank, or accompanied by a stock power duly endorsed in blank,
and herewith delivered to Pledgee. Pledgor hereby appoints Pledgee his attorney
to arrange for the transfer of the pledged shares on the books of MEI to the
name of Pledgee. Pledgee shall hold the pledged shares as security for the
repayment of the Notes and shall not encumber or dispose of the pledged shares
except in accordance with the provisions of paragraph 9 of this Pledge.
2. Dividends. During the term of this Pledge, all dividends and other
---------
amounts paid in respect of the pledged shares, whether or not received by
Pledgee as a result of their record ownership of the pledged shares shall, so
long as Pledgor is not in default in the performance of any of the terms of this
Pledge, be paid to Pledgor.
3. Voting Rights. During the term of this Pledge, and so long as Pledgor
-------------
is not in default in the performance of any of the terms of this Pledge, Pledgor
shall have the right to vote the pledged shares on all corporate questions, and
Pledgee upon request shall execute proxies in favor of Pledgor to this end.
4. Adjustments. If, during the term of this Pledge, any share dividend,
-----------
reclassification, readjustment, or other change is declared or made in the
capital structure of MEI all new
<PAGE>
substituted, and additional shares, or other securities, issued by reason of any
such change, shall be held by Pledgee under the terms of this Pledge in the same
manner as the shares originally pledged hereunder.
5. Warrants and Rights. If during the term of this Pledge, subscription
-------------------
warrants or any other rights or options shall be issued in connection with the
pledged shares, such warrants, rights, and options shall be immediately assigned
by Pledgor to Pledgee, provided, Pledgor shall have the right to exercise such
warrants, options or rights and if exercised by Pledgor, all new shares or other
securities so acquired by Pledgor shall be immediately assigned to Pledgee to be
held under the terms of this Pledge in the same manner as to the shares
originally pledged hereunder.
6. Payment of Loan. Upon payment of all sums owing to Pledgee under the
---------------
Notes, Pledgee shall transfer to Pledgor all the pledged shares and all rights
received by Pledgee as a result of its record ownership thereof if the pledged
shares are then registered in the name of Pledgee.
7. Default. It shall be a default under this Pledge if Pledgor shall
-------
fail to pay when due any amount owing under the Notes or shall fail to perform
any other covenant or condition of Pledgor under this Agreement or there is an
appointment of a custodian or receiver of any part of Pledgor's property, or the
making of an assignment or trust mortgage for the benefit of creditors by
Pledgor, or the commencement of any proceeding under any bankruptcy or
insolvency law by or against Pledgor which is not dissolved or discharged within
45 days. If there is a default under this Pledge, Pledgee shall have the rights
and remedies provided in the Uniform Commercial Code in force in the
Commonwealth of Massachusetts at the date of this Pledge and in this connection,
Pledgee may, upon twenty days' written notice to Pledgor and without liability
for any diminution in price which may have occurred, sell at a public or private
sale all or any part of the pledged shares in such manner and for such price as
Pledgee may determine. At any public sale, Pledgee shall be free to purchase all
or part of the pledged shares and pay for the same by cancellation of any amount
owing Pledgee by Pledgor pursuant to the Note and free of any right of
redemption on the part of the Pledgor. The proceeds of any sale shall be applied
by Pledgee first to the amount of the expenses of the sale and then to the
amount equal to the principal under the Notes. Any remaining balance of such
proceeds shall be paid to Pledgor.
8. Notices. Any notice required by Pledgee to Pledgor under this Pledge
-------
shall be deemed properly given if in writing and mailed postage prepaid,
certified or registered mail, return receipt requested to Pledgor at:
2
<PAGE>
Joseph E. Cresci, President
Environmental Power Corporation
53 State Street
Boston, MA 02109
with a copy to:
Joseph L. Serafini, Esq.
Rackemann, Sawyer & Brewster
One Financial Center
Boston, MA 02111
EXECUTED under seal the day and year first above written.
Witness: PLEDGOR
ENVIRONMENTAL POWER
CORPORATION
___________________________ By: ________________________
3
<PAGE>
EXHIBIT 6.11
1. Letter dated 1/12/87 from Baskin, Flaherty, Elliott & Mannino, P.C.
2. Agreements with Black & Veatch indentified by letter dated 1/23/87, 12/8/86
and agreement dated 9/15/86.
3. Letter dated 2/26/87 to Marsh & McLennan, Inc. from MEI.
4. Letter dated 1/16/87 to John Byrne from MEI.
5. Letter dated 1/14/87 to Tracydale Development Co. from MEI.
6. Agreements with Chernie Contracting Corp. identified by letters dated
3/30/87, 12/8/86 from MEI.
7. Letters dated 1/19/87 and 1/20/87 between MEI and Gannett Fleming
Environmental Engineers, Inc.
8. Electric Energy Purchase Agreement.
9. Letter Agreement Allegheny Power System dated Oct. 17, 1986.
<PAGE>
DISCLOSURE EXHIBIT
Section 6.4 The Electric Energy Purchase Agreement by its terms provided for
various security interests created by MEI and affecting the
Project.
Section 6.11 Antrim Mining, Inc. has been negotiating with West Penn to
purchase the land and improvements on which the Project will be
located. These negotiations may constitute an agreement or
understanding which relate to the Project.
Section 6.17 MEI has the following liabilities not reflected on the
Financials.
<PAGE>
Section 6.17
Unbilled obligations for:
Electric Energy John Bryne
---------------
Legal Services 1) Varnum Ridderig Schmidt & Howlett
--------------
2) Baskin Flaherty Elliot & Mannio, P.
C.
3) Freddie Greenberg
4) Alleghany Power System
Engineers 1) Black & Veatch
---------
2) Gannett Fleming Environmental
Engineers
Land Rental Tracydale Development Co.
-----------
<PAGE>
6.22 Bank Account Numbers
---- ---------------
First Citizens 02-20307-3-02
National Bank
6.23 There is an agreement with Baskin, Flaherty, Elliott & Mannino
P.C. identified in Exhibit 6.11.
<PAGE>
MILESBURG ENERGY, INC.
----------------------
(A Development Stage Company)
Financial Statements
April 21, 1987
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Accountants' Compilation Report
Exhibit I Balance Sheet
April 21, 1987
Exhibit II Statement of Loss and Accumulated Deficit
Four Month Period Ended April 21, 1987
Exhibit III Statement of Changes in Financial Position
Four Month Period Ended April 21, 1987
Notes to Financial Statements
<PAGE>
[LETTERHEAD OF ROGERS, HUBER & ASSOCIATES APPEARS HERE]
Stockholders and Directors
MILESBURG ENERGY, INC.
Blossburg, Pennsylvania
The accompanying balance sheet of
MILESBURG ENERGY, INC.
----------------------
(A Development Stage Company)
as of April 21, 1987 and related statement of loss and accumulated deficit and
statement of changes in financial position for the four month period then ended
have been compiled by us in accordance with standards established by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements. information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly, we
do not express an opinion or any other form of assurances on them.
/s/ Rogers, Huber & Associates
April 23, 1987
Muncy, Pennsylvania
<PAGE>
MILESBURG ENERGY, INC. EXHIBIT I
---------------------- ---------
(A Development Stage Company)
Balance Sheet
April 21, 1967
(See Accountants Compilation Report)
<TABLE>
<S> <C>
ASSETS
- ------
Current Assets:
Cash in bank 42,229.07
Fixed Assets:
Energy development costs 228,497.10
----------
Total Assets 270,726.17
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable 70,726.17
Notes payable - Antrim Mining, Inc., non-interest 41,000.60
Notes payable - stockholders, non-interest 139,000.00
----------
Total current liabilities 250,726.17
Stockholders' Equity:
Common stock, $1.00 par value, 100,000 shares
authorized; 20,000 shares issued and outstanding 20,000.00
----------
Total Liabilities and Stockholders' Equity 270,726.17
==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
financial statement.
<PAGE>
MILESBURG ENERGY, INC. EXHIBIT II
---------------------- ----------
(A Development Stage Company)
Statement of Loss and Accumulated Deficit
Four Month Period Ended April 21,1987
(See Accountants' Compilation Report)
NO ACTIVITY -0-
==========
The accompanying Notes to Financial Statements are an integral part of this
financial statement.
<PAGE>
MILESBURG ENERGY, INC. EXHIBIT III
---------------------- -----------
(A Development Stage Company)
Statement of Changes in Financial Position
Four Month Period Ended April 21, 1987
(See Accountants' Compilation Report)
<TABLE>
<S> <C> <C>
Sources of Working Capital -0-
Application of Working Capital --
Increase of development costs 93,540.93
---------
Net decrease in working capital 93,540.93
=========
- -------------------------------------------------------------------------------
Changes in Components of Working Capital
Comprised Of --
Increase/(Decrease) in Current Assets:
Cash 41,910.89
Increase/(Decrease) in Current Liabilities:
Accounts payable (15,990.18)
Notes payable 151,442.00
----------
Increase in current liabilities 135,451.82
----------
Net decrease in working capital 93,540.93
==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
financial statement.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 CORPORATE FORMATION
- ------ -------------------
MILESBURG ENERGY, INC. was incorporated on September 30, 1986,
under the laws of the Commonwealth of Pennsylvania. The corporation is
a closely-held corporation with 100% stock ownership owned by the Mase
and Hedrick families. The stockholders invested $20,000.00 for stock
and $139,000.00 for loans to provide working capital to develope a
feasability study for generation of electricity from coal refuse. The
company has been in the development stage since its formation.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
- ------- -------------------------------
The more significant accounting policies of MILESBURG ENERGY,
INC. , a development company, all of which are in conformity with
generally accepted accounting principles, are summarized as follows --
Accounting Method
-----------------
MILESBURG ENERGY, INC. uses the accrual method of accounting for
both financial and tax purposes. Under the accrual method, the
corporation recognizes income when earned or services rendered and
expenses when incurred. All costs incurred during the development
stage have been capitalized.
Taxes
-----
The shareholders of the corporation have elected to have the
corporation treated as a small business corporation (Sub-chapter 'S')
for both federal and state income tax purposes; consequently, no
corporate net income taxes are recognized.
NOTE 3 ENERGY DEVELOPMENT COSTS
- ------ ------------------------
Development costs incurred to date in the study of producing
electricity from coal refuse are summarized as follows --
<TABLE>
<CAPTION>
Name Description Amount
------------------------- ------------------------- --------------
<S> <C> <C>
Black & Veatch Preliminary design plan 73858.61
Varuum, Riddering, Schmidt
& Howlett Attorneys 99585.87
Gannett W Fleming Environ-
mental Engineers. Inc. Air quality studies 16690.37
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
PAGE 2
- ------
NOTE 3 ENERGY DEVELOPMENT COSTS (Continued)
<TABLE>
<CAPTION>
Name Description Amount
------------------------- ------------------------- --------------
<S> <C> <C>
Stratton C. Schaeffer, PC Conversion study 5,000.00
Utility Engineers, Inc. Preliminary study 7,000.00
Freddi L. Greenberg PURPA qualification 6,434.64
Walter W. Kauffman & Assoc. Engineers 3,889.77
L. G. Hetager Drilling Co. Testing 2,396.00
Miscellaneous items Travel costs 6,069.30
Schmidt, Chapman, Duff &
Hasley Attorneys 1,760.00
Rogers, Huber & Associates Certified Public
Accountants 1,763.25
Denney Electric Supply Electrical 305.02
Tracydale Development Co. Rental lease 600.00
Walrath & Coolidge Attorney -
incorporation 210.36
Boyer Kantz Surveyor 150.00
Regulatory Policy Institute Subscription 145.00
Pennysaver Advertisement -
incorporation 64.66
First Citizens National Bank Checkbook 54.05
PA Department of Revenue Capital stock tax 19.00
Miscellaneous items Office overhead 166.82
Jonathan Byrne Electrical 170.58
Robert F. Logan Consultant 1,600.00
Simon-Eastern Corporation Consultant 564.00
----------
Total development costs 228,497.10
==========
</TABLE>
<PAGE>
EXHIBIT 7.2
1. RNS will be the exclusive supplier for all necessary services to process and
transport waste coal; transport and dispose of flyash, bottom ash, dry
scrubber residue; and supply limestone for the Project for a term of 15
years beginning on the Commencement Date defined in the Electric Energy
Purchase Agreement.
2. The aggregate payments by MEI to RNS will be $4,787,000 per year in the base
year when the WPP Energy Credit is 1.28(cents)/kwh.
3. The payments will be escalated/de-escalated monthly in direct proportion to
the WPP Energy Credit Escalation De-escalation from the base of
1.28(cents)/kwhr.
4. Transportation will be by railroad or truck.
5. The only wastes to be disposed of under the ash disposal contract are
flyash, bottom ash, dry scrubber residue. The plant will be designed and
operated to segregate or blend the ash products at RNS discretion.
6. Waste fuel services will be for a minimum 7000 BTU/lb. maximum
4.3pounds/MBTU sulfur waste coal. RNS will supply all data necessary to
permit MEI to submit all necessary applications to FERC for certification of
fuel sources as qualified waste under FERC rules and regulations
7. The supply contracts will be structured to permit qualification of the
Project for tax-exempt financing under applicable provisions of the Internal
Revenue Code of 1986.
8. RNS will supply evidence of availability of sites and sources and character
of materials sufficient to fulfill its obligations under the supply
contracts.
<PAGE>
EXHIBIT 10.13
NON-RECOURSE SECURED NOTE I
---------------------------
$220,000.00 Boston, Massachusetts
April 30, 1987
FOR VALUE RECEIVED, Environmental Power Corporation, a Delaware corporation
("Maker"), promises to pay WITHOUT RECOURSE and WITHOUT INTEREST to Neil W.
Hedrick, Richard Mase and Sylvia B. Mase (collectively "Holder") the sum of TWO
HUNDRED TWENTY THOUSAND and 00/100 DOLLARS ($220,000.00), ON DEMAND after the
CONDITION DATE.
The Condition Date shall be the fifth business day following the date that
Condition I, as that term is defined by a certain Purchase and Sale Agreement
dated April 30, 1987 between Maker and Holder, has been satisfied.
Maker (i) waives trial by jury in any action on this Note or any security
for this Note, (ii) waives all requirements of diligence in collection,
presentment, notice of non-payment, protest, notice of protest, suit and all
other conditions precedent in connection with the collection and enforcement of
this Note or the realization of any security for this Note; (iii) waives the
right to require the Holder to proceed against any other person or to pursue any
other remedy before proceeding against it, and (iv) agrees that, if consented to
by Maker, no renewal or extension of this Note, including a renewal or extension
in which this Note is surrendered, no release, surrender or substitution of
security for this Note or the indebtedness evidenced hereby, no modification or
waiver of the terms of any instrument referred to herein or any other agreement
now or hereafter directly relating to this Note or the indebtedness evidenced
hereby, and, whether or not consented to by Maker, no delay or omission in
exercising any right or power under this Note or any security for this Note or
the indebtedness evidenced hereby, shall affect Maker's liability, and (vi)
agrees that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to Maker and without affecting the Maker's
liability hereunder.
Maker agrees to pay all reasonable costs and expenses including reasonable
attorneys' fees incurred by Holder in any proceeding for collection of the debt
evidenced hereby.
This Note is secured by Pledge Agreement dated April 30, 1987 covering
certain assets of Maker.
<PAGE>
This Note shall take effect as a sealed instrument on the date first set
forth above and shall be governed by the laws of the Commonwealth of
Massachusetts
WITNESS ENVIRONMENTAL POWER
CORPORATION
[SIGNATURE ILLEGIBLE] By: /s/ Donald A. Livingston
______________________________ ----------------------------------------
Executive Vice President
2
<PAGE>
EXHIBIT 10.14
NON-RECOURSE SECURED NOTE II
----------------------------
$4,900,000.00 Boston, Massachusett
April 30, 1987
FOR VALUE RECEIVED, Environmental Power Corporation, a Delaware corporation
("Maker"), promises to pay WITHOUT RECOURSE and WITHOUT INTEREST to Neil W.
Hedrick, Richard Mase and Sylvia B. Mase (collectively, "Holder") the sum of
FOUR MILLION NINE HUNDRED THOUSAND and 00/100 DOLLARS ($4,900,000.00), ON DEMAND
After the CONDITION DATE.
The Condition Date shall be the fifth business day following the date that
Condition II, as that term is defined by a certain Purchase and Sale Agreement
dated April 30, 1987 between Maker and Holder, has been satisfied.
Maker (i) waives trial by jury in any action on this Note or any security
for this Note, (ii) waives all reguirements of diligence in collection,
presentment, notice of non-payment, protest, notice of protest, suit and all
other conditions precedent in connection with the collection and enforcement of
this Note or the realization of any security for this Note; (iii) waives the
right to require the Holder to proceed against any other person or to pursue any
other remedy before proceeding against it, and (iv) agrees that, if consented to
by Maker, no renewal or extension of this Note, including a renewal or extension
in which this Note is surrendered, no release, surrender or substitution of
security for this Note or the indebtedness evidenced hereby, no modification or
waiver of the terms of any instrument referred to herein or any other agreement
now or hereafter directly relating to this Note or the indebtedness evidenced
hereby, and, whether or not consented to by Maker, no delay or omission in
exercising any right or power under this Note or any security for this Note or
the indebtedness evidenced hereby, shall affect Maker's liability, and (vi)
agrees that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to Maker and without affecting the Maker's
liability hereunder.
Maker agrees to pay all reasonable costs and expenses including reasonable
attorneys' fees incurred by Holder in any proceeding for collection of the debt
evidenced hereby.
This Note is secured by Pledge Agreement dated April 30, 1987 covering
certain assets of Maker.
<PAGE>
This Note shall take effect as a sealed instrument on the date first set
forth above and shall be governed by the laws of the Commonwealth of
Massachusetts.
WITNESS ENVIRONMENTAL POWER
CORPORATION
[SIGNATURE ILLEGIBLE] By: /s/ Donald A. Livingston
- ---------------------------- ------------------------------------------
Executive Vice President
2
<PAGE>
EXHIBIT 10.15
NOTE
----
$41,000.00 Blossburg, Pennsylvania
April 30, 1987
FOR VALUE RECEIVED, Milesburg Energy, Inc., a Pennsylvania corporation
("Maker"), promises to pay WITHOUT RECOURSE and WITHOUT INTEREST to Antrim
Mining, Inc. ("Holder") the sum of FORTY-ONE THOUSAND and 00/100 DOLLARS
($41,000.00), ON DEMAND after the CONDITION DATE.
The Condition Date shall be the fifth business day following the date that
Condition I, as that term is defined by a certain Purchase and Sale Agreement
dated April 30, 1987 between Environmental Power Corporation and Neil W.
Hedrick, Richard Mase and Sylvia B. Mase, has been satisfied.
Maker (i) waives trial by jury in any action on this Note or any security
for this Note, (ii) waives all requirements of diligence in collection,
presentment, notice of non-payment, protest, notice of protest, suit and all
other conditions precedent in connection with the collection and enforcement of
this Note or the realization of any security for this Note; (iii) waives the
right to require the Holder to proceed against any other person or to pursue any
other remedy before proceeding against it, and (iv) agrees that, if consented to
by Maker, no renewal or extension of this Note, including a renewal or extension
in which this Note is surrendered, no release, surrender or substitution of
security for this Note or the indebtedness evidenced hereby, no modification or
waiver of the terms of any instrument referred to herein or any other agreement
now or hereafter directly relating to this Note or the indebtedness evidenced
hereby, and, whether or not consented to by Maker, no delay or omission in
exercising any right or power under this Note or any security for this Note or
the indebtedness evidenced hereby, shall affect Maker's liability, and (vi)
agrees that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to Maker and without affecting the Maker's
liability hereunder.
Maker agrees to pay all reasonable costs and expenses including reasonable
attorneys' fees incurred by Holder in any proceeding for collection of the debt
evidenced hereby.
This Note is given in satisfaction of a certain note given by Maker to
Holder dated April 21, 1987 in the principal amount of $41,000.00.
<PAGE>
This Note shall take effect as a sealed instrument on the date first set
forth above and shall be governed by the laws of the Commonwealth of
Pennsylvania.
WITNESS MILESBURG ENERGY, INC.
/s/ Robert L. Diamond By: /s/ Neil W. Hedrick, President
- ------------------------------ ----------------------------------------
Neil W. Hedrick, President
2
<PAGE>
EXHIBIT 10.16
NOTE
----
$139,000.00 Blossburg, Pennsylvania
April 30, 1987
FOR VALUE RECEIVED, Milesburg Energy, Inc., a Pennsylvania corporation
("Maker"), promises to pay WITHOUT RECOURSE and WITHOUT INTEREST to Richard Mase
and Sylvia B. Mase (collectively "Holder") the sum of ONE HUNDRED THIRTY-NINE
THOUSAND and 00/100 DOLLARS ($139,000.00), ON DEMAND after the CONDITION DATE.
The Condition Date shall be the fifth business day following the date that
Condition I, as that term is defined by a certain Purchase and Sale Agreement
dated April 30, 1987 between Environmental Power Corporation and Neil W.
Hedrick, Richard Mase and Sylvia B. Mase, has been satisfied.
Maker (i) waives trial by jury in any action on this Note or any security
for this Note, (ii) waives all requirements of diligence in collection,
presentment, notice of non-payment, protest, notice of protest, suit and all
other conditions precedent in connection with the collection and enforcement of
this Note or the realization of any security for this Note; (iii) waives the
right to require the Holder to proceed against any other person or to pursue any
other remedy before proceeding against it, and (iv) agrees that, if consented to
by Maker, no renewal or extension of this Note, including a renewal or extension
in which this Note is surrendered, no release, surrender or substitution of
security for this Note or the indebtedness evidenced hereby, no modification or
waiver of the terms of any instrument referred to herein or any other agreement
now or hereafter directly relating to this Note or the indebtedness evidenced
hereby, and, whether or not consented to by Maker, no delay or omission in
exercising any right or power under this Note or any security for this Note or
the indebtedness evidenced hereby, shall affect Maker's liability, and (vi)
agrees that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to Maker and without affecting the Maker's
liability hereunder.
Maker agrees to pay all reasonable costs and expenses including reasonable
attorneys' fees incurred by Holder in any proceeding for collection of the debt
evidenced hereby.
This Note is given in satisfaction of a certain note given by Maker to
Holder dated April 21, 1987 in the principal amount of $139,000.00.
<PAGE>
This Note shall take effect as a sealed instrument on the date first set
forth above and shall be governed by the laws of the Commonwealth of
Pennsylvania.
WITNESS MILESBURG ENERGY, INC.
/s/ Robert L. Diamond By: /s/ Neil W. Hedrick, President
- ------------------------------ -------------------------------
Neil W. Hedrick, President
2
<PAGE>
EXHIBIT 10.17
ELECTRIC ENERGY PURCHASE AGREEMENT
between
MILESBURG ENERGY, INC.,
as Seller
and
WEST PENN POWER COMPANY, as Buyer
_________________________
Dated as of February 25, 1987
_________________________
Relating to the
Milesburg Project
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
INTRODUCTION AND PARTIES................................................... 1
RECITALS................................................................... 1
I. SALE AND PURCHASE OF ENERGY
1.1 Sale and Purchase of Project Energy......................... 2
1.2 Purchase Price.............................................. 2
1.3 Buyer's Right to Suspend Purchases
Under Certain Circumstances............................... 3
1.4 Force Majeure Affecting Seller.............................. 4
II. CONSTRUCTION AND FINANCING OF THE PROJECT
2.1 Construction of the Project................................. 5
2.2 Interconnection............................................. 8
2.3 Buyer's Action for Its Own Protection Only.................. 9
2.4 Financing of the Project.................................... 9
III. OPERATION AND MAINTENANCE OF THE PROJECT
3.1 Characteristics of Electric Power and
the Delivery Thereof...................................... 10
3.2 Compliance with Laws; Contest............................... 10
3.3 Fuel Stockpiling............................................ 11
3.4 Maintenance and Repair...................................... 11
3.5 Operation................................................... 12
3.6 Access; Financial Records;
Operating Budget; Etc..................................... 13
3.7 Insurance; Damage or Destruction;
Condemnation.............................................. 14
3.8 Maintenance of Reserve Fund................................. 14
IV. METERING AND BILLING
4.1 Metering Devices............................................ 15
4.2 Sealing of Metering Devices................................. 15
4.3 Inspection and Testing; Retroactive
Adjustments............................................... 15
4.4 Billing and Payment; Buyer's Records........................ 16
4.5 Buyer's Access to Metering Devices.......................... 16
</TABLE>
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V. REPRESENTATIONS AND WARRANTIES; CONDITIONS
PRECEDENT TO SALE AND PURCHASE
5.1 Representations and Warranties of
Seller...................................................... 17
5.2 Representations and Warranties of
Buyer....................................................... 19
5.3 Conditions Precedent to Buyer's
Obligations as of Financing
Closing Date................................................ 20
5.4 Conditions Precedent to Buyer's Obligations
as of Commencement Date..................................... 22
5.5 Conditions Precedent to Seller's Obligations
as of Financing Closing Date................................ 24
5.6 Condition Precedent to Seller's
Obligations as of Commencement Date......................... 24
5.7 Condition Precedent to Both Parties'
Obligations................................................. 25
5.8 Survival...................................................... 25
VI. DEFAULTS AND REMEDIES
6.1 Events of Default as to Seller................................ 25
6.2 Rights of Buyer in Case of an Event
of Default as to Seller..................................... 27
6.3 Events of Default as to Buyer................................. 28
6.4 Rights of Seller in Case of an Event of
Default as to Buyer......................................... 29
VII. INDEMNIFICATION
7.1 Seller's Indemnification of Buyer............................. 30
7.2 Buyer's Indemnification of Seller............................. 31
VIII. ARBITRATION
8.1 Compulsory Arbitration........................................ 32
8.2 Performance During Proceeding................................. 33
IX. DEFINITIONS AND RULES OF CONSTRUCTION
9.1 Definitions................................................... 33
9.2 Rules of Construction......................................... 42
X. MISCELLANEOUS
10.1 Force Majeure............................................... 43
10.2 Term of this Agreement...................................... 43
10.3 Survival of Obligations..................................... 44
</TABLE>
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10.4 Confidentiality............................................. 44
10.5 Further Assurances.......................................... 44
10.6 Specific Performance and Injunctive
Relief.................................................... 44
10.7 Entire Agreement; Severability.............................. 45
10.8 Counterparts, Assigns, Governing Law and
Amendments................................................ 45
10.9 Assignment.................................................. 45
10.10 Headings.................................................... 46
10.11 Notices..................................................... 46
10.12 No Implied Waiver........................................... 46
10.13 No Rights Conferred on Others............................... 46
10.14 Costs and Expenses.......................................... 47
10.15 PURPA....................................................... 47
10.16 Limitation of Liability..................................... 47
EXECUTION.................................................................. 48
</TABLE>
EXHIBIT A - Matters to be Covered by Opinion of
Varnum, Riddering, Schmidt & Howlett
(Counsel to Seller).......................................... A-1
EXHIBIT B - Matters to be Covered by Opinion
of Reed Smith Shaw & McClay (Counsel
to Buyer).................................................... B-1
EXHIBIT C - Computation of Capacity
Replacement Charge - Example................................. C-1
EXHIBIT D - Form of Mortgage............................................... D-1
EXHIBIT E - Form of Recognition Agreement.................................. E-1
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<PAGE>
ELECTRIC ENERGY PURCHASE AGREEMENT (this "Agreement") dated as of the
25th day of February, 1987, between MILESBURG ENERGY, INC., a Pennsylvania
corporation having its principal place of business at 248 Main Street,
Blossburg, Pennsylvania 16912 ("Seller"), and WEST PENN POWER COMPANY, a
Pennsylvania corporation having its principal place of business at 800 Cabin
Hill Drive, Greensburg, Pennsylvania 15601 ("Buyer").
WITNESSETH:
----------
WHEREAS, Seller desires to construct, equip, sell, lease as lessee and
operate a waste coal-fired plant consisting of a circulating fluidized bed
boiler and related facilities (the "Project") having a maximum design capacity
of 36.5 to 43 megawatts and to be located at Buyer's retired Milesburg Power
Station in the Borough of Milesburg in Centre County, Pennsylvania;
WHEREAS, upon completion of construction of the Project and
commencement of the operation thereof, Seller desires to sell electric energy
generated by the Project to Buyer, and Buyer desires to purchase such electric
energy from Seller subject to the terms and conditions set forth herein; and
WHEREAS, although the Project is to be a "qualifying facility" within
the meaning of PURPA (as herein defined), Buyer and Seller have negotiated and
reached agreement upon the terms and conditions hereof (including those as to
price) by arm's-length negotiations without regard to the specific provisions
and requirements of PURPA; and
WHEREAS, Seller and Buyer also contemplate entering into (i) a
Mortgage (as herein defined) making provision for certain matters with respect
to the Project and otherwise securing the performance of Seller's obligations
hereunder, and (ii) a Recognition Agreement (as herein defined) providing for
the rights and obligations of Buyer, Seller, Lessor (as herein defined) and the
Project Lender (as herein defined) in the event of default by Seller hereunder
or under the Lease (as herein defined) or in the event of certain defaults under
the Project Mortgage (as herein defined);
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt whereof is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
<PAGE>
ARTICLE I
---------
SALE AND PURCHASE OF ENERGY
Section 1.1. Sale and Purchase of Project Energy. (a) From and
------------ -----------------------------------
after the Commencement Date Seller shall sell and deliver to Buyer, and from and
after the Interconnection Date Buyer shall accept and purchase from Seller, the
Project Energy, as, if and when delivered to Buyer's System at the
Interconnection, subject only to (i) the maximum Contract Output specified
pursuant to Section 1.1(b), (ii) the right of Buyer to suspend purchases of
Project Energy as provided in Section 1.3, and (iii) Force Majeure affecting
Seller's ability to sell such Project Energy as provided in Section 1.4.
(b) Seller shall have the right, exercisable by notice to Buyer not
later than 30 days after the Commencement Date, to increase the Contract Output
from 36.5 megawatthours per hour up to a maximum Contract Output to be specified
in such notice of not more than 43 megawatthours per hour.
(c) The obligation of Seller to sell and deliver, and the obligation
of Buyer to accept and purchase, Project Energy pursuant to Section 1.1(a) shall
in no event exceed the Contract Output; provided, however, that Seller shall
--------- -------
have the right to sell (in which case Buyer shall be obligated to purchase), and
Buyer shall have the right to purchase (in which case Seller shall be obligated
to sell), on a weekly basis, any Project Energy in excess of the Contract Output
("Additional Project Energy"). Notwithstanding the foregoing, Buyer shall have
the right, in its reasonable discretion and subject to considerations of sound
electric utility practice, to interrupt or reduce deliveries of Additional
Project Energy in order to adjust said deliveries to operating conditions on
Buyer's system. Buyer shall use all reasonable efforts to give Seller notice of
each such reduction and of the causes therefor promptly after the occurrence of
the same.
Section 1.2. Purchase Price. (a) Prior to the Commencement Date,
------------ --------------
but no earlier than Interconnection Date, Buyer shall pay for the Project Energy
delivered to it at a rate per kilowatthour equal to the monthly Variable Energy
Cost Rate, actually experienced, as determined monthly by Buyer, for all APS
Proxy Units.
(b) On and after the Commencement Date, Buyer shall pay for the
Project Energy delivered to it pursuant to Section 1.1, up to an amount not
exceeding the Contract Output, monthly at a rate per kilowatthour equal to the
sum of the fixed Capacity Cost Rate plus the Avoided Energy Cost Rate as
determined monthly by Buyer, which rate per kilowatthour shall be applied to the
Project Energy delivered to Buyer for each Billing Period during the term of
this Agreement and (ii) pay for any Additional Project Energy monthly at a rate
per kilowatthour equal to the Avoided Energy Cost Rate.
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(c) Notwithstanding anything to the contrary in this Section 1.2, if
the Project ceases to be a "qualifying facility" within the meaning of PURPA,
Buyer shall pay for any Project Energy tendered to Buyer's System at a rate per
kilowatthour equal to the lesser of the rate set forth above or the appropriate
rate (expressed in kilowatthours per hour) approved by, and specified in the
tariff filed or to be filed by Seller with, the appropriate governmental agency
having jurisdiction over Seller with respect to rate making from time to time
pursuant to applicable law.
(d) Notwithstanding anything to the contrary in this Section 1.2, (i)
if the average number of kilowatthours per hour of Project Energy delivered to
Buyer during the Off-Peak Hours in any Billing Period exceeds the average number
of kilowatthours per hour of Project Energy delivered to Buyer during the On-
Peak Hours in such Billing Period, Buyer shall not be obligated to pay a
Capacity Cost Rate for the number of kilowatthours of Project Energy delivered
to Buyer during such Billing Period equal to the product of the amount of such
excess times the total number of Off-Peak Hours in such Billing Period and (ii)
Buyer shall not be obligated to pay the purchase price specified in this Section
1.2 for that number of kilowatthours of Project Energy delivered to Buyer in any
one hour which equals the number of kilowatthours of Internal Energy supplied by
Buyer during such hour. At Seller's request Buyer shall supply to Seller
Internal Energy and, to the extent the Internal Energy supplied by Buyer during
any hour exceeds the Project Energy, if any, delivered to Buyer during such
hour, Buyer shall charge Seller for the excess at rates which are just and
reasonable and which do not discriminate against Seller. For purposes of this
Section 1.2(d), in determining the average number of kilowatthours per hour of
Project Energy delivered to Buyer during any Billing Period, or any portion
thereof, any hours (or portions thereof) during which no deliveries of Project
Energy were made because of Unavoidable Interruptions shall be excluded. In
addition, if deliveries of Project Energy during any Billing Period are reduced
below the level that otherwise would have occurred because of Unavoidable
Interruptions, then the number of hours equal to the product of the total time
(expressed in hours) during which such reduced deliveries occurred multiplied by
the reduction in deliveries (expressed as a percentage of the average hourly
deliveries of Project Energy during the preceding 12 Billing Periods or portion
thereof) shall be excluded.
Section 1.3. Buyer's Right to Suspend Purchases Under Certain
------------ ------------------------------------------------
Circumstances.
- -------------
(a) Buyer shall have the right to suspend purchases of Project Energy
for temporary periods in connection with Scheduled Outages. Buyer shall use all
reasonable efforts to give Seller reasonable advance notice, orally or in
writing, of each such suspension and of the anticipated duration thereof, and
Buyer
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shall use all reasonable efforts to minimize the frequency and duration of such
suspensions.
(b) If Buyer is unable as a result of a System Emergency to take and
use Project Energy as, if and when tendered to it hereunder, Buyer shall use all
reasonable efforts to promptly notify Seller, orally or in writing, of the
circumstances giving rise to the System Emergency, and during, but no longer
than, the continuation of such System Emergency, the obligation of Buyer to
purchase Project Energy hereunder shall be suspended to the extent necessitated
by the System Emergency. Buyer shall use all reasonable efforts to minimize the
duration of any such System Emergency.
(c) In addition, Buyer shall have the right to suspend purchases of
Project Energy, up to an aggregate total of 90 hours in any one calendar year
over not more than 20 occasions in such calendar year, in connection with any
Minimum Loading Condition. Buyer shall use all reasonable efforts to give Seller
reasonable advance notice, orally or in writing, of each such suspension and of
the anticipated duration thereof, and shall use all reasonable efforts to
minimize the frequency and duration of such suspensions.
(d) No Project Energy shall be delivered to the Interconnection
during any period of suspension pursuant to this Section 1.3. Whenever Buyer
shall reasonably determine, under sound electric utility practice, that (i) the
Interconnection Facilities are the cause of frequent or prolonged System
Emergencies, or (ii) the characteristics of the electric power being delivered
by Seller under this Agreement do not comply with the requirements of Section
3.1, then Buyer may disconnect Buyer's System from the Interconnection until
such cause has been remedied. Buyer shall use all reasonable efforts to give
Seller reasonable advance notice, orally or in writing, of each such
disconnection and of the causes therefor and Buyer shall reconnect Buyer's
System to the Interconnection when such cause has been remedied.
Section 1.4. Force Majeure Affecting Seller. If Seller is unable
------------ ------------------------------
as a result of Force Majeure to deliver Project Energy to Buyer in accordance
with the terms of this Agreement or to perform any other obligation hereunder,
Seller shall use all reasonable efforts to promptly notify Buyer of the cause or
causes constituting such Force Majeure. During, but no longer than, the
continuation of such Force Majeure, the obligation of Seller to deliver Project
Energy to Buyer in accordance with the terms of this Agreement or to perform any
such other obligation shall be suspended to the extent affected by such Force
Majeure, but Seller shall use all reasonable efforts to overcome the cause or
causes constituting such Force Majeure as provided in Section 10.1 and to resume
deliveries of Project Energy to Buyer hereunder or to resume performance of any
such other obligation hereunder.
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ARTICLE II
----------
CONSTRUCTION AND FINANCING OF THE PROJECT
Section 2.1. Construction of the Project. (a) Seller shall
------------ ---------------------------
proceed with all due diligence to perform or cause to be performed (i) the
design, engineering and construction of the Project, and (ii) the placing of the
same in service at the Contract Output. The parties currently estimate that
with the exercise of such diligence Seller will be able to place the Project in
service at the Contract Output on or after January 1, 1990 but no later than
March 31, 1990. The Project shall be designed, constructed and completed in a
good and workmanlike manner only with materials and equipment of good quality
(except that all new and refurbished machinery and equipment shall be of first-
rate quality), in such manner as to provide a reasonable likelihood that the
useful life of the Project will at least equal the term of this Agreement and
strictly in accordance with (i) the Plans and Specifications and accompanying
data reviewed by Buyer pursuant to this Section 2.1, (ii) all applicable Legal
Requirements, (iii) sound engineering and construction practice and sound
electric utility practice, and (iv) such requirements as Buyer may reasonably
deem necessary or desirable in order for the Interconnection to Buyer's System
to be made in accordance with Section 2.2 and in accordance with sound
engineering and electric utility practice (the foregoing standards of design and
construction being herein collectively called the "Design and Construction
Standard").
(b) Seller shall diligently enforce all construction contracts with
respect to the Project, and shall obtain and maintain with respect to the
Project during construction such insurance coverage as is provided in the
Project Mortgage.
(c) Seller shall obtain from the general contractor for the Project a
warranty in favor of Seller to the effect that the Project has been constructed
in accordance with the Design and Construction Standard and that the Project is
free of structural defects; provided, however, that such warranty may exclude
--------- -------
any reference to the reasonable likelihood that the useful life of the Project
will at least equal the term of this Agreement. In addition, each item of new
or refurbished machinery and equipment installed as part of the Project shall be
warranted by the manufacturer thereof to be free of defects and to perform in
accordance with the Project specifications. Such warranties (which shall be for
the benefit of Seller) shall be on such terms as are the best commercially
available for projects of similar type and capacity. Seller shall also use all
reasonable efforts to obtain such other warranties and guaranties from
contractors, vendors and manufacturers with respect to the Project as are the
best commercially available for projects of similar type and capacity. If the
Project or any item of machinery or equipment
-5-
<PAGE>
installed therein fails to comply with such warranties, Seller shall use all
reasonable efforts to enforce or cause to be enforced such warranties.
(d) Buyer shall have the right to (i) approve in advance all
architects, engineers and contractors for the Project, (ii) approve in advance
all subcontractors for the Project; provided, however, that if the general
--------- -------
contractor warrants the work to be performed by the subcontractors, Buyer shall
only have the right to approve subcontractors for subcontracts in excess of
$25,000, (iii) inspect all materials and equipment to be incorporated into the
Project, (iv) review all successful bids, bidding instructions, schematic
drawings, plans and specifications, contracts, subcontracts and other
arrangements for the provision of materials and rendering of services in
connection with the construction of the Project, (v) inspect the Project site
and all work in progress, wherever located, and (vi) observe initial startup and
acceptance testing with respect to the Project. Seller shall provide or cause
to be provided to Buyer in a timely manner all construction progress reports,
schedules, inspection reports and other similar information in order that Buyer
may evaluate the progress of design and construction of the Project. Buyer and,
at Buyer's request, Buyer's Consulting Engineer shall be permitted access to
meetings of architects, engineers, contractors, subcontractors and Seller
regarding the design, engineering and construction of the Project. Seller shall
promptly take such actions as are appropriate, and shall cooperate fully with
Buyer, in order to implement the foregoing. Buyer shall not unreasonably
withhold or delay its response to any matters submitted to it for approval,
review, inspection or observation.
(e) As more specifically provided in Section 2.1(f), Seller shall
submit to Buyer, for Buyer's prior review, all Plans and Specifications and
budget projections for Project costs, and all changes or amendments to each
thereof, and shall make or cause to be made any and all changes to or revisions
of such Plans and Specifications and projections as may be reasonably requested
by Buyer from time to time in order to conform the design and construction of
the Project to the Design and Construction Standard. If Seller shall have
complied with the requirements of Section 2.1(f)(ii) and Buyer in its reasonable
discretion shall have determined that the design and construction of the Project
contemplated by the Plans and Specifications comply in all respects with the
Design and Construction Standard, then thereafter Seller (i) shall submit to
Buyer, in a timely manner, for its review all proposed changes in such Plans and
Specifications and projections in order that Buyer may determine whether such
changes conform to the Design and Construction Standard and (ii) shall not make
any changes in such Plans and Specifications and projections that cause the same
to fail to conform to the Design and Construction Standard. In the event of any
such proposal change, Buyer shall be considered to have
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<PAGE>
approved the same in the absence of any notice of disapproval given within 15
days after the receipt by Buyer of such proposed change. Promptly after the
same become available, Seller shall furnish to Buyer five sets to each of Buyer
and Buyer's Consulting Engineer of the final working drawings and specifications
for the Project.
(f)(i) Within 180 days after the date hereof, but in any event no
later than 90 days prior to the Financing Closing Date, Seller shall furnish to
Buyer (x) such evidence of the qualifications and financial condition of the
architect or engineer selected by Seller to prepare (or supervise the
preparation of) the Plans and Specifications as Buyer may reasonably request,
together with a description of the scope of the work to be performed by such
architect or engineer, and (y) a true and complete copy of Seller's proposed
contract with the architect or engineer who shall prepare (or supervise the
preparation of) the Plans and Specifications. Buyer may disapprove such
architect or engineer or such contract, as the case may be, by notice to Seller
given on or before 30 days after the delivery to Buyer of such evidence or of
the copy of such contract. The notice of disapproval shall specify the grounds
for disapproval. Buyer shall be considered to have approved such architect or
engineer or contract, as the case may be, in the absence of any notice of
disapproval given within said 30-day period.
(ii) Within 270 days after the date hereof, but in any event no
later than 60 days prior to the Financing Closing Date, Seller shall deliver to
Buyer, for Buyer's review, the preliminary construction Plans and Specifications
for the Project, which preliminary construction Plans and Specifications shall
include without limitation detailed engineering drawings (general arrangement
drawings, layout drawings, single and three-line electrical drawings, process
and instrumentation drawings, etc.), system descriptions (including operating
philosophies covering all possible conditions) and specifications and accepted
vendor (technical) proposals for major equipment and services and shall be
accompanied by model studies, feasibility studies, computer analyses, power
production calculations, construction schedules (including critical path method
schedules and other scheduling networks), copies of all licenses, permits,
applications and correspondence with regulatory agencies having jurisdiction
over the design, construction or operation of the Project, and such other
information as Buyer may reasonably request. Such preliminary construction Plans
and Specifications and accompanying data shall, in form and content, be
sufficient to enable Buyer to make an informed judgment as to whether the design
and quality of construction of the Project complies with the Design and
Construction Standard, it being understood that mere conceptual engineering
shall be insufficient for these purposes. Within 30 days after the receipt by
Buyer of such preliminary construction Plans and Specifications and accompanying
data, Buyer shall
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<PAGE>
furnish to Seller, in writing, its comments on and any objections it may have to
any aspect of such preliminary construction Plans and Specifications and
accompanying data. Buyer shall be considered to have approved such preliminary
construction Plans and Specifications and accompanying data upon the expiration
of such 30-day period without Buyer having furnished comments or stated any
objections. Seller shall not deliver working drawings or specifications to any
governmental authority for final approval in connection with any required permit
or other governmental or regulatory approval unless such drawings or
specifications have been reviewed by Buyer in accordance with the provisions of
this Section 2.1.
(iii) Within 300 days after the date hereof, but in any event no
later than 45 days prior to the Financing Closing Date, Seller shall furnish to
Buyer a copy of Seller's proposed contract with the general contractor whom
Seller wishes to construct the Project, together with such evidence of said
general contractor's qualifications and financial condition as Buyer may
reasonably request. Buyer may disapprove such construction contract and general
contractor by notice to Seller given within 30 days after the delivery to Buyer
of the copy of the construction contract and such evidence. The notice of
disapproval shall specify the grounds for disapproval. Buyer shall be considered
to have approved said construction contract and general contractor in the
absence of any notice of disapproval given within said 30-day period.
(iv) Promptly after the same become available, but in no event later
than 6 months after the Commencement Date, Seller shall furnish to Buyer three
sets of final as-built Plans and Specifications for the Project.
(g) All information required to be submitted to Buyer pursuant to
subparagraphs (d), (e) and f(ii) of this Section 2.1 shall be submitted to such
persons and entities, and in such numbers of copies, as Buyer may designate to
Seller from time to time and Buyer shall not be deemed to have received such
information unless and until each person and entity so designated by Buyer has
received such information at the address for such person or entity designated by
Buyer.
Section 2.2. Interconnection. (a) The Interconnection shall be
------------ ---------------
made by Buyer at the sole cost and expense of Seller. Seller shall design,
construct, install and maintain the Interconnection Facilities as part of the
Project, and the Interconnection Facilities shall be specifically approved by
Buyer as suitable for parallel operation with Buyer's System prior to the
Interconnection being made. Seller shall reimburse Buyer, prior to Buyer's
making the Interconnection, for all reasonable costs and expenses, including
taxes, incurred by Buyer in readying or preparing Buyer's System for Buyer's
making of the Interconnection and accepting delivery of electric energy from the
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Project, including all substation additions, transformers, switchgear, controls
and relaying equipment and all engineering and design costs in connection
therewith, and Seller shall reimburse Buyer from time to time for all reasonable
costs and expenses, including taxes, if any, incurred by Buyer in operating and
maintaining said equipment and facilities in accordance with sound electric
utility practice. Buyer shall perform the physical activity involved in making
and energizing the Interconnection.
(b) The Interconnection Facilities shall be designed, constructed and
installed in compliance with the Design and Construction Standard, including the
interconnection standards set forth in Section 35 of the APS Engineering Manual,
the operating specifications set forth in the Operations Coordination Agreement,
the provisions of the National Electric Safety Code and the standards of the
Institute of Electrical and Electronics Engineers, the National Electrical
Manufacturers Association and the American National Standards Institute.
Section 2.3. Buyer's Action for Its Own Protection Only. Any
------------ ------------------------------------------
action taken by Buyer in inspecting, reviewing, observing or approving the
Project or any aspect thereof, any work, materials or equipment, any contracts
or subcontracts, any contractors, subcontractors or suppliers, or the Plans and
Specifications or the taking of any other action authorized to be taken by Buyer
under this Article II, shall be for Buyer's protection only. Buyer shall not be
deemed to have assumed any responsibility to Seller or any other Person
(including the Project Lender or Lessor) with respect to any such action or with
respect to the proper construction, operation or maintenance of the Project,
performance of contracts or subcontracts, the qualifications of any contractor,
subcontractor or supplier, or the safety, capacity or reliability of any
materials or equipment, nor shall any such action or inaction of Buyer be relied
upon by, or give rise to any liability to, Seller or any third party.
Section 2.4. Financing of the Project. Seller may secure the
------------ ------------------------
initial construction financing of the Project by the Project Mortgage, may
convey the Project to Lessor, subject to the lien of the Mortgage, and, upon
such conveyance, the initial permanent financing of the Project may be secured
by the Project Mortgage and Seller may lease the Project back as lessee pursuant
to the lease, subject in each case to the provisions hereof and of the
Recognition Agreement relating to the Project Mortgage and the Lease. The terms
of the initial construction financing and initial permanent financing of the
Project, and of the Project Mortgage and the Lease, and the appropriate
insertions to be made in the blank spaces in the Recognition Agreement relating
thereto, shall be satisfactory to Buyer in its sole discretion. Neither Seller
nor Lessor may (a) amend or consent to any amendment of the terms of the initial
construction financing or the initial permanent financing of the Project, or of
the Project Mortgage or the Lease, unless such amendment is not prohibited by
Section 8.3
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of the Recognition Agreement, or (b) engage in any other financing of the
Project unless (i) such financing is permitted by Section 5.2(d) of the
Recognition Agreement, (ii) if the Lease and the indebtedness or other
obligations secured by the Project Mortgage are no longer outstanding, such
financing is reasonably acceptable to Buyer and is expressly subordinated to the
Mortgage, or (iii) such financing is not secured by a lien on or security
interest in the Project or any interest therein.
ARTICLE III
-----------
OPERATION AND MAINTENANCE OF THE PROJECT
Section 3.1. Characteristics of Electric Power and the Delivery
------------ --------------------------------------------------
Thereof. The electric power to be delivered by Seller under this Agreement
- -------
shall be three-phase, 60 hertz, alternating current at a nominal voltage of
46,000 volts, shall not adversely affect the voltage, frequency, waveshape or
power factor of power at the Interconnection and shall be delivered to Buyer at
the Interconnection in conformance with the interconnection standards set forth
in Section 35 of the APS Engineering Manual and the operating specifications set
forth in the Operations Coordination Agreement. In addition, all electric
generating equipment included in the Project shall be capable of delivering
power at the Interconnection at a power factor range of between 90% lagging and
110% leading.
Section 3.2. Compliance with Laws: Contest. (a) Seller shall keep,
------------ -----------------------------
or cause to be kept, in full force and effect all licenses, permits and
governmental authorizations and agreements necessary for the ownership,
construction, leasing, operation, management or use of the Project and shall
comply with, or cause to be complied with, in a manner consistent with sound
electric utility practice, all Legal Requirements which at any time may be
applicable to Seller or to the Project, even if compliance therewith
necessitates structural changes or improvements or results in interference with
the use or enjoyment of the Project or any part thereof. Without limiting the
generality of the foregoing, (i) at all times during the term of this Agreement,
Seller shall maintain and keep in full force and effect, or cause to be
maintained and kept in full force and effect, an order of the FERC, in form and
substance satisfactory to Buyer, certifying, with respect to specifically
identified fuel sources for the Project and so long as such fuel sources are
used in the manner contemplated in the Plans and Specifications and in the
application for such order, that the primary energy source of the Project is
"waste" within the meaning of PURPA, that at least 75% of the "total energy
input" within the meaning of PURPA is from such primary energy source, and that
the use of oil, natural gas and coal by the Project (x) does not, in the
aggregate, exceed 25% of the "total energy input" within the meaning of PURPA of
the Project during any calendar year period and (y) is either a use permitted by
Section 3(17)(B) of the Federal Power Act or a use
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that improves the efficiency of the assets which are necessary to the production
of power by means of the primary energy source of the Project, and (ii) Seller
shall not operate the Project in a manner that will cause it to cease to be, and
shall otherwise comply with all requirements necessary to maintain the Project
as, a "qualifying small power production facility" or "qualifying facility"
within the meaning of PURPA. Seller shall be liable for all fines, fees,
penalties or other costs arising as a result of or in connection with any
violation of applicable Legal Requirements in connection with the ownership,
construction, leasing, operation, management or use of the Project. Seller
shall promptly forward to Buyer copies of all notices relating to the Project
received by Seller from the FERC or any other governmental authority or agency.
If requested by Seller, Buyer shall reasonably cooperate with Seller by joining
in any applications that may be necessary for Seller to secure any required
licenses, permits or governmental authorizations necessary to own, construct,
lease, operate, maintain and use the Project.
(b) Seller shall have the right to contest or object to the validity
or applicability of any Legal Requirement in good faith by appropriate legal or
administrative proceedings, but this shall not be deemed or construed in any way
as relieving, modifying or extending Seller's obligation to perform and comply
with all Legal Requirements at the time and in the manner provided in this
Section 3.2, unless (i) Seller shall have given prior notice to Buyer of
Seller's intention so to contest or object to a Legal Requirement, (ii) the
legal or administrative proceedings shall conclusively operate to prevent the
enforcement of the Legal Requirement being contested or objected to prior to
final determination of such proceedings, and (iii) Seller's failure to perform
and comply with the Legal Requirement being contested or objected to shall not
constitute a violation of any other Legal Requirement and shall not constitute a
default under or permit the termination of the Project Mortgage, the Lease or
any other material agreement to which Seller or the Project is subject.
Section 3.3. Fuel Stockpiling. Seller shall maintain or cause to
------------ ----------------
be maintained (a) at the Project a fuel stockpile of a size sufficient to supply
fuel for the Project for not less than 4 days, and (b) at an off-site location,
to be identified not later than the Financing Closing Date, within 15 miles from
the Project sufficient to accommodate a 90-day fuel supply, a fuel stockpile of
a size consistent with sound electric utility practice (consistent with weather
and market conditions and available storage space at such location as of the
date of this Agreement) for electrical generating plants of similar size and
capacity to the Project (collectively, the "Fuel Inventory").
Section 3.4. Maintenance and Repair. (a) Seller shall at all
------------ ----------------------
times after the Commencement Date keep the Project, or cause the same to be
kept, in good operating condition consistent
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with sound electric utility practice and, subject to the provisions of Section
3.2(b), with all applicable Legal Requirements, and shall make or cause to
be made all repairs (structural and nonstructural, extraordinary or ordinary,
foreseen or unforeseen) necessary to keep the Project in such condition.
(b) Seller shall pay or cause to be paid all costs and expenses
associated with maintaining the Project in the condition and repair required
under this Article III, including periodic overhauls thereof.
(c) Seller may serve as the operator of the Project so long as the
qualifications of the personnel assigned by Seller to be responsible for the
management and operation of the Project are reasonably satisfactory to Buyer.
Seller may, and, upon any failure by Seller to comply with any of the terms,
covenants or conditions hereof or of the Lease, at Buyer's request shall, employ
an independent contractor or contractors for the performance of any of Seller's
obligations relating to the operation of the Project as set forth in this
Article III, subject to Buyer's prior consent, which shall not be unreasonably
withheld, as to the identity of the independent contractor and the terms and
provisions of the contract or other arrangement with such independent
contractor; provided, however, that in the case of an emergency Buyer's prior
--------- -------
consent shall not be required and Seller shall promptly notify Buyer of the
nature of the work to be performed and of the identity of the contractor
employed by Seller to perform such work. Seller shall deliver to Buyer a copy
of any such proposed contract or other arrangement. Buyer shall be considered
to have approved any such contractor and the terms and provisions of such
contract or other arrangement in the absence of any notice of disapproval given
within 30 days after Buyer's receipt of such proposed contract or other
arrangement. To the extent permitted by law, Seller shall replace any
independent contractor engaged to operate the Project who becomes bankrupt or
insolvent.
Section 3.5. Operation. Seller shall at all times after the
------------ ---------
Commencement Date operate the Project in a manner consistent with sound electric
utility practice and with the operating specifications set forth in the
Operations Coordination Agreement so as to assure, to the extent reasonably
possible, uninterrupted output of Project Energy at the Contract Output. Seller
shall cooperate with Buyer in the scheduling of maintenance of and repairs to
the Project so that, to the extent reasonably possible, such maintenance and
repairs shall be performed during periods other than seasonal peak periods of
APS Demand, and so as to avoid any other detrimental impact on Buyer's System.
In addition, Seller shall use all reasonable efforts to supply Buyer with
continuous, reliable Project Energy during On-Peak Hours at a rate of generation
at least equal to that during Off-Peak Hours.
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Section 3.6. Access: Financial Records; Operating Budget: Etc. (a) Buyer
----------- ------------------------------------------------
and its agents, representatives and authorized invitees, and representatives of
governmental and regulatory agencies having jurisdiction over Buyer, may visit
and inspect the Project at any reasonable time and upon reasonable advance
notice.
(b) Seller shall keep true records and books of account with respect
to the Project in which full and correct entries will be made of all its
business transactions with respect thereto. Buyer shall have the right to
examine, or cause an audit to be made of, such books and records and to make
copies or extracts thereof and to discuss the financial condition and operations
of the Project with Seller, all at such time or times during normal business
hours as Buyer may reasonably require.
(c) Seller shall treat as current income for tax purposes, on the
accrual method of accounting, all payments for Project Energy made by Buyer to
Seller pursuant to this Agreement. If Buyer changes its method of accounting for
purchases of Project Energy, it shall notify Seller of such change and Seller
shall accord the same tax accounting treatment to its sales of Project Energy
pursuant to this Agreement as Buyer utilizes for purchases of Project Energy.
(d) Seller shall prepare and submit, or cause to be prepared or
submitted, to Buyer not less than 90 days prior to the Commencement Date, and
thereafter not less than 90 days prior to the first day of each operating year
for the Project, a budget (the "Operating Budget") of Operating and Maintenance
Expenses and of projected deliveries of Project Energy for such operating year
(or shorter period), setting forth, in comparative form, actual Operating and
Maintenance Expenses and actual deliveries of Project Energy for the prior
operating year (or shorter period, as the case may be), and otherwise in such
form and detail as Buyer may require. Actual Operating and Maintenance Expenses
for each operating quarter shall be certified to Buyer within 30 days after the
end of each such operating quarter by the chief financial officer of Seller and
the chief financial officer of the operator of the Project, and, if requested by
Buyer, actual Operating and Maintenance Expenses for each operating year shall
be certified to Buyer by an independent certified public accountant reasonably
satisfactory to Buyer within 90 days after the end of each such operating year.
(e) Seller shall prepare and submit, or cause to be prepared and
submitted, to Buyer not less than 15 days after the end of each calendar
quarter, a report, certified by the President or chief operating officer of
Seller and the chief financial officer of the operator of the Project, as to the
occurrence, if any, of any Unavoidable Interruptions and scheduled maintenance
of and repairs to the Project during such calendar quarter, setting forth in
detail reasonably satisfactory to Buyer the nature and
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duration (or anticipated duration) of each such occurrence and the steps Seller
or such operator have taken or propose to take with respect thereto.
Section 3.7. Insurance; Damage or Destruction; Condemnation. (a)
------------ ----------------------------------------------
Seller shall (i) provide or cause to be provided insurance against loss or
damage with respect to the Project as provided in the Mortgage, and (ii) comply
with the provisions of the Mortgage in the event of any Damage to or
Condemnation of (as such terms are defined in Section 1.06 of the Mortgage) the
Project.
(b) During any period of restoration of the Project as required by
the Mortgage and after any partial restoration to a viable economic unit
following any partial Condemnation, or after any Damage or Condemnation if
Seller shall not be obligated, and shall not have elected, pursuant to Section
1.06 of the Mortgage to restore the Project following such Damage or
Condemnation, the amount of Project Energy to be delivered by Seller hereunder
shall be appropriately reduced and the Contract Output shall be adjusted, if
appropriate, to account for any reductions in expected deliveries of Project
Energy thereafter.
(c) If Seller shall not be obligated, and shall not have elected,
pursuant to Section 1.06 of the Mortgage to restore the Project following a
Damage or Condemnation, then Seller shall pay to Buyer, within 20 days after
demand therefor, an amount equal to the Capacity Replacement Charge computed as
of the date of demand in accordance with the formula set forth in Section
6.2(b), multiplied by a fraction, the numerator of which shall be the Contract
Output minus the average hourly deliveries of Project Energy during the 12
-----
calendar months immediately preceding such Damage or Condemnation from the
portion of the Project, if any, not so damaged or taken, and the denominator of
which shall be the Contract Output. Upon any such payment being made following
Damage to or Condemnation of the entire Project, this Agreement shall terminate
and neither party shall have any further liability to the other hereunder,
except for any liabilities which became due and payable, and remain unpaid, as
of the time of said termination. The amount of any payment required to be made
hereunder shall bear interest at the Applicable Rate from the date which is 20
days after the date of demand for such payment to the date on which Buyer
receives payment thereof in full.
Section 3.8. Maintenance of Reserve Fund. Seller shall establish
------------ ---------------------------
and maintain, for so long as this Agreement remains in effect, a separate
reserve fund (the "Reserve Fund"). The Reserve Fund shall be held by a
depositary satisfactory to Buyer (the "Reserve Fund Depositary") under a
depositary arrangement satisfactory to Buyer. In the event the moneys on
deposit in the Reserve Fund are less than the Minimum Reserve Fund Requirement,
including by reason of application of such moneys in whole or in part for the
purposes permitted by this Section 3.8, Seller shall
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fund or replenish the Reserve Fund to the Minimum Reserve Fund Requirement by
depositing in the Reserve Fund within 30 days after the end of each month an
amount equal to the Stipulated Monthly Reserve Fund Payment for such month until
the Reserve Fund shall contain an amount not less than the Minimum Reserve Fund
Requirement. Moneys in the Reserve Fund may be invested in a manner satisfactory
to Buyer, and so long as no Event of Default as to Seller exists, any monies in
the Reserve Fund in excess of the Minimum Reserve Fund Requirement may be paid
to Seller upon its request. Moneys in the Reserve Fund may be used, to the
extent Seller lacks other available funds therefor, only for the purpose of
paying Operating and Maintenance Expenses with respect to the Project or to pay
for alterations, repairs, improvements, renewals and replacements with respect
to the Project which are necessary for the proper operation of the Project.
Seller shall keep accurate records with respect to the Reserve Fund and all
disbursements therefrom and shall, upon Buyer's request, supply a complete
accounting or independent audit thereof to Buyer.
ARTICLE IV
----------
METERING AND BILLING
Section 4.1. Metering Devices. The Project Energy delivered to
------------ ----------------
Buyer by Seller pursuant to this Agreement shall be measured by Metering
Devices, which shall be installed and maintained by Buyer at Seller's expense
and shall be owned by Buyer.
Section 4.2. Sealing of Metering Devices. The Metering Devices
------------ ---------------------------
shall be sealed. Buyer shall give Seller access to the Metering Devices at any
reasonable time upon reasonable notice. The seals shall be broken by Buyer only
when the Metering Devices are to be inspected, tested or adjusted, provided,
--------
however, that Seller shall receive prior notice thereof and shall have the right
- -------
to be present.
Section 4.3. Inspection and Testing; Retroactive Adjustments. (a)
------------ -----------------------------------------------
Buyer shall inspect and test all Metering Devices upon the installation thereof,
at Seller's cost and expense. In addition, upon request of Seller Buyer shall,
and from time to time Buyer may, inspect or test any Metering Device at any
other reasonable time and shall permit an authorized representative of Seller to
be present at any such inspection or test. The cost and expense of any such
inspection or test shall be paid by Seller unless, upon being inspected or
tested, a Metering Device is found to register inaccurately by more than 2% of
full scale, in which event the cost and expense of the requested inspection or
test shall be borne by Buyer. If a Metering Device is found to be defective or
inaccurate, it shall be adjusted, calibrated, repaired or replaced by Buyer at
Seller's cost and expense.
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(b) If a Metering Device fails to register, or if the measurement
made by a Metering Device is found upon testing to be inaccurate (whether or not
within 2% of full scale), an adjustment shall be made correcting all
measurements of Project Energy made by the inaccurate or defective Metering
Device during (i) the actual period when inaccurate measurements were made, if
that period can be determined to the mutual satisfaction of the parties, or (ii)
if the actual period cannot be determined to the mutual satisfaction of the
parties, one-half of the period from the date of the last previous test of the
Metering Device to the date such failure is discovered or such test is made (the
period so applicable being herein called the "Adjustment Period"). If the
parties are unable to agree on the amount of the adjustment to be applied to the
Adjustment Period, the amount of the adjustment shall be determined (x) by
correcting the error if the percentage of error is ascertainable by calibration,
tests or mathematical calculation, or (y) if not so ascertainable, by estimating
on the basis of deliveries under similar conditions during periods when the
Metering Device was registering accurately. Promptly upon the determination of
the amount of any adjustment, Buyer shall pay to Seller any additional amounts
then due for deliveries of Project Energy during the Adjustment Period or Buyer
shall be entitled to a credit against any subsequent payments for deliveries of
Project Energy, as the case may be.
Section 4.4. Billing and Payment: Buyer's Records. Buyer shall read
------------ ------------------------------------
the Metering Devices within three business days of the end of each calendar
month and shall within 15 business days after such reading render to Seller an
itemized statement showing the Project Energy delivered to Buyer during such
month and the amount to be paid therefor by Buyer pursuant to Section 1.2. Each
statement shall set forth in reasonable detail Buyer's calculations of any
credits to which Buyer may be entitled and of the net payment due to Seller and
shall be accompanied by Buyer's payment of any amounts therein shown to be due.
Subject to Section 4.3(b), Seller shall be considered to have accepted such
statement in the absence of any objection to Buyer within 30 days of the
rendering thereof. Seller shall have the right to examine, or cause an audit to
be made of, Buyer's records relating to the matters covered by such statements
all at such time or times during normal business hours as Seller may reasonably
require. Each overdue payment under this Section 4.4 shall bear interest at the
Applicable Rate from the date such payment is due until paid. Seller shall
reimburse Buyer from time to time for all reasonable administrative costs and
expenses incurred by Buyer in performing its obligations under this Section 4.4.
Section 4.5. Buyer's Access to Metering Devices. Seller hereby
------------ ----------------------------------
grants to Buyer and its employees, agents and representatives, all licenses,
easements and rights of way, including adequate and continuing access rights on
Seller's properties, necessary for Buyer to install, construct, operate,
maintain, repair, test, inspect, replace and remove the Metering
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<PAGE>
Devices. Seller shall execute such deeds, documents or other instruments for
recording as Buyer may require with respect to the foregoing.
If any portion of the Metering Devices is to be installed or operated
on property owned by any person or entity other than Buyer or Seller, Seller
shall, if Buyer is unable to do so without cost to Buyer, obtain, at Seller's
cost and expense, from the owner of such property or such other appropriate
persons or entities all requisite licenses, easements or rights of way, in form
satisfactory to Buyer, for the installation, construction, operation,
maintenance, repair and replacement of such portion of the Metering Devices on
such property.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES;
CONDITIONS PRECEDENT TO SALE AND PURCHASE
Section 5.1. Representations and Warranties of Seller. Seller hereby
------------ ----------------------------------------
represents and warrants as follows:
(a) Seller (i) is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania with full
right, power and authority to enter into and perform its obligations under this
Agreement, the Mortgage and the Recognition Agreement and to consummate the
transactions contemplated hereby and thereby, (ii) is duly qualified, authorized
to do business and in good standing in each jurisdiction where the character of
its properties or the nature of its activities makes such qualification
necessary, (iii) has the power to carry on its business as now being conducted,
and (iv) possesses, with immaterial exceptions under local law unrelated to the
Project, all Federal, state and local permits and franchises currently required
for the maintenance and operation of its properties and business.
(b) This Agreement has been, and the Mortgage and the Recognition
Agreement will be, duly authorized, executed and delivered by Seller, and each
thereof constitutes or will constitute the legal, valid and binding obligation
of Seller enforceable in accordance with its terms, except as such
enforceability and the availability of certain rights and remedies provided for
therein may be limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights or by general
principles of equity.
(c) Neither the execution and delivery of this Agreement, the
Mortgage or the Recognition Agreement, the consummation of any of the
transactions contemplated hereby or thereby nor performance or compliance with
the terms and conditions hereof or thereof will (i) result in the violation of
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any present Legal Requirement to which Seller is subject, the violation of which
would have a material adverse effect on the ability of Seller to perform its
obligations under this Agreement, the Mortgage or the Recognition Agreement, or
(ii) conflict with or result in the breach of, or constitute a default under,
the Articles of Incorporation or By-Laws of Seller or any agreement or
instrument to which Seller is a party or by which it or its properties may be
bound or affected (except any such agreement or instrument a breach of which
would not have a material adverse effect on the ability of Seller to perform its
obligations under this Agreement, the Mortgage or the Recognition Agreement), or
result in the creation of any lien, charge, security interest or encumbrance
(except such that may arise (x) in favor of the Buyer in connection with this
Agreement and under the Mortgage, and (y) in favor of the Project Lender in
connection with and under the Project Mortgage upon any of Seller's properties
(including the Mortgaged Property (as defined in the Mortgage)), and Seller is
not in default under any term of any such agreement or instrument.
(d) Seller has obtained all authorizations, consents, approvals,
licenses, permits, exemptions and other actions by any governmental authorities
or regulatory bodies that are required in connection with Seller's execution and
delivery of this Agreement, the Mortgage and the Recognition Agreement; and
Seller (i) has obtained, or by the Financing Closing Date will have obtained,
all other governmental approvals, licenses and permits required to be obtained
on or prior to the Financing Closing Date, and (ii) is or will be entitled to
obtain in the ordinary course upon due application therefor all governmental
approvals, licenses and permits required to be obtained subsequent to the
Financing Closing Date, in each case for the consummation by Seller of the
transactions contemplated by, and the performance by Seller of, this Agreement,
the Mortgage and the Recognition Agreement.
(e) There are no pending, or to Seller's knowledge threatened,
actions, suits or proceedings before any court, governmental authority or
regulatory body, to which Seller is a party or by which it or its properties may
be bound, which will materially adversely affect Seller's financial condition,
business or operations or its ability to perform its obligations under this
Agreement, the Mortgage or the Recognition Agreement, nor is there any basis for
any such action, suit or proceeding.
(f) No Event of Default as to Seller and no event which, with the
giving of notice or the lapse of time or both, would constitute an Event of
Default as to Seller has occurred and is continuing.
(g) The Project is, and as completed pursuant to Article II and
operated pursuant to Article III will be, a "qualifying small power production
facility" within the meaning of PURPA.
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Section 5.2. Representations and Warranties of Buyer. Buyer hereby
----------- ---------------------------------------
represents and warrants as follows:
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania with full
right, power and authority to enter into and perform its obligations under this
Agreement and the Recognition Agreement and to consummate the transactions
contemplated hereby and thereby in accordance with the terms hereof following
fulfillment of the conditions set forth in Sections 5.3(g) and 5.3(h).
(b) This Agreement has been, and the Recognition Agreement will be,
duly authorized, executed and delivered by Buyer and each thereof constitutes
the legal, valid and binding obligation of Buyer enforceable in accordance with
its terms, except as such enforceability and the availability of certain rights
and remedies provided for therein may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity.
(c) Buyer has obtained, or by the Financing Closing Date upon
fulfillment of the conditions set forth in Sections 5.3(g) and 5.3(h) will have
obtained, all authorizations, consents, approvals, licenses, permits, exemptions
and other actions by any governmental authorities or regulatory bodies that are
required in connection with Buyer's execution and delivery of this Agreement or
the Recognition Agreement or for the consummation by Buyer of the transactions
contemplated by, and the performance by Buyer of, this Agreement and the
Recognition Agreement.
(d) Neither the execution and delivery of this Agreement or the
Recognition Agreement, the consummation of the transactions contemplated hereby
or thereby nor performance of or compliance with the terms and conditions hereof
or thereof will (i) result in the violation of any present Legal Requirement to
which Buyer is subject, the violation of which would have a material adverse
effect on the ability of Buyer to perform its obligations under this Agreement
or the Recognition Agreement, or (ii) conflict with or result in the breach of,
or constitute a default under, the Articles of Incorporation or By-Laws of Buyer
or any agreement or instrument to which Buyer is a party or by which it or its
properties may be bound or affected (except any such agreement or instrument a
breach of which would not have a material adverse effect on the ability of Buyer
to perform its obligations under this Agreement or the Recognition Agreement),
or result in the creation of any lien, charge, security interest or encumbrance
upon any of its properties, and Buyer is not in default under any term of any
such agreement or instrument.
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<PAGE>
(e) There are no pending, or to Buyer's knowledge threatened,
actions, suits or proceedings before any court, governmental authority or
regulatory body, to which Buyer is a party or by which it or its properties may
be bound, which might materially adversely affect Buyer's financial condition,
business or operations or its ability to perform its obligations under this
Agreement or the Recognition Agreement, nor is there any basis for any such
action, suit or proceeding.
(f) No Event of Default as to Buyer and no event which, with the
giving of notice or the lapse of time or both, would constitute an Event of
Default as to Buyer has occurred and is continuing.
Section 5.3. Conditions Precedent to Buyer's Obligations as of
------------ -------------------------------------------------
Financing Closing Date. The obligation of Buyer to purchase Project Energy from
- ----------------------
Seller hereunder is subject to the fulfillment on and as of the Financing
Closing Date of each of the following conditions:
(a) All documents and instruments (other than the Operations
Coordination Agreement) relating to the ownership and operation of the Project
(including any contracts with independent contractors employed to perform
Seller's obligations under Article II and Article III with respect to the
construction and operation and maintenance of the Project), to the initial
construction financing of the Project and to the sale by Seller and the purchase
by Buyer of Project Energy which have been or are required by the Project Lender
to be executed and delivered on or prior to the Financing Closing Date shall be
reasonably satisfactory to Buyer, such documents shall have been duly
authorized, executed and delivered, and Buyer shall have received certified
copies of all such documents or other evidence as it may reasonably request in
order to establish the foregoing.
(b) The form of all documents and instruments to be executed and
delivered in connection with the sale and leaseback of Seller's interest in the
Project (including the Lease) and the initial permanent financing of the Project
shall be reasonably satisfactory to Buyer; Lessor and the Project Lender in
respect of the initial permanent financing shall have committed, in a writing
reasonably satisfactory to Buyer, that it will consummate such sale and
leaseback and such initial permanent financing within three months of the in-
service date of the Project for federal tax purposes, subject to such terms and
conditions as are set forth in said documents and instruments; and Buyer shall
have received certified copies of all such documents or other evidence as it may
reasonably request in order to establish the foregoing.
(c) The Mortgage, the Recognition Agreement and any documents related
thereto or contemplated thereby shall have been duly authorized, executed and
delivered by the parties thereto and shall have been duly filed and recorded in
all places required by
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law in order to publish notice of and perfect the respective liens, rights,
titles, interests, remedies, powers, privileges and security interests created
thereby, and Buyer shall have received executed counterparts of such documents
and such evidence of filing and recording as Buyer may reasonably request.
(d) All representations and warranties by Seller in or under this
Agreement shall be true, with the same effect as though such representations and
warranties had been made on and as of the Financing Closing Date and no Event of
Default as to Seller or any event which with the giving of notice or lapse of
time or both would constitute an Event of Default as to Seller shall have
occurred and be continuing; and Buyer shall have received a certificate, dated
such date, signed by the President and a principal financial or accounting
officer of Seller to such effect.
(e) Buyer shall have received an opinion, dated the Financing Closing
Date, of Varnum, Riddering, Schmidt & Howlett, counsel to Seller, in form and
substance satisfactory to Buyer, as to the matters set forth in Exhibit A.
(f) Seller shall have applied for and obtained an order from the
FERC, which application and order shall be in form and substance satisfactory to
Buyer, (i) certifying, with respect to specifically identified fuel sources for
the Project and so long as such fuel sources are used in the manner contemplated
in the Plans and Specifications and in the application for such order, that the
primary energy source of the Project is "waste" within the meaning of PURPA,
that at least 75% of the "total energy input" within the meaning of PURPA is
from such primary energy source, and that the use of oil, natural gas and coal
by the Project (x) does not, in the aggregate, exceed 25% of the "total energy
input" within the meaning of PURPA of the Project during any calendar year
period and (y) is either a use permitted by Section 3(17)(B) of the Federal
Power Act or a use that improves the efficiency of the assets which are
necessary to the production of power by means of the primary energy source of
the Project, and (ii) certifying that the Project is a "qualifying facility"
within the meaning of PURPA, or such order shall have been deemed granted under
PURPA, in either case no later than the Financing Closing Date.
(g) The regulatory commissions having jurisdiction over Buyer with
respect to rate making shall have entered orders, in form and substance
satisfactory to Buyer, permitting the full pass-through to rate-payers of all
charges payable by Buyer under this Agreement, and such orders shall have been
entered, shall be in full force and effect and shall be final and no longer
subject to appeal.
(h) All regulatory commissions having jurisdiction over Buyer or any
of its Affiliates shall have given their approval of
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Buyer's obligations under this Agreement, if any such approvals be required, and
such approvals shall be in full force and effect and, if applicable, shall be
final and no longer subject to appeal.
(i) The Pennsylvania Public Utility Commission shall have either (i)
promulgated rules or guidelines or (ii) entered an order, in either case which
shall have been published in the Pennsylvania Bulletin, shall be in full force
---------------------
and effect and shall be final and no longer subject to comment or appeal, and
which shall have established to Buyer's satisfaction that (x) the entry by Buyer
into this Agreement and the transactions contemplated hereby are in full
compliance with the law and public policy of the Commonwealth of Pennsylvania,
including that represented by Act No. 114; (y) the entry by Buyer into this
Agreement and the transactions contemplated hereby will not at any time during
the term of this Agreement result in the creation of, or be deemed to
constitute, "excess capacity" within the meaning of Act No. 114 in respect of
the Project itself or in respect of any or all of the existing generating
capacity of APS in generation or cold reserve, including the Bath County
Project, and (z) all amounts payable by Buyer under this Agreement, including
the Capacity Cost Rate, are consistent with the "economic benefits to
ratepayers" standard of Act No. 114 and will at all times be immediately and
fully passed through to Buyer's ratepayers.
Section 5.4. Conditions Precedent to Buyer's Obligations as of
------------ -------------------------------------------------
Commencement Date. The obligation of Buyer to purchase Project Energy from
- -----------------
Seller under the provisions hereof other than Section 1.2(a) is subject to the
fulfillment on and as of the Commencement Date of each of the following
conditions:
(a) All documents and instruments (including the Operations
Coordination Agreement) relating to the ownership and operation of the Project,
to the initial construction financing of the Project and to the sale by Seller
and the purchase by Buyer of Project Energy, other than those described in
Section 5.3(a), shall be reasonably satisfactory to Buyer, such documents shall
have been duly authorized, executed and delivered, and Buyer shall have received
certified copies of all such documents or other evidence as it may reasonably
request in order to establish the foregoing; and Buyer shall have received a
certificate, dated the Commencement Date, signed by the President and by a
principal financial or accounting officer of Seller, to the effect that the
documents and instruments submitted to and approved by Buyer pursuant to
Sections 5.3(a) and 5.3(b) and this Section 5.4(a) constitute the only documents
and instruments of the type described in Sections 5.3(a) and 5.3(b) and this
Section 5.4(a) and have not been supplemented or amended or superseded by any
other documents or instruments (other than supplements, amendments or other
agreements theretofore submitted to and approved by Buyer, which approval shall
not be unreasonably withheld).
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(b) Construction of the Project shall have been substantially
completed in accordance with the Design and Construction Standard; Seller shall
have obtained the warranties described in Section 2.1(c); the Interconnection
shall have been effected in accordance with Section 2.2; and the Project shall
have generated, over a consecutive 720-hour period within the most recent 90
consecutive days preceding the Commencement Date, an average hourly output at
least equal to 36.5 megawatthours per hour; provided, however, that if no
--------- -------
generation occurs during any hour in such 720-hour period because of Force
Majeure or any suspensions of purchases by Buyer as provided in Section 1.3
("eliminated hours"), such 720-hour period shall be measured by including the
last 720 hours that were not eliminated hours within such 90-day period.
(c) Seller shall have obtained all easements, licenses and rights as
Buyer in its reasonable discretion may deem necessary or advisable for the
ownership, construction, operation, management and use of the Project in
accordance with this Agreement; title to the Mortgaged Property (as defined in
the Mortgage), including such easements, licenses and rights, shall be
satisfactory to Buyer in its reasonable discretion, and Seller shall have
delivered to Buyer a mortgagee's title insurance policy or an unconditional
undertaking to issue the same, in form and substance reasonably satisfactory to
Buyer, issued by a title insurance company reasonably satisfactory to Buyer,
insuring Seller's title to the Project and the lien of the Mortgage; Seller
shall have delivered to Buyer appropriate lien waivers or releases signed by all
contractors who have furnished labor or materials in connection with the
construction of the Project; and there shall be no liens, security interests,
charges or encumbrances affecting the Project, other than that created by the
Project Mortgage or otherwise approved by Buyer, prior to or on a parity with
the lien and security interest created by the Mortgage.
(d) Buyer shall have received evidence reasonably satisfactory to
Buyer that all material Legal Requirements applicable to the construction and
operation of the Project have been complied with.
(e) No Event of Default as to Seller or any event which with the
giving of notice or lapse of time or both would become an Event of Default as to
Seller shall have occurred and be continuing; provided, however, that no Event
--------- -------
of Default as to Seller arising under Section 6.1(e) by reason of failure to
comply with Section 2.1(a) shall be deemed to have occurred if the Project shall
have been substantially completed in accordance with the Design and Construction
Standard; and Buyer shall have received a certificate, dated such date, signed
by the President and a principal financial or accounting officer of Seller to
such effect.
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Section 5.5. Conditions Precedent to Seller's Obligations as of
------------ --------------------------------------------------
Financing Closing Date. The obligation of Seller to sell Project Energy to Buyer
- ----------------------
hereunder is subject to the fulfillment on and as of the Financing Closing Date
of each of the following conditions:
(a) All documents and instruments relating to the sale by Seller and
the purchase by Buyer of Project Energy, and all actions taken by Buyer under
this Agreement in connection therewith, shall be reasonably satisfactory to
Seller, such documents shall have been duly authorized, executed and delivered,
and Seller shall have received certified copies of all such documents or other
evidence as it may reasonably request in order to establish the foregoing.
(b) All representations and warranties by Buyer in or under this
Agreement shall be true, with the same effect as though such representations and
warranties had been made on and as of the Financing Closing Date and no Event of
Default as to Buyer or any event which with the giving of notice or lapse of
time or both would constitute an Event of Default as to Buyer shall have
occurred and be continuing; and Seller shall have received a certificate, dated
such date, signed by the Chairman of the Board, President or a Vice President
and by a principal financial or accounting officer of Buyer to such effect.
(c) Seller shall have received an opinion, dated the Financing
Closing Date, of Reed Smith Shaw & McClay, counsel to Buyer, as to the matters
set forth in Exhibit B.
(d) Seller shall have purchased from Buyer the Site (as defined in
the Mortgage) and the improvements thereon, it being understood that nothing in
this Section 5.5(d) or in any other provision of this Agreement is intended to
be, or shall be construed as, a commitment or agreement by Buyer to sell such
property to Seller or to impose any duty whatsoever on Buyer with respect
thereto, all of which shall be the subject of a separate written agreement
between Seller and Buyer.
Section 5.6. Condition Precedent to Seller's Obligations as of
------------ -------------------------------------------------
Commencement Date. The obligation of Seller to sell Project Energy to Buyer
- -----------------
hereunder is subject to the fulfillment on and as of the Commencement Date of
the following condition: no Event of Default as to Buyer or any event which
with the giving of notice or lapse of time or both would constitute an Event of
Default as to Buyer shall have occurred and be continuing; and Seller shall have
received a certificate, dated such date, signed by the Chairman of the Board,
President or a Vice President and by a principal financial or accounting officer
of Buyer to such effect.
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Section 5.7. Condition Precedent to Both Parties' Obligations. The
------------ ------------------------------------------------
obligation of Buyer to purchase from Seller, and of Seller to sell to Buyer,
Project Energy hereunder is subject to the condition that the Financing Closing
Date shall have occurred on or before September 1, 1988.
Section 5.8. Survival. All representations and warranties made by
------------ --------
Seller or Buyer in or under this Agreement shall survive the execution and
delivery of this Agreement and any action taken pursuant hereto.
ARTICLE VI
----------
DEFAULTS AND REMEDIES
Section 6.1. Events of Default as to Seller. Any of the following
------------ ------------------------------
shall constitute an "Event of Default as to Seller":
(a) the Commencement Date shall not occur prior to July 1, 1992;
(b) either (i) no deliveries of Project Energy to Buyer are made
during any consecutive 270-day period after the Commencement Date;
provided, however, that if no such deliveries are made during any days in
-------- -------
such period because of Unavoidable Interruptions, such 270-day period shall
be measured by including the last 270 days that were not days during which
an Unavoidable Interruption existed; or (ii) the average hourly deliveries
of Project Energy to Buyer during any consecutive 36 calendar months after
the Commencement Date (the "Test Period") shall fall below, or Buyer shall
establish that said deliveries during any such Test Period will fall below,
80% of the Contract Output; provided, however, that deliveries of Project
-------- -------
Energy to Buyer during any period of Unavoidable Interruptions shall be
deemed to be equal to the average hourly deliveries of Project Energy made
or deemed made to Buyer pursuant to this Agreement during the 180-day
period ending on the day preceding the beginning of such period of
Unavoidable Interruptions;
(c) Seller shall at any time fail to pay any sum due and payable to
Buyer hereunder, and such failure shall continue for 20 days after notice
thereof shall have been given to Seller by Buyer;
(d) any representation or warranty made by Seller herein, in the
Mortgage or in any certificate delivered to Buyer pursuant hereto or
thereto shall prove to be incorrect in any material respect when made,
unless (i) the fact, circumstance or condition that is the subject of such
representation or warranty is made true within 30 days after notice thereof
shall have been given to Seller by Buyer and (ii) such cure removes any
adverse affect on Buyer of such
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<PAGE>
fact, circumstance or condition being otherwise than as first represented,
or unless such fact, circumstance or condition being otherwise than as
first represented does not materially adversely affect Buyer;
(e) Seller shall at any time fail to discharge or perform any other
liability or obligation of Seller under this Agreement, and such failure
shall continue for a period of 30 days after notice thereof shall have been
given to Seller by Buyer; provided, however, that if such failure cannot be
-------- -------
remedied within such 30-day period and if Seller within such period of 30
days commences, and thereafter proceeds with all due diligence, to cure
such failure, said period shall be extended for such further period, not to
exceed 6 months after such notice to Seller by Buyer, as shall be necessary
for Seller to cure the same with all due diligence;
(f) a court having jurisdiction shall enter (i) a decree or order for
relief in respect of Seller in an involuntary case or proceeding under any
applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law, or (ii) a decree or order adjudging Seller bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
Seller under any applicable Federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of Seller or of any substantial part of its property or
ordering the winding up or liquidation of its affairs, and any such decree
or order for relief or any such other decree or order shall continue
unstayed and in effect for a period of 60 consecutive days;
(g) Seller shall (i) commence a voluntary case or proceeding under
any applicable Federal or state bankruptcy, insolvency, reorganization or
other similar law or any other case or proceeding to be adjudicated a
bankrupt or insolvent, or (ii) consent to the entry of a decree or order
for relief in respect of Seller in any involuntary case or proceeding under
any applicable Federal or state bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or (iii) file any petition, answer or
consent seeking reorganization or relief under any applicable Federal or
state law, or (iv) consent to the filing of any petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of Seller or of any
substantial part of its property, or (v) make an assignment for the benefit
of creditors, or (vi) be unable, or admit in writing its inability, to pay
its debts as they become due, or (vii) take any action in furtherance of
any of the foregoing;
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(h) in connection with any event described in clause (f) or (g) of
this Section 6.1, this Agreement shall be rejected within the meaning of
the Bankruptcy Reform Act of 1978, as amended; or
(i) an "Event of Default" (as defined in the Mortgage) shall occur
and be continuing.
Section 6.2. Rights of Buyer in Case of an Event of Default as to
------------ ----------------------------------------------------
Seller. If an Event of Default as to Seller shall occur and be continuing,
- ------
Buyer may, in its discretion, at the same or at different times, and to the
extent permitted by law, take one or more of the following actions, subject,
--------
however, to the provisions of the Recognition Agreement:
- -------
(a) proceed by appropriate proceedings, judicial, administrative or
otherwise, at law or in equity or otherwise, to protect and enforce its
rights, to recover any damages to which it may be entitled, and to enforce
performance by Seller, including specific performance of Seller's
obligations hereunder;
(b) recover, and Seller shall pay, for the loss of the benefit of
Buyer's bargain and not as a penalty, liquidated damages (it being
understood that the Capacity Cost Rate is based on the availability and
reliability of the Project Energy for the entire term of this Agreement,
that Buyer's actual damages are not susceptible of precise ascertainment
and that the following sum constitutes a fair and reasonable amount of
damages under the circumstances) equal to the sum (the "Capacity
Replacement Charge") of:
(i) an amount, intended to compensate Buyer for the loss of the
Project's capacity value attributable to Seller's failure to provide
available and reliable generating capacity at the Contract Output for
the entire term of this Agreement, equal to the Capacity Termination
Costs specified opposite the contract year in which such determination
is made on the schedule of Capacity Termination Costs set forth in
Exhibit C, appropriately adjusted in accordance with the formulas set
forth in such schedule in the event the Commencement Date occurs after
January 1, 1990, and
(ii) any other sums, if any, then due to Buyer under this
Agreement or the Mortgage;
(c) take any action, incur any expense or pay any amount as may be
necessary to cure any Event of Default as to Seller, to avoid any delay in
obtaining electric energy from the Project in accordance with this
Agreement or to avoid a default by Seller under any instrument or agreement
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<PAGE>
(including the Project Mortgage and the Lease) delivered in connection with
the transactions contemplated hereby, and Buyer may recover from Seller,
and Seller shall pay, or reimburse Buyer for, on demand any and all
expenses so incurred or amounts so paid by Buyer, together with interest
thereon at the Applicable Rate from the date such-expenses are incurred or
payments are made by Buyer, which interest shall be payable on the last day
of each month, in arrears, and to the extent not paid when due shall be
added to the balance of amounts expended or paid by Buyer on which interest
is computed;
(d) take possession of and operate the Project or take any other
action as may be permitted under the Mortgage; or
(e) terminate this Agreement by notice to Seller.
Attached hereto as Exhibit C is an example illustrating the computation of the
Capacity Replacement Charge. The Capacity Replacement Charge shall bear
interest at the Applicable Rate from the date as of which the Capacity
Replacement Charge is calculated to the date on which Buyer receives payment
thereof in full. Upon payment in full of the Capacity Replacement Charge and
all other sums that may be due to Buyer hereunder and under the Mortgage, this
Agreement shall terminate and neither party shall have any further liability to
the other hereunder. The rights and remedies herein provided in case of an
Event of Default as to Seller shall not be exclusive but shall, to the extent
permitted by law, be cumulative and in addition to all other rights and remedies
existing at law, in equity or otherwise. No delay or omission of Buyer to
exercise any right or remedy accruing upon any Event of Default as to Seller
shall impair any such right or remedy or constitute a waiver of such event or an
acquiescence therein. Every right and remedy given by this Agreement or by law
to Buyer may be exercised from time to time, and as often as may be deemed
expedient, by Buyer.
Section 6.3. Events of Default as to Buyer. Any of the following
------------ -----------------------------
shall constitute an "Event of Default as to Buyer":
(a) Buyer shall fail to pay any amount due under Section 1.2 for the
purchase of Project Energy when due and such failure shall continue for a period
of 15 days after notice thereof shall have been given to Buyer by Seller;
(b) Buyer shall fail to accept and purchase Project Energy in
accordance with this Agreement as, if and when delivered to Buyer's System at
the Interconnection by Seller, and such failure shall (i) not arise from Buyer's
good faith and reasonable belief that it is entitled to suspend purchases of
Project Energy under the terms of this Agreement, and (ii) continue for a period
of 7 days after notice thereof shall have been given to Buyer by Seller; or
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<PAGE>
(c) Buyer shall fail to pay, discharge or perform any other liability
or obligation of Buyer under this Agreement and such failure shall continue for
a period of 30 days after notice thereof shall have been given to Buyer by
Seller or, if such failure cannot be remedied within such 30-day period and if
Buyer within such period of 30 days commences, and thereafter proceeds with all
due diligence, to cure such failure, such failure shall nevertheless continue
for more than the period, not to exceed 6 months after such notice to Buyer from
Seller, as shall be necessary for Buyer to cure the same with all due diligence.
Section 6.4. Rights of Seller in Case of an Event of Default as to
------------ -----------------------------------------------------
Buyer. If an Event of Default as to Buyer shall occur and be continuing, Seller
- -----
may, (a) by notice to Buyer, terminate its obligation hereunder to sell and
deliver Project Energy to Buyer until such failure is cured, and if such failure
continues for 10 days after such notice of termination, Seller may terminate
this Agreement by notice to Buyer, (b) proceed against Buyer by appropriate
proceedings, judicial, administrative or otherwise, at law or in equity or
otherwise, to protect and enforce its rights, to recover any damages to which it
may be entitled, and to enforce performance by Buyer, including specific
performance of Buyer's obligations, and (c) in addition to any other remedies
Seller may have hereunder or hereafter existing at law or in equity or
otherwise, require Buyer to, and in such event Buyer shall, transmit Project
Energy from the Interconnection to any electric utility, municipality or other
entity interconnected with Buyer (other than any such entities then being
supplied energy as a part of APS Demand) as Seller may designate, to the extent
sufficient transmission capacity is available and to the extent such
transmission is in compliance with the interconnection standards set forth in
Section 35 of the APS Engineering Manual, and is consistent with the operating
specifications set forth in the Operations Coordination Agreement, and is
consistent with APS Demand, whenever arising, Buyer's other third-party
transmission arrangements, whenever arising, and Buyer's service obligations
under Pennsylvania and Federal law; any such transmission pursuant to this
clause (c) in any event to be provided under rate and service conditions similar
to those applicable to Buyer's other third-party transmission arrangements,
whenever arising, or under such other rates and conditions as may be reasonable
under the circumstances, subject to the approval, if any be required, of all
regulatory agencies having jurisdiction over such transmission transactions.
Notwithstanding any Event of Default as to Buyer, Seller shall not under any
circumstances have any right to enter upon or, except as specifically provided
in the preceding sentence, take any action with respect to or affecting Buyer 5
System or any part thereof other than taking any action to disconnect the
Project from Buyer's System. The rights and remedies herein provided to Seller
shall not be exclusive but shall, to the extent permitted by law, be cumulative
and in addition to all other rights and remedies existing at law, in
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<PAGE>
equity or otherwise. No delay or omission of Seller to exercise any right or
remedy accruing upon any Event of Default as to Buyer shall impair any such
right or remedy or constitute a waiver of such default or an acquiescence
therein. Every right and remedy given by this Agreement or by law to Seller may
be exercised from time to time, and as often as may be deemed expedient,-by
Seller.
ARTICLE VII
-----------
INDEMNIFICATION
Section 7.1. Seller's Indemnification of Buyer. (a) Seller shall
------------ ---------------------------------
indemnify and hold APS and its subsidiaries (including Buyer) and the officers,
directors, employees and agents of APS and each of such subsidiaries
(collectively, "Buyer's Indemnified Parties") harmless from and against all
damages, losses or expenses suffered or paid as a result of any and all claims,
demands, suits, causes of action, proceedings, judgments and liabilities to
third parties, including reasonable counsel fees incurred in litigation or
otherwise, assessed, incurred or sustained by or against Buyer's Indemnified
Parties any of them with respect to or arising out of or in any way connected
with, whether as a result of the negligence of Seller otherwise, the design,
construction, operation or maintenance of the Project, including the failure to
comply with any applicable Legal Requirements with respect thereto, unless
caused by the gross negligence or willful misconduct of Buyer's Indemnified
Parties; provided, however, that Seller shall not be liable, by reason of the
--------- -------
foregoing indemnity, to Buyer's Indemnified Parties or Buyer's customers for any
loss of revenues.
(b) Promptly after receipt by any of Buyer's Indemnified Parties of
any claim or notice of the commencement of any action or administrative or legal
proceeding or investigation as to which the indemnity provided for in
subparagraph (a) of this Section 7.1 may apply, Buyer shall notify Seller of
such fact. Seller shall have the right to assume the defense thereof with
counsel designated by Seller and reasonably satisfactory to the indemnified
party; provided, however, that if the defendants in any such action include both
--------- -------
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties .
(c) Should any of Buyer's Indemnified Parties be entitled to
indemnification under this Section 7.1 as a result of a claim by a third party,
and should Seller fail to assume the defense of such claim, such indemnified
party may at the expense
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<PAGE>
of Seller contest (or, with the prior consent of Seller, settle) such claim;
provided, however, that no such contest need be made, and settlement or full
- --------- -------
payment of any such claim may be made without the consent of Seller (with Seller
remaining obligated to indemnify such indemnified party under this Section 7.1),
if an Event of Default as to Seller exists or if, in the opinion of such
indemnified party's counsel, such claim is meritorious or the defendant has no
valid defense to such claim.
(d) In the event that Seller is obligated to indemnify and hold any
of Buyer's Indemnified Parties harmless under this Section 7.1, the amount owing
to the indemnified party shall be the amount of such indemnified party's actual
out-of-pocket loss net of any insurance or other recovery.
Section 7.2. Buyer's Indemnification of Seller. (a) Buyer shall
------------ ---------------------------------
indemnify and hold Seller, Project Lender and Lessor and the officers,
directors, employees and agents of Seller, Project Lender and Lessor
(collectively, "Seller's Indemnified Parties") harmless from and against all
damages, losses or expenses suffered or paid as a result of any and all claims,
demands, suits, causes of action, proceedings, judgments and liabilities to
third parties, including reasonable counsel fees incurred in litigation or
otherwise, assessed, incurred or sustained by or against Seller's Indemnified
Parties with respect to or arising out of the operation or maintenance of the
Project and caused by the gross negligence or willful misconduct of Buyer or its
agents or employees; provided, however, that Buyer shall not be liable, by
--------- -------
reason of the foregoing indemnity, to Seller's Indemnified Parties for any loss
of revenues. Notwithstanding anything to the contrary herein contained, Buyer
shall not be liable, and neither Seller nor any of Seller's Indemnified Parties
shall have any rights to claim or recover against Buyer's Indemnified Parties,
for loss of or damage to Seller's Indemnified Parties, the Project or any other
property under Seller's control from any cause to the extent insured against or
required to be insured against under the provisions of the Mortgage.
(b) Promptly after receipt by any of Seller's Indemnified Parties of
any claim or notice of the commencement of any action or administrative or legal
proceeding or investigation as to which the indemnity provided for in
subparagraph (a) of this Section 7.2 may apply, Seller shall notify or cause the
indemnified party to notify Buyer of such fact. Buyer shall have the right to
assume the defense thereof with counsel designated by Buyer and reasonably
satisfactory to the indemnified party; provided, however, that if the defendants
--------- -------
in any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assert such legal
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<PAGE>
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties.
(c) Should any of Seller's Indemnified Parties be entitled to
indemnification under this Section 7.2 as a result of a claim by a third party,
and should Buyer fail to assume the defense of such claim, such indemnified
party may at the expense of Buyer contest (or, with the prior consent of Buyer,
settle) such claim; provided, however, that no such contest need be made, and
-------- -------
settlement or full payment of any such claim may be made without the consent of
Buyer (with Buyer remaining obligated to indemnify such indemnified party under
this Section 7.2), if, in the opinion of such indemnified party's counsel, such
claim is meritorious or the defendant has no valid defense to such claim.
(d) In the event that Buyer is obligated to indemnify and hold any of
Seller's Indemnified Parties harmless under this Section 7.2, the amount owing
to the indemnified party shall be the amount of such indemnified party's actual
out-of-pocket loss net of any insurance or other recovery.
ARTICLE VIII
------------
ARBITRATION
Section 8.1. Compulsory Arbitration. Any dispute between the
------------ ----------------------
parties arising under this Agreement or the Mortgage shall, if the parties
cannot settle such dispute amicably, be resolved by arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Unless
the parties otherwise agree, the arbitration shall be held in Pittsburgh,
Pennsylvania. The parties shall proceed with the arbitration expeditiously and
shall conclude all proceedings thereunder, including any hearing, in order that
a decision may be rendered within 90 days from the filing of the demand for
arbitration by the initiating party; provided, however, that if such matter
--------- -------
relates to Seller's compliance with the terms of Section 2.1, such decision
shall be rendered within 45 days after the filing of such demand; and provided,
---------
further, that if such matter relates to Buyer's compliance with the terms of
- -------
Section 1.2 or Seller's compliance with the terms of Section 3.8, such decision
shall be rendered within 30 days after the filing of such demand. The decision
of the arbitrator shall be final and binding on both parties and may be enforced
in any court having jurisdiction over the party against which enforcement is
sought. In the event the arbitrator finds a breach of the terms and conditions
of this Agreement or the Mortgage to have occurred and be continuing, the
arbitrator shall have express authority to order (a) specific performance, as
provided in Section 10.6, (b) the establishment of reasonable reserves, and (c)
the payment of damages to compensate the non-breaching party for any loss;
provided, however, that Seller shall have the right during any such arbitration
- --------- -------
proceeding to continue the design, construction or operation of the Project,
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as the case may be, on such terms and according to such standards as Seller
reasonably believes comply with this Agreement, but in the event the arbitrator
finds Seller's actions to be in breach of the terms and conditions of this
Agreement, Seller shall promptly comply with the arbitrator's decision and order
(including, in the event the arbitrator orders specific performance, correcting
any action taken by Seller during such proceeding inconsistent with the
arbitrator's decision). Any payment of damages ordered by the arbitrator shall
bear interest at the Applicable Rate from the date as of which such damages are
calculated to the date on which the party entitled thereto receives payment
thereof in full.
Section 8.2. Performance During Proceeding. During the pendency of
------------ -----------------------------
such arbitration (i) Seller shall continue to perform its obligation hereunder
to sell and deliver Project Energy and Buyer shall continue to pay for Project
Energy all amounts not in dispute, without setoff during the pendency of such
arbitration of any amounts so disputed, and (ii) neither Buyer nor Seller shall
exercise any other remedies hereunder arising by virtue of the matters in
dispute.
ARTICLE IX
----------
DEFINITIONS AND RULES OF CONSTRUCTION
Section 9.1. Definitions. As used in this Agreement:
------------ -----------
"Act No. 114" means the Act of July 10, 1986, No. 114, 1986 Pa. Legis.
Serv. 184 (Purdon).
"Additional Project Energy" has the meaning specified in Section
1.1(c).
"Adjustment Period" has the meaning specified in Section 4.3(b).
"Affiliate" means, with respect to any Person, any other Person who
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person, or who holds or
beneficially owns 10% or more of the equity interest in such Person or 10% or
more of any class of voting securities of such Person.
"Applicable Rate" means a fluctuating rate of interest per annum
(computed on the basis of the actual number of days elapsed in a year of 365 or
366 days, as appropriate) equal to 120% of the interest rate per annum announced
from time to time by Mellon Bank, N.A., in Pittsburgh, Pennsylvania, as its
prime rate such fluctuating rate to change automatically from time to time
effective as of the effective date of each change in such prime rate.
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"APS" means Allegheny Power System, Inc., a public utility holding
company registered as such under the Public Utility Holding Company Act of 1935
whose subsidiaries are currently engaged in the furnishing of electric service
in portions of Maryland, Ohio, Pennsylvania, Virginia and West Virginia, and its
successors and assigns.
"APS Demand" means the "Demand" of all "Participants" as provided, and
as such terms are defined, in the APS Power Supply Agreement.
"APS Engineering Manual" means the APS Engineering Manual, as the same
may be revised from time to time.
"APS Power Supply Agreement" means the Power Supply Agreement dated
January 1, 1968 among Buyer, The Potomac Edison Company and Monongahela Power
Company, as in effect on the date hereof.
"APS Proxy Units" means (a) until October 1, 1995, each of Units Nos.
1 and 2 at each of the Fort Martin and Pleasants Power Stations and Units Nos.
1, 2 and 3 at each of the Harrison and Hatfield's Ferry Power Stations, in each
case so long as the same shall be in commercial operation and shall be owned, in
whole or in part, by a regulated subsidiary of APS, and (b) thereafter, each of
the foregoing units, each of Coal #1, #2 and #3 and each of any other equivalent
base load generating units that are economically dispatched to supply APS
Demand, as determined by Buyer, in each case so long as the same shall be in
commercial operation and shall be owned, in whole or in part, by a regulated
subsidiary of APS.
"APS System" means any and all equipment and facilities comprising the
systems of Buyer, The Potomac Edison Company and Monongahela Power Company for
the generation, transmission and distribution of electricity, whether now owned
or hereafter acquired.
"Average Production Cost Rate" means, with respect to the generating
facilities and the period of time as to which the determination is being made,
the sum (expressed in cents per kilowatthour), as reasonably determined by Buyer
(it being understood that there may exist more than one reasonable method of
making such determination and that the method employed by Buyer, if reasonable,
shall not be subject to challenge on the basis that it is not the best method),
of:
(a) the accrued expense of Buyer and any other regulated
subsidiaries of APS in FERC Account 501 (fuel expense), or such other
appropriate similar account as the FERC may from time to time
establish for fuel expense for steam power generation, divided by the
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actual net generation in kilowatthours, exclusive of plant use, plus
(b) the accrued expenses of Buyer and any other regulated
subsidiaries of APS in FERC Accounts 500, 502-507, inclusive, and 510-
514, inclusive, or such other appropriate similar accounts as the FERC
may from time to time establish for power production expenses steam
power generation (other than fuel expense), divided by the product of
(i) 70% of the Net Generating Capability times (ii) the total number
of hours in the period for which such costs are being determined.
"Avoided Energy Cost Rate" means (a) until October 1, 1995, the
monthly Variable Energy Cost Rate, actually experienced, for all APS Proxy
Units, as determined by Buyer, and (b) thereafter, (i) until the first unit of
Coal #1, #2 and #3 is placed in service for commercial operation, the monthly
Average Production Cost Rate, actually experienced, for all APS Proxy Units, as
determined by Buyer, and (ii) after such unit has been placed in service for
commercial operation, the monthly Average Production Cost Rate, actually
experienced, for the station in which such unit is contained, as determined by
Buyer, provided, however, that if in any period for which such costs are being
--------- -------
determined the actual net generation in kilowatthours of such station is less
than 10% of its Net Generating Capability times the total number of hours in
such period, then the Avoided Energy Cost Rate for such period shall be the
weighted average of the monthly Average Production Cost Rate in effect for the
preceding six months in which the actual net generation of such station exceeded
10% of its Net Generating Capability.
"Billing Period" means the calendar month (or portion thereof) in
respect of which the price to be paid to Seller for the Project Energy sold and
delivered to Buyer during that month is being determined.
"Buyer's Consulting Engineer" means Stone & Webster Engineering
Corporation, or such other engineering firm as Buyer, in its sole discretion,
may select from time to time.
"Buyer's Indemnified Parties" has the meaning specified in Section
7.1(a).
"Buyer's System" means any and all equipment and facilities comprising
Buyer's system for the generation, transmission and distribution of electricity,
whether now owned or hereafter acquired.
"Capacity Cost Rate" means 3.3 cents per kilowatthour
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"Capacity Derate" means any decrease in the generating capacity of the
Project from its Net Generating Capability which is not attributable to an
outage of equipment.
"Capacity Replacement Charge" has the meaning specified in Section
6.2(b).
"Coal #1, #2 and #3" means collectively, all units of the next coal-
fired base load generating station constructed by Buyer or Buyer and any other
regulated subsidiaries of APS.
"Commencement Date" means the first day of the month following the
date on which the conditions precedent set forth in Sections 5.3 and 5.4 shall
be fulfilled; provided, however, that in no event shall the Commencement Date
--------- -------
occur prior to January 1, 1990.
"Contract Output" means the greater of (a) 36.5 megawatthours per hour
or (b) the maximum output specified by Seller pursuant to Section 1.1(b).
"Design and Construction Standard" has the meaning specified in
Section 2.1(a).
"Event of Default as to Buyer" has the meaning specified in Section
6.3.
"Event of Default as to Seller" has the meaning specified in Section
6.1.
"FERC" means the Federal Energy Regulatory Commission, or any
successor to said Commission in the performance of its regulatory functions
relating to the Project under the Federal Power Act, as amended.
"Financing Closing Date" means the date of the first closing of the
initial construction financing of the Project under the Project Loan Documents
(as defined in the Recognition Agreement).
"Force Majeure" means any cause or causes which the party asserting
the same is not, despite all reasonable efforts, able to prevent or overcome,
including, but not limited to, acts of God, strikes, lockouts or other labor
disputes, riots, civil strife, war, acts of a public enemy, lightning, fires,
explosions, storms or floods. Neither (a) Capacity Derates, (b) interruptions in
deliveries of Fuel Inventory during transportation from an off-site storage
location to the Project, nor (c) lack or unavailability of money or changes in
market conditions shall constitute Force Majeure.
"Fuel Inventory" has the meaning specified in Section 3.3.
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"Indenture" means the trust indenture to be executed and delivered by
Lessor in connection with the sale and leaseback of the Project to secure the
permanent financing of the Project.
"Index" means the Gross National Product Implicit Price Deflator as
presently issued by the Department of Commerce Bureau of Economic Analysis in
the publication entitled "Economic Indicators" published by the Government
Printing Office, or, if said historical index is no longer available or is
converted to a different standard reference base or is otherwise revised, such
historical index as Buyer may reasonably select that measures all goods and
services in the economy adjusted for real price change.
"Index Multiplier" means, for any calendar year, the algebraic sum of
(a) the Inflation Factor for the calendar year immediately preceding such
calendar year, and (b) 1.0.
"Inflation Factor" means, for any calendar year (the "test year"), the
quotient obtained by dividing (a) the Index for the test year, minus the Index
-----
for the calendar year immediately preceding the test year by (b) the Index for
the calendar year immediately preceding the test year.
"Interconnection" means the connection between the Project and Buyer's
System at a point to be designated by Buyer at Buyer's 46 kV Milesburg
Substation or as otherwise agreed to by Buyer and Seller, permitting the
transfer of electric energy in either direction.
"Interconnection Date" means the date the Interconnection is made
pursuant to Section 2.2; provided, however, that in no event shall the
--------- -------
Interconnection Date occur prior to October 1, 1989.
"Interconnection Facilities" means such lines, poles, switchgear and
all other materials, equipment and facilities as may be installed between the
point of Interconnection and the remainder of the Project in connection with, or
necessary or desirable for, making the Interconnection, together with all
improvements and additions thereto, substitutions therefor and replacements
thereof; the Interconnection Facilities shall constitute part of the Project.
"Internal Energy" means the electric energy consumed from time to time
by the Project for auxiliary equipment and other internal Project uses,
expressed in kilowatthours
Lease" means the lease agreement to be entered into between Lessor and
Seller pursuant to which Seller as lessee will lease the Project from Lessor for
an initial term of 15 years and providing, among other things, for the operation
and maintenance
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of the Project by Seller as lessee in the manner required by this Agreement, and
any amendments thereto permitted by Section 2.4.
"Legal Requirements" means all present and future laws, codes,
ordinances, orders, judgments, decrees, injunctions, licenses, rules, permits,
approvals, agreements, regulations and requirements, even if unforeseen or
extraordinary, of every governmental authority or agency having jurisdiction
over the matter in question, whether Federal, state or local, and all covenants,
restrictions and conditions now or hereafter of record which may be applicable
to Seller or Buyer, respectively, as required by the context in which used, or
to the Project or any of the real or personal property comprising the Project,
or to the use, manner of use, occupancy, possession, operation, maintenance,
construction, acquisition, installation, alteration, improvement, replacement,
repair or reconstruction of the Project or any part thereof.
"Metering Devices" means any instrument or instruments used to
measure, or to measure and record, electric energy.
"Minimum Loading Condition" means a condition that exists when the APS
System load is being supplied only from one or more of the following sources:
(a) fossil-fueled steam generating units which, except to the extent required
for system security reasons, are operating at or near minimum output and which
are expected to be required to supply the estimated load during the following
day; (b) hydroelectric generating units which, except to the extent required for
system security reasons, are discharging at or near required minimum water
releases or releases related to maintenance of appropriate reservoir water
levels; (c) minimum power purchases required by contract provisions from other
electric utilities; (d) power purchases pursuant to contracts with facilities
which, on the date such contracts are entered into, are "qualifying facilities"
within the meaning of the Public Utility Regulatory Policies Act of 1978, as
amended; and (e) nuclear steam generating units operating at or below their
maximum capability.
"Minimum Reserve Fund Requirement" means (a) until December 31, 1990,
$5,000,000; and (b) for each calendar year thereafter, the Minimum Reserve Fund
Requirement for the calendar year immediately preceding such calendar year
multiplied by the Index Multiplier for such calendar year.
"Mortgage" means the Mortgage and Security Agreement from Seller to
Buyer, in the form annexed hereto as Exhibit D, encumbering the Project (it
being understood that the descriptions of the Mortgaged Property to be attached
thereto as Schedules I and II shall be satisfactory to Buyer in its sole
discretion) and securing the obligations of Seller to Buyer under this
Agreement.
"Net Generating Capability" means the maximum load which the
generating facilities in question can carry as demonstrated by
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testing or as determined by actual operating experience, less power generated
and used for auxiliary equipment and other uses of such facilities.
"Net Project Cash Flow" means, for any month, all revenues realized
for such month from the sale of electricity generated by the Project, less (a)
----
all Operating and Maintenance Expenses paid in respect of such month (including
any payment on account of accruals of ad valorem or other property taxes,
insurance premiums, payments to the FERC or any other Operating and Maintenance
Expenses that are not payable monthly made into a trust account for later
payment of such Operating and Maintenance Expenses), (b) an amount equal to 1/12
of Seller's estimated Federal and State income tax liability in respect of
revenues generated from the sale of Project Energy under this Agreement for the
fiscal year in which such month occurs (but not, in the case of any fiscal year
occurring after the first fiscal year during the term of this Agreement, in
excess of 1/12 of Seller's actual Federal and State income tax liability in
respect of revenues from the sale of Project Energy under this Agreement for the
fiscal year preceding such fiscal year), and (c) prior to the fifteenth
anniversary of the Commencement Date, all debt service paid in respect of such
month pursuant to the Project Mortgage or rent paid in respect of such month
pursuant to the Lease (including any payment on account of accruals of debt
service or rent made into a trust account for later payment of such debt service
or rent).
"Off-Peak Hours" means all hours other than On-Peak Hours.
"On-Peak Hours" means the hours of 7 a.m. through 10 p.m. prevailing
Eastern time, Monday through Saturday, except when such days fall on New Year's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
"Operating and Maintenance Expenses" means, with respect to Seller and
the Project, those costs which are defined in FERC Accounts 500-507, inclusive,
510-514, inclusive, and 560-573, inclusive, as of the date hereof, and shall
specifically include premiums on the insurance hereby required to be maintained
and Impositions (as defined in the Mortgage) required to be paid pursuant to the
terms of the Mortgage; provided, however, that no fees or other amounts paid or
--------- -------
payable to Seller, any of the shareholders, directors or officers of Seller, the
Project Lender, Lessor or their respective Affiliates, or the partners or agents
or the respective successors or assigns of any thereof shall constitute
Operating and Maintenance Expenses.
"Operating Budget" has the meaning specified in Section 3.6(d).
"Operations Coordination Agreement" means an agreement mutually
acceptable to Seller and Buyer setting forth
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interconnection standards and operating specifications for the Project which are
consistent with the operation of Buyer's System.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government.
"Plans and Specifications" means the detailed plans and specifications
with respect to the construction of the Project, whether preliminary or final,
including any working or shop drawings made in furtherance of said plans and
specifications and all single line diagrams and control and protective relay
schemes relating to the Interconnection and the Interconnection Facilities, and
all changes and amendments thereto, including changes in engineering in the
field as a result of problems encountered during construction.
"Project" means the Project as defined in the recitals hereto,
together with all other buildings, structures, equipment, fixtures and
facilities (including the Interconnection Facilities) now or hereafter erected,
constructed or acquired with respect thereto, and together with all improvements
and additions thereto, substitutions therefor and replacements thereof.
"Project Energy" means all electric energy generated by the Project
minus all Internal Energy supplied by the Project's own generation, expressed in
- -----
kilowatthours; provided, however, that Project Energy shall not include any
-------- -------
energy generated solely from increased capacity above the maximum design
capacity of 36.5 to 43 megawatts anticipated in the Plans and Specifications
created as a result of additions or improvements to the Project except to the
extent such increased capacity supplies Internal Energy that was supplied prior
to such addition or improvement.
"Project Lender" means, collectively, all holders of notes or other
obligations or evidences of indebtedness entitled to the benefit and protection
of the Project Mortgage, and any trustee acting on their behalf (including the
trustee under the Indenture).
"Project Mortgage" means all mortgages, deeds of trust or other
indentures or security agreements entered into by Seller in accordance with
Section 2.4 in connection with the initial construction and permanent financing
of the Project, or in connection with any subsequent financing of the Project
permitted by this Agreement, and which shall constitute liens on the Project or
any part thereof, together with the notes or other obligations or evidences of
indebtedness secured thereby and any amendments thereto permitted by Section
2.4, and shall include the Indenture.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, and
the regulations of the FERC (and of any state agency having jurisdiction in the
premises) promulgated thereunder, in
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each case as the same is in effect on the Financing Closing Date or, in the case
of the criteria set forth in clause (i) of the second sentence of Section 3.2,
as the same is in effect at the time of the applicable FERC orders referred to
in such Section.
"Recognition Agreement" means the Recognition Agreement among Buyer,
Seller and the other parties identified therein, substantially in the form
annexed hereto as Exhibit E.
"Reserve Fund" has the meaning specified in Section 3.8.
"Seller's Indemnified Parties" has the meaning specified in Section
7.2(a).
"Scheduled Outage" means, with respect to Buyer, any period of planned
or scheduled maintenance of or repairs to Buyer's System which, under sound
electric utility practice, prevents Buyer from taking and using Project Energy.
"Stipulated Monthly Reserve Fund Payment" means, for any month, an
amount equal to the lesser of (a) Net Project Cash Flow for such month and (b)
the sum of (i) for any month occurring prior to the twelfth anniversary of the
Commencement Date, .2 cents per kilowatthour, and for any month thereafter, .35
cents per kilowatthour, times the number of kilowatthours of Project Energy
delivered to Buyer during such month (the "stipulated payment amount" for such
month) and (ii) the amount, if any, by which (x) the aggregate Stipulated
Monthly Reserve Fund Payments for all preceding months (other than any months
preceding the last month in which, on any day, the Reserve Fund contained an
amount at least equal to the Minimum Reserve Fund Requirement) were less than
(y) the aggregate stipulated payment amounts for such months.
"System Emergency" means, with respect to Buyer, any forced outage as
a result of Force Majeure, the negligence or willful misconduct of Buyer's
employees, a failure of equipment or facilities or any other cause affecting
Buyer's ability to accept and purchase Project Energy which, despite all
reasonable efforts (but without regard to lack or unavailability of money or
changes in market conditions), Buyer is unable to prevent or overcome and which
is not attributable to a failure by Buyer to comply with the provisions of this
Agreement, or any other condition of, on or affecting Buyer's System which is
likely to result in imminent significant disruption of service to Buyer's
customers or is imminently likely to endanger life or property.
"Test Period" has the meaning specified in Section 6.1(b).
"Unavoidable Interruptions" means interruptions in deliveries of
Project Energy to Buyer pursuant to this Agreement to the extent occasioned by
(a) any suspensions of purchases by Buyer pursuant to Section 1.3, (b) one or
more causes constituting
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Force Majeure affecting Seller's ability to sell and deliver Project Energy as
provided in Section 1.4, (c) the effect, to the extent not inconsistent with
Seller's obligations under Section 3.2, on Seller's ability to sell and deliver
Project Energy as provided in Section 1.1 as a result of any action taken to
comply with any changes in Legal Requirements which occur after the Commencement
Date, or (d) the negligence or willful misconduct of Seller's employees, a
failure of equipment or facilities not constituting a Capacity Derate, or any
other cause not constituting either Force Majeure or an interruption in the
transportation of Fuel Inventory from an off-site storage location to the
Project, affecting Seller's ability to sell and deliver Project Energy as
provided in Section 1.1 which, despite all reasonable efforts (but without
regard to lack or unavailability of money or changes in market conditions),
Seller is unable to prevent or overcome and which is not attributable to a
failure by Seller to comply with the provisions of this Agreement.
"Variable Energy Cost Rate" means, with respect to the generating
facilities and the period of time as to which the determination is being made,
the sum (expressed in cents per kilowatthour), as reasonably determined by Buyer
(it being understood that there may exist more than one reasonable method of
making such determination and that the method employed by Buyer, if reasonable,
shall not be subject to challenge on the basis that it is not the best method),
of:
(a) the accrued expense of Buyer and any other regulated
subsidiaries of APS in FERC Account 501 (fuel expense), or such other
appropriate similar account as the FERC may from time to time
establish for fuel expense for steam power generation, divided by the
actual net generation in kilowatthours, exclusive of plant use, plus
(b) one-half of the accrued expenses of Buyer and any other
regulated subsidiaries of APS in FERC Accounts 510-514, inclusive, or
such other appropriate similar accounts as the FERC may from time to
time establish for maintenance expense for steam power generation,
divided by the actual net generation in kilowatthours, exclusive of
plant use.
Section 9.2. Rules of Construction. Unless the context shall
------------ ---------------------
otherwise indicate, words importing the singular number include the plural
number, and vice versa; the terms "hereof", "hereby", "hereto", "hereunder" and
similar terms refer to this entire Agreement; and the term "including" shall
mean "including without limitation". Each reference in this Agreement to a
Person includes its successors and assigns.
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ARTICLE X
---------
MISCELLANEOUS
Section 10.1. Force Majeure. Whenever any party hereto shall be
------------- -------------
excused from any delay in the performance of, or from its inability to perform,
any duties or obligations hereunder by reason of Force Majeure, (a) such party
shall give the other party prompt notice describing the particulars of the cause
or causes constituting such Force Majeure, (b) the suspension of performance
shall be of no greater scope and of no longer duration than is required by the
cause or causes constituting such Force Majeure, (c) no obligations of either
party which arose before the cause or causes constituting such Force Majeure
causing the suspension of performance shall be excused as a result of such Force
Majeure, and (d) the party whose performance is excused by such Force Majeure
shall use all reasonable efforts to remedy with all reasonable dispatch, all in
accordance with standard electric utility practice, the cause or causes
preventing such party from carrying out its duties or obligations; provided,
--------
however, that the settlement of strikes, lockouts and other labor disputes shall
- -------
be entirely within the discretion of such party, and such party shall not be
required to settle any strike, lockout or other labor dispute on terms which it
deems inadvisable.
Section 10.2. Term of this Agreement. Unless sooner terminated in
------------- ----------------------
accordance with the terms hereof, this Agreement shall expire on the 30th
anniversary of the Commencement Date. If the Financing Closing Date shall not
occur prior to September 1, 1988 for any reason whatsoever, including Force
Majeure, this Agreement shall automatically terminate, in which case neither
party shall have any further liability to the other hereunder. Notwithstanding
any other provision hereof, if the Commencement Date shall not occur prior to
July 1, 1991 for any reason whatsoever, including Force Majeure, Buyer may
terminate this Agreement, in which case neither party shall have any further
liability to the other hereunder; provided, however, that if Buyer exercises
-------- -------
such right to terminate, Seller may reinstate this Agreement and keep the same
in full force and effect so long as Seller pays to Buyer as liquidated damages,
in monthly installments, in advance, the sum of $35,000 per month on the first
day of each month or part thereof after June 30, 1991 that the Commencement Date
shall not have occurred; and provided, further, that if the Commencement Date
-------- -------
shall not occur prior to July 1, 1992 for any reason whatsoever, including Force
Majeure, Seller shall have no further right to reinstate this Agreement and
Buyer may terminate this Agreement effective at any time prior to the occurrence
of the Commencement Date, in which case neither party shall have any further
liability to the other hereunder. Upon any termination of this Agreement prior
to the 30th anniversary of the Commencement Date, Buyer shall not be obligated,
pursuant to PURPA or otherwise to pay for any electric energy thereafter
generated by the Project at a rate per kilowatthour greater than the price
specified in Section 8.5 of
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the Recognition Agreement (the provisions of which are incorporated herein by
reference and made a part hereof, whether or not the Recognition Agreement shall
be in effect at such time), and, at Buyer 5 request, Seller shall, and shall
cause any Successor (as defined in the Recognition Agreement) to Seller's
interest in the Project to, execute and deliver an instrument in form and
substance reasonably satisfactory to Buyer confirming the foregoing, and this
provision shall survive any such termination of this Agreement.
Section 10.3. Survival of Obligations. Except as otherwise
------------- -----------------------
specifically provided in this Agreement, termination of this Agreement for any
reason shall not relieve Buyer or Seller of any obligations of either such party
accruing prior to such termination .
Section 10.4. Confidentiality. During the term of this Agreement,
------------- ---------------
it may become necessary or desirable, from time to time, for either party to
provide to the other party information that is either confidential or
proprietary (which shall not include information already known to such other
party or generally known or available to the public). The party desiring to
protect any such information (the "labelling party") may label such information
as either confidential or proprietary and thereafter the other party shall not
reproduce, copy, use or disclose (except when required by governmental
authorities or by law) any such information in whole or in part for any purpose
without the consent of the labelling party. In disclosing confidential or
proprietary information to governmental authorities, the disclosing party or
parties shall cooperate with the labelling party in minimizing the amount of
such information furnished. At the specific request of the labelling party, the
disclosing party or parties shall endeavor to secure the agreement of such
governmental authorities to maintain specified portions of such information in
confidence.
Section 10.5. Further Assurances. If either party determines that
------------- ------------------
any further instruments or any other things are reasonably necessary or
desirable to carry out the terms of this Agreement, the other party will execute
and deliver all such instruments and assurances and do all such things as the
first party reasonably deems necessary or desirable to carry out the terms of
this Agreement.
Section 10.6. Specific Performance and Injunctive Relief. In
------------- ------------------------------------------
addition to any other remedies provided in this Agreement, Buyer shall be
entitled to a decree compelling specific performance, and, without the necessity
of filing any bond, to the restraint by injunction of any actual or threatened
violation, of Seller's obligations under this Agreement, it being understood
that monetary damages are not an adequate remedy for the breach of Seller's
obligations hereunder and that such remedies are specifically contemplated and
consented to by the parties hereto.
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Section 10.7. Entire Agreement; Severability. This Agreement and the
------------ ------------------------------
documents delivered pursuant hereto contain the entire agreement between the
parties and supersede all prior negotiations and understandings with respect to
the subject matter hereof. Neither of the parties shall be bound by or be deemed
to have made any representations, warranties or commitments except those
contained herein or in the documents delivered pursuant hereto. This Agreement
and the documents delivered pursuant hereto, and the obligations of Seller and
Buyer hereunder and thereunder, shall not be affected by any dispute or
controversy between Buyer (or any Affiliate of Buyer) and Seller with respect to
the terms, provisions or performance of either of them under any other contract
entered into between them. If any term or provision of this Agreement or the
application thereof to any Person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement, or the application of such
term or provision to Persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
Section 10.8. Counterparts, Assigns, Governing Law and Amendments.
------------- ---------------------------------------------------
This Agreement:
(a) may be executed in any number of counterparts and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement;
(b) shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns;
(c) subject to applicable Federal law and the requirements of any
governmental authorities by which Buyer is regulated, shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania; and
(d) may not be amended, terminated or discharged, nor any provision
hereof waived, except in each case by a writing signed by the party against whom
enforcement of any such amendment, termination, discharge or waiver is sought.
Section 10.9. Assignment. Buyer may assign all or any portion of
------------- ----------
its rights hereunder with Seller's prior written consent, which consent shall
not be unreasonably withheld or delayed; provided, however, that Seller's
-------- -------
consent shall not be required for any assignment by Buyer to APS or to a direct
or indirect majority-owned subsidiary of APS. No such assignment shall release
Buyer from any of its obligations hereunder. No assignment of this Agreement or
any interest herein may be made or
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granted by Seller except to the Project Lender pursuant to the Project Mortgage
and Lessor pursuant to the Lease, but only if such assignees are parties to or
otherwise bound by the Recognition Agreement. No such assignment to the Project
Lender or Lessor shall relieve Seller of any of its obligations under this
Agreement.
Section 10.10. Headings. The Table of Contents and headings used in
------------- --------
this Agreement are for convenience of reference only and shall not affect the
construction of any of the terms or provisions of this Agreement.
Section 10.11. Notices. All notices or other communications which
------------- -------
are required or permitted hereunder (collectively, "notices") shall, unless the
context otherwise requires, be in writing and shall be deemed sufficiently given
if sent by tested telex (charges prepaid), delivered personally or sent by
registered or certified mail, postage prepaid, to the party for whom intended,
addressed as follows:
if to Seller: Milesburg Energy, Inc.
P.O. Box 38
Blossburg, Pennsylvania 16912
Attention: President
if to Buyer: West Penn Power Company
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
Attention: The Secretary
with a copy to:
Allegheny Power Service Corporation
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
Attention: Legal Department
or, as to either party, to such other person or address as such party may
specify in a notice duly given to the other party as provided herein. All
notices shall be deemed to have been given as of the date received if telexed or
personally delivered or three days after the date mailed.
Section 10.12. No Implied Waiver. No delay in exercising, failure to
------------- -----------------
exercise or course of dealing in respect of any rights hereunder on the part of
any party, nor any partial or single exercise thereof, shall constitute a waiver
of such rights or of any other rights hereunder by such party.
Section 10.13. No Rights Conferred on Others. Nothing in this
-------------- -----------------------------
Agreement shall be construed as giving any person, firm, corporation or other
entity, other than the parties hereto, their
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successors and permitted assigns, any right, remedy or claim under or in respect
of this Agreement or any provision hereof. Without limiting the generality of
the foregoing, nothing herein contained shall be deemed or construed to
constitute Buyer as a guarantor or surety with respect to any obligation of
Seller under the Project Mortgage.
Section 10.14. Costs and Expenses. Except as otherwise provided
------------- ------------------
herein or as heretofore otherwise agreed to by the parties in writing, each
party to this Agreement shall pay its own costs and expenses (including, without
limitation, the fees and expenses of its agents, representatives, counsel and
accountants) necessary for its performance of and compliance with this
Agreement.
Section 10.15. PURPA. (a) The absence of any statutory requirement
------------- -----
under PURPA or otherwise that Buyer purchase electric energy from qualifying
small power production facilities shall not relieve either Buyer or Seller of
their respective obligations hereunder, nor shall such obligations be affected
by any amendments to or repeal of PURPA which may become effective subsequent to
the execution and delivery of this Agreement, except as expressly provided
herein.
(b) Although not presently contemplated, during the term of this
Agreement it may be appropriate for Seller, with the consent of Buyer, to
operate the Project as a "qualifying cogeneration facility" within the meaning
of PURPA. In such event, Seller shall execute and deliver such amendments to
this Agreement as Buyer in its sole discretion may require, including such
provisions as Buyer may require to assure that Seller's obligations under any
steam sale or other use arrangements as Seller may enter into so as to cause the
Project to be a "qualifying cogeneration facility" are consistent with Seller' 5
obligation to deliver Project Energy to Buyer at the Contract Output and with
Seller's other obligations to Buyer under this Agreement. All such amendments
shall be subject to the approval, if any be required, of all regulatory
commissions having jurisdiction over Buyer and its Affiliates, which approvals,
if applicable, shall be in full force and effect and final and no longer subject
to appeal prior to the effectiveness of such amendments.
Section 10.16. Limitation of Liability. No recourse for the payment
------------- -----------------------
of any sums or the performance of any obligations hereunder, or for any claim
based thereon or otherwise in respect thereof, shall be had against any
incorporator, shareholder, partner, officer or director, as such, past, present
or future, of Seller or of any successor partnership or corporation, or against
any direct or indirect parent corporation of Seller or any other subsidiary of
any such direct or indirect parent corporation or any incorporator, shareholder,
officer or director, as such, past, present or future, of any such parent or
other subsidiary, whether
-47-
<PAGE>
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, it being understood that Seller is a
special purpose corporation formed for the purpose of the transactions
contemplated in this Agreement on the express understanding aforesaid. Nothing
contained in this Section 10.16 shall be construed to limit the exercise or
enforcement, in accordance with the terms of this Agreement or the Mortgage, of
rights and remedies against Seller or the assets of Seller, including the
Project.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf by its officer thereunto duly authorized
as of the date and year first above written.
MILESBURG ENERGY, INC.
By /s/ Neil W. Hedrick
------------------------
Title: President
WEST PENN POWER COMPANY
By /s/ Stan Garnett
------------------------
Title: Vice President
-48-
<PAGE>
EXHIBIT A
---------
TO
ELECTRIC ENERGY
PURCHASE AGREEMENT
Matters to be Covered
by Opinion of Varnum, Riddering,
Schmidt & Howlett
(Counsel to Seller)
-----------------
[Unless otherwise indicated, all capitalized terms used and not
otherwise defined in this Exhibit A shall have the meanings given such terms in
the Agreement to which this Exhibit A is attached.]
1. Seller (i) is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania with full
power and authority to enter into and perform its obligations under the
Agreement, the Mortgage, the Recognition Agreement and the Operative Documents
(as defined in the Recognition Agreement) to which it is a party and to
consummate the transactions contemplated thereby, (ii) is duly qualified,
authorized to do business and in good standing in Pennsylvania and in each other
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary, (iii) has the corporate power to
carry on its business as now being, or intended to be, conducted, and (iv)
possesses all Federal, State and local permits and franchises currently required
for the maintenance and operation of its properties and business.
2. The Agreement, the Mortgage, the Recognition Agreement and the
Operative Documents to which Seller is a party have been duly authorized,
executed and delivered by Seller and constitute legal, valid and binding
obligations of Seller enforceable in accordance with their respective terms,
except as such enforceability and the availability of certain rights and
remedies provided for therein may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity.
3. Neither the execution and delivery of the Agreement, the
Mortgage, the Recognition Agreement or any Operative Documents to which Seller
is a party, the consummation of the transactions contemplated thereby nor
performance or compliance with the terms and conditions thereof will (i) result
in the violation of any present Legal Requirement to which Seller is subject,
the violation of which would have a material adverse affect on the ability of
Seller to perform its obligations thereunder, or (ii) conflict with or result in
the breach of, or constitute a default
A-1
<PAGE>
under, the Articles of Incorporation or By-laws of Seller or any agreement or
instrument to which Seller is a party or by which it or its properties may be
bound or affected (except any such agreement or instrument a breach of which
would not have a material adverse effect on the ability of Seller to perform its
obligations under the Agreement, the Mortgage, the Recognition Agreement or any
Operative Document to which it is a party), or result in a creation of any lien,
charge, security interest or encumbrance (except such that may arise (x) in
favor of Buyer in connection with the Agreement and under the Mortgage, and (y)
in favor of the Project Lender in connection with the Project Mortgage) upon any
of the properties of Seller, and Seller is not in default under any term of any
such agreement or instrument.
4. No authorization, consent, approval, license, permit, exemption or
other action by any governmental authority or regulatory body is required in
connection with Seller's execution and delivery of the Agreement, the Mortgage,
the Recognition Agreement or any Operative Document to which it is a party; and
Seller (i) has obtained all governmental approvals, licenses and permits
required to be obtained on or prior to the Financing Closing Date, and (ii) is
or will be entitled to obtain in the ordinary course upon due application
therefor all governmental approvals, licenses and permits required to be
obtained subsequent to the Financing Closing Date, in each case for the
consummation by it of the transactions contemplated by, and the performance by
it of, the Agreement, the Mortgage, the Recognition Agreement and the Operative
Documents to which it is a party.
5. There are no pending, or to the knowledge of such counsel,
threatened, actions, suits, or proceedings before any court, governmental
authority or regulatory body, to which Seller is a party or by which it or its
properties may be bound, which might adversely affect its financial condition,
business or operations or materially adversely affect its ability to perform its
obligations under the Agreement, the Mortgage, the Recognition Agreement or any
Operative Document to which it is a party, nor to the knowledge of such counsel
is there any basis for any such action, suit or proceeding.
6. The Project is, and as completed and operated in accordance with
the Purchase Agreement will be, a "qualifying facility" within the meaning of
PURPA as of the date hereof.
7. The Site (as defined in the Mortgage) may be lawfully used for the
construction and operation of the Project without need for any variance or
special exception under any applicable zoning, building or other law, statute,
ordinance, regulation or restriction. To the best knowledge of such counsel
(after diligent search of governmental records and due inquiry), there is no
violation of any zoning, building or other law, statute, ordinance, regulation
or restriction concerning the Site or the proposed use thereof.
A-2
<PAGE>
8. The Mortgage and the Recognition Agreement have been duly recorded
in the Office of the Recorder of Deeds of Centre County, Pennsylvania (the
"Recorder's Office"), and Financing Statements with respect thereto, naming
Seller as Debtor and Buyer as Secured Party, have been duly filed pursuant to
the Pennsylvania Uniform Commercial Code (the "PaUCC") in the Office of the
Secretary of the Commonwealth of Pennsylvania, in the Recorder's Office as a
"fixture filing," and in the Office of the Prothonotary of Centre County,
Pennsylvania, which are all the offices in which filing or recording is required
by law in order to publish notice of, establish and perfect the respective
liens, rights, titles, interests, remedies, powers, privileges and security
interests created by the Mortgage and by the Recognition Agreement. No refiling
or rerecording of or with respect to the Mortgage or the Recognition Agreement
is necessary to continue the perfection of the respective liens, rights, titles,
interests, remedies, powers, privileges and security interests created thereby,
except for the filing of continuation statements under Section 9403 of the
PaUCC.
9. The Mortgage creates a valid and direct mortgage lien on the Site,
the Improvements (as defined in the Mortgage) and on that portion of the
Equipment (as defined in the Mortgage) which under the real estate law of
Pennsylvania becomes subject to the lien of the Mortgage without regard to the
PaUCC, subject only to Permitted Encumbrances (as defined in the Mortgage), and
prior to all other liens which may be perfected on or which may arise or attach
to the interest of Seller in the Site, the Improvements and such portion of the
Equipment subsequent to the recording of the Mortgage.
10. The Mortgage creates a valid and perfected security interest in
that portion of the Mortgaged Property (as defined in the Mortgage) (other than
that referred to in paragraph 9 above) in which a security interest may be
perfected by the filing of financing statements under the PaUCC, prior to all
other security interests which may be perfected in such manner, subject only to
Permitted Encumbrances and to liens, encumbrances and other security interests
which may have a priority or parity under the PaUCC or other applicable statute
by virtue of matters or circumstances other than the chronological order of
filings of financing statements.
A-3
<PAGE>
EXHIBIT B
---------
TO
ELECTRIC ENERGY
PURCHASE AGREEMENT
Matters to by Covered by Opinion of
Reed Smith Shaw & McClay (Counsel to Buyer)
-------------------------------------------
[Unless otherwise indicated, all capitalized terms used and not
otherwise defined in this Exhibit B shall have the meanings given such terms in
the Agreement to which this Exhibit B is attached.]
1. Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania with full
right, power and authority to enter into and perform its obligations under the
Agreement and the Recognition Agreement and to consummate the transactions
contemplated thereby.
2. The Agreement and the Recognition Agreement have been duly
authorized, executed and delivered by Buyer and constitute legal, valid and
binding obligations of Buyer enforceable in accordance with their respective
terms, except as such enforceability and the availability of certain rights and
remedies provided for therein may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity.
3. No authorization, consent, approval, license, permit, exemption
or other action by any governmental authority or regulatory body (other than
such as has been obtained) is required in connection with Buyer's execution and
delivery of the Agreement or the Recognition Agreement or for the consummation
by Buyer of the transactions contemplated by, and the performance by Buyer of,
the Agreement and the Recognition Agreement.
4. Neither the execution and delivery of the Agreement or the
Recognition Agreement, nor the consummation by Buyer of the transactions
contemplated by, nor Buyer's performance of or compliance with the terms and
conditions of, either of the foregoing will (i) violate any law or regulation to
which Buyer is subject, or (ii) conflict with or result in a breach of, or
constitute a default under, the Articles of Incorporation or By-Laws of Buyer.
B-1
<PAGE>
EXHIBIT C
---------
TO
ELECTRIC ENERGY
PURCHASE AGREEMENT
Computation of Capacity Replacement Charge - Example
----------------------------------------------------
C-1
<PAGE>
Capacity Termination Costs - Milesburg Project Exhibit C
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Definitions:
CO = Contract Output = 320,178 Mwh
d = Discount rate = 12.70%
e = Escalation rate = 6.00%
QS = QF start date = 1990.00 = 01-Jan-90
QE = QF contract expiration date = 2020.00 = 01-Jan-2020 Expected contract term = 30.00 years
PS = APS plant start date = 1995.75 = 01-Oct-95
PL = APS plant life = 33.00 years
US = PV factor of uniform series = (1-(1+d) UP-PL)/d = 7.7217
ES = PV factor of uniform escalating series to infinity = 1/(1-((1+e)/(1+d)) UP PL) = 1.1525
Column 2 = d/(1-(1+d) UP-T) [Levelizing factor over QF term]
Column 3 = 1-((1+e)/(1+d) UP (QS+T-PS) if QS+T greater than PS else 0 [Factor for overlap with APS capacity need]
Column 4 = Column 2 * Column 3 * US * ES [Contract Term Adjustment]
Column 5 = Column 4 / last value in Column 4 [Percent of value received]
Column 8 = Column 5 * last value in Column 7
Column 9 = Column 7 - Column 8
Column 10 = the greater of 0 or the current value of Column 9 annuity
</TABLE>
<TABLE>
<CAPTION>
------------- mills/kwh --------------------------- Capacity
Contract Capacity Capacity Levelized Levelized Levelized Termination
Contract Levelizing Replacement Term Value Cost Rate Capacity Capacity Cost/Value Costs
Term (T) Factor Factor Adjustment Factor (CCR) Cost Rate Value Rate Difference (current $)
- --(1)--- ----(2)---- ----(3)---- ----(4)---- ----(5)---- ----(6)---- ----(7)---- ----(8)---- ----(9)---- ----(10)----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.1270 0.0000 0.0000 0.0% 33.00 33.0000 0.0000 33.0000 $ 10,565,874
2 0.5971 0.0000 0.0000 0.0% 33.00 33.0000 0.0000 33.0000 $ 22,473,614
3 0.4214 0.0000 0.0000 0.0% 33.00 33.0000 0.0000 33.0000 $ 35,893,637
4 0.3341 0.0000 0.0000 0.0% 33.00 33.0000 0.0000 33.0000 $ 51,018,003
5 0.2822 0.0000 0.0000 0.0% 33.00 33.0000 0.0000 33.0000 $ 68,063,163
6 0.2481 0.0152 0.0336 3.7% 33.00 33.0000 1.2316 31.7684 $ 84,015,914
7 0.2240 0.0738 0.1470 16.3% 33.00 33.0000 5.3941 27.6059 $ 91,118,352
8 0.2063 0.1288 0.2364 26.3% 33.00 33.0000 8.6749 24.3251 $ 98,274,791
9 0.1927 0.1806 0.3097 34.4% 33.00 33.0000 11.3636 21.6364 $ 105,441,211
10 0.1821 0.2293 0.3716 41.3% 33.00 33.0000 13.6337 19.3663 $ 112,564,944
11 0.1736 0.2751 0.4251 47.3% 33.00 33.0000 15.5953 17.4047 $ 119,583,402
12 0.1667 0.3182 0.4721 52.5% 33.00 33.0000 17.3217 15.6793 $ 126,422,613
13 0.1610 0.3588 0.5141 57.2% 33.00 33.0000 18.8632 14.1368 $ 132,995,579
14 0.1563 0.3969 0.5521 61.4% 33.00 33.0000 20.2559 12.7441 $ 139,200,397
15 0.1524 0.4327 0.5867 65.2% 33.00 33.0000 21.5260 11.4740 $ 144,918,138
16 0.1490 0.4665 0.6185 68.8% 33.00 33.0000 22.6930 10.3070 $ 150,010,436
17 0.1461 0.4982 0.6479 72.0% 33.00 33.0000 23.7721 9.2279 $ 154,316,765
18 0.1437 0.5280 0.6753 75.1% 33.00 33.0000 24.7748 8.2252 $ 157,651,346
19 0.1416 0.5561 0.7008 77.9% 33.00 33.0000 25.7103 7.2897 $ 159,799,648
20 0.1398 0.5825 0.7246 80.6% 33.00 33.0000 26.5859 6.4141 $ 160,514,426
21 0.1382 0.6073 0.7470 83.1% 33.00 33.0000 27.4078 5.5922 $ 159,511,241
22 0.1369 0.6306 0.7681 85.4% 33.00 33.0000 28.1808 4.8192 $ 156,463,389
23 0.1357 0.6526 0.7879 87.6% 33.00 33.0000 28.9091 4.0909 $ 150,996,161
24 0.1346 0.6732 0.8067 89.7% 33.00 33.0000 29.5962 3.4038 $ 142,680,357
25 0.1337 0.6927 0.8244 91.7% 33.00 33.0000 30.2451 2.7549 $ 131,024,955
26 0.1329 0.7109 0.8411 93.5% 33.00 33.0000 30.8586 2.1414 $ 115,468,816
27 0.1322 0.7281 0.8569 95.3% 33.00 33.0000 31.4388 1.5612 $ 95,371,317
28 0.1316 0.7443 0.8719 96.9% 33.00 33.0000 31.9880 1.0120 $ 70,001,760
29 0.1311 0.7595 0.8860 98.5% 33.00 33.0000 32.5078 0.4922 $ 38,527,414
30.00 0.1306 0.7738 0.8994 100.0% 33.00 33.0000 33.0000 0.0000 $ 0
</TABLE>
Notes: "*" indicates multiplication, "/" indicates division, "UP" indicates
exponentiation,
">" indicates greater than, "PV" means Present Value, "QF" refers to this
project.
<PAGE>
EXHIBIT D
---------
TO
ELECTRIC ENERGY
PURCHASE AGREEMENT
(This document constitutes, among other things, a security agreement and a
fixture filing within the meaning of the Uniform Commercial Code - Secured
Transactions, Title 13, Sections 9313 and 9402, of the Pennsylvania Consolidated
Statutes. The record owner of the real estate described herein is Milesburg
Energy, Inc.)
================================================================================
MORTGAGE AND SECURITY AGREEMENT
Dated as of __________ ___, 1987
MILESBURG ENERGY, INC., as Mortgagor
and
WEST PENN POWER COMPANY, as Mortgagee
================================================================================
Record and Return to:
Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, Pennsylvania 15219
Attention: W. Franklin Reed, Esq.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION AND PARTIES......................................................... 1
RECITALS......................................................................... 1
GRANTING CLAUSE.................................................................. 2
I. PARTICULAR COVENANTS AND AGREEMENTS OF MORTGAGOR
1.01 Title; Etc.......................................................... 4
1.02 Compliance with Laws; Etc........................................... 4
1.03 Maintenance and Repair; Replacement of Equipment; Etc............... 5
1.04 Required Insurance.................................................. 5
1.05 Delivery of Policies or Other Evidence; Payment of Premiums......... 8
1.06 Damage or Condemnation.............................................. 9
1.07 Application of Insurance Proceeds and Condemnation Awards........... 10
1.08 Succession to Policies Upon Foreclosure............................. 12
1.09 Indemnification; Costs of Enforcement............................... 12
1.10 Taxes and Impositions; Contests..................................... 13
1.11 Liens; Etc.......................................................... 14
1.12 Litigation Affecting Mortgaged Property............................. 14
1.13 Actions by Mortgagee to Preserve Mortgaged Property................. 15
1.14 Right of Entry...................................................... 15
1.15 Limitations of Use.................................................. 15
1.16 Estoppel Certificates............................................... 16
II. EVENTS OF DEFAULT; REMEDIES
2.01 Nature of Events of Default......................................... 16
2.02 Remedies............................................................ 17
2.03 Application of Proceeds............................................. 21
2.04 Right to Sue........................................................ 21
2.05 Powers of Mortgagee................................................. 22
2.06 Remedies Cumulative................................................. 22
2.07 Waiver of Stay, Extension, Moratorium Laws; Equity of Redemption.... 22
III. MISCELLANEOUS
3.01 Notices............................................................. 23
3.02 Security Agreement.................................................. 23
3.03 Further Assurances.................................................. 24
3.04 Amendments, Waivers, Etc............................................ 24
3.05 Successors and Assigns.............................................. 24
3.06 Interpretation...................................................... 24
3.07 Invalidity of Certain Provisions.................................... 25
</TABLE>
D-i
<PAGE>
<TABLE>
<S> <C>
3.08 Severability........................................................ 25
3.09 Limitation of Liability............................................. 25
3.10 Governing Law....................................................... 26
3.11 Recognition Agreement............................................... 26
EXECUTION........................................................................ 26
</TABLE>
SCHEDULE I - Legal Description of the Site
SCHEDULE II - List of Specific Items of Machinery and Equipment included in
Mortgaged Property
D-ii
<PAGE>
MORTGAGES AND SECURITY AGREEMENT (this "Mortgage") dated as of
_______________, 1987 made by MILESBURG ENERGY, INC., a Pennsylvania corporation
having an office at 24B Main Street, Blossburg, Pennsylvania 16912
("Mortgagor"), to WEST PENN POWER COMPANY, a Pennsylvania corporation having an
office at BOO Cabin Hill Drive, Greensburg, Pennsylvania 15601 ("Mortgagee").
W I T N E S S E T H
WHEREAS, Seller desires to construct, equip, maintain and operate, or
cause to be constructed, equipped, maintained and operated, a waste coal-fired
plant consisting of a circulating fluidized bed boiler and related facilities
having an expected capacity of 36.5 to 43 megawatts and to be located at Buyer's
retired Milesburg Power Station in the Borough of Milesburg in Centre County,
Pennsylvania (the "Project"); and
WHEREAS, upon completion of the construction and equipping of the
Project, Mortgagor intends to convey the Project, subject to the lien and
security interest created by the Project Mortgage and the lien and security
interest created hereby, to Lessor and to lease the Project from Lessor pursuant
to the Lease; and
WHEREAS, Mortgagor and Mortgagee have entered into an Electric Energy
Purchase Agreement dated as of February 25, 1987 (said Electric Energy Purchase
Agreement, as the same has been or hereafter may be supplemented or amended,
being herein called the "Agreement"; terms not otherwise defined having the
meanings ascribed thereto in the Agreement) pursuant to which Mortgagor has
agreed to sell, and Mortgagee has agreed to purchase, Project Energy generated
by the Project; and
WHEREAS, pursuant to the terms of the Agreement, Mortgagee will pay
for Project Energy delivered to it during each monthly Billing Period at a rate
per kilowatthour equal to the sum of a fixed Capacity Cost late and a variable
Energy Cost Rate, as more particularly described in the Agreement; and
WHEREAS, the Capacity Cost Rate is based on the availability and
reliability of Project Energy during the entire term of the Agreement, and
Mortgagor is accordingly required under the Agreement, in the event there is any
cessation or prolonged reduction in deliveries of Project Energy for reason
other than any Unavoidable Interruptions, or in the event certain other "Events
of Default as to Seller" (as defined in the Agreement) shall occur and be
continuing, to make certain payments to Mortgagee to compensate Mortgagee for
the loss of the benefit of its bargain as a result of the reduced deliveries of
Project Energy occasioned thereby; and
D-1
<PAGE>
WHEREAS, the execution and delivery of this Mortgage as security for
the payment of such amounts and the performance by Mortgagor of its other
obligations under the Agreement is a condition to Mortgagee's obligation to
purchase Project Energy in accordance with the terms of the Agreement;
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid
to Mortgagor by Mortgagee, the mutual covenants and agreements set forth in the
Agreement and this Mortgage, and other good and valuable consideration, the
receipt of which is hereby acknowledged, and in order to secure (i) the payment
by Mortgagor of all amounts from time to time owing to Mortgagee in accordance
with the terms of the Agreement and the performance and observance by Mortgagor
of all of the covenants and agreements on the part of Mortgagor to be performed
or observed under the Agreement, (ii) the payment of all other monies secured
hereby, and (iii) the performance or observance by Mortgagor of the covenants
and agreements hereinafter set forth (all of the foregoing being hereinafter
collectively called the "Obligations Secured Hereby"), Mortgagor, intending to
be legally bound, does hereby grant, bargain, sell, convey, warrant, assign,
transfer, mortgage, pledge, grant a security interest in, set over and confirm
unto Mortgagee, and its successors and assigns, all of its estate, right, title,
interest, property, claim and demand, now or hereafter arising, in and to the
following property and rights (all of Mortgagor's estate and interests therein,
now or hereafter arising, being hereinafter collectively called the "Mortgaged
Property"):
(a) the lands and premises more particularly described in Schedule I
hereto, together with all and singular the tenements, hereditaments and
appurtenances thereunto belonging or in anywise appertaining, and also (i)
any land lying within the right-of-way of any streets, open or proposed,
adjoining the same, (ii) any easements, rights-of-way and rights used in
connection therewith or as a means of access thereto, and (iii) any and all
sidewalks, alleys, strips and gores of land adjacent thereto or used in
connection therewith (all of the foregoing being hereinafter collectively
called the "Site");
(b) all buildings, structures and other improvements now or hereafter
erected on the Site (collectively, the "Improvements");
(c) all machinery, apparatus, equipment, fittings, fixtures and other
articles of personal property, including all goods and all goods which
become fixtures now owned or hereafter acquired by Mortgagor and now or
hereafter located on, attached to or used in connection with the Site and
the Improvements, including the items described in Schedule II hereto and
all replacements thereof, additions thereto and
D-2
<PAGE>
substitutions therefor (all of the foregoing being hereinafter collectively
called the "Equipment");
(d) all licenses, permits, authorizations and agreements now or
hereafter obtained by Mortgagor from any governmental authorities having
jurisdiction over the ownership, operation, management or use of the Site,
the Improvements and the Equipment or the construction of the Project or
any Improvements thereto;
(e) all contracts, easements, licenses or agreements to which
Mortgagor now or hereafter is a party, either directly or indirectly, by
assignment or otherwise, relating to the ownership, operation, management
or use of the Site, the Improvements and the Equipment or the construction
of the Project or any Improvements thereto;
(f) all cash and investments now or hereafter held in any reserve
accounts established pursuant to the Operative Documents (as defined in the
Recognition Agreement), and all interest and investment earnings thereon
and all cash and non-cash proceeds thereof, SUBJECT, HOWEVER, to the right
of Mortgagor to receive and use the same in accordance with the provisions
of the Operative Documents unless and until an Event of Default (as
hereinafter defined) shall occur and be continuing;
(g) all cash and investments now or hereafter held in the Reserve
Fund established pursuant to Section 3.7 of the Agreement, and all interest
and investment earnings thereon, and all cash and non-cash proceeds
thereof, SUBJECT, HOWEVER, to the right of Mortgagor to receive and use the
same in accordance with said Section 3.8 unless and until an Event of
Default shall occur and be continuing;
(h) all the remainder or remainders, reversion or reversions, rents,
revenues, issues, profits, royalties, income and other benefits derived
from any of the foregoing, all of which are hereby assigned to Mortgagee,
who is hereby authorized to collect and receive the same, to give proper
receipts and acquittances therefor and to apply the same to the payment of
the Obligations Secured Hereby, notwithstanding the fact that the same may
not then be due and payable, SUBJECT, HOWEVER, to the right of Mortgagor to
receive and use the same unless and until an Event of Default shall occur
and be continuing; and
(i) all proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims, including all proceeds of
the insurance required to be maintained by this Mortgage and the Operative
Documents and all awards or other compensation heretofore or hereafter made
to Mortgagor as the result of any Condemnation (as
D-3
<PAGE>
hereinafter defined), including any awards for changes of the grades of
streets and any awards for severance damages, all of which are hereby
assigned to Mortgagee, who is hereby authorized to collect and receive the
proceeds thereof, to give proper receipts and acquittances therefor and to
apply the same to the payment of the Obligations Secured Hereby,
notwithstanding the fact that the same may not then be due and payable.
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its
successors and assigns, forever, SUBJECT, HOWEVER, to Prior Liens (as
hereinafter defined);
PROVIDED, HOWEVER, that if Mortgagor shall pay, perform and discharge
the Obligations Secured Hereby in full according to the terms and provisions of
the Agreement and this Mortgage and shall perform and observe each and every
covenant and agreement on the part of Mortgagor to be performed or observed
contained in the Agreement and this Mortgage, then this Mortgage and the estate
hereby granted shall cease, terminate and become void.
AND, Mortgagor hereby covenants and agrees with Mortgagee as follows:
ARTICLE I
Particular Covenants and Agreements of Mortgagor
------------------------------------------------
Section 1.01 Title; Etc. Mortgagor has the rights in and to the
----------
Site, has good title to the Site and has good title to the Improvements and to
all Equipment and other property and rights comprising the Mortgaged Property,
subject to no prior mortgage, lien, pledge, charge, security interest or other
encumbrance or adverse claim of any nature, other than the Project Mortgage and
any other exceptions to title listed in the title policy insuring the lien or
estate created by this Mortgage (collectively, "Prior Liens"). Mortgagor has
full power and lawful authority to grant, bargain, sell, convey, warrant,
assign, transfer, mortgage, pledge, grant a security interest in, set over and
confirm unto Mortgagee, and its successors and assigns, the Mortgaged Property.
Mortgagor will forever warrant and defend the title to the Mortgaged Property
and the validity and priority of the lien or estate created hereby against the
claims and demands of all persons whomsoever.
Section 1.02 Compliance with Laws; Etc.
-------------------------
(a) Mortgagor shall keep, or cause to be kept, in full force and
effect all licenses, permits and governmental authorizations and agreements
necessary for the ownership, operation, management or use of the Site, the
Improvements and the Equipment or for the construction of the Project or any
Improvements thereto.
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<PAGE>
(b) Mortgagor shall comply with, or cause to be complied with, in a
manner consistent with sound electric utility practice, but subject to the
provisions of Section 3.2(b) of the Agreement, all Legal Requirements which at
any time may be applicable to the Mortgaged Property, and shall comply with, or
cause to be complied with, the requirements of all policies of insurance
required by this Mortgage, and of the insurers under such policies.
Section 1.03 Maintenance and Repair; Replacement of Equipment; Etc.
-----------------------------------------------------
Mortgagor shall at all times keep the Improvements and the Equipment in the
condition required by the Agreement, or cause the same to be kept in such
condition, and shall make or cause to be made, at its sole cost and expense, all
repairs thereto required by the Agreement. Mortgagor shall not remove, demolish
or substantially alter any of the Improvements; provided, however, that
--------- -------
Mortgagor may make any replacements, alterations or improvements thereof or
thereto which are required by law or which would not, in the judgment of
Mortgagor, reasonably exercised, materially impair the value of the
Improvements. Mortgagor shall not remove any Equipment from the Mortgaged
Property, except such portions or items as are consumed or worn out in ordinary
usage or become obsolete or unnecessary for operations; provided, however, that
--------- -------
Mortgagor shall not remove any such Equipment from the Mortgaged Property unless
either (a) such Equipment is promptly replaced with Equipment of a value,
utility and useful life at best equal to the value, utility and estimated useful
life of the replaced Equipment immediately prior to the time such replaced
Equipment became consumed, worn out or obsolete, or (b) such removal does not,
in the judgment of Mortgagee, reasonably exercised, materially impair the value
of the Project. All replacements, alterations and improvements made by Mortgagor
pursuant to this Section 1.03 shall be performed in accordance with the Design
and Construction Standard.
Section 1.04 Required Insurance. Mortgagor shall at all times effect,
------------------
maintain and keep in force, or cause to be effected, maintained and kept in
force, insurance with respect to the Project against such hazards, in such form
(subject to the provisions of Section 1.05) and with such insurers as shall be
approved by Mortgagee (which approval shall not be unreasonably withheld), and
in such amounts as Mortgagor would in the prudent management of its property
maintain, or as would be maintained by others similarly situated in respect of
property similar to the Project; provided, however, that from and after the
--------- -------
Commencement Date, such insurance shall include the following;
(a) insurance against physical loss or damage to the Improvements and
the Equipment by fire and any of the risks covered by insurance of the type
now known as "all risk" coverage (including collapse and transit coverage
and coverage against lightning, windstorm, explosion, riot, riot attending
a strike, civil commotion, action of civil or
D-5
<PAGE>
military authority, damage from aircraft and vehicles, electrical injury,
flood, earthquake and volcanic eruption and vandalism and malicious
mischief), in an amount not less than 100% of the full insurable value
thereof or, if such amount is not reasonably available in the commercial
insurance market, such other amount as may be acceptable to Mortgagee and
is reasonably available in the commercial insurance market, but in any
event in an amount sufficient to prevent Mortgagor from becoming a co-
insurer, with not more than $100,000 deductible from the loss payable for
any single casualty or occurrence; the term "full insurable value" shall
mean the full replacement value of such Improvements and Equipment,
including contingent liability from operation of building laws, demolition
cost and any increased cost of construction to comply with governmental
regulations and requirements, without deduction for physical depreciation,
as determined not less frequently than is required by the "agreed amount
clause" endorsement (which shall be attached to the policy) by an insurance
appraiser selected by Mortgagee and approved by Mortgagor (which approval
shall not be unreasonably withheld), it being understood that no omission
by Mortgagee to request such determination shall relieve Mortgagor of its
obligation to maintain such insurance;
(b) comprehensive general liability insurance against claims for
"personal injury" including, without limitation, bodily injury, death or
property damage occurring on, in or about the Improvements and the
adjoining streets, sidewalks and passageways, such insurance to afford
$1,000,000 "single limit" coverage with respect to personal injury or death
to any one or more persons or damage to property, with such increases
therein as shall be reasonably requested by Mortgagee from time to time,
or, if such amount is not reasonably available in the commercial insurance
market, such other amount as may be acceptable to Mortgagee and is
reasonably available in the commercial insurance market, and any such
policy to contain the "broad form" endorsement covering products and
completed operations, contractual liability (including the indemnity
contained in Section 7.1 of the Agreement), broad form property damage,
contractor's protective liability and explosion, collapse and underground
hazards;
(c) comprehensive automobile liability insurance against claims for
bodily injury, death or property damage arising out of the use of all
owned, non-owned and hired motor vehicles by Mortgagor's agents and
employees, including loading and unloading, such insurance to afford
$1,000,000 "single limit" coverage with respect to personal injury or death
to any one or more persons or damage to property, with such increases
therein as shall be reasonably requested by Mortgagee from time to time,
or, if such amount is not
D-6
<PAGE>
reasonably available in the commercial insurance market, such other amount
as may be acceptable to Mortgagee and is reasonably available in the
commercial insurance market;
(d) where exposures involving watercraft or aircraft are expected to
be present, comprehensive watercraft and aircraft liability (including
passengers' liability) insurance against claims for bodily injury, death or
property damage arising out of the use of all owned, non-owned and hired
watercraft or aircraft by Mortgagor's agents and employees, including
loading and unloading, such insurance to afford $10,000,000 "single-limit"
coverage with respect to personal injury or death to any one or more
persons or damage to property, with such increases therein as shall be
reasonably requested by Mortgagee from time to time, or, if such amount is
not reasonably available in the commercial insurance market, such other
amount as may be acceptable to Mortgagee and is reasonably available in the
commercial insurance market;
(e) workers' compensation insurance including employer's liability
insurance of not less than $100,000 or such higher limit as may be
reasonably requested by Mortgagee, or, if such amount is not reasonably
available in the commercial insurance market, such other amount as may be
acceptable to Mortgagee and is reasonably available in the commercial
insurance market) for all employees of Mortgagor engaged in or with respect
to work on or about the Site, the Improvements or the Equipment in such
amount as is reasonably satisfactory to Mortgagee or, if such limit is
established by law, in such amount;
(f) boiler and machinery insurance covering, to the extent that the
Improvements contain equipment of such nature, all insurable objects,
including pressure vessels, motors, air tanks, boilers, machinery, pressure
piping, heating, air conditioning equipment, elevator and escalator
equipment or similar apparatus and insurance against loss of occupancy or
use arising from breakdown of any of the foregoing, in an amount not less
than 100% of the full insurable value thereof (determined as set forth
above), or, if such amount is not reasonably available in the commercial
insurance market, such other amount as may be acceptable to Mortgagee and
is reasonably available in the commercial insurance market, but in any
event in an amount sufficient to prevent Mortgagor from becoming a co-
insurer, with not more than $100,000 deductible from the loss payable for
any single casualty or occurrence, except that the deductible for insurance
against loss of occupancy or use arising from breakdown shall be no more
than a 180-day deductible;
(g) comprehensive crime insurance against claims for theft by
Mortgagor's agents and employees, money and
D-7
<PAGE>
securities and forgery or a1teration of checks or other written promises to
pay, such insurance to afford $1,000,000 "single limit" coverage with
respect to any occurrence, with such increases therein as shall be
reasonably requested by Mortgagee from time to time, or, if such amount is
not reasonably available in the commercial insurance market, such other
amount as may be acceptable to Mortgagee and is reasonably available in the
commercial insurance market; and
(h) excess "umbrella" insurance (against risks of the types described
in clauses (b), (c) and (d) above and in excess of the employer's liability
insurance described in clause (e) above) in an amount not less than
$24,000,000 for any occurrence and not less than $24,000,000 in the
aggregate, with such increases therein as shall be reasonably requested by
Mortgagee from time to time, or, if the combined amount of primary and
excess insurance required hereby is not reasonably available in the
commercial insurance market, such other insurance as may be acceptable to
Mortgagee and is reasonably available in the commercial insurance market.
In the event any insurance hereby required to be maintained shall not
be reasonably available in the commercial insurance market, Mortgagee shall not
unreasonably withhold its agreement to waive such requirement to the extent the
maintenance thereof is not so available; provided, however, that (i) Mortgagor
--------- -------
shall first request any such waiver in writing, which request shall be
accompanied by written reports prepared by two independent insurance advisers of
recognized national standing certifying that such insurance is not reasonably
available in the commercial insurance market for electric generating plants of
similar type and capacity and explaining in detail the basis for such
conclusion, such insurance advisers and the form and substance of such reports
to be reasonably acceptable to Mortgagee; (ii) at any time after the granting of
any such waiver, but not more often than twice a year, Mortgagee may request,
and Mortgagor shall furnish to Mortgagee within 30 days after such request,
supplemental reports reasonably acceptable to Mortgagee from such insurance
advisers updating their prior reports and reaffirming such conclusion; and (iii)
any such waiver shall be effective only so long as such insurance shall not be
reasonably available in the commercial insurance market, it being understood
that the failure of Mortgagor to timely furnish any such supplemental report
shall be conclusive evidence that such condition no longer exists, but that such
failure is not the only way to establish such non-existence.
Section 1.05 Delivery of Policies or Other Evidence; Payment of
--------------------------------------------------
Premiums. All policies of insurance required under the provisions of Section
- --------
1.04 shall name Mortgagee, Allegheny Power System, Inc. and Allegheny Power
Service Corporation as additional insureds as their interests may appear, and
all such policies covering risks of physical loss shall have attached thereto a
D-8
<PAGE>
standard non-contributory lender's loss payable endorsement in scope and form
satisfactory to Mortgagee. Mortgagor shall furnish Mortgagee with originals of
all such policies or certificates thereof. At least 30 days prior to the
expiration of any policy of insurance, Mortgagor shall furnish Mortgagee with
evidence satisfactory to Mortgagee of the payment of the premium for, and the
reissuance of a policy continuing, such insurance as required by this Mortgage.
All policies of insurance required under the provisions of Section 1.04 shall
contain an endorsement by the insurer that any loss shall be payable in
accordance with the terms of such policy notwithstanding any act or negligence
of Mortgagor which might otherwise give rise to a defense by the insurer to its
payment for such loss and a waiver by the insurer of all rights of subrogation
to any rights of Mortgagee and of all rights of setoff, counterclaim or
deduction against the insureds other than Mortgagor. All such policies shall
also contain a provision to the effect that any cancellation of or amendment to
such insurance, including any reduction in the scope or limits of coverage,
shall not be effective as to Mortgagee without at least 60 days' prior written
notice to Mortgagee. Copies of all certificates of insurance and notices
required to be submitted to Mortgagee pursuant to this Section 1.05 shall also
be sent to Allegheny Power Service Corporation, 800 Cabin Hill Drive,
Greensburg, PA 15601, Attention of Manager of Insurance. Mortgagor shall not
take out separate insurance with respect to the Improvements or the Equipment
concurrent in form or contributing in the event of loss with that required by
this Mortgage unless the same shall contain a standard non-contributory lender's
loss payable endorsement in scope and form satisfactory to Mortgagee, with loss
payable to Mortgagee, Allegheny Power System, Inc. and Allegheny Power Service
Corporation, as their interests may appear.
Section 1.06 Damage or Condemnation.
----------------------
(a) In the event of any damage to or destruction of the Improvements
and the Equipment or any part thereof as a result of any casualty ("Damage"), or
in the event the Site, the Improvements and the Equipment, or any part thereof
are taken or damaged as the result of the exercise of the power of eminent
domain, or as the result of any other governmental action for which compensation
shall be given by any governmental authority ("Condemnation"), or if Mortgagor
shall receive any notice or advice of any Condemnation proceedings, Mortgagor
shall give prompt notice thereof to Mortgagee. Mortgagor shall, in the event of
any Damage or Condemnation and whether or not the proceeds of insurance or any
awards or other compensation payable as a result of such Condemnation are
sufficient for the purpose, promptly restore or cause to be restored the
Improvements and the Equipment so damaged, or in the case of a Condemnation, if
such Condemnation is not of such nature as to preclude the restoration of the
portion thereof not so taken to a viable economic unit, restore the portion
thereof not so taken, in a good and workmanlike manner
D-9
<PAGE>
as nearly as possible to the value and condition thereof immediately prior to
such Damage, or in the case of a Condemnation, to a viable economic unit;
provided, however, that if the Project Mortgage shall have been paid and
- --------- -------
discharged in full and a partial Damage or Condemnation shall occur which
results in the reduction of Contract Output to not less than kilowatthours per
year, Mortgagor shall not be so obligated to restore the Improvements and the
Equipment so damaged or the portion thereof not so taken, unless (i) the
proceeds of insurance or any awards or other compensation payable as a result of
such Condemnation are sufficient for the purpose or (ii) Mortgagor shall have
elected, by notice given to Mortgagee within 90 days after the occurrence of
such Damage Or receipt of notice to such Condemnation, to so restore the same;
and provided, further, that if such Damage or Condemnation occurs during the
--------- -------
last two years of the stated term of the Agreement, Mortgagor shall have no
obligation to so restore the same.
(b) Mortgagee shall have the right, and is hereby authorized and
empowered, to join in settling, adjusting or compromising any claims by any
insureds for Damage under any policy or policies of insurance required to be
maintained by this Mortgage and the Operative Documents or any claims for awards
or other compensation payable in connection with any Condemnation in excess of
$100,000.
Section 1.07 Application of Insurance Proceeds and Condemnation
--------------------------------------------------
Awards.
- ------
(a) All proceeds of the insurance required to be maintained by this
Mortgage and the Operative Documents payable in connection with any Damage, and
all awards or other compensation payable in connection with any Condemnation,
shall be deposited with a bank or trust company selected by Mortgagor having an
office in the City of Pittsburgh and having a combined capital and surplus
aggregating at least $100,000,000 (the "Depositary"), except that any such
proceeds or awards aggregating less than $100,000 shall not be required to be so
deposited. Except to the extent required by Section 1.07(d), such proceeds or
awards or other compensation (after deducting therefrom all costs and expenses,
including attorneys' fees incurred by the Depositary in connection with the
collection thereof regardless of the particular nature thereof and whether
incurred with or without suit) shall be paid by the Depositary to or for the
account of Seller for application to the payment of the costs of restoring the
Improvements and the Equipment so damaged (or restoring the portion thereof not
so taken to a viable economic unit), and shall be applied to pay or reimburse
the restoring party for expenditures made in restoring the Improvements and
Equipment so damaged (or restoring the portion thereof not so taken to a viable
economic unit) as the work progresses, against receipt by the Depositary of
proof satisfactory to it that (i) the requirements of Section 1.07(b) have been
complied with, (ii) the work, to the
D-10
<PAGE>
extent performed, has been satisfactorily accomplished, (iii) amount requested
has been paid by or on behalf of Mortgagor justly due to the restoring party or
other persons who have rendered services or furnished materials in connection
with work, (iv) no mechanic's, materialmen's or similar statutor other liens or
charges have been filed against the Mortgage Property, and (v) there are no
amounts then due and payable persons who have rendered services or furnished
materials in connection with such work other than such as will be discharged
full from the amounts requested. The Depositary shall not ? required to apply
such proceeds or awards as aforesaid unless ? or the Independent Engineer
referred to in Section 1.07(b) ? (determines that the amount thereof remaining
after payment of amount requested (together with anticipated interest and
investment earnings thereon) will be sufficient to pay in full the completion of
such restoration, and Mortgagor shall ? deposit or cause to be deposited with
the Depositary the ? any deficiency, to be held and disbursed by the Depositary
in accordance with the provisions of this Section 1.07.
(b) All restoration work following any Damage or Condemnation
pursuant to this Mortgage shall be subject to the following terms and
conditions:
(i) no work shall be undertaken unless Mortga shall have
procured and paid for all required governmental permits and
authorizations of any governmental authorities having jurisdiction in
connection therewith;
(ii) all work shall be designed, constructed and completed in
accordance with plans and specifications prepared by an architect or
engineer selected by Mortgagor and satisfactory to Mortgagee and an
independent engineering consultant selected by Mor (the "Independent
Engineer") and otherwise in accordance with the Design and
Construction Standard, and shall be performed by contractors selected
by Mortgagor and approved by the Independent Engineer;
(iii) no work involving an estimated cost of $500,000 or more
shall be undertaken unless the Independent Engineer shall have
certified in writing (which certification shall be given only after
consultation with Mortgagee) that the Improvements Equipment so
damaged (or the portion thereof not so taken) can be restored
substantially to the value a condition thereof immediately prior to
such Damage, in the case of a Condemnation, to a complete, viable
economic unit; and
(iv) no work involving an estimated cost of $500,000 or more
shall be undertaken unless such work
D-11
<PAGE>
done pursuant to guaranteed maximum or fixed price contracts
reasonably satisfactory to Mortgagee.
(c) Upon receipt by the Depositary of a certificate of the architect
or engineer selected by Mortgagor pursuant to Section 1.07(b) and of the
Independent Engineer certifying the completion of such restoration and the
payment of the cost thereof in full, the balance of any monies not required to
be disbursed pursuant to Section 1.07(a) shall be disbursed to Mortgagor or as
Mortgagor may direct.
(d) If an Event of Default shall occur and be continuing prior to the
time for receipt of any such proceeds or awards by Mortgagor, or in the event
Mortgagor shall not be obligated to so restore the Improvements and the
Equipment pursuant to Section 1.06 and Mortgagor shall not have elected to so
restore the same, such proceeds or awards shall be paid by the Depositary to or
for the account of Mortgagee upon Mortgagee's direction so to do for application
to the payment of the Obligations Secured Hereby in such order as Mortgagee
shall determine until the same have been paid in full, and any balance thereof
remaining after such payment shall be paid to Mortgagor, or to whosoever shall
be legally entitled thereto, or as a court of competent jurisdiction may direct.
(e) Any monies held by the Depositary pursuant to this Section 1.07
shall be invested in a manner satisfactory to Mortgagee. The Depositary shall
have the right to deduct from any such proceeds or awards its reasonable charges
for acting as Depositary hereunder.
Section 1.08 Succession to Policies Upon Foreclosure. In the event
---------------------------------------
of a foreclosure sale pursuant to this Mortgage or other transfer of title or
assignment of the Mortgaged Property in extinguishment, in whole or in part, of
the Obligations Secured Hereby, to the extent permitted by law, all right, title
and interest of Mortgagor in and to all policies of insurance required under the
provisions of Section 1.04 shall inure to the benefit of and pass to the
successor in interest of Mortgagor or the purchaser or grantee of the Mortgaged
Property or any part thereof so transferred.
Section 1.09 Indemnification: Costs of Enforcement. If Mortgagee is
-------------------------------------
made a party defendant to any litigation concerning this Mortgage or the
Mortgaged Property or the occupancy thereof by Mortgagor, then Mortgagor shall,
except to the extent otherwise provided in the Agreement, indemnify, defend and
hold Mortgagee harmless from and against all liability by reason of said
litigation, including reasonable attorneys' fees and expenses in any such
litigation, whether or not any such litigation is prosecuted to judgment. If
Mortgagee commences an action or proceeding (including any proceeding under
Article VIII
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<PAGE>
of the Agreement) against Mortgagor to enforce any of the terms hereof or for
the recovery of any Obligations Secured Hereby following any breach by Mortgagor
of any of the terms hereof, Mortgagor shall, to the extent permitted by law, pay
to Mortgagee its reasonable attorneys' fees and expenses, and the right to such
attorneys' fees and expenses shall be deemed to have accrued on the commencement
of such action or proceeding, and shall be enforceable whether or not such
action or proceeding is prosecuted to judgment. If Mortgagor breaches any term
of the Agreement or this Mortgage, Mortgagee may employ an attorney or attorneys
to protect its rights hereunder and thereunder, and in the event of such
employment following any breach by Mortgagor, Mortgagor shall, to the extent
permitted by law, pay the reasonable attorneys' fees and expenses incurred by
Mortgagee, whether or not an action is actually commenced against Mortgagor by
reason of such breach.
Section 1.10 Taxes and Impositions; Contests.
-------------------------------
(a) Mortgagor shall pay, or cause to be paid, prior to delinquency,
all real property taxes and assessments, general and special, and all other
taxes and assessments of any kind or nature whatsoever, which are now or
hereafter assessed or imposed upon the Mortgaged Property or Mortgagor or become
due and payable and which create a lien upon the Mortgaged Property (all such
taxes, assessments and other charges of like nature being herein collectively
called "Impositions"); provided, however, that if by law any Imposition is
--------- -------
payable, or may at the option of the taxpayer be paid, in installments,
Mortgagor may pay the same, or cause the same to be paid, together with any
accrued interest on the unpaid balance thereof, in installments as the same
become due and before any fine, penalty, interest or cost may be added thereto
for the nonpayment thereof.
(b) Subject to the provisions of Section 1.10(c), Mortgagor shall
furnish to Mortgagee, as soon as reasonably possible, official receipts of the
appropriate taxing or other authority, or other proof satisfactory to Mortgagee,
evidencing the payment of any Imposition.
(c) Mortgagor shall have the right before any delinquency occurs to
contest or object to the amount or validity of any Imposition in good faith by
appropriate legal proceedings, but this shall not be deemed or construed in any
way as relieving, modifying or extending Mortgagor's covenant to pay any
Imposition at the time and in the manner provided in this Section 1.10,
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<PAGE>
unless (i) Mortgagor shall have given prior notice to Mortgagee of Mortgagor's
intention so to contest or object to an Imposition, (ii) the legal proceedings
shall conclusively operate to prevent the sale of the Mortgaged Property to
satisfy such Imposition prior to final determination of such proceedings, (iii)
Mortgagor shall have deposited with Mortgagee a bond or other security
satisfactory to Mortgagee in such amount as Mortgagee shall reasonably require,
and (iv) Mortgagor shall have provided a good and sufficient undertaking as may
be required by law to accomplish a stay of any proceedings to sell the Mortgaged
Property to satisfy such Imposition.
Section 1.11 Liens; Etc.
----------
(a) Mortgagor shall promptly discharge, or cause to be discharged,
all liens, encumbrances and charges upon the Mortgaged Property, other than
Prior Liens and any other liens, encumbrances and charges expressly permitted
herein or in the Agreement or expressly consented to in writing by Mortgagee
(collectively, "Permitted Encumbrances"). Notwithstanding the foregoing,
Mortgagor shall have the right to contest in good faith by appropriate
proceedings the validity of any such lien, encumbrance or charge which is junior
to the lien hereof; provided, however, that Mortgagor shall first deposit with
--------- -------
Mortgagee a bond or other security satisfactory to Mortgagee in such amount as
Mortgagee shall reasonably require and shall thereafter diligently proceed to
cause such lien, encumbrance or charge to be removed and discharged.
(b) Mortgagor shall promptly pay, or cause to be paid, any
indebtedness secured by any Permitted Encumbrance (other than the Lease),
including the Project Mortgage, promptly as the same becomes due and payable and
shall perform or observe, or cause to be performed or observed, all covenants,
agreements and conditions, if any, on its part to be performed or observed under
any such Permitted Encumbrance.
(c) Mortgagor shall promptly notify Mortgagee of any default or event
which with notice or lapse of time or both would become such a default under any
Permitted Encumbrance entitling the holder or beneficiary thereof to foreclose,
sell or otherwise terminate Mortgagor's estate or rights in, or to exclude
Mortgagor from possession of, the Mortgaged Property or the part thereof 80
affected by the Permitted Encumbrance, promptly after such default or event
becomes known to Mortgagor.
Section 1.12 Litigation Affecting Mortgaged Property. Mortgagor
---------------------------------------
shall appear in and contest any action or proceeding purporting to affect the
security hereof or the rights or powers of Mortgagee, and shall pay within a
reasonable time after demand therefor all costs and expenses, including costs of
evidence of title and attorneys' fees, in any such action or proceeding in which
Mortgagee may appear.
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<PAGE>
Section 1.13 Actions by Mortgagee to Preserve Mortgaged Property. If
---------------------------------------------------
Mortgagor shall fail to (a) effect, maintain and keep in force, or cause to be
effected, maintained and kept in force, the insurance required under the
provisions of Section 1.04, (b) make, or cause to be made, the payments required
by Section 1.10 or 1.11, or (c) pay, perform or observe, or cause to be paid,
performed or observed, any other obligations required by the Agreement or this
Mortgage to be paid, performed or observed by Mortgagor, then Mortgagee may
effect, maintain, keep in force, pay, perform or observe the same. In connection
therewith, Mortgagee shall have the right, but not the obligation, (i) to enter
upon and take possession of the Site, the Improvements and the Equipment; (ii)
to make such additions, alterations, repairs and improvements to the
Improvements or the Equipment as Mortgagee may consider necessary or proper to
keep the same in good condition and repair; (iii) to appear and participate in
any action or proceeding affecting or which may affect the security hereof or
the rights or powers of Mortgagee hereunder; (iv) to contest or compromise any
lien, encumbrance or charge which in the judgment of Mortgagee may affect or
appear to affect the security of this Mortgage or be prior or superior hereto,
or to discharge the same, either by paying the amount claimed to be due or
depositing in court a bond for the amount claimed or otherwise giving security
for such claim, or in such other manner as is or may be prescribed by law; and
(v) in exercising such powers, to pay necessary expenses including the fees and
expenses of attorneys and all necessary or desirable consultants. All sums so
expended by Mortgagee or expended to sustain the lien or estate created by this
Mortgage or its priority, or to protect or enforce any of the rights of
Mortgagee under the terms of the Agreement or this Mortgage, or to recover or
enforce any of the Obligations Secured Hereby or otherwise to secure the
performance of any obligation of Mortgagor under the Agreement or this Mortgage,
shall be a lien on the Mortgaged Property, shall be deemed secured by this
Mortgage, and shall be paid by Mortgagor within 5 days after demand with
interest at the Applicable Rate. In any action or proceeding to foreclose this
Mortgage, or to recover, collect or enforce the Obligations Secured Hereby, the
provisions of law respecting the recovery of costs, disbursements and allowances
shall prevail unaffected by this covenant.
Section 1.14 Right of Entry. Mortgagee, and its agents,
--------------
representatives and employees, are authorized to enter at any reasonable time
upon any part of the Site, the Improvements and the Equipment for the purpose of
inspecting the same and for the purpose of performing any of the acts they are
authorized to perform under the terms of this Mortgage.
Section 1.15 Limitations of Use. Mortgagor shall not initiate, join
------------------
in or consent to any change in any private restrictive covenant, zoning
ordinance or other public or private restriction which would materially detract
from, or limit, the value of the Mortgaged Property.
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<PAGE>
Section 1.16 Estoppel Certificates. Mortgagor within 10 days after
---------------------
being given notice by mail, and within 5 days after being given notice by hand,
but not more frequently than every 6 months, shall furnish to Mortgagee a
statement stating the amount of any Obligations Secured Hereby which are
liquidated in amount and stating whether any offsets or defenses exist against
the Obligations Secured Hereby.
ARTICLE II
Events of Default; Remedies
---------------------------
Section 2.01 Nature of Events of Default. Any of the following shall
-----------------------------
constitute an "Event of Default":
(a) an "Event of Default as to Seller" (as defined in the Agreement)
shall occur and be continuing;
(b) Mortgagor shall fail to perform or observe, or cause to be
performed or observed, any of its covenants or agreements contained in
Sections 1.04, 1.05, 1.10, 1.11(a) and 1.15, and such failure shall
continue for a period of 20 days after notice thereof shall have been given
to Mortgagor by Mortgagee.
(c) a Project Loan Default (as defined in the Recognition Agreement)
shall occur and be continuing, and the Project Lender (as defined in the
Recognition Agreement) shall have given notice of such Project Loan Default
to Mortgagee pursuant to Section 3.1(a) of the Recognition Agreement;
(d) Mortgagor shall fail to perform or observe, or cause to be
performed or observed, any covenant or agreement contained or referred to
in this Mortgage (other than any covenant or agreement with respect to
which clauses (a) to (c), inclusive, of this Section 2.01 apply), and such
failure shall continue for a period of 30 days after notice thereof shall
have been given to Mortgagor by Mortgagee; provided, however, that if such
-----------------
failure cannot be remedied within such 30-day period and if Mortgagor
within such period of 30 days commences, and thereafter proceeds with all
due diligence, to cure such failure, such period shall be extended for such
further period (not to exceed 6 months after such notice by Mortgagee) as
shall be necessary for Mortgagor to cure the same with all due diligence;
(e) Mortgagor shall sell, lease or otherwise convey, directly or
indirectly, in a single transaction or in a series of related transactions,
or by operation of law, all or substantially all of the Mortgaged Property,
except as permitted by Section 2.4 of the Agreement; or
D-16
<PAGE>
(f) Mortgagor shall mortgage, pledge, hypothecate or grant a security
interest in the Mortgaged Property to any entity other than Mortgagee,
except as permitted by Section 2.4 of the Agreement.
Section 2.02 Remedies.
--------
(a) If an Event of Default shall occur and be continuing, Mortgagee
may declare the Obligations Secured Hereby to be forthwith due and payable,
whereupon the same shall become due and payable without presentment, notice of
dishonor or protest thereof, all of which are expressly waived by Mortgagor,
and. in addition, Mortgagee may exercise any right, power or remedy available to
it by law. Without limiting the generality of the foregoing, Mortgagee may:
(i) enter and take possession of the Site, the Improvements and the
Equipment or any part thereof, exclude Mortgagor and all persons claiming
under Mortgagor whose claims are junior to the lien of this Mortgage wholly
or partly therefrom, and operate, use, manage and control the same, or
cause the same to be operated by a person or entity selected by Mortgagee,
either in the name of Mortgagor or otherwise, and upon such entry, from
time to time, at the expense of Mortgagor and of the Mortgaged Property,
make all such repairs, replacements, alterations, additions or improvements
thereto as Mortgagee may deem proper, and collect and receive the rents,
revenues, issues, profits, royalties, income and benefits thereof and apply
the same, to the extent permitted by law, to the payment of all expenses
which Mortgagee may be authorized to incur under the provisions of this
Mortgage and applicable law, the remainder to be applied to the payment,
performance and discharge of the Obligations Secured Hereby in such order
as Mortgagee may determine until the same have been paid in full;
(ii) with respect to any failure by Mortgagor to design, engineer and
construct the Project and place the same in service, or to maintain and
repair the same, as provided in the Agreement, enter and take possession of
the Site, the Improvements and the Equipment, complete the construction and
equipping, or maintenance and repair, of the Project and take such action
as Mortgagee may deem appropriate to fulfill the obligations of Mortgagor
under the Agreement and hereunder, including the right either to avail
itself and procure performance of existing construction or maintenance
contracts or to enter into other contracts with the same contractors or
others; without limiting the generality of the foregoing, Mortgagor hereby
appoints and constitutes Mortgagee its lawful attorney-in-fact with full
power of substitution in the premises (it being understood and agreed that
this power is coupled with an interest and cannot be revoked) to complete
construction and equipping, or maintenance and
D-17
<PAGE>
repair, of the Project in the name of Mortgagor, to use unadvanced funds
under the Project Mortgage, if any, or funds that may be otherwise
available to, or reserved, escrowed or set aside by or for, Mortgagor in
respect of the construction and equipping, or maintenance and repair, of
the Project, or to advance Mortgagee's own funds, to complete the Project,
and to do any and every act that Mortgagor might do in its own behalf in
respect of the construction and equipping, or maintenance and repair, of
the Project;
(iii) personally, or, to the extent permitted by law, by agents, with
or without entry, if Mortgagee shall deem it advisable,
(A) sell the Mortgaged Property to the highest bidder or bidders
at public auction at a sale or sales held at such place or places and
time or times and upon such notice and otherwise in such manner as may
be required by law, or in the absence of any such requirement, as
Mortgagee may deem appropriate, and from time to time adjourn such
sale by announcement at the time and place specified for such sale or
for such adjourned sale or sales without further notice except such as
may be required by law; or
(B) take all steps to protect and enforce the rights of
Mortgagee under this Mortgage by suit for specific performance of any
covenant herein contained, or in aid of the execution of any power
herein granted, or for the foreclosure of this Mortgage and the sale
of the Mortgaged Property pursuant to the judgment or decree of a
court of competent jurisdiction, or for the enforcement of any other
rights as Mortgagee shall deem most effectual for such purpose; or
(iv) exercise any or all of the remedies available to a secured
party under the Uniform Commercial Code (the "UCC") as in effect in the
applicable jurisdiction in which the Mortgaged Property or the portion
thereof in question is located or by which this Mortgage is governed,
including
(A) either personally or by means of a court appointed receiver,
take possession of all or any of the Equipment and exclude therefrom
Mortgagor and all others claiming under Mortgagor, and thereafter
hold, store, operate, use, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to and exercise
all rights and powers of Mortgagor in respect of the Equipment or any
part thereof, or cause the same to be operated by a person or entity
selected by Mortgagee; and in the event the Mortgagee demands or
attempts to take possession of the Equipment in the exercise of any
rights hereunder or
D-18
<PAGE>
under the Agreement, Mortgagor shall promptly turn over and deliver
complete possession thereof to Mortgagee;
(B) without notice to or demand upon Mortgagor, make such
payments and do such acts as Mortgagee may deem necessary to protect
the security interest granted hereby in the Equipment, including
paying, purchasing, contesting or compromising any encumbrance, charge
or lien which is prior or superior thereto, and in exercising any such
powers or authority to pay all expenses incurred in connection
therewith;
(C) require Mortgagor to assemble the Equipment, or any portion
thereof, at a place designated by Mortgagee and reasonably convenient
to both parties, and promptly to deliver such Equipment to Mortgagee,
or an agent or representative designated by it, it being understood
that Mortgagee, and its agents, representatives and employees, shall
have the right to enter upon any or all of Mortgagor's premises and
property to exercise Mortgagee's rights hereunder;
(D) sell, lease or otherwise dispose of the Equipment at public
or private sale, with or without having the Equipment at the place of
sale, and upon such terms and in such manner as Mortgagee may
determine, and Mortgagee may be a purchaser at any such sale; and
(E) unless the Equipment is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized
market, give Mortgagor at least 10 days' prior notice of the time and
place of any public sale of the Equipment or other intended
disposition thereof.
As to any personal property subject to Article 9 of the UCC included in the
Mortgaged Property, including accounts, contract rights and general
intangibles, Mortgagee may proceed under the UCC or proceed as to both real
and personal property in accordance with the provisions of this Mortgage
and the rights and remedies that Mortgagee may have at law or in equity, in
respect of real property, and treat both the real and personal property
included in the Mortgaged Property as one parcel or package of security.
Mortgagor shall have the burden of proving that any sale pursuant to this
Section 2.02(a) was conducted in a commercially unreasonable manner.
(b) In any action to foreclose this Mortgage, Mortgagee, to the
extent permitted by law, shall be entitled as a matter of right to the
appointment of a receiver of the Site, the Improvements and the Equipment and
the rents, revenues, issues, profits, royalties, income and benefits thereof,
without notice or demand, and without regard to the adequacy of the security for
the
D-19
<PAGE>
Obligations Secured Hereby or the solvency of Mortgagor. In the event Mortgagor
fails or refuses to surrender possession of the Mortgaged Property after any
sale thereof, Mortgagor shall be deemed a tenant at sufferance, subject to
eviction by means of forcible entry and detainer proceedings, provided that this
remedy is not exclusive or in derogation of any other right or remedy available
to Mortgagee or any purchaser of the Mortgaged Property under any provision of
this Mortgage or pursuant to any judgment or decree of court.
(c) If an Event of Default shall occur and be continuing, Mortgagor
shall, to the extent permitted by law, pay monthly in advance to Mortgagee or to
any such receiver, as the case may be, the fair and reasonable rental value for
the use and occupancy of the Site, the Improvements and the Equipment or such
part thereof as may be in the possession of Mortgagor. Upon default in the
payment thereof, Mortgagor shall vacate and surrender possession of the Site,
the Improvements and the Equipment or of such part thereof to Mortgagee or such
receiver, as the case may be, and upon a failure so to do may be evicted by
means of forcible entry and detainer proceedings.
(d) In any sale under any provision of this Mortgage or pursuant to
any judgment or decree of court, the Mortgaged Property, to the extent permitted
by law, may be sold in one or more parts or parcels or as an entirety and in
such order as Mortgagee may elect, without regard to the right of Mortgagor, or
any person claiming under it, to the marshalling of assets.
(e) The purchaser at any such sale shall tender the entire purchase
price in cash on the day of the sale and shall take title to the Mortgaged
Property or the part thereof so sold free and discharged of the estate of
Mortgagor therein, the purchaser being hereby discharged from all liability to
see to the application of the purchase money. Any person, including Mortgagee,
may purchase at any such sale, and, subject to the provisions of the Recognition
Agreement, in lieu of paying cash Mortgagee may make settlement for the purchase
price by crediting upon the Obligations Secured Hereby the net sales price after
deducting therefrom the expenses of such sale and any other sums which may be
deducted under this Mortgage or applicable law. Mortgagee is hereby irrevocably
appointed the attorney-in-fact of Mortgagor in its name and stead to make all
appropriate transfers and deliveries of the Mortgaged Property or any portions
thereof so sold and, for this purpose, Mortgagee may execute all appropriate
instruments of transfer, and may substitute one or more persons with like power,
Mortgagor hereby ratifying and confirming all that its said attorneys or such
substitute or substitutes shall lawfully do by virtue hereof. Nevertheless,
Mortgagor shall ratify and confirm, or cause to be ratified and confirmed, any
such sale or sales by executing and delivering, or by causing to be executed and
delivered, to Mortgagee or to such purchaser or purchasers all such instruments
as may be advisable,
D-20
<PAGE>
in the judgment of Mortgagee, for the purpose, and as may be designated, in such
request. Any sale or sales made under or by virtue of this Mortgage, to the
extent not prohibited by law, shall operate to divest all the estate, right,
title, interest, property, claim and demand whatsoever, whether at law or in
equity, of Mortgagor in, to and under the Mortgaged Property, or any portions
thereof so sold, and shall be a perpetual bar both at law and in equity against
Mortgagor, its successors and assigns, and against any and all persons claiming
or who may claim the same, or any part thereof, by, through or under Mortgagor,
or its successors or assigns. The powers and agency herein granted are coupled
with an interest and are irrevocable.
(f) All rights of action under this Mortgage or the Agreement may be
enforced by Mortgagee without the possession of the Agreement or other evidences
of the Obligations Secured Hereby and without the production thereof at any
trial or other proceeding relative thereto. Any recovery of judgment in any such
suit or proceeding shall be for the benefit of Mortgagee.
Section 2.03 Application of Proceeds. The proceeds of any sale made
-----------------------
either under the power of sale hereby given or under a judgment, order or decree
made in any action to foreclose or to enforce this Mortgage, shall, unless
otherwise provided by law, be applied:
(a) first to the payment of (i) all costs and expenses of such sale,
including reasonable attorneys' fees, and (ii) all charges, expenses and
advances incurred or made by Mortgagee in order to protect the lien or
estate created by this Mortgage or the security afforded hereby including
any expenses of entering and taking possession of the Mortgaged Property;
(b) then to the payment of the Capacity Replacement Charge and any
other Obligations Secured Hereby in such order as Mortgagee may determine
until the same have been paid in full; and
(c) any balance thereof shall be paid to Mortgagor, or to whosoever
shall be legally entitled thereto, or as a court of competent jurisdiction
may direct.
Section 2.04 Right to Sue. If an Event of Default shall occur and be
------------
continuing, Mortgagee shall have the right from time to time to cause a sale of
the Mortgaged Property under the provisions of this Mortgage or to sue for any
sums required to be paid by Mortgagor under the terms of this Mortgage as the
same respectively become due, without regard to whether or not the Obligations
Secured Hereby shall be due and without prejudice to the right of Mortgagee
thereafter to cause any such sale or to bring any action or proceeding of
foreclosure or otherwise, or to
D-21
<PAGE>
take other action, in respect of any Event of Default existing at the time such
earlier action or proceeding was commenced.
Section 2.05 Powers of Mortgagee. Mortgagee may at any time or from
-------------------
time to time renew or extend this Mortgage or alter or modify the same in any
way, or waive any of the terms, covenants or conditions hereof in whole or in
part, and may release any portion of the Mortgaged Property or any other
security, and grant such extensions and indulgences in relation to the
Obligations Secured Hereby as Mortgagee may determine without the consent of any
junior lienor or encumbrancer and without any obligation to give notice of any
kind thereto and without in any manner affecting the priority of the lien of
this Mortgage on any part of the Mortgaged Property.
Section 2.06 Remedies Cumulative.
-------------------
(a) No right or remedy herein conferred upon or reserved to Mortgagee
is intended to be exclusive of any other right or remedy, and each and every
such right and remedy shall be cumulative and in addition to any other right or
remedy of Mortgagee under the Agreement or this Mortgage, or at law or in
equity. The failure of Mortgagee to insist at any time upon the strict
observance or performance of any of the provisions of this Mortgage, or to
exercise any right or remedy provided for herein or in the Agreement, shall not
impair any such right or remedy nor be construed as a waiver or relinquishment
thereof. Every right and remedy given by this Mortgage or the Agreement to
Mortgagee may be exercised from time to time and as often as may be deemed
expedient by Mortgagee.
(b) Mortgagee shall be entitled to enforce payment and performance of
any Obligations Secured Hereby and to exercise all rights and powers under the
Agreement or this Mortgage, or at law or in equity, notwithstanding that such
Obligations Secured Hereby may now or hereafter be otherwise secured. Neither
the acceptance of this Mortgage nor its enforcement, whether by court action or
pursuant to the power of sale or other powers herein contained, shall prejudice
or in any manner affect Mortgagee's right to realize upon or enforce any other
security now or hereafter held by Mortgagee in such order and manner as
Mortgagee in its sole discretion may determine. Every power or remedy given by
this Mortgage or the Agreement to Mortgagee or to which Mortgagee may be
otherwise entitled, may be exercised from time to time and as often as Mortgagee
may deem expedient, and Mortgagee may pursue inconsistent remedies.
Section 2.07 Waiver of Stay, Extension, Moratorium Laws; Equity of
-----------------------------------------------------
Redemption. To the extent permitted by law, Mortgagor shall not at any time (a)
- ----------
insist upon, or plead, or in any manner whatever claim or take any benefit or
advantage of any applicable present or future stay, extension or moratorium law,
which may affect observance or performance of any Obligations
D-22
<PAGE>
Secured Hereby, or (b) claim, take or insist upon any benefit or advantage of
any present or future law providing for the valuation or appraisal of the
Mortgaged Property prior to any sale or sales thereof which may be made under or
by virtue of the provisions of Section 2.02; and Mortgagor, to the extent that
it lawfully may, hereby waives all benefit or advantage of any such law or laws.
Mortgagor, for itself and all who may claim under it, hereby waives, to the
extent permitted by applicable law, any and all rights and equities of
redemption from sale under the power of sale created hereunder or from sale
under any order or decree of foreclosure of this Mortgage and all notice or
notices of seizure, and all right to have the Mortgaged Property marshalled upon
any foreclosure hereof. Mortgagee shall not be obligated to pursue or exhaust
its rights or remedies as against any part of the Mortgaged Property before
proceeding against any other part thereof and Mortgagor hereby waives any right
or claim of right to have Mortgagor proceed in any particular order.
ARTICLE III
Miscellaneous
-------------
Section 3.01 Notices. All notices, demands, requests, consents and
-------
other communications hereunder (collectively, "notices") shall be in writing and
shall be effective only if delivered by hand or mailed by registered mail,
postage prepaid, return receipt requested, addressed to the party for whom
intended at the address of such party set forth at the beginning of this
Mortgage and also, if to Mortgagee, with a copy to Allegheny Power Service
Corporation, 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601, Attention:
Legal Department. Any party may at any time change its address for notices by
giving to the other party hereto, as aforesaid, a notice of such change.
Section 3.02 Security Agreement. This Mortgage constitutes both a
------------------
real property and chattel mortgage and a "security agreement" within the meaning
of the UCC, and the Mortgaged Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Mortgagor in the Mortgaged Property. Mortgagor by executing and delivering this
Mortgage has granted to Mortgagee, as security for the Obligations Secured
Hereby, a security interest in the personal property comprising the Mortgaged
Property. If an Event of Default shall occur and be continuing, Mortgagee, in
addition to any other rights and remedies which it may have, shall have and may
exercise immediately and without demand, any and all rights and remedies granted
to a secured party upon default under the UCC, including the right to take
possession of such personal property or any part thereof, and to take such other
measures as the Mortgagee may deem necessary for the care, protection and
preservation of such personal property.
D-23
<PAGE>
Section 3.03 Further Assurances.
------------------
(a) Mortgagor shall execute, acknowledge and deliver, from time to
time, such further instruments as Mortgagee may require to accomplish the
purposes of this Mortgage.
(b) Mortgagor immediately upon the execution and delivery of this
Mortgage, and thereafter from time to time, shall cause this Mortgage, any
supplements hereto, any financing statements and each instrument of further
assurance to be filed, registered or recorded and refiled, reregistered or
recorded in such manner and in such places as may be required by any present
or future law in order to publish notice of and perfect the lien and security
interest or estate created by this Mortgage on or in the Mortgaged Property.
(c) Mortgagor shall pay all filing, registration and recording fees,
all refiling, reregistration and rerecording fees, and all expenses incident to
the execution and acknowledgment of this Mortgage, the Agreement, the
Recognition Agreement, any supplements hereto or thereto, any financing and
continuation statements and any instruments of further assurance, and all
Federal, State, county and municipal stamp taxes and other taxes, assessments
and charges arising out of or in connection with the execution and delivery of
this Mortgage, the Agreement, the Recognition Agreement any supplements hereto
or thereto, any financing and continuation statements and any instruments of
further assurance.
(d) A carbon, photographic or other reproduction of this Mortgage or
of any financing statement signed by Mortgagor in connection herewith shall be
sufficient as a financing statement and may be filed to perfect the security
interest created hereby.
Section 3.04 Amendments, Waivers, Etc. This Mortgage cannot be
------------------------
amended, modified, waived, changed, discharged or terminated except by an
instrument in writing signed by the party against whom enforcement of such
amendment, modification, waiver, change, discharge or termination is sought.
Section 3.05 Successors and Assigns. This Mortgage shall run with
----------------------
the land and shall apply to, inure to the benefit of and bind each of the
parties hereto and their respective successors and assigns.
Section 3.06 Interpretation. Unless the context otherwise requires,
--------------
(a) any reference in this Mortgage to "Mortgagor," "Mortgagee" or any other
entity shall include its successors and assigns, (b) any reference to an Article
or Section shall refer to the specified Article or Section of this Mortgage, (c)
words importing the singular number include the plural number, and vice versa,
(d) the terms "hereof", "hereby", "hereto", "hereunder" and similar terms refer
to this entire Mortgage, (e)
D-24
<PAGE>
the term "including" shall mean "including without limitation", and (f) any
reference to the Mortgaged Property shall refer to the Mortgaged Property or any
part thereof or any estate or interest therein. The captions or headings at the
beginning of each Article and Section hereof are for the convenience of the
parties and are not a part of this Mortgage.
Section 3.07 Invalidity of Certain Provisions. If the security
--------------------------------
interest, lien or estate created by this Mortgage is invalid or unenforceable as
to any part of the Obligations Secured Hereby, or as to any part of the
Mortgaged Property, the unsecured or partially secured portion thereof shall be
completely paid prior to the payment of the remaining and secured or partially
secured portion thereof, and all payments made thereon, whether voluntary or
pursuant to foreclosure sale or other enforcement action or procedure, shall be
considered to have been first paid on and applied to the full payment of that
portion thereof which is not secured or fully secured by this Mortgage.
Section 3.08 Severability. If any term or provision of this
------------
Mortgage or the application thereof to any person, entity or circumstance shall
to any extent be invalid or unenforceable, the remainder of this Mortgage, or
the application of such term or provision to persons, entities or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Mortgage shall be valid
and enforceable to the fullest extent permitted by law.
Section 3.09 Limitation of Liability. No recourse for the payment
-----------------------
of the Obligations Secured Hereby, or for any claim based thereon or otherwise
in respect thereof, shall be had against any incorporator, shareholder, officer
or director, as such, past, present or future, of Mortgagor or of any partner
thereof or any successor corporation, or against any direct or indirect parent
corporation of Mortgagor or any other subsidiary of any such direct or indirect
parent corporation or any incorporator, shareholder, officer or director, as
such, past, present or future, of any such parent or other subsidiary, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, it being understood that Mortgagor is a
special purpose corporation formed for the purpose of the transactions
contemplated by the Agreement on the express understanding aforesaid; provided,
---------
however, that nothing in this Section 3.09 shall relieve any of the foregoing
- -------
persons or entities from liability for such person's or entity's gross
negligence or willful misconduct. Nothing contained in this Section 3.09 shall
be construed to limit the exercise or enforcement, in accordance with the terms
of this Mortgage or the Agreement, of rights and remedies against Mortgagor or
the assets of Mortgagor, including the Mortgaged Property.
D-25
<PAGE>
Section 3.10 Governing Law. This Mortgage shall be governed by, and
-------------
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
Section 3.11 Recognition Agreement. This Mortgage is subject in all
---------------------
respects to the provisions of the Recognition Agreement, and in the event of any
inconsistency with the provisions of this Mortgage, the provisions of the
Recognition Agreement shall control.
IN WITNESS WHEREOF, this Mortgage has been duly executed this ____ day
of ___________, 1987, effective as of the day and year first above written.
MILESBURG ENERGY, INC.
[Seal] By_______________________________________
Title:___________________________________
Attest:
Certificate of Residence of Mortgagee
-------------------------------------
WEST PENN POWER COMPANY, Mortgagee herein named, hereby certifies that
its principal place of business is at 800 Cabin Hill Drive, Greensburg,
Pennsylvania 15601.
WEST PENN POWER COMPANY
By_______________________________________
This Mortgage was prepared by:
W. Franklin Reed, Esq.
Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, PA 15219
D-26
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
)
COUNTY OF ALLEGHENY )
On this, the _____ day of __________, 1987, before me,
_______________________, the undersigned officer, personally appeared
_____________________, known to me (or satisfactorily proven) to be the person
whose name is subscribed to the within instrument, who acknowledged that he is
the _______________ of Milesburg Energy, Inc., a _____________ corporation, and
acknowledged that as such officer he executed the within instrument for and on
behalf of said corporation for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
[Seal]
___________________________________
Notary Public
My Commission Expires:
<PAGE>
SCHEDULE I
[Metes, bounds and title reference description of Site to be added]
<PAGE>
SCHEDULE II
[List of specific items of machinery and equipment, if appropriate, to
be added ]
<PAGE>
EXHIBIT E
---------
TO
ELECTRIC ENERGY
PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECOGNITION AGREEMENT
Dated as of ___________, 1987
among
WEST PENN POWER COMPANY, as Buyer,
MILESBURG ENERGY, INC., as Seller,
__________________________, as Construction Lender,
________________________________, as Owner Trustee,
______________________________, as Permanent Lender
and
____________________, as Indenture Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Record and Return to:
Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, Pennsylvania 15219
Attention: W. Franklin Reed, Esq.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION AND PARTIES................................................. 1
RECITALS................................................................. 1
ARTICLE 1 DEFINITIONS
Section 1.1 Certain Definitions.................................. 3
Section 1.2 Rules of Interpretation.............................. 10
ARTICLE 2 CERTAIN COMMUNICATIONS
Section 2.1 Construction Lender's
Communications..................................... 11
Section 2.2 Lessor's Communications.............................. 11
Section 2.3 Permanent Lender's Communications.................... 11
Section 2.4 Buyer's Communications............................... 11
Section 2.5 Other Communications................................. 11
ARTICLE 3 BUYER'S RIGHTS UPON LOAN DEFAULT
Section 3.1 Buyer's Right to Cure Project
Loan Defaults...................................... 12
ARTICLE 4 FINANCING PARTY'S RIGHTS UPON SELLER'S DEFAULT
Section 4.1 Financing Party's Right to
Cure Seller's Defaults............................. 14
Section 4.2 Financing Party's Right to
Suspend Buyer's Remedies........................... 17
Section 4.3 Permanent Lender's Right to
Redeem Project Owner's Equity...................... 19
ARTICLE 5 RIGHTS UPON SUCCESSION EFFECTED BY A FINANCING PARTY
Section 5.1 Recognition of Operative
Documents.......................................... 20
Section 5.2 Financing Party's Right to Modify
Purchase Agreement................................. 22
Section 5.3 Application of Net Proceeds.......................... 24
Section 5.4 Nature of Obligations................................ 27
Section 5.5 Construction Lender's Right to
Reject Buyer's Documents........................... 28
ARTICLE 6 RIGHTS UPON SUCCESSION EFFECTED BY BUYER
Section 6.1 Recognition of Permanent Loan
Documents.......................................... 29
</TABLE>
E-i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 6.2 No Duty to Recognize Other
Operative Documents................................ 31
Section 6.3 Operation of the Project by Buyer.................... 31
Section 6.4 Application of Net Proceeds.......................... 32
Section 6.5 Nature of Obligations................................ 36
ARTICLE 7 DAMAGE AND CONDEMNATION
Section 7.1 Application of Proceeds to
Restoration........................................ 36
Section 7.2 No Restoration....................................... 40
ARTICLE 8 MISCELLANEOUS
Section 8.1 Determination of Encumbered Value.................... 43
Section 8.2 Notices.............................................. 44
Section 8.3 Amendments to Operative Documents.................... 44
Section 8.4 Relative Priorities.................................. 46
Section 8.5 Termination of Purchase Agreement.................... 46
Section 8.6 No Amendments, Etc................................... 47
Section 8.7 Further Assurances................................... 47
Section 8.8 Term................................................. 47
Section 8.9 Successors and Assigns............................... 47
Section 8.10 Headings............................................. 48
Section 8.11 Severability......................................... 48
Section 8.12 Immunities........................................... 48
Section 8.13 Counterparts......................................... 49
Section 8.14 Governing Law........................................ 49
EXECUTION ............................................................. 49
EXHIBIT A Legal Description of Project Site
EXHIBIT B Schedule of Stipulated Loss Value
EXHIBIT C Schedule of Maximum Semi-Annual Rent and Debt Service
</TABLE>
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<PAGE>
RECOGNITION AGREEMENT
---------------------
RECOGNITION AGREEMENT dated as of the _____ day of ________ , 1987,
among WEST PENN POWER COMPANY, a Pennsylvania corporation having its principal
place of business at 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601
("Buyer"), MILESBURG ENERGY, INC., a Pennsylvania corporation having an office
at 248 Main Street, Blossburg, Pennsylvania 16912 ("Seller"), [Construction
Lender/Owner Participant], a _______________ corporation having an office at
_____________________________________ ( " " ) , __________________, a
___________________ corporation having its corporate trust office at ___________
___________ as trustee under the Owner Trust Agreement referred to below ("Owner
Trustee"), [Permanent Lender], a _______________ corporation having an office at
_____________________ (" "), and _______________, a ____________________
corporation having its corporate trust office at _____________________________,
as trustee under the Trust Indenture referred to below ("Indenture Trustee").
W I T N E S S E T H:
-------------------
WHEREAS, Seller and Buyer have entered into an Electric Energy
Purchase Agreement dated as of February 25, 1987 (the "Purchase Agreement"), a
memorandum of which is intended to be recorded in the Office of the Recorder of
Deeds of Centre County, Pennsylvania (the "Recorder's Office"), providing for
the construction, equipping and operation by Seller of the Project, consisting
of a circulating fluidized bed boiler and related facilities having an expected
generating capacity of 36.5 to 43 megawatts, including a _____ mile transmission
line and auxiliary facilities, to be located at Buyer's retired Milesburg Power
Station in the Borough of Milesburg in Centre County, Pennsylvania (the "Project
Site"), which Project Site is more particularly described in Exhibit A hereto,
and providing for the sale by Seller and purchase by Buyer of all electric
energy generated by the Project (the "Project Energy") on the terms and
conditions therein set forth; and
WHEREAS, as security for Seller's obligations to Buyer under the
Purchase Agreement, Seller has executed and delivered to Buyer a Mortgage and
Security Agreement dated as of _____________, 1987 (the "Buyer Mortgage"),
intended to be recorded in the Recorder's Office; and
WHEREAS, in order to finance the construction of the Project, Seller
has entered into a Construction Loan Agreement dated as of ___________, 1987
(the "Construction Loan Agreement") with ____, as construction lender
("Construction Lender"); and
WHEREAS, as security for Seller's obligations to Construction Lender
under the Construction Loan Agreement, Seller has executed and delivered to
Construction Lender a
<PAGE>
_________________ dated as of ________________ 1987 (the "Construction
Mortgage"), intended to be recorded in the Recorder's Office, pursuant to which
Seller has granted to Construction Lender a lien on and security interest in,
among other things, the Project; and
WHEREAS, upon substantial completion of construction of the Project,
Seller and Owner Trustee intend to engage in a sale and leaseback transaction
pursuant to which Seller will sell the Project to Owner Trustee, and Owner
Trustee, as lessor ("Lessor"), will lease the Project to Seller, as lessee
("Lessee"), for an initial term of 15 years pursuant to a Lease Agreement (the
"Original Lease" ), a memorandum of which is intended to be recorded in the
Recorder's Office; and
WHEREAS, in order to finance a portion of Lessor's cost of acquisition
of the Project from Seller and to cover certain possible initial operating and
financing costs, Lessor may issue certain notes, loan certificates or other
evidences of indebtedness for borrowed money (the "Permanent Notes") to
________________ (herein, together with any other holders from time to time of
the Permanent Notes, being collectively called the "Noteholders") and, in order
to provide for the issuance of and security for the Permanent Notes, Lessor may
enter into a Trust Indenture (the "Trust Indenture") dated as of the Lease
Closing Date (as defined in the Participation Agreement) with Indenture
Trustee, pursuant to which Lessor will, if the Permanent Notes are issued, grant
to Indenture Trustee, as security for the Permanent Notes, a lien on and
security interest in the Original Lease and, subject to Lessee's rights under
the Original Lease, the Project; and
WHEREAS, the execution and delivery by the parties hereto of this
Agreement is a condition to Buyer's obligation to purchase Project Energy under
the Purchase Agreement, a condition to Construction Lender's obligation to make
advances under the Construction Loan Agreement, a condition to Owner Trustee's
obligation to purchase the Project from Seller and to lease the same to Lessee
pursuant to the Original Lease and a condition to the issuance of the Permanent
Notes; and
WHEREAS, the parties hereto desire to establish the relative rights
and priorities of the parties and their successors and assigns under the
agreements and instruments described above;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and for other good and valuable consideration, the receipt whereof is
hereby acknowledged, and in order to induce Buyer to purchase Project Energy
pursuant to the Purchase Agreement and to induce Construction Lender, Owner
Trustee and Indenture Trustee to engage in the transactions described above, the
parties hereto, intending to be legally bound, hereby agree as follows:
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<PAGE>
ARTICLE 1
Definitions
Section 1.1. Certain Definitions. As used in this Agreement:
-------------------
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person, or who holds or
beneficially owns 10% or more of the equity interest in such Person or 10% more
of any class of voting securities of such Person.
"Buyer Mortgage" has the meaning specified in the recitals hereto.
"Buyer's Documents" means, collectively, the Purchase Agreement and
the Buyer Mortgage.
"Condemnation" has the meaning specified in Section 7.1(a).
"Construction Loan Agreement" has the meaning specified in the
recitals hereto.
"Construction Loan Default" means a default in the performance or
observance of any of the terms, covenants and conditions to be performed or
observed under the Construction Loan Documents, which default shall continue
beyond any applicable grace period set forth in the construction Loan Documents
and shall not be cured or waived.
"Construction Loan Default" means, collectively, the Construction Loan
Agreement, the Construction Mortgage, any instrument evidencing the loans
advanced under the Construction Loan Agreement and any other security agreement
or financing statement entered into in connection therewith.
"Construction Mortgage" has the meaning specified in the recitals
hereto.
"Conversion Proceeds" has the meaning specified in Section 7.1(a).
"Damage" has the meaning specified in Section 7.1(a).
"Defaulting Party" means Seller, Lessor or Lessee, as the case may be,
following any default by any such Person in the performance of any of its
obligations under any Operative Document to which it is a party.
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<PAGE>
"Encumbered Value of the Project" means the fair market sales value,
in cash, obtainable for the Project in an arm's length sale, between an
informed and willing seller (under no compulsion to sell) and an informed and
willing purchaser (under no compulsion to purchase), determined on the basis
that (a) the Project shall be sold subject to Buyer's Documents and this
Agreement and Buyer's rights thereunder and hereunder, but free and clear of
Project Owner's interest in the Project and of the Operative Documents (other
than Buyer's Documents), (b) the purchaser shall have and be entitled to
exercise the benefits and rights of Seller under Buyer's Documents and this
Agreement, as fully as if named as the Seller therein, (c) the purchaser shall
become subject to (but not personally liable for) the obligations of Seller
under Buyer ' Documents, (d) the Project shall remain subject to the Buyer
Mortgage, and (e) Buyer's Documents and this Agreement shall be in full force
and effect and no Seller's Default shall exist.
"Financing Party" has the meaning specified in Section 4.1(a).
"Incremental Weighted Cost of Capital" means Buyer's incremental
weighted cost of capital as of any date of determination (the "Determination
Date"), computed as follows:
(a) Buyer's actual capital structure, exclusive of short-term debt,
and the ratio of each component thereof to the total shall be determined as
of the end of the last full calendar quarter preceding the Determination
Date.
(b) Rates for each component shall be determined as follows:
Debt - The interest rate for debt shall be the average yield on
----
outstanding electric utility bonds of the same Moody's rating category
as Buyer's determined by averaging the weekly yields as published by
Moody's (or such other nationally recognized financial information
service the parties shall agree upon) for the last full calendar
quarter preceding the Determination Date.
Preferred - The dividend rate for preferred stock equity shall be
---------
the average yield on outstanding electric utility preferred stocks of
the same Moody's rating category as Buyer's determined by averaging
the weekly yields as published by Moody's (or such other nationally
recognized financial information service the parties shall agree upon)
for the last full calendar quarter preceding the Determination Date.
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<PAGE>
Common - The rate of return on common equity shall be the greater
------
of (i) the return on common equity allowed in Buyer's last rate case
for its primary regulatory jurisdiction preceding the Determination
Date or (ii) the actual earned rate of return on Buyer's common equity
for the last full calendar quarter preceding the Determination Date.
If no rate of return on common equity was specified in such rate case,
for purposes of such formula an imputed return on common equity rate
(as reasonably determined by Buyer, it being understood that there may
exist more than one reasonable method of determining such imputed
return on common equity rate and that the method employed by Buyer, if
reasonable, shall not be subject to challenge on the basis that it
is not the best method) shall be used.
(c) Buyer's Incremental Weighted Cost of Capital shall be determined
by multiplying the capitalization ratio of each component of Buyer's
capital structure by the interest rate, dividend rate or rate of return, as
the case may be, and summing the three components.
"Independent Operator" means any Person, other than Lessor or an
Affiliate of Lessor, that is operating the Project or causing the same to be
operated pursuant to an Operating Agreement between Lessor and such Person.
"Lease" means the Original Lease and any other lease of the Project or
any part thereof entered into by Lessor.
"Lease Default" means a default in the performance or observance of
any of the terms, covenants and conditions to be performed or observed under the
Lease, which default shall continue beyond any applicable grace period set forth
in the Lease and shall not be cured or waived.
"Lease Rate" means the Rate (as defined in the Lease) or, if no Lease
is in effect, the Rate specified in the last Lease in effect.
"Lessee" has the meaning specified in the recitals hereto.
"Lessor" has the meaning specified in the recitals hereto, and
includes the trust created by the Owner Trust Agreement.
"Lessor's Cost" has the meaning specified in the Participation
Agreement; provided, however, that Lessor's Cost in no event shall exceed
-------- -------
$__________.
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<PAGE>
"Lessor' s Net Economic Return" means the Net Economic Return (as
defined in the Participation Agreement) or, if no Lease is in effect, the Net
Economic Return specified in the last Lease in effect; provided, however, that
-------- -------
in no event shall Lessor's Net Economic Return include the residual value of
Lessor's interest in the Project at the expiration of Lessor's Preference
Period, as anticipated by ____ on the date this Agreement is executed.
"Lessor's Preference Period" means the period commencing on the first
day of the term of the Original Lease and expiring on the fifteenth anniversary
of the Commencement Date.
"Moody's" means Moody's Investors Service, Inc.
"Net Proceeds" means all proceeds of whatever kind obtained in
connection with the exercise of remedies under any Operative Document, including
from a sale or transfer of the Project or any interest therein, less the
reasonable costs and expenses incurred in connection therewith (but excluding
any indemnities payable to any party under any Operative Document).
"Nondefaulting Party" means any party to an Operative Document, other
than the Defaulting Party, following any default by the Defaulting Party in the
performance of any of its obligations under such Operative Document.
"Noteholders" has the meaning specified in the recitals hereto.
"Notional Cash Flow" has the meaning specified in Section 6.3(b).
"Notional Cash Flow Account" has the meaning specified in Section
6.3(b).
"Operating Agreement" means an independent contract between Lessor and
an Independent Operator under which the Independent Operator is obligated to
make payments of rent or other consideration to Lessor which are fixed in amount
and not computed by reference to the cash flow or economic performance of the
Project (the Independent Operator thereby bearing the economic risks of, and
realizing the economic benefits from, the Project in a manner comparable to
Lessee); provided, however, that such independent contract may provide for a
-------- -------
different compensation arrangement (which may include payments by Lessor to the
Independent Operator) so long as any net cash flow (after payment or
reimbursement of all costs and expenses in any way relating to the Project,
including debt service payments) realized by Lessor from the operation of the
Project is applied solely to maintain Lessor's Net Economic Return.
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<PAGE>
"Operative Documents" means, collectively, the Project Documents, the
Construction Loan Documents, the Lease, the Permanent Loan Documents and Buyer's
Documents.
"Original Lease" has the meaning specified in the recitals hereto.
"Owner Trust Agreement" means the Trust Agreement dated as of ____,
1987, between ____ and Owner Trustee.
"Participation Agreement" means the Participation Agreement dated
________, 1987, among Seller, __________, Owner Trustee, __________ , the bank
or trust company identified therein as the "Paying Agent" and Indenture Trustee.
"Permanent Lender" means, collectively, the Noteholders, whether
acting directly or through Indenture Trustee, and Indenture Trustee.
"Permanent Loan Default" means a default in the performance or
observance of any of the terms, covenants and conditions to be performed or
observed under the Permanent Loan Documents, which default shall continue beyond
any applicable grace period set forth in the Permanent Loan Documents and shall
not be cured or waived.
"Permanent Loan Documents" means, collectively, the Participation
Agreement, the Trust Indenture, the Permanent Notes and any other loan or
security agreement or financing statement entered into in connection therewith,
and may include a purchase of notes and other instruments from Construction
Lender and the restatement thereof in their entirety on terms substantially
equivalent to that contemplated by the Participation Agreement.
"Permanent Notes" has the meaning specified in the recitals hereto.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government.
"Project Documents" means, collectively, all documents relating to the
ownership, construction, operation, management or use of the Project, other than
this Agreement, Buyer's Documents, the Construction Loan Documents, the Lease
and the Permanent Loan Documents.
"Project Energy" has the meaning specified in the recitals hereto.
"Project Lender" means (a) prior to the Commencement Date,
Construction Lender, and (b) after the Commencement Date, until the indebtedness
outstanding under the Construction Loan
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<PAGE>
Agreement is paid in full, Construction Lender, and thereafter Permanent Lender.
"Project Loan Default" means (a) prior to the Commencement Date, a
Construction Loan Default, and (b) after the Commencement Date, until the
indebtedness outstanding under the Construction Loan Agreement is paid in full,
a Construction Loan Default, and thereafter a Permanent Loan Default.
"Project Loan Documents" means (a) prior to the Commencement Date, the
Construction Loan Documents, and (b) after the Commencement Date, until the
indebtedness outstanding under the Construction Loan Agreement is paid in full,
the Construction Loan Documents, and thereafter the Permanent Loan Documents.
"Project Owner" means Seller as owner of the Project.
"Project Site" has the meaning specified in the recitals hereto.
"Purchase Agreement" has the meaning specified in the recitals hereto.
"Recorder's Office" has the meaning specified in the recitals hereto.
"Restoration Costs" has the meaning specified in Section 7.1(b).
"Restoring Party" has the meaning specified in Section 7.1(c).
"Seller's Default" means any Event of Default as to Seller (as defined
in Section 6.1 of the Purchase Agreement) or Event of Default (as defined in
Section 2.01 of the Buyer Mortgage) which shall not be cured or waived.
"Stipulated Loss Value" means, at any time, an amount equal to (a) the
Stipulated Loss Value (as defined in the Lease), determined at such time as
provided in the Lease (but in no event shall the same exceed the product of
Lessor's Cost multiplied by the percentage set forth in Exhibit B hereto
applicable at such time), or (b) if no Lease is in effect at such time, the
product of Lessor's Cost multiplied by the percentage set forth in Exhibit B
hereto applicable at such time.
"Succession" means (a) when used with respect to Project Owner's
interest in the Project,
(i) any succession to Project Owner's interest in the Project by
Construction Lender, Permanent Lender, Buyer or any other Successor by
reason of any such Person's in any manner taking over the
construction,
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<PAGE>
ownership, management or operation of the Project or otherwise
succeeding to the interest of Project Owner in the Project pursuant to
a judgment of foreclosure, acceptance of a deed in lieu of foreclosure
or any other means, whether by exercise of remedies under the
Construction Loan Documents, the Permanent Loan Documents, the Buyer
Mortgage or otherwise, or
(ii) any other Successor's succession to Project Owner's interest
in the Project by reason of any sale, lease or other transfer of
Project Owner's interest in the Project or any part thereof by Project
Owner or any other Successor; and
(b) when used with respect to Lessee's interest in the Project,
(i) any succession to Lessee's interest in the Project by
Lessor, Permanent Lender or any other Successor by reason of any such
Person's in any manner taking over the construction, ownership,
management or operation of the Project or otherwise succeeding to the
interest of Lessee in the Project pursuant to a termination of the
Lease, acceptance of a surrender of the Lease, ejectment or any other
means, whether by exercise of remedies under the Lease or otherwise,
or
(ii) any other Successor's succession to Lessee's interest in the
Project by reason of any sale, lease or other transfer of Lessee's
interest in the Project or any part thereof by Lessee or any other
Successor.
"Succession Undertaking" means a written instrument confirming the
undertaking of a Person to perform or cause to be performed the obligations
required by this Agreement or an Operative Document to be performed in
connection with a Succession, in form and substance reasonably satisfactory to
the party or parties to whom such obligations are owed.
"Successor" means, when used with respect to any Person's interest in
the Project, any other Person succeeding to such interest by reason of a
Succession.
"Total Loss" means (a) Damage or Condemnation to an extent that
renders this Project incapable of being restored to a condition that will permit
the use of the same for the purposes for which intended, or (b) results in the
settling, adjusting or compromising of any insurance on the basis of a total
loss of the Project.
"Trust Indenture" has the meaning specified in the recitals hereto.
E-9
<PAGE>
Section 1.2. Rules of Interpretation. (a) Unless the context shall
-----------------------
otherwise require, any reference in this Agreement to "Project Owner" or
"Lessee" shall include any Successor to such Person's interest in the Project,
any reference to "Seller", and, if the Project has been sold by Seller to
Lessor, "Lessor", shall include Project Owner, any reference to a Succession to
any Person's interest in the Project shall include such Person's rights under
any Operative Documents, and any reference in this Agreement to a Person shall
include its successors and assigns.
(b) Following any termination of the Lease by operation of law as a
result of any Succession, any reference to the "Lease" shall include any new
lease permitted by Section 5.2(d), any reference to "Lessor" shall include the
lessor under such new lease and any reference to "Lessee" shall include the
lessee under such new lease or, if Lessor enters into an Operating Agreement
contemplated by Section 5.3(d), 6.4(e) or 7.2(c), the Independent Operator under
such Operating Agreement. Following any discharge of the Construction Loan
Documents or the Permanent Loan Documents by operation of law as a result of any
Succession, any reference to the "Construction Loan Documents" or the "Permanent
Loan Documents", as the case may be, shall include any instrument creating a
lien on and security interest in Project Owner's interest in the Project
permitted by Section 5.2(e) and all agreements, notes and other instruments
executed and delivered in connection with, or as further security for, the
indebtedness and other obligations secured thereby, and any reference to
"Permanent Lender" shall include any holders of such notes or other instruments.
(c) If any indebtedness outstanding under the Project Loan Documents
is held by Seller, Lessor or any of their respective Affiliates, any reference
to "Construction Lender" or "Permanent Lender'" shall not include Seller, Lessor
or any of their respective Affiliates.
(d) Any reference to any Operative Document or other agreement or
contract shall include all supplements and amendments thereto to the extent
permitted by this Agreement.
(e) Any reference to an Article or Section shall refer to the
specified Article or Section of this Agreement, unless the context otherwise
requires.
(f) Unless the context otherwise requires, words importing the
singular number include the plural number, and vice versa; the terms "hereof",
"hereby", "hereto", "hereunder" and similar terms refer to this entire
Agreement; and the term "including" shall mean "including without limitation".
(g) Unless the context otherwise requires or as otherwise expressly
provided in this Agreement, terms defined in the Purchase Agreement (including
"Applicable Rate", "APS Demand",
--------------- ----------
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<PAGE>
"Buyer's System", "Capacity Cost Rate", "Capacity Replacement Charge",
-------------- ------------------ ---------------------------
"Commencement Date". "Contract Output", "Design and Construction Standard",
----------------- --------------- --------------------------------
"Energy Cost Rate", "Event of Default as to Buyer", "FERC", "Interconnection",
---------------- ---------------------------- ---- ---------------
"Operating and Maintenance Expenses", "Operations Coordination Agreement",
---------------------------------- ---------------------------------
"Project", "PURPA", "Reserve Fund", "Test Period" and "Variable Energy Cost
------- ----- ------------ ----------- --------------------
Rate") shall have, when used in this Agreement, the meanings respectively
- ----
assigned thereto in the Purchase Agreement as in effect on the date hereof.
ARTICLE 2
Certain Communications
Section 2.1. Construction Lender's Communications. Construction
------------------------------------
Lender shall provide to Buyer and Permanent Lender a copy of any notice which
Construction Lender may send to Seller with respect to the performance or
nonperformance of Seller's obligations under the Construction Loan Documents,
including any notice of a Construction Loan Default.
Section 2.2. Lessor's Communications. Lessor shall provide to
-----------------------
Permanent Lender and Buyer a copy of any notice which Lessor may send to Lessee
with respect to the performance or nonperformance of Lessee's obligations under
the Lease, including any notice of a Lease Default.
Section 2.3. Permanent Lender's Communications. Permanent Lender
---------------------------------
shall provide to Buyer a copy of any notice which Permanent Lender may send to
Lessee with respect to the performance or nonperformance of Lessee's obligations
under the Lease, including any notice of a Lease Default, or which Permanent
Lender may send to Lessor with respect to the performance or nonperformance of
Lessor's obligations under the Permanent Loan Documents, including any notice of
a Permanent Loan Default.
Section 2.4. Buyer's Communications. Buyer shall provide to
----------------------
Construction Lender, Lessor and Permanent Lender a copy of any notice which
Buyer may send to Seller with respect to the performance or nonperformance of
Seller's obligations under Buyer's Documents, including any notice of a Seller's
Default.
Section 2.5. Other Communications. Construction Lender, Lessor,
--------------------
Permanent Lender and Buyer shall each promptly advise each other of any
amendment or proposed amendment to or any material consent or waiver of
performance of Seller's, Lessor's or Lessee's obligations under any Operative
Document.
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<PAGE>
ARTICLE 3
Buyer's Rights Upon Loan Default
Section 3.1. Buyer's Right to Cure Project Loan Defaults. (a)
-------------------------------------------
Notwithstanding any right Project Lender may have under the Project Loan
Documents, at law, in equity or otherwise, but subject to Section 3.1(d),
Project Lender shall not terminate its commitment to make advances or exercise
any other remedy under the Project Loan Documents, or at law or in equity, by
reason of any Project Loan Default unless and until Project Lender has given
Buyer notice of such Project Loan Default and neither Buyer nor any other Person
has cured the same (i) in the case of (A) a Construction Loan Default or (B) a
Permanent Loan Default that may be immediately cured by the payment of money
(including by discharging or bonding any lien, charge or encumbrance not
permitted by the Project Loan Documents), within 30 days after the giving of
such notice, it being understood that any Project Loan Default arising by reason
of the existence of any lien, charge or encumbrance not permitted by the Project
Loan Documents may be cured by discharging or bonding the same in a manner
reasonably satisfactory to Project Lender, and (ii) in the case of any other
Permanent Loan Default, within 120 days after the giving of such notice;
provided, however, that Construction Lender may suspend its obligations to make
- -------- -------
advances under the Construction Loan Agreement if any condition precedent
therefor is not satisfied and such condition precedent pertains to the status of
the collateral securing Seller's obligations under the Construction Loan
Agreement.
(b) Notwithstanding anything to the contrary contained in Section
3.1(a), if, in the case of any Project Loan Default other than a Project Loan
Default that may be immediately cured by the payment of money (including by
discharging or bonding any lien, charge or encumbrance not permitted by the
Project Loan Documents), Buyer shall, within the applicable cure period
specified in Section 3.1(a), or, if applicable, within the time permitted by
Section 5.5(a), (i) notify Project Lender of its election to exercise its
remedies under Buyer's Documents, pursuant to any right to do so set forth
therein, and to effect a Succession to Project Owner's interest in the Project,
(ii) pay or cause to be paid to Project Lender (A) all payments due under the
Project Loan Documents that were specified in Project Lender's notice pursuant
to Section 3.1(a) and (B) all payments which became due and payable under the
Project Loan Documents after such notice but prior to the exercise of Buyer's
rights under this Section 3.1(b), other than any such sums which become due and
payable (by acceleration or otherwise) solely upon and by reason of the
occurrence of such Project Loan Default, and (iii) execute and deliver to
Project Lender a Succession Undertaking, wherein Buyer shall agree
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<PAGE>
(A) until Buyer has effected such Succession, to pay or cause to be
paid to Project Lender all sums from time to time becoming due to Project
Lender under the Project Loan Documents as such sums become due, and
(B) promptly after Buyer has effected such Succession, subject to
Sections 6.1 and 6.2, to perform or cause to be performed all obligations
of Seller or Lessor, as the case may be, under the Project Loan Documents,
except such of Seller's or Lessor's obligations as Seller or Lessor failed
to perform prior to such Succession and which cannot with the exercise of
due diligence be performed by Buyer, it being understood that the time for
Buyer to perform or cause to be performed such obligations as Seller or
Lessor failed to perform prior to such Succession shall be extended for
such period of time as may be necessary for Buyer with the exercise of due
diligence to perform the same or cause the same to be performed,
then Project Lender shall postpone any election to terminate its commitment to
make advances or to exercise any other remedy it may have under the Project Loan
Documents, or at law or in equity, by reason of such Project Loan Default for
such period of time as may be necessary for Buyer with the exercise of due
diligence to effect such Succession and to perform or cause to be performed,
pursuant to such Succession Undertaking, such of Seller's or Lessor's
obligations under the Project Loan Documents as Seller or Lessor failed to
perform prior to such Succession and which can with the exercise of due
diligence, be performed by Buyer, it being understood that upon full compliance
by Buyer with such Succession Undertaking any obligations under the Project Loan
Documents which Seller or Lessor failed to perform prior to such Succession and
which Buyer cannot, with the exercise of due diligence, perform or cause to be
performed shall thereupon be deemed waived.
(c) Once Buyer has, with the exercise of due diligence, effected such
Succession and so performed or caused to be performed such obligations of Seller
or Lessor pursuant to such Succession Undertaking, then, notwithstanding
anything to the contrary contained in the Project Loan Documents, Project Lender
shall no longer have the right to terminate its commitment to make advances or
to exercise any other remedy by reason of such Project Loan Default, and such
Succession Undertaking shall be of no further force and effect, but nothing
herein contained shall affect the right of Project Lender upon the subsequent
occurrence of any Project Loan Default to exercise any right or remedy it may
have under the Project Loan Documents consequent thereon, subject to the
provisions of this Agreement.
(d) Notwithstanding anything to the contrary contained in this
Section 3.1, (i) Project Lender may at any time following the occurrence of any
Project Loan Default and prior to the
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<PAGE>
execution and delivery of a Succession Undertaking by Buyer pursuant to Section
3.1(b), exercise any remedy it may have to obtain specific performance by the
Defaulting Party of its obligations under any of the Operative Documents or to
enforce the obligations of, or exercise remedies against, any contractor,
subcontractor or supplier for the Project (including the obligations of a
bonding company under any payment or performance bond) to the exclusion of any
other remedies, without restriction, and (ii) Project Lender shall not be
required to postpone any election to terminate its commitment to make advances
or to exercise any other remedy it may have under the Project Loan Documents, or
at law or in equity, by reason of any Project Loan Default, and Buyer shall not
be required to perform any obligations pursuant to any Succession Undertaking
delivered by it to Project Lender, if Project Lender shall have executed and
delivered to Buyer a Succession Undertaking pursuant to Section 4.1 or 4.2.
(e) Notwithstanding anything to the contrary contained in this
Section 3.1, Buyer may not cure any Construction Loan Default pursuant to
Section 3.1(a), other than a Construction Loan Default that may be cured by the
payment of money or that does not relate to the construction of the Project,
unless Buyer executes and delivers to Construction Lender a Succession
Undertaking pursuant to Section 3.1(b). In the event Buyer executes and delivers
to Construction Lender a Succession Undertaking pursuant to Section 3.1(b) at
any time prior to the Commencement Date, Buyer shall be deemed to have
personally assumed, and Construction Lender shall have full recourse to Buyer
for, the performance of all of Buyer's obligations under such Succession
Undertaking; provided, however, that (i) Buyer shall not be bound by any of the
-------- -------
Project Documents, notwithstanding anything to the contrary contained in the
Construction Loan Documents, (ii) Buyer shall not be bound by any amendment or
modification of the Construction Loan Documents made without its consent unless
permitted by Section 8.3, and (iii) notwithstanding anything to the contrary
contained in this Agreement, such Succession Undertaking and Buyer's personal
assumption thereof shall continue in full force and effect until payment in full
of all amounts payable under the Construction Loan Documents. If requested by
Construction Lender, Buyer shall execute and deliver to Construction Lender an
instrument, in form and substance satisfactory to Construction Lender,
confirming the foregoing assumption of obligations.
ARTICLE 4
Financing Party's Rights Upon Seller's Default
Section 4.1. Financing Party's Right to Cure Seller's Defaults. (a)
-------------------------------------------------
Notwithstanding any right Buyer may have under Buyer's Documents, at law, in
equity or otherwise, but subject to Section 4.1(d), Buyer shall not terminate
the Purchase Agreement
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or exercise any other remedy under Buyer's Documents, or at law or in equity, by
reason of any Seller's Default unless and until Buyer has given Project Lender
and, if the Project has been sold by Seller to Lessor, Lessor (each such party
being herein called a "Financing Party") notice of such Seller's Default and (i)
if such Seller's Default occurs prior to the payment in full of the indebtedness
outstanding under the Construction Loan Documents, neither Construction Lender
nor any other Person has cured the same within 90 days after the giving of such
notice, or (ii) if such Seller's Default occurs after the payment in full of the
indebtedness outstanding under the Construction Loan Documents, neither
Permanent Lender, Lessor (if the Project has been sold by Seller to Lessor) nor
any other Person has cured the same within 180 days after the giving of such
notice, it being understood that any Seller's Default arising by reason of the
existence of any lien, charge or encumbrance not permitted by Buyer's Documents
may be cured by discharging or bonding the same in a manner reasonably
satisfactory to Buyer.
(b) Notwithstanding the foregoing, if a Financing Party shall, within
the applicable cure period specified in Section 4.1(a), or, if applicable,
within the time permitted by Section 4.1(e), (i) notify Buyer of its election to
exercise its remedies under (A) in the case of Construction Lender, the
Construction Loan Documents, (B) in the case of Lessor, the Lease, and (C) in
the case of Permanent Lender, the Permanent Loan Documents, pursuant to any
right to do so set forth therein, and to effect a Succession to the interest of
a Defaulting Party in the Project, and (ii) execute and deliver to Buyer a
Succession Undertaking wherein it shall agree
(A) promptly after the Financing Party has effected such Succession,
to pay or cause to be paid to Buyer (1) all sums, if any, due to Buyer
under Buyer's Documents that were specified in Buyer's notice pursuant to
Section 4.1(a) and (2) all payments which became due and payable under
Buyer's Documents after such notice but prior to the exercise of the
Financing Party's rights under this Section 4.1(b), other than any such
sums which become due and payable (by acceleration or otherwise) solely
upon and by reason of the occurrence of such Seller's Default, and
(B) promptly after the Financing Party has effected such Succession,
subject to Sections 5.1 and 5.2, to perform or cause to be performed all
obligations of Seller under Buyer's Documents, except such of Seller's
obligations as Seller failed to perform prior to such Succession and which
cannot with the exercise of due diligence be performed by the Financing
Party, it being understood that the time for the Financing Party to perform
or cause to be performed such obligations as Seller failed to perform prior
to such Succession shall be extended for such period of time as may be
necessary for the Financing Party, with the exercise of
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due diligence, to perform the same or cause the same to be performed,
then Buyer shall postpone any election to terminate the Purchase Agreement or to
exercise any other remedy it may have under Buyer's Documents, or at law or in
equity, by reason of such Seller's Default for such period of time as may be
necessary for the Financing Party with the exercise of due diligence to effect
such Succession and to perform or cause to be performed, pursuant to such
Succession Undertaking, such of Seller's obligations under Buyer's Documents as
Seller failed to perform prior to such Succession and which can, with the
exercise of due diligence, be performed by the Financing Party, it being
understood that upon full compliance by the Financing Party with such Succession
Undertaking any obligations under Buyer's Documents which Seller failed to
perform prior to such Succession and which the Financing Party cannot, with the
exercise of due diligence, perform or cause to be performed shall thereupon be
deemed waived.
(c) Once the Financing Party has, with the exercise of due diligence,
effected such Succession and so performed or caused to be performed such
obligations of Seller pursuant to such Succession Undertaking, then,
notwithstanding anything to the contrary contained in Buyer's Documents, Buyer
shall no longer have the right to terminate the Purchase Agreement or to
exercise any other remedy by reason of such Seller's Default, and such
Succession Undertaking shall be of no further force and effect, but nothing
herein contained shall affect the right of Buyer, upon the subsequent occurrence
of any Seller's Default, to exercise any right or remedy it may have under
Buyer's Documents and this Agreement consequent thereon, subject to the
provisions of this Agreement. Without limiting the generality of the foregoing,
if Lessor effects any such Succession pursuant to a Succession Undertaking and
enters into a new Lease or an Operating Agreement between Lessor and an
Independent Operator pursuant to which Lessee or such Independent Operator
agrees to perform or cause to be performed all obligations of Seller under
Buyer's Documents, except such of Seller's obligations as Seller failed to
perform prior to such Succession and which cannot with the exercise of due
diligence be performed by Lessee or such Independent Operator, Lessor shall be
deemed to have performed its obligations under such Succession Undertaking.
(d) Notwithstanding anything to the contrary contained in this
Section 4.1, Buyer may, at any time following the occurrence of a Seller's
Default and prior to the execution and delivery of a Succession Undertaking by
the Financing Party pursuant to Section 4.1(b), exercise any remedy it may have
to obtain specific performance by Seller of its obligations under any of the
Operative Documents to the exclusion of any other remedies, without restriction.
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(e) If both Lessor and Permanent Lender deliver a Succession
Undertaking to Buyer pursuant to Section 4.1(b), Lessor's Succession Undertaking
shall be given priority by Buyer and Permanent Lender; provided, however, that
-------- -------
if Lessor shall default in the performance of its obligations under such
Succession Undertaking, Buyer shall give Permanent Lender notice of such default
and Permanent Lender shall have the right to deliver a Succession Undertaking to
Buyer pursuant to Section 4.1(b) within 60 days after the giving of such notice
or, if such period of 60 days expires prior to the expiration of the applicable
time otherwise permitted by Section 4.1(b), within the time permitted by Section
4.1(b).
(f) Notwithstanding anything to the contrary contained in this
Section 4.1 or in any Succession Undertaking, Lessor shall have the right to
revoke any Succession Undertaking delivered by it to Buyer pursuant to Section
4.1(b) by giving notice of such revocation to Buyer at any time prior to the
earlier of (i) the date Lessor or any other Successor to Lessee's interest in
the Project takes possession and commences operation of the Project following
such Succession or (ii) the date 180 days after the date of such Succession.
Upon any such revocation, the rights and obligations of the parties under this
Agreement shall be restored as if such Succession Undertaking had not been
delivered.
(g) Notwithstanding anything to the contrary contained in this
Section 4.1, if the only Seller's Default existing is a Seller's Default arising
solely by reason of a Project Loan Default, Buyer shall not terminate the
Purchase Agreement by reason of such Seller's Default, but nothing herein
contained shall affect Buyer's right to exercise any other right or remedy it
may have under Buyer's Documents and this Agreement consequent thereon, subject
to the provisions of this Agreement, or to exercise such right or any other
right or remedy it may have thereunder and hereunder upon the subsequent
occurrence of any Seller's Default.
Section 4.2. Financing Party's Right to Suspend Buyer's Remedies. (a)
---------------------------------------------------
In the event Buyer shall be entitled to terminate the Purchase Agreement or to
exercise any other remedy under Buyer's Documents, or at law or in equity, by
reason of any Seller's Default that remains uncured pursuant to Section 4.1,
then each Financing Party, provided such Financing Party shall not theretofore
have delivered a Succession Undertaking to Buyer with respect to such Seller's
Default pursuant to Section 4.1(b), shall have the right at any time prior to
the termination of the Purchase Agreement or a Succession by Buyer to Project
Owner's interest in the Project to suspend the exercise by Buyer of such
remedies upon compliance with the provisions of Section 4.2(b).
(b) If a Financing Party shall be entitled to suspend the exercise of
Buyer's remedies pursuant to Section 4.2(a), such right shall be exercised by
(i) notifying Buyer of its election to
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exercise its remedies under the relevant Operative Documents and effect a
Succession to the Defaulting Party's interest in the Project, and (ii) executing
and delivering to Buyer a Succession Undertaking wherein it shall agree to
promptly pay to Buyer, within 30 days after demand therefor, all out-of-pocket
costs and expenses, including reasonable attorneys' fees, incurred by Buyer in
connection with the exercise of such remedies under Buyer's Documents, or at law
or in equity, by reason of such Seller's Default prior to the receipt of such
Succession Undertaking, and otherwise containing the agreements described in the
case of a Succession Undertaking to be delivered pursuant to Section 4.1(b).
(c) Upon receipt of such Succession Undertaking and the payment of
such out-of-pocket costs and expenses of Buyer, Buyer shall postpone any further
exercise of such remedies for such period of time as may be necessary for the
Financing Party with the exercise of due diligence to effect such Succession and
to perform or cause to be performed, pursuant to such Succession Undertaking,
such of Seller's obligations under Buyer's Documents as Seller failed to perform
prior to such Succession and which can, with the exercise of due diligence, be
performed by the Financing Party, it being understood that upon full compliance
by the Financing Party with such Succession Undertaking any obligations under
Buyer's Documents which Seller failed to perform prior to such Succession and
which the Financing Party cannot, with the exercise of due diligence, perform or
cause to be performed shall thereupon be deemed waived.
(d) Once the Financing Party has, with the exercise of due diligence,
effected such Succession and so performed or caused to be performed such
obligations of Seller pursuant to such Succession Undertaking, then,
notwithstanding anything to the contrary contained in Buyer's Documents, Buyer
shall no longer have the right to terminate the Purchase Agreement or to
exercise any other remedy by reason of such Seller's Default, and such
Succession Undertaking shall be of no further force and effect, but nothing
herein contained shall affect the right of Buyer, upon the subsequent occurrence
of any Seller's Default, to exercise any right or remedy it may have under
Buyer's Documents and this Agreement consequent thereon, subject to the
provisions of this Agreement. Without limiting the generality of the foregoing,
if Lessor effects any such Succession pursuant to a Succession Undertaking and
enters into a new Lease or an Operating Agreement between Lessor and an
Independent Operator pursuant to which Lessee or such Independent Operator
agrees to perform or cause to be performed all obligations of Seller under
Buyer's Documents, except such of Seller's obligations as Seller failed to
perform prior to such Succession and which cannot with the exercise of due
diligence be performed by Lessee or such Independent Operator, Lessor shall be
deemed to have performed its obligations under such Succession Undertaking.
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(e) If both Lessor and Permanent Lender deliver a Succession
Undertaking to Buyer pursuant to Section 4.2(b), Lessor's Succession Undertaking
shall be given priority by Buyer and Permanent Lender; provided, however, that
-------- -------
if Lessor shall default in the Performance of its obligations under such
Succession Undertaking, Buyer shall give permanent Lender notice of such default
and Permanent Lender shall have the right to deliver a Succession Undertaking
pursuant to Section 4.2(b) within 30 days after the giving of such notice.
Section 4.3. Permanent Lender's Right to Redeem Project Owner's
--------------------------------------------------
Equity. In the event Buyer exercises any right it may have under the Buyer
- ------
Mortgage or otherwise to foreclose its lien on the Project and effect a
Succession to Project Owner's interest in the Project and, as a result of such
Succession, Buyer is the Successor to Project Owner's interest in the Project
subject to the permanent Loan Documents as contemplated by Sections 6.4(b),
then, so long as any indebtedness is outstanding under the Permanent Loan
Documents, Permanent Lender or its designee shall have the right,
notwithstanding such Succession, at any time on or prior to the second
anniversary of the date of such Succession and upon not less than 180 days'
prior notice to Buyer, to redeem Project Owner's equity of redemption under the
Buyer Mortgage and to reinstate the Purchase Agreement at the expiration of such
180 day period by (i) tendering to Buyer all out-of-pocket costs and expenses,
including reasonable attorneys' fees, incurred by Buyer in exercising such
remedies and effecting such Succession, and all costs of improvements and
repairs to the Project made by Buyer while in possession of the Project,
together with interest thereon at the Applicable Rate from the date such costs
were incurred, (ii) executing and delivering to Buyer a Succession Undertaking,
including an agreement to pay or cause to be paid to Buyer all other sums which
were due and payable to Buyer under Buyer's Documents and remain unpaid, other
than any such sums which became due and payable (by acceleration or otherwise)
solely upon and by reason of the occurrence of the Seller's Default which
entitled Buyer to exercise such right, and otherwise containing the agreements
described in the case of a Succession Undertaking to be delivered pursuant to
Section 4.1(b), (iii) executing and delivering to Buyer a written instrument in
form and substance satisfactory to Buyer ratifying and confirming this
Agreement, and (iv) executing and delivering to Buyer a written instrument in
form and substance satisfactory to Buyer ratifying and confirming the Buyer
Mortgage, or, if necessary, creating a new Buyer's lien on and security interest
in the Mortgaged Property as security, to the extent and with the priority
provided in Buyer's Documents and this Agreement, for the performance of
Seller's obligations under Buyer's Documents; provided, however, that if prior
-------- -------
to the expiration of such 180 day period, Buyer shall have executed and
delivered to Permanent Lender a Succession Undertaking wherein Buyer shall
assume personal liability for the performance of all of the obligations of
Lessor under the Permanent Loan Documents, Permanent Lender or such designee
shall not have any further
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rights under this Section 4.3. Permanent Lender shall pay or cause to be paid
all out-of-pocket expenses, including reasonable attorneys' fees, incurred by
Buyer in effecting such redemption. Upon compliance with the requirements of
this Section 4.3, Buyer shall quitclaim its interest in the Project to Permanent
Lender or such designee, subject, however, to the Purchase Agreement, the Buyer
------- -------
Mortgage (or such new lien and security interest) and this Agreement, but
subject to no other liens, charges or encumbrances other than those existing at
the time Buyer became the Successor to Project Owner's interest in the Project
or those otherwise permitted by the Permanent Loan Documents.
ARTICLE 5
Rights Upon Succession
Effected by a Financing Party
Section 5.1. Recognition of Operative Documents. In the event a
----------------------------------
Financing Party exercises any of its remedies under any Operative Documents or
in any manner effects a Succession to a Defaulting Party's interest in the
Project, then unless Construction Lender shall be entitled pursuant to Section
5.5, and shall elect, to effect such Succession free and clear of Buyer's
Documents and this Agreement,
(a) the Successor to the Defaulting Party's interest in the
Project as a result of such Succession (which may be such Financing
Party) shall be bound by each and every provision of the Operative
Documents applicable to the Defaulting Party and shall recognize each
and every right of the Nondefaulting Party under such Operative
Documents (including the right of Buyer to have the Reserve Fund
referred to in Section 3.8 of the Purchase Agreement maintained), the
Nondefaulting Party's rights under such Operative Documents shall not
be affected or disturbed by such Successor, and the Nondefaulting
Party shall have the same remedies against such Successor for the
breach of any provision contained in such Operative Documents as the
Nondefaulting Party would have had thereunder, or at law or in equity,
against the Defaulting Party if the Financing Party had not so
exercised its remedies or effected such Succession, all with the same
force and effect as if such Successor were the Seller, Lessor or
Lessee, as the case may be, named in such Operative Documents;
provided, however, that (i) such Successor shall neither be liable for
-------- -------
any prior act or omission of the Defaulting Party nor be subject to
any offsets or defenses to which the Nondefaulting Party might have
been entitled under such Operative Documents by reason of such prior
act or omission and (ii) such Successor shall not be bound by any
amendment or modification of
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such Operative Documents made without the Financing Party's consent
unless permitted by Section 8.3; but nothing contained in clause (i)
of the foregoing proviso shall be construed to limit or otherwise
impair (A) any sums then due and payable to Buyer under Buyer's
Documents, other than any such sums which became due and payable (by
acceleration or otherwise) solely upon and by reason of the occurrence
of any Seller's Default arising prior to the time the Financing Party
so exercises such remedies or so effects such Succession, or (B) any
obligations required to be performed pursuant to any Succession
Undertaking delivered to Buyer pursuant to Section 4.1 or 4.2;
(b) such Successor shall be entitled to exercise all rights and
remedies of the Defaulting Party under such Operative Documents and to
enforce all of the Nondefaulting Party's obligations thereunder with
the same force and effect as if such Successor were the Seller, Lessor
or Lessee, as the case may be, named therein;
(c) any other Successor to the Defaulting Party's interest in
the Project shall be subject to all of the provisions of such
Operative Documents, shall be entitled to enforce all of the
Nondefaulting Party's obligations thereunder and hereunder and shall
be subject to all of the rights of the Nondefaulting Party thereunder
and hereunder, all with the same force and effect as if such Successor
were the Seller, Lessor or Lessee, as the case may be, named therein
and herein, and such Operative Documents shall continue in effect in
accordance with their terms between the Nondefaulting Party and such
Successor; and
(d) the Nondefaulting Party shall recognize any Successor to the
Defaulting Party's interest in the Project as the Seller, Lessor or
Lessee, as the case may be, named in such Operative Documents, and, in
the case of a Succession to Project Owner's interest in the Project,
Buyer shall make all payments for Project Energy from time to time
becoming due under the Purchase Agreement directly to or as instructed
by such Successor;
provided, however, that the Nondefaulting Party shall not have any duty to
- -------- -------
recognize, nor shall the Nondefaulting Party be bound to, any Successor to the
Defaulting Party's interest in the Project unless such Successor executes and
delivers to the Nondefaulting Party a Succession Undertaking wherein it shall
agree to perform or cause to be performed the obligations of the Defaulting
Party under such Operative Documents in accordance with this Section 5.1, and,
in the case of a Succession to Project Owner's interest
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in the Project, Buyer shall not be liable for any payment made in good faith to
such Successor's predecessor without notice of such Successor's Succession to
Seller's rights and obligations under the Purchase Agreement; and provided,
--------
further, that in the case of a Succession to Project Owner's interest in the
- -------
Project as a result of any Permanent Loan Default at a time when no Lease
Default exists, any Successor to Project Owner's interest in the Project shall
be subject to and bound by all of the provisions of this Agreement applicable to
Lessor and, so long as no Lease Default exists, Permanent Lender shall not join
Lessee or any Person claiming possession of the Project by, through or under
Lessee, in any foreclosure, ejectment, summary or other proceedings to recover
possession of the Project.
Section 5.2. Financing Party's Right to Modify Purchase Agreement.
----------------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement, in the
event a Financing Party shall effect any Succession to a Defaulting Party's
interest in the Project following a Seller's Default pursuant to any Succession
Undertaking delivered to Buyer under Section 4.1 or 4.2 and shall perform or
cause to be performed all obligations of Seller under Buyer's Documents to the
extent required to be performed pursuant to this Agreement or pursuant to any
such Succession Undertaking,
(a) Buyer shall no longer have the right to terminate the
Purchase Agreement or to exercise any other remedy by reason of any
Seller's Default described in Section 6.1(b) of the Purchase Agreement
occurring in whole or in part by reason of any failure by Seller to
perform its obligations under Buyer's Documents prior to the time of
such Succession, but nothing herein contained shall affect the right
of Buyer, upon the subsequent occurrence of any such Seller's Default
occurring solely by reason of the failure of the Financing Party, or
other Successor to the Defaulting Party's interest in the Project who
succeeds thereto by reason of such Succession, to perform or cause to
be performed Seller's obligations under Buyer's Documents, to exercise
any right or remedy it may have under Buyer's Documents and this
Agreement consequent thereon, subject to the provisions of this
Agreement;
(b) no Seller's Default described in Section 6.1(b) of the
Purchase Agreement shall be deemed to occur by reason of any failure
of the Financing Party or such other Successor to the Defaulting
Party's interest in the Project to perform or cause to be performed
Seller's obligations under Buyer's Documents during any period prior
to the earlier of (i) the date the Financing Party or such other
Successor takes possession and commences operation of the Project
following such Succession or (ii) the date 180 days after the date of
such Succession;
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(c) in the event a Seller's Default described in Section 6.1 (b)
of the Purchase Agreement exists or, but for this Section 5.2, would
have existed at the time of such Succession, the Financing Party or
such other Successor to the Defaulting Party's interest in the Project
shall have the right to specify a new Contract Output by notice to
Buyer within 90 days after the date of such Succession (the output so
specified being herein called the "Revised Contract Output");
provided, however, that (i) the Revised Contract Output so specified
-------- -------
shall not exceed the lesser of (A) 80% of the Contract Output, or (B)
125% of the average hourly deliveries of Project Energy made to Buyer
during the Test Period referred to in Section 6.1(b) of the Purchase
Agreement, and (ii) no later than 180 days after the date of such
Succession, the Financing Party or such other Successor shall either
(x) pay or cause to be paid to Buyer an amount (the "Shortfall
Replacement Charge") equal to the Capacity Replacement Charge,
computed in accordance with the formula set forth in Section 6.2(b) of
the Purchase Agreement, multiplied by a fraction, the numerator of
which is the Contract Output minus the Revised Contract Output, and
-----
the denominator of which is the Contract Output, or (y) accept an
adjustment to the Energy Cost Rate and Capacity Cost Rate payable
under the Purchase Agreement (which adjustment shall be made in a
manner mutually satisfactory to such Financing Party or other
Successor and Buyer) that will result in an aggregate reduction of the
payments to be made by Buyer under the Purchase Agreement which shall
have a present value (discounted at Buyer's Incremental Weighted Cost
of Capital) equal to such Shortfall Replacement Charge, and upon such
payment or upon such adjustment to the Energy Cost Rate and Capacity
Cost Rate, as the case may be, the Contract Output thereafter shall be
deemed to be the Revised Contract Output;
(d) in the case of a Succession to Lessee's interest in the
Project, the Financing Party or such other Successor to Lessee's
interest in the Project shall have the right at any time to enter into
a new lease of the Project at a rental rate not exceeding the greater
of (i) the rental rate set forth in the preceding Lease or (ii) any
rental rate that would be permitted by amendment to the preceding
Lease pursuant to Section 8.3, and for a stated term expiring no later
than the term of the preceding Lease, specifying a Stipulated Loss
Value no greater than that specified in the preceding Lease, as the
same may be adjusted pursuant to Section 8.3, and otherwise on terms
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<PAGE>
reasonably equivalent to those set forth in the preceding Lease; and
(e) in the case of a Succession to Project Owner's interest in
the Project, the Financing Party or such other Successor to Project
Owner's interest in the Project shall have the right at any time to
grant a lien on and security interest in its interest in the Project,
as security to the extent and with the priority provided in the
Permanent Loan Documents and this Agreement, for any financing of the
Project not prohibited by Section 8.3 up to an amount not exceeding,
in the aggregate, either (i) the amount that would have been
outstanding under the Permanent Loan Documents at such time as a
result of the application of any sinking fund or mandatory payment
provisions of the Permanent Loan Documents if the Financing Party had
not so effected such Succession and the Permanent Loan Documents had
remained in effect, or (ii) the amount that would be permitted by
amendment of the Permanent Loan Documents pursuant to Section 8.3, and
otherwise on terms reasonably equivalent to those set forth in the
Permanent Loan Documents.
Section 5.3. Application of Net Proceeds. (a) Without limiting the
---------------------------
generality of Section 5.1, in the event a Financing Party shall be entitled to
effect a Succession to a Defaulting Party's interest in the Project, then unless
Construction Lender shall be entitled pursuant to Section 5.5, and shall elect,
to effect such Succession free and clear of Buyer's Documents and this Agreement
(i) any such Succession shall be to the Defaulting Party's
entire interest in the Project, subject to the rights of all other
Persons under the Operative Documents (including Buyer's Documents),
and may be effected in any manner permitted by the Construction Loan
Documents, the Lease or the Permanent Loan Documents, as the case may
be; and
(ii) any and all Net Proceeds arising out of such Succession
shall be paid and applied as provided in the Construction Loan
Documents, the Lease or the Permanent Loan Documents, as the case may
be.
(b) In the event Buyer shall be entitled, and shall elect, to
terminate the Purchase Agreement by reason of any Seller's Default that remains
uncured pursuant to Section 4.1 or 4.2, a Financing Party may thereafter
exercise any remedy it may have under the Operative Documents, or at law or in
equity, by reason of any Project Loan Default or any Lease Default and effect a
Succession to Project Owner's interest in the Project free and clear of Buyer's
Documents and this Agreement; provided, however, that
-------- -------
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<PAGE>
(i) any such Succession shall be to Project Owner's entire
interest in the Project and shall be effected as the result of a public
sale, after not less than 20 days' prior notice, or such greater notice as
may be required by law, to all parties having or claiming an interest in
the Project, and Buyer and each Financing Party shall have the right to bid
for and purchase the Project at any such public sale;
(ii) the terms of such public sale shall be solely for cash;
Provided, however, that there may be offset against the purchase price the
-------- -------
amount, if any, to be distributed to the purchaser pursuant to clause (iv)
below;
(iii) any such Succession shall be subject to the provisions of
Section 8.5; and
(iv) the Net Proceeds of any such sale shall be paid and
applied as follows:
First, (A) if such sale occurs before the indebtedness
outstanding under the Construction Loan Documents is paid in
full, subject to Section 5.3(c), to Construction Lender up to an
amount equal to (1) prior to the Commencement Date, the aggregate
amount due Construction Lender under the Construction Loan
Documents as of the date of such payment, or (2) after the
Commencement Date, the lesser of such amount or the Encumbered
Value of the Project as of the date of such sale (appropriately
reduced to take into account any prior distribution to
Construction Lender pursuant to Section 7.2 that, absent such
adjustment, would have the effect of causing Construction Lender
to realize a greater recovery of its investment than would
otherwise be payable under this paragraph "First"), and (B) if
such sale occurs after the indebtedness outstanding under the
Construction Loan Documents is paid in full, subject to Section
5.3(c), to Permanent Lender up to an amount equal to the
aggregate amount due Permanent Lender under the Permanent Loan
Documents as of the date of such payment,
Second, if such sale occurs after the indebtedness
outstanding under the Construction Loan Documents is paid in full
and prior to the expiration of Lessor's Preference Period,
subject to Section 5.3(d), to Lessor up to an amount equal to (A)
the lesser of (1) the Stipulated Loss Value, calculated as of the
last rental payment date to
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<PAGE>
which basic rent has been paid under the Lease (or, if no Lease
is in effect, the date on which the default occurred which
resulted in such sale), plus interest on such amount, at the
Lease Rate, from such date to the date of such payment, or (2)
the Encumbered Value of the Project as of the date of such sale
(appropriately reduced to take into account any prior
distribution to Lessor pursuant to Section 7.2 that, absent such
adjustment, would have the effect of causing Lessor to realize a
greater recovery of its investment than would otherwise be
payable under this paragraph "Second"), minus (B) the amount, if
-----
any, paid to Permanent Lender pursuant to paragraph "First"
above,
Third, to Buyer up to an amount equal to the Capacity
Replacement Charge calculated as of the date of such payment,
taking into account any prior modification thereof pursuant to
Section 5.2 (appropriately reduced to take into account any prior
distribution to Buyer pursuant to Section 7.2 that, absent such
adjustment, would have the effect of causing Buyer to realize a
greater recovery than would otherwise be payable under this
paragraph "Third"),
Fourth, if the indebtedness outstanding under the
Construction Loan Documents is not paid in full pursuant to
paragraph "First" above, to Construction Lender up to an amount
equal to the aggregate remaining amount due Construction Lender
under the Construction Loan Documents as of the date of such
payment, and
Fifth, the balance to Project Owner or whosoever is legally
entitled thereto.
(c) Notwithstanding anything to the contrary contained in this
Section 5.3, (i) Construction Lender shall not be entitled to receive any Net
Proceeds described in Section 5.3(b)(iv) pursuant to paragraph "First" thereof
if, at the time of such termination of the Purchase Agreement by Buyer,
Construction Lender has delivered to Buyer a Succession Undertaking pursuant to
Section 4.1(b) or 4.2(b) with respect to the Seller's Default referred to in
Section 5.3(b) and has defaulted in the performance of any of its obligations
thereunder, and (ii) Permanent Lender shall not be entitled to receive any Net
Proceeds described in Section 5.3(b)(iv) pursuant to paragraph "First" thereof
in an amount greater than the Encumbered Value of the Project as of the date of
such sale (appropriately reduced to take into account any prior distribution to
Permanent Lender pursuant to Section 7.2 that, absent such adjustment, would
have the effect of causing
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<PAGE>
Permanent Lender to realize a greater recovery of its investment than would
otherwise be payable under paragraph "First" of Section 5.3(b)(iv) as a result
of this limitation) if, at the time of such termination of the Purchase
Agreement by Buyer, Permanent Lender has delivered to Buyer a Succession
Undertaking pursuant to Section 4.1(b) or 4.2(b) with respect to the Seller's
Default referred to in Section 5.3(b) and has defaulted in the performance of
any of its obligations thereunder.
(d) Notwithstanding anything to the contrary contained in this
Section 5.3,
(i) Lessor shall not be entitled to receive any Net Proceeds
described in Section 5 .3(b)(iv) pursuant to paragraph "Second"
thereof unless at the time of such termination of the Purchase
Agreement by Buyer (A) Lessor has an interest in the Project and (B)
either (1) the Lease is in effect or the Project is being operated by
or is in the possession of a Person other than Lessor or an Affiliate
of Lessor pursuant to an Operating Agreement between Lessor and an
Independent Operator or (2) no Succession Undertaking has been
delivered by Lessor to Buyer pursuant to Section 4.1(b) or 4.2(b) with
respect to the Seller's Default referred to in Section 5.3(b) or, if a
Succession Undertaking has been delivered by Lessor to Buyer pursuant
to Section 4.1(b) and clause (1) above does not apply, either the time
within which Lessor may revoke such Succession Undertaking pursuant to
Section 4.1(f) has not expired or such Succession Undertaking has been
revoked pursuant to Section 4.1(f); and
(ii) in the event there are any liens, charges or encumbrances
on the Project on a parity with or junior to the lien of the Buyer
Mortgage at the time of any application of Net Proceeds of any sale
described in Section 5.3(b), the amount of any such Net Proceeds to be
paid and applied to Lessor pursuant to paragraph "Second" of Section
5.3(b)(iv) shall be reduced by an amount equal to the amount of the
Net Proceeds of such sale that would have been applied to the payment
of the obligations secured thereby absent this Agreement,
notwithstanding anything to the contrary at law, in equity or
otherwise.
Section 5.4. Nature of Obligations. Notwithstanding anything to the
---------------------
contrary contained in Buyer's Documents, this Agreement or any Succession
Undertaking, neither a Financing Party nor any other Successor to a Defaulting
Party's interest in the Project shall have any personal liability, under a
Succession Undertaking or otherwise, to Buyer for the performance of Seller's
obligations under Buyer's Documents, it being understood that after a Succession
and delivery of a Succession Undertaking
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<PAGE>
pursuant to this Agreement, Buyer shall look solely to the Mortgaged Property
(as defined in the Buyer Mortgage) for the enforcement of Seller's obligations
under Buyer's Documents. All agreements and undertakings in favor of Buyer made
by a Financing Party or any other Successor to a Defaulting Party's interest in
the Project contained in any Succession Undertaking, or to which the Financing
Party or such other Successor may become subject under Buyer's Documents,
pursuant to Section 5.1 or otherwise, as a result of a Succession, are made and
intended not as personal agreements and undertakings or for the purpose or with
the intention of binding it personally but are made and intended for the purpose
of binding only the interest in the Project to which the Financing Party or such
other Successor shall succeed upon effecting such Succession.
Section 5.5. Construction Lender's Right to Reject Buyer's Documents.
-------------------------------------------------------
(a) Notwithstanding anything to the contrary contained in this Agreement, if
Construction Lender shall become entitled to effect a Succession to Project
Owner's interest in the Project pursuant to the Construction Loan Documents
prior to the Commencement Date, Construction Lender shall have the right upon
not less than 15 days' prior notice to Buyer, unless within such period of 15
days Buyer shall (i) notify Construction Lender of its election to exercise its
remedies under Buyer's Documents and effect a Succession to Project Owner's
interest in the Project, (ii) pay or cause to be paid to Construction Lender all
sums due under the Construction Loan Documents at the time of Construction
Lender's notice pursuant to this Section 5.5(a), other than any such sums which
became due and payable (by acceleration or otherwise) solely upon and by reason
of the occurrence of any Construction Loan Default arising prior to the time
Buyer exercises its rights under this Section 5.5(a), and (iii) execute and
deliver to Construction Lender a Succession Undertaking pursuant to, and in
compliance with the provisions of, Sections 3.1(b) and 3.1(e), to effect such
Succession either (A) subject to Buyer's Documents and this Agreement by
executing and delivering, or causing any other Successor to Project Owner's
interest in the Project to execute and deliver, to Buyer a Succession
Undertaking containing the agreements described in the case of a Succession
Undertaking to be delivered pursuant to Section 4.1(b), or (B) free and clear of
Buyer's Documents and this Agreement and of Buyer's rights thereunder and
hereunder; provided, however, that if Construction Lender shall effect such
-------- -------
Succession without giving Buyer notice of such election, any such Succession
shall be deemed made subject to Buyer's Documents and this Agreement.
(b) In the event Construction Lender shall be entitled and shall
elect to effect a Succession to Project Owner's interest in the Project free and
clear of Buyer's Documents and this Agreement pursuant to Section 5.5(a),
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<PAGE>
(i) such Succession shall be to Project Owner's entire
interest in the Project and shall be effected as the result of a
public sale, after not less than 20 days' prior notice, or such
greater notice as may be required by law, to all parties having or
claiming an interest in the Project, free and clear of Buyer's
Documents, and Buyer and Construction Lender shall have the right to
bid for and purchase the Project at such public sale;
(ii) the terms of such public sale shall be solely for cash;
provided, however, that there may be offset against the purchase price
-------- -------
the amount, if any, to be distributed to the purchaser pursuant to
clause (iv) below;
(iii) any such Succession shall be subject to the provisions of
Section 8.5; and
(iv) the Net Proceeds of such sale shall be paid and applied as
follows:
First, to Construction Lender up to an amount equal to the
aggregate amount due Construction Lender under the Construction
Loan Documents as of the date of such payment,
Second, to Buyer up to an amount equal to the Capacity
Replacement Charge calculated as of the date of such payment, and
Third, the balance to Project Owner or whosoever is legally
entitled thereto.
ARTICLE 6
Rights Upon Succession
Effected by Buyer
Section 6.1. Recognition of Permanent Loan Documents. In the event
---------------------------------------
Buyer shall be entitled and shall elect to exercise any remedy it may have under
the Buyer Mortgage or otherwise to foreclose its lien on the Project and effect
a Succession to Project Owner's interest in the Project at any time after the
indebtedness outstanding under the Construction Loan Documents is paid in full
and while any indebtedness is outstanding under the Permanent Loan Documents,
then
(a) the Successor to Project Owner's interest in the Project as a
result of such Succession (which may be Buyer) shall be bound by each and
every provision of the Permanent Loan Documents applicable to Lessor
(including any provision
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<PAGE>
thereof which incorporates by reference any provisions of the Lease) and
shall recognize each and every right of Permanent Lender thereunder, and
Permanent Lender shall have the same remedies against such Successor for
the breach of any provision contained in the Permanent Loan Documents as
Permanent Lender would have had thereunder, or at law or in equity, against
Lessor if Buyer had not so exercised its remedies or effected such
Succession, all with the same force and effect as if such Successor were
the Lessor named in the Permanent Loan Documents; provided, however, that
-------- -------
(i) such Successor shall neither be liable for any prior act or omission of
Lessor nor be subject to any offsets or defenses to which Permanent Lender
might have been entitled under the Permanent Loan Documents by reason of
such prior act or omission, (ii) such Successor shall not be bound by any
of the Project Documents, notwithstanding anything to the contrary
contained in the Permanent Loan Documents, and (iii) such Successor shall
not be bound by any amendment or modification of the Permanent Loan
Documents made without Buyer's consent unless permitted by Section 8.3; but
nothing contained in clause (i) of the foregoing proviso shall be construed
to limit or otherwise impair any obligations required to be performed
pursuant to any Succession Undertaking delivered to Permanent Lender
pursuant to Section 3.1;
(b) such Successor shall be entitled to exercise all rights and
remedies of Lessor under the Permanent Loan Documents and to enforce all of
Permanent Lender's obligations thereunder with the same force and effect as
if such Successor were the Lessor named in the Permanent Loan Documents;
(c) any other Successor to Project Owner's interest in the Project
shall be subject to all of the provisions of the Permanent Loan Documents
(including any provision thereof which incorporates by reference any
provisions of the Lease) and this Agreement, shall be entitled to enforce
all of Permanent Lender's obligations hereunder and thereunder and shall be
subject to all of the rights of Permanent Lender hereunder and thereunder,
all with the same force and effect as if such Successor were the Lessor
named therein and herein, and the Permanent Loan Documents and this
Agreement shall continue in effect in accordance with their respective
terms between Permanent Lender and such Successor; and
(d) Permanent Lender shall recognize any Successor to Project Owner's
interest in the Project as the Lessor named in the Permanent Loan
Documents;
provided, however, that Permanent Lender shall not have any duty to recognize,
- -------- -------
nor shall Permanent Lender be bound to, any Successor to Project Owner's
interest in the Project unless such
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<PAGE>
Successor executes and delivers to Permanent Lender a Succession Undertaking
wherein it shall agree to perform or cause to be performed the obligations of
Lessor under the Permanent Loan Documents in accordance with this Section 6.1,
and Permanent Lender shall not be liable for any payment or advance made in
faith to such Successor's predecessor without notice of such Successor's
Succession to Lessor's rights and obligations under the Permanent Loan
Documents.
Section 6.2. No Duty to Recognize Other Operative Documents.
----------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement, or at law,
in equity or otherwise, in the event Buyer exercises any remedy it may have
under the Buyer Mortgage or otherwise to foreclose its lien on the Project and
effect a Succession to Project Owner's interest in the Project, then, unless the
provisions of Section 6.4(a) apply and the indebtedness outstanding under the
Construction Loan Documents is being assumed as provided in Sections 3.1(b) and
3.1(e), the provisions of Section 6.4(b) shall apply to such Succession and
neither Buyer nor any Successor to Project Owner's interest in the Project as a
result of such Succession shall be bound by the Construction Loan Documents or
the Lease, it being understood that Construction Lender's and Lessor's sole
rights in the event of any such Succession shall be to receive the portion of
the Net Proceeds of any sale described in Section 6.4(b) to which Construction
Lender or Lessor may be entitled to the extent provided in such Section.
Section 6.3. Operation of the Project by Buyer. (a) Notwithstanding
---------------------------------
anything to the contrary contained in any of the Operative Documents, during any
period after the Commencement Date while Buyer is operating the Project, Buyer
shall operate the Project in accordance with sound electric utility practice and
the standards required of Seller in the Purchase Agreement; provided, however,
-------- -------
that such performance shall be subject to the approval, if any be required, of
all regulatory agencies having jurisdiction over Buyer and its Affiliates.
(b) So long as any indebtedness is outstanding under the Permanent
Loan Documents, during any period after the Commencement Date while Buyer is
operating the Project, Buyer shall maintain an account (the "Notional Cash Flow
Account") in which it will record each month, (i) as a positive amount, the
product obtained by multiplying (A) the kilowatthours of Project Energy
generated by the Project during such month, by (B) the price Buyer would have
paid to Seller pursuant to Section 1.2 of the Purchase Agreement for such
Project Energy had such Project Energy been delivered to Buyer by Seller under
the Purchase Agreement, and (ii) as a negative amount, (A) all Operating and
Maintenance Expenses incurred by Buyer during such month, and (B) all payments
of principal of and interest on the indebtedness outstanding under the Permanent
Loan Documents paid in respect of such month. The excess, if any, for any period
of any sums recorded in the Notional Cash Flow Account as positive amounts
E-31
<PAGE>
over any sums recorded therein as negative amounts is hereinafter called the
"Notional Cash Flow". Permanent Lender shall have the right to examine, or
cause an audit to be made of, all books and records of Buyer relating to all
entries made in the Notional Cash Flow Account.
(c) Notwithstanding anything to the contrary contained in this
Agreement, if (i) Buyer shall default in the performance of any Succession
Undertaking delivered to Permanent Lender pursuant to Section 3.1(b) which shall
remain uncured 30 days after notice of such default shall have been given by
Permanent Lender to Buyer, or (ii) Buyer shall exercise any right it may have
under the Buyer Mortgage or otherwise to foreclose its lien on the Project and
effect a Succession to Project Owner's interest in the Project, Buyer shall be
the Successor to Project Owner's interest in the Project as a result of such
Succession and, as a result of Buyer's failure to perform or observe any
obligation set forth in Section 6.3(a) or 6.3(b) or to perform, to the extent
required by this Agreement or any Succession Undertaking delivered to Permanent
Lender, any obligation of Lessor under the Permanent Loan Documents, a Permanent
Loan Default shall occur at any time thereafter, Permanent Lender shall have the
right, unless it exercises its rights under Section 4.3, to effect a Succession
to Project Owner's interest in the Project pursuant to the Permanent Loan
Documents free and clear of Buyer's Documents and this Agreement and of Buyer's
rights thereunder and hereunder, subject, however, to the provisions of Section
------- -------
8.5.
(d) Notwithstanding anything to the contrary contained in this
Agreement, in the event of any occurrence described in Section 6.3(c) that would
permit Permanent Lender to effect a Succession to Project Owner's interest in
the Project free and clear of Buyer's Documents and this Agreement, Buyer shall
remain liable, notwithstanding any such Succession, for all payments of
principal of and interest on the indebtedness outstanding under the Permanent
Loan Documents which became due and payable thereunder while Buyer was operating
the Project and which remain unpaid at the time Permanent Lender so effects any
such Succession, but only to the extent of any Notional Cash Flow recorded in
the Notional Cash Flow Account at such time.
Section 6.4. Application of Net Proceeds. (a) In the event Buyer
---------------------------
shall be entitled and shall elect to exercise any remedy it may have under the
Buyer Mortgage or otherwise to foreclose its lien on the Project and effect a
Succession to Project Owner's interest in the Project pursuant to Section 3.1(b)
at any time prior to the Commencement Date as a result of any Seller's Default,
(i) any such Succession shall be to Project Owner's entire
interest in the Project, free and clear of the Project Documents but
subject to the Construction
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<PAGE>
Loan Documents, and may be effected in any manner permitted by Buyer's
Documents; and
(ii) any and all Net Proceeds arising out of such Succession
shall be paid and applied as provided in Buyer's Documents.
(b) In the event Buyer shall be entitled and shall elect to exercise
any remedy it may have under the Buyer Mortgage or otherwise to foreclose its
lien on the Project and effect a Succession to Project Owner's interest in the
Project as a result of any Seller's Default, then, except as otherwise provided
in Section 6.4(a),
(i) any such Succession shall be to Project Owner's entire
interest in the Project and shall be effected as the result of a
public sale, after not less than 20 days' prior notice, or such
greater notice as may be required by law, to all parties having or
claiming an interest in the Project, free and clear of (A) if such
Succession occurs prior to the payment in full of the indebtedness
outstanding under the Construction Loan Documents, the Project
Documents and the Construction Loan Documents, and (B) if such
Succession occurs after the payment in full of the indebtedness
outstanding under the Construction Loan Documents, the Project
Documents and the Lease (but subject to the Permanent Loan Documents
as provided in Section 6.1), and Construction Lender or Lessor, as the
case may be, and Buyer shall have the right to bid for and purchase
the Project at such public sale;
(ii) the terms of such public sale shall be solely for cash;
provided, however, that there may be offset against the purchase price
-------- -------
the amount, if any, to be distributed to the purchaser pursuant to
clause (iii) below; and
(iii) the Net Proceeds of such sale shall be paid and applied as
follows:
First, (A) if such sale occurs before the indebtedness
outstanding under the Construction Loan Documents is paid in
full, subject to Section 6.4(d), to Construction Lender up to an
amount equal to (1) prior to the Commencement Date, the aggregate
amount due Construction Lender under the Construction Loan
Documents as of the date of such payment, or (2) after the
Commencement Date, the lesser of such amount or the Encumbered
Value of the Project as of the date of such sale (appropriately
reduced to take into account any prior distribution to
Construction Lender pursuant
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<PAGE>
to Section 7.2 that, absent such adjustment, would have the
effect of causing Construction Lender to realize a greater
recovery of its investment than would otherwise be payable under
this paragraph "First"), and (B) if such sale occurs after the
indebtedness outstanding under the Construction Loan Documents is
paid in full and prior to the expiration of Lessor's Preference
Period, subject to Section 6.4(e), to Lessor up to an amount
equal to (1) the lesser of (x) the Stipulated Loss Value,
calculated as of the last rental payment date to which basic rent
has been paid under the Lease (or, if no Lease is in effect, the
date on which the default occurred which resulted in such sale),
plus interest on such amount, at the Lease Rate, from such date
to the date of such payment, or (y) the Encumbered Value of the
Project as of the date of such sale (appropriately reduced to
take into account any prior distribution to Lessor pursuant to
Section 7.2 that, absent such adjustment, would have the effect
of causing Lessor to realize a greater recovery of its investment
than would otherwise be payable under this clause "First"), minus
-----
(2) the then outstanding indebtedness due Permanent Lender as
provided in the Permanent Loan Documents,
Second, to Buyer up to an amount equal to the Capacity
Replacement Charge calculated as of the date of such payment,
taking into account any prior modification thereof pursuant to
Section 5.2 (appropriately reduced to take into account any prior
distribution to Buyer pursuant to Section 7.2 that, absent such
adjustment, would have the effect of causing Buyer to realize a
greater recovery than would otherwise be payable under this
clause "Second"),
Third, if the indebtedness outstanding under the
Construction Loan Documents is not paid in full pursuant to
paragraph "First" above, to Construction Lender up to an amount
equal to the aggregate remaining amount due Construction Lender
under the Construction Loan Documents as of the date of such
payment, and
Fourth, the balance to Project Owner or whosoever is legally
entitled thereto.
(c) In the case of any Succession to Project Owner's interest in the
Project described in Section 6.4(b) effected by Buyer after the payment in full
of the indebtedness outstanding under the Construction Loan Documents, the
Successor to Project
E-34
<PAGE>
Owner's interest in the Project shall, notwithstanding anything to the contrary
contained in the Permanent Loan Documents, have the right, at any time after
such Succession, to prepay the indebtedness outstanding under the Permanent Loan
Documents, in whole or in multiples of $100,000, without payment of any penalty
or premium; provided, however, that in the case of any partial prepayment, and
--------- -------
after giving effect thereto, the principal amount of the indebtedness
outstanding under the Permanent Loan Documents shall not be less than
$10,000,000.
(d) Notwithstanding anything to the contrary contained in this
Section 6.4, Construction Lender shall not be entitled to receive any Net
Proceeds of any sale described in Section 6.4(b)(iii) pursuant to paragraph
"First" thereof unless, at the time of such sale, no Succession Undertaking has
been delivered by Construction Lender to Buyer pursuant to Section 4.1(b) or
4.2(b) with respect to the Seller's Default referred to in Section 6.4(b).
(e) Notwithstanding anything to the contrary contained in this
Section 6.4,
(i) Lessor shall not be entitled to receive any Net Proceeds of
any sale described in Section 6.4(b)(iii) pursuant to paragraph
"First" thereof unless at the time of such sale (A) Lessor has an
interest in the Project and (B) either (1) the Lease is in effect or
the Project is being operated by or is in the possession of a Person
other than Lessor or an Affiliate of Lessor pursuant to an Operating
Agreement between Lessor and an Independent Operator or (2) no
Succession Undertaking has been delivered by Lessor to Buyer pursuant
to Section 4.1(b) or 4.2(b) with respect to the Seller's Default
referred to in Section 6.4(b) or, if a Succession Undertaking has been
delivered by Lessor to Buyer pursuant to Section 4.1(b) and clause (1)
above does not apply, either the time within which Lessor may revoke
such Succession Undertaking pursuant to Section 4.1(f) has not expired
or such Succession Undertaking has been revoked pursuant to Section
4.1(f); and
(ii) in the event there are any liens, charges or encumbrances
on the Project on a parity with or junior to the lien of the Buyer
Mortgage at the time of any application of Net Proceeds of any sale
described in Section 6.4(b), the amount of any such Net Proceeds to be
paid and applied to Lessor pursuant to paragraph "First" of Section
6.4(b)(iii) shall be reduced by an amount equal to the amount of the
Net Proceeds of such sale that would have been applied to the payment
of the obligations secured thereby absent this Agreement,
notwithstanding anything to the contrary at law, in equity or
otherwise.
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<PAGE>
Section 6.5. Nature of Obligations. Except to the extent otherwise
---------------------
expressly provided in Sections 3.1(e) and 6.3(d) or in a Succession Undertaking
delivered to Project Lender pursuant to Section 3.1(b) (as contemplated by said
Section 3.1(e)) or Section 4.3, (a) neither Buyer nor any other Successor to
Project Owner's interest in the Project shall have any personal liability, under
a Succession Undertaking or otherwise, to Project Lender for the performance of
Seller's or Lessor's obligations under the Project Loan Documents, it being
understood that after a Succession and delivery of a Succession Undertaking
pursuant to this Agreement, Project Lender shall look solely to the property
encumbered by the Construction Mortgage or the Trust Indenture, as the case may
be, for the enforcement of Seller's or Lessor's obligations under the Project
Loan Documents, and (b) all agreements and undertakings in favor of Project
Lender by Buyer or any other Successor to Project Owner's interest in the
Project contained in any Succession Undertaking, or to which Buyer or such other
Successor may become subject under the Project Loan Documents, pursuant to
Section 6.1 or otherwise, as a result of a Succession, are made and intended not
as personal agreements and undertakings or for the purpose or with the intention
of binding it personally but are made and intended for the purpose of binding
only the interest in the Project to which Buyer or such other Successor shall
succeed upon effecting such Succession.
ARTICLE 7
Damage and Condemnation
Section 7.1. Application of Proceeds to Restoration. (a)
--------------------------------------
Notwithstanding anything to the contrary contained in the Operative Documents,
in the event of any damage to or destruction of the Project or any part thereof
as a result of any casualty ("Damage"), or in the event the Project Site, the
Project or any part thereof are taken or damaged as the result of the exercise
of the power of eminent domain, or as the result of any other governmental
action for which compensation shall be given by any governmental authority
("Condemnation"), all proceeds of insurance required to be maintained pursuant
to the Operative Documents and all awards or other compensation payable to
Seller, Project Lender, Lessor, Lessee or Buyer in connection with such Damage
or Condemnation and, during Lessor's Preference Period, all proceeds of any
"business interruption" or "outage expense" insurance required to be maintained
pursuant to the Operative Documents (herein, together with any interest and
investment earnings thereon and all cash and non-cash proceeds thereof,
collectively called "Conversion Proceeds") shall be paid or delivered to
Indenture Trustee or any other bank or trust company having an office in the
City of New York or the City of Pittsburgh and having a combined capital and
surplus aggregating at least $100,000,000 (the Indenture Trustee or such other
bank or trust company being herein called the "Depositary") and held by the
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<PAGE>
Depositary, in trust for application in accordance with the provisions of this
Article; provided, however, that so long as no Seller's Default, Project Loan
--------- -------
Default or Lease Default exists, any Conversion Proceeds aggregating less than
$100,000 shall be payable to Seller or Lessee (or, if the Project has been sold
by Seller to Lessor and no Lease is in effect, Lessor), as the case may be, for
application in accordance with the provisions of the Operative Documents.
(b) Except to the extent otherwise provided in Section 7.2, all
Conversion Proceeds (after deducting therefrom all costs and expenses, including
attorneys' fees, incurred in connection with the collection thereof regardless
of the particular nature thereof and whether incurred with or without suit)
shall be paid to or for the account of Seller or Lessee (or, if the Project has
been sold by Seller to Lessor and no Lease is in effect, Lessor), as the case
may be, pursuant to Section 7.1(c), for application to the payment of the costs
of restoring the Project or the part thereof so damaged (or restoring the
portion thereof not so taken to a viable economic unit), including the payment,
during Lessor's Preference Period, of all installments of principal of and
interest on the indebtedness outstanding under the Project Loan Documents or, if
the Lease is in effect, all installments of rent under the Lease as such
installments become due until completion of such restoration (collectively,
"Restoration Costs"); provided, however, that if a Seller's Default, a Project
-------- -------
Loan Default or a Lease Default exists, then, except as otherwise provided in
Section 7.1(e), such Conversion Proceeds shall be held in trust until such
Seller's Default, Project Loan Default or Lease Default is cured or waived in
accordance with the provisions of the Operative Documents and this Agreement,
or, if a Financing Party or Buyer, as the case may be, elects to exercise its
remedies under the Operative Documents and effect a Succession to the Defaulting
Party's or Project Owner's interest in the Project, as the case may be, in
accordance with the provisions of this Agreement, until such Financing Party or
Buyer, as the case may be, shall have effected such Succession (unless such
Financing Party or Buyer, as the case may be, shall elect to begin restoring the
Project itself without effecting such Succession), whereupon such Conversion
Proceeds shall be paid to or for the account of Seller, Lessee (or, if the
Project has been sold by Seller to Lessor and no Lease is in effect, Lessor),
the Successor to the Defaulting Party's or Project Owner's interest in the
Project, or such Financing Party or Buyer, as the case may be, pursuant to
Section 7.1(c) for application to the payment of Restoration Costs.
(c) Any Conversion Proceeds to be paid to or for the account of
Seller, Lessee, Lessor, the Successor to a Defaulting Party's or Project Owner's
interest in the Project, or such Financing Party or Buyer, as the case may be
(herein called a "Restoring Party"), pursuant to Section 7.1(b) shall, except as
otherwise provided in Section 7.1(e), be paid to the Restoring
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<PAGE>
Party, upon request therefor, to pay or reimburse the Restoring Party for
Restoration Costs as the work progresses, in each case against receipt by the
Depositary of proof satisfactory to it that (i) the Restoring Party has complied
with the requirements of Section 7.1(d) and, if the Restoring Party is Seller or
Lessee, such other requirements applicable to Seller or Lessee as may be set
forth in the Operative Documents, (ii) the work, to the extent performed, has
been satisfactorily accomplished, (iii) the amount requested has been paid by or
on behalf of the Restoring Party or is justly due to persons who have rendered
services or furnished materials in connection with the work, (iv) no mechanic's,
materialmen's or similar statutory or other liens or charges have been filed
against any property encumbered by the Buyer Mortgage, the Construction Mortgage
or the Trust Indenture, as the case may be, and (v) there are no amounts then
due and payable to persons who have rendered services or furnished materials in
connection with such work other than such as will be discharged in full from the
amounts requested. The Depositary shall not be required to apply such
Conversion Proceeds as aforesaid unless Buyer, Project Lender and Lessor, or, if
they are unable to agree, the Independent Engineer referred to in Section
7.1(d)(ii), shall determine that the amount thereof remaining after payment of
the amount requested (together with anticipated interest and investment earnings
thereon) will be sufficient to pay in full all Restoration Costs reasonably
anticipated to be incurred in connection with such restoration, and the
Restoring Party shall promptly deposit with the Depositary the amount of any
deficiency, to be held and disbursed by the Depositary in accordance with the
provisions of this Section 7.1.
(d) All restoration work following any Damage or Condemnation shall
be subject to the following terms and conditions:
(i) no work shall be undertaken unless the Restoring
Party shall have procured and paid for all required governmental
permits and authorizations of any governmental authorities having
jurisdiction in connection therewith;
(ii) any work shall be designed, constructed and
completed in accordance with plans and specifications prepared by an
architect or engineer selected by the Restoring Party and satisfactory
to an independent engineering consultant selected by Buyer, Project
Lender and Lessor (the "Independent Engineer") and otherwise in
accordance with the Design and Construction Standard, and shall be
performed by contractors selected by the Restoring Party and approved
by the Independent Engineer;
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<PAGE>
(iii) no work involving estimated Restoration Costs of
$500,000 or more (exclusive of principal of and interest on the
indebtedness outstanding under the Project Loan Documents or, if the
Lease is in effect, rent under the Lease) shall be undertaken unless
the Independent Engineer shall have certified in writing (which
certification shall be given only after consultation with Buyer,
Project Lender and Lessor) that the Project or the part thereof so
damaged (or the portion thereof not so taken) can be restored
substantially to the value and condition thereof immediately prior to
such Damage, or, in the case of a Condemnation, to a complete, viable
economic unit; and
(iv) no work involving estimated Restoration Costs of
$500,000 or more (exclusive of principal of and interest on the
indebtedness outstanding under the Project Loan Documents or, if the
Lease is in effect, rent under the Lease) shall be undertaken unless
such work is done pursuant to guaranteed maximum or fixed price
contracts with guaranteed completion dates reasonably satisfactory to
Buyer, Project Lender and Lessor; provided, however, that if the
-------- -------
Restoring Party is Buyer, Buyer may, in lieu of such requirement,
guarantee completion of such restoration work subject to delays caused
by force majeure (including the payment of deficiencies, if any, of
Conversion Proceeds to cover Restoration Costs, except to the extent
resulting from such delays) pursuant to an instrument reasonably
satisfactory to Project Lender and Lessor.
(e) Notwithstanding anything to the contrary contained in Section
7.1(b) or 7.1(c), during Lessor's Preference Period, the Depositary shall apply
monies held in trust pursuant to this Article 7 to the payment of all
installments of principal of and interest on the indebtedness outstanding under
the Project Loan Documents or, if the Lease is in effect, all installments of
rent under the Lease as such installments become due until completion of such
restoration; provided, however, that no such monies, other than proceeds of any
-------- -------
"business interruption" or "outage expense" insurance required to be
maintained pursuant to the Operative Documents, shall be so applied (i) to the
payment of any such installments of principal of and interest on the
indebtedness outstanding under the Project Loan Documents if, at the time in
question, Project Lender would not be entitled pursuant to Section 7.2(b) to
receive any distribution of Conversion Proceeds described therein if a
distribution of Conversion Proceeds were made at such time pursuant to Section
7.2(a), or (ii) to the payment of any such installments of rent under the Lease
(to the extent not necessary to pay such installments of principal of and
interest on the indebtedness outstanding under the Project Loan Documents) if,
at the time in question, Lessor would not be entitled pursuant to Section 7.2(c)
to receive any distribution of
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<PAGE>
Conversion Proceeds described therein if a distribution of Conversion Proceeds
were made at such time pursuant to Section 7.2(a). Upon the expiration of
Lessor's Preference Period, the balance of any proceeds of any "business
interruption" or "outage expense" insurance required to be maintained pursuant
to the Operative Documents shall be disbursed to or for the account of Lessor,
or as Lessor may direct, it being understood for this purpose that all
installments of principal of and interest on the indebtedness outstanding under
the Project Loan Documents and all installments of rent under the Lease shall be
deemed to have been paid first from such proceeds before the application of any
other Conversion Proceeds.
(f) Upon receipt by the Depositary of a certificate of the
Independent Engineer certifying that such restoration is complete, that the
Project is ready for operation and that the cost thereof has been paid in full,
the balance of any Conversion Proceeds not required to be disbursed pursuant to
Sections 7.1(b) and 7.1(e) shall be disbursed first to the Restoring Party to
the extent of any funds advanced by the Restoring Party and then to the party
legally entitled thereto, or as such party may direct.
(g) Any monies held by the Depositary pursuant to this Article 7
shall be invested in Permitted Investments (as defined in the Participation
Agreement). The Depositary shall have the right to deduct from any Conversion
Proceeds its reasonable charges for acting as trustee hereunder.
Section 7.2. No Restoration. (a) If, in the event of any Damage or
--------------
Condemnation, (i) Seller or Lessee (or, if the Project has been sold by Seller
to Lessor and no Lease is in effect, Lessor) shall fail to restore the Project
or, in the case of a Condemnation, the portion thereof not so taken, in the
manner and to the extent required by the Operative Documents and this Agreement,
or, if not so obligated to restore the Project (or the portion thereof not so
taken), shall not have elected to so restore the same, and (ii) neither a
Financing Party nor Buyer shall have elected, by notice to each Nondefaulting
Party, to exercise its remedies under the Operative Documents and effect a
Succession to a Defaulting Party's or Project Owner's interest in the Project,
as the case may be, in accordance with the provisions of this Agreement within
180 days after the expiration of all applicable cure periods afforded to each
Nondefaulting Party under this Agreement or any Operative Documents by reason of
any such failure to restore or failure to elect to restore the same, then, all
Conversion Proceeds then held by the Depositary shall be paid and applied as
follows:
First, (A) if such Damage or Condemnation shall occur before the
indebtedness outstanding under the Construction Loan Documents is paid
in full, subject to Section 7.2(b), to Construction Lender up to an
amount equal to (1) prior to the Commencement Date, the
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aggregate amount due Construction Lender under the Construction Loan
Documents as of the date of such payment, or (2) after the
Commencement Date, the lesser of such amount or the Encumbered Value
of the Project as of the date immediately preceding the date of such
Damage or Condemnation (appropriately reduced to take into account any
prior distribution to Construction Lender pursuant to Section 5.3(b)
or this Section 7.2 that, absent such adjustment, would have the
effect of causing Construction Lender to realize a greater recovery of
its investment than would otherwise be payable under this paragraph
First"); and (B) if such Damage or Condemnation shall occur after the
indebtedness outstanding under the Construction Loan Documents is paid
in full, subject to Section 7.2(b), to Permanent Lender up to an
amount equal to the aggregate amount due Permanent Lender under the
Permanent Loan Documents as of the date of such payment,
Second, if such Damage or Condemnation shall occur after the
indebtedness outstanding under the Construction Loan Documents is paid
in full and prior to the expiration of Lessor's Preference Period,
subject to Section 7.2(c), to Lessor up to an amount equal to (A) the
lesser of (1) Stipulated Loss Value, calculated as of the last rental
payment date to which basic rent has been paid under the Lease (or, if
no Lease is in effect, the date on which the Damage or Condemnation
occurred which resulted in such sale), plus interest on such amount,
at the Lease Rate, from such date to the date of such payment, or (2)
the Encumbered Value of the Project as of the date immediately
preceding the date of such Damage or Condemnation (appropriately
reduced to take into account any prior distribution to Lessor pursuant
to Section 5.3(b) or this Section 7.2 that, absent such adjustment,
would have the effect of causing Lessor to realize a greater recovery
of its investment than would otherwise be payable under this paragraph
"Second"); provided, however, that if such Damage or Condemnation
-------- -------
shall occur during the first five years of Lessor's Preference Period
and shall constitute a Total Loss, Lessor shall be entitled to receive
up to the amount described in clause (1) above without regard to the
limitation described in clause (2) above; minus (B) the amount, if
-----
any, paid to Permanent Lender pursuant to paragraph "First" above,
Third, to Buyer up to an amount equal to the Capacity Replacement
Charge calculated as of the date of such payment, taking into account
any prior modification thereof pursuant to Section 5.2 (appropriately
reduced to take into account any prior distribution pursuant to
Section 5.3(b) or this Section 7.2 that, absent such
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<PAGE>
adjustment, would have the effect of causing Buyer to realize a
greater recovery than would otherwise be payable under this paragraph
"Third"),
Fourth, if the indebtedness outstanding under the Construction
Loan Documents is not paid in full pursuant to paragraph "First"
above, to Construction Lender up to an amount equal to the aggregate
remaining amount due Construction Lender under the Construction Loan
Documents as of the date of such payment, and
Fifth, the balance to Project Owner or whosoever is legally
entitled thereto.
(b) Notwithstanding anything to the contrary contained in this
Section 7.2, Project Lender shall not be entitled to receive any distribution of
Conversion Proceeds described in Section 7.2(a) pursuant to paragraph "First"
thereof if, at the time of such distribution, Project Lender has previously
delivered to Buyer a Succession Undertaking pursuant to Section 4.1(b) or 4.2(b)
with respect to the Seller's Default referred to in Section 7.1(b) and Project
Lender shall have defaulted in the performance of any of its obligations
thereunder; provided, however, that Project Lender shall be entitled to receive
-------- -------
any such distribution to which it would otherwise be entitled pursuant to
paragraph "Fifth" of Section 7.2(a).
(c) Notwithstanding anything to the contrary contained in this
Section 7.2,
(i) Lessor shall not be entitled to receive any distribution of
Conversion Proceeds described in Section 7.2(a) pursuant to paragraph
"Second" thereof unless at the time of such distribution (A) Lessor
has an interest in the Project and (B) either (1) the Lease is in
effect or the Project is being operated by or is in the possession of
a Person other than Lessor or an Affiliate of Lessor pursuant to an
Operating Agreement between Lessor and an Independent Operator or (2)
no Succession Undertaking has been delivered by Lessor to Buyer
pursuant to Section 4.1(b) or 4.2(b) with respect to the Seller's
Default referred to in Section 7.1(b) or, if a Succession Undertaking
has been delivered to Buyer pursuant to Section 4.1(b) and clause (1)
above does not apply, either the time within which Lessor may revoke
such Succession Undertaking pursuant to Section 4.1(f) has not expired
or such Succession Undertaking has been revoked pursuant to Section
4.1(f); and
(ii) in the event there are any liens, charges or encumbrances
on the Project on a parity with or junior to the lien of the Buyer
Mortgage at the time of any distribution of Conversion Proceeds
described in this
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Section 7.2(a), the amount of any such Conversion Proceeds to be paid
and applied to Lessor pursuant to paragraph "Second" of Section 7.2(a)
shall be reduced by an amount equal to the amount of the Conversion
Proceeds that would have been disbursed for application to the payment
of the obligations secured thereby absent this Agreement,
notwithstanding anything to the contrary at law, in equity or
otherwise.
ARTICLE 8
Miscellaneous
Section 8.1. Determination of Encumbered Value. The Encumbered Value
---------------------------------
of the Project shall be determined by mutual agreement of Buyer and either
Construction Lender (if there shall be indebtedness outstanding under the
Construction Loan Agreement) or Lessor (if the indebtedness outstanding under
the Construction Loan Agreement is paid in full) within 20 days after any sale
of the Project pursuant to Section 5.3(b) or 6.4 or, in the case of any
distribution pursuant to Section 7.2 requiring such a determination, within 20
days after either party receives notice of any proposed distribution pursuant
thereto, or, failing such agreement, by an appraisal conducted in the following
manner: The party desiring such appraisal may serve notice on the other party
appointing a person who is a duly qualified engineering and management
consultant having not less than 10 years experience in the appraisal of electric
generating plants similar in size and capacity to the Project, and the other
party within 10 days after service of such notice shall appoint, by notice to
the first party, a person having similar qualifications to act as appraiser on
its behalf. If the other party fails to notify the first party of the
appointment of the second appraiser within said period of time, the second
appraiser shall be chosen in the same manner as hereinafter provided for the
appointment of a third appraiser where the first two appraisers are unable to
agree upon said appointment. If the appraisers so designated are unable to agree
as to such value within 30 days after the designation of the second appraiser,
they shall appoint a third appraiser having similar qualifications. If such two
appraisers are unable to agree on such third appraiser within 10 days after the
expiration of such 30 day period, the third appraiser shall be selected by both
parties within 10 days thereafter. If the parties do not so agree within such
period of time, either party may apply to the Court of Common Pleas of Allegheny
County, Pennsylvania, for the appointment of such third appraiser and the other
party shall not raise any objection as to the court's full power and
jurisdiction to entertain the application and make the appointment. In the event
of the failure, refusal or inability to act of any appraiser, his successor
shall be appointed within 10 days by the party which originally appointed him
(or in the event of such party's failure so to do, or in the case of the third
appraiser,
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<PAGE>
his successor shall be appointed in the manner hereinbefore provided). The
decision of any two of the appraisers so designated shall be conclusive and
binding upon the parties. The proceedings of the appraisers so designated shall
be conducted in compliance with the rules of the American Arbitration
Association. If two of the appraisers so designated are unable to agree as to
such value within 30 days after the designation of the third appraiser, either
party may apply to the Court of Common Pleas of Allegheny County, Pennsylvania,
for the determination of such value, and neither party shall raise any objection
as to the court's full power and jurisdiction to entertain the application and
determine such value. Each party shall pay the fees and expenses of the
appraiser appointed by such party and the fees and expenses of the third
appraiser shall be borne equally by the parties.
Section 8.2. Notices. All notices or other communications
-------
(collectively, "notices") which are required or permitted hereunder to be given
to any party shall be in writing and shall be deemed sufficiently given if
delivered personally or by registered or certified mail, postage prepaid, or
tested telex, (a) if to any party hereto, to the address of such party specified
above and, in the case of notice to Buyer, with a copy to Allegheny Power
Service Corporation, 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601,
Attention: Legal Department; (b) if to Lessor, to the address of Lessor
specified in the Lease, with a copy to ____; and (c) if to Permanent Lender, to
the address of Permanent Lender specified in or pursuant to the Participation
Agreement. Any party may at any time change its address for notices by giving
notice of such change, as aforesaid, to the other parties. A notice shall be
deemed to have been given as of the date personally delivered or sent by telex
or, if mailed, three days after mailing in accordance with this Section
8.2.
Section 8.3. Amendments to Operative Documents. (a) Lessor shall not
---------------------------------
amend or consent to any amendment of the Lease so as to
(i) shorten or extend the stated time of payment of rent or
any other sums payable to Lessor under the Lease, or extend the stated
term of the Lease (including any renewal options);
(ii) change the method of computing Lessor's Cost, Lessor's Net
Economic Return or the Stipulated Loss Value specified in the Lease,
(iii) increase the rent, the Stipulated Loss Value or any other
sums payable to Lessor under the Lease (except any adjustments thereto
expressly provided for in the Original Lease or in the Participation
Agreement solely to maintain Lessor's Net Economic Return) or
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<PAGE>
increase Lessor's Net Economic Return (as anticipated by ____ on the
date this Agreement is executed), or
(iv) otherwise materially and adversely affect the rights of
Buyer under Buyer's Documents and this Agreement;
provided, however, that if (A) a Lease Default exists, (B) it is necessary to
- -------- -------
avoid a Lease Default, or (C) Lessor enters into a new Lease following any
Succession to Lessee's interest in the Project, the rent under the Lease may
be increased to an amount not exceeding, as of any rental payment date, the
amount specified in Exhibit C hereto and the Stipulated Loss Value may be
appropriately adjusted in the manner specified in the Participation Agreement
based on such increase in rent. In no event shall the rent under the Lease
(including the Original Lease) exceed the amount specified in Exhibit C hereto
nor shall the Stipulated Loss Value exceed the amount specified in the
definition of such term in Section 1.1.
(b) Project Lender shall not amend or consent to any amendment of any
of the Project Loan Documents so as to
(i) shorten or extend the stated time of payment of the
principal of or interest on, or any other sums payable in respect of,
the indebtedness outstanding under the Project Loan Documents,
(ii) increase the rate of interest payable on the
indebtedness outstanding under the Project Loan Documents,
(iii) increase the amount of principal of or other sums
payable in respect of the indebtedness outstanding or committed to be
advanced under the Project Loan Documents, or
(iv) otherwise materially and adversely affect the rights
of Buyer under Buyer's Documents and this Agreement;
provided, however, that if a Construction Loan Default exists, the
--------- -------
principal amount of the indebtedness outstanding under the Construction Loan
Documents may be increased to an amount not exceeding $__________, or if (A) a
Permanent Loan Default exists, (B) it is necessary to avoid a Permanent Loan
Default, or (C) Permanent Lender becomes the holder of any indebtedness secured
by a lien on and security interest in the interest of Project Owner's Successor
in the Project following any Succession to Project Owner's interest in the
Project, the amount of any installments of principal of and interest on such
indebtedness may be increased to an amount not exceeding, as of any payment
date, the amount specified in Exhibit C hereto.
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<PAGE>
(c) Neither Construction Lender, Lessor, Permanent Lender nor Seller
shall amend or consent to any amendment of any Operative Document so as to
materially and adversely affect the rights of Buyer under Buyer's Documents and
this Agreement.
(d) Buyer shall not amend or consent to any amendment of any of
Buyer's Documents that would materially and adversely affect the rights of
Construction Lender, Lessor or Permanent Lender under the Construction Loan
Documents, the Lease or the Permanent Loan Documents, as the case may be, and
this Agreement.
Section 8.4. Relative Priorities. The relative priorities of the
-------------------
liens of the Construction Mortgage or the Trust Indenture, as the case may be,
and the Buyer Mortgage shall, notwithstanding any rights Project Lender or Buyer
may have at law, in equity or otherwise absent this Agreement, be determined
solely by application of the provisions of this Agreement.
Section 8.5. Termination of Purchase Agreement. If Seller or any
---------------------------------
Financing Party shall be entitled and shall elect to terminate the Purchase
Agreement or to effect a Succession to Project Owner's interest in the Project
free and clear of Buyer's Documents pursuant to Section 6.4 of the Purchase
Agreement, Section 5.5 or 6.3(c) of this Agreement or otherwise, Seller or such
Financing Party, as the case may be, shall agree or cause any Successor to
Project Owner's interest in the Project as a result of such Succession to agree,
pursuant to an instrument in form and substance reasonably satisfactory to Buyer
and on behalf of itself and its successors and assigns, and any other Successor
to Project Owner's interest shall be deemed to have agreed, that if any electric
energy thereafter generated by the Project is sold to Buyer, pursuant to PURPA
or otherwise, Buyer shall not be obligated to pay for such energy at a rate per
kilowatthour greater than the price specified in Section 1.2 of the Purchase
Agreement; provided, however, that if no Event of Default as to Buyer exists at
-------- ------
the time of such termination, Buyer may pay for such energy at a rate per
kilowatthour equal to the lesser of (a) the price specified in Section 1.2 of
the Purchase Agreement or (b) the sum of the Variable Energy Cost Rate and 95%
of the applicable weekly demand charge (expressed in cents per kilowatthour), as
determined by Buyer in its reasonable discretion, specified from time to time in
Buyer's short-term tariff filed with the FERC. If any such electric energy is
not sold to Buyer, Buyer shall transmit Project Energy from the Interconnection
to any electric utility, municipality or other entity interconnected with Buyer
(other than any such entities then being supplied energy as a part of APS
Demand) as Seller, such Financing Party or such Successor may designate, to the
extent sufficient transmission capacity is available and to the extent such
transmission is in compliance with the interconnection standards set forth in
Section 35 of the APS Engineering Manual, and is consistent with the operating
specifications set forth in
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<PAGE>
the Operations Coordination Agreement, and is consistent with APS Demand,
whenever arising, Buyer's other third party transmission arrangements, whenever
arising, and Buyer's service obligations under Pennsylvania and Federal law; any
such transmission pursuant to this Section in any event to be provided under
rate and service conditions similar to those applicable to Buyer's other third-
party transmission arrangements, whenever arising, or under such other rates and
conditions as may be reasonable under the circumstances, subject to the
approval, if any be required, of all regulatory agencies having jurisdiction
over such transmission transactions.
Section 8.6. No Amendments, Etc. This Agreement may not be modified,
------------------
amended, terminated or discharged, nor any provisions hereof waived, except by
an agreement in writing signed by each of the parties against which enforcement
of any such modification, amendment, termination, discharge or waiver is sought
Section 8.7. Further Assurances. Each of the parties hereto shall
------------------
take all such further action, and shall execute and deliver all such further
documents or instruments, as any other party hereto may reasonably request in
order to carry out the intent of this Agreement; provided, however, that no
--------- -------
action shall be requested of any party by any other party under this Section,
and no party shall take any such action, if such action would materially and
adversely affect the rights of any other party under the Operative Documents and
this Agreement.
Section 8.8. Term. This Agreement shall continue in effect until all
----
of Seller's obligations under Buyer's Documents shall have been fully performed
and discharged or the Purchase Agreement shall have been sooner terminated in
accordance with its terms; provided, however, that any provisions of this
--------- -------
Agreement applicable to any such termination shall survive such termination.
When all of Seller's obligations under Buyer's Documents and this Agreement
shall have been fully performed and discharged, and all provisions of this
Agreement inuring to the benefit of Buyer shall have been complied with, or, in
the event the Project is sold free and clear of Buyer's Documents pursuant to
Section 5.3(b), 5.5 or 6.3(c), when Buyer has received the Net Proceeds to which
it is entitled pursuant to such Section or by law, Buyer shall, if requested by
Project Owner or any Successor to Project Owner's S interest in the Project or
if required by law, execute and deliver to Project Owner or such Successor an
instrument, in form for recording, discharging the lien of the Buyer Mortgage.
Section 8.9. Successors and Assigns. The covenants and agreements
----------------------
contained herein shall constitute covenants running with the land and shall bind
and inure to the benefit of the parties hereto and their respective successors
and assigns.
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<PAGE>
Section 8.10. Headings. The introductory captions to the sections
--------
hereof are for the convenience of the parties and are not a part of this
Agreement, and shall not be used in the interpretation of any provision hereof.
Section 8.11. Severability. If any term or provision of this
------------
Agreement or the application thereof to any Person, entity or circumstance shall
to any extent be invalid or unenforceable, the remainder of this Agreement, or
the application of such term or provision to Persons, entities or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law
Section 8.12. Immunities. (a) Notwithstanding anything to the
----------
contrary contained in this Agreement, all and each of the undertakings and
agreements herein made on the part of Owner Trustee are made and intended not as
personal undertakings and agreements by Owner Trustee or for the purpose or with
the intention of binding it personally but are made and intended for the purpose
of binding only the trust estate under the Owner Trust Agreement, and this
Agreement is executed and delivered by Owner Trustee solely in the exercise of
the powers expressly conferred upon it as trustee under the Owner Trust
Agreement; and no personal liability or responsibility is assumed hereunder by
or shall at any time be enforceable against Owner Trustee or its successor in
trust or ____ on account of any undertaking or agreement hereunder of Owner
Trustee, either expressed or implied, all such personal liability, if any, being
expressly waived by each party hereto and by all persons claiming by, through or
under any such party; provided, however, that Owner Trustee or its successor in
--------- -------
trust, as applicable, shall be personally liable in a proper action for damages
for its own gross negligence or willful misconduct.
(b) Notwithstanding anything to the contrary contained in this
Agreement, all and each of the undertakings and agreements herein made on the
part of Indenture Trustee are made and intended not as personal undertakings and
agreements by Indenture Trustee or for the purpose or with the intention of
binding it personally but are made and intended for the purpose of binding only
the trust estate under the Trust Indenture, and this Agreement is executed and
delivered by Indenture Trustee solely in the exercise of the powers expressly
conferred upon it as Trustee under the Trust Indenture; and no personal
liability or responsibility is assumed hereunder by or shall at any time be
enforceable against Indenture Trustee or its successor in trust or the
Noteholders on account of any undertaking or agreement hereunder of Indenture
Trustee, either expressed or implied, all such personal liability, if any, being
expressly waived by each party hereto and by all persons claiming by, through or
under any such party; provided, however, that Indenture Trustee or its successor
-------- -------
in trust, as
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<PAGE>
applicable, shall be personally liable in a proper action for damages for its
own gross negligence or willful misconduct.
Section 8.13. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each such counterpart shall be deemed to be an
original instrument; but all such counterparts together shall constitute but one
agreement.
Section 8.14. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
[SEAL] WEST PENN POWER COMPANY
Attest:
__________________________________ By____________________________________
Secretary President
[SEAL] MILESBURG ENERGY, INC.
Attest:
__________________________________ By____________________________________
[SEAL] [Construction Lender/Owner
Attest: Participant]
__________________________________ By____________________________________
[SEAL] [Owner Trustee]
Attest:
__________________________________ By____________________________________
[SEAL] [Permanent Lender]
Attest:
__________________________________ By____________________________________
[SEAL] [Indenture Trustee]
Attest:
__________________________________ By____________________________________
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<PAGE>
STATE OF ____________________ )
) ss:
COUNTY OF ___________________ )
On this, the ____ day of _______________, 1987, before me, a Notary
Public, the undersigned officer, personally appeared ____________________, who
acknowledged himself to be the __________________ of WEST PENN POWER COMPANY, a
Pennsylvania corporation, and that he as such officer, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
Given under my hand this ____ day of _____________________, 1986.
__________________________________
[SEAL]
My commission expires:
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<PAGE>
STATE OF __________________ )
) ss:
COUNTY OF _________________ )
On this, the ____ day of ________________, 1987, before me, a Notary
Public, the undersigned officer, personally appeared _______________, who
acknowledged himself to be the ____________ of MILESBURG ENERGY, INC., a
__________________ corporation, and that he as such officer, being authorized to
do so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
Given under my hand this ____ day of_________________________ 1986.
____________________________________
[SEAL]
My commission expires:
E-51
<PAGE>
STATE OF __________________ )
) ss:
COUNTY OF _________________ )
On this the ____ day of ________________ 1987, before me, a Notary Public, the
undersigned officer, personally appeared ___________________________, who
acknowledged himself to be the ________________________ of [Construction
------------
Lender/Owner Participant], a _____________ corporation, and that he as such
- -------------------------
officer, being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation by himself as
such officer.
Given under my hand this ___ day of ___________________________,
1986.
______________________________________
[SEAL]
My commission expires:
E-52
<PAGE>
STATE OF __________________ )
) ss:
COUNTY OF _________________ )
On this, the ____ day of _________________ , 1987, before me, a Notary
Public, the undersigned officer, personally appeared ________________________
who acknowledged himself to be the _____________________ of [Owner Trustee], a
--------------
___________ corporation, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself as such officer.
Given under my hand this ___ day of _______________________________, 1986.
___________________________________________
[SEAL]
My commission expires:
E-53
<PAGE>
STATE OF __________________ )
) ss:
COUNTY OF _________________ )
On this, the ___ day of _________________, 1987, before me, a Notary
Public, the undersigned officer, personally appeared ________________________,
who acknowledged himself to be the ______________________ of [Permanent
---------
Lender], a _________________ corporation, and that he as such officer, being
- ------
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself as such officer.
Given under my hand this ___ day of _____________________________________,
1986.
________________________________________________
[SEAL]
My commission expires:
E-54
<PAGE>
STATE OF __________________ )
) ss:
COUNTY OF _________________ )
On this, the ____ day of _________________, 1987, before me, a Notary
Public, the undersigned officer, personally appeared _______________, who
acknowledged himself to be the ______________ of [Indenture Trustee],
-----------------
a ________________ corporation, and that he as such officer, being authorized
to do so, executed the foregoing instrument for the purposes therein contained
by signing the name of the corporation by himself as such officer.
Given under my hand this ___ day of ___________________________________,
1986.
______________________________________________
[SEAL]
My commission expires:
E-55
<PAGE>
EXHIBIT A
Legal Description of Project Site
---------------------------------
[metes, bounds and title reference description of Site (Schedule I of
the Mortgage) to be added]
<PAGE>
EXHIBIT B
Schedule of Stipulated Loss Value
---------------------------------
If no Lease is in effect as of any time of determination, Stipulated
Loss Value shall be the product of Lessor's Cost multiplied by the percentage
set forth in Column A opposite the semi-annual period in which such
determination is made; provided, however, that if the Permanent Notes are not
--------- -------
issued in connection with the execution and delivery of the Original Lease, the
percentage set forth in Column B shall be used for such calculation.
Semi-Annual Period
After Commencement
Date In Which
Determination Is Made Column A Column B
- --------------------- -------- --------
1 % %
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
<PAGE>
EXHIBIT C
Schedule of Maximum Semi-Annual Rent
and Debt Service
--------------------------------------
Semi -Annual
Payments
Year ($000)
---- --------------
1 $
2
3
4
5
6
7
8
9
10
11
12
13
14
15
<PAGE>
Exhibit 10.18
AGREEMENT
FOR THE SALE OF ELECTRIC ENERGY
FROM THE SCRUBGRASS GENERATING PLANT
THIS AGREEMENT, made and entered into this 7th day of August, 1987 by
and between PENNSYLVANIA ELECTRIC COMPANY (hereinafter "Penelec" or "Company"),
a public utility corporation organized and existing under the laws of the
Commonwealth of Pennsylvania and SCRUBGRASS POWER CORP. (hereinafter "SPC"), a
Pennsylvania corporation, hereinafter sometimes referred to collectively as the
"Parties", or individually as a "Party. "
WITNESSETH:
WHEREAS, Penelec is a Pennsylvania public utility corporation engaged
in the production, transmission and distribution of electric energy; and
WHEREAS, SPC is a corporation which has undertaken to acquire,
construct, install and operate a certain waste-fired, electric generating
installation in Scrubgrass Township, Venango County, Pennsylvania (hereinafter
"Facility"), which was certified by the Federal Energy Regulatory Commission
("F.E.R.C.") at Docket No. QF-87-345-000 on June 3, 1987, as a qualifying small
power producer and/or cogenerator, said certification having been marked as
Appendix 1 attached hereto and made a part hereof; and
WHEREAS, the Facility, also known as the Scrubgrass Generating Plant,
consists of one generating unit with an installed net capacity of approximately
eighty thousand (80,000) kilowatt ("KW"); and
<PAGE>
WHEREAS, SPC intends to utilize bituminous and anthracite waste as the
principal energy sources for the Facility, and have the facility available for
the production and sale of electric energy on December 31, 1990; and
WHEREAS, SPC intends to construct, own, maintain and operate a certain
115 kilovolt ("KV") electric transmission line extending approximately sixteen
(16) miles from the Facility to Penelec's Eclipse Substation in Venango County,
Pennsylvania ("Transmission Line"); and
WHEREAS, SPC desires to sell the electric energy produced by the
Facility to Penelec and Penelec desires to purchase said electric energy under
the terms and conditions outlined below; and
WHEREAS, SPC may from time to time require additional electric services
in the form of supplementary power, maintenance power, interruptible maintenance
power, back-up power, and interruptible back-up power, and Penelec desires to
provide said services to SPC under the terms and conditions outlined below
NOW, THEREFORE in consideration of the mutual covenants and promises
set forth below, the Parties, intending to be legally bound hereunder, hereby
covenant, promise and agree as follows:
A. Public Utility Commission Approval
and Term of Agreement
-------------------------------------
1. This AGREEMENT shall be in full force and effect, binding upon the
Parties hereto, and enforceable in accordance with its terms, upon its execution
by the Parties hereto and after
-2-
<PAGE>
the issuance of a valid, binding and final order of the Pennsylvania Public
Utility Commission ("PaPUC"), acceptable in form and substance to the Company in
its sole discretion, approving the recovery by Penelec from its customers of all
costs and charges proposed to be paid to SPC for electric energy delivered to
Penelec under this AGREEMENT.
2. The term of this AGREEMENT shall be for a period of twenty (20)
years commencing with the date the Facility is declared in writing by SPC to be
in commercial operation ("Commercial Operation Date"). For purposes of this
AGREEMEMT, the "date of initial delivery of electric energy" shall be the first
date on which the Facility generates and delivers electric energy at the
Delivery Point (as hereinafter defined) as measured by Penelec's electric meter.
Unless otherwise specified herein, this AGREEMENT may not be extended, shortened
or otherwise modified unless by mutual agreement of the Parties in writing.
3. (a) As promptly as practicable but in no event later than
ninety (90) days following execution of this AGREEMENT, SPC shall
provide the Company with detailed engineering, permitting, and
construction schedules showing the critical path for the Facility. SPC
shall promptly advise the Company thereafter in writing of any
revisions, modifications or changes to such schedules
(b) SPC shall furnish the Company with quarterly written
status reports describing the progress of the engineering, permitting,
and construction of the Facility. Such reports shall include, in
reasonably sufficient
-3-
<PAGE>
detail, explanations of any delays in meeting scheduled dates for
commencement or completion of any listed engineering, permitting for
construction item.
(c) In the event SPC has not (1) obtained all principal
federal and state environmental permits and authorization to construct
and operate the Facility and (2) issued a purchase order (or entered
into a legally binding commitment) for the Facility's principal energy
conversion device on or prior to the dates specified in the schedules
initially submitted to the Company, as revised from time to time with
the prior written consent of the Company, SPC shall pay to the Company
one-half the amount of liquidated damages as provided in Section Y,
paragraph 2 hereof.
(d) In the event this AGREEMENT is not otherwise terminated
pursuant to this Section A, and SPC pays to the Company the liquidated
damage amount as provided in subparagraph (c) above, then within thirty
(30) days after the end of the first billing month following the
Commercial Operation Date, the Company shall credit SPC for amounts due
to the Company hereunder, or otherwise reimburse SPC, for the full
amount of such liquidated damage payment but without interest thereon.
(e) Notwithstanding the foregoing, if this AGREEMENT should
terminate pursuant to this Section A, the Company shall be entitled to
the full amount of any liquidated damages provided under Section Y
hereof, less any amount
-4-
<PAGE>
4. Notwithstanding anything contained in this AGREEMENT to the
contrary, if the Commercial Operation Date has not occurred on or prior to
December 31, 1990, regardless of the reasons for such failure, the Company may
terminate this AGREEMENT unless prior to such date SPC demonstrates to the
Company's reasonable satisfaction that SPC:
a. has commenced and there is ongoing a program of continuous
construction of the Facility pursuant to which SPC has
incurred direct construction expenses of not less than One
hundred million dollars ($100,000,000) and;
b. has furnished the Company with a revised construction
schedule for the Facility under which the Facility will be
operation not later than December 31, 1991. In such event,
the Commercial Operation Date shall be extended to December
31, 1991.
5. The Company shall have no obligation to purchase any electric energy
from the Facility prior to October 1, 1990.
B. Sale to and Purchase by
Penelec of Electric Energy
-----------------------------
1. SPC agrees to sell and deliver and Penelec agrees to purchase and
accept delivery of all electric energy made available from the Facility.
2. For purposes of this AGREEMENT, the "Delivery Point" or point of
interconnection between the Company's electrical system and the Facility shall
be located at the 115 KV bus at Penelec's
-5-
<PAGE>
Eclipse Substation located in Venango County, Pennsylvania as shown on the
schematic diagram marked as Appendix 2, attached hereto and made a part hereof.
The Parties acknowledge and understand that the precise location of the Delivery
Point as hereinabove defined shall be dependent upon the exact location of the
Transmission Line.
3. SPC shall interconnect the Facility with the Company's electrical
system and the Company shall interconnect its electric system with the Facility
at the Delivery Point upon the terms and conditions contained in this AGREEMENT.
SPC shall operate the Facility in parallel with the Company's electrical system.
4. SPC shall construct, own, operate, maintain, etc., the Transmission
Line of 115 KV from the Facility to Penelec's Eclipse Substation in order to
facilitate the direct electric connection between SPC and Penelec. SPC shall
consult with Penelec prior to the commencement of construction of the
Transmission Line in order to obtain Penelec's approval of the most desirable
location of said electric line for the purpose of establishing the electrical
interconnection. For purposes of this AGREEMENT, the Transmission Line shall be
considered part of the Facility and electrical equipment, devices, and
facilities appurtenant thereto, which are owned and operated by SPC, and all
duties and responsibilities imposed under this AGREEMENT upon SPC with respect
to such equipment, etc., shall be equally applicable to the Transmission Line.
C. Pricing For Services
-----------------------
1. For purposes of this AGREEMENT, the term "PJM Billing Rate" shall be
the monthly average of the hourly billing rates to
-6-
<PAGE>
the General Public Utilities Group ("GPU") for purchases by GPU from the
Pennsylvania-New Jersey-Maryland Interconnection ("PJM") or sales by GPU to PJM.
2. Penelec shall pay SPC for electric energy delivered to Penelec's
electrical system (i.e., metered at the Delivery Point) from the Facility as
follows:
(a) For each month from the date of initial delivery of
electric energy from the Facility until the Commercial Operation Date,
Penelec shall pay SPC for electric energy delivered at a rate equal to
the monthly average PJM Billing Rate less ten percent (10%).
(b) For each month of the first year commencing with the
Commercial Operation Date, Penelec shall pay SPC a uniform rate of 6.6
cents per KWH during on-peak hours and 2.6 cents per KWH during
off-peak hours (See Section K, paragraphs 4 and 5, for definition of
on-peak and off-peak hours), and thereafter, Penelec shall escalate
these on-peak and off-peak rates by six percent (6%) each year, up to
and including the tenth (10th) year of this AGREEMENT.
(c) For each month of the eleventh (11th) through the
fifteenth (15th) years of this AGREEMENT, commencing with the
Commercial Operation Date, Penelec shall pay SPC the average PJM
Billing Rate for the month less fifteen percent (15%) per KWH.
(d) For each month of the sixteenth (16th) year through the
twentieth (20th) years of this AGREEMENT
-7-
<PAGE>
commencing with the Commercial Operation Date, Penelec shall pay SPC
the average PJM Billing Rate for the month less twenty percent (20%)
per KWH.
3. The parties expect that the Pa. PUC will permit Penelec full
ratemaking recovery of all costs paid or proposed to be paid to SPC under the
AGREEMENT. If at any time during the term of this AGREEMENT, or any extensions
or renewals thereof, the PUC or any other public regulatory agency having
jurisdiction over the rates charged or recovered by Penelec from its customers,
fails to allow full ratemaking recovery for Penelec of all costs paid or
proposed to be paid by Penelec to SPC under the AGREEMENT, Penelec shall have no
obligation or responsibility under this AGREEMENT or otherwise to pay SPC for
any electric energy or capacity in excess of the amount allowed by the PUC for
ratemaking purposes. In the event the PUC or other public regulatory agency
having jurisdiction over the rates charged or recovered by Penelec from its
customers disallows for ratemaking purposes any costs previously paid by Penelec
to SPC under this AGREEMENT, SPC shall refund any amounts so disallowed within
thirty (30) days after written request by Penelec. In the event there is a
ratemaking disallowance of any costs paid or proposed to be paid by Penelec to
SPC as aforesaid, Penelec and SPC shall use all reasonable efforts to contest
such action.
D. Performance Guarantee
------------------------
1. In the event SPC delivers, generates and sells electric energy to
Penelec, commencing with the Commercial Operation Date, at an annual average
level which is less than eighty-five percent (85%) of the average of the net
electric energy made available from the Facility during rolling three (3) year
periods of
-8-
<PAGE>
operation, SPC shall make an incentive payment to Penelec in accordance with
the following:
(a) To determine whether SPC is to be assessed an incentive
payment in any year after the first three (3) years of operation of the
Facility, commencing with the Commercial Operation Date, the annual
electric energy delivered by SPC to Penelec during on-peak hours shall
be compared to the average annual electric energy delivered by SPC to
Penelec during on-peak hours for the prior three (3) years. If said
annual electric energy is less than eighty-five percent (85%) of the
average three year electric energy output, then Penelec shall collect
an incentive payment from UPC specified below.
(b) During the first ten (10) years of this AGREEMENT,
commencing from the Commercial Operation Date, SPC shall be liable for
and pay to Penelec an incentive payment equal to the difference between
eighty-five percent (85%) of the three year average on-peak electric
energy delivered and the actual annual on-peak electric energy
delivered multiplied by 3.20 cents. Subsequent to the tenth (10th) year
of this AGREEMENT, commencing from the Commercial Operation Date,. SPC
shall continue to be liable for and pay to Penelec an incentive payment
as calculated hereinabove, except that the 3.20 cents shall be
compounded annually by one (1) plus the Gross National Product Implicit
Price Deflator. Attached hereto as Appendix 3 and made a part of this
AGREEMENT is an example of a statement ("Incentive Statement") which
-9-
<PAGE>
shows, for illustrative purposes only, the development and calculation
of a hypothetical annual incentive payment.
(c) The incentive payment shall be made to Penelec in six (6)
equal monthly payments by applying (i.e. setting off) such sum against
payments due and payable by Penelec to SPC for electric energy
delivered during the first six (6) months after the Incentive Statement
has been submitted to SPC. In the event that the incentive payment has
not been made in full by SPC at the end of the six (6) month period
stated above through the operation of the aforesaid procedure, SPC
shall pay the unpaid balance of the incentive payment to Penelec within
ten (10) days of the expiration of said six (6) month period. In the
event SPC does not deliver sufficient electric energy to Penelec in any
month to allow the set-off procedure to operate as stated herein, SPC
shall pay to Penelec in cash any amount(s) which cannot be set-off. Any
and all amounts due and owing Penelec under Section D of this AGREEMENT
shall be immediately due and payable by SPC in the event of a default
by SPC or a termination of this AGREEMENT under Section X hereof.
(d) Penelec shall submit the Incentive Statement by ordinary
mail to SPC at the address specified in Section P of this AGREEMENT
within thirty (30) days of the close of each year for which an
incentive payment has been incurred. Upon receipt of the Incentive
Statement, SPC shall promptly review its contents and advise Penelec of
any purported errors, misstatements or other problems
-10-
<PAGE>
which shall be settled by the Parties as expeditiously as possible.
(e) If Penelec does not receive written notice from SPC of any
purported errors, misstatements or other problems with the Incentive
Statement within thirty (30) days from the date of the Incentive
Statement, said Incentive Statement shall be deemed acceptable to SPC
and binding upon it, and Penelec shall commence the billing of the
incentive payment and set-off procedure as set forth in Section D,
paragraph 1(c).
E. Suspense Account
-------------------
1. (a) SPC and the Company hereby agree that a Suspense Account
shall be established, effective on the Commercial Operation Date, to
determine the cumulative difference between the payments to be made by
the Company to SPC under this AGREEMENT ("Contract Rate") and an
associated, forecasted PJM Billing Rate ("Projected Rate") as more
fully set forth and shown on Appendix 4, attached hereto and made a
part hereof.
(b) During the term of the Suspense Account, the difference
between Contract Rate and Projected Rate for each kWh actually
delivered shall be applied each month to the Suspense Account. If the
Contract Rate is greater than the Projected Rate, the difference shall
be credited to the Company in the Suspense Account. If the Projected
Rate is greater than Contract Rate, the difference shall be debited to
the Company in the Suspense Account.
-11-
<PAGE>
(c) The Suspense Account shall be terminated at the earliest
of the following: (1) the end of the month that such Suspense Account
equals zero, or (2) the Suspense Account has a credit balance to SPC,
or (3) the end of the tenth (10th) year following the Commercial
Operation Date. In the event there is a credit balance in the Suspense
Account in favor of the Company at the time of termination of said
account, SPC shall pay said amount to Penelec within thirty (30) days
of Penelec's written request. In the event Penelec terminates the
Agreement under Section X hereof, SPC shall pay any credit balance due
to the Company and the Suspense Account shall thereupon terminate.
Should SPC refuse or otherwise fail to make such payment, the surety
bond or other evidence of security accepted by the Company securing
such credit balance shall immediately be payable to the Company without
presentment, notice or opportunity to cure.
(d) So long as the Suspense Account contains any cumulative
credits due to the Company, SPC shall maintain a noncancellable surety
or performance bond or irrevocable bank letter of credit in form and
substance reasonably satisfactory to the Company, which provides for
payment directly to the Company as beneficiary, or provide payment
directly to the Company as beneficiary, or provide other security
reasonably acceptable to the Company, to secure SPC's obligation
hereunder to pay the amount of such cumulative credit. A copy of such
bond or other
-12-
<PAGE>
security reasonably acceptable to Penelec shall be provided to the
Company prior to the Commercial Operation Date and on January 1 of each
year until the termination of the Suspense Account.
(e) During the first calendar year in which the Commercial
Operation Date occurs, the amount of the surety bond or such other
security accepted by the Company shall equal the cumulative credit
reasonably anticipated by the Company for such year. On January 1 of
each subsequent year following the Commercial Operation Date until
termination of the Suspense Account or termination of the AGREEMENT,
whichever shall first occur, the amount of the surety bond or such
other security accepted by the Company shall be increased or decreased
to equal the amount of cumulative credit in the Suspense Account plus
or minus the amount of cumulative credit or debit reasonably
anticipated by the Company for the calendar year. If, at any time
during the term of the AGREEMENT, the amount of the cumulative credit
in the Suspense Account exceeds the amount of the surety bond or such
other security accepted by the Company, the bond or security, as the
case may be, shall upon ninety (90), days prior written notice from the
Company be increased to equal the amount of such credit, plus the
credit reasonably anticipated by the Company for the remainder of the
calendar year.
F. Start-Up Operations
----------------------
1. The Parties recognize that integration of the Facility
-13-
<PAGE>
with Penelec's electrical system during the start-up or commissioning
of the Facility (i.e., prior to the Commercial Operation Date of the
Facility) may result in both anticipated and unanticipated changes in
SPC's electric energy and demand. To that end, the Parties agree to the
following terms and conditions, which will apply during initial start-
up operation of the Facility:
(a) SPC shall notify Penelec in writing at least
thirty (30) days prior to the date of initial delivery of
electric energy from the Facility and shall submit in writing
to Penelec the details of initial start-up operation, for
Penelec's review and assessment of the impact on Penelec's
electrical system. In no event shall SPC commence initial
delivery of electric energy from the Facility prior to October
1, 1990.
(b) To the extent deemed reasonably necessary by
Penelec, SPC shall initiate and maintain telephone
communications with Penelec's regional dispatchers on a
continuing basis during start-up operations.
(c) SPC shall provide Penelec written notice at least
thirty (30) days in advance of the Commercial Operation Date
of the Facility.
(d) Penelec shall provide all electric service
required by SPC during the period of start-up operations of
the Facility under the applicable tariff rate schedule filed
and approved by the PaPUC. Upon and after the Commercial
Operation Date, any and all ratchets and associated minimum
demands or charges that may be con-
-14-
<PAGE>
tained in the aforementioned rate schedule shall be
eliminated.
(e) During the period of start-up operations of the
Facility, SPC shall conduct a performance test of the Facility
in accordance with the performance standards established by
the American Society of Mechanical Engineers, Power Test Code
or such reasonable equivalent specified by Penelec. SPC shall
provide Penelec advance notice of the test and Penelec shall
have the right to have representatives present at the time
thereof.
G. Business Interruption Insurance, Property Hazard Insurance
and Penelec Operation of the Facility
--------------------------------------------------------------
1. Not less than thirty (30) days prior to commencement of
construction of the Facility, Transmission Line and appurtenant equipment, SPC
shall procure and maintain in effect during the term of the AGREEMENT and in
accordance with this paragraph, Business Interruption Insurance and Property
Hazard Insurance to cover and otherwise insure against reasonable business risks
associated with damage to or other interruption of the use of the Facility and
appurtenant equipment. The following terms and conditions shall also apply with
respect to the aforesaid insurance requirements:
(a) All insurance policies specified in this Section shall
name Penelec as an additional insured.
(b) Penelec understands and agrees that during the term of
this AGREEMENT and any extensions or renewals thereof, its right to the
proceeds of any Business.
-15-
<PAGE>
Interruption Insurance or Property Hazard Insurance shall be
subordinated to the rights of the construction lender and permanent
lender of SPC, whose names and addresses will be provided by SPC to
Penelec as soon as possible after execution of this AGREEMENT.
(c) Penelec reserves the right to review and approve the
form, amount, deductibles and any other requirements of any and all
Business Interruption Insurance and Property Hazard Insurance required
by the permanent lender. Any approval required by Penelec shall not be
unreasonably withheld.
(d) In the event a permanent lender does not require
Business Interruption Insurance and Property Hazard Insurance, Penelec
reserves the right to require said insurance coverages and to determine
and specify the form, amount and deductibles applicable thereto.
(e) At a minimum, said Property Hazard Insurance shall
insure the Facility, Transmission Line and all appurtenant equipment
against all risk of physical loss or damage and said insurance policies
shall be issued by reputable insurance companies doing business in the
Commonwealth of Pennsylvania. Said insurance coverages shall not be in
amounts less than the full replacement cost of the Facility,
Transmission Line and appurtenant equipment.
(f) After Penelec's approval has been obtained, and not
later than thirty (30) days prior to commencement
-16-
<PAGE>
of construction of the Facility, Transmission Line and all appurtenant
equipment, SPC shall provide to Penelec, by delivering to its corporate
offices at 1001 Broad Street, Johnstown, Cambria County, Pennsylvania,
a properly executed certificate of Property Hazard Insurance. SPC shall
provide Penelec with a properly executed certificate of Business
Interruption Insurance not later than thirty (30) days prior to the
date of initial delivery of electric energy. Said certificates shall
provide (1) the name of the insurance company, policy number and
expiration date, (2) the coverages required and the limits on each and
(3) a statement indicating that Penelec shall receive thirty (30) days'
notice of cancellation or modification of any of the policies which may
affect Penelec's interest.
(g) The insurance coverages required under this section
shall be independent of and in addition to any and all insurance
coverages required by Penelec pursuant to Section Q of this AGREEMENT.
(h) At its option, SPC may procure and maintain Business
Interruption Insurance and Property Hazard Insurance under a blanket
insurance policy covering property other than the Facility,
Transmission Line and all appurtenant equipment, provided that all the
terms and conditions of this Section have been satisfied.
2. If at any time during the term of this AGREEMENT SPC or the
permanent lender fails to operate and maintain the Facility, Transmission Line
and/or appurtenant equipment for a
-17-
<PAGE>
period of sixty (60) days, or SPC defaults in the performance of its obligations
under this AGREEMENT or an event occurs which would give the Company the right
to terminate this AGREEMENT, Penelec shall have the option (but not the duty) to
assume management control of, and otherwise operate, the Facility, Transmission
Line and all appurtenant equipment under the following terms and conditions. For
purposes of this Section, the "failure to operate" shall not include the period
when the Facility does not operate: (1) due to an act or omission of Penelec, or
(2) due to equipment failure, if SPC has taken or is taking reasonable steps to
replace or repair said equipment or facilities, or (3) if there exists a bona
fide force majeure condition.
(a) Penelec shall exercise its option to assume management
control and otherwise operate the Facility, Transmission Line and
appurtenant equipment, after having given written notice of its
intention to SPC and the permanent lender, and providing them a
reasonable time under the circumstances to cure any and all outstanding
defaults (or events which could lead to termination) under the
AGREEMENT.
(b) Penelec's option to assume management control and
otherwise operate the Facility, Transmission Line and all appurtenant
equipment shall terminate upon such time when SPC or the permanent
lender demonstrates to Penelec's satisfaction that it is able to meet
all the obligations, duties, responsibilities, etc. imposed upon SPC
under this AGREEMENT.
(c) Notwithstanding Penelec's option to assume
-18-
<PAGE>
management control and otherwise operate the Facility, Transmission
Line and appurtenant equipment, the Parties acknowledge and understand
that SPC shall retain legal title to and ownership of the Facility and
Transmission Line unless otherwise adjudicated by any court or
regulatory body having appropriate jurisdiction.
(d) Penelec's assumption of management control and/or
operation of the Facility, Transmission Line and appurtenant equipment
shall not be construed as creating any duty or responsibility on
Penelec's part for the continued operation of the Facility or the
Transmission Line for the benefit of SPC or any third parties.
(e) SPC shall indemnify and hold Penelec harmless for any
damages, claims, actions, lawsuits, etc. which Penelec may suffer or
incur as a result of assuming management control and operation of the
Facility under this Section.
(f) SPC shall reimburse Penelec for any and all costs and
expenses reasonably incurred by Penelec in assuming operation of and
operating the Facility, Transmission Line and/or appurtenant equipment,
other than costs and expenses caused by Penelec's gross negligence, or,
at the sole discretion of the Company, the Company may set off such
costs and expenses against any amounts due SPC under this AGREEMENT.
(g) SPC waives any and all claims, damages, actions,
lawsuits, etc. which it may have now or in the future
-19-
<PAGE>
against Penelec as a result of any damage resulting to any property
during any such time that Penelec exercises its option to assume
management control and otherwise operate the Facility pursuant to this
Section. The foregoing waiver shall not be applicable to any gross
negligence on the part of Penelec during any such time that Penelec
exercises its option to assume management control and operation of the
Facility, Transmission Line or appurtenant equipment, pursuant to this
Section.
(h) Notwithstanding the foregoing, should the Company
assume management control and operation of the Facility under this
Section, the Company may at any time return operation and control of
the Facility to SPC without any further liability or obligation on the
part of the Company, except such liability or obligation as may arise
as a result of the gross negligence of Penelec.
H. General Interconnection Requirements
---------------------------------------
1. SPC shall design, construct, install, own and maintain all equipment
(including the Transmission Line), other than Penelec's billing meters and
monitoring equipment specified in this AGREEMENT, required to generate and
deliver electric energy to SPC's side of the Delivery Point. SPC shall furnish,
install, operate and maintain facilities such as, but not limited to, the
Transmission Line, relays, switches, circuit breakers, synchronizing equipment,
control and protective devices determined by the Company to be necessary for
parallel operation with Penelec's electrical system.
- 20 -
<PAGE>
2. All facilities on Penelec's side of the Delivery Point necessary to
provide the electrical connection from SPC to Penelec's electrical system, and
any transmission, distribution and/or substation additions required to accept
the electric energy produced by SPC including, but not limited to, transmission
or distribution lines, circuit breakers, controls and relaying as specified by
Penelec, will be provided by Penelec. The estimated costs, both direct and
indirect, including, but not limited to material and labor, of said facilities
shall be borne by SPC. All such payments shall be made in full to the Company
prior to the commencement of construction of said facilities.
3. Within one hundred eighty (180) days of completion of the facilities
described in Section G, paragraph 2, Penelec shall send SPC in writing a
statement showing the difference between said estimated costs and Penelec's
actual costs for construction, installation, etc. of said facilities. In the
event the actual costs of said facilities exceed the estimated costs, SPC shall
pay the difference to Penelec within thirty (30) days of the statement date. In
the event the actual costs are less than the estimated costs, Penelec shall
refund the difference to SPC within thirty (30) days of the statement date.
4. SPC shall comply in all respects with Penelec's "Protection
Requirements -- Customer-Owned Generation," marked as Appendix 5 attached hereto
and made a part hereof.
5. At least sixty (60) days prior to the commencement of construction
of the Facility and the Transmission Line, SPC shall submit interconnection
plans and specifications (including single
- 21 -
<PAGE>
line diagrams and control and protective relay schemes as well as plans and
specifications for the Transmission Line) to Penelec for inspection and
acceptance.
6. In the event the aforesaid plans and specifications are acceptable,
said plans and specifications shall be incorporated by reference herein and made
a part hereof. Penelec shall provide written notification to SPC of its
acceptance of the aforesaid plans and specifications within thirty (30) days
from receipt thereof.
7. In the event the aforesaid plans and specifications are not
acceptable, the Company shall, within thirty (30) days of the receipt of all
information, notify SPC of rejection and the reasons for such rejection. Penelec
will consider subsequent submissions of plans and specifications in accordance
with procedures set forth in this paragraph and paragraphs 5 and 6 above.
8. Interconnection equipment and devices on SPC's side of the Delivery
Point (including the Transmission Line) shall be constructed and operated in a
good and workmanlike manner and meet or exceed industry accepted standards of
good practice. To the extent applicable, SPC, its agents, workmen, employees,
contractors, subcontractors, etc. shall observe and follow the provisions of the
National Electric Safety Code, and the standards of the Institute of Electrical
and Electronics Engineers, the National Electrical Manufacturers Association and
the American National Standards Institute and any other applicable statutes,
codes or regulations in the construction and operation of said interconnection
equipment (including the Transmission Line).
- 22 -
<PAGE>
9. Prior to the interconnection of the Facility with the Company's
electrical system, SPC shall provide Penelec written certification of
satisfactory electrical and construction inspections of interconnection
equipment and devices on SPC's side of the Delivery Point (including the
Transmission Line) by a Company-approved inspector. Penelec will provide a list
of such approved inspectors upon request. Penelec may, at its sole discretion,
in lieu of the certificate of satisfactory electrical and construction
inspection by a Penelec recognized inspection agency, accept a letter of
certification from a registered professional engineer certifying satisfactory
electrical and construction connections and techniques and compliance with all
applicable codes.
10. Acceptance by Penelec of SPC's plans and specifications for the
Facility, Transmission Line and/or interconnection equipment or Penelec's
engaging in interconnected operations with SPC does not and shall not be
construed (1) as confirmation or endorsement of the design of the Transmission
Line, Facility or SPC's interconnection equipment and devices or (2) as any
warranty Facility or any of its appurtenant equipment, including SPC's
interconnection equipment and devices.
11. Penelec shall not, by reason of acceptance of SPC's plans and
specifications or by engaging in interconnected operations with SPC, be
responsible for strength, details of design, adequacy, or capability of the
Transmission Line, Facility or its appurtenant equipment (including SPC's
interconnection equipment and devices), nor shall the Company's approval of said
plans and specification be
-23-
<PAGE>
deemed an endorsement or warranty of the Transmission Line, facility or its
equipment.
12. SPC shall modify at its own expense SPC's electrical facilities,
including but not limited to the interconnection equipment and devices, as may
be reasonably required by the Company to meet changing requirements, including
but not limited to voltage changes, of the Company's electrical system.
I. Character of Service
-----------------------
1. The Facility, when installed, constructed, and operational, shall
produce sinusoidal 60 hertz ("Hz") alternating current power.
2. Output voltage of the Facility shall be compatible with the voltage
on Penelec's side of the Delivery Point.
3. At no time shall operation of the Facility, including the generators
or any of their auxiliary devices, result in an electrical output in which the
sum of all harmonics superimposed on the 60 HZ wave exceeds the Institute of
Electrical and Electronic Engineers' standards as measured at the Delivery
Point. The operation of the Facility and appurtenant equipment, including the
Transmission Line, shall not adversely affect the nature and quality of service
the Company is required to provide its customers under the provisions of the
Pennsylvania Public Utility Code.
J. Maintenance of Facility and Associated Equipment
---------------------------------------------------
1. SPC shall continuously maintain the Facility, Transmission Line and
the interconnection equipment on its side of the Delivery Point, its associated
equipment and structures, wiring and devices, in a safe and proper operating
condition
-24-
<PAGE>
consistent with all applicable statutes, regulations, codes, and the duties and
obligations listed in Section H of this AGREEMENT and in Appendix 5 attached
hereto.
2. SPC shall develop and adhere to maintenance procedures for circuit
breakers, relays and auxiliary equipment in accordance with the manufacturer's
recommendations for such equipment and devices.
3. SPC shall maintain a written maintenance and test log which shall
detail the type and frequency of all actual maintenance performed on circuit
breakers, relays and auxiliary equipment in accordance with the manufacturer's
recommendations. Upon reasonable notice by Penelec, SPC shall make the log
available for inspection by Penelec.
4. On an annual basis (commencing from the date of initial delivery of
electric energy from SPC to Penelec), SPC shall submit a letter to Penelec
representing that maintenance and testing of the circuit breakers, relays and
auxiliary equipment have been performed in accordance with the manufacturer's
recommendations governing such equipment and devices.
5. SPC shall pay Penelec for all reasonable costs associated with
Penelec's maintenance, repair, replacement etc. of all of Penelec's
interconnection equipment at or near Penelec's side of the Delivery Point,
except such costs which are the result of Penelec's gross negligence.
K. Metering, Billing and Payment
--------------------------------
1. Electrical energy delivered from the Facility to the
-25-
<PAGE>
Company's electrical system shall be metered at the Delivery Point on an
hour-by-hour basis.
2. Commencing with the date of initial delivery of electric energy from
SPC to Penelec, SPC shall pay the Company a $150 per billing month service
charge for the administration costs associated with metering the electric energy
delivered to the Company's electrical system on an hour-by-hour basis. The
amount of the service charge shell apply for the first 36 months from the date
of execution of this AGREEMENT and, thereafter, a new rate may be determined and
established by Penelec in writing. Any new service charge established by Penelec
shall be reasonably related to the actual cost to the Company of administration
costs associated with this AGREEMENT.
3. The Company shall install, at SPC's expense, all metering equipment
utilized in metering the delivery to Penelec of electric energy from the
Facility. Any electric meter measuring the delivery of electric energy to
Penelec shall register actual power flow only in the direction of Penelec.
Meters for measurement of reactive volt-ampere hours shall be required. All such
payments shall be made in full to the Company prior to the time of physical
interconnection of the Facility with the Company's electrical system.
4. For the purposes of metering and billing, on-peak hours shall be
8:00 a.m. to 10:00 p.m., prevailing time, Monday through Friday. All other hours
shall be considered the off-peak period, including those hours noted in Section
K, paragraph 5.
- 26 -
<PAGE>
5. The following holidays, on the days such holidays are officially
observed, shall be considered off-peak: New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
6. For the first ten (10) years of this AGREEMENT, commencing with the
Commercial Operation Date, Penelec shall determine the amount of electric energy
supplied to it by SPC during the month and shall submit to SPC within twenty
(20) business days of the close of the month full payment (less the service
charge) due by Penelec to SPC for electric energy delivered to Penelec during
that month During the initial start-up operation of the Facility and after the
aforesaid ten (10) year period, the submittal of payment from Penelec to SPC
shall be not later than forty-five (45) business days after the close of each
month. Attached hereto as Appendix 6 and made a part hereof is an example, for
illustrative purposes only, of a monthly statement which shall be submitted to
SPC.
7. Penelec shall inspect and test all meters utilized in the delivery
of electric energy to Penelec upon their initial installation and at such other
times as Penelec thereafter deems necessary in the exercise of and consistent
with industry accepted standards of good practice. However, the meters shall be
inspected at least once every two years.
8. Upon written request by SPC, Penelec shall inspect and/or test a
meter more frequently than once every two years. In the event an inspection
and/or test requested by SPC establishes a meter to be registering inaccurately
by more than two percent (2%)
-27-
<PAGE>
of full scale, the cost of said inspection and/or test shall be borne by
Penelec. In all other instances (including the initial test and/or inspection of
meters), the cost of any meter test and/or inspection, regardless of which Party
requests it or the results thereof, shall be paid by SPC.
9. Penelec shall give reasonable written notice to SPC of the time when
any meter inspection or test shall take place. and SPC may have representatives
present at the test or inspection. Any meter found to be inaccurate or defective
shall be adjusted, repaired or replaced, at SPC's sole cost and expense.
10. If a meter fails to register, or if the measurement made by a meter
during a test varies by more than two percent (2%) of full scale (i.e., varies
by more then two percent (2%) either above or below the measurement made by the
standard meter used in the test), adjustment in payments to SPC or credits to
Penelec shall be made after correcting all measurements made by the inaccurate
meter for:
(1) the actual period during which inaccurate measurements were
made, if the period can be reasonably determined; or
(2) if the period during which inaccurate measurements occurred
cannot be reasonably determined, any adjustment shall be
determined by applying the percentage variation from the two
percent (2%) of full scale standard to the magawatthours (and
the price applicable thereto) delivered to Penelec at the
metering point from the date of the last
-28-
<PAGE>
previous meter test or the prior six months, whichever period
is less.
L. Additional Services
----------------------
1. Any electric energy SPC desires Penelec to furnish, such as
maintenance power, interruptible maintenance power, back-up power, interruptible
back-up power or supplemental power, shall be supplied by Penelec through the
Transmission Line and billed monthly to SPC through a meter separate and apart
from that used for electrical energy delivered by SPC to Penelec.
2. Any electric meter measuring the delivery of electric energy to SPC
for any purpose under this AGREEMENT shall register actual power flow only in
the direction of SPC.
3. In the event SPC desires back-up power, interruptible back-up power,
maintenance power and/or interruptible maintenance power, Penelec shall sell and
SPC shall purchase said power in accordance with the terms, conditions and rates
applicable thereto as set forth in Penelec's tariff rate QF or Rule 30,
whichever is appropriate, on file with the PaPUC, as may be amended from time to
time.
4. In the event SPC desires supplemental power, Penelec shall sell and
SPC shall purchase such power in accordance with the terms, conditions and rates
applicable thereto as set forth in the appropriate tariff on file with the
PaPUC, as may be amended from time to time.
M. Inspection of and Access to Electrical Equipment
---------------------------------------------------
1. SPC grants to Penelec for the term of this AGREEMENT (and a
reasonable time thereafter) all necessary rights of way and
-29-
<PAGE>
easements to install, operate, maintain, repair, replace, relocate and/or remove
the Company's metering and other electrical equipment, including adequate and
continuing access rights on property of SPC. SPC shall execute such other
grants, deeds or documents as Penelec may require to enable Penelec to record
such rights of way and easements.
2. If any portion of the Company's electrical equipment is to be
installed and/or operated upon property owned by a third person or entity other
than SPC, SPC shall, if Penelec is unable to do so without cost to the Company,
procure from the owner thereof all necessary permanent rights of way and
easements, in a form satisfactory to the Company, for the construction,
operation, maintenance, replacement and/or removal of Penelec's electrical
equipment upon such property.
3. Upon reasonable notice by Penelec, SPC shall permit employees and/or
inspectors of the Company (a) to conduct such operating tests and/or inspections
as are necessary to ascertain that the Company's protective devices are
functioning properly, (b) to examine and/or test meters and monitoring equipment
and (c) to examine, inspect and/or test all other electrical equipment
associated with the delivery of electric energy to the Company's electrical
system.
4. Within one hundred eighty (180) days of any termination of this
AGREEMENT, Penelec shall relinquish to SPC all rights-of-way and/or easements
previously granted to Penelec hereunder, except for rights-of-way, easements or
other property interests reasonably deemed necessary by Penelec to provide
electric
-30-
<PAGE>
service to SPC. Penelec agrees to execute such other grants, deeds or documents
as SPC may reasonably require to enable SPC to record such relinquishment of
said rights-of-way and/or easements.
N. Disconnection of Company System from the Facility
----------------------------------------------------
1. Penelec shall have the right to disconnect the Facility from the
Company's electrical system (or otherwise curtail, interrupt or reduce purchases
of electric energy), upon reasonable notice of not less than eight (8) hours to
SPC, under any or all of the following conditions:
(a) Failure of SPC to comply with any or all inspection,
testing or maintenance requirements imposed upon it under this
AGREEMENT or any applicable statutes, regulations or codes; or
(b) In the event the operation of the transmission Line,
Facility or appurtenant equipment results in an electrical output in
which the sum of all harmonics superimposed on Penelec's 60 Hz wave
exceeds five percent (5%), or the operation of the Facility,
Transmission Line and/or appurtenant equipment adversely affects the
nature and quality of service the Company is required to provide to its
customers under the provisions of the Pennsylvania Public Utility Code;
or;
(c) In the event the Company deems it necessary to install,
construct, maintain, repair, replace, relocate, remove, investigate
and/or inspect any of its electrical equipment or any part of its
electrical system which in
-31-
<PAGE>
any way affects the safe delivery of electric energy to the Company
from the Facility.
2. Penelec shall have the right to disconnect the Facility from the
Company's electrical system (or otherwise curtail, interrupt or reduce purchases
of energy) without notice to SPC, or upon such notice as the Company is able to
provide under the circumstances, if there is an emergency, forced outage or
system operating condition (including "Unit Emergency Loading" but excluding
economic dispatch) which, under prudent electrical practices, requires immediate
disconnection of the Facility or curtailment of electric energy purchases. For
purposes of this AGREEMENT, "Unit Emergency Loading" refers to a condition that
exists on the PJM interconnection system or the Penelec/GPU system when all
generating units and purchased power are reduced to their normal minimum
capability and further reductions in generation output are required for proper
control of the system in meeting system load. Penelec shall limit its
curtailment of electric energy deliveries from the Facility due to Unit
Emergency Loading no more than four hundred (400) hours per calendar year and to
no more than eighty (80) separate occurrences per calendar year. Emergency
notification shall be made by means of the voice operating communication link
maintained in accordance with section BB paragraph 4.
3. In the event Penelec disconnects the Facility from its electrical
system because of a situation described in (1)(a) or (b) of this Section,
Penelec shall reconnect the Facility as soon as reasonably practicable, upon
reasonable notice to SPC, upon certification by SPC in a form reasonably
satisfactory to Penelec that the
-32-
<PAGE>
circumstance(s) giving rise to the disconnection has/have been corrected.
4. In the event Penelec disconnects the Facility from its electrical
system due to a situation described in Paragraphs 1 (c) or 2, above, of this
Section, Penelec shall reconnect the Facility, upon reasonable notice to SPC, as
soon as reasonably practicable.
0. Special Facilities
---------------------
1. SPC shall bear the sole cost and expense of supplying and installing
any special facilities occasioned by the parallel operation and interconnection
of the Facility and/or the Transmission Line with the Company's electrical
system including, but not limited to, different voltage requirements, which are
deemed necessary by the Company for the safety, protection or reliability of its
electrical system or to assure the quality of service to other customers.
2. In the event any special facilities must be installed, the Company
shall promptly inform SPC in writing of such requirements and give SPC
reasonable advance notice of when such equipment or facilities shall be in place
and operational.
P. Notice
---------
1. All notices, demands or requests required or permitted to be given
by either Party to the other under this AGREEMENT, or are delivered by either
Party shall be made by (1) depositing the same in any United States Post Office,
postage prepaid, for trans-(2) personally delivered to the Party, at the
following addresses:
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<PAGE>
(a) Pennsylvania Electric Company
1001 Broad Street
Johnstown, Pennsylvania 15907
Attention: J. F. Furst, Vice President
(b) Scrubgrass Power Corp.
Box 419
423 North 21st Street
Camp Hill, Pennsylvania 17011
Attention: Joseph E. Cresci, President
with a copy to:
Joseph L. Serafini, Esquire
Rackemann, Sawyer & Brewster
One Financial Center
Boston, Massachusetts 02111
2. Changes in the aforesaid names and/or addresses shall be made by the
notice procedure described in paragraph 1 of this Section.
Q. Indemnity and Insurance
--------------------------
1. The Company does not, by acceptance of SPC's interconnection plans
and specifications or engaging in interconnected operations with SPC, assume any
responsibility or liability for damage or physical injury to (1) Company
property or electrical equipment; (2) the real or personal property of third
persons or corporations not a party to this AGREEMENT; (3) the Facility,
Transmission Line, real property, equipment and/or facilities and/or any
appurtenances thereto of SPC; and (4) any persons who may come in contact with
or upon the Transmission Line, Facility, real property, equipment and/or
facilities and/or any appurtenances thereto.
2. Each Party shell indemnify the other Party, its officers, agents and
employees against any and all loss, damage,
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<PAGE>
expense and liability to third persons for injury to or death of any persons, or
injury or damage to property proximately caused by the indemnifying Party's
negligent installation, construction, ownership, operation, repair, relocation,
replacement, removal or maintenance of, or by failure of, any of such Party's
equipment and/or facilities, including the Transmission Line, Facility, and/or
any appurtenances thereto used in connection with this AGREEMENT. The
indemnifying Party shall, on the other Party's request, in writing, defend any
suit asserting a claim covered by this indemnity. The indemnifying Party shall
pay all costs that may be incurred by the other Party in enforcing this
indemnity.
3. Not later than thirty (30) days prior to commencement of
construction of the Facility, SPC and all general contractors performing any
services in connection with the construction and/or operation of the Facility or
any appurtenant equipment (including the Transmission Line), shall procure and
maintain in effect during the term of the AGREEMENT the following minimum
insurance coverages:
<TABLE>
<CAPTION>
Type of Coverage Liability Limits
---------------- ----------------
<S> <C>
Worker's Compensation Statutory
Employer's Liability $ 100,000 each accident
Comprehensive General Liability including
Bodily Injury Liability $1,000,000 per occurrence
Property Damage Liability $ 500,000 per occurrence
Blanket Contractual
Underground Hazard
Products and Completed Operations Hazard
Broad Form Property Damage
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
Type of Coverage Liability Limits
---------------- ----------------
<S> <C>
Automobile Liability (Owned, Hired Non-owned)
Bodily Injury Liability $ 500,000 per person
$1,000,000 per occurrence
Property Damage Liability $ 500,000 per occurrence
</TABLE>
4. All insurance policies, except said Worker's Compensation Insurance,
shall name Penelec as an additional insured.
5. Not less than thirty (30) days prior to commencement of construction
of any and all facilities necessary to provide the electrical connection from
SPC to Penelec's electrical system, (including the Transmission Line), SPC shall
provide to Penelec, by delivering to its corporate offices at 1001 Broad Street,
Johnstown, Cambria County, Pennsylvania, properly executed certificates of
insurance. Said certificates must provide the following information:
(a) Name of insurance company, policy number and expiration
date
(b) The coverages required and the limits on each, including
the amount of deductibles or self-insured retentions.
(c) A statement indicating that Penelec shall receive thirty
(30) days notice of cancellation or modification of any of the policies
in which Penelec is named an additional insured or which may affect
Penelec's interest.
- 36 -
<PAGE>
6. Penelec shall have the right to inspect the original policies of
insurance applicable to the AGREEMENT at SPC's place of business during regular
business hours.
R. Representations and Warranties
---------------------------------
1. SPC hereby represents and warrants as follows:
(a) SPC is a corporation duly organized and validly existing
under the laws of the Commonwealth of Pennsylvania.
(b) SPC has all requisite power and authority to carry on the
business to be conducted by it and to enter into and perform its
obligations under this AGREEMENT.
(c) The execution and delivery of this AGREEMENT and the
performance of the SPC's obligations hereunder have been duly
authorized by all necessary action on the part of SPC.
(d) Prior to the Commercial Operation Date, SPC shall obtain
all permits, licenses and other authorizations from governmental
authorities as may be required to construct, operate and maintain the
Facility and to perform its obligations hereunder and during the term
hereof, SPC shall obtain all such additional governmental approvals,
permits and licenses as may be required with respect to the Facility as
soon as practicable. SPC shall maintain in full force and effect all
such governmental permits,
-37-
<PAGE>
licenses and authorizations as may be necessary for the construction,
operation or maintenance of the Facility.
(e) During the term of this AGREEMENT, the Facility will meet
the requirements for a "qualifying facility" within the meaning of the
Public Utility Regulatory Policies Act of 1978, as amended (16 USC (S)
5796, at. seq.) and the regulations of the F.E.R.C. promulgated
thereunder, as amended from time to time, and SPC shall make no
modifications, alterations or other changes to its Facility or in the
operation thereof which would cause the Facility to fail to meet such
requirements which may be in effect from time to time during the term
hereof.
(f) As of the date of initial delivery of electric energy and
during the term of this AGREEMENT, the Facility shall be operated at
all times by persons possessing the necessary education, experience and
training to safely operate the Facility in accordance with applicable
statutes, codes and regulations and the terms of this AGREEMENT.
R. Liability and Dedication
---------------------------
1. Nothing in this AGREEMENT shall be construed to create any duty,
standard of care or liability to any person not a Party to this AGREEMENT.
2. No undertaking by either Party to the other under any provision of
this AGREEMENT shall constitute the dedication of the Party's electrical system,
equipment, or facilities or any portion
-38-
<PAGE>
thereof to the other Party or to the public, nor affect the status of Penelec as
a public utility corporation, or SPC as a corporation.
3. Neither the Company nor SPC, nor their respective officers,
directors, partners, agents, employees, parents or affiliates, shall be liable
to the other Party or its parent, subsidiaries, affiliates, officers, directors,
partners, agents, employees, successors or assigns, for claims for incidental,
special, indirect or consequential damages of any nature connected with or
resulting from performance or non-performance of this AGREEMENT, including,
without limitation, claims in the nature of lost revenues, income or profits
(other than payments specifically "provided for and properly due under this
AGREEMENT) or losses, damages or liabilities under any financing, lending or
construction contracts, agreements or arrangements to which SPC may be a party,
irrespective of whether such claims are based upon warranty, negligence, strict
liability, contract, operation of law or otherwise.
T. Force Majeure
----------------
1. The term "force majeure" shall mean acts of God, the enforcement or
adoption of legislation or lawful rules, regulations or orders of any
governmental body, acts of the public enemy, riots, strikes, or other industrial
disturbances, labor or material shortages, fires, explosions, structural failure
or breakdown of SPC's or Penelec's facilities, or other causes of a similar
nature which are beyond the reasonable control of the Company or SPC and wholly
or partly prevent either Party from performing its respective obligations under
this AGREEMENT.
-39-
<PAGE>
2. If because of force majeure either Penelec or SPC is unable to carry
out its obligations under this AGREEMENT, and if such Party promptly gives the
other Party hereto written notice of such force majeur in detail, specifying
the nature, extent and expected duration of such force majeure, the obligations
and liabilities of the Party giving such notice and the corresponding
obligations and liabilities of the other Party shall be suspended to the extent
made necessary by and during the continuance of such force majeure.
3. Any disabling effects of such force majeure shall be eliminated as
soon as and to the extent reasonably practicable, by the Party claiming force
majeure.
4. No liabilities (including obligations to make required payments) of
either Party which arose before the force majeure shall be excused as a result
of the force majeure.
5. Neither Party shall be required to prevent nor settle a strike,
walkout or other industrial labor dispute as a result of this Section.
6. In the event any actions to alleviate the force majeure are
unsuccessful, or if such force majeure is of such severity as to substantially
prevent the performance under this AGREEMENT of the obligations of Penelec or
SPC, Penelec or SPC may terminate this AGREEMENT, except as to any outstanding
liabilities previously incurred hereunder.
7. In no event shall a force majeure condition or event asserted at any
time by SPC under this AGREEMENT, extend, modify or
-40-
<PAGE>
otherwise alter the final anticipated Commercial Operation Date of December 31,
1991 as specified in Section A, paragraph 4(b).
U. Several Obligations
----------------------
1. Except where specifically stated in this AGREEMENT to be otherwise,
the duties, obligations and liabilities of the Parties are intended to be
several, not joint or collective. Nothing contained in this AGREEMENT shall ever
be construed to create an association, trust, partnership or joint venture or
impose a trust or partnership duty, obligation or liability on or with regard to
either Party. Unless stated otherwise, each Party shall be individually and
severally liable for its obligations under this AGREEMENT.
V. Waiver
---------
1. Any waiver at any time by either Party of its rights, duties and/or
obligations with respect to any default (or any event which could lead to
termination) under this AGREEMENT, or with respect to any other matters arising
in connection with this AGREEMENT, shall not be deemed a waiver with respect to
any subsequent default or other matter.
W. Assignment
-------------
1. SPC shall not assign its rights or delegate its duties under this
AGREEMENT, nor any part of such rights or duties, without the written consent
Penelec. Any such assignment or delegation made without such writtem consent
shall be null and void.
2. Consent for the aforesaid assignment shall not be withheld
unreasonably.
- 41 -
<PAGE>
3. SPC shall pay Penelec for any legal costs or other expenses
reasonably incurred by Penelec after execution of this AGREEMENT which relates
to SPC's attempts to obtain financing for the construction of the Facility
(including the Transmission Line) end/or appurtenant equipment or to effectuate
any assignments or other loan documents for SPC's benefit.
4. Nothing contained in this Section shall prohibit Penelec from
assigning this AGREEMENT or all or part of Penelec's duties and obligations
hereunder to any of its affiliated or related companies or any successor entity
provided that the assignee shall agree to be bound by all the terms and
conditions hereof to the same extent as the Company.
5. Penelec agrees to review and execute all documents reasonably
necessary to perfect SPC's assignment of this AGREEMENT to a financing
institution in connection with the financing of the Facility and appurtenant
equipment, so long as such documents do not alter, amend or diminish Penelec's
rights under this AGREEMENT.
X. Termination
--------------
1. Penelec shall have the right to terminate this AGREEMENT without any
liability or responsibility hereunder, and without any obligation to maintain
the electrical interconnection facilities, under any or all of the following
conditions:
(a) SPC fails to deliver any electric energy to the Company
for 365 consecutive days after the Commercial Operation Date;
(b) SPC fails for thirty (30) consecutive days to perform
regular and required maintenance, testing
-42-
<PAGE>
or inspection of the Transmission Line, Facility end appurtenant
equipment after written notice of the need therefor by the Company;
(c) The Facility is not constructed and operating by December
31, 1990, unless said date is extended in accordance with Section A,
paragraph 4 of this AGREEMENT.
(d) SPC fails to provide the type and nature of electric
energy described in Section H and I of this AGREEMENT for a reasonable
period under the circumstances after written notice of such failure by
the Company;
(e) SPC fails to pay Penelec any unpaid balance as shown in
any Incentive Statement within the period and by the procedure
specified in Section D paragraph 1(c).
(f) SPC fails to allow Company employees and/or inspectors to
inspect, test or examine electrical equipment within seven (7) days
after written notice by the Company;
(g) SPC continues to violate any code, regulation and/or
statute applicable to the construction, installation or operation of
the interconnection equipment and devices on SPC's side of the Delivery
Point (as well as the Transmission Line), after written notice by the
Company of such violation and affording SPC reasonable time to cure any
such violation;
(h) SPC fails to perform any other duty or obligation
(including the making of any required payments or the installation and
construction of equipment) imposed
-43-
<PAGE>
upon it under this AGREEMENT, after written notice by the Company
affording SPC reasonable time to cure any such failure
(i) The Facility fails at any time to maintain its status as a
small power production facility under the rules and regulations of the
F.E.R.C. and all applicable federal and state statutes after notice by
Penelec to SPC affording SPC reasonable time to cure any such failure.
2. SPC shall have the right to terminate this AGREEMENT without any
liability or responsibility arising therefrom if:
(a) Penelec fails to accept electric energy in violation of
this AGREEMENT or;
(b) Penelec fails to make a payment for electric energy when
due and payable upon written demand by SPC to Penelec for such payment,
and Penelec does not cure such failure within thirty (30) days after
receipt of written notice from SPC specifying such failure
Y. Liquidated Damages
---------------------
1. If SPC shall abandon or fail to complete construction of the
Facility by December 31, 1990 or this AGREEMENT is terminated by Penelec under
Section X hereof, it is acknowledged and agreed that the Company will suffer
damages which, as the result of the Company's dependence upon the delivery of
SPC's energy and capacity hereunder, the Company would be unable to mitigate
fully.
2. The Company and SPC agree that the amount of actual damages suffered
by the Company under the foregoing circumstances
-44
<PAGE>
would be difficult or impossible to measure. Therefore, the Company and SPC
agree as follows:
(a) If SPC abandons completion of the Facility between the
effective date of this AGREEMENT and December 31, 1990 or otherwise
fails to complete construction of the Facility and have it operating by
December 31, 1990, unless extended by an appropriate force majeure
event or condition, SPC shall pay to the Company a one time liquidated
damage amount equal to ten dollars ($10.00) per KW of the anticipated
capacity of the Facility of 80,000 KW. SPC will secure payment of this
liquidated damage amount by providing to the Company, within six (6)
months of the execution of this AGREEMENT, a non-cancellable surety or
performance bond or irrevocable bank letter of credit or other security
in form and substance reasonably acceptable to the Company upon which
the Company can draw if the Facility is abandoned prior to or is not
completed and operating by December 31, 1990. Said surety bond or
letter of credit will terminate upon the date of initial electric
energy delivery from SPC to Penelec. At SPC's option, the initial
surety bond or letter of credit may be replaced with other security
acceptable to the Company.
(b) SPC shall execute any and all documents reasonably
necessary to assure that Penelec's claim to and interest in the
Security Fund is perfected.
- 45 -
<PAGE>
Z. Captions
-----------
1. All indices, titles, subject headings, section titles and similar
items are provided for the purpose of reference and convenience and are not
intended to be inclusive, definitive or to affect the meaning of the contents or
scope of this AGREEMENT.
AA. Choice of Laws
------------------
1. This AGREEMENT shall be construed and interpreted in accordance with
laws of the Commonwealth of Pennsylvania.
BB. Miscellaneous Provisions
----------------------------
1. Upon reasonable notice from Penelec, SPC agrees to provide Penelec
personnel access to all boiler, fuel preparation, and emission control
equipment, maintenance and availability records of the Facility for the term of
this AGREEMENT or any extension or renewals thereof. SPC may provide and Penelec
personnel shall accept an escort and Penelec shall abide by all applicable
safety measures that SPC deems reasonably necessary and advisable. Penelec
agrees not to release any information provided to it by SPC (other than to GPU
or its subsidiaries) with respect to matters contained in this paragraph without
SPC's prior written consent, which consent shall not be unreasonably with-held,
provided that prior to receiving such information, GPU or its existing
subsidiaries, as applicable, agrees in a writing substantially in the form
attached hereto as Appendix 7 to maintain the confidentiality of such
information.
2. No structure or device shall be installed at a location where, for
any reason, it can fall in such manner as to
-46-
<PAGE>
contact, land upon or interfere with any Company-owned or operated lines,
electrical equipment or facilities.
3. Penelec shall install, operate and maintain, at SPC's sole cost and
expense, telmetering equipment at Penelec's Substation for the transmission of
real and reactive power and hourly KWH, to the Company's dispatchers in order to
provide information deemed necessary by the Company to integrate operation of
the Facility with the Company's electrical system.
4. SPC shall, at its sole cost and expense, install at the Facility an
operating voice communication link to Penelec's dispatchers.
5. SPC shall operate its Facility so as to generate such reactive power
as may be deemed reasonably necessary by Penelec to maintain voltage levels and
reactive area support.
6. SPC shall certify by annual letter delivered to Penelec on or before
January 30 of each year throughout the term of this AGREEMENT the continuing
status of the Facility as a qualifying small power production and/or
cogeneration facility as that term is used and defined in 18 C.F.R. Part 292
(1984) and under all applicable federal and state statutes and regulations. SPC
shall also provide Penelec with copies of all documents filed with the F.E.R.C.
7. SPC shall provide written evidence of the current capacity of the
Facility to Penelec twice each calendar year; once during the period from
December through January, and once during the period from June through July.
Such evidence of capacity shall be in such form and manner reasonably specified
by Penelec.
- 47 -
<PAGE>
8. SPC shall comply in all respects with the Non-Utility Generation
guidelines for qualifying Facilities as set forth in Appendix 8, which is
attached hereto and made a part hereof.
CC. Successors and Assigns
--------------------------
1. This AGREEMENT shall become effective upon its execution and after
the issuance of the order described in Section A, paragraph I and shall inure to
the benefit of and be binding upon the Company and SPC and their respective
successors and (to the extent permitted hereunder) assigns.
DD. Entire Agreement
--------------------
1. This AGREEMENT constitutes the entire agreement between the Parties
hereto with respect to the matters contained herein and all prior agreements
with respect to the matters covered herein are superseded and each Party
confirms that it is not relying upon any representations or warranties of the
other Party, except as specifically set forth herein or incorporated by
reference hereto.
IN WITNESS WHEREOF, the Parties hereto have caused this AGREEMENT to be
executed by their duly authorized representatives as of the date hereinabove set
forth:
ATTEST:
/s/ E. Simmons BY: /s/John F. Furst
- -------------------------------- ---------------------------
Secretary John F. Furst,
Vice President
ATTEST: SCRUBGRASS POWER CORP.
/s/ Joseph Serafini BY: /s/Joseph E. Cresci
- -------------------------------- ---------------------------
Secretary Joseph E. Cresci,
President
- 48 -
<PAGE>
Exhibit 10.19
SUPPLEMENTAL AGREEMENT
FOR THE SALE OF ELECTRIC ENERGY
FROM THE SCRUBGRASS GENERATING PLANT
THIS SUPPLEMENTAL AGREEMENT, made and entered into this 22nd day of
February, 1989 by and between Pennsylvania Electric Company (hereinafter
"Penelec" or "Company"), a public utility corporation organized and existing
under the laws of the Commonwealth of Pennsylvania and Scrubgrass Power Corp.
(hereinafter "SPC"), a Pennsylvania corporation, hereinafter sometimes referred
to collectively as the "Parties" or individually as "Party".
W I T N E S S E T H:
WHEREAS, Penelec is a Pennsylvania public utility corporation engaged
in the production, transmission and distribution of electric energy; and
WHEREAS, SPC is a corporation which has undertaken to acquire,
construct, install and operate a certain waste-fired electric generating
installation in Scrubgrass Township, Venango County, Pennsylvania (hereinafter
"Facility"); and
WHEREAS, Penelec and SPC entered into an agreement dated August 7, 1987
for the sale and purchase of electric energy produced by the Facility
(hereinafter Power Purchase Agreement); and
WHEREAS, the Parties desire to amend the Power Purchase Agreement with
respect to the amount of direct construction expenditures incurred by SPC at the
Facility for purposes of
<PAGE>
-2-
extending the Commercial Operation Date as said term is defined in the Power
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the Parties, INTENDING TO BE LEGALLY BOUND hereunder, hereby
covenant, promise and agree as follows:
1. Unless specifically stated otherwise in this Supplemental Agreement,
the Power Purchase Agreement shall remain in full force and effect and bind the
Parties thereto and hereto in accordance with its terms.
2. All defined terms contained in the Power Purchase Agreement shall be
equally applicable to this Supplemental Agreement unless otherwise stated
herein.
3. Paragraph 4(a) of the Power Purchase Agreement is hereby rescinded
and replaced with the following subparagraph:
"(a) has commenced and there is ongoing a program of
continuous construction of the Facility pursuant to which SPC has
incurred direct construction expenditures of not less than Eighty
million dollars ($80 million);"
4. This Supplemental Agreement shall be construed and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania.
5. This Supplemental Agreement shall become effective upon its
execution by the Parties hereto and shall inure to the benefit of and be binding
upon the Company, SPC and their respective successors and assigns.
<PAGE>
-3-
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date hereinabove set
forth.
PENNSYLVANIA ELECTRIC COMPANY
Attest:
By: /s/ J. F. Furst
- ------------------------------ -------------------------------------
ASSISTANT J. F. Furst, Vice President
Secretary
SCRUBGRASS POWER CORP.
Attest:
/s/ Joseph Serafini By: /s/ Joseph E. Cresci
- ------------------------------ -------------------------------------
Secretary Joseph E. Cresci, President
<PAGE>
[LOGO OF PENELEC GPU APPEARS HERE]
March 28, 1989
Mr. Joseph E. Cresci
Environmental Power Corporation
53 State Street, 30th Floor
Boston, MA 02109
Mr. Cresci:
Re: Agreement for the Sale of Electric Energy from the Scrubgrass
Generating Plant, Dated August 7, 1987, between Pennsylvania Electric
Company and Scrubgrass Power Corporation
---------------------------------------------------------------------
The following are clarifications to the above-referenced document:
1. Last line, page 4: After the word "amount," the following words should
be added -- "previously paid to Penelec hereunder."
2. Page 7, Paragraph 2(b), the fourth line: The "2.6 cents" should read
"2.8 cents. "
If you are in agreement with these clarifications, please indicate by
affixing your signature.
Sincerely,
/s/ John F. Furst
John F. Furst
:p
/s/ Joseph E. Cresci
- ----------------------------
Joseph E. Cresci, President
Scrubgrass Power Corporation
<PAGE>
Exhibit 10.20
SECOND SUPPLEMENTAL AGREEMENT
FOR THE SALE OF ELECTRIC ENERGY FROM THE
SCRUBGRASS GENERATING PLANT
----------------------------------------
THIS SECOND SUPPLEMENTAL AGREEMENT, made and entered into this 27th day
of September, 1989 by and between Pennsylvania Electric Company (hereinafter
"Penelec" or "Company"), a public utility corporation organized and existing
under the laws of the Commonwealth of Pennsylvania and Scrubgrass Power Corp.
(hereinafter "SPC"), a Pennsylvania corporation, hereinafter sometimes referred
to collectively as the "Parties" or individually as "Party".
W I T N E S S E T H :
WHEREAS, Penelec is a Pennsylvania public utility corporation engaged
in the production, transmission and distribution of electric energy; and
WHEREAS, SPC is a corporation which has undertaken to acquire,
construct, install and operate a certain waste-fired electric generating
installation in Scrubgrass Township, Venango County, Pennsylvania (hereinafter
"Facility"); and
WHEREAS, Penelec and SPC entered into an agreement dated August 7, 1987
for the sale and purchase of electric energy produced by the Facility
(hereinafter "Power Purchase Agreement"); and
<PAGE>
-2-
WHEREAS, the Parties amended the Power Purchase Agreement in a
supplemental agreement dated February 22, 1989 ("Supplemental Agreement") for
purposes of modifying the construction expenditures incurred by SPC at the
Facility; and
WHEREAS, the Parties presently desire to extend Commercial Operation
Date for the Facility and to modify amount of liquidated damages in connection
therewith.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the Parties, INTENDING TO BE LEGALLY BOUND HEREUNDER, hereby
covenant, promise and agree as follows:
1. Unless specifically stated otherwise in this Second Supplemental
Agreement, the Power Purchase Agreement and the Supplemental Agreement shall
remain in full force and effect and bind the Parties thereto and hereto in
accordance with their respective terms.
2. All defined terms contained in the Power Purchase Agreement and the
Supplemental Agreement shall be equally applicable to this Second Supplemental
Agreement unless otherwise stated herein.
3. Notwithstanding anything contained to the contrary in the Power
Purchase Agreement and the Supplemental Agreement, the anticipated Commercial
Operation Date for the Facility shall be extended to March 31, 1992.
<PAGE>
-3-
4. Section A, paragraph 3(e) of the Power Purchase Agreement is hereby
rescinded and replaced with the following:
"(e) Notwithstanding the foregoing, if this AGREEMENT should terminate
pursuant to this Section A, the Company shall be entitled to the full
amount of any liquidated damages provided under Section Y hereof, less any
amount previously paid to Penelec hereunder."
5. Section A, paragraph 4 of the Power Purchase Agreement as amended by
the Supplemental Agreement is hereby rescinded in its entirety and is replaced
with the following:
"4. Notwithstanding anything contained in this AGREEMENT to the
contrary, if the Commercial Operation Date has not occurred on or prior to
March 31, 1992, for a reason other than force majeure, the Company may
terminate this AGREEMENT unless prior to such date SPC demonstrates to the
Company's reasonable satisfaction that the SPC:
"(a) Has commenced and there is ongoing a program of continuous
construction of the Facility pursuant to which SPC has incurred direct
construction expenditures of not less than Eighty million dollars
($80,000,000.00); and
"(b) Has furnished the Company with a revised construction schedule
for the Facility under which the Facility will be in operation not
later than July 1, 1993. In such event, the Commercial Operation Date
shall be extended to no later than July 1, 1993."
6. Section C, paragraph 2(b) of the Power Purchase Agreement is hereby
rescinded and replaced with the following:
"(b) For each month of the first year commencing with the
Commercial Operation Date, Penelec shall pay SPC a uniform rate of 6.6
cents per KWH during on-peak hours and 2.8 cents per KWH during off-
peak hours (See Section K, paragraphs 4 and 5, for the definition of
on-peak and off-peak hours), and thereafter, Penelec shall escalate
these on-peak and off-peak rates by six percent (6%) each year, up to
and including the tenth (10th) year of this AGREEMENT."
<PAGE>
-4-
7. Section T, paragraph 7 of the Power Purchase Agreement is hereby
rescinded and replaced with the following paragraph:
"7. In no event shall a force majeure condition or event asserted at
any time by SPC under this AGREEMENT, extend, modify or otherwise alter the
final anticipated Commercial Operation Date of July 1, 1993 as specified in
Section A, paragraph 4(b)."
8. Section X, paragraph 1(c) of the Power Purchase Agreement is hereby
rescinded and replaced with the following paragraph:
"(c) If the Facility is not constructed and operating by March 31,
1992, unless that date is extended in accordance with Section A, paragraph
4 of this AGREEMENT."
9. Section X, paragraph 1(i) of the Power Purchase Agreement is hereby
rescinded and replaced with the following paragraph:
"(i) the Facility fails at any time to maintain its status as a small
power production facility or cogeneration facility under the rules and
regulations of the FERC and all applicable federal and state statutes after
notice by Penelec to SPC affording SPC reasonable time to cure any such
failure."
10. The Parties acknowledge that SPC has previously provided to Penelec
reasonable and satisfactory security in the amount of Eight hundred thousand
dollars ($800,000.00) for purposes of securing Penelec's potential claim for
liquidated damages pursuant to Section Y of the Power Purchase Agreement in the
event that SPC abandons or fails to complete construction of the Facility by
December 31, 1990 or said Facility fails to
<PAGE>
-5-
achieve Commercial Operation by said date. SPC hereby unconditionally and
unequivocally agrees that Penelec shall have the absolute right to call upon and
receive payment from Home Life Insurance Company in the amount of Eight hundred
thousand dollars ($800,000.00) on December 31, 1990 under and pursuant to
Funding Agreement No. 507. SPC shall not interfere with or cause any third party
to interfere with, obstruct, prevent or otherwise prohibit Penelec from calling
upon and receiving payment of the full amount of Eight hundred thousand dollars
($800,000.00) pursuant to Funding Agreement No. 507 with Home Life Insurance
Company. No force majeure event or condition or any other legal or equitable
right asserted at any time by SPC under the Power Purchase Agreement, any
supplements thereto or otherwise shall in any way interfere with, obstruct,
prevent or prohibit Penelec from receiving the Eight hundred thousand
($800,000.00) from Home Life Insurance Company as provided herein.
11. Section Y of the Power Purchase Agreement is hereby rescinded and
replaced with the following:
"Y. Liquidated Damages
----------------------
"1. If SPC shall abandon or fail to complete construction of the
Facility or otherwise fail to have the Facility in Commercial Operation by
March 31, 1992, or if this AGREEMENT is terminated by Penelec under Section
X hereof, it is acknowledged and agreed that the Company will suffer
damages which, as the result of the Company's dependence upon the delivery
of SPC's capacity hereunder, the Company would be unable to mitigate fully.
"2. The Company and SPC agree that the amount of actual damages
suffered by the Company under the foregoing circumstances would be
difficult or impossible to measure. Therefore, the Company and SPC agree as
follows:
<PAGE>
-6-
"(a) If SPC abandons completion of the Facility between the effective
date of this AGREEMENT and March 31, 1992 or otherwise fails to complete
construction of the Facility and have it operating and in Commercial
Operation by March 31, 1992, unless extended by an appropriate force
majeure event or condition, SPC shall pay to the Company a one time
liquidated damage amount equal to Ten dollars ($10.00) per KW of the
anticipated capacity of the Facility of 80,000 KW. SPC shall secure payment
of this liquidated damage amount by providing to the Company, not later
than the first to occur of (i) six (6) months following the execution of
the Second Supplemental Agreement or (ii) ten (10) days following the first
disbursement of funds under the construction loan for the Facility, but in
no event later than February 1, 1990, a noncancellable and irrevocable
letter of credit in form and substance reasonably acceptable to the Company
upon which the Company can draw if the Facility is abandoned prior to, is
not complete and operating by, or is not in Commercial Operation by March
31, 1992. The aforesaid irrevocable bank letter credit will terminate upon
the Commercial Operation date.
"(b) SPC shall execute any and all documents reasonably necessary to
assure that Penelec's claim to and interest in the Letter of Credit is
perfected."
12. This Second Supplemental Agreement shall be construed and
interpreted in accordance with the laws of the Commonwealth of Pennsylvania.
13. This Second Supplemental Agreement shall become effective upon its
execution by the parties hereto and shall inure to the benefit of and be binding
upon the Company, SPC and their respective successors and assigns.
14. Notwithstanding anything to the contrary contained in the Power
Purchase Agreement and the Supplemental Agreement, Penelec shall have no
obligation to purchase any electric energy produced by the Facility prior to
December 1, 1991.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Agreement to be executed by their duly authorized representatives
as of the date hereinabove set forth.
Attest: PENNSYLVANIA ELECTRIC COMPANY
[SIGNATURE ILLEGIBLE] By: /s/ John F. Furst
- ----------------------------------- -----------------------------
ASSISTANT John F. Furst, Vice President
Secretary
Attest: SCRUBGRASS POWER CORP.
/s/ Joseph Serafini By: /s/ Joseph E. Cresci
- ----------------------------------- -----------------------------
Secretary Joseph E. Cresci, President
<PAGE>
Exhibit 10.21
THIRD SUPPLEMENTAL AGREEMENT
FOR THE SALE OF ELECTRIC ENERGY FROM THE
SCRUBGRASS GENERATION PLANT
----------------------------------------
This THIRD SUPPLEMENTAL AGREEMENT, made and entered into this 13th day
of August, 1990 by and between Pennsylvania Electric Company, a public utility
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania ("Penelec" or "Company"), and Scrubgrass Power Corp., a
Pennsylvania corporation ("SPC"), both Penelec and SPC hereinafter sometimes
referred to collectively as the "Parties" or individually as a "Party."
W I T N E S S E T H :
WHEREAS , Penelec is a Pennsylvania public utility corporation engaged
in the production, transmission and distribution of electric energy; and
WHEREAS, SPC is a corporation which has undertaken to acquire,
construct, install and operate a certain waste-fired electric generating
installation in Scrubgrass Township, Venango County, Pennsylvania ("Facility");
and
WHEREAS, Penelec and SPC entered into an agreement dated August 7,
1987, for the sale and purchase of electric energy produced by the Facility
("Power Purchase Agreement"); and
WHEREAS, the Parties amended the Power Purchase Agreement in a
supplemental agreement dated February 22, 1989, ("Supplemental Agreement") for
purposes of modifying the construction expenditures incurred by SPC at the
Facility; and
<PAGE>
2
WHEREAS, the Parties further amended the Power Purchase Agreement, as
amended, in a second supplemental agreement dated September 27, 1989, ("Second
Supplemental Agreement") for purposes of extending the Commercial Operation Date
for the Facility and modifying the amount of liquidated damages in connection
therewith; and
WHEREAS, the Parties presently desire to extend further the Commercial
Operation Data for the Facility, to modify the due date for security for
liquidated damages in connection therewith, to extend the term of the Power
Purchase Agreement and to modify the pricing for services;
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the Parties, INTENDING TO BE LEGALLY BOUND HEREUNDER, hereby
covenant, promise and agree as follows:
1. Unless specifically stated otherwise in this Third Supplemental
Agreement, the Power Purchase Agreement, the Supplemental Agreement and the
Second Supplemental Agreement shall remain in full force and effect and bind the
Parties thereto and hereto in accordance with their respective terms.
2. All defined terms contained in the Power Purchase Agreement, the
Supplemental Agreement and the Second Supplemental Agreement shall be equally
applicable to this Third Supplemental Agreement unless otherwise stated herein.
3. This Third Supplemental Agreement shall be in full force and effect,
binding upon the Parties hereto and enforceable in accordance with its terms,
only upon its execution by the Parties hereto and after the issuance of a valid,
binding and final order of the Pennsylvania Public Utility Commission
("PaPUC"), acceptable in form and substance to the Company in its sole
discretion, approving the full and current recovery by the Company from its
<PAGE>
3
customers of all payments, costs and charges proposed to be paid to SPC by the
Company for electric energy generated by the Facility and delivered to the
Company under this Third Supplemental Agreement. Penelec shall advise SPC in
writing of its acceptance or rejection of the PaPUC order specified above within
thirty (30) days after receipt by Penelec of such PaPUC order. The date on which
Penelec advises SPC in writing of its acceptance of the PaPUC order referenced
herein shall be deemed to be the Effective Date of this Third Supplemental
Agreement ("Effective Date").
4. The first sentence of Section A, paragraph 2 of the Power Purchase
Agreement is hereby rescinded and replaced with the following:
"The term of this AGREEMENT shall be for a period of twenty-five (25)
years commencing with the date the Facility is declared in writing by SPC
to be in commercial operation ("Commercial Operation Date").
5. (a) Notwithstanding anything contained to the contrary in the Power
Purchase Agreement, the Supplemental Agreement and the Second Supplemental
Agreement, the anticipated Commercial Operation Date for the Facility shall be
the earlier of (i) thirty (30) months after the Effective Date or (ii) thirty
(30) months after the date of written notification by SPC to Penelec advising
Penelec of when the close of construction financing and release of funds for the
Facility is to occur ("Notice Date"), provided that said written notification
shall occur prior to the close of construction financing and release of funds
for the Facility. In addition, the Commercial Operation Date shall not occur
prior to twenty-seven (27) months after the earlier of the Effective Date or the
Notice Date.
(b) Notwithstanding anything contained to the contrary in the Power
Purchase Agreement, the Supplemental Agreement and the Second Supplemental
<PAGE>
4
Agreement, Penelec shall have no obligation to purchase or accept delivery of
any electric energy produced by the Facility prior to twenty-four (24) months
after the earlier of the Effective Date or the Notice Data.
6. Section A. paragraph 4 of the Power Purchase Agreement as amended by
the Supplemental Agreement and the Second Supplemental Agreement is hereby
rescinded and is replaced with the following:
"4. Notwithstanding anything contained in this AGREEMENT to the
contrary, if the Commercial Operation Data has not occurred on or prior to
thirty (30) months after the earlier of the Effective Date or the Notice
Date, for a reason other then force majeure, the Company may terminate this
AGREEMENT unless prior to such date SPC demonstrates to the Company's
reasonable satisfaction that SPC:
(a) Has commenced and there is ongoing a program of continuous
construction of the Facility pursuant to which SPC has incurred direct
construction expenditures of not less than Eighty million dollars
($80,000,000.00): and
(b) Has furnished the Company with a revised construction
schedule for the Facility under which the Facility will be in operation
not later than forty-two (42) months after the earlier of the Effective
Date or the Notice Date. In such event, the Commercial Operation Date
shall occur no later than forty-two (42) months after the earlier of
the Effective Date or the Notice Date."
7. Section C, paragraphs 2(b), 2(c) and 2(d) of the Power Purchase
Agreement as amended by the Supplemental Agreement and the Second Supplemental
Agreement are hereby rescinded and replaced with the following:
"(b) For each month of calendar year 1993, commencing with the
Commercial Operation Date, Penelec shall pay SPC a uniform rate of 6.86
cents per kWh during on-peak hours and 3.18 per kWh during
off-peak hours (See Section K, paragraphs 4 and 5, for
definition of on-peak and off-peak hours), and thereafter, Penelec
shall escalate said on-peak and off-peak rates by five percent (5%)
each year, compounded annually, up to and including the end of calendar
year 1999.
(c) For each month of calendar years 2000 through 2004,
<PAGE>
5
Penelec shall pay SPC, as calculated by the Company on an hourly
on-peak and off-peak basis, the higher of (i) a uniform rate of 9.64
cents per kWh during on-peak hours and 4.46 cents per kWh during
off-peak hours for calendar year 2000, and thereafter, Penelec shall
escalate said on-peak and off-peak rates by five percent (5%) each
year, compounded annually, up to and including the end of calender year
2004 or (ii) the average PJM Billing Rate for the month less fifteen
percent (15%) per kWh as calculated by the Company on an hourly on-peak
and off-peak basis."
(d) For each month of calendar years 2005 through 2012,
Penelec shall pay SPC, as calculated by the Company on an hourly
on-peak and off-peak basis, the rates as set forth in Table 1 below,
but no less, on an average basis, than the rates as set forth in Table
2 below:
Table 1
-------
Rate = Fixed Component, as set forth below, plus a Variable Component
consisting of 75% of the annual average on-peak and off-peak PJM
Billing Rates for the calendar years 2002, 2003 and 2004, said Variable
Component to be adjusted on an annual basis by the percentage change in
the GNPD.
<TABLE>
<CAPTION>
Fixed (c/kWb)
-------------
<S> <C> <C>
Year On-Peak Off-peak
---- ------- --------
2005 4.56 2.11
2006 4.75 2.20
2007 5.13 2.37
2008 5.28 2.44
2009 5.87 2.71
2010 6.60 3.05
2021 7.33 3.39
2012 7.77 3.59
</TABLE>
Table 2
-------
Rate = 95% of the figures set forth in Appendix 1A, attached hereto and a
part hereof, as adjusted on an annual basis by the percentage change in the
GNPD, as follows:
r = p * 0.95 * (1-((l-((1+1)/'/ (y-1993)) + (1.05/'/ (y-1993))) + 2))
where: r = rate in cents/kWh
P = forecast amount in year "y" as set forth in said Appendix lA
i = the average actual annual general inflation as measured by the
annual compound percentage growth rate between the GNPD Index for
year "y" and the
<PAGE>
6
GNPD Index for year "n":
((GNPD Index, + GNPD Index,)/'/(1+(y-n)))-1
GNPD Index = the annual Gross National Product Implicit Price Deflator
("GNPD"), Index 310, referenced in Table 1131 (Other Important
Economic Movements; Prices, Wages, and Productivity; Price
Movements) of the United States Department of Commerce, Bureau of
Economic Analysis, Monthly Business Conditions Digest. (Index
--------------------------
base: 1982-100)
y = year for which "r" is being determined
n = the first year of the Power Purchase Agreement, as amended by the
Supplemental Agreement, the Second Supplemental Agreement and this
Third Supplemental Agreement commencing with the Commercial
Operation Date
/'/ = raise to the power
(e) For each month of calendar years 2013 through 2017, Penelec
shall pay SPC, as calculated by the Company on an hourly on-peak and
off-peak basis, the rate paid for calendar year 2012 adjusted on an
annual base by the percentage change in the GNPD less one percent."
8. (a) The Parties agree that SPC shall have a "grace" period of three
(3) months, i.e. a total of thirty-three (33) months after the earlier of the
Effective Date or Notice Date, for the occurrence of the Commercial Operation
Date, force majeure notwithstanding, and still retain the methodology and rates
for pricing for services for the calendar year in which the Commercial Operation
Date occurs as set forth in Section 7 hereof.
(b) In the event the Commercial Operation Date has not occurred by
thirty-three (33) months after the earlier of the Effective Date or the Notice
Date, force majeure notwithstanding, for each month or portion thereof of delay
in the occurrence of the Commercial Operation Date beyond said thirty-three (33)
month period, force majeure notwithstanding, the methodology and rates for
pricing for services set forth in Section 7 hereof for each calendar year shall
be extended by two (2) months, up to and including thirty-six (36) months after
the earlier of the Effective Date or the Notice Date. For each month or portion
thereof of delay in the occurrence of the Commercial Operation Date beyond said
<PAGE>
7
thirty-six (36) month period, force majeure notwithstanding, the methodology and
rates for pricing for services set forth in Section 7 hereof for each calendar
year shall be extended by one (1) month, up to and including forty-two (42)
months after the earlier of the Effective Date or the Notice Date. Such
additional months or portions thereof shall be hereinafter referred to as the
"Extended Period."
(c) In the event the Commercial Operation Date has not occurred by
forty-two (42) months after the earlier of the Effective Date or the Notice
Date, Penelec shall have the absolute right to terminate the Power Purchase
Agreement as amended by the Supplemental Agreement, the Second Supplemental
Agreement and this Third Supplemental Agreement without any liability or
responsibility whatsoever.
(d) In the event the provisions contained in Section 8(b) above become
operative, the Parties expressly agree that the methodology and rates for
pricing for services as set forth in Section 7 during the calendar year in which
the Commercial Operation Date occurs shall be adjusted as provided in Section 7
hereof at the end of the Extended Period and every twelve (12) months
thereafter.
9. Section E, paragraph 1 (a) of the Power Purchase Agreement is hereby
rescinded and is replaced with the following:
"1. (a) SPC and the Company hereby agree that a Suspense Account shall
be established, effective on the Commercial Operation Date, to determine
the cumulative difference between the payments to be made by the Company to
SPC under this AGREEMENT ("Contract Rate") and an associated, forecasted
rate ("Projected Rate") as more fully set forth and shown on Appendix 4A,
attached hereto and made a part hereof."
10. Appendix 4 to the Power Purchase Agreement is hereby deleted in its
entirety.
<PAGE>
8
11. Section T, paragraph 7 of the Power Purchase Agreement as amended
by the Second Supplemental Agreement is hereby rescinded and is replaced with
the following:
"7. In no event shall a force majeure condition or event asserted at
any time by SPC under the AGREEMENT, extend, modify or otherwise alter the
final anticipated Commercial Operation Date of forty-two (42) months after
the earlier of the Effective Date or the Notice Date, as specified in
Section A, paragraph 4(b)."
12. Section X, paragraph 1(c) of the Power Purchase Agreement as
amended by the Second Supplemental Agreement is hereby rescinded and is replaced
with the following:
"(c) If the Facility is not constructed and operating by thirty (30)
months after the earlier of the Effective Date or the Notice Date, unless
extended in accordance with Section A, paragraph 4 of this AGREEMENT or by
the occurrence of a force majeure event."
13. Section Y of the Power Purchase Agreement as amended by the Second
Supplemental Agreement is hereby rescinded and is replaced with the following:
"Y. Liquidated Damages
----------------------
1. If SPC shall abandon or fail to complete construction of the
Facility or otherwise fail to have the Facility in Commercial Operation by
thirty (30) months after the earlier or the Effective Date or the Notice
Date, or if this AGREEMENT is terminated by Penelec under Section X
hereof, it is acknowledged and agreed that the Company will suffer damage
which, as the result of the Company's dependence upon the delivery of SPC's
capacity hereunder, the Company would be unable to mitigate fully.
2. The Company and SPC agree that the amount of actual damages suffered
by the Company under the foregoing circumstances would be difficult or
impossible to measure. Therefore, the Company and SPC agree as follows:
(a) If SPC abandons completion of the Facility between the
earlier of the Effective Date or the Notice Date and thirty (30) months
after the earlier of the Effective Date or the Notice Date, or
otherwise fails to complete construction of the Facility and have it
operating and in Commercial Operation by thirty (30) months after
<PAGE>
9
the earlier of the Effective Date or the Notice Date, unless extended
by force majeure, SPC shall pay to the Company a one time liquidated
damage amount equal to Ten dollars ($10.00) per KW of the anticipated
capacity of the Facility of 80,000 KW. SPC shall secure payment of this
liquidated damage amount by providing to the Company, no later than
three (3) business days after the execution of this Third Supplemental
Agreement by the Parties, a noncancellable surety or performance bond
or an irrevocable bank letter of credit, in form and substance
reasonably acceptable to the Company, upon which the Company can draw
if the Facility is abandoned prior to, is not complete and operating
by, or is not in Commercial Operation by thirty (30) months after the
earlier of the Effective Date or the Notice Date, unless extended by
force majeure. The requirement for the aforesaid security will
terminate upon the Commercial Operation Date.
(b) SPC shall execute any and all documents reasonably
necessary to assure that Penelec's claim to and interest in said
security is perfected."
14. This Third Supplemental Agreement shall be construed and
interpreted in accordance with the laws of the Commonwealth of Pennsylvania.
15. This Third Supplemental Agreement shall inure to the benefit of and
be binding upon the Company, SPC and their respective successors and assigns.
IN WITNESS WHEREOF, the Parties hereto have caused this Third
Supplemental Agreement to be executed by their duly authorized representatives
as of the date first set forth above.
Attest: PENNSYLVANIA ELECTRIC COMPANY
[SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
- ------------------------------------ ------------------------------
Assistant Secretary Vice President
Attest: SCRUBGRASS POWER CORP.
/s/ Bayard R. Kraft II By:/s/ Joseph E. Cresci
- ------------------------------------ ------------------------------
Secretary President
<PAGE>
Exhibit 10.22
AMENDMENT
TO THE
THIRD SUPPLEMENTAL AGREEMENT
FOR THE SALE OF ELECTRIC ENERGY FROM THE
SCRUBGRASS GENERATING PLANT
----------------------------------------
THIS AMENDMENT TO THE THIRD SUPPLEMENTAL AGREEMENT, made and entered
into this 27th day of November 1990 by and between PENNSYLVANIA ELECTRIC
COMPANY. a public utility corporation organized and existing under the laws of
the Commonwealth of Pennsylvania ("Penelec" or "Company"), and SCRUBGRASS POWER
CORP., a Pennsylvania corporation ("SPC"), both Penelec and SPC hereinafter
sometimes referred to collectively as the "Parties or individually as a "Party".
W I T N E S S E T H:
WHEREAS, Penelec is a Pennsylvania public utility corporation engaged
in the production, transmission and distribution of electric energy; and
WHEREAS, SPC is a corporation which has undertaken to acquire,
construct, install and operate a certain waste-fired electric generating
installation in Scrubgrass Township, Venango County, Pennsylvania ("Facility");
and
WHEREAS, Penelec and SPC entered into an agreement dated August 7,
1987, for the sale and purchase of electric encrgy produced by the Facility
("Power Purchase Agreement"); and
WHEREAS, the Parties amended the Power Purchase Agreement in a
supplemental agreement dated February 22, 1989, ("Supplemental Agreement") for
purposes of modifying the construction expenditures incurred by SPC at the
Facility; and
<PAGE>
2
WHEREAS, the Parties further amended the Power Purchase Agreement, as
amended in a second supplemental agreement dated September 27, 198g, ("Second
Supplemental Agreement") for purposes of extending the Commercial Operation Date
for the Facility and modifying the amount of liquidated damages in connection
therewith; and
WHEREAS, the Parties further amended the Power Purchase Agreement, as
amended, in a third supplemental agreement dated August 13, 1990, ("Third
Supplemental Agreement) for purposes of extending further the Commercial
Operation Date for the Facility, modifying the due date for security for
liquidated damages in connection therewith, extending the term of the Power
Purchase Agreement and modifying the pricing for services; and
WHEREAS, the Parties desire to modify further the pricing for services;
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the Parties, INTENDING TO BE LEGALLY BOUND HEREUNDER, hereby
covenant, promise and agree as follows:
1. Unless specifically stated otherwise in this Amendment to the Third
Supplemental Agreement, the Power Purchase Agreement, the Supplemental
Agreement, the Second Supplemental Agreement and the Third Supplemental
Agreement shall remain in full force and effect and bind the Parties thereto and
hereto in accordance with their respective terms.
2. All defined terms contained in the Power Purchase Agreement, the
Supplemental Agreement, the Second Supplemental Agreement and the Third
Supplemental Agreement shall be equally applicable 10 this Amendment to the
Third Supplemental Agreement unless otherwise stated herein.
<PAGE>
3
3. This Amendment to the Third Supplemental Agreement shall be in full
force and effect, binding upon the Parties hereto and enforceable in accordance
with its terms, only upon its execution by the parties hereto and after the
issuance of a valid, binding and final order of the Pennsylvania Public Utility
Commission ("PaPUC"), acceptable in form and substance to the Company in its
sole discretion, approving the full and current recovery by the Company from its
customers of all payments, costs and charges proposed to be paid to SPC by the
Company for electric energy generated by the Facility and delivered to the
Company under the Third Supplemental Agreement.
4. Section C, paragraph 2(e) of the Power Purchase Agreement,, as
amended by the Supplemental Agreement. the Second Supplemental Agreement and the
Third Supplemental Agreement is hereby amended to read as follows:
"(e) For each month of calendar years 2013 through
2017, Penelec shall pay SPC, as calculated by the
Company on an hourly on-peak and off-peak basis,
the lower of the rate paid for calendar year 2012
adjusted on an annual basis by the percentage
change in the GNPD less one percent or the average
PJM Billing Rate for the month per kWh."
5. This Amendment to the Third Supplemental Agreement shall be
construed and interpreted in accordance with the laws of the Commonwealth of
Pennsylvania.
6. This Amendment to the Third Supplemental Agreement shall inure to
the benefit of and be binding upon the Company, SPC and their respective
successors and assigns.
<PAGE>
4
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to
the Third Supplemental Agreement to be executed by their duly authorized
representatives as of the date first set forth above
Attest: PENNSYLVANIA ELECTRIC COMPANY
[SIGNATURE ILLEGIBLE] By: /s/ John F. Furst
- -------------------------------- ------------------------
Assistant Secretary Vice President
Attest: SCRUBGRASS POWER CORP.
[SIGNATURE ILLEGIBLE] By: /s/ Joseph E. Cresci
- -------------------------------- --------------------------
Secretary President
<PAGE>
Exhibit 10.23
December 20, 1990
Joseph E. Cresci
President
Environmental Power Corporation
30th Floor, Exchange Place
Boston, Massachusetts 02109
Re: Scrubgrass Power Purchase Agreement Dear Mr. Cresci:
Based upon information provided by Scrubgrass Power Corporation ("SPC")
to Pennsylvania Electric Company ("Penelec"), Penelec agrees, with respect to
the Agreement of Sale of Electric Energy from the Scrubgrass Generating Plant
dated August 7, 1987 between SPC and Penelec, as amended and supplemented by the
Supplemental Agreement dated February 22, 1989 between Penelec and SPC, as
further amended by the letter agreement between Penelec and SPC dated March 28,
1989, as further amended and supplemented by the Second Supplemental Agreement
dated September 27, 1989 between Penelec and SPC, as further amended and
supplemented by the Third Supplemental Agreement dated August 13, 1990 between
Penelec and SPC, and as further amended by an Amendment to the Third
Supplemental Agreement dated November 27, 1990 between Penelec and SPC
(collectively the "Agreement"), as follows:
1. Section G, paragraph 1 is hereby modified to provide that SPC shall
procure Business Interruption Insurance and Property Hazard Insurance
no later than the close of construction financing and release of funds.
2. Section G, paragraph 1(f) is hereby modified to provide that SPC shall
provide Penelec with a properly executed certificate of Property Hazard
Insurance within thirty (30) days following close of construction
financing and release of funds.
3. Section H, paragraph 5 is hereby modified to provide that within thirty
(30) days after the Effective Date, SPC shall submit interconnection
plans and specifications (including single line diagrams and control
and protective relay schemes as well as plans
<PAGE>
and specifications for the Transmission Line) to Penelec for inspection
and acceptance.
4. Section Q, paragraph 3 is hereby modified to provide that SPC and all
general contractors performing any services in connection with the
construction and/or operation of the Facility or any appurtenant
equipment (including the Transmission Line) shall procure worker's
compensation, employer's liability, comprehensive general liability,
including bodily injury liability, property damage liability and the
other coverages (as specified), and automobile liability, including
bodily injury liability and property damage liability coverage (as
specified), at close of construction financing and release of funds.
5. All defined terms in the Agreement shall be equally applicable to this
letter agreement unless otherwise stated herein.
6. Unless specifically stated otherwise in this letter agreement, the
Agreement shall remain in full force and effect and binding in
accordance with its terms.
Sincerely,
/s/John F. Furst
John F. Furst
Agreed To and Accepted:
/s/ Joseph E. Cresci
- ----------------------------
Scrubgrass Power Corporation
<PAGE>
Exhibit 10.57
ENVIRONMENTAL POWER CORPORATION
1990 STOCK PLAN
---------------
1. Purpose. This 1990 Stock Plan (the "Plan") is intended to provide
-------
incentives: (a) to the officers and other employees of Environmental Power
Corporation (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations") by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422A(b) of the Internal Revenue Code of 1986 (the "Code") ("ISO" or "ISOs"); (b)
to directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options". Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 425 of the Code.
2. Administration of the Plan.
--------------------------
A. Board or Committee Administration. The Plan shall be administered
---------------------------------
by the Board of Directors of the Company (the "Board"). The Board may
appoint a Stock Plan Committee (the "Committee") of three or more of its
members to administer this Plan. If the Committee has been so appointed, no
member of the Committee, while a member, shall be eligible to participate
in the Plan. Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by the Board
(if so required by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine the employees
of the Company and Related Corporations (from among the class of employees
eligible under paragraph 3 to receive ISOs) to whom ISOs may be
<PAGE>
- 2 -
granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options and Awards and
to make Purchases) to whom Non-Qualified Options, Awards and authorizations
to make Purchases may be granted; (ii) determine the time or times at which
Options or Awards may be granted or Purchases made; (iii) determine the
option price of shares subject to each Option, which price shall not be
less than the minimum price specified in paragraph 6, and the purchase
price of shares subject to each Purchase; (iv) determine whether each
Option granted shall be an ISO or a Non-Qualified Option; (v) determine
(subject to paragraph 7) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) determine whether
restrictions such as repurchase options are to be imposed on shares subject
to Options, Awards and Purchases and the nature of such restrictions, if
any, and (vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a Non-
Qualified Option, it shall take whatever actions it deems necessary, under
Section 422A of the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any Stock
Right granted under it shall be final unless otherwise determined by the
Board. The Committee may from time to time adopt such rules and regulations
for carrying out the Plan as it may deem best. No member of the Board or
the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its members as
-----------------
its chairman, and shall hold meetings at such time and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be
the valid acts of the Committee. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Stock Rights may be
--------------------------------------
granted to members of the Board, but any such grant shall be made and
approved in accordance with paragraph 2(D), if applicable. All grants of
Stock Rights to members of the Board shall in all other respects be made in
accordance with the provisions of this Plan applicable to other eligible
persons. Members of the Board who are either (i) eligible for Stock Rights
pursuant to the Plan or (ii) have been granted Stock Rights may vote on any
matters
<PAGE>
- 3 -
affecting the administration of the Plan or the grant of any Stock Rights
pursuant to the Plan, except that no such member shall act upon the
granting to himself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during
which action is taken with respect to the granting to him of Stock Rights.
D. Compliance with Federal Securities Laws. Any grant of Stock
---------------------------------------
Rights to a member of the Board must be approved by a majority vote of the
other members of the Board; provided, however, that if a majority of the
Board is eligible for selection to participate in the Plan or in any other
stock option or other stock plan of the Company or any of its affiliates,
or has been so eligible at any time within the preceding year, any grant of
Stock Rights to a member of the Board must be made by, or only in
accordance with the recommendation of, the Committee or a committee
consisting of three or more persons, who may but need not be directors or
employees of the Company, appointed by the Board but having full authority
to act in the matter, none of whom is eligible to participate in this Plan
or any other stock option or other stock plan of the Company or any of its
affiliates, or has been so eligible at any time within the preceding year.
The requirements imposed by the preceding sentence shall also apply with
respect to grants to officers who are not also directors. Once appointed,
such committee shall continue to serve until otherwise directed by the
Board.
3. Eligible Employees and Others. ISOs may be granted to any employee of
-----------------------------
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan. Non-
Qualified Options, Awards and authorizations to make Purchases may be granted to
any employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.
4. Stock. The stock subject to Options, Awards and Purchases shall be
-----
authorized but unissued shares of Common Stock of the Company, par value $.0l
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to
<PAGE>
- 4 -
the Plan is ____________, subject to adjustment as provided in paragraph 13.
Any such shares may be issued as ISOs, Non-Qualified Options or Awards, or to
persons or entities making Purchases, so long as the number of shares so issued
does not exceed such number, as adjusted. If any Option granted under the Plan
shall expire or terminate for any reason without having been exercised in full
or shall cease for any reason to be exercisable in whole or in part, or if the
Company shall reacquire any unvested shares issued pursuant to Awards or
Purchases, the unpurchased shares subject to such Options and any unvested
shares so reacquired by the Company shall again be available for grants of Stock
Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
------------------------
at any time after January ___, 1990 and prior to January ___, 2000. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
6. Minimum Option Price; ISO Limitations.
-------------------------------------
A. Price for Non-Qualified Options. The exercise price per share
-------------------------------
specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the lesser of (i) the book
value per share of Common Stock as of the end of the fiscal year of the
Company immediately preceding the date of such grant, or (ii) fifty percent
(50%) of the fair market value per share of Common Stock on the date of
such grant.
B. Price for ISOs. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant.
C. $100,000 Annual Limitation on ISOs. Each eligible employee may
----------------------------------
be granted ISOs only to the extent that, in the aggregate under this Plan
and all incentive stock option plans of the Company and any Related
Corporation, such ISOs do not become exercisable for the first time by such
employee during any calendar year in a manner which would entitle the
employee to purchase more than $100,000 in fair market value
<PAGE>
- 5 -
(determined at the time the ISOs were granted) of Common Stock in that
year. Any options granted to an employee in excess of such amount will be
granted as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for
which the prices or quotes discussed in this sentence are available prior
to the date such Option is granted and shall mean (i) the average (on that
date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common stock is traded, if the
Common Stock is then traded on a national securities exchange; or (ii) the
last reported sale price (on that date) of the Common Stock on the NASDAQ
National Market List, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the
NASDAQ National Market List. However, if the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market value"
shall be deemed to be the fair value of the Common Stock as determined by
the Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of
the Common Stock in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
------ --------
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date
-------
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
<PAGE>
- 6 -
B. Full Vesting of Installments. Once an installment becomes
----------------------------
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at
----------------
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
-----------------------
accelerate the date of exercise of any installment of any Option; provided
that the Committee shall not, without the consent of an optionee,
accelerate the exercise date of any installment of any Option granted to
any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the
annual vesting limitation contained in Section 422A(d) of the Code, as
described in paragraph 6(C).
9. Termination of Employment. If an ISO optionee ceases to be employed
-------------------------
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. Death; Disability.
-----------------
A. Death. If an ISO optionee ceases to be employed by the Company
-----
and all Related Corporations by reason of his
<PAGE>
- 7 -
death, any ISO of his may be exercised, to the extent of the number of
shares with respect to which he could have exercised it on the date of his
death, by his estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution, at any
time prior to the earlier of the specified expiration date of the ISO or
180 days from the date of the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the
----------
Company and all Related Corporations by reason of his disability, he shall
have the right to exercise any ISO held by him on the date of termination
of employment, to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or 180 days from the date of
the termination of the optionee's employment. For the purposes of the Plan,
the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or successor statute.
11. Assignability. No Option shall be assignable or transferable by the
-------------
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him.
12. Terms and Conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such
Option:
<PAGE>
- 8 -
A. Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be consolidated
-------------------------
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Committee or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board") shall, with
respect to outstanding Options, take one or more of the following actions:
(i) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such
Options the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition; (ii) accelerate the date
of exercise of such Options or of any installment of any such Options;
(iii) upon written notice to the optionees, provide that all Options must
be exercised, to the extent then exercisable, within a specified number of
days of the date of such notice, at the end of which period the Options
shall terminate; or (iv) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of the shares subject
to such Options (to the extent then exercisable) over the exercise price
thereof.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, an optionee upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise
the securities he would have received if he had exercised his Option prior
to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 425 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs
<PAGE>
- 9 -
would constitute a modification of such ISOs, it may refrain from making
such adjustments.
E. Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
F. Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under
-----------------
the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. Adjustments. Upon the happening of any of the foregoing events
-----------
described in subparagraphs A, B or C above, the class and aggregate number
of shares set forth in paragraph 4 hereof that are subject to Stock Rights
which previously have been or subsequently may be granted under the Plan
shall also be appropriately adjusted to reflect the events described in
such subparagraphs. The Committee or the Successor Board shall determine
the specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or cash
were issued, unless otherwise determined by the Committee or the Successor
Board.
14. Means of Exercising Stock Rights. A Stock Right (or any part or
--------------------------------
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the
<PAGE>
- 10 -
date of the exercise to the cash exercise price of the Stock Right, or (c) at
the discretion of the Committee, by delivery of the grantee's personal recourse
note bearing interest payable not less than annually at no less than l00% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or
(d) at the discretion of the Committee, by any combination of (a), (b) and (c)
above. If the Committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in clauses (b), (c),
or (d) of the preceding sentence, such discretion shall be exercised in writing
at the time of the grant of the ISO in question. The holder of a Stock Right
shall not have the rights of a shareholder with respect to the shares covered by
his Stock Right until the date of issuance of a stock certificate to him for
such shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
--------------------------
January ___, 1990, subject to approval of the Plan by the stockholders of the
Company at the next Meeting of Stockholders or, in lieu thereof, by written
consent within one year of adoption by the Board. If the approval of
stockholders is not obtained by January ___, 1991, the Plan will be rescinded.
The Plan shall expire on January ___, 2000 (except as to Options outstanding on
that date). Subject to the provisions of paragraph 5 above, Stock Rights may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13); (b) the provisions of
paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c)
the provisions of paragraph 6(B) regarding the exercise price at which shares
may be offered pursuant to ISOs may not be modified (except by adjustment
pursuant to paragraph 13); and (d) the expiration date of the Plan may not be
extended. Except as otherwise provided in this paragraph 15, in no event may
action of the Board or stockholders alter or impair the rights of a grantee,
without his consent, under any Stock Right previously granted to him.
16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
------------------------------------------------------------------
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time
<PAGE>
- 11 -
prior to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such Options.
At the time of such conversion, the Committee (with the consent of the Optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. Application Of Funds. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
20. Notice to Company of Disqualifying Disposition. Each employee who
----------------------------------------------
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by
<PAGE>
- 12 -
exercising the ISO. If the employee has died before such stock is sold, these
holding period requirements do not apply and no Disqualifying Disposition can
occur thereafter.
21. Governing Law; Construction. The validity and construction of the Plan
---------------------------
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
<PAGE>
ENVIRONMENTAL POWER CORPORATION
Incentive Stock Option Agreement
--------------------------------
Environmental Power Corporation, a Delaware corporation (the "Company"),
hereby grants this _____ day of ______________, 1990, to ____________________
(the "Employee"), an option to purchase a maximum of _________ shares of its
Common Stock, $.0l par value, at the price of _______ per share, on the
following terms and conditions:
1. Grant Under 1990 Stock Plan. This option is granted pursuant to and is
---------------------------
governed by the Company's 1990 Stock Plan (the "Plan") and, unless the context
otherwise requires, terms used herein shall have the same meaning as in the
Plan. Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date. This option shall
immediately terminate and be of no force or effect if the Plan is not approved
by the Company's stockholders on or before January __, 1991.
2. Grant as Incentive Stock Option; Other Options. This option is
----------------------------------------------
intended to qualify as an incentive stock option under Section 422A of the
Internal Revenue Code of 1986 (the "Code"). This option is in addition to any
other options heretofore or hereafter granted to the Employee by the Company,
but a duplicate original of this instrument shall not effect the grant of
another option.
3. Extent of Option if Employment Continues. If the Employee has
----------------------------------------
continued to be employed by the Company on the following dates, the Employee may
exercise this option for the number of shares set opposite the applicable date:
[to be established at the time of grant]
The foregoing rights are cumulative and, while the Employee continues to be
employed by the Company, may be exercised up to and including the date which is
________ [maximum 10] years from the date this option is granted. All of the
foregoing rights are subject to Articles 4 and 5, as appropriate, if the
Employee ceases to be employed by the Company or dies or becomes disabled while
in the employ of the Company.
4. Termination of Employment. If the Employee ceases to be employed by
-------------------------
the Company, other than by reason of death or disability as defined in Article
5, no further installments of this option shall become exercisable and this
option shall
<PAGE>
- 2 -
terminate after the passage of ninety (90) days from the date employment ceases,
but in no event later than the scheduled expiration date. In such a case, the
Employee's only rights hereunder shall be those which are properly exercised
before the termination of this option.
5. Death; Disability. If the Employee dies while in the employ of the
-----------------
Company, this option may be exercised, to the extent of the number of shares
with respect to which the Employee could have exercised it on the date of his
death, by his estate, personal representative or beneficiary to whom this option
has been assigned pursuant to Article 10, at any time within 180 days after the
date of death, but not later than the scheduled expiration date. If the
Employee ceases to be employed by the Company by reason of his disability (as
defined in the Plan), this option may be exercised, to the extent of the number
of shares with respect to which he could have exercised it on the date of the
termination of his employment, at any time within 180 days after such
termination, but not later than the scheduled expiration date. At the
expiration of such 180-day period or the scheduled expiration date, whichever is
the earlier, this option shall terminate and the only rights hereunder shall be
those as to which the option was properly exercised before such termination.
6. Partial Exercise. Exercise of this option up to the extent above
----------------
stated may be made in part at any time and from time to time within the above
limits, except that this option may not be exercised for a fraction of a share
unless such exercise is with respect to the final installment of stock subject
to this option and a fractional share (or cash in lieu thereof) must be issued
to permit the Employee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Employee in accordance with the terms hereof.
7. Payment of Price. [Person signing on behalf of the Company must
----------------
initial one of the three following clauses.] The option price is payable in
---
United States dollars and may be paid:
(a) in cash or by check, or any combination of the foregoing, equal in
amount to the option price.
__________
(Initials)
(b) in cash, by check, by delivery of shares of the Company's Common
Stock having a fair market value (as determined
<PAGE>
- 3 -
by the [Board of Directors] [Committee]) equal as of the date of exercise to the
option price, or by any combination of the foregoing, equal in amount to the
option price.
__________
(Initials)
(c) in cash, by check, by delivery of shares of the Company's Common
Stock having an aggregate fair market value (as determined by the [Board of
Directors] [Committee]) equal as of the date of exercise to the option price, by
delivery of the Employee's personal recourse note bearing interest payable not
less than annually at no less than l00% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, or by any combination of the
foregoing, equal in amount to the option price.
__________
(Initials)
Notwithstanding the foregoing, the Employee may not pay any part of the
exercise price hereof by transferring Common Stock to the Company if such Common
Stock is both subject to a substantial risk of forfeiture and not transferable
within the meaning of Section 83 of the Code.
8. Agreement to Purchase for Investment. By acceptance of this option,
------------------------------------
the Employee agrees that a purchase of shares under this option will not be made
with a view to their distribution, as that term is used in the Securities Act of
1933, as amended, unless in the opinion of counsel to the Company such
distribution is in compliance with or exempt from the registration and
prospectus requirements of that Act, and the Employee agrees to sign a
certificate to such effect at the time of exercising this option and agrees that
the certificate for the shares so purchased may be inscribed with a legend to
ensure compliance with the Securities Act of 1933.
9. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Agreement, this option may be exercised by written notice to the Company,
at the principal executive office of the Company, or to such transfer agent as
the Company shall designate. Such notice shall state the election to exercise
this option and the number of shares in respect of which it is being exercised
and shall be signed by the person or persons so exercising this option. Such
notice shall be accompanied by payment of the full purchase price of such
shares, and the Company shall deliver a certificate or certificates representing
such shares as soon as practicable after the notice shall be received. The
certificate or certificates for the shares as to which this option shall have
been so exercised shall be registered in the name of the person or persons so
exercising this option (or, if this option shall be exercised by the
<PAGE>
- 4 -
Employee and if the Employee shall so request in the notice exercising this
option, shall be registered in the name of the Employee and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising this option. In
the event this option shall be exercised, pursuant to Article 5 hereof, by any
person or persons other than the Employee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise this
option. All shares that shall be purchased upon the exercise of this option as
provided herein shall be fully paid and non-assessable.
10. Option Not Transferable. This option is not transferable or assignable
-----------------------
except by will or by the laws of descent and distribution. During the Employee's
lifetime only the Employee can exercise this option.
11. No Obligation to Exercise Option. The grant and acceptance of this
--------------------------------
option imposes no obligation on the Employee to exercise it.
12. No Obligation to Continue Employment. The Company and any Related
------------------------------------
Corporation (as defined in the Plan) are not by the Plan or this option
obligated to continue the Employee in employment.
13. No Rights as Stockholder until Exercise. The Employee shall have no
---------------------------------------
rights as a stockholder with respect to shares subject to this Agreement until a
stock certificate therefor has been issued to the Employee and is fully paid
for. Except as is expressly provided in the Plan with respect to certain changes
in the capitalization of the Company, no adjustment shall be made for dividends
or similar rights for which the record date is prior to the date such stock
certificate is issued.
14. Capital Changes and Business Successions. The Plan contains provisions
----------------------------------------
covering the treatment of options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference. In general, you should not assume that options
necessarily would survive the acquisition of the Company. In particular, without
affecting the generality of the foregoing, it is understood that for the
purposes of Articles 3 through 5 hereof, both inclusive, employment by the
Company includes employment by a Related Corporation as defined in the Plan.
15. Early Disposition. The Employee agrees to notify the Company in
-----------------
writing immediately after the Employee makes a Disqualifying Disposition of any
Common Stock received pursuant to the exercise of this option. A Disqualifying
Disposition is
<PAGE>
- 5 -
any disposition (including any sale) of such Common Stock before the later of
-----
(a) two years after the date the Employee was granted this option or (b) one
year after the date the Employee acquired Common Stock by exercising this
option. If the Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter. The Employee also agrees to provide the Company with any
information which it shall request concerning any such disposition. The
Employee acknowledges that he or she will forfeit the favorable income tax
treatment otherwise available with respect to the exercise of this incentive
stock option if he or she makes a Disqualifying Disposition of the stock
received on exercise of this option.
16. Withholding Taxes. If the Company in its discretion determines that it
-----------------
is obligated to withhold tax with respect to a Disqualifying Disposition (as
defined in Article 15) of Common Stock received by the Employee on exercise of
this option, the Employee hereby agrees that the Company may withhold from the
Employee's wages the appropriate amount of federal, state and local withholding
taxes attributable to such Disqualifying Disposition. If any portion of this
option is treated as a Non-Qualified Option, the Employee hereby agrees that the
Company may withhold from the Employee's wages the appropriate amount of
federal, state and local withholding taxes attributable to the Employee's
exercise of such Non-Qualified Option. At the Company's discretion, the amount
required to be withheld may be withheld in cash from such wages, or (with
respect to compensation income attributable to the exercise of this option) in
kind from the Common Stock otherwise deliverable to the Optionee on exercise of
this Option. The Employee further agrees that, if the Company does not withhold
an amount from the Employee's wages sufficient to satisfy the Company's
withholding obligation, the Employee will reimburse the Company on demand, in
cash, for the amount underwithheld.
17. Provision of Documentation to Employee. By signing this Agreement the
--------------------------------------
Employee acknowledges receipt of a copy of this Agreement and a copy of the
Company's 1990 Stock Plan.
18. Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the internal laws of the State of Delaware.
<PAGE>
- 6 -
IN WITNESS WHEREOF the Company and the Employee have caused this instrument
to be executed, and the Employee whose signature appears below acknowledges
receipt of a copy of the Plan and acceptance of an original copy of this
Agreement.
_______________________________ _______________________ Inc.
Employee
_______________________________ By:________________________________
Print Name of Employee
_______________________________ Title:___________________
Street Address
_______________________________
City State Zip Code
NOTE: PERSON SIGNING ON BEHALF OF THE COMPANY MUST INITIAL ONE OF THE THREE
- ---- ---
CLAUSES UNDER ARTICLE 7 ABOVE.
<PAGE>
ENVIRONMENTAL POWER CORPORATION
Non-Qualified Stock Option Agreement
------------------------------------
Environmental Power Corporation, a Delaware corporation (the "Company"),
hereby grants this ______ day of ________, 1990, to __________________________
(the "Optionee"), an option to purchase a maximum of ________ shares of its
Common Stock, $.01 par value, at the price of ____ per share, on the following
terms and conditions:
1. Grant Under 1990 Stock Plan. This option is granted pursuant to and is
---------------------------
governed by the Company's 1990 Stock Plan (the "Plan") and, unless the context
otherwise requires, terms used herein shall have the same meaning as in the
Plan. Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date. This option shall
immediately terminate and be of no force or effect if the Plan is not approved
by the Company's stockholders on or before January __, 1991.
2. Grant as Non-Qualified Option; Other Options. This option shall be
--------------------------------------------
treated for federal income tax purposes as a Non-Qualified Option (rather than
an incentive stock option), and the Committee will take appropriate action, if
necessary, to achieve this result. This option is in addition to any other
options heretofore or hereafter granted to the Optionee by the Company, but a
duplicate original of this instrument shall not effect the grant of another
option.
3. Extent of Option if Business Relationship Continues. If the Optionee
---------------------------------------------------
has continued to serve the Company or any Related Corporation in the capacity of
an employee, officer, director or consultant (such service is described herein
as maintaining/or being involved in a "Business Relationship" with the Company)
on the following dates, the Optionee may exercise this option for the number of
shares set opposite the applicable date:
[to be established at the time of grant]
The foregoing rights are cumulative and, while the Optionee continues to
maintain a Business Relationship with the Company, may be exercised up to and
including the date which is ____ years from the date this option is granted.
All of the foregoing rights are subject to Articles 4 and 5, as appropriate, if
the Optionee ceases to maintain a Business Relationship with the Company or
dies, becomes disabled or undergoes dissolution while involved in a Business
Relationship with the Company.
<PAGE>
- 2 -
4. Termination of Business Relationship. If the Optionee ceases to
------------------------------------
maintain a Business Relationship with the Company, other than by reason of death
or disability as defined in Article 5, no further installments of this option
shall become exercisable and this option shall terminate after the passage of
sixty (60) days from the date the Business Relationship ceases, but in no event
later than the scheduled expiration date. In such a case, the Optionee's only
rights hereunder shall be those which are properly exercised before the
termination of this option.
5. Death; Disability; Dissolution. If the Optionee is a natural person
------------------------------
who dies while involved in a Business Relationship with the Company, this option
may be exercised, to the extent of the number of shares with respect to which
the Optionee could have exercised it on the date of his death, by his estate,
personal representative or beneficiary to whom this option has been assigned
pursuant to Article 10, at any time within 180 days after the date of death, but
not later than the scheduled expiration date. If the Optionee is a natural
person whose Business Relationship with the Company is terminated by reason of
his disability (as defined in the Plan), this option may be exercised, to the
extent of the number of shares with respect to which the Optionee could have
exercised it on the date the Business Relationship was terminated, at any time
within 180 days after the date of such termination, but not later than the
scheduled expiration date. At the expiration of such 180-day period or the
scheduled expiration date, whichever is the earlier, this option shall terminate
and the only rights hereunder shall be those as to which the option was properly
exercised before such termination. If the Optionee is a corporation,
partnership, trust or other entity that is dissolved, liquidated, becomes
insolvent or enters into a merger or acquisition with respect to which such
optionee is not the surviving entity at the time when such entity is involved in
a Business Relationship with the Company, this Option shall immediately
terminate as of the date of such event, and the only rights hereunder shall be
those as to which this option was properly exercised before such dissolution or
other event.
6. Partial Exercise. Exercise of this option up to the extent above
----------------
stated may be made in part at any time and from time to time within the above
limits, except that this option may not be exercised for a fraction of a share
unless such exercise is with respect to the final installment of stock subject
to this option and a fractional share (or cash in lieu thereof) must be issued
to permit the Optionee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Optionee in accordance with the terms hereof.
<PAGE>
- 3 -
7. Payment of Price. The option price is payable in United States dollars
----------------
and may be paid:
(a) in cash or by check, or any combination of the foregoing, equal in
amount to the option price; or (b) in the discretion of the Committee, in cash,
but check, by delivery of shares of the Company's Common Stock having a fair
market value (as determined by the Committee) equal as of the date of exercise
to the option price, or by any combination of the foregoing, equal in amount to
the option price; or (c) in the discretion of the Committee, in cash, by check,
by delivery of shares of the Company's Common Stock having an aggregate fair
market value (as determined by the Committee) equal as of the date of exercise
to the option price, by delivery of the Optionee's personal recourse note
bearing interest payable not less than annually at no less than l00% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or by
any combination of the foregoing, equal in amount to the option price.
If the Optionee delivers Common Stock held by the Optionee (the "Old
Stock") to the Company in full or partial payment of the option price, and the
Old Stock so delivered is subject to restrictions or limitations imposed by
agreement between the Optionee and the Company, the Common Stock received by the
Optionee on the exercise of this option shall be subject to all restrictions and
limitations applicable to the Old Stock to the extent that the Optionee paid for
such Common Stock by delivery of Old Stock, in addition to any restrictions or
limitations imposed by this agreement.
8. Agreement to Purchase for Investment. By acceptance of this option,
------------------------------------
the Optionee agrees that a purchase of shares under this option will not be made
with a view to their distribution, as that term is used in the Securities Act of
1933, as amended, unless in the opinion of counsel to the Company such
distribution is in compliance with or exempt from the registration and
prospectus requirements of that Act, and the Optionee agrees to sign a
certificate to such effect at the time of exercising this option and agrees that
the certificate for the shares so purchased may be inscribed with a legend to
ensure compliance with that Act.
9. Method of Exercising Option. Subject to the terms and conditions of
-------------------- ------
this Agreement, this option may be exercised by written notice to the Company,
at the principal executive office of the Company, or to such transfer agent as
the Company shall designate. Such notice shall state the election to exercise
this option and the number of shares in respect of which it is being exercised
and shall be signed by the person or persons so exercising this option. Such
notice shall be accompanied by payment of the full purchase price of such
shares, and the Company shall deliver a certificate or certificates representing
such shares as soon as practicable after the notice shall be
<PAGE>
- 4 -
received. The certificate or certificates for the shares as to which this option
shall have been so exercised shall be registered in the name of the person or
persons so exercising this option (or, if this option shall be exercised by the
Optionee and if the Optionee shall so request in the notice exercising this
option, shall be registered in the name of the Optionee and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising this option. In
the event this option shall be exercised, pursuant to Article 5 hereof, by any
person or persons other than the Optionee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise this
option. All shares that shall be purchased upon the exercise of this option as
provided herein shall be fully paid and non-assessable.
10. Option Not Transferable. This option is not transferable or assignable
-----------------------
except by will or by the laws of descent and distribution. During the Optionee's
lifetime only the Optionee can exercise this option.
11. No Obligation to Exercise Option. The grant and acceptance of this
--------------------------------
option imposes no obligation on the Optionee to exercise it.
12. No Obligation to Continue Business Relationship. The Company and any
-----------------------------------------------
Related Corporations are not by the Plan or this option obligated to continue to
maintain a Business Relationship with the Optionee.
13. No Rights as Stockholder until Exercise. The Optionee shall have no
---------------------------------------
rights as a stockholder with respect to shares subject to this Agreement until a
stock certificate therefor has been issued to the Optionee and is fully paid
for. Except as is expressly provided in the Plan with respect to certain
changes in the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to the date such
stock certificate is issued.
14. Capital Changes and Business Successions. The Plan contains provisions
----------------------------------------
covering the treatment of options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference. In general, you should not assume that options
necessarily would survive the acquisition of the Company. In particular, without
affecting the generality of the foregoing, it is understood that for the
purposes of Articles 3 through 5 hereof, both inclusive, employment by the
Company includes employment by a Related Corporation as defined in the Plan.
<PAGE>
- 5 -
15. Withholding Taxes. The Optionee hereby agrees that the Company may
-----------------
withhold from the Optionee's wages or other remuneration the appropriate amount
of federal, state and local taxes attributable to the Optionee's exercise of any
installment of this option. At the Company's discretion, the amount required to
be withheld may be withheld in cash from such wages or other remuneration, or in
kind from the Common Stock otherwise deliverable to the Optionee on exercise of
this option. The Optionee further agrees that, if the Company does not withhold
an amount from the Optionee's wages or other remuneration sufficient to satisfy
the Company's withholding obligation, the Optionee will reimburse the Company on
demand, in cash, for the amount underwithheld.
16. Provision of Documentation to Optionee. By signing this Agreement the
--------------------------------------
Optionee acknowledges receipt of a copy of this Agreement and a copy of the
Company's 1990 Stock Plan.
17. Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the internal laws of the State of Delaware.
IN WITNESS WHEREOF the Company and the Optionee have caused this instrument
to be executed, and the Optionee whose signature appears below acknowledges
receipt of a copy of the Plan and acceptance of an original copy of this
Agreement.
_______________________________ _________________________, Inc.
Optionee
_______________________________ By:____________________________
First Name of Optionee
_______________________________ Title:_________________________
Street Address
_______________________________
City, State, Zip
<PAGE>
Exhibit 10.60
Exhibit A omitted
- --------------------------------------------------------------------------------
MANAGEMENT SERVICES AGREEMENT
by and between
SCRUBGRASS GENERATING COMPANY, L.P.
and
PG&E-BECHTEL GENERATING COMPANY
Dated as of December 15, 1990
---------------------------------
SCRUBGRASS COGENERATION PROJECT
---------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
Section Page
- ------- ----
Recitals ....................................................... 1
ARTICLE I. AGREEMENT AND DEFINITIONS ......................... 2
1.1 Agreement ........................................... 2
1.2 Definitions ......................................... 2
ARTICLE II. SERVICES .......................................... 4
2.1 Appointment ......................................... 4
2.2 Services ............................................ 4
2.3 Personnel ........................................... 6
2.4 Management Plan ..................................... 6
2.5 Standards for Performance of Services ............... 7
2.6 Authority of Manager ................................ 7
2.7 Right to Request Instruction ........................ 7
2.8 Cooperation and Consultation ........................ 7
ARTICLE III. ITEMS TO BE FURNISHED BY LESSEE .................. 8
3.1 General ............................................. 8
3.2 Funding of Lessee Accounts .......................... 8
3.3 Office Facilities at the Project Site ............... 8
3.4 Lessee Representative ............................... 9
ARTICLE IV. PERSONNEL, ADVISORY COMMITTEE AND REPORTING ....... 9
4.1 Manager Representative .............................. 9
4.2 Advisory Committee .................................. 9
4.3 Accounts and Reports ................................ 10
ARTICLE V. COMPENSATION ...................................... 12
5.1 Management Costs ................................... 12
5.2 Payment ............................................ 12
5.3 Other Costs and Expenses ........................... 12
5.4 Accounting and Audit Right ......................... 13
5.5 Interest ........................................... 13
5.6 Subordination ...................................... 13
ARTICLE VI. TERM AND TERMINATION .............................. 14
6.1 Term ............................................... 14
6.2 Termination by Lessee for Cause .................... 14
6.3 Termination by Manager ............................. 14
6.4 Rights upon Termination ............................ 15
6.5 Termination Payment ................................ 15
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE VII. INDEMNIFICATION ................................... 16
7.1 By Manager ......................................... 16
7.2 By Lessee .......................................... 16
7.3 Other Claims ....................................... 16
7.4 Indemnification Notices ............................ 16
ARTICLE VIII. LIABILITIES OF THE PARTIES ....................... 17
8.1 Limitations of Liability .......................... 17
8.2 No Warranties or Guarantees ....................... 18
ARTICLE IX. MISCELLANEOUS PROVISIONS .......................... 18
9.1 Documents .......................................... 18
9.2 Assignment ......................................... 18
9.3 Independent Contractor ............................. 19
9.4 Force Majeure ...................................... 19
9.5 Amendments ......................................... 19
9.6 Survival ........................................... 19
9.7 Non Waiver ......................................... 19
9.8 Notices ............................................ 19
9.9 Counterparts ....................................... 20
9.10 Governing Law ...................................... 20
9.11 Partial Invalidity ................................. 20
9.12 Captions; Table of Contents ........................ 20
9.13 Not for Benefit of Third Parties ................... 20
9.14 Disputes ........................................... 21
9.15 Representations and Warranties ..................... 21
</TABLE>
EXHIBIT A - Definitions
EXHIBIT B - Management Plan
-ii-
<PAGE>
MANAGEMENT SERVICES AGREEMENT
-----------------------------
THIS MANAGEMENT SERVICES AGREEMENT ("Agreement") is entered into as of
December 15, 1990, by and between SCRUBGRASS GENERATING COMPANY, L.P., a
Delaware Limited Partnership ("Lessor"), and PG&E-BECHTEL GENERATING COMPANY, a
California general partnership ("Manager").
R E C I T A L S
- - - - - - - -
A. Lessor is developing and causing to be constructed an approximately
80 megawatt waste-coal fired cogeneration plant and adjacent greenhouse to be
located in Scrubgrass Township, Venango County, Pennsylvania (the "Project", as
hereinafter further defined);
B. Lessor has agreed to enter into a Lease Agreement (the "Lease") with
Buzzard Power Corporation, a Delaware corporation ("Lessee"), pursuant to which
Lessor will lease the Project to Lessee for an initial term of twenty-two (22)
years commencing upon the date of completion of construction of the Project (the
"Lease Commencement Date", as hereinafter further defined);
C. During the term of the Lease, Lessee requires the services of a
qualified independent contractor to provide management and administrative
services in connection with the Project and with the day-to-day business of
Lessee, and to act on behalf of Lessee as Lessee's representative under the
Lease and under certain other contracts and agreements relating to the Project;
D. At the request of Lessor and Lessee, Manager has agreed to perform
such services, beginning on the Lease Commencement Date, in accordance with the
terms and conditions set forth herein, it being understood by the parties hereto
that this Agreement will be assigned by Lessor to Lessee, and Lessor's
obligations hereunder will be assumed by Lessee, effective as of the Lease
Commencement Date, whereupon all rights and obligations of Lessor hereunder
shall become rights and obligations of Lessee.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereby agree as follows:
<PAGE>
-------------------------
ARTICLE I
AGREEMENT AND DEFINITIONS
-------------------------
1.1 Agreement. This Agreement contains the entire agreement between the
---------
parties with respect to the subject matter hereof and supersedes all prior
negotiations, undertakings and agreements. Neither party will be bound by or
deemed to have made in connection herewith any representations, warranties,
commitments or undertakings other than those contained herein.
1.2 Definitions. Unless otherwise required by the context in which any
-----------
capitalized term appears, capitalized terms used in this Agreement shall have
the definitions specified in this Section 1.2 or in Appendix I to the
Participation Agreement which is attached hereto as Exhibit A. The singular
shall include the plural and the masculine shall include the feminine and
neuter, as the context requires. References to "Articles," "Sections,"
"Schedules" or "Exhibits" shall be to Articles, Sections, schedules or Exhibits
of this Agreement and references to paragraphs shall be to separate paragraphs
of the Section or subsection in which the reference occurs, unless otherwise
expressly provided. All references herein to any agreements shall be to such
agreement as amended and supplemented or modified to the date of reference. All
references to a particular entity shall include a reference to such entity's
successor and permitted assigns. 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. "Includes" or "including" shall mean "including
without limitation."
"Advisory Committee" has the meaning set forth in Section 4.2.1.
------------------
"Agreement" means this Management Services Agreement, as the same may
---------
be modified or amended from time to time in accordance with the provisions
hereof.
"Bankruptcy" means a situation in which (i) a party shall file a
----------
voluntary petition in bankruptcy or shall be adjudicated a bankrupt or
insolvent, or shall file any petition or answer or consent seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief for itself under the present or future applicable federal,
state or other statute or law relative to bankruptcy, insolvency, or other
relief for debtors, or shall seek or consent to or acquiesce in the appointment
of any trustee, receiver, conservator or liquidator of such party or of all or
any substantial part of Its properties (the term "acquiesce" as used in this
definition, includes the failure to file a petition or motion to vacate or
discharge any order, judgment or decree within fifteen (15) days after entry of
such order, judgment or decree); a court of competent jurisdiction shall enter
-2-
<PAGE>
an order, judgment or decree approving a petition filed against any party
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act, or any other present or future applicable federal, state or other statute
or law relating to bankruptcy, insolvency, or other relief for debtors, and such
party shall acquiesce in the entry of such order, judgment or decree or such
order, judgment or decree shall remain unvacated and unstayed for an aggregate
of sixty (60) days (whether or not consecutive) from the date of entry thereof,
or any trustee, receiver, conservator or liquidator of such party or of all or
any substantial part of its property shall be appointed without the consent or
acquiescence of such party and such appointment shall remain unvacated and
unstayed for an aggregate of sixty (60) days whether or not consecutive; (ii) a
party shall admit in writing its inability to pay its debts as they mature,
(iii) a party shall give notice to any governmental body of insolvency or
pending insolvency, or suspension or pending suspension of operations; or (iv) a
party shall make an assignment for the benefit of creditors or take any other
similar action for the protection or benefit of creditors.
"Lender" means National Westminster Bank PLC and the other banks
------
providing construction financing and permanent debt financing for the Project
pursuant to the Reimbursement Agreement.
"Lessee" has the meaning set forth in the Recitals.
------
"Lessee Representative" has the meaning set forth in Section 3.4.
---------------------
"Lessor" has the meaning set forth in the Preamble.
------
"Management Costs" means the compensation payable by Lessee to Manager
----------------
for the Services pursuant to Section 5.1.
"Management Plan" has the meaning set forth in Section 2.4.
---------------
"Manager" has the meaning set forth in the Preamble.
-------
"Manager Representative" has the meaning set forth in Section 4.1.
----------------------
4.1.
"Reference Rate" means a per annum interest rate equal to two percent
--------------
(2%) above the prime rate as quoted from time to time by National Westminster
Bank PLC, New York Branch, but in no event in excess of the maximum rate
permitted by applicable law.
-3-
<PAGE>
--------------------------
ARTICLE II
SERVICES
--------------------------
2.1 Appointment. Lessor hereby appoints and retains Manager to provide
-----------
the Services from and after the Lease Commencement Date on the terms and
conditions set forth in this Agreement. Manager hereby accepts such appointment
and agrees to perform the Services in accordance with the terms and conditions
of this Agreement. Lessor and Manager hereby also agree that as of the Lease
Commencement Date and the assignment of this Agreement to Lessee all obligations
of Manager hereunder shall run directly to Lessee and all references herein to a
"party" or "parties" to this Agreement shall be deemed to refer to "Lessee"
and/or "Manager".
2.2 Services. Manager shall perform or cause to be performed on behalf
--------
of Lessee the following management, administrative and other support services in
connection with the day-to-day business of Lessee and the management of the
Project (collectively, the "Services"):
2.2.1 General Management and Administration. Manager shall be fully
-------------------------------------
responsible for the day-to-day management, administration and operation of all
of Lessee's business relating to the Project, excluding any responsibilities
delegated to the Operator. under the O&M Agreement, to the Greenhouse Operator
under the Greenhouse Agreements, or to any other party under any of the other
Project Agreements.
2.2.2 Administration of Agreements. Except for corporate,
----------------------------
organizational and other such internal matters within the control of Lessee,
Manager shall represent Lessee and shall administer and perform all of Lessee's
obligations and responsibilities under each of the Project Agreements and other
Transaction Documents entered into by Lessee or assigned to Lessee pursuant to
Section 2.03 of the Lease, including the 0&M Agreement, the Greenhouse
Agreements, the Fuel Agreements, the Transportation Agreements, and the Lease,
subject to the availability of funds therefor in the Lessee accounts established
pursuant to Section 3.2.
2.2.3 Billing and Collection of Revenues. Manager shall implement
----------------------------------
and maintain billing and collection procedures in respect of all accounts
payable and other amounts due Lessee under each of the Project Agreements.
2.2.4 Bank Accounts and Disbursement of Funds. Manager shall
---------------------------------------
establish and maintain on behalf of and in the name of Lessee one or more bank
accounts as required by the Disbursement Agreement or any other Transaction
Document or otherwise as required or convenient in connection with the business
of Lessee relating to the Project. Manager shall have the exclusive authority to
inform Agent or Lessor, as the case may be, of the need to make deposits to and
withdrawals from any such accounts and otherwise to inform Agent or Lessor, as
the case may be, of
-4-
<PAGE>
disbursements of funds which need to be approved or authorized from any other
accounts of Lessee established or maintained in connection with any of the
Transaction Documents in order to pay all of Lessee's operating and other
expenses, including any payments required under any of the Transaction Documents
and any insurance premiums, accountants' fees and other professional services
fees, taxes, license fees, property taxes, assessments or other Lessee expenses.
Without limiting the foregoing, Manager also shall have the exclusive authority
on behalf of Lessee to furnish Agent or Lessor, as the case may be, with
information necessary for such Person to direct payment from any Lessee Account
established under the Disbursement Agreement and to act for and on behalf of
Lessee in all matters arising under the Disbursement Agreement.
2.2.5 Accounting and Documentation. Manager shall provide full
----------------------------
bookkeeping and accounting services to Lessee as required from time to time in
connection with the Project and, to the extent pertaining to matters within the
knowledge and control of Manager, shall prepare and submit on behalf of Lessee
all necessary documentation, certification and notices required to be submitted
by Lessee pursuant to the Transaction Documents . 2.2.6 Insurance. Manager shall
implement Lessee's insurance program, including procuring and maintaining, at
Lessee's expense, any and all insurance required to be maintained by Lessee
pursuant to any of the Transaction Documents, and monitoring the insurance
coverage provided by Operator and Greenhouse Operator pursuant to the O&M
Agreement and Greenhouse Agreements, respectively. Manager also shall be
responsible for administering all claims and making all collections on behalf of
Lessee under insurance policies covering Lessee or the Project. Manager shall be
named as an additional insured or a named insured, as appropriate, under each of
the insurance policies which include Lessee as a named or additional insured
obtained in connection with the Project.
2.2.6 Insurance. Manager shall implement Lessee's Insurance
---------
program, including procuring and maintaining, at Lessee's expense, any and all
insurance required to be maintained by Lessee pursuant to any of the Transaction
Documents, and monitoring the insurance coverage provided by Operator and
Greenhouse Operator pursuant to the O&M Agreement and Greenhouse Agreements,
respectively. Manager also shall be responsible for administering all claims and
making all collections on behalf of Lessee under insurance policies covering
Lessee or the Project. Manager shall be named as an additional insured or a
named insured, as appropriate, under each of the insurance policies which
include Lessee as a named or additional insured obtained in connection with the
Project.
2.2.7 Licenses and Permits. Manager shall maintain compliance with
--------------------
all required permits, licenses and governmental approvals obtained by or for
Lessee in connection with the operation and lease of the Project, excluding any
responsibilities delegated to the Operator under the O&M Agreement, to the
Greenhouse Operator under the Greenhouse Agreements, or to any other party under
any of the other Project Agreements. Where permits must be obtained, modified or
renewed by Lessee and such responsibility has not been delegated to Operator or
Greenhouse Operator, Manager shall prepare any application, filing or notice
related thereto, shall cause such materials to be submitted to, and shall
represent Lessee in contacts with, the appropriate governmental agency, and
shall perform all ministerial or administrative acts necessary for timely
issuance and the continued effectiveness thereof. Copies of all permits,
licenses and governmental approvals obtained by or for Lessee in connection with
the Project shall be maintained by Manager at its offices.
-5-
<PAGE>
2.2.8 Public Relations. Manager shall be responsible for all public
----------------
and community relations matters of Lessee relating to the Project.
2.2.9 Additional Project Agreements. Manager shall administer and
-----------------------------
implement Lessee's fuel procurement program for the Project, including providing
fuel planning, performing contract administration, scheduling and coordination
with respect to the Fuel Agreements, Limestone Agreement and Transportation
Agreements, arranging for additional fuel sources and ash disposal as required,
and establishing and implementing a fuel sampling and testing program. Manager
also shall arrange for and administer any Additional Contracts required on
behalf of Lessee in connection with the Project and shall assist Lessee in
complying with all requirements of the Transaction Documents with respect to
such Additional Contracts.
2.2.10 Lessee Working Capital Loan Agreement. Manager shall, on
-------------------------------------
behalf of Lessee, make all requests for Lessee Working Capital Loans under the
Lessee Working Capital Loan Agreement, at such times and in such amounts as
Manager deems necessary or desirable based on information furnished to it from
the Operator, the Lessee and any other source, in accordance with the terms of
the Lessee Working Capital Loan Agreement. Manager shall furnish the Agent or
Lessor, as the case may be, with information necessary for such person to direct
the disbursement of the proceeds of any Lessee Working Capital Loan in
accordance with Section 2.2.4 hereof. Subject to the availability of funds
therefor in the Operating Account, Manager shall ensure that all Lessee Working
Capital Loans are repaid in accordance with Section 2.01(d) of the Lessee
Working Capital Loan Agreement.
2.3 Personnel. Manager shall provide and make available as necessary
---------
all professional, supervisorial, managerial, administrative and other personnel
as are necessary to perform the Services. Such personnel shall be qualified and
experienced in the duties to which they are assigned. The working hours, rates
of compensation and all other matters relating to the employment of individuals
employed by Manager or its Affiliates in the performance of the Services shall
be determined solely by Manager or its respective Affiliates. In the performance
of the Services, Manager also shall be authorized to obtain on behalf of Lessee
outside accounting, tax, legal, engineering, and other services as it reasonably
deems necessary.
2.4 Management Plan. Attached as Exhibit B to this Agreement is a
---------------
preliminary Project management plan setting forth in greater detail Services to
be performed by Manager hereunder and Manager's proposed organization plan for
the Project. Within thirty (30) days following the Lease Commencement Date,
Manager shall prepare and submit to Lessee a more complete management plan and
organization chart covering the matters set forth in Exhibit B (the "Management
Plan"), which, upon approval by Lender, shall replace and become a new Exhibit B
hereto; provided, however, that nothing contained in Exhibit B shall in any way
limit Manager's obligations under Section 2.2.
-6-
<PAGE>
2.5 Standards for Performance of Services. Manager shall perform the
-------------------------------------
Services with due diligence and dispatch in a prudent, cost effective and
efficient manner, in accordance with all applicable laws, regulations, codes,
permits, licenses, and standards, and in accordance with the Management Plan and
applicable terms and conditions of the Transaction Documents. To the extent
within the reasonable control of Manager, all Operating Expenses incurred or
authorized by Manager on behalf of Lessee hereunder shall be in accordance with
the applicable Project Operating Budget, as such Operating Budget may be amended
from time to time in accordance with the Transaction Documents. Manager shall
not carry out any transaction or enter into any contract or agreement on behalf
of Lessee hereunder with any Affiliate of Manager except on terms no less
favorable to Lessee than would be available in a bona fide arm's length
transaction with a non-affiliated person.
2.6 Authority of Manager. Manager is hereby granted, to the fullest
--------------------
extent permitted by law, as of the Lease Commencement Date and the assignment of
this Agreement to Lessee, the right, power and authority to do on behalf of
Lessee in Lessee's name all things which are necessary, proper or desirable to
carry out the duties and responsibilities of Manager under this Agreement,
including the right, power and authority to engage in any actions and to
execute, enter into, perform and carry out contracts and undertakings of any
kind whatsoever necessary or incidental to the accomplishment of the purposes
and objectives of Lessee as set forth in this Agreement or the other Transaction
Documents, so long as such activities, contracts and undertakings may be
lawfully carried out or performed by or on behalf of Lessee, and provided that
in no event shall Manager's authority hereunder be greater than or extend beyond
the authority of Lessee, as such authority may be limited by any covenant or
other restriction contained in any Transaction Document. Lessee agrees, from
time to time, to execute and deliver any additional written authorizations or
powers of attorney which may be reasonably requested by Manager to carry out the
purpose and intent of this Section.
2.7 Right to Request Instruction. At any time, Manager may, if it
----------------------------
reasonably deems it to be necessary or appropriate, request written instructions
from Lessee, within a reasonable period prior to the necessity for taking
action, with respect to any matter contemplated by this Agreement and may defer
action thereon pending the receipt of such written instructions. Actions taken
by Manager, its officers, employees and representatives in accordance with the
written instructions of Lessee, or, except in cases of Manager's gross
negligence or willful misconduct, failures to act by such persons pending the
receipt of such written Instructions, shall be deemed to be proper conduct
within the scope of Manager's authority under this Agreement.
2.8 Cooperation and Consultation. Lessee agrees that it shall cooperate
----------------------------
with Manager in the performance of Manager's services and, subject to the
provisions of Section 6.2, shall not take any independent or unilateral action
with respect to the Project, or any Project
-7-
<PAGE>
Agreement or other Transaction Document, including terminating, modifying,
amending or settling or asserting any claim with respect to any Project
Agreement or other Transaction Document, or entering into any Additional
Contract, without first consulting with Manager and obtaining Manager's prior
written concurrence. Any action taken by Lessee which does not comply with the
provisions of this Section 2.8 shall be null and void.
-------------------------------
ARTICLE III
ITEMS TO BE FURNISHED BY LESSEE
-------------------------------
3.1 General. Lessee shall furnish, or cause to be furnished, to
-------
Manager, at Lessee's expense, such information, documentation, services and
materials, which are not required to be provided by Manager hereunder and which
are reasonably requested by Manager to perform the Services and to otherwise
fulfill its obligations under this Agreement. All such items shall be made
available at such times and in such manner as may be required by Manager for the
expeditious and orderly performance of the Services. Without limiting the
generality of the foregoing, Lessee shall provide Manager all operating plans,
fuel plans, and other such Project materials developed by or on behalf of Lessor
during the construction of the Project and made available to Lessee pursuant to
the Lease.
3.2 Funding of Lessee Accounts. During the term of this Agreement,
--------------------------
Lessee shall deposit or cause to be deposited with the Disbursement Agent in
accordance with the Disbursement Agreement all Project Revenues and other income
or earnings of Lessee from any source whatsoever, except income or earnings with
respect to amounts previously released to Lessee by the Disbursement Agent.
Notwithstanding any provision in this Agreement to the contrary, Manager shall
not be obligated to perform Services and shall be excused from its obligations
and responsibilities hereunder to the extent there are not available funds under
the Disbursement Agreement to allow Manager to perform the Services and
administer the Transaction Documents on behalf of Lessee pursuant to the
provisions of this Agreement.
3.3 Office Facilities at the Project Site. Lessee shall provide Manager
-------------------------------------
with suitable office facilities at the Project site, including telephones,
copying and fax machines, office supplies and janitorial services. Such
facilities shall be made available to Manager beginning on the Lease
Commencement Date.
-8-
<PAGE>
3.4 Lessee Representative. On or before the Lease Commencement Date,
---------------------
Lessee shall appoint an individual representative (the "Lessee Representative")
authorized and empowered to act for and on behalf of Lessee on all matters
concerning or arising under this Agreement. In all such matters, Lessee shall be
bound by the written communications, directions, requests, and decisions made by
the Lessee Representative. Lessee shall notify Manager in writing of such
representative, and such appointment shall remain in full force and effect until
a written notice of substitution or replacement is delivered by Lessee to
Manager.
-----------------------------
ARTICLE IV
PERSONNEL, ADVISORY COMMITTEE
AND REPORTING
-----------------------------
4.1 Manager Representative. Within ten (10) days after the Lease
----------------------
Commencement Date, Manager shall appoint an individual representative (the
"Manager Representative") authorized and empowered to act for and on behalf of
Manager on all matters concerning this Agreement and the Services. In all such
matters, Manager shall be bound by the written communications, directions,
requests, and decisions made by the Manager Representative. Manager shall notify
Lessee in writing of such representative, and such appointment shall remain in
full force and effect until a written notice of substitution or replacement is
delivered by Manager to Lessee. At any time, the Manager Representative may act
through or be represented by one or more individuals appointed by Manager.
4.2 Advisory Committee.
------------------
4.2.1 Membership. In order to facilitate communication and
----------
cooperation between the parties in the administration of the Project and the
Lease, an advisory committee (the "Advisory Committee") shall be established as
of the Lease Commencement Date to review Manager's performance hereunder and to
consider and make recommendations with respect to Manager's proposed actions
concerning the Project. The Advisory Committee shall consist of three or more
individuals, one of whom shall be appointed by Lessee and one of whom shall be
appointed by each of the general partners (other than Scrubgrass Power Corp.) of
Lessor. Each member of the Advisory Committee shall hold office until death,
resignation or removal at the pleasure of the party that appointed him. If a
vacancy occurs on the Advisory Committee, the party that appointed such vacating
member shall appoint his successor.
4.2.2 Meetings. The Advisory Committee shall meet no less
--------
frequently than once each calendar quarter after the Lease Commencement Date on
a date and at a time and place established by the consent of
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Manager and each member on the Advisory Committee. A special meeting of the
Advisory Committee shall be held at the written request of Manager or any
Advisory Committee member. Any meeting of the Advisory Committee may be held by
conference telephone call or through similar communications equipment by means
of which all persons participating in the meeting can hear each other.
Participation in a telephonic meeting held pursuant to this Section shall
constitute presence in person at such meeting. A representative of Manager shall
be entitled to attend and participate in all meetings of the Advisory Committee,
and Manager shall be given notice of all meetings requiring notice in accordance
with the provisions of Section 4.2.3.
4.2.3 Notices. Notices of regular meetings of the Advisory
-------
Committee are not required. Notices of special meetings of the Advisory
Committee shall state the date and hour of the meeting and the purpose or
purposes for which the meeting is called. Special meetings shall be held by
telephone conference call or at such place as shall be agreed to by Manager and
by the members of the Advisory Committee. The notice of a special meeting shall
be given in writing not less than ten (10) nor more than twenty (20) days before
the date of the meeting to Manager and to each Advisory Committee member.
Manager and Advisory Committee members may waive in writing the requirements for
notice before, at or after the special meeting involved.
4.2.4 Review and Advisory Function. The Advisory Committee shall
----------------------------
not have power or authority to direct or control the actions or performance by
Manager of Services hereunder; but Manager shall make Project information
available to the Advisory Committee and shall consider any recommendations,
proposals or suggestions made by the Advisory Committee. Without limiting the
generality of the foregoing, Manager shall consult with the Advisory Committee
on matters concerning the Project Operating Budget and operating and fuel plans,
and shall seek review by the Advisory Committee of any Additional Contract which
is required to be submitted to Lender for Lender's consent prior to making such
submission.
4.3 Accounts and Reports. From and after the Lease Commencement Date
--------------------
throughout the term of this Agreement, Manager shall furnish or cause to be
furnished to Lessee the following reports concerning the Services and the
Project:
4.3.1 Quarterly Reports. As soon as available at the end of the
-----------------
first three (3) quarterly accounting periods, and in any event within the period
required pursuant to Section 8.1(a) of the Participation Agreement, Manager
shall submit (i) quarterly unaudited financial statements of Lessee prepared in
reasonable detail and in accordance with generally accepted accounting
principles consistently applied (except that such statements need not contain
notes thereto), which statements shall contain balance sheets as of the end of
such accounting period, and statements of profit and loss for the period from
the beginning of such year to the end of such accounting period; (ii) copies of
all reports and accompanying certificates received by Manager
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on behalf of Lessee from Operator and Greenhouse Operator during such quarterly
accounting period pursuant to the O&M Agreement and Greenhouse Agreements,
respectively; and (iii) a comparison of Lessee' 5 actual annual Project
operating costs incurred to date and the budgeted costs for such period as set
forth In the applicable Project Operating Budget. Following submission of such
quarterly reports, the Manager Representative shall be prepared to meet with the
Advisory Committee at its request to review and discuss the reports and to
review any proposed plan of action.
4.3.2 Annual Reports. As soon as available after the end of each
--------------
calendar year, and in any event within the period required pursuant to Section
8.1(b) at the Participation Agreement, Manager shall submit: (i) complete
financial statements of Lessee for such year, together with all notes thereto,
prepared in reasonable detail in each case, and in accordance with generally
accepted accounting principles consistently applied, which financial statements
shall be audited and duly reported upon by Arthur Andersen & Co. or a successor
independent public accounting firm retained by Manager and approved by Lessee
(which approval shall not be unreasonably withheld); (ii) an annual report
describing the Services and Lessee's operations for such year, including a
comparison of Lessee's actual annual Project operating costs and budgeted costs
for such year, as set forth in the applicable Project Operating Budget; and
(iii) copies of any reports and certificates received by Manager on behalf of
Lessee from the Operator and Greenhouse Operator pursuant to the O&M Agreement
and Greenhouse Agreements, respectively, which have not been previously supplied
to Owner pursuant to Section 4.2.1. Following submission of each such annual
report, the Manager Representative shall be prepared to meet with the Advisory
Committee at its request to review and discuss the report and to report upon any
other aspects of the operation of the Project or the conduct of Lessee's
business which the Advisory Committee may wish to discuss.
4.3.3 Other Information. Manager shall furnish or cause to be
-----------------
furnished any other information concerning the Services or Lessee's operations
which is required to be furnished by Lessee under the Transaction Documents or
Is reasonably requested by Lessee. Without limiting the foregoing, at Lessee's
request Manager shall provide Lessee information concerning Manager's proposed
annual Operating Budget for the Project, prior to submission to Lender pursuant
to the Loan Agreement, and shall meet with the Advisory Committee to review such
proposed Operating Budget and to discuss any recommended changes or
modifications. Notwithstanding any provision herein to the contrary, in the
event Manager's proposed annual budget for Management Costs (which shall form a
part of its proposed annual Operating Budget) exceeds on an aggregate basis by
more than ten percent (10%) the amount budgeted therefor in the preceding year,
Manager shall not incorporate such increase in excess of ten percent (10%) in
the final Operating Budget, without the prior consent of Lessee, which shall not
be unreasonably withheld.
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---------------------------------
ARTICLE V
COMPENSATION
--------------------------------
5.1 Management Costs. As compensation in full to Manager for the
----------------
performance of all Services hereunder, Lessee shall pay to Manager the sum of
(a) the amount of all wages and salaries, including bonuses, which Manager pays
to its or any of its Affiliates' permanent or temporary employees and other
representatives which is allocable to the work of such employees or
representatives in performing Services (such total allocable amount, "Wages"),
(b) an amount to cover costs of employee benefits (including employee holidays
and paid time-off), social security, insurance, retirement and other plans,
payroll taxes, premiums for unemployment, workers' compensation and employer's
liability insurance, Manager's general and administrative expenses, costs of
maintaining established offices and other organizational expenses equal to fifty
percent (50%) of the Wages paid with respect to personnel performing Services at
the Project site and one hundred percent (100%) of all other Wages, and (c)
costs incurred for travel, subsistence, recruitment and relocation with respect
to such employees and other representatives engaged In the performance of the
Services. All of Manager's rates, policies and practices referred to in the
foregoing shall be subject periodically to reasonable adjustment to reflect
changes in Manager's costs, upon Lessee's prior approval, which shall not be
unreasonably withheld.
5.2 Payment. Within fifteen (15) days after the last day of each month
-------
following the Lease Commencement Date during the term of this Agreement, Manager
shall send Lessee an Invoice setting forth in reasonable detail the amount of
the Management Costs for such preceding month. Manager shall be authorized
hereunder to pay, or cause to be paid, from the Operating Account the amount of
each such invoice within fifteen (15) days after Lessee's receipt thereof,
provided that all such payments of Management Costs shall be subordinated in
accordance with the provisions of Section 5.6.
5.3 Other Costs and Expenses. All reasonable costs and expenses
------------------------
incurred by Manager in the performance of the Services for supplies, equipment,
materials, services and other items provided by third parties, including legal,
consulting, accounting, engineering and technical services, shall, at Manager's
election, either (I) be incurred on behalf of and in the name of Lessee and paid
directly as a Lessee Operating Expense pursuant to the provisions of the
Disbursement Agreement, or (ii) be incurred and paid by Manager and reimbursed
by Lessee to Manager within fifteen (15) days as a Lessee Operating Expense. In
either case, Manager shall be authorized hereunder to cause such amounts to be
disbursed by the Disbursement Agent within the time provided for payment in
accordance with the provisions of the Disbursement Agreement.
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<PAGE>
5.4 Accounting and Audit Right. Manager shall keep and maintain, in
--------------------------
accordance with generally accepted accounting principles consistently applied,
all necessary books, records, accounts and other documents sufficient to
accurately and completely reflect all Management Costs incurred pursuant to this
Agreement and any other costs and expenses incurred pursuant to Section 5.3.
Such records shall include receipts, memoranda, vouchers and accounts of every
kind and nature pertaining to the Services, as well as complete summaries and
reports setting forth all reimbursable manhours expended, payroll Incurred and
the monthly salary and hourly rate of each and every employee whose payroll
costs are Included in the Management Costs hereunder. Lessee, its
representatives and the firm of independent auditors retained by Manager
pursuant to Section 4.2.2 shall have access, upon not less than five (5) days
advance written notice, to all such records maintained by Manager, for the
purposes of auditing and verifying the Management Costs (exclusive of mark-up)
or any other costs claimed to be due and payable hereunder. Lessee shall have
the right to reproduce any such records, and Manager shall keep and preserve all
such records for a period of at least two (2) years from and after the close of
the calendar year in which such costs were incurred.
5.5 Interest. Any amount owed to either party hereunder beyond the
--------
date such amount is due and payable shall accrue interest each day from such
date at the Reference Rate.
5.6 Subordination. Notwithstanding any provision in this Agreement to
-------------
the contrary, payment of Management Costs otherwise due and payable under this
Agreement shall be subordinate to and conditional upon the prior payment in full
by Lessee of the obligations of Lessee which are prior and senior to the
Management Costs, as set forth in Section 13.01(c) of the Reimbursement
Agreement (or as set forth in the Disbursement Agreement, if the Reimbursement
Agreement no longer is in effect). Payments of the Management Costs shall be
made on or before the date each such payment is otherwise due and payable
pursuant to this Agreement only to the extent Lessee Is permitted to pay such
amounts pursuant to Section 13.01(c) of the Reimbursement Agreement (or pursuant
to the Disbursement Agreement, if the Reimbursement Agreement no longer is in
effect). If sufficient funds are not available from the Operating Account or
such payment is not otherwise permitted to be made at such time under the
Reimbursement Agreement (or under the Disbursement Agreement, if the
Reimbursement Agreement no longer Is in effect), all or a portion of the
Management Costs otherwise payable shall be deferred until such time as there
are available funds therefor in the Operating Account or until payment Is
permitted under the Reimbursement Agreement (or under the Disbursement
Agreement, if the Reimbursement Agreement no longer is in effect). All
Management Costs due and payable hereunder or deferred pursuant to the foregoing
shall be paid to Manager prior to any payments by Lessee which are junior or
subordinated to the Management Costs, as set forth in Section 13.01(c) of the
Reimbursement Agreement (or as set forth in the Disbursement Agreement, if the
Reimbursement Agreement no longer is in effect). Management Costs deferred
pursuant to the foregoing shall accrue interest on the unpaid portion thereof at
the
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<PAGE>
Reference Rate from the date such deferral commences until such Management Costs
are paid in full; provided that such interest shall also be subordinated
pursuant to the provisions of this Section 5.6.
--------------------------------
ARTICLE VI
TERM AND TERMINATION
--------------------------------
6.1 Term. The term of this Agreement shall commence on the Lease
----
Commencement Date and shall continue until the expiration or other termination
of the Lease, subject to earlier termination pursuant to Section 6.2 or 6.3.
6.2 Termination by Lessee for Cause. Lessee, with the consent of Lessor
-------------------------------
and, during the term of the Reimbursement Agreement, with the consent of Lender
and Lessor, may terminate this Agreement for cause upon thirty (30) days prior
written notice to Manager: (I) In the event of the Bankruptcy of Manager; or
(ii) in the event of a failure by Manager to perform the Services in accordance
with the requirements of this Agreement, if Manager does not cure such failure
within forty-five (45) days of the date of a notice from Lessee demanding such
cure (or within such longer period of time as Is reasonably necessary to
accomplish such cure, if it cannot be reasonably accomplished within such
forty-five (45) day period and Manager diligently commences and continues such
cure in such period). Notwithstanding the foregoing cure period allowed to
Manager in the event of a failure by Manager to perform the Services in
accordance with the requirements of this Agreement, if Lessee reasonably
determines that such failure by Manager may lead to an event of default or
termination under any other Transaction Document to which Lessee is a party or
which has been assigned to Lessee pursuant to the Lease, Lessee, notwithstanding
any other provision of this Agreement to the contrary, upon notice to Manager,
may itself take such independent action for its own account as Lessee may deem
necessary or appropriate to cure such event of default or remove such basis for
termination, and Manager shall direct payment for the cost of such Lessee action
as a Lessee Operating Expense under the Disbursement Agreement; provided,
however, that any such independent action by Lessee which cures a failure or
default by Manager hereunder shall be deemed for purposes of this Section 6.2 to
constitute a cure by Manager of such failure or default.
6.3 Termination by Manager.
----------------------
6.3.1 For Cause. Manager may terminate this Agreement for cause
---------
upon thirty (30) days prior written notice to Lessee and to Lender:
(I) in the event of the Bankruptcy of Lessee, or (ii) in the event Lessee
materially fails to perform any obligation required to be
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<PAGE>
performed by Lessee hereunder and does not cure, or cause to be cured (including
a cure by Lender), such failure within forty-five (45) days of the date of a
notice from Manager to Lessee and Lender demanding such cure (or within such
period of time as is reasonably necessary to accomplish such cure, if it cannot
be reasonably accomplished in said forty-five (45) day period and Lessee or
Lender diligently commences and continues such cure in such period).
Notwithstanding the cure period provided by the foregoing, Manager shall not be
required to continue performing the Services for the benefit of Lessee during
such a cure period if adequate funds are not available to Manager from the
Operating Account to perform the Services hereunder.
6.3.2 For Convenience. In the event neither Manager nor any
---------------
Affiliate of Manager continues to be a general partner of Lessor under the
Lease, Manager may terminate this Agreement for its convenience, without cause,
upon six (6) months advance written notice to Lessee; provided, however, that
such six (6) month period may be extended by Lessee for a reasonable additional
period (not to exceed an additional six (6) months) in the event such earlier
termination would materially adversely affect or inconvenience Lessee and Lessee
is diligently attempting to obtain a replacement or substitute for Manager.
6.4 Rights upon Termination. Upon any expiration or termination of this
-----------------------
Agreement, Manager shall deliver to Lessee at Lessee's principal place of
business all records, documents, accounts, files and other materials of Lessee
or pertaining to Lessee's business as Lessee may reasonably request. Lessee
shall assume and become liable for any contracts or obligations that Manager may
have undertaken with third parties in connection with the Services, and Manager
shall execute all documents and take all other reasonable steps requested by
Lessee which may be required to assign to and vest in Lessee all rights,
benefits, interests and titles in connection with such contracts or obligations.
Expiration or termination of this Agreement shall not relieve any party hereto
of liability which has accrued or arisen prior to the date of such expiration or
termination.
6.5 Termination Payment. In the event of a termination of this
-------------------
Agreement pursuant to Section 6.3.1, Manager shall be entitled, in addition to
all other amounts due hereunder as of the date of termination, to a cancellation
payment equal to all costs and expenses reasonably incurred by Manager as a
direct result of such termination, including all reasonable severance and
relocation costs incurred with respect to Manager's employees and any
cancellation costs incurred with respect to third parties. Such amounts shall be
due and payable by Lessee within fifteen (15) days of Manager's submission of an
invoice therefor.
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<PAGE>
--------------------------------
ARTICLE VII
INDEMNIFICATION
--------------------------------
7.1 By Manager. Manager shall indemnify, defend and hold harmless
----------
Lessee and its Affiliates, and all of their officers, directors, employees,
agents, partners, shareholders and representatives, from and against any and all
suits, actions, liabilities, investigations, legal proceedings, claims, demands,
losses, costs and expenses of whatsoever kind or character (including attorneys'
fees and expenses) arising out of any actions by Manager, its officers,
directors or employees which are outside the scope of Manager's authority under
this Agreement, or actions or failures to act of Manager, its officers,
directors or employees, which in each case constitute gross negligence or
willful misconduct.
7.2 By Lessee. Lessee shall indemnify, defend and hold harmless Manager
---------
and its Affiliates, and all of their officers, directors, employees, agents,
partners, shareholders and representatives, from and against any and all suits,
actions, liabilities, investigations, legal proceedings, claims, demands,
losses, costs and expenses of whatsoever kind or character (including attorneys'
fees and expenses) arising out of the acts (or failures to act) of Lessee or of
Manager, its officers, directors and employees within the scope of Manager's
authority under this Agreement; and Manager, its officers, directors and
employees shall not be liable to Lessee or any other party for any obligation,
liability, or commitment incurred by or on behalf of Lessee, its officers or
employees as a result of any such acts (or failures to act); provided, however,
that Manager, its officers, directors and employees shall not be entitled to
indemnification hereunder for any action, claim, demand, cost or liability
resulting solely from their gross negligence or willful misconduct.
7.3 Other Claims. Except as otherwise provided in Sections 7.1 and 7.2,
------------
any and all claims, damages or causes of action against Lessee asserted by
anyone other than Manager arising out of the design, construction, supervision,
operation, maintenance and administration of the Project that are not covered by
insurance maintained pursuant to the Transaction Documents shall be settled, or
litigated and defended by Manager on behalf of Lessee at Lessee's expense in
accordance with Manager's reasonable judgment and discretion.
7.4 Indemnification Notices. Whenever a party entitled to
-----------------------
indemnification under Sections 7.1 or 7.2 of this Agreement ( an "Indemnitee")
shall learn of a claim which, if allowed (whether voluntarily or by a judicial
or quasi-judicial tribunal or agency), would entitle such Indemnitee to
indemnification under Section 7.1 or 7.2 of this Agreement, before paying the
same or agreeing thereto, the Indemnitee shall promptly send a notice to the
party required to pay such
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<PAGE>
indemnification (the "Indemnitor") in writing of all material facts within the
Indemnitee's knowledge with respect to such claim and the amount thereof;
provided, however, that the Indemnitee's right to indemnification shall be
diminished by the failure to give prompt notice only to the extent that the
Indemnitee's failure to give such notice was prejudicial to the right of the
Indemnitor. If, prior to the expiration of fifteen (15) days from the giving of
such notice, the Indemnitor shall request, in writing, that such claim not be
paid, the Indemnitee shall not pay the same, provided that the Indemnitor
proceed promptly to settle or litigate, in good faith, such claim. The
Indemnitee shall have the right to participate in any such negotiation,
settlement or litigation. The Indemnitee shall not be required to refrain from
paying any claim which has matured by a court judgment or decree, unless an
appeal is duly taken therefrom and execution thereof has been stayed, nor shall
it be required to refrain from paying any claim where the delay to pay such
claim would result in the foreclosure of a lien upon any of the property or
assets then held by the Indemnitee, or where any delay in payment would cause
the Indemnitee an economic loss.
--------------------------------
ARTICLE VIII
LIABILITIES OF THE PARTIES
--------------------------------
8.1 Limitations of Liability. Notwithstanding any provision in this
------------------------
Agreement to the contrary, neither party hereto, nor Its Affiliates, nor any of
their officers, directors, employees, agents, shareholders, partners or
representatives shall be liable in connection with this Agreement or the
Services for any consequential or indirect loss or damage, including loss of
revenues, cost of capital, loss of goodwill, increased operating costs or any
other special or incidental damages. Except as expressly provided in Section
7.1, Manager shall have no liability hereunder to Lessee for damages or other
amounts in connection with a breach by Manager of this Agreement or a failure by
Manager to perform the Services in accordance with the terms and conditions
hereof or as a result of the Services performed by Manager pursuant to this
Agreement; and, except as otherwise expressly provided in this Section, the
parties agree that Lessee's only remedy for breach of this Agreement by Manager
shall be to terminate this Agreement pursuant to and in accordance with Article
VI. The parties further agree that the waivers and disclaimers of liability,
indemnities, releases from liability, and limitations on liability expressed in
this Agreement shall survive termination or expiration of this Agreement, and
shall apply whether in contract, equity, tort or otherwise, even in the event of
the fault, negligence, including sole negligence, strict liability, or breach of
the party indemnified, released or whose liabilities are limited, and shall
extend to the partners, principals, shareholders, directors, officers, employees
and agents of each party and its Affiliates.
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<PAGE>
8.2 No Warranties or Guarantees. EXCEPT AS EXPRESSLY PROVIDED IN THIS
---------------------------
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES OR GUARANTEES TO THE OTHER, EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO THE PROJECT OR ANY OTHER SUBJECT MATTER or
THIS AGREEMENT, AND BOTH PARTIES DISCLAIM AND WAIVE ANY IMPLIED WARRANTIES OR
WARRANTIES IMPOSED BY LAW.
--------------------------------
ARTICLE IX
MISCELLANEOUS PROVISIONS
--------------------------------
9.1 Documents. All Project materials and documents prepared or
---------
developed for Lessee by Manager or its Affiliates, employees, or representatives
in connection with the performance of the Services, including all records,
reports, and accounts, shall become, when prepared, the property of Lessor as
leased to Lessee pursuant to the Lease, and Manager shall not use such materials
and documents for any purpose other than the performance of the Services,
without Lessee's prior written approval. All such materials and documents,
together with any materials and documents furnished to Manager by Lessee, shall
be delivered to Lessee upon expiration or termination of this Agreement;
provided that Manager may retain copies for its own files. In the event Manager
wishes to dispose of such materials and documents prior to the expiration or
termination of this Agreement, Manager shall advise Lessee, and Lessee shall
designate to Manager a place for delivery of such materials to Lessee.
9.2 Assignment. This Agreement shall not be assignable by either party
----------
without the prior written consent of the other party hereto, which consent shall
not be unreasonably, except that: (i) this Agreement may be assigned without
such consent to Lender as security for Lender's financing of the Project; (ii)
this Agreement may be assigned by Lessor to Lessee without such consent; (iii)
this Agreement may be assigned without such consent to the successor of either
party, or to a person acquiring all or a controlling interest in the business
assets of such party or to a wholly-owned subsidiary of such party; and (iv)
this Agreement may be assigned by Manager to an Affiliate of Manager or of
Lessor without such consent; provided that any such assignment under (i) or
(iii) shall not relieve the assigning party of any of its obligations under this
Agreement. Manager agrees to execute any consent to assignment and such other
documents in connection with any assignment to the Lender as Lender may request.
Except with respect to the assignment permitted under clause (i) of this
Section, no assignment by either party of this Agreement for any purpose
whatsoever shall be valid until all obligations of the assignor hereunder shall
have been assumed by the assignee by written agreement delivered to the other
party. This Agreement shall be binding upon and inure to the benefit of the
parties
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<PAGE>
hereto and their successors and permitted assigns. Any assignment which
does not comply with the provisions of this Section 9.2 shall be null and void.
9.3 Independent Contractor. Manager shall be an independent contractor
----------------------
with respect to the performance of the Services hereunder. Neither Manager nor
its employees or other agents employed in the Services shall be deemed to be
agents of Lessee, except to the extent of the agency created hereunder pursuant
to the authority granted to Manager under Article II.
9.4 Force Majeure. A delay in or failure of performance hereunder by
-------------
either party shall be excused to the extent caused by Force Majeure, with the
exception of payment obligations. For purposes hereof, "Force Majeure" shall
mean occurrences beyond the reasonable control of the party affected, including
acts of God, changes of law, strikes, and labor disputes. The foregoing
provisions allowing a party to claim excuse due to Force Majeure shall not
relieve such party from using its best efforts to overcome or remove such Force
Majeure. A party claiming such failure or delay shall give prompt notice thereof
to the other party, together with a description of such efforts to overcome the
Force Majeure.
9.5 Amendments. No amendments or modifications of this Agreement shall
----------
be valid unless evidenced in writing and signed by duly authorized
representatives of both the parties.
9.6 Survival. Notwithstanding any provisions herein to the contrary,
--------
the provisions set forth in Articles VI, VII and VIII shall survive in full
force the expiration or termination of this Agreement.
9.7 Non Waiver. It is understood and agreed that any delay, waiver or
----------
omission by Lessee or Manager to exercise any right or power arising from any
breach or default by Lessee or Manager with respect to any of the terms,
provisions or covenants of this Agreement shall not be construed to be a waiver
by Lessee or Manager of any subsequent breach or default of the same or other
terms, provisions or covenants on the part of Lessee or Manager.
9.8 Notices. Any written notice, direction, instruction, request or
-------
other communication required or permitted under this Agreement shall be deemed
to have been duly given on the date of receipt, and shall be either served
personally or by telefacsimile to the party to whom notices is to be given, or
mailed to the party to whom notices is to be given, by first class registered or
certified mail, return receipt requested, postage prepaid, and addressed to the
addressee at the address stated opposite its name below, or at the most recent
address specified
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by written notice given to the other party in the manner provided in this
Section 9.8.
Lessor: Scrubgrass Generating Company, L.P.
7475 Wisconsin Avenue, Suite 1000
Bethesda, MD 20814-3422
Tel: (301) 913-5800
Fax: (301) 913-0025
Lessee: Buzzard Power Corporation
109 Union Stree
Manchester, Vermont 05254
Tel: (802) 362-4368
Fax: (802) 362-1100
Manager: PG&E-Bechtel Generating Company
7475 Wisconsin Avenue, Suite 1000
Bethesda, MD 20814-3422
Tel: (301) 913-5800
Fax: (301) 913-0025
9.9 Counterparts. The parties may execute this Agreement in two or more
------------
counterparts, which shall, in the aggregate, be signed by both the parties, and
each counterpart shall be deemed an original instrument as against any party who
has signed it.
9.10 Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Pennsylvania.
9.11 Partial Invalidity. If any term, provision, covenant, or condition
------------------
of this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the rest of this Agreement shall remain in full force
and effect and in no way be affected, impaired, or invalidated.
9.12 Captions: Table of Contents. Titles or captions of Sections and
---------------------------
Articles contained in this Agreement are inserted only as a matter of
convenience and for reference, and in no way define, limit, extend, describe or
otherwise affect the scope or meaning of this Agreement or the intent of any
provision hereof as though fully set forth herein.
9.13 Not for Benefit of Third Parties. Except as otherwise expressly
--------------------------------
provided herein, this Agreement and each and every provision thereof is for the
exclusive benefit of Lessor, Lessee and Manager and is not for the benefit of
any third party.
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<PAGE>
9.14 Disputes. The parties shall use their best efforts to resolve any
--------
disputes arising hereunder through consultation between the Lessee
Representative and the Manager Representative. In the event such individuals
cannot reach agreement within a reasonable period, not to exceed ten (10) days,
either party may refer the matter to the Advisory Committee for consideration at
a special meeting called in accordance with Section 4.2.3. The parties hereby
agree that they shall not take any further action, or invoke any further
remedies hereunder, in the event of a dispute without first submitting the
matter to the Advisory Committee in accordance with the foregoing and allowing
the Advisory Committee the opportunity to attempt to achieve a resolution.
9.15 Representations and Warranties. Each party represents and warrants
------------------------------
to the other party that: (i) such party has the full power and authority to
execute, deliver and perform this Agreement and to carry out the transactions
contemplated hereby; (ii) the execution and delivery of this Agreement by such
party and the carrying out by such party of the transactions contemplated hereby
have been duly authorized by all requisite corporate (or, if applicable,
partnership) action, and this Agreement has been duly executed and delivered by
such party and constitutes the legal, valid and binding obligation of such party
enforceable against such party in accordance with the terms hereof, subject, as
to the enforceability of remedies, to limitations imposed by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the enforcement of creditor's rights generally and to general
principles of equity; (iii) no authorization, consent, approval or order of,
notice to or registration, qualification, declaration of filing with, any
governmental authority, is required for the execution, delivery and performance
by such party of this Agreement or the carrying out by such party of the
transactions contemplated hereby, other than regulatory and similar approvals
needed with respect to the operation of the Project; and (iv) none of the
execution, delivery and performance by such party of this Agreement, the
compliance with the terms and provisions hereof, and the carrying out of the
transactions contemplated hereby, conflicts or will conflict with or result in a
breach of violation of any of the terms, conditions, or provisions of any law,
governmental rule or regulation or the charter documents (or partnership
agreement, if applicable) as amended or by-laws, as amended, of such party or
any applicable order, writ, injunction judgment or decree of any court or
governmental authority against such party or by which it or any of its
properties is bound, or any loan agreement indenture, mortgage, bond, note,
resolution, contract or other agreement or instrument to which such party is a
party or by which it or any of its properties is bound, or constitutes or will
constitute a default thereunder or will result in the imposition of any lien
upon any of its properties.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Management Services
Agreement through their duly authorized officers as of the date set forth in the
Preamble to this Agreement.
LESSOR:
SCRUBGRASS GENERATING COMPANY, L.P.,
a Delaware limited partnership
By: Falcon Power Corporation,
a general partner
By: /s/ John R. Cooper
-------------------------------------
Name: John R. Cooper
----------------------------------
Title: Attorney-in-Fact
---------------------------------
By: Pine Power Corporation,
a general partner
By: /s/ M. Richard Smith
------------------------------------
Name: M. Richard Smith
---------------------------------
Title: Vice President
--------------------------------
MANAGER:
PG&E-BECHTEL GENERATING COMPANY
By: /s/ John R. Cooper
------------------------------------
Name: John R. Cooper
---------------------------------
Title: Vice President
--------------------------------
AGREED TO AND ACCEPTED AS OF THIS 28th DAY OF DECEMBER, 1990:
LESSEE:
BUZZARD POWER CORPORATION
By: /s/ M. Richard Smith
------------------------------------
Name: M. Richard Smith
---------------------------------
Title: Vice President
--------------------------------
-22-
<PAGE>
EXHIBIT B
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT PLAN
---------------
FOR THE
-------
SCRUBGRASS COGENERATION PROJECT
-------------------------------
PG&E - BECHTEL GENERATING COMPANY
December 15, 1990
C:4499A
<PAGE>
SCRUBGRASS COGENERATION PROJECT
MANAGEMENT PLAN
---------------
Overview
- --------
The Scrubgrass Cogeneration Project ("Project") will be managed during
the operating period by a team of experienced professionals from PG&E-Bechtel
Generating Company (the "Manager") under the Management Services Agreement,
which will be assigned to the Project Lessee. During the construction period,
Manager also will provide Project management services, but such services will be
performed under a separate management arrangement directly with the Project
Lessor. The Project includes a bituminous waste coal-fired cogeneration plant
("Plant") with a net electrical output of approximately 80 megawatts, a 14.6
mile long 115 KV transmission line ("T-line") that connects the Plant with the
utility substation and a 12 acre glass enclosed greenhouse ("Greenhouse")
located adjacent to the Plant. The operation and maintenance ("O&M") of the
Plant will be provided by Bechtel Corporation ("Plant Operator") under a Plant
O&M contract with the Project Lessor, which will be assigned to the Project
Lessee. The Greenhouse will be leased to a greenhouse operator (the "Greenhouse
Operator") yet to be selected.
The professional management team will consist of a General Manager with
appropriate legal and accounting support personnel located at the Generating
Company headquarters in Bethesda and a Site Manager, Fuel Coordinator and
Project Accountant located at the Project site. The General Manager and the
legal and accounting support will not spend full time on the Project but they
will devote whatever time is needed to fulfill their Project roles. The Site
Manager, Fuel Coordinator and Project Accountant will be dedicated full time to
the Project.
Manager's responsibilities will include:
- Management team staffing
- Power purchase agreement contract administration
- Steam sales agreement and other greenhouse contract
administration
- O&M contract administration
- Waste coal supply contract administration
- Hauling contract administration
- Limestone supply contract administration
- Permit applications and renewals
- Administration of contracts dealing with waste removal
- Public relations and community affairs
- Financial reporting
B-l C:4499A
<PAGE>
Management Structure and Responsibilities
- -----------------------------------------
The General Manager will have management responsibility for the Project
and will report directly to the Project Lessee during the O&M phase. An
organizational chart depicting the management structure for the Project is given
on the following page.
The legal and accounting support personnel in Bethesda will report
directly to the General Manager and will be responsible for the legal matters
and financial reporting requirements of the Project.
On or before the Lease Commencement Date, Manager will assign a Site
Manager, a Fuel Coordinator and a Project Accountant as the permanent management
team representatives at the Project site. The Site Manager will be responsible
for overseeing all Project activities at the site and will report directly to
the General Manager. The Site Manager will be responsible for the day-to-day
management of the Plant Operator and all Project activities not included in the
scope of services of the Plant Operator and Greenhouse Operator, such as fuel
supply, limestone supply, ash disposal, waste removal, permit renewals and
community relations. In addition, the Site Manager will coordinate all Project
activities with the Plant Operator and Greenhouse Operator. The Fuel Coordinator
and Project Accountant will report directly to the Site Manager. The Fuel
Coordinator will be responsible for implementing and maintaining the fuel and
ash management plan. The Project Accountant will perform all the day-to-day
accounting and administrative functions of the Project.
The day-to-day management, operation, maintenance and repair of the
Plant will be the responsibility of the Plant Operator. The Plant Operator will
appoint a Plant O&M Manager who will be responsible for complete and proper
performance under the Plant O&M contract. The Plant O&M Manager will coordinate
the Plant O&M activities with the Site Manager but will report directly to the
General Manager.
The day-to-day management, operation, marketing and product sales of
the Greenhouse will be the responsibility of the Greenhouse Operator. The
Greenhouse Operator will appoint a Greenhouse Manager who will coordinate the
Greenhouse operations with the Site Manager.
Management Objectives
- ---------------------
The primary objective of managing the Plant Operator is to attempt to
ensure that the Plant is managed, operated, maintained and repaired in a safe,
reliable and efficient manner within the established budget and performance
targets. The budget and performance targets will be as established in the Plant
O&M contract. Conformance with the established targets will be the basis for any
bonuses (or penalties) paid to (or by) the Plant Operator. In addition to
reviewing and establishing
B-2
<PAGE>
targets for performance, the management team will be responsible for the
ultimate decisions concerning major maintenance and repair, capital
improvements, scheduling shutdowns and other activities outside the Plant
Operator's day-to-day responsibilities. Such decisions will be based on
recommendations of the Plant Operator and/or outside consultants if deemed
appropriate by the management team. The specific management responsibilities
with regard to the Greenhouse Operator are yet to be determined.
The Site Manager will work closely with the Plant O&M Manager and
Greenhouse Manager in coordinating all Project activities and in monitoring the
daily operation of the Plant and the Greenhouse. The Plant O&M Manager will be
responsible for the operation and maintenance of the Plant on a day-to-day basis
under the Plant O&M contract and all other applicable contracts, environmental
permits and other permits, codes and regulations. The Greenhouse Manager will be
responsible for the operation and maintenance of the Greenhouse. The Site
Manager will notify the Plant O&M Manager and the General Manager of any
deficiencies in the performance of the Plant Operator. The Site Manager will
advise the General Manager in matters related to Plant O&M, Greenhouse
operations and all other Project activities.
The management team will also manage all the Project activities for
which the Plant Operator and Greenhouse Operator are not directly responsible
and will coordinate these activities with the Plant Operator and Greenhouse
Operator. These activities include delivery of fuel and limestone to the Plant,
removal of ash and other solid wastes from the Plant, maintenance of the T-line,
keeping environmental and other permits and approvals current, conformance with
power purchase agreement and steam sales agreement requirements, community
relations, etc. Implementation and execution of the fuel and ash management plan
will be a responsibility of the management team and will be the focus of the
Fuel Coordinator.
Fuel and Ash Responsibilities
- -----------------------------
The bituminous waste coal to be burned in the Plant boilers will come
from a variety of off-site sources. Some run-of-mine coal may also, from time to
time, be blended with waste coal at the Plant and burned in the Plant boilers.
The ash from the Plant will be taken to several off-site disposal (reclamation)
areas. Because of the complexities involved with fuel supply and ash disposal, a
fuel and ash management plan will be implemented to provide maximum protection
against interruptions in fuel deliveries or delivery of unacceptable fuel and to
make proper arrangements for disposal of ash. The division of responsibility for
fuel occurs at the fuel receiving hopper (truck dump) of the Plant. The
Manager's management team, through the Site Manager, will be responsible for
monitoring delivery and unloading of acceptable fuel. Upon unloading into the
receiving hoppers, the blending, handling,
B-3
<PAGE>
storage, crushing and conveying of the fuel to the boilers will be the
responsibility of the Plant Operator. The Plant Operator is responsible for the
ash until it is loaded into the trucks, at which time it becomes the
responsibility of the Project.
Two types of bituminous waste fuel will be delivered to the plant:
coarse, lower moisture fuel and fine, higher moisture fuel. In order to qualify
as acceptable fuel, both types of fuel must conform with certain size, moisture
and grindability limits. In addition, the other properties of the fuels such as
sulfur content and heating value must be within a reasonable range such that, on
a blended basis, they fall within the "blended fuel range." Obtaining such a
"blended fuel range" shall be the responsibility of Manager. The size, moisture
and grindability limits as well as the "blended fuel range" specifications are
delineated in Exhibit E, Part II, Paragraph 4.3.2.1 of the Plant EPC contract.
Fuel Management Plan
- --------------------
Manager shall prepare a complete fuel management plan as part of the
final Management Plan to be furnished by Manager pursuant to Section 2.4 of the
Management Services Agreement. The purpose of the fuel management plan is to
obtain specified quantities of acceptable fuel for the Plant. This will be
accomplished by extensive testing and planning prior to the fuel being loaded
at the individual supply sites. The fuel management plan will be specifically
designed to attempt to prevent unacceptable fuel from being loaded into the fuel
trucks. In general, the fuel management plan will consist of a three step
program:
1. Testing and planning
2. Reclaim and loading
3. Transport and delivery
The testing and planning step is an important part of the fuel
management program. The Fuel Coordinator will identify certain reserves of
bituminous waste coal (both coarse and fine material) that appear to be
desirable fuel feedstock based on prior analyses and economic considerations.
Additional tests will then be performed on the designated reserves as deemed
appropriate by the Fuel Coordinator (and as described under Fuel Sampling and
Testing) to confirm the sulfur, moisture, ash and Btu content and the available
tonnage. Based on an evaluation of the prior and new data on the reserves, the
Fuel Coordinator will develop a plan and schedule for reclaim and delivery of
the material. At the Fuel Coordinator's discretion, a fuel consultant may be
used to assist in interpreting data and developing the plan and schedule. In
some cases where the reserves are part of an on-going operation, the testing
data on the reserves may be provided by the coal operator. In all cases,
however, the plan and schedule for reclaim and delivery will be developed by the
Fuel Coordinator. The Fuel Coordinator will take into account seasonal weather
considerations in developing the plan and schedule. During periods of high
moisture and/or freezing weather, it may be advisable to utilize only coarse
material to avoid the handling problems caused by excessively wet fine coal. A
minimum of two
B-4
<PAGE>
weeks of fuel will be tested and ready for loading at each of the fuel sites.
The reclaiming and loading of the fuel into the trucks will be
performed under the overall direction of the Fuel Coordinator. Most of the
reserves to be used are part of on-going coal operations and will be reclaimed
and loaded by the coal operator. In other cases where the reserves are not part
of an on-going operation, a contractor will be used to reclaim and load the
fuel.
The transport and delivery of the fuel will be provided by a hauling
contractor under the overall direction of the Fuel Coordinator. The Fuel
Coordinator will schedule the deliveries so that the proper quantities of coarse
and fine material are received at the Plant. An on-site truck scale will be used
to determine weights of fuel delivered.
On-site fuel weighing and sampling will be designed to be an unattended
operation. The details of the fuel hauling, receiving, sampling, testing, and
reporting operation will be developed later in the start-up phase of the
Project. Basically. the operation will include an automatic logging capability
for the receipt and sampling of fuel by truckload. For example, each truck
driver might have issued to him, at the start of the day's hauling, a magnetic
card that identifies the driver, the truck number, and the source of fuel to be
hauled. When the driver approaches the truck scale, he would insert the card
into a magnetic card reader, then drive onto the scale. The weight would be
logged onto a computer together with the information read from the magnetic card
and the current date and time. After unloading, the empty truck would be
re-weighed in similar fashion to determine the weight of fuel delivered. If the
truck hauls ash back, the truck would be re-weighed after being loaded with ash.
The sampling of each truckload of fuel will be logged and reported in a
manner similar to the fuel weighing. The samples will be taken from the truck
bed with an augering device at an automatic sampling station. The truck driver's
magnetic card will again serve to identify the source of the fuel. The automatic
sampling station will be designed to divert the samples to a different bin for
each fuel source. Periodically, at least once each day, the material in each bin
will be consolidated into smaller samples for laboratory testing.
Fuel Sampling and Testing
- -------------------------
The fuel for the Project includes a number of identified waste coal
sites which are in active production or have been abandoned. During the Project
construction phase, the abandoned waste coal piles will undergo a more extensive
sampling, drilling, and testing program by Lessor to augment the sampling and
testing already performed. The purpose of this program is to provide information
needed to finalize the fuel management plan. Tests to be performed will include
short proximate analyses, sieve analyses for determining size consistency, and
ultimate
B-5
<PAGE>
analyses of a portion of the samples. This testing will provide information
sufficient to accurately map the piles to permit efficient pile management
during the operation phase. Additional fuel sources may be identified during the
construction phase of the Project. These additional piles will also undergo
testing and may be included in the final fuel plan. Additional tests may be
performed by Lessor during the construction phase which may include flowability
tests, Hardgrove grindability tests and crushing tests to provide input data for
the final design and specification of fuel handling equipment.
During the operation phase, the Fuel Coordinator will continually
obtain fuel test data from all fuel sources in active production to confirm
expected quality for purposes of finalizing fuel planning. In general, short
proximate test data from each fuel source will be obtained at least every two
weeks and reported at least two weeks in advance of the uses of the fuel. Thus,
Manager will seek to maintain a two week tested reserve stockpile at each fuel
source. Loading of fuel into the trucks will be permitted only from the tested
reserve. Depending on the specific site, the actual sampling and testing will
either be performed by the fuel supplier or the loading contractor. Sampling and
testing responsibilities for each of the major fuel sources are briefly
described below.
Sky Haven - Sky Haven will have the responsibility to perform both
---------
sampling and testing of the two week tested reserve under its Waste Disposal
Agreement. Test results are required to be received by the Fuel Coordinator at
least two weeks prior to use of the fuel.
Leechburg - Sampling, testing and loading of the Leechburg fuel will be
---------
the responsibility of the loading contractor under the supervision of the Fuel
Coordinator.
Benjamin - Sampling, testing and loading of the Benjamin fuel will be
--------
the responsibility of the loading contractor under the supervision of the Fuel
Coordinator.
Canterbury - Loading of fuel at Canterbury Pile Number 5 will be the
----------
responsibility of Canterbury. Canterbury will provide the Fuel Coordinator with
a removal plan that indicates the sequence of fuel removal from the pile.
Sampling and testing of the pile will be performed by a professional testing
laboratory under contract with the Lessee. The lab consultant will have full
access to the pile to perform the sampling and testing operations. Sampling and
testing will be performed ahead of the loading operation to confirm the expected
fuel quality. The Fuel Coordinator also has the option to load fuel from the
Canterbury refuse bin, located adjacent to the coal washing plant and prior to
Pile Number 5. The lab consultant will have access to the refuse belt and bin to
allow testing prior to loadout from the bin. The decision to load from the
refuse bin will be made based on the results of recent testing, coordination
with the washing plant operator, and observations of the field fuel consultant.
B-6
<PAGE>
Ash Disposal
- ------------
The Pennsylvania Department of Environmental Resources (DER) has
granted the Project a Beneficial Use Designation for its ash, which permits it
to be used as a substitute for high pH lime in mine reclamation.
Ash will be returned to the fuel sites on a backhaul basis by the
hauling contractor. Any ash not returned to fuel sites will be brought to
alternate ash disposal sites by the hauling contractor. Approximately 70 to 75
percent of the ash is expected to be returned to the fuel sites. The remaining
25 to 30 percent of the ash is expected to be disposed of at alternate sites.
The hauling contractor will deliver ash to the alternate sites while en-route to
the fuel site, with payment on a per-mile basis for any increase in return
mileage. Management of the ash disposal operation will be performed by the Fuel
Coordinator.
B-7
<PAGE>
Preliminary Estimated Budget for Project Management
(in 1990 dollars)
<TABLE>
Management Costs (Section 5.1 of Agreement): ($000)
-------------------------------------------- ------
<S> <C>
General Manager (Bethesda) 75
Legal and Accounting Support (Bethesda) 35
Site Manager (Site) 90
Fuel Manager (Site) 70
Project Accountant (Site) 50
Secretary/Clerk 30
-----
350
Other Lessee Costs (Section 5.3 of Agreement):
----------------------------------------------
Fuel Testing and Consultants 100
Miscellaneous Expenses 50
-----
150
Total Estimated Annual Budget 500
-----
</TABLE>
B-8
<PAGE>
Exhibit 10.61
AGREEMENT
FOR
OPERATION AND MAINTENANCE
OF THE
SCRUBGRASS COGENERATION PLANT
BETWEEN
SCRUBGRASS GENERATING COMPANY, L.P.
AND
BECHTEL POWER CORPORATION
DATED AS OF DECEMBER 21, 1990
<PAGE>
TABLE OF CONTENTS
------------------
ARTICLE I DEFINITIONS ..............................................1
ARTICLE II CONTRACT DOCUMENTS .......................................6
2.1 Documents Included .......................................6
ARTICLE III DESIGNATION OF OPERATOR ..................................6
3.1 Engagement of Operator ...................................6
3.2 Control of Facility ......................................7
3.3 Responsibilities Prior to Facility Turnover ..............7
3.4 Preoperational Phase-In Plan .............................8
3.5 Access and Independent Engineer ..........................8
ARTICLE IV TERM .....................................................9
4.1 Term .....................................................9
4.2 Facility Return at End of Term ...........................9
4.3 Subsequent Operator Training .............................9
ARTICLE V COMPENSATION AND PAYMENT... .............................10
ARTICLE VI OWNER FURNISHED SUPPLIES, SERVICES
AND MATERIALS ...........................................10
6.1 Fuel ....................................................10
6.2 Limestone ...............................................10
6.3 Intake and Discharge Water ..............................10
6.4 Steam and Condensate ....................................10
6.5 Initial Inventory .......................................10
6.6 Electricity .............................................10
6.7 Mobile Equipment ........................................11
6.8 Ash and Waste Products ..................................11
6.9 Fuel Oil ................................................11
ARTICLE VII OPERATING PERSONNEL AND USE OF
SUBCONTRACTORS ..........................................11
7.1 Operator's Employees ....................................11
7.2 Operator's Professional and Managerial Personnel ........11
7.3 Confidentiality .........................................11
<PAGE>
7.4 Subcontractors ..........................................12
ARTICLE VIII LIABILITY ...............................................12
8.1 Performance of Services .................................12
8.2 Liability for Loss or Damage ............................13
8.3 Target Budget Overruns ..................................13
8.4 Operator Total Annual Aggregate Liability ...............13
8.5 Disclaimer ..............................................13
8.6 Applicability of Liability Limitation ...................13
8.7 Consequential Damages ...................................14
ARTICLE IX INSURANCE ...............................................14
9.1 Operator Insurance ......................................14
9.2 Owner Insurance .........................................14
9.3 Form and Content ........................................15
.
ARTICLE X TERMINATION .............................................16
10.1 Termination by Either Party Due to Bankruptcy ...........16
10.2 Termination by Operator .................................17
10.3 Termination Fee In the Event of Operator Termination ....17
10.4 Termination by Owner ....................................17
10.5 Strike by Operator's Personnel ..........................18
10.6 Facility Viability ......................................18
10.7 Proration ...............................................18
ARTICLE XI OPERATING PLAN AND OPERATOR'S BUDGET ....................18
11.1 Operating Plan and Operator's Budget ....................18
11.2 Contingency .............................................20
11.3 Operator's Budget Committee .............................20
11.4 Overruns ................................................21
11.5 Significant Orders or Service Contracts .................21
ARTICLE XII RECORDS AND REPORTING ...................................21
12.1 Accounting ..............................................21
12.2 Monthly Reports .........................................21
12.3 Annual Report ...........................................22
12.4 Operating Records .......................................22
12.5 Technical Records .......................................23
12.6 Governmental Permits ....................................23
12.7 Reports Requested by Owner ..............................23
<PAGE>
ARTICLE XIII PROCUREMENT OF SUPPLIES, SERVICES,
MATERIALS AND SPARE PARTS ...............................23
13.1 Procurement .............................................23
13.2 Inventory ...............................................23
13.3 Inspection ..............................................24
13.4 Storage .................................................24
13.5 Physical Inventory ......................................24
ARTICLE XIV GENERAL .................................................24
14.1 Notice ..................................................24
14.2 Successors and Assigns ..................................24
14.3 Dispute Resolution ......................................25
14.4 Invalid Provisions ......................................25
14.5 Publicity ...............................................25
14.6 Changed Conditions ......................................26
14.7 Environmental Liability .................................26
14.8 Counterparts ............................................26
14.9 Force Majeure ...........................................27
14.10 Independent Contractor ..................................27
14.11 Operator's Indemnity ....................................27
14.12 Indemnification for Fines and Penalties .................27
14.13 Owner's Indemnity .......................................28
14.14 Amendments and Waivers ..................................28
14.15 Governing Law ...........................................28
14.16 Survival ................................................28
<PAGE>
EXHIBITS
Exhibit A - Services
Exhibit B - Compensation and Payment
Exhibit C - Preoperational Phase-In Plan
Exhibit D - Acceptable Fuel
Exhibit E - Acceptable Limestone
Exhibit F - Permits, Licenses and other Governmental Approvals
Exhibit G - Preliminary Estimate of O&M Budget
Exhibit H - Form of Promissory Note
<PAGE>
OPERATION AND MAINTENANCE AGREEMENT
THIS OPERATION AND MAINTENANCE AGREEMENT ("Agreement") is made and entered
into as of the 21st day of December, 1990 by and between Bechtel Power
Corporation ("Operator") and Scrubgrass Generating Company, L.P. ("Owner").
PREMISES
--------
WHEREAS, Owner and Bechtel Power Corporation, a Nevada corporation
("Contractor"), have entered into an Engineering, Procurement, and Construction
Contract (the "Construction Contract") pursuant to which Contractor 511 serve as
the Contractor in the design and construction of an approximately 80 MW (net)
cogeneration facility (the "Facility") to be built in Scrubgrass Township near
Kennerdell, Pennsylvania; and
WHEREAS, Owner has entered into a Power Purchase Agreement with
Pennsylvania Electric Company ("Penelec") dated as of August 7, 1987, as may be
amended from time to time (the "Power Purchase Agreement"), pursuant to which
Owner shall sell to Penelec electrical energy generated by the Facility; and
WHEREAS, Owner will cause to be constructed an approximately twelve acre
glass enclosed greenhouse ("Greenhouse") adjacent to the Facility; and
WHEREAS, Owner will enter into a Steam Purchase and Sale Contract (the
"Steam Sales Agreement"), with a company experienced in greenhouse operations
(the "Greenhouse Operator") who will undertake the operation of the Greenhouse,
pursuant to which Steam Sales Agreement Owner shall supply the Greenhouse steam
requirements; and
WHEREAS, Owner desires the services of an operator to provide operation and
maintenance services for the Facility; and
WHEREAS, Operator desires to provide operation and maintenance services for
the Facility in accordance with the terms and conditions stated herein;
NOW, THEREFORE, in consideration of the above stated premises and the
mutual covenants and agreements contained herein, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
-----------
Unless indicated otherwise herein and unless the context otherwise
requires, the capitalized terms in this Agreement shall have the meanings
specified in this Article I. The plural and the singular shall each include the
other, as the context requires.
<PAGE>
-2-
Acceptable Fuel. Bituminous waste fuel (known as gob) which meets the
---------------
requirements set forth in Exhibit D attached hereto and made a part hereof
Acceptable Limestone. Limestone which meets the requirements set forth in
--------------------
Exhibit E attached hereto and made a part hereof.
Affiliate. Affiliate shall be defined as in Appendix I to the Participation
---------
Agreement and shall include more particularly the partnership or other entity
created by Operator and PG&E Operating Services Company to operate the Facility.
Agent. Agent shall be defined as in the Preamble to the Reimbursement and
-----
Loan Agreement.
Base Fee. The Base fee shall be as defined in Section 2 of Exhibit B,
--------
hereto.
Bonus Fee. The Bonus Fee shall be as defined in Section 2 of Exhibit B,
---------
hereto.
Calendar Year. The period from January 1 through December 31.
-------------
Construction Contract. The contract entered into by and between Owner and
---------------------
Contractor, dated as of December 21, 1990, as may be amended from time to time,
for engineering, procurement and construction of the Facility.
Contract Year. The Calendar Year (or portion thereof).
-------------
Contractor. Bechtel Power Corporation.
----------
Disbursement and Security Agreement. The disbursement and security
-----------------------------------
amendment among Scrubgrass Generating Company, L.P., as Lessor, Buzzard Power
Corporation, as Lessee, Bankers Trust Company as Disbursement Agent, and
National Westminster Bank, PLC, as Agent, dated as of December 15,1990.
Employee Incentive Payment. Employee Incentive Payment shall be defined as
--------------------------
in Section 2 of Exhibit B, hereto.
Employee Safety Bonus. Employee Safety Bonus shall be defined as in Section
---------------------
2 of Exhibit B, hereto.
Facility. Facility shall be as defined in Appendix I to the Participation
--------
Agreement.
Facility Site. Facility Site shall be as defined in Appendix I to the
-------------
Participation Agreement.
<PAGE>
-3-
Facility Site Boundary. The boundary of that portion of the Site on which
----------------------
the Facility is located.
Facility Turnover. Facility Turnover shall be defined as the term
-----------------
"Turnover" in Section 13.5 of the Construction Contract.
Final Completion. Final Completion shall be as defined in Section 13.6 of
----------------
the Construction Contract.
Force Majeure. Any event beyond the reasonable control of the affected
-------------
party (other than the failure to make a payment hereunder), including, without
limitation, flood, lightening, fire, explosion, war, riot, civil disturbances,
strikes or other labor action, whether or not at the Facility, nuclear emergency
or similar cataclysmic event, or changes of law with materially adverse
financial impact.
Greenhouse. Greenhouse shall be defined as in Appendix I to the
----------
Participation Agreement.
Greenhouse Operator. Greenhouse Operator shall be defined as in Appendix I
-------------------
to the Participation Agreement.
Greenhouse Site. Greenhouse Site shall be defined as in Appendix I to the
---------------
Participation Agreement.
Independent Engineer. Independent Engineer shall be defined as in Article I
--------------------
to the Reimbursement and Loan Agreement.
Lender. The bank or other financial institution providing construction and
------
permanent financing for the Facility.
Lessee. Lessee shall be defined as in Appendix I to the Participation
------
Agreement.
Lessor. Lessor shall be defined as in Appendix I to the Participation
------
Agreement.
Majority Banks. Majority Banks shall be defined as in Article I to the
--------------
Reimbursement and Loan Agreement.
Manager. Manager shall be defined as set forth in Section 3.1 of this
-------
Agreement.
Major Maintenance. The term "Major Maintenance" shall mean (x) repair or
-----------------
refurbishment of equipment, the failure of which results in forced outages, or
(y) other
<PAGE>
-4-
events or activities of repair or refurbishment of equipment which require
services, expertise or capabilities beyond that of the Operator's regularly
assigned staff.
Major Overhaul. shall mean the complete disassembly and overhaul of the
--------------
turbine-generator as recommended by the turbine-generator supplier and scheduled
to occur at approximately five- to six-year intervals.
Net Total Capacity Factor. The term "Net Total Capacity Factor" shall be
-------------------------
defined as set forth in Section 4 of Exhibit B, hereto.
Operator. Operator shall be defined as set forth in the Preamble hereof.
--------
Operator's Budget. The annual Budget to be prepared by Operator in
-----------------
accordance with Article XI and the accompanying Operating Plan each year, as it
may be adjusted pursuant to the provisions of this Agreement, setting forth
estimates of Recoverable Costs anticipated in connection with Operator's
responsibilities hereunder for the Operator's Budget Year.
Operator's Budget Year. The calendar Year, unless otherwise mutually
----------------------
agreed.
Operator's Fees. The Base Fee, Bonus Fee, Employee Incentive Payment and
---------------
Employee Safety Bonus, all as specified in Exhibit B attached hereto and made a
part hereof.
Operating Plan. The plan Operator prepares in accordance with Article XI of
--------------
this Agreement.
O&M Manual. The Facility operations and maintenance manual prepared by
----------
Operator and approved by Owner and Lender's Independent Engineer as described in
Exhibit A attached hereto and which description is made a part hereof, together
with the documents and schedules described therein or required thereunder.
Owner. Owner shall be defined as set forth in the Preamble hereof.
-----
Owner's Representative. Owner's designated representative, as set forth in
----------------------
Section 3.1, who shall be responsible for coordinating with Operator as required
hereunder.
Participation Agreement. The Participation Agreement shall be defined as in
-----------------------
Appendix I to the Participation Agreement by and among the Venango County
Development Authority, National Westminster Bank PLC, Owner, Lessor and Lessee
dated as of December 15, 1990.
<PAGE>
-5-
Performance Tests. The term Performance Tests" shall have the meaning set
-----------------
forth in Section 13.2 and Section 8.1 of Part I of the Construction Contract.
Plant Manager. Operator's senior on-site supervisor, with overall
-------------
responsibility for directing operation and maintenance Of the Facility.
Power Purchase Agreement. Power Purchase Agreement shall be defined as in
------------------------
Appendix I to the Participation Agreement.
Preoperational Phase-In. Prior to Substantial Completion, the mobilization
-----------------------
of Operator, home office support, and commissioning and start up of the Facility
by the Contractor, with the assistance of Operator under the Contractor's
direction.
Preoperational Phase-In Budget. The phase-In budget Operator prepares in
------------------------------
accordance with Article XI.
Preoperational Phase-In Plan. The phase-in plan Operator prepares in
----------------------------
accordance with Article XI.
Project Revenues. Project Revenues shall be defined as in Article I of the
----------------
Reimbursement and Loan Agreement.
PURPA. Public Utility Regulatory Policies Act of 1978 and the regulations
-----
promulgated thereunder, as amended from time to time.
Recoverable Costs. All direct costs incurred by Operator in operating and
-----------------
maintaining the Facility and otherwise in performing its obligations hereunder,
as described in Exhibit B, attached hereto and made a part hereof.
Reimbursement and Loan Agreement. The reimbursement and loan agreement
--------------------------------
dated as of December 15,1990, by and among Scrubgrass Generating Company, I--P-,
National Westminster Bank PLC, acting through its New York Branch' and the Banks
listed on Schedule I thereto.
Reserved Areas. Reserved Areas shall be as defined in Appendix I to the
--------------
Participation Agreement.
Services. The operation, maintenance, administration and management
--------
services, and other duties and obligations of Operator hereunder and as set
forth in Exhibit A attached hereto and made a part hereof.
Site. Site shall be as defined in Appendix I to the Participation
----
Agreement.
*** Planned Outage. Outages and scheduled extensions of planned outages as
--------------
approved by Owner, which approval shall not be unreasonably withheld or delayed,
where the removal of a unit from service to perform work on specific components
is scheduled well in advance with a predetermined duration (e.g., annual
overhaul, inspections, testing).
<PAGE>
-6-
Site Boundary. The boundary of the parcel of real property described in
-------------
Exhibit B to the Lease, including the Facility Site, the Greenhouse Site and the
Reserved Areas.
Steam Sales Agreement. Steam Sales Agreement shall be defined as in
---------------------
Appendix I to the Participation Agreement which shall incorporate the material
terms of such Agreement set forth in the Greenhouse business plan.
Target Budget. That portion of the Operator's Budget subject to overrun or
-------------
underrun determination, as set forth in Section 5 of Exhibit B.
ARTICLE II
CONTRACT DOCUMENTS
------------------
2.1 Documents Included. This Agreement shall include the documents listed
------------------
below, which are hereby incorporated herein by reference. The exhibits listed
below shall be governed by the general terms and conditions hereof.
Exhibit A Services
Exhibit B Compensation and Payment
Exhibit C Preoperational Phase-In Plan
Exhibit D Acceptable Fuel
Exhibit E Acceptable Limestone
Exhibit F Permits, Licenses and other Governmental Approvals
Exhibit G Preliminary Estimate of O&M Budget
Exhibit H Form of Promissory Note
ARTICLE III
DESIGNATION OF OPERATOR
-----------------------
3.1 Engagement of Operator. Owner hereby engages Operator to operate and
----------------------
maintain the Facility and to perform certain other duties as set forth herein.
Operator accepts such engagement and agrees to perform the Services in
accordance with the
<PAGE>
-7-
premises, terms, and conditions of this Agreement. Operator shall, when
requested to or when otherwise necessary hereunder, consult with and report to
the Owner's Representative. The Owner's Representative will have authority to
speak on behalf of Owner and bind the Owner on matters which may arise under
this Agreement, provided, that the Owner's Representative is not authorized to
revise or amend this Agreement and his authority will be subject to other
reasonable limitations communicated by Owner to Operator. Operator acknowledges
that Owner has retained PG&E-Bechtel Generating Company (the "Manager"), a
California general partnership, to manage the Facility as more fully set forth
in the Management Services Agreement by and between Scrubgrass Generating
Company, L.P. and PG&E-Bechtel Generating Company dated as of December 15, 1990,
and that in accordance with the terms and conditions of such Management Services
Agreement, Manager shall have full authority to act under this Agreement on
behalf of Owner.
3.2 Control of Facility. Subject to certain continuing obligations of
-------------------
Contractor under the Construction Contract and unless specified otherwise
herein, Operator shall have care, custody and control of the Facility after
Facility Turnover, and shall be responsible for and shall coordinate operation
and maintenance activities of the Facility within the Facility Site Boundary.
Operator shall perform the operation, maintenance, and technical support
services necessary to operate and maintain the Facility in accordance with good
business practices so as to optimize revenues for Owner, good engineering
practices, good operating practices, good maintenance practices, and prudent
electrical and safety practices, for similar machinery and equipment in similar
service. Operator shall, among other things, perform the Services described in
Exhibit A and comply in all material respects with the approved O&M Manual, as
described in Exhibit A. Operator expressly acknowledges and agrees that it will
review and be fully familiar with the requirements of the Power Purchase
Agreement, the Steam Sales Agreement term sheet, and all of the licenses,
permits and governmental approvals set forth in Exhibit F, hereto, and that it
will operate the Facility in accordance with all of the requirements of the
foregoing agreements, permits and approvals, as such requirements are set forth
in the O&M Manual.
3.3 Responsibilities Prior to Facility Turnover. Under the terms of the
-------------------------------------------
Construction Contract, Contractor will perform all start-up and testing of the
Facility until Facility Turnover. Until Facility Turnover, Operator, in
accordance with this Agreement and the Preoperational Phase-In Plan, shall be on
the Facility site to support the operation and maintenance of the Facility and
shall be under the supervision and control of Contractor. Operator shall also
perform any duties (as described hereunder and in the Preoperational Phase-In
Plan) which are consistent with its transition role as observer and trainee in
order to complete all preparation and implementation necessary to assume full
control and operation of the Facility after Facility Turnover. At such time as
Owner takes possession and control of the Facility under Section 13.5 of the
Construction Contract, Owner shall immediately transfer overall operating and
maintenance responsibility of the Facility from the Contractor to the Operator.
Operator shall thereafter operate and
<PAGE>
-8-
maintain the Facility, subject to certain specified activities (set forth in the
Construction Contract) to be conducted by Contractor. Following Facility
Turnover, Contractor shall coordinate any warranty or remedial work, including
punch list completion activities to be performed by the Contractor, with
Operator's Plant Manager.
3.4 Preoperational Phase-In Plan. The Preoperational Phase-In Plan
----------------------------
attached hereto as Exhibit C sets forth the duties and responsibilities of
Operator prior to Facility Turnover. The Preoperational Phase-In Plan is
intended to be consistent with the Construction Contract and serves as a guide
for the Operator's increasing instruction by and assistance to the Contractor as
Facility Turnover approaches, and coordinates the division of responsibility
between Operator under this Agreement and Contractor under the Construction
Contract. The Operator's on-site activities shall commence upon the date set
forth in the Preoperational Phase-In Plan approved by the Owner in advance of
its implementation. Operator may revise the Preoperational Phase-In Plan as
necessary during the design and construction of the Facility, which revisions
must be submitted to Owner for its approval, and which approval shall not be
unreasonably withheld or delayed. The Preoperational Phase-In Plan consists of
the following three components:
(i) A staffing plan (including labor budget) setting forth, on a monthly
basis from the date on which the Preoperational Phase-In Plan
commences until Facility Turnover, the position, number, and labor
costs of Operator staffing. The staffing plan shall be agreed to by
Owner in advance and shall be subject to Owner's approval prior to
implementation by Operator. The staff plan shall be subject to
periodic revision and all revisions requested by Operator shall
first be approved by Owner.
(ii) An activity task schedule setting forth the tasks to be accomplished
by Operator during Preoperational Phase-In and identifying
Contractor's participation in certain tasks as set forth in the
Construction Contract.
(iii) An activity task narrative summary of the tasks identified in the
activity task schedule, as set forth in reasonable detail,
describing the specific tasks and, as appropriate, delineating the
duties of Operator and Contractor, respectively.
3.5 Access and Independent Engineer. During Preoperational Phase-In, Owner
-------------------------------
and any person or entity designated by Owner (including any representatives of
Lender providing financing for the Facility) shall have access to the Facility
in accordance with Section 14.0 of the Construction Contract. After Facility
Turnover and at any time thereafter, Owner and any person or entity designated
by Owner (including any representative of a Lender providing financing for the
Facility) shall have access to all
<PAGE>
-9-
portions of the Facility for monitoring, inspection, or any other reasonable
purpose. Owner or Lender may, at its sole election and expense, engage the
services of an Independent Engineer to observe Operator's performance hereunder.
Operator shall cooperate with all reasonable requests by any such engineer,
including, without limitation, requests to review all operating records, logs
and any other Facility-related information. All persons on-site shall exercise
reasonable efforts not to disrupt operations and shall comply with Operator's
safety and security procedures.
ARTICLE IV
TERM
----
4.1 Term. The term of this Agreement shall commence on the date of
----
execution hereof, and shall continue for fifteen (15) Calendar Years, commencing
on January 1 of the Calendar Year following the year in which Facility Turnover
is achieved (the "Initial Term") This Agreement shall be automatically extended
for additional five year terms following the Initial Term ("Subsequent Term")
and at the end of each Subsequent Term thereafter, unless either party
terminates this Agreement by delivering to the other party a termination notice
no later than one hundred eighty (180) days before the conclusion of the Initial
or Subsequent Term, as appropriate.
4.2 Facility Return at End of Term. Upon expiration of the term under
-------------------------------
Section 4.1 or termination under Article X of this Agreement or otherwise,
Operator shall leave in place all existing spare parts, supplies, oil, grease,
chemicals, tools, special tools, improvements, safety equipment, the O&M Manual,
all other operating and maintenance procedures and manuals, and all other items:
(i) provided under the Construction Contract; (ii) purchased by Owner or at
Owner's expense; or (iii) obtained by Operator and paid for by Owner during the
term of this Agreement when the cost of such item has been included in the
Operator's Budget. All such items shall become or remain the property of Owner
without additional charge.
4.3 Subsequent Operator Training. For a reasonable period (not to be less
----------------------------
than three months) prior to the expiration of this Agreement, or longer, if
mutually agreed to by the parties, the Operator will train the personnel of the
subsequent Facility operator as part of the Services; it being understood that
such training shall be a Recoverable Cost and shall be conducted at the Facility
by Operator's regular personnel. In the event that Operator's training of the
personnel of a subsequent Facility operator should extend beyond the term of
this Agreement, Operator shall receive as compensation therefor the Recoverable
Costs incurred by Operator, plus a reasonable fee to be mutually agreed by Owner
and Operator. Operator shall have no liability for the acts or omissions of the
subsequent Facility operator, its officers, employees or agents.
<PAGE>
-10-
ARTICLE V
COMPENSATION AND PAYMENT
------------------------
For the performance of all Services and as compensation for all duties and
obligations incurred hereunder, including the preparation of and activities
undertaken pursuant to the Pre-Operational Phase-in Plan, Owner shall pay to
Operator, in the manner and at the times herein specified, the Recoverable
Costs, the Base Fee, the Bonus Fee and the Employee Incentive Payment and the
Employee Safety Bonus. Recoverable Costs shall accrue and be payable from the
effective date of this Agreement and as set forth in Section 1.4 of Exhibit B;
the Base Fee shall accrue and be payable following Facility Turnover and as set
forth in Section 2.1 of Exhibit B; the Bonus Fee, Employee Incentive Payment,
and Employee Safety Bonus (if any) shall accrue following Final Completion and
be payable in accordance with Sections 2.2, 2.3 and 2.4, respectively, of
Exhibit B.
ARTICLE VI
OWNER FURNISHED SUPPLIES SERVICES, AND MATERIALS
------------------------------------------------
6.1 Fuel. Owner will furnish Acceptable Fuel as specified in Exhibit D.
----
Acceptable Fuel will be delivered to the Facility by truck and unloaded into the
receiving hoppers.
6.2 Limestone. Owner will arrange the delivery and unloading at the
---------
Facility Site of Acceptable Limestone as specified in Exhibit E.
6.3 Intake and Discharge Water. Owner will provide permits authorizing
--------------------------
Operator to withdraw intake water from the river and discharge waste water into
the river. Owner will accept all Facility discharge water at the Site Boundary.
Such discharge water shall be delivered by Operator to the Site Boundary in
accordance with procedures approved by Owner and such discharge water shall
conform to specifications approved by Owner, including all applicable
environmental permits.
6.4 Steam and Condensate. Owner shall be responsible for arranging the
--------------------
delivery of steam to the Greenhouse and the return of condensate to the
Facility. The steam delivery point and condensate return point shall be at or
within the Facility Site Boundary.
6.5 Initial Inventory. Owner will furnish an initial inventory of spare
-----------------
parts, special tools, and office materials and furnishing. Such office materials
and furnishing shall be at an aggregate cost not to exceed $250,000.
6.6 Electricity. Owner will furnish electricity for the Facility, including
-----------
the 115 KV transmission line that connects the Facility to the Eclipse
substation of Penelec.
<PAGE>
-11-
6.7 Mobile Equipment. Owner will furnish the necessary portable mobile
----------------
equipment for operation and maintenance of the Facility, including a site
vehicle if required.
6.8 Ash and Waste Products. Owner will arrange for and be solely
----------------------
responsible for the removal and disposal of ash from the Facility. Owner will
accept such ash at the outlet of the ash silo. Owner will accept at the Site
Boundary all waste products (including, without limitation, hazardous waste
products) and hazardous materials generated or used at the Facility. Owner
shall, by contract, agreement or otherwise, arrange for all offsite transport,
treatment and/or disposal of hazardous waste products and/or hazardous materials
involved in operation of the Facility.
6.9 Fuel Oil. Owner will purchase and arrange for delivery to the Facility
--------
all necessary fuel oil.
ARTICLE VII
OPERATING PERSONNEL AND USE OF SUBCONTRACTORS
---------------------------------------------
7.1 Operator's Employees. Operator shall designate a Plant Manager, who
--------------------
shall have authority to speak on behalf of Operator and bind Operator on matters
which may arise under this Agreement; provided, however, that the Plant Manager
will not have authority to revise or amend this Agreement and his authority will
be subject to other reasonable limitations communicated by Operator to Owner.
All personnel engaged in operating and maintaining the Facility hereunder shall
be employees of Operator and/or Affiliates and shall be sufficiently skilled in
and qualified to perform competently the tasks and duties assigned. Such
personnel shall meet the job qualifications set forth in the approved O&M
Manual.
7.2 Operator's Professional and Managerial Personnel. Operator shall make
------------------------------------------------
available such professional and managerial personnel as are necessary to consult
with the Plant Manager and to provide supervision of the operations of the
Facility. Managers, consultants and technical specialists from Operator or its
Affiliates who are not regularly assigned to the Facility shall be assigned for
a period not greater than seven consecutive days, unless approved within the
Operator's Budget or as otherwise specifically approved by the Owner, which
approval shall not be unreasonably withheld or delayed.
7.3 Confidentiality. During the term of this Agreement, or until this
---------------
Agreement is terminated pursuant to Article X hereof, whichever occurs first,
and for a three (3) year period thereafter, each party agrees not to divulge to
third parties (without the written consent of the other party) any information
designated as confidential in writing by the other party relating to the
performance of this Agreement or concerning the operations or business of a
party, and its Affiliates, unless: (i) the information was known to the party
prior to it being obtained from the other party hereunder; (ii) the information
is at the time
<PAGE>
-12-
of receipt by the party then in the public domain, or subsequently becomes part
of the public domain by publication or otherwise, except by the party's wrongful
acts; or (iii) the information is obtained by the party from a third party who
bas no obligation of secrecy to the other party. Notwithstanding the foregoing,
information may be divulged to any Lender providing financing for the Facility
or to its Independent Engineer, provided that such information is designated as
confidential in writing at the time it is disclosed and such Lenders and
Independent Engineer agree to be bound by the requirements of this provision.
7.4 Subcontractors.
--------------
7.4.1 General. Operator may subcontract, with Owner's prior written
-------
approval, any portion of the Services to be performed under this
Agreement; provided, that, no such approval shall be required if the
subcontracted work has previously been approved in the applicable
Operator's Budget. Operator shall submit to Owner for prior approval
all plans, schedules, and cost breakdowns for subcontracted work in
excess of twenty-five thousand dollars ($25,000) per occurrence.
Owner's approval hereunder shall not be unreasonably withheld or
delayed.
7.4.2 Affiliates. Notwithstanding Section 7.4.1, Operator may
----------
subcontract the Services in whole or in part to its Affiliates without
the prior approval of Owner. Operator hereby guarantees to Owner
compliance by such Affiliates with the responsibilities and
liabilities herein assumed by Operator; provided, that, the
limitations on Operator's liability set forth in this Agreement
constitute the aggregate limit of liability of Operator and its
Affiliates to Owner.
ARTICLE VIII
LIABILITY
---------
8.1. Performance of Services. With respect to the performance of its
-----------------------
Services, Operator shall exercise the degree of skill, competence and judgment
commensurate with that normally exercised by national firms proficient in
operating and maintaining facilities of a similar nature, including compliance
with all applicable federal, state and local laws, ordinances, codes,
regulations, rules, orders, and permits which relate to Operator's performance
of the Services at this Facility. If the Facility does not achieve certain Net
Total Capacity Factors as set forth in Section 3 of Exhibit B, Operator shall
pay certain liquidated damages as also set forth in Section 3 of Exhibit B. It
is understood and agreed that payments of liquidated damages to Owner under
Exhibit B are Owner's sole and exclusive remedy with respect to any shortfall in
production of electricity and/or steam in lieu of any right to damages or
specific performance. Owner and Operator have discussed the impracticability and
extreme difficulty in fixing the actual damages for such shortfall and,
<PAGE>
-13-
as a result of such discussion, Owner and Operator agree that liquidated damages
set forth in Section 3 of Exhibit B represent a reasonable estimate of damages
that would have been sustained by Owner and that upon payment thereof such
remedy shall have achieved its essential purpose.
8.2 Liability for Loss or Damage. Operator's liability for any loss of or
----------------------------
damage to the Facility, or any other property in the care, custody or control of
Owner or Operator (including, without limitation, loss or damage to spare parts
and other materials) shall be limited to the actual proceeds of the Owner
furnished insurance described in Section 9.2 of this Agreement, as it is the
intent of the parties to rely on the proceeds of such insurance, and Owner
hereby releases Operator from any such liability in excess thereof. Any
deductibles or excesses to be borne pursuant to the provisions of the Owner
furnished insurance shall be paid by Owner.
8.3 Target Budget Overruns. Operator shall pay, or reimburse Owner, for
----------------------
fifty percent (50%) of any annual Target Budget overrun as set forth in Section
5 of Exhibit B. Operator's liability under this Section 8.3 in any Contract Year
shall not exceed fifty percent (50%) of the annual Base Fee earned and paid for
the applicable Contract Year, after deduction for payment of any liquidated
damages pursuant to Section 3 of Exhibit B.
8.4 Operator Total Annual Aggregate Liability. Except for the limitation of
-----------------------------------------
Operator's liability under Section 8.2 of this Agreement, the total aggregate
liability of Operator to Owner arising out of or in connection with the
performance of Services under this Agreement (including, without limitation,
Operator's obligation to indemnify Owner hereunder) in any Calendar Year shall
in no event exceed the sum of Operator's Base Fee and Bonus Fee earned and paid
(in cash or by promissory note) to the Operator for that Calendar Year, plus
Operator's share of Target Budget underruns for that Calendar Year. Owner hereby
releases Operator from any liability in excess thereof. Nothing contained in
this Article VIII shall be deemed to constitute a release of, or limit the
amount payable by, any insurer maintaining the insurance contemplated by Article
IX.
8.5 Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, OPERATOR
----------
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AND OPERATOR DISCLAIMS AND OWNER WAIVES
ANY IMPLIED WARRANTIES IMPOSED BY LAW INCLUDING MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
8.6 Applicability of Liability Limitation. The waivers and disclaimers of
-------------------------------------
liability, releases from liability, limitations and apportionments of liability,
and exclusive remedy provisions and indemnity and hold harmless provisions
expressed throughout this Agreement shall apply even in the event of the fault,
negligence (in whole or in part), strict liability, or breach of contract of the
party released, indemnified or held harmless, or whose liability is
<PAGE>
-14-
waived, disclaimed, limited, apportioned or fixed by such provisions, and shall
extend to such party's related entities or Affiliates and its and their
directors, officers, employees and agents.
8.7 Consequential Damages. Notwithstanding anything to the contrary herein,
---------------------
neither party shall be liable to the other party for consequential loss or
damage, including, but not limited to, loss of use or damage resulting from loss
of use, loss of revenue, loss of profit, loss of goodwill, cost of capital,
claims of a party's customers, or increased cost of alternate facilities,
regardless of legal theory or negligence, and each party hereby releases the
other party therefrom.
ARTICLE IX
INSURANCE
---------
9.1 Operator Insurance. Operator shall obtain and maintain as a
------------------
reimbursable cost hereunder the insurance set forth below:
9.1.1 Workers Compensation Insurance covering Operator's employees as
------------------------------
required by law and Employers Liability Insurance with a limit
-----------------------------
of $2 million.
9.1.2 Automobile Bodily Injury and Property Damage Liability Insurance
----------------------------------------------------------------
covering automobiles owned or hired by Operator with a limit for
bodily injury and property damage of $2 million per occurrence.
Owner shall be furnished with satisfactory evidence that the foregoing
insurance is in effect and Owner shall be notified thirty days prior to the
cancellation or material change of any such coverage.
9.2 Owner Insurance. For its own protection and the protection of Operator
---------------
and others whom Owner may elect as set forth below, Owner shall secure or cause
to be secured prior to commencement of Operator's services on the Site, and
maintain in effect during the operation of the Facility the following insurance:
9.2.1 Commercial General Liability Insurance covering personal injury
--------------------------------------
and property damage to third parties and covering liability for
damage to property of third parties in the care, custody and
control of Owner, Operator and/or their respective employees and
subcontractors in connection with the operations at the
Facility. The coverage referred to herein shall be provided
either in a single policy or through a combination of policies.
Such policy or combination of policies shall
<PAGE>
-15-
have reasonable deductibles and a limit of not less than $2
million per occurrence and $2 million in the aggregate per
location, including blanket contractual, broad form property
damage, cross liability for named or additional insureds,
independent contractor coverage and XCU hazards.
9.2.2 Excess or Umbrella Liability Insurance in excess of the
--------------------------------------
insurance described in Section 9.2.1 of this Agreement in an
aggregate amount of $18 million.
9.2.3 Permanent Property Insurance for the full replacement value of
---------------------------
the Project, including Boiler and Machinery Insurance, Business
Interruption Insurance and other first party property related
insurance coverages deemed necessary by Owner during plant
operation. Such insurances shall be paid for by Owner. All
policies procured by Owner shall require the insurer to waive
subrogation against Operator and Operator shall be named as an
additional insured to the extent of its interest; provided, that
Operator shall have no interest with respect to Business
Interruption coverage. Operator shall not be responsible for any
deductibles under said insurance policies or for such insured
losses, and Owner hereby releases Operator therefrom.
9.3 Form and Content All policies, binders or interim insurance contracts
----------------
with respect to insurance maintained by either Owner or Operator pursuant to
this Article IX shall:
9.3.1 Be placed with insurance companies that are acceptable to Owner,
Operator and Lender;
9.3.2 With respect to the insurance described in Section 9.2.1 include
as named insureds Owner and Operator and the officers,
directors, affiliate and employees of each of them with respect
to such parties' interest in the Facility and/or operations and
maintenance activities on behalf of Owner, and include all other
parties as deemed necessary by Owner as additional insureds;
9.3.3 State that it is primary with respect to any other insurance
coverages available to Owner or Operator or the additional
insureds and that all provisions, except the policy limits,
shall operate in the same manner as if there were a separate
policy covering such insured under each such policy;
9.3.4 Provide that there be no recourse for payment of any premium
against
<PAGE>
-16-
Operator or additional insureds for insurance required to be
furnished by Owner pursuant to Section 9.2 and no recourse for
payment of any premium against Owner or additional insureds for
insurance required to be furnished by Operator pursuant to
Section 9.1;
9.3.5 With respect to insurance described in this Article IX, where
appropriate, waive any right of subrogation of the insurers
thereunder against Owner, Operator or additional insureds and
the officers, directors, employees, agents and representatives
of each of them, and any right of the insurers to any setoff or
counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of any such person
insured under such policy;
9.3.6 Provide that it may not be canceled or materially changed
without giving Owner, Operator and Lender sixty (60) days prior
written notice thereof;
9.3.7 With respect to any additional insured, provide that such
insurance shall not be invalidated by any action or inaction of
each such insured and shall insure each such insured regardless
of any breach or violation of any warranty, declaration or
condition contained in such insurance by the primary named
insured.
ARTICLE X
TERMINATION
-----------
10.1 Termination by Either Party Due to Bankruptcy. Should either party
---------------------------------------------
hereto make an assignment for the benefit of creditors, admit in writing its
inability to pay its debts as they become due, file a voluntary petition in
bankruptcy, be adjudicated as bankrupt or insolvent, file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future
creditor's right statute, law, or regulation, file any answer admitting or not
contesting the material allegations of a petition filed against it in any such
proceeding, or seek, consent to, or acquiesce in, the appointment of any
trustee, receiver, custodian or liquidator of such party or of all or any
substantial part of the properties of such party, or if an involuntary case
shall be commenced seeking the liquidation or reorganization of such party under
Chapter 7 or Chapter 11, respectively, of the United States Bankruptcy Code or
any similar proceeding shall be commenced against either party under any other
applicable federal, state, or foreign law and (i) the petition commencing the
involuntary case is not timely controverted, (ii) the petition commencing the
involuntary case is not dismissed within sixty (60) calendar days of its filing'
(iii) an interim trustee is appointed to operate all or any part of the business
of that party, or (iv) an order for relief shall have been issued or entered
<PAGE>
-17-
therein, or if either party, its directors or shareholders take action to
dissolve or liquidate that party, the other party may terminate this Agreement
upon thirty (30) calendar days' prior written notice.
10.2 Termination by Operator. Operator may terminate this Agreement upon
-----------------------
thirty (30) calendar days' prior written notice if: (i) Owner fails to make a
payment when due in accordance with Exhibit B, (ii) Owner is in breach of any
material term or condition of this Agreement, (iii) the Facility ceases to be,
for any reason whatsoever, a qualifying facility under the Public Utility
Regulatory Policies Act of 1978, and the Federal Energy Regulatory Commission
rules promulgated thereunder, as in effect from time to time, or (iv) except to
the extent permitted in Section 14.2(y)(i) or (ii) or unless otherwise consented
to by Operator, Owner assigns this Agreement or transfers, hypothecates or sells
all or a substantial portion of the Facility in any manner whatsoever to a third
party; provided, that, with respect to a payment default under subclause (i) of
this sentence, Owner shall have fifteen (15) days after written notice by
Operator to cure, and provided further that with respect to a breach under
subelause (ii) of this sentence, Owner shall be entitled to cure such breach
within thirty (30) calendar days after written notice thereof by Operator, and
if the cure of such material breach cannot be made within the above-stated
thirty (30) day period, Owner shall have such additional time to cure as is
required as long as Owner proceeds with such cure diligently and in good faith.
For purposes of this Section 10.2' a substantial portion of the Facility shall
mean a majority of Facility assets or an interest in the Facility to the extent
that the transferee of such interest must be found acceptable to the Agent and
the Majority Banks under Section 10.02 of the Reimbursement and Loan Agreement.
10.3 Termination Fee In the Event of Operator Termination. Subject to any
----------------------------------------------------
rights or remedies Operator may have against Owner under this Agreement, in the
event that Operator terminates this Agreement pursuant to Section 101, Owner
shall pay Operator a termination fee that shall equal its demobilization costs.
The parties agree that such demobilization costs shall cover only (x) the return
of permanent employees (other than permanent employees hired specifically to
work at the Facility) to their point of origin, (y) routine accounting functions
to close all books and records in connection with the Facility and (z) severance
payments in accordance with Operator's established personnel policy.
10.4 Termination by Owner. Owner may terminate this Agreement upon thirty
--------------------
(30) calendar days' written notice to Operator if Operator is in breach of any
material term or condition of this Agreement or of the O&M Manual, and such
breach is not remedied within thirty (30) calendar days after receipt of notice
of breach; provided, however, that, if cure of such breach cannot be made within
the above stated thirty (30) day period, Operator shall have such additional
time to cure as is required as long as Operator proceeds with such cure
diligently and in good faith.
<PAGE>
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10.5 Strike by Operator's Personnel. In the event of a whole or partial
------------------------------
shutdown of Facility operation due to a strike or other form of labor action by
Operator's personnel, Owner shall have the right to continue operating the
Facility and to retain such other personnel or agents as Owner in its sole
discretion deems necessary or advisable for such purposes. Operator shall notify
Owner within three hours of any such strike or labor action. If any such strike
or labor action continues for a period greater than thirty (30) days, Owner
shall be entitled to terminate this Agreement immediately.
10.6 Facility Viability. In the event (i) Owner or Contractor terminates
------------------
the Construction Contract; or (ii) Owner falls to complete construction of the
Facility for any reason, Owner shall have the right to terminate this Agreement
upon ten (10) days' prior written notice thereof, whereupon all of the
obligations of the parties hereto (other than those set forth in Article V with
respect to Services previously performed and Owner's obligation to pay
Operator's demobilization costs, if any, under Section 10.3 of this Agreement)
shall be null and void as if this Agreement were never entered into and
executed.
10.7 Proration. Subject to any rights or remedies Owner may have against
---------
Operator hereunder, in the event of termination under this Article X, Operator
shall be entitled to receive all Recoverable Costs incurred by Operator, and the
Operator's Fees earned by Operator, prorated as appropriate, up to the date of
termination.
ARTICLE XI
OPERATING PLAN AND OPERATOR'S BUDGET
------------------------------------
11.1 Operating Plan and Operator's Budget.
-------------------------------------
11.1.1 Preoperational Phase-In. The Operator shall prepare, in
-----------------------
accordance with Section 3.4 of this Agreement, a Preoperational Phase-In Plan
and Preoperational Phase-In Budget. Among other things, such plan shall include
the Operator's mobilization plan for staffing the onsite O&M organization, with
such activity broken down by monthly increments. The Preoperational Phase-In
Budget, which shall be prepared simultaneously with the Preoperational Phase-In
Plan, shall show by specific budget item and month the cost of implementing the
Preoperational Phase-In Plan. The Operator shall submit its Preoperational
Phase-In Plan and Budget to Owner for approval no later than eighteen months
before the projected date of Facility Turnover. Operator may revise the
Preoperational Phase-In Plan and Budget at any time during Preoperational
Phase-In, provided that Operator first secures Owner's prior approval, which
approval shall not be unreasonably withheld. A brief summary of the
Preoperational Phase-In Plan is set forth at Exhibit C.
<PAGE>
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11.1.2 Following Facility Turnover.
----------------------------
11.1.2.1. Operating Plan. The Operator shall prepare an Operating
--------------
Plan for each Calendar Year. Among other this, the Operating Plan shall address
prospectively and to the extent applicable, all of the matters covered by the
annual report. In addition, the Operating Plan shall describe Operator's
objectives for ruing the Facility during the following Calendar Year and
Operator's plan for achieving such objectives, including the projected
electricity and steam output for the following Calendar Year. The Operating Plan
shall identify overall projected expenditures (including any recommendations for
capital improvements to the Facility) for the following year, an initial
justification of such expenditures and, if appropriate, an explanation for any
changes in the level of such expenditures from earlier years. The Operating Plan
shall also include the projected amount of such consumables as fuel oil,
Acceptable Fuel, other fuels, Acceptable Limestone, cooling tower chemicals, and
demineralizer resins that Operator anticipates using for the following Calendar
Year, and the extent to which it used greater or lesser amounts of such
consumables during the previous year than set forth in the previous year's
Operating Plan. Finally, the Operating Plan shall explain the reasons for and
scope of any non-routine maintenance projected for the following year as well as
any non-routine maintenance performed during the preceding year.
11.1.2.2. Operator's Budget. The Operator shall submit,
-----------------
simultaneously with and based upon the Operating Plan, an annual Operator's
Budget for the following year. The Operator's Budget shall set forth in
sufficient detail all Recoverable Costs anticipated in operating and maintaining
the Facility, and shall include a monthly cash budget broken down into major
account categories, along with an estimate of costs for the year following the
year for which Operator's Budget is submitted. The budget estimate submitted for
this following year shall not bind Operator. The Operator's Budget shall have a
separately identified Target Budget, which shall (x) include a deadband equal to
5% of the aggregate sum of the Target Budget items and (y) represent all items
that are Recoverable Costs subject to overrun and underrun sharing as set forth
in Section 5 of Exhibit B. The Operator may submit from time to time such
proposed revisions to the Operator's Budget as may be necessary and which,
following Owner's approval, shall be incorporated into the Operator's Budget.
The Operator's Budget shall be divided into a capital and operating budget and
shall reflect among other things:
(i) Changes in project labor costs;
(ii) Staffing changes, utilization of overtime and furloughs;
(iii) Equipment purchases or leases;
<PAGE>
-20-
(iv) Consumption of materials, supplies, spare parts, and
consumables;
(v) Changes in necessary involvement of Operator's professional and
managerial personnel;
(vi) Manufacturer's inspections and service examinations;
(vii) Modifications for plant betterment; and
(viii) Such other factors as may impact the cost of operation and
maintenance in the coming year.
A preliminary, draft estimate of the O&M Budget is set forth at Exhibit F
hereto.
11.2 Contingency. The Operator's Budget shall include a contingency account
-----------
established in an amount to be approved by Owner for each Calendar Year
(prorated for a portion of any Year). Operator shall, on a monthly basis, report
to Owner in writing all charges to the contingency account with back-up
documentation supporting each such charge. All expenditures of the contingency
account used for Target Budget items shall be counted towards determining
whether and to what extent the Target Budget for each Calendar Year has been
exceeded.
11.3 Operator's Budget Committee. One Hundred and Fifty (150) days prior to
---------------------------
the end of the Calendar Year, Operator shall submit to Owner for review and
approval a draft Operating Plan and Operator's Budget for the following Calendar
Year, except for the year in which Facility Turnover is achieved, in which case
the Operating Plan and Operator's Budget shall be (x) submitted to Operator one
hundred and twenty (120) days prior to the projected date of Facility Turnover
and (y) cover the balance of the Calendar Year in which Facility Turnover is
achieved. No later than thirty (30) days after submittal of the Operating Plan
and the Operator's Budget by the Operator, Owner and Operator shall convoke a
committee consisting of Owner's Representative and Plant Manager, together with
such other persons nominated by Owner and Operator as are mutually agreed to,
for the purpose of reviewing and approving the Operating Plan and Operator's
Budget. The Owner's Representative shall act as chairman of the committee, which
shall consist of not less than four (4) persons. If agreement on the Operating
Plan and Operator's Budget is not reached within the following thirty (30) day
period, such disagreement shall be resolved in accordance with Section 14.3
hereof. Operator shall be prepared to submit all reasonably available bids,
quotes, listed prices, and any other documentation requested by Owner to
establish the reasonableness of Operator's Budget items.
<PAGE>
-21-
11.4 Overruns. Except when Operator is responding to an emergency condition
--------
threatening the loss of or damage to property or persons, or material economic
harm to Owner, Operator cannot exceed Operator's Budget amounts without prior
approval from Owner.
11.5 Significant Orders or Service Contracts. Unless otherwise agreed, or
---------------------------------------
unless Operator is responding to an emergency condition threatening the loss of
or damage to property or persons, or material economic harm to Owner, for any
expenditure to be incurred by Operator in connection with the procurement of
material, equipment, or supplies or the retaining of subcontracted work on a
Recoverable Cost basis hereunder in excess of fifty thousand dollars ($50,000),
Operator shall, not later than ten (10) days prior to the date when Operator
must commit to such expenditure, provide to Owner three (3) competitive and
responsive bids, along with a recommended bid for Owner's approval. Operator,
with the advice of Owner, shall prepare specific Requests For Bids ("RFBs") for
such expenditures. Such RFBs shall be prepared sufficiently in advance of the
date when a commitment for such expenditure must be made in order to allow a
reasonable number of bidders to respond.
ARTICLE XII
RECORDS AND REPORTING
---------------------
12.1 Accounting. Operator shall maintain accurate books and accounts,
----------
including, without limitation, all back-up documentation, in such detail and
form as Owner may reasonably direct from time-to-time, of the Recoverable Costs
at the Facility. Such books and accounts shall be kept in accordance with
generally accepted accounting principles and practices. During normal business
hours for the duration of this Agreement, Owner, Agent and Independent Engineer
shall, upon reasonable advance notice, have access to said books and accounts to
the extent required to verify the Recoverable Costs incurred hereunder
(excluding those costs compensated by means of established or standard
allowances and rates).
12.2 Monthly Reports. No later than ten (10) days after the end of each
---------------
month, Operator shall submit a report of operations for such month to Owner.
Such report shall contain an operating summary for such month (including,
without limitation, Recoverable Costs, other costs for Owner's account,
electrical and steam production, fuel usage, and scheduled and unscheduled
outages and curtailments), a summary of significant maintenance and other
activities during the month, a financial summary (including a breakdown of
actual costs compared to budgeted costs by account code and an estimated cost of
completion for a particular budget item, if appropriate) and other information
as may be reasonably requested by Owner.
<PAGE>
-22-
12.3 Annual Report. Operator shall submit an annual report (the "Report")
-------------
to the Owner by February 15 of each Calendar Year providing:
(i) a summary of significant activities for the preceding Calendar
Year;
(ii) a review of significant factors affecting the cost of operation
of the Facility;
(iii) a comparison review of performance to Operator's Budget for the
previous year;
(iv) the result of major inspections and overhauls during the
previous year;
(v) such other information reasonably requested by Owner from
time-to-time;
(vi) recommendations of operations methodology to reflect the
optimum economic use of fuel, chemicals, shutdowns and any
other operating parameters;
(vii) the reconciliation report of the physical inventory completed
under Section 13.5 of this Agreement; and
(viii) operating data for the previous year including, without
limitation, production data, fuel consumption, and downtime.
12.4 Operating Records. Operator shall maintain complete records of all
-----------------
transactions, operations, and maintenance relating to the Facility. Such records
shall be the property of Owner and shall be kept at the Facility with a
duplicate set, as specified in the approved O&M Manual, at some off-site
fire-safe place that Owner and Operator mutually determine. Operator shall make
Owner's records available for inspection by Owner or anyone authorized by Owner
at all reasonable times. Such records shall include: (i) operating logs and
records; (ii) fuel consumption; (iii) inventory and property accountability
records; (iv) bulk chemical consumption; (v) raw water use (if metered); (vi)
steam consumption for which flow meters are provided; (vii) condensate returned
to the Facility; (viii) records and reports required by governmental entities
relating to operations or maintenance of the Facility; and (ix) records of
routine and extraordinary maintenance on each item of equipment.
<PAGE>
-23-
12.5 Technical Records. Operator shall keep and maintain at the Facility
-----------------
technical records; vendor manuals, drawings, and information; and other drawings
all as provided to Owner by Contractor. Operator shall keep as-built drawings up
to date to reflect all changes to the Facility. Operator shall keep all warranty
records for all equipment or facilities covered by manufacturers' or
contractors' warranties, together with records of all transactions regarding
such warranties.
12.6 Governmental Permits. Operator shall assist the Owner as reasonably
--------------------
required in all matters concerning operating and environmental permits. Owner
shall be responsible for obtaining and maintaining all operating permits
required for the Facility. Operator shall gather the necessary data for any such
permits.
12.7 Reports Requested by Owner. Owner may request Operator to change the
--------------------------
form, content or frequency of any report required hereunder; provided that any
such request is reasonable. It is a primary object of this Agreement that there
be a frank, professional communication between Operator and Owner with full and
open disclosure of all material and potentially material matters affecting the
Facility.
ARTICLE XIII
PROCUREMENT OF SUPPLIES, SERVICES, MATERIALS AND SPARE PARTS
------------------------------------------------------------
13.1 Procurement. Operator shall, as agent for Owner, procure on a
-----------
Recoverable Cost basis, all supplies, equipment, services, materials,
replacement spare parts' chemicals, lubricants, catalysts, consumables,
operating utilities, vehicles, safety and fire equipment, tools, specialty
tools, clothing and all other items necessary or advisable to operate and
maintain the Facility hereunder, except those items furnished directly by Owner
and particularly described in Article VI. For Owner's benefit, Operator shall
obtain from sellers of equipment, materials or services, guarantees against
defects in materials and workmanship to the extent such guarantees are
reasonably obtainable, and Owner releases Operator from any further
responsibility or liability. Operator shall not be liable for any such
guarantees, or for any defects caused by the sellers providing such equipment,
materials or services. In the case of engineered equipment purchased as spare
parts and/or spare assemblies, Operator shall obtain Owner's prior approval of,
and concurrence with' warranties and guarantees offered by vendors or to be
specified to vendors at the time of purchase. Owner shall be invoiced directly
by the vendor on any procurement order in excess of $50,000.
13.2 Inventory. Operator shall maintain, on a Recoverable Cost basis, an
---------
inventory of supplies, materials and spare parts in sufficient quantity,
reasonably to minimize delays that might result from delivery. As a guideline,
Operator inventory shall be in accordance with the inventory at the time of
Facility Turnover, and as modified by experience and prudent operating practice.
<PAGE>
-24-
13.3 Inspection. All materials and spare parts shall be inspected by
----------
Operator using applicable industry practices of inspection at the time of
delivery, and any evident defects or deviation from the as-specified item noted.
Rejected material and spare parts shall be returned to the vendor promptly for
credit or replacement.
13.4 Storage. Operator shall safety and securely store all supplies,
-------
materials and spare parts. Infrequently used items shall be packaged, wrapped
and preserved in a manner to ensure longevity, and there shall be a system of
records to identify each item, purchase date, purchase order number, budget
category, cost, quantity and storage location.
13.5 Physical Inventory. Annually, a complete physical inventory shall be
------------------
taken, and a reconciliation reported to Owner.
ARTICLE XIV
GENERAL
-------
14.1 Notice. All notices and other communications required or permitted
------
under this Agreement shall be in writing and shall become effective when
delivered by hand (including messenger or courier) or received by telex,
telecopier, telegram or such other method of telecommunication capable of
creating a writing, with receipt confirmed by answer back or otherwise, or five
(5) calendar days after being placed in the United States, First Class, postage
prepaid to the intended recipient at the address provided below:
If to Owner: PG&E-Bechtel Generating Company
7475 Wisconsin Avenue
Bethesda, Maryland 20814-34322
Attn: Scrubgrass Business Manager
If to Operator: Bechtel Power Corporation
45 Freemont Street
P.O. Box 3965
San Francisco, California 94119-3965
Attn: Richard A. Webster
or to such other person or address as given by notice as described herein.
14.2 Successors and Assigns: This Agreement shall inure to the benefit of
----------------------
and be fully binding upon each party and its respective successors and permitted
assigns. This Agreement may be assigned by a party only with the other party's
prior written consent; provided, however, that without such consent (x) Operator
may assign this Agreement to an Affiliate of Operator pursuant to Section 7.4.2,
and (y)subject to 10.2, Owner shall have the right to assign this Agreement in
whole or in part (i) to Lender as security for Lender's
<PAGE>
-25-
financing of the Facility; (ii) to Lessee; (iii) to the successor of Owner, or
to a person acquiring all or a controlling interest in the business assets of
Owner or to a wholly-owned subsidiary and (iv) in connection with a sale or
transfer of the Facility; provided, however, that any such assignment under
clause (y)(i), (ii) or (iii) shall not relieve the assigning party of any of its
obligations under this Agreement. Operator agrees to execute any reasonable
consent to assignment and such other documents in connection with any assignment
to Lender as Lender may request. Owner shall provide (a) sixty days prior
written notice of any assignments of this Agreement in whole or in part under
clause (y)(iii) and (iv) of this Section 14.2 and (b) reasonable notice of any
assignments of this Agreement in whole or in part under clause (y)(i) and (ii)
of this Section. Any trasferee or assignee shall be bound by the releases and
limitations of liability set forth herein.
14.3 Dispute Resolution. Owner and Operator desire that this Agreement
------------------
operate between them fairly and reasonably. It, during the term of this
Agreement, a dispute arises between Owner and Operator, or one party perceives
the other as acting unfairly, or unreasonably, or a question of interpretation
arises under this Agreement, then Owner's Representative and Plant Manager shall
promptly confer and exert their best efforts in good faith to reach a reasonable
and equitable resolution of the issue. If such managers are unable to resolve
the issue within twenty (20) business days, the matter shall be referred to the
parties' responsible corporate officers for resolution within five (5) business
days after the lapse of the aforementioned twenty (20) business days. Neither
party shall seek judicial resolution of any dispute arising in connection with
this Agreement until twenty (20) business days after the matter has been
referred to both parties' responsible corporate officers, who shall be
identified by each party from time-to-time and reasonably acceptable to the
other party. The pendency of a matter under this dispute resolution procedure
shall not in and of itself relieve either party in any way from its duty to
perform under this Agreement.
14.4 Invalid Provisions. The invalidity or unenforceability of any
------------------
provision of this Agreement shall be determined only by a court of competent
jurisdiction, and the parties hereby agree to negotiate an equitable adjustment
to the invalid or unenforceable provisions with a view toward effecting the
purpose of this Agreement; the validity and enforceability of the remaining
provisions, or portions or applications thereof, shall not be affected thereby.
14.5 Publicity. Operator shall not publish, distribute, or circulate, or
---------
allow persons under its control or authority to publish, distribute, or
circulate, any advertisement or press release concerning the Facility to the
public or any portion thereof without Owner's prior approval; provided, that
Operator may generally describe its role as Operator for purposes of pursuing
other business opportunities without Owner's prior approval.
<PAGE>
-26-
14.6 Changed Condition. In the event that Owner directs Operator to perform
-----------------
different Services or to perform the Services differently, or in the event of
Force Majeure, or changes in the Power Purchase Agreement or any Facility energy
sale agreements, that result in increased costs to Operator during a Contract
Year, Operator shall be entitled to a Target Budget adjustment reflecting the
reasonable value of any such increased costs from such event, and the parties
agree to adjust such other provisions of this Agreement that are directly
affected thereby, such adjustments to be consistent with the economic
expectations and the intent of the parties hereunder.
14.7 Environmental Liability. Owner shall indemnify and hold Operator, its
-----------------------
Affiliates, officers, directors, employees and agents harmless from and against
any and all claims, actions, fines, penalties and expenses incurred by or
asserted against Operator, its Affiliates, officers, directors, employees or
agents that arise out of or result from any "Contamination," as defined herein,
whether arising before the date hereof or during the construction and/or
operation of the Facility; except to the extent that after Facility Turnover
such claims, actions, damages, fines, penalties or expenses arise directly from
Operator's negligence or wilful misconduct. As used in this Agreement the term
"Contamination" shall mean the presence of "Hazardous Substances" at (x) the
Facility Site or (y) at the property of any third party resulting from the
activities of Owner and Operator at the Facility Site, at the level that
requires remediation under common law or statutes and regulations presently
existing or enacted hereafter, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act, the Resource
Conservation and Recovery Act, the Pennsylvania Hazardous Sites Cleanup Act, the
Pennsylvania Solid Waste Management Act, the Pennsylvania Municipal Waste
Planning, Recycling and Waste Reduction Act, the Pennsylvania Clean Streams Law,
the Pennsylvania Toxic Substances Control Act, the Pennsylvania Dam Safety and
Encroachments Act, and the Pennsylvania Storage Tank and Spill Prevention Act.
As used in this Agreement the term "Hazardous Substances" shall mean "hazardous
substances" as defined in section 101 (14) of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S) 9601(14) (Supp. 1990),
"regulated substances" within the meaning of subtitle I of the Resource
Conservation and Recovery Act, 42 U.S.C. 6991-6991i (Supp. 1990), "hazardous
substances" or" contaminants" as defined in section 103 of the Pennsylvania
Hazardous Sites Cleanup Act, 35 P.S. section 6020.101 et seq. (Supp. 1990), or
-- ---
any other substance which may be the subject of liability pursuant to Sections
316 or 401 of the Pennsylvania Clean Streams Law, Pa. Stat. Ann. tit. 35, (S)
691.1 to 691.101 (Supp. 1990). The provisions of this Section 14.7 shall survive
termination, cancellation or expiration of this Agreement.
14.8 Counterparts. This Agreement may he executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-27-
14.9 Force Majeure. In the event that either party is unable, wholly or in
-------------
part, by reason of an event of Force Majeure, to carry out its obligations under
this Agreement (other than obligations to pay money hereunder), it is agreed
that on such party's giving prompt written notice and full particulars of such
event of Force Majeure to the other party as soon as practical after the
occurrence of the cause relied upon, the obligations of the party giving notice,
so far as they are affected by reason of an event of Force Majeure, shall be
suspended until the cause for such suspension has been removed. Owner and
Operator each agrees to use due diligence to remove or overcome the cause for
such suspension.
14.10 Independent Contractor. Except as set forth in Section 13.1, Operator
----------------------
shall be an independent Contractor with respect to the Services to be performed
hereunder.
14.11 Operator's Indemnity. Subject to the limitations set forth in Section
--------------------
8.4 hereof, Operator shall indemnify and hold Owner and its Affiliates,
officers, directors, employees, agents and partners harmless from and against
any and all clams, actions, damage, expenses (including reasonable attorneys'
fees), losses or liabilities (excluding lost revenues and consequential damages)
incurred by or asserted against Owner or its Affiliates, officers, directors,
employees, agents, or partners arising out of claims for injury to or death of
persons, or for physical loss of or damage to property of third parties to the
extent that such claims, actions, damages, expenses, losses or liabilities are
caused by the negligence or willful misconduct of Operator or its Affiliates,
employees or agents. In the event that Operator and Owner are both negligent,
each shall be responsible for the portion of liability that would be assigned to
it under a comparative negligence standard.
14.12 Indemnification for Fines and Penalties. Except for fines and
---------------------------------------
penalties assessed for environmental liability, which shall be governed by
Section 14.7 of this Agreement, and subject to the limitation set forth in
Section 8.4 hereof, each of Owner and Operator (the "Indemnifying Party") shall
indemnify, defend and hold harmless each other and their respective Affiliates,
officers, directors, employees, agents and partners (the "Indemnified Party")
from and against any fines and penalties assessed by any governmental entity
against the Indemnified Party arising out of or due to such Indemnifying Party's
violation of any law, regulation, permit, license or governmental approval;
provided, however, that Operator shall not be liable for such fines and
penalties attributable to (x) any design and/or manufacturing defects in the
power generation equipment or materials comprising the Facility or (y) normal
wear and tear of the power generation materials and equipment comprising the
Facility if Operator has advised Owner of such wear and tear and recommended to
Owner a reasonable course of remedial action which Owner has declined to approve
and implement. In the event that both Owner and Operator violated the law,
regulation, permit, license or governmental approval for which the fine or
penalty subject to indemnification under this Section 14.12 was assessed, each
shall be responsible for the portion of the fine or penalty attributable to its
violation of such requirement.
<PAGE>
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14.13 Owner's Indemnity. Owner shall indemnify and hold Operator, its
-----------------
Affiliates, officers, directors, employees and agents harmless from and against
any and all claims, actions, damages, expenses (including reasonable attorneys'
fees), losses or liabilities (excluding lost revenues and consequential damages)
incurred by or asserted against Operator or its Affiliates, officers, directors,
employees or agents arising out of claims for injury to or death of persons, or
for loss of or damage to property of third parties, to the extent that such
claims, actions, damages, expenses, losses or liabilities are caused by the
negligence or willful misconduct of Owner, its Affiliates, employees, agents or
partners. In the event that Owner and Operator are both negligent, each shall be
responsible for the portion of liability that would be assigned to it under a
comparative negligence standard.
14.14 Amendments and Waivers. This Agreement may not be changed or amended
----------------------
orally, and no waiver hereunder may be oral. Any change or amendment hereto, or
any waiver hereunder, must be in writing and signed by the party or parties
against whom such change, amendment, or waiver is sought to be enforced.
14.15 Governing Law. The Agreement shall be governed by and construed under
-------------
the laws of the Commonwealth of Pennsylvania.
14.16 Survival. Notwithstanding any provisions herein to the contrary, the
--------
obligations set forth in Article V, VIII and IX, Sections 14.1, 14.7, 14.11,
14.12, 14.13 and 14.15, Exhibit B, and the limitations on and releases of
liabilities set forth in Article VIII shall survive in full force the expiration
and termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
OPERATOR: Bechtel Power Corporation
By /s/Richard D. Hambright
------------------------
Title /s/Vice President
------------------
<PAGE>
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OWNER: Scrubgrass Generating Company, L.P.,
a Delaware limited partnership
By: Pine Power Corporation,
a Delaware Corporation
General Partner
By: /s/ M. R. Smith
--------------------------------
M. R. Smith
Title: Vice President
------------------------------
By: Falcon Power Corporation,
a California Corporation
General Partner
By: /s/ Stuart W. Booth
--------------------------------
Stuart W. Booth
Title: Treasurer
-----------------------------
<PAGE>
EXHIBIT A
SERVICES
--------
Operator shall provide the following Services for the operation and
maintenance of the Facility in accordance with this Agreement. Such Services
shall include the performance of the following activities to the extent that a
mutually acceptable Operator's Budget has been established:
1. Operator shall employ, hire, train, direct and discharge, and
compensate all labor and employees pertaining to operations and
maintenance at the Facility.
2. Operator shall be responsible for all employee relations matters
including the administration of any bargaining agreements, handling of
grievances, and contract negotiations. Operator shall make operation
and maintenance personnel available during Preoperational Phase-In for
observation and training under Contractor's technical supervision and
control. Operator shall provide operation and maintenance personnel as
needed during Preoperational Phase-In and perform normal operation of
the Facility during testing of the Facility in accordance with the
Preoperational Phase-In Plan. After Facility Turnover, Operator shall
provide qualified supervision of operations and maintenance at the
Facility and any and all technical and engineering support required
for operations and maintenance.
3. Operator shall observe checking, testing, and certifying by
Contractor of equipment (including auxiliary and support equipment),
piping, and control Systems as such equipment and systems become
available before Facility Turnover and perform all such checking,
testing and certifying thereafter.
4. Operator shall perform necessary acceptance testing on any new
equipment, modification to equipment, or repaired or overhauled
equipment that may arise during the term hereof. Operator shall
arrange all necessary assistance from major equipment manufacturers'
technical representatives.
5. Operator shall prepare a detailed and complete O&M Manual, which
shall include but not be limited to: (i) a detailed staffing plan
including shift breakdowns, job descriptions and a detailed
organizational chart supported by considerations of efficiency and
economy,; (ii) a list and description of all logs, records, books and
charts to be kept and maintained by Operator; (iii) standard
management, administration, operating and maintenance procedures; (iv)
safety and fire prevention procedures and manuals; (v) security
measures and procedures; and (vi) plans and procedures for compliance
with the requirements under the Power Purchase Agreement, Steam Sales
Agreement and all permits, licenses and approvals. The initial draft
of the O&M Manual will be submitted to the Owner and to Lender's
Independent Engineer for
<PAGE>
A-2
comment in accordance with the schedule in the approved Preoperational
Phase-In Plan. Owner and Lender's Independent Engineer will provide
comments to Operator for each portion of the O&M Manual within thirty
(30) days after submittal of each portion to the Owner. It is
acknowledged that Owner's and Independent Engineer's review shall not
be construed in any way as a waiver or release of Operator's
obligation to develop and implement an O&M Manual sufficient for the
purposes contemplated under this Agreement. The Operator shall
initiate and prepare updates and revisions to the O&M Manual as
necessary or advisable to reflect operating experience and
modifications to the Facility.
6. Operator shall operate the Facility 7 days a week, 24 hours a day,
in accordance with the requirements of the Power Purchase Agreement,
the material terms of the Steam Sale Agreement, and all of the permits
and governmental approvals set forth in Exhibit F, hereto, as those
requirements are set forth in the O&M Manual.
7. Operator shall develop, in the course of start-up, standard
management, administration, operating and maintenance procedures,
including procedures for review and approval of additions or revisions
to the Operating Plan.
8. Operator shall develop, in the course of start-up, standard
operating procedures for portions of the Facility's operations and
maintenance not covered by the Contractor's or equipment
manufacturer's manuals and shall make these procedures available to
all operators.
9. Operator shall perform an inventory of all Facility assets by
October 31 of each Calendar Year and set up and maintain property
accountability records of all identifiable Facility property and
equipment. Operator shall maintain and keep these records up to date.
10. Operator shall schedule and be responsible for all maintenance
after Facility Turnover. Operator shall prepare as part of the
Operating Plan a description and schedule of operations, maintenance,
major inspections, and overhauls for the coming Calendar Year, such
description and schedule to be on a monthly basis and in such detail
as Owner reasonably requests. Operator shall notify Owner of planned
inspections, maintenance, and repairs requiring shutdowns of major
equipment. Operator shall use its best efforts to schedule all outages
and maintenance shutdowns to minimize both revenue loss and costs to
Owner and to maximize coordination with Penelec. In each case, such
scheduling shall be consistent with the requirements of the Power
Purchase Agreement and Steam Sales Agreement. As part of the foregoing
activities, Operator shall develop a computer based Facility specific
maintenance management program that shall include preventive and minor
maintenance procedures integrating vendor, manufacturer and
Construction
<PAGE>
A-3
Contractor recommendations and Operator's experience. This program
shall include a schedule of maintenance not less frequent than that
recommended by vendors or manufacturers, unless otherwise mutually
agreed; and a maintenance schedule for planned periodic maintenance
which requires a partial or total Facility outage.
l1. Operator shall immediately notify Owner of emergencies or
unplanned maintenance resulting or which may result, in shutdowns or
interruption of services, and keep Owner informed of progress in
restoring the Facility to normal operations.
12. Operator shall set up, equip and maintain the on-site maintenance
shop. Operator shall schedule and be responsible for machine tool
work. Operator shall obtain rental heavy equipment necessary for heavy
lifting needed for inspections or repairs when required.
13. Operator shall plan and schedule major repairs and annual
inspections allowing sufficient lead time to arrange necessary
permits/approvals, materials, and manpower.
14. Operator shall develop and implement safety and fire prevention
measures and programs. Operator shall train employees in safety and
fire prevention, and shall maintain fire sprinkler system and portable
fire extinguishers.
15. Operator shall develop and implement security measures and
procedures for the Facility.
16. Operator shall maintain a clean and presentable Facility including
all grounds and landscaping.
17. Operator shall assist the Owner in updating and maintaining in
effect at all times all permits, licenses and approvals required to be
maintained by Owner to operate the Facility. However, Owner shall be
responsible for obtaining and maintaining all operating permits
required for the Facility.
18. Operator shall establish and maintain an effective communication
system on site between and among operators, supervisors and Penelec,
as required by the Power Purchase Agreement.
<PAGE>
A-4
19. Operator shall utilize information supplied by Owner to optimize
the use of Acceptable Fuel and auxiliary fuel subject to limitations
based on applicable permits, prudent operating practices, equipment
warranty limitations, and maintenance requirements.
20. In accordance with the procedures set forth in the O&M Manual,
Operator shall monitor and record the steam and electricity output of
the Facility and provide all data, as specified by Owner. The parties
agree to incorporate into the operating procedures and plans those
provisions of the Steam Sales Agreement, the Power Purchase Agreement
and amendments thereto, and all applicable permits, which relate to
the operation and maintenance of the Facility.
21. Operator shall review the Contractor recommended spare parts lists
and make a recommendation to Owner for the purchase of spare parts.
Owner's spare parts budget is one million two hundred thousand dollars
($1,200,000). Upon approval by Owner, Contractor shall purchase, and
Operator shall receive, an inventory of spare parts at the Facility.
Operator shall issue to Contractor, from the initial spare parts
supply, those parts the Contractor requires for start-up. Operator
shall reorder such spare parts if Contractor does not do so. Operator
shall maintain a record of parts and the cost of parts drawn by
Contractor during start-up. At Owner's cost, Operator shall cooperate
with Contractor in obtaining use of the Facility for storing spare
parts prior to Facility Turnover.
22. Operator shall make recommendations to Owner concerning the
purchase of office, shop, maintenance and other furnishings and
equipment. Upon approval by Owner, Operator shall purchase, receive,
inventory and install such furnishings and equipment at Owner's cost.
23. Operator shall provide additional or special Services as Owner may
request from time to time subject to appropriate adjustment to
Operator's Budget.
<PAGE>
EXHIBIT B
COMPENSATION AND PAYMENT
------------------------
For the performance of the Services, Owner shall pay Operator, in the
manner and at the times herein specified, the Recoverable Costs, a Base Fee, a
Bonus Fee, an Employee Incentive Payment and an Employee Safety Bonus.
1. Recoverable Costs
-----------------
Owner shall reimburse Operator for all Recoverable Costs incurred in
the performance of the Services and in accordance with the current revision of
Operator's established policies, practices and rates then in effect. In
accordance with Articles V and XI, such costs and expenses generally include,
but are not limited to, the following:
1.1 Payroll and Related Personnel Costs
-----------------------------------
(i) Payroll costs and related expenses incurred by Operator for
home office employees in accordance with its established
personnel policies, including all salaries and wages of
personnel engaged in the performance of the Services and
Operator's then current established rate for payroll
additives. Prior to the commencement of each Calendar Year,
Operator shall notify Owner of its established rate for
payroll additives for personnel for the following Calendar
Year. Operator's established rate for payroll additives is
intended to cover all employee benefits and allowances for
vacation, sick leave, holidays, company portion of employee
insurance, social and retirement benefits, and payroll taxes,
premiums for public liability and property damage liability
insurance, Workers' Compensation and Employer's Liability
Insurance, and any other insurance premiums measured by
payroll costs, and other employee contributions and benefits
imposed by any applicable law or regulation.
(ii) Payroll costs and related expenses incurred by Operator for
employees assigned to the Facility site in accordance with its
established personnel policies, including all salaries, wages
and Employee Performance Incentives of personnel involved
directly in the performance of the Services, and all employee
benefits and allowances for vacation, sick leave, holidays,
and company portion of employee insurance, social and
retirement benefits
<PAGE>
B-2
at Operator's established rates and all payroll taxes,
Worker's Compensation and Employer's Liability Insurance and
all other insurance premiums measured by payroll costs, and
other contributions and benefits imposed by any applicable law
or regulation.
(iii) Actual payroll costs as set forth in (i) above incurred by
Operator's affiliates engaged in the performance of the
Services.
1.2 Allowance for Indirect Costs
----------------------------
An allowance for indirect costs in an amount equal to fifty-five
percent (55%) of Operator's payroll and related personnel costs
described in Paragraph 1.1(i) and 1.1(iii) above for personnel not
permanently assigned to the Facility, and ten percent (10%) of
Operator's payroll and related personnel costs described in Paragraph
1.1(ii) above for personnel permanently assigned to the Facility.
1.3 Other Direct Costs and Rates
----------------------------
All other costs and rates incurred in the performance of the Services,
including such costs and rates as:
(i) Actual costs incurred or reimbursed to employees for travel and
subsistence of personnel engaged in the performance of the
Services.
(ii) The cost of all materials, spare parts, tools, special tools,
equipment, consumables and supplies used or consumed in the
performance of the Services.
(iii) The cost of new equipment to be installed in the Facility as
recommended by Operator and approved by Owner.
(iv) Costs of computer usage and data or word processing, including
costs of related operator time and use of Operator's standard
programs at Operator's established rates.
(v) Telephone costs for calls originating from offices equipped with
Centrex type system at Operator's established rates for such
offices; all other communication costs at cost.
<PAGE>
B-3
(vi) All costs associated with consultants, subcontracts, and other
outside services.
(vii) All federal, state and local taxes, and all excises and
licenses, excepting only net income taxes.
(viii) The cost of insurance premiums for insurance policies maintained
by Operator pursuant to Section 9.1 of this Agreement, and any
deductibles under any insurance carried by or on behalf of
Operator or Owner.
(ix) All costs associated with records management, including but not
limited to preparation of materials, equipment, micro
reproduction and operator time at Operator's established rates.
(x) Any and all other Recoverable Costs identified in the Operator's
Budget incurred by Operator related to the performance of the
Services.
All rates referenced in subparagraphs (iv), (v) and (ix) of this
paragraph 1.3 shall be subject to adjustment in accordance with
Operator's established policies and procedures.
1.4 Manner and Times of Payment of Recoverable Costs.
------------------------------------------------
On or within fifteen (15) calendar days before the last day of each
calendar month, Operator shall prepare and submit to Owner an estimate for the
Recoverable Costs to be incurred during the subsequent calendar month (or
portion thereof). Owner shall pay to Operator the estimated amount within
fifteen (15) calendar days after receipt of Operator's invoice (the "Due Date").
As soon as practicable after the end of each calendar month (or portion
thereof), but in no event later than fifteen days, the actual cost for all
Recoverable Costs during the previous month shall be compared to the estimated
amount paid for such month. If such estimated amount is greater than the actual
cost for Recoverable Costs, the difference shall be credited to the Owner (i.e.,
deducted from amounts payable by Owner) in the next estimate for Recoverable
Costs to be paid by Owner. If such estimated amount is less than the actual cost
for Recoverable Costs, the difference shall be credited to the Operator (i.e.,
added to amounts payable by Owner) in the next estimate for Recoverable Costs to
be paid by Owner. Operator shall document all such reconciliations in writing,
and shall provide Owner with copies thereof. Amounts owed to Operator more than
thirty (30) days beyond the Due Date shall accrue interest each day such invoice
is not paid from the Due Date at the lesser of (i) a rate equal to one and
one-half percent (1.5%) above the reference rate quoted to substantial
commercial
<PAGE>
B-4
borrowers on ninety-day loans by National Westminster Bank PLC, each day such
interest accrues, or (ii) the maximum rate permitted by applicable law.
2. Base Fee, Bonus Fee, Employee Incentive Payment and Employee Safety
-------------------------------------------------------------------
Bonus. Owner shall pay to Operator a Base Fee, a Bonus Fee, an Employee
- -----
Incentive Payment and an Employee Safety Bonus, as follows:
2.1 Base Fee. Owner shall pay to Operator a Base Fee of $500,000 per
--------
Contract Year. The Base Fee shall begin to accrue upon Facility Turnover by
Contractor. Fifty percent (50%) of the Base Fee shall be earned and paid on a
monthly basis, which payment shall not be subordinated nor governed by Section
2.6 of this Exhibit B. The remaining fifty percent (50%) of the Base Fee shall
be earned on a monthly basis and subordinated and paid on an annual basis in
accordance with Section 2.6 of this Exhibit B.
2.2 Bonus Fee. Following Final Completion, Owner shall pay to Operator
---------
a Bonus Fee depending on the Net Total Capacity Factor achieved for the Contract
Year. The Bonus Fee shall be linearly variable such that the amount is zero (0)
when the Net Total Capacity Factor is eighty-five percent (85%) for the Contract
Year in which the Bonus Fee is computed, and shall be $50,000 for each
percentage of Net Total Capacity Factor above eighty-five percent (85%), or
$50,000 X (Net Total Capacity Factor - 85) for the Contract Year in which the
Bonus Fee is computed. The Bonus Fee shall be earned and paid on an annual basis
and shall not be subordinated nor governed by Section 2.6 of this Exhibit B.
2.3 Employee Incentive Payment. Following Final Completion, Owner shall
--------------------------
pay to Operator an Employee Incentive Payment for each Contract year, depending
on the Net Total Capacity Factor achieved for that Contract Year. When the Net
Total Capacity Factor for the Contract Year is greater than eighty percent (80%)
for the Contract Year in which the Employee Incentive Payment is calculated, the
Employee Incentive Payment shall be linearly variable, such that the amount is
zero (0) when Net Total Capacity Factor is eighty percent (80%) for such
Contract Year and will be $17,000 for each percent of Net Total Capacity Factor
above eighty percent or $17,000 X (Net Total Capacity Factor - 80). Payment of
that portion (if any) of the Employee Incentive Payment based on Net Total
Capacity Factor ranging from and including eighty-one percent (81%) up to and
including eighty-five percent (85%) for the Contract Year in which the Employee
Incentive Payment is computed shall be subordinated and paid on an annual basis
in accordance with Section 2.6 of this Exhibit B. Payment of that portion (if
any) of the Employee Incentive Payment based on the Net Total Capacity Factor
exceeding eighty-five percent (85%) for the Contract Year in which the Employee
Incentive Payment is computed shall not be subordinated nor governed by Section
2.6 of this Exhibit B.
<PAGE>
B-5
2.4 Employee Safety Bonus. Following Final Completion, Owner shall pay
---------------------
Operator an Employee Safety Bonus of $25,000 for each Calendar Year of operation
without a lost work day because of an accident. For each lost work day resulting
from an accident during such Calendar Year, the Employee Safety Bonus shall be
reduced as follows: (x) by $15,000 if there is one lost work day resulting from
an accident; (y) by an additional $5,000 if there is a second lost work day
resulting from an accident; and (z) by an additional $5,000 if there is a third
or more lost work days resulting from an accident. The Employee Safety Bonus
shall be earned and paid on an annual basis and shall not be subordinated,
except that if the Net Total Capacity Factor is equal to or less than
eighty-five percent (85%) for the Calendar Year in which an Employee Safety
Bonus is computed, such bonus shall be paid and subordinated in accordance with
Section 2.6 of this Agreement. Any reductions of the Employee Safety Bonus
pursuant to clause (x), (y) or (z) of this Section 2.4 shall be escalated in
accordance with Section 2.5 of this Exhibit B.
2.5 Escalation of Base Fee, Bonus Fee, Employee Incentive Payments, and
-------------------------------------------------------------------
Employee Safety Bonus. The Base Fee, Bonus Fee, Employee Incentive Payments and
- ---------------------
Employee Safety Bonus shall be escalated annually at the rate of five percent
(5%) per year, so long as the Power Purchase Agreement provides for such rate of
escalation. If, during any Contract Year, the Power Purchase Agreement does not
provide for escalation at the rate of five percent (5%) per year, the Base Fee,
Bonus Fee, Employee Incentive Payment and the Employee Safety Bonus shall be
escalated annually based upon the Gross National Product Implicit Price Deflator
("GNP Deflator"), as published by the Bureau of Economic Analysis, United States
Department of Commerce, or if the GNP Deflator is not published for any reason
whatsoever, based upon another mutually acceptable index. If the GNP Deflator
published in the month following Facility Turnover exceeds the GNP Deflator
published during the previous November, using November 1990 for the first
calculation (the "Base Index"), the Base Fee, Bonus Fee, Employee Incentive
Payments and Employee Safety Bonus, as the case may be, shall be increased by an
amount calculated as follows:
Increase = (Fee X Current Index ) - Fee
-------------
Base Index
The computation under this Section 2.5 shall be made at the end of each
Calendar Year (or portion thereof) during the term hereof, and the Base Fee,
Bonus Fee Employee Incentive Payment, and Employee Safety Bonus, as the case may
be, shall be immediately escalated.
2.6 Subordination of Base Fee, Employee Incentive Payment and Employee
------------------------------------------------------------------
Safety Bonus. To the extent that the Base Fee under Section 2.1 of this Exhibit
- ------------
B, the Employee Incentive Payment under Section 2.3 of this Exhibit B, and the
Employee Safety
<PAGE>
B-6
Bonus under Section 2.4 of this Exhibit B are subordinated, such subordinated
payments shall he made pursuant to the Disbursement and Security Agreement. All
such subordinated Base Fees, Employee Incentive Payments and Employee Safety
Bonuses shall earn interest at an annual rate equal to the lesser of (i) the
reference or prime rate announced from time to time plus two percent or (ii) the
maximum rate permitted by law. In the event that all or part of the Base Fees,
Employee Incentive Payments and Employee Safety Bonuses are subordinated,
Operator may at its own cost, audit Facility books and records in order to
verify that Owner has subordinated such payments in accordance with the terms
and conditions of this Section 2.6. Owner's obligation to pay subordinated Base
Fees, Employee Incentive Payments and Employee Safety Bonuses shall he evidenced
by a promissory note in substantially the form as that set forth in Exhibit H to
this Agreement. Owner agrees that it shall not amend or alter the Disbursement
and Security Agreement or the Reimbursement and Loan Agreement in any manner
that may or will have an adverse affect on any past or future payment to
Operator, without the prior written consent of Operator. In the event that Owner
sells all or a substantial portion of the Facility in any manner whatsoever to a
third party, all subordinated payments under this Section 2.6 whether or not
evidenced by a promissory note shall become immediately due and payable. For
purposes of this Section 2.6, a substantial portion of the Facility shall mean a
majority of Facility assets or an interest in the Facility to the extent that
the transferee of such interest must be found acceptable to the Agent and the
Majority Banks under Section 10.02 of the Reimbursement and Loan Agreement.
3. Liquidated Damages. If the Net Total Capacity Factor is less than
------------------
eight-five percent (85%) for a Contract Year Operator shall be liable for
certain liquidated damages, and such amount shall be deducted from fees
otherwise payable by Owner to Operator hereunder. In the event no such sums
exist, Operator shall pay Owner the liquidated damages within thirty days after
such penalty is calculated and a determination made that no sums exist against
which the liquidated damages may be offset. Liquidated damages for a Contract
Year shall be zero when the Net Total Capacity Factor is equal to or greater
than eighty-five percent (85%) and shall be calculated at the rate of $50,000
for each percentage of Net Total Capacity Factor below eighty-five percent
(85%); provided, however, that no additional liquidated damages beyond those
incurred when the Net Total Capacity Factor is equal to eighty percent (80%)
shall be paid until the Net Total Capacity Factor is less than seventy-five
percent (75%). Liquidated Damages shall be escalated annually on the same basis
as Base Fee. Notwithstanding anything to the contrary herein, Liquidated Damages
shall not exceed the sum of Operator's Base Fee and Operator's share of Target
Budget underruns earned and paid (in cash or by promissory note) for that
Contract Year to Operator. To the extent Owner owes Operator any subordinated
payments for previous years, whether or not evidenced by promissory notes, any
liquidated damages shall be offset against such subordinated amounts, unless
Owner has received insufficient Project Revenues with which to meet the
requirements set forth in Section 11.08 of the Reimbursement and Loan Agreement
for the Calendar Year in which such
<PAGE>
B-7
Liquidated Damages are assessed. In the case of such shortfall, Operator will
pay Liquidated Damages in cash equal to the lessor of the amount of such
shortfall or the amount of the Liquidated Damages assessed Operator for such
Calendar Year.
3.1 No Liquidated Damages. If the Net Total Capacity Factor for a
---------------------
Contract Year is less than eighty percent (80%), Operator shall not be subject
to any additional liquidated damages under the foregoing Section 3.0 if such
liquidated damages result from any of the following:
(i) Any act or omission that is committed or omitted, as the case
may be, solely upon the recommendation of the Owner, its
employees, agents, or operators (other than the Operator under
this Agreement, its employees, agents or subcontractors).
(ii) The reduction, curtailment or termination of electricity
production below the Facility's rated capacity as a result of
equipment failure, loss attributable to items under warranty or
demonstrated system design deficiencies; unless such reduction,
curtanent or termination due to equipment failure or loss
attributable to items under warranty was caused by the
negligence or willful misconduct of the Operator.
(iii) Planned Outages which reduce the Net Total Capacity Factor to
less than 75%.
(iv) The Owner's reduction, curtailment or termination of electricity
production below the Facility's rated capacity for any reason
whatsoever, including the failure of Penelec to accept
electricity for any reason other than reasons due to the
negligence or willful misconduct of Operator.
(v) The occurrence of a Force Majeure event.
(vi) The Owner's failure to supply Acceptable Fuel or Acceptable
Limestone to the Facility in sufficient quantities to operate
the Facility; provided, however, that (x) Operator advised Owner
in a timely manner of the need to supply such Acceptable Fuel or
Acceptable Limestone and (y) the lack of sufficient quantities
of such Acceptable Fuel or Acceptable Limestone is not the
result of Operator's failure to operate and maintain the
Facility in accordance with the terms and conditions of this
Agreement.
<PAGE>
B-8
(vii) Lack of spare parts which Operator has recommended in accordance
with the standards set forth in Section 13.2 of this Agreement
but which Owner declined to purchase and which caused a
reduction in the Net Total Capacity Factor.
4. Calculation of Net Total Capacity Factor. The Net Total Capacity Factor
----------------------------------------
shall be the kilowatt hours of electricity actually sold to Penelec divided by
the kilowatt hours of electricity that would have been sold to Penelec if the
Facility had been one hundred percent available at one hundred percent capacity,
as determined below, expressed as a percentage:
Net Total
Capacity Factor = MWH sold to Penelec during the Calendar Year
-------------------------------------------- x 100
Net MW x Period Hours during the Calendar Year
Where:
a. Net MW = MW at actual demonstrated Net Electrical Output as defined in
Appendix E, Part I, Section 8.0 of the Construction Contract less
transmission line losses.
b. Period Hours = Full Calendar Year (8760 hours).
Transmission line losses will be the electrical power loss between the high side
of the Facility transformer and the Penelec meter located at Penelec's Eclipse
Substation, which meter will be used by Penelec to measure the delivery of
electricity by Owner to Penelec at the Delivery Point, as defined in the Power
Purchase Agreement. Owner and Operator agree to periodically adjust Net MW, when
warranted, for such factors as seasonal variations, design changes, station
auxiliaries, steam extraction and equipment degradation, in accordance with
procedures to be set forth in the O&M Manual. As soon as practicable after the
first day of each Contract Year, the Net Total Capacity Factor for the previous
Contract Year shall be calculated.
5. Target Budget. Prior to Facility Turnover, and as part of Operator's
-------------
Budget, Owner and Operator shall agree upon a Target Budget, which comprises all
items that are Recoverable Costs subject to overrun and underrun sharing.
Commencing with Facility Turnover, Operator shall share in one-half (1/2) of the
annual Target Budget over/under run, except to the extent that Owner and
Operator agree in writing that such over/under run shall be exempt from sharing;
provided, however, that such sharing shall not apply to any portion of a
calendar year that covers the period prior to Facility Turnover. The Target
Budget overrun or underrun shall take into account any amounts of the
contingency account used for Target Budget items as set forth in Section
<PAGE>
B-9
11.2 of the Agreement. There shall be included in the Target Budget a deadband
equal to five percent (5%) of the aggregate sum of the Target Budget items. The
Target Budget shall exclude utilities, boiler chemicals, mobile equipment,
consumables, fuel oil, Acceptable Fuel, other fuels, Acceptable Limestone,
cooling tower chemicals, demineralizer resins, Major Maintenance, spare parts,
ash disposal, costs associated with subsequent operator training under Section
4.3 of the Agreement, and such other items as the parties may mutually agree
upon from time to time. In the event of a termination of this Agreement, the
overrun/underrun determination shall be made pro rata up to the end of the month
preceding the effective date of termination.
6. Payment of Fees. On or before the fifteenth (15th) day of each month,
---------------
Owner shall pay to Operator one-twenty-fourth (1/24) of $500,000 Base Fee
(pro-rated for any portion of a month) for Services provided during the previous
month. On or as soon as practicable after the first day of each Contract Year,
Operator shall prepare and submit to Owner an Operator's invoice covering the
amount of the remaining Base Fee, Bonus Fee, Employee Incentive Payments and
Employee Safety Bonus, to the extent each such payment is payable to Operator
for the previous Contract Year, or portion thereof. Owner shall pay to Operator
the amount shown to be due within thirty (30) days after receipt of the invoice
(the "Due Date"). Should Owner dispute any portion of any statement, the Owner
shall pay the undisputed portion of the statement within the time stated above,
and at the same time, advise Operator in writing of the disputed portion.
Amounts owed to Operator more than thirty (30) days beyond the Due Date shall
accrue interest each day such invoice is not paid from the Due Date at the
lesser of (i) a rate equal to one and one-half percent (1.5%) above the
reference rate quoted to substantial commercial borrowers on ninety-day loans by
Lender each day such interest accrues or (ii) the maximum rate permitted by
applicable law. If a disputed amount is improperly withheld, such amount shall
bear interest from the Due Date until such amount is paid, with interest to be
calculated at the rate set forth in this Section 7.
<PAGE>
EXHIBIT C
PREOPERATIONAL PHASE-IN PLAN
----------------------------
Introduction
- ------------
The purpose of the Preoperational Phase-In Plan is to delineate the
responsibilities of the Operator under this Agreement prior to Facility Turnover
of the Facility. Operator's role prior to Facility Turnover is that of preparing
itself for assumption of operating responsibility over the Facility at Facility
Turnover and supporting the operation of the Facility during testing and
start-up. This preparation consists of assembling a management team and a crew
of experienced operating and maintenance personnel, familiarizing such personnel
with the site-specific features of the Facility, preparation of the O&M Manual
for the Facility, preparation of a computerized operation and maintenance
database, development of the Operator's Budget for the Facility, and taking such
other steps as are necessary to assemble an independent operation and
maintenance organization for the Facility. In addition to retaining care,
custody and control of the Facility until Facility Turnover, and in addition to
full responsibility for start-up and testing of the Facility, Contractor's
responsibilities during Preoperational Phase-In include interfacing with the
Operator in several areas, such as instructing Operator's operating personnel in
start-up procedures for the Facility and preparation of various items of
Facility documentation in a form reasonably acceptable to the Operator.
A final Preoperational Phase-in Plan shall be submitted to Owner by Operator
eighteen (18) months prior to Facility Turnover to be approved by Owner in
accordance with Section 3.4. The Operator's on-site activities shall commence
approximately fifteen (15) months prior to the scheduled date of Facility
Turnover, as designated by Owner and agreed to by Operator.
The Operator's organizational chart for staffing the onsite O&M organization is
shown in Figure C-I. The Operator's mobilization plan is set forth below.
Relative dates for energization and turbine roll are based on the Startup
schedule provided by the Contractor.
Pre-Mobilization: A certain amount of Operator home office O&M work must be
- ----------------
performed after contract award but prior to establishing a permanent onsite
presence. During this pre-mobilization period, Operator will participate in
project planning and coordination meetings with the Owner and with other
contractors, review and make input to the plant design as regards operability
and maintainability and select and nominate the Plant Manager and other key
personnel.
<PAGE>
C-2
Months 15-14: During the initial month onsite, the Plant Manager will arrange
- ------------
the installation of temporary accommodations and facilities for his key staff,
hire local secretarial assistance and establish a working relationship with
Owner's and Contractor's personnel. The next month will be dedicated primarily
to initial development of the O&M Manual, utility operating procedures and
compliance plan procedures by the key staff. Preliminary details of the formal
O&M training program will be coordinated. Detailed purchase requisitions may
also be issued for certain permanent equipment, tools, materials and furnishings
to be delivered later. Spare parts recommendations will commence and continue.
Initial operating staff employment announcements and advertising will be made.
Months 13-12: These 2 months will be devoted primarily to interviews, hiring and
- ------------
assisting in relocations for some 25 additional staff expected to come on board
by the beginning of Month 11. The Plant Engineer will finalize the training
program arrangements and begin work to organize preparation of system operating
procedures. The office automation programs will begin going into effect during
this period.
Months 11-5: At least the first 3 of these 7 months will be devoted to the
- -----------
formal onsite training program furnished by the Contractor. Energization of the
permanent electrical systems by Startup is indicated at Month 9. After Month 9,
having completed the formal training, the O&M technicians will become
increasingly involved in startup activities. To the extent that operators are
not fully occupied in startup, they will be writing the system operating
procedures, or will be receiving additional training.
Months 4-1: The Operator expects to begin providing 24-hour operational coverage
- ----------
for the facility about 4 or 5 months prior to commercial operation. A shift
schedule will go into effect at that time. Key staff will continue development
and finalization of the Plant Manual; completion of the Mainsaver maintenance
program; setup of the shop and warehouse; parts inventory with the Contractor;
development and finalization of the first year operating plan and budget; and
establishment of standing contracts for materials, supplies, consumables and
services.
<PAGE>
Figure C-1
O&M Organization
Scrubgrass 80 MW CFB Cogen
<TABLE>
<CAPTION>
---------------
Plant Manager 49 Onsite Staff
--------------- ---------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shift Supervisor 5 Plant Engineer Maintenance Mgr Office Manager
- ------------------ - ---------------- ----------------- ----------------
Control Rm Opr 5 Chem Tech Planner/Schedlr Accountant
-------------- - ---------- --------------- ----------
Sr Plant Opr 4 I&C Tech 3 Matls Coordinator
------------- - ----------- - ------------------
Plant Opr 4 Mechanic 5 Warehouseman
------------- - ----------- - ------------
Raw Water Opr 2 Electrician 2 Secretary
------------- - ----------- - ---------
Ash Load Utilityman 2
Uti'man 2 ----------- -
------------- -
Coal Opr 4
------------- -
</TABLE>
<PAGE>
EXHIBIT D
ACCEPTABLE FUEL
---------------
Owner shall be responsible for supply, delivery and unloading of Acceptable Fuel
into the truck dump of the Facility. The bituminous coal waste which comprises
Acceptable Fuel consists of coarse, lower moisture coal waste and fine, higher
moisture waste. The coal waste must meet the following specifications to be
Acceptable Fuel:
<TABLE>
<CAPTION>
Coarse Fine
------ ----
<S> <C> <C>
Moisture Content Maximum 7%* Maximum 18%
Size Range Maximum 2 1/2" Maximum 20% below 100 mesh
Hardgrove Grindability Minimum 55 Not Applicable
</TABLE>
* The Moisture limit for coarse coal waste applies when both coarse and fine
coal waste is being utilized. If only coarse coal waste is being utilized,
the moisture content shall be a maximum of 10%.
The other properties of the as-delivered coal waste shall be controlled by the
Owner such that, when the coal waste is blended within the capabilities of the
coal handling equipment of the Facility, the other properties will fall within
the ranges given below.
<TABLE>
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
Sulfur Content (%) 1.8 3.5
Ash Content (%) 30 55
Heating Value (HHV in Btu/Lb) 5,000 9,000
</TABLE>
Blending of the Acceptable Fuel within the capabilities of the Facility coal
handling equipment shall be the responsibility of the Operator. The goal of the
Operator shall be to achieve maximum boiler efficiency by consistently
delivering a uniform fuel which meets the analysis given below to the boiler.
Towards that end, Operator shall diligently work with and advise the Owner
concerning waste coal delivery and shall properly operate the coal handling
equipment of the Facility.
<TABLE>
<CAPTION>
Ultimate Analysis, Weight %
- ---------------------------
(Wet Basis)
<S> <C>
Carbon 37.30
Hydrogen 2.50
Sulfur 2.00
Nitrogen 0.70
Oxygen 6.00
Ash 41.50
Moisture 10.00
HHV (Btu/1b) 6,500
</TABLE>
<PAGE>
EXHIBIT E
ACCEPTABLE LIMESTONE
--------------------
Owner shall be responsible for supply, delivery and unloading of limestone which
meets the following specifications (Acceptable Limestone).
SPECIFICATIONS FOR UNCRUSHED LIMESTONE:
- ---------------------------------------
a. Size: 1-3/4" X 0"
b. Moisture: Average 2%
Maximum 3%
c. CaC0\3\: Average 90%
Minimum 85%
d. Reactivity: Average 44% TGA utilization
SPECIFICATIONS FOR PULVERIZED LIMESTONE:
- ----------------------------------------
a. Type: Amorphous
b. Size Distribution:
<TABLE>
<CAPTION>
ASTM/U.S. Std. Mesh Size (microns) Percent Passing
---------------------------------- ---------------
<S> <C>
4 (4,750) 100
20 (850) 35-65
100 (150) 5-20
</TABLE>
c. Chemical Composition:
Moisture Less than 1%
Calcium Carbonate (CaC0\3\) Average 90%; minimum 85%
d. Reactivity:
Calcium Utilization (U) will average 44 percent and be a minimum of 35
percent.
Calcium Utilization (U) will be derived from thermogravimetric analysis
(TGA) in accordance with the following calculation:
<PAGE>
E-2
Ws - Wc
Calcium Utilization (U) = ------------
(Ws)th - Wc
where Ws = Sulfated 120-minute sample weight
Wc = Calcined sample weight
and (Ws)th = Theoretical sulfated weight =
[1.36(% CaCo\\3\\) + 0.478 (% MgCO\\3\\) + (% inerts)] x [Wo/100]
<PAGE>
EXHIBIT F
PERMITS, LICENSES AND OTHER GOVERNMENTAL APPROVALS
--------------------------------------------------
1. Air Quality Plan Approval #61-306-001 issued on January 18, 1989 by the
Commonwealth of Pennsylvania Department of Environmental Resources ("DER").
2. Air Quality Plan Approval #61-305-003 issued on January 18,1989 by DER.
3. Air Quality Plan Approval #61-399-005 issued on January 18,1989 by DER.
4. Air Quality Plan Approval #61-399-006 issued on January 18, 1989 by DER.
5. Water Quality Management Part I NPDES Permit #PA 0103713 issued on
January 18, 1989 by DER.
6. Planning Module for Land Development approved by DER on September 13, 1988
and by the Scrubgrass Township Board of Supervisors on July 13, 1988. 7.
Earth Disturbance Permit No.6189802 issued on June 27, 1989 by DER.
8. Residual Waste Beneficial Use Approval issued on August 25, 1989 by DER.
9. Waiver of permit requirement under Section 7(a) of Dam Safety and
Encroachment Act to construct transmission Line issued on April 29, 1988 by
DER.
10. License Agreement to Occupy Submerged Lands of the Commonwealth of
Pennsylvania issued on March 2, 1989 by DER.
11. Waiver of Permit Requirement under Section 7(a) of the Dam Safety and
Encroachment Act to construct a fifty-eight inch CM pipe culvert issued on
February 13, 1989 by DER.
12. General Permit BDWM-GP-4; Intake and Outfall Structures issued April 1,1989
by DER.
13. November 19, 1980 determination from DEC that there are no endangered,
threatened and status indeterminate species.
14. February 1, 1989, Pennsylvania Department of Transportation approval of
construction as described Form 74601-1.
<PAGE>
F-2
15. May 5, 1989 plan approval by the Pennsylvania Department of Labor and
Industry, Bureau of Occupational and Industrial Safety.
16. Department of the Army Permit No.88101, dated June 23, 1988.
17. U.S. Department of Agriculture notice of December 20,1988 of no objection
to DER Permit E-61-132.
18. U.S. Department of Transportation (Federal Aviation Administration)
Aeronautical Study Number 88-AEA-1998-OE, dated March 6, 1989.
19. July 28, 1986 Notice of Qualifying Status.
20. July 17,1989 Venango County Planning Commission Subdivision Plan
#34-89-27-F(2-1) Approval.
21. April 27, 1988 and September 2, 1988 and Opinion of Pennsylvania Public
Utility Commission disclaiming jurisdiction over certain Facility
activities.
<PAGE>
EXHIBIT G
PRELIMINARY ESTIMATE OF O&M BUDGET
----------------------------------
(IN 1990 DOLLARS)
<TABLE>
<S> <C>
$1000 (1990$)
TARGET BUDGET ITEMS:
Site Payroll (Direct & Indirect Labor) $2418
Home Office 100
Administrative Expense 311
-----
Total Target Budget $2829
NON-TARGET BUDGET ITEMS:
Mobile Equipment Lease/Maint./Fuel $ 200
Routine Maintenance 320
Bulk Chemicals/Lab Supplies 269
Consumable, Spares, etc. 400
-----
Total Non-Target Budget $1189
MAJOR MAINTENANCE FUND $ 435
</TABLE>
<PAGE>
EXHIBIT H
FORM OF PROMISSORY NOTE
-----------------------
Owner and Operator hereby agree that the following Form of Promissory Note shall
be executed by Owner to evidence all subordinated payments under this Agreement.
Subject to Section 2.6 of Exhibit B, Owner and Operator expressly acknowledge
and agree that in the event payments under this Agreement for a Contract Year
remain subordinated for a period of time greater than that reflected in the
evidencing Promissory Note, Owner will execute a new Promissory Note for such
subordinated payments; provided, however, that in the event Owner sells all or a
substantial portion of the Facility in any manner whatsoever to a third party,
then all outstanding Promissory Notes entered into pursuant to Section 2.6 of
this Agreement shall be immediately due and payable. For purposes of this
Exhibit H. a substantial portion of the Facility shall mean a majority of
Facility assets or an interest in the Facility to the extent that the transferee
of such interest must be found acceptable to the Agent and the Majority Banks
under Section 10.02 of the Reimbursement and Loan Agreement.
---------------
$ _____________ San Francisco, CA
___________, 1991
FOR THE VALUE RECEIVED, the undersigned SCRUBGRASS GENERATING COMPANY, L.P., a
Delaware limited partnership ("Borrower"), promises to pay to the order of
BECHTEL POWER CORPORATION ("Creditor"), at SO Beale Street, San Francisco,
California, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
aggregate unpaid principal amount of _________ dollars ($____________). The
unpaid balance of the principal amount shall be payable in accordance with the
terms of that certain Disbursement and Security Agreement among Borrower,
Buzzard Power Corporation, Bankers Trust Company and National Westminster Bank
PLC' dated as of November 30,1990. Borrower also agrees to pay interest on the
aggregate unpaid principal amount at a rate per annum equal to the lesser of (i)
reference or prime rate announced from time to time by National Westminster Rank
PLC plus two percent (2%), which rate shall change as such reference or prime
rate changes or (ii) the maximum rate permitted by law.
This Note is the Promissory Note defined in and made pursuant to that certain
Operation and Maintenance Agreement between Creditor and Borrower (the "0&M
Agreement"), dated as of December 5,1990, as amended from time to time, and is
subject to the terms and conditions of the O&M Agreement. If Borrower sells or
transfers all or a substantial portion of the Facility (as defined in the O&M
Agreement), all outstanding principal and interest shall be immediately due and
payable to creditor. For purposes of this Promissory Note, a substantial portion
of the Facility shall mean a majority of Facility assets or an
<PAGE>
interest in the Facility to the extent that the transferee of such interest must
be found acceptable to the Agent and Majority Banks (Agent and Majority Banks
being defined in the O&M Agreement) under Section 10.02 of that certain
Reimbursement and Loan Agreement defined in the O&M Agreement.
All principal and all accrued and unpaid interest hereunder shall be completely
due and payable on the date which is the earlier of (i) the date of termination
of that certain Reimbursement and Loan Agreement (as defined in the O&M
Agreement) or (ii) December 15,2008. All payments made on this Note 'hall be
credited first, to interest due on the outstanding principal balance of this
Note, and second, to the outstanding principal.
Borrower promises to pay the holder hereof all costs and expenses of collection
of this Note and to pay all reasonable attorneys' fees incurred in such
collection or in any suit or action to collect this Note or in any appeal
thereof. Borrower waives presentment, demand, protest, notice of protest, notice
of dishonor, notice of nonpayment, any and all other notices and demands in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, as well as any applicable statute of limitations. No delay by the
bolder hereof in exercising any power or right hereunder shall operate as a
waiver of any power or right.
This Note shall be deemed to be made under and shall be construed in accordance
with and governed by, the laws of the Commonwealth of Pennsylvania.
SCRUBGRASS GENERATING COMPANY, L.P.
a ____________________________limited partnership
By ____________________________a general partner
By ____________________
Its ______________________
<PAGE>
Exhibit 10.62
EXECUTION COPY
FIRST AMENDMENT TO OPERATION AND MAINTENANCE AGREEMENT
------------------------------------------------------
This FIRST AMENDMENT TO OPERATION AND MAINTENANCE AGREEMENT (this
"Amendment") dated December 22, 1995 by and between Buzzard Power Corporation
("Lessee") and U.S. Operating Services Company ("Operator").
PREMISES:
--------
WHEREAS, Scrubgrass Generating Company, L.P. ("Lessor") entered into
that certain Operation and Maintenance Agreement (the "Original Agreement")
dated as of December 21, 1990 with Bechtel Power Corporation ("BPC");
WHEREAS, BPC assigned all of its right, title and interest in and to
the Original Agreement to Operator, and Operator assumed all of BPC's
obligations with respect to the Original Agreement, pursuant to an Assignment
and Assumption Agreement dated as of January 1, 1992 (the Original Agreement,
after giving effect to such assignment and assumption and as in effect on the
date hereof, the "Agreement");
WHEREAS, in accordance with the terms of an Amended and Restated Lease
Agreement dated December 22, 1995 between Lessor and Lessee, Lessor has assigned
all of its right title and interest in and to the Agreement to Lessee:
WHEREAS, Lessor, Operator, U.S. Generating Company, Environmental Power
Corporation and Lessee have entered into a certain Agreement dated December 22,
1995 (the "Settlement Agreement"); and
WHEREAS, in connection with the Settlement Agreement, Lessee and
Operator desire to amend the Agreement in certain respects as more fully set
forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual promises contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby mutually agree as follows:
1. Definitions.
-----------
Capitalized terms used herein but not defined herein have the
respective meanings given such terms in the Agreement.
<PAGE>
2. Amendments to the Agreement.
---------------------------
(a) Article V of the Agreement is hereby amended by inserting
the following sentence at the end of such Article V:
Notwithstanding anything in this Agreement to the contrary, only during
the Contract Years corresponding to Calendar Years 1996 and 1997, the
Bonus Fee, Employee Incentive Payment and Employee Safety Bonus which
are earned by Operator during each such Contract Year shall be paid to
Operator only if and to the extent that the aggregate of the Bonus Fee,
Employee Incentive Payment and Employee Safety Bonus earned by Operator
during each such Contract Year exceeds Two Hundred Forty Thousand
Dollars ($240,000).
(b) Section 9.1.1 of the Agreement is hereby deleted in its
entirety and replaced with the following:
9.1.1 Worker's Compensation Insurance (including employer's
-------------------------------
liability insurance of not less than $1,000,000) for all of
Operator's employees (and Operator shall require and be
reasonably satisfied that all subcontractors of Operator
engaged in or with respect to work on or about the Facility
shall have obtained such insurance) in such amount as is
required by all applicable laws, rules and regulations of the
Commonwealth of Pennsylvania, which policy shall contain "all
states", "voluntary compensation", "amended notice of
occurrence", "amended knowledge of occurrence", and
"unintentional errors or omissions" endorsements to the extent
permitted by such laws, rules and regulations and available on
commercially reasonable terms.
3. Ratification and Confirmation.
-----------------------------
Except as amended hereby, the terms and provisions of the Agreement
remain unchanged, and the Agreement, as amended by this Amendment, is hereby
ratified and confirmed in all respects and remains in full force and effect.
4. Counterparts.
------------
This Amendment may be executed in separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
-2-
<PAGE>
5. Governing Law.
-------------
This Amendment shall be governed by and construed under the laws of the
Commonwealth of Pennsylvania.
6. Captions.
--------
Titles or captions of sections and paragraphs contained in this
Amendment are inserted as a matter of convenience only, and in no way define,
limit, extend, describe or otherwise affect the scope or meaning of this
Amendment or the intent of any provision hereof.
7. Binding Effect, Successors and Assigns.
--------------------------------------
This Amendment shall be binding upon and shall inure to the benefit of
the successors and permitted assigns of the parties.
8. Invalid Provisions.
------------------
The invalidity or unenforceability of any provision of this Amendment
shall be determined only by a court of competent jurisdiction, and the parties
hereby agree to negotiate an equitable adjustment to any invalid or
unenforceable provisions with a view toward effecting the purposes of this
Amendment; provided, however, that the validity or enforceability of the
-------- -------
remaining provisions of this Amendment, or any portions or applications thereof,
shall not be affected thereby.
9. Assignment.
----------
Except as is otherwise specifically provided herein, neither party to
this Amendment shall assign this Amendment in whole or in part without the prior
written consent of the other party hereto. Notwithstanding anything in this
Amendment to the contrary, Lessee or Operator may assign this Amendment in
connection with and to the same extent as an assignment by such party of the
Agreement which is permitted pursuant to Section 14.2 of the Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officer or representative as of the day and
year first written above,
BUZZARD POWER CORPORATION
By: /s/ Joseph E. Cresci
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
U.S. OPERATING SERVICES COMPANY
By: /s/ Earl H. Franklin
--------------------------------
Name: Earl H. Franklin
--------------------------------
Title: President and Chief Executive Officer
--------------------------------
[First Amendment to O&M Agreement]
<PAGE>
Exhibit
10.80
EXECUTION COPY
================================================================================
AMENDED AND RESTATED LEASE AGREEMENT
(which amends and restates the
LEASE AGREEMENT
dated as of June 17, 1994)
between
SCRUBGRASS GENERATING COMPANY, L. P.,
a Delaware limited partnership,
as Lessor
and
BUZZARD POWER CORPORATION,
a Delaware corporation,
as Lessee.
Dated December 22, 1995
This Amended and Restated Lease Agreement has been executed in multiple
counterparts. This Amended and Restated Lease Agreement and the Site and the
Facility covered hereby have been assigned to and are subject to a security
interest and lien in favor of Credit Lyonnais, acting through its New York
Branch ("Agent") as Mortgagee and Bank Party under an Open-End Mortgage
-----
("Project Mortgage") and a Security Agreement ("Security Agreement"), each dated
---------------- ------------------
as of December 15, 1990 between Lessor and Agent (as such Project Mortgage and
such Security Agreement have been and may be amended and supplemented as
permitted thereby). To the extent, if any, that this Amended and Restated Lease
Agreement constitutes Chattel Paper as such term is defined in the Uniform
Commercial Code of any applicable jurisdiction, no security interest in Lessor's
right, title and interest in and to this Amended and Restated Lease Agreement
can be created through the transfer or possession of any counterpart other than
the original counterpart, identified as the counterpart containing the receipt
therefor executed by the Agent, immediately following the signatures of the
parties to this Amended and Restated Lease Agreement.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
INTERPRETATION
<S> <C>
SECTION 1.01. Definitions....................................................1
<CAPTION>
ARTICLE II
LEASE
<S> <C>
SECTION 2.01. Lease..........................................................2
SECTION 2.02. Utility Easements..............................................2
SECTION 2.03. Lessor Assignment During Lease Term............................2
SECTION 2.04. Lessee Assignment..............................................4
SECTION 2.05. Use; EPC Contracts; Sale of Transmission Line..................4
SECTION 2.06. Personal Property..............................................5
SECTION 2.07. Application of Funds...........................................5
SECTION 2.08. Original Lease Agreement.......................................6
<CAPTION>
ARTICLE III
RENT
<S> <C>
SECTION 3.01. Amounts of Rent................................................6
SECTION 3.02. Method and Place of Payment....................................8
SECTION 3.03. Late Payment...................................................8
SECTION 3.04. Recomputation of Basic Rent and Stipulated Loss Value for Changes
After the Lease Commencement Date..............................8
SECTION 3.05. Net Lease; No Setoff..........................................11
<CAPTION>
ARTICLE IV
OPERATION AND MAINTENANCE
<S> <C>
SECTION 4.01. Operation and Maintenance.....................................12
SECTION 4.02. Operating Logs; Books and Accounts............................13
SECTION 4.03. Manuals.......................................................14
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.04. Spare Parts...................................................14
SECTION 4.05. Limitation on Liens...........................................14
SECTION 4.06. Regulation....................................................14
<CAPTION>
ARTICLE V
PARTS; ALTERATIONS
<S> <C>
SECTION 5.01. Replacement of Parts..........................................15
SECTION 5.02. Alterations...................................................15
SECTION 5.03. Title to Parts................................................16
SECTION 5.04. Reports of Alterations........................................17
SECTION 5.05. Removal of Parts; Lessor's Right To Purchase Certain
Parts.........................................................17
SECTION 5.06. Financing of Alterations......................................18
SECTION 5.07. Release of Parts Upon Certain Conditions......................18
SECTION 5.08. Liens.........................................................19
<CAPTION>
ARTICLE VI
INSURANCE
<S> <C>
SECTION 6.01. Coverage......................................................19
SECTION 6.02. Annual Insurance Report.......................................23
SECTION 6.03. Additional Insurance by Lessor................................24
<CAPTION>
ARTICLE VII
DAMAGE; EVENTS OF LOSS
<S> <C>
SECTION 7.01. Event of Loss; Stipulated Loss Value Payment..................24
SECTION 7.02. Damage Not Constituting an Event of Loss;
Application of Proceeds.......................................25
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE VIII
RETURN OF FACILITY
<S> <C>
SECTION 8.01. Return of Facility............................................26
SECTION 8.02. Survival of Lessee's Obligations..............................27
<CAPTION>
ARTICLE IX
RENEWAL OPTION; PURCHASE OPTION
<S> <C>
SECTION 9.01. Right to Renew................................................27
<CAPTION>
ARTICLE X
INTERESTS OF LESSEE AND LESSOR
<S> <C>
SECTION 10.01. Lessee's Interest.............................................27
SECTION 10.02. Transfer of Lessee's Interests................................27
SECTION 10.03. Successors and Assigns........................................28
SECTION 10.04. Location......................................................28
SECTION 10.05. Quiet Enjoyment...............................................28
<CAPTION>
ARTICLE XI
DISCLAIMER OF WARRANTIES
ARTICLE XII
ADDITIONAL COVENANTS
<S> <C>
SECTION 12.01. Identification................................................29
SECTION 12.02. Lessee's Covenants in Amended and Restated
Participation Agreement.......................................30
SECTION 12.03. Reports to Regulatory Authorities.............................30
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE XIII
LEASE EVENTS OF DEFAULT AND REMEDIES
<S> <C>
SECTION 13.01. Lease Events of Default.......................................30
SECTION 13.02. Remedies......................................................33
SECTION 13.03. Survival of Lessee's Obligations..............................37
SECTION 13.04. Remedies Cumulative...........................................38
<CAPTION>
ARTICLE XIV
LESSOR RIGHT TO PERFORM FOR LESSEE
ARTICLE XV
MISCELLANEOUS
<S> <C>
SECTION 15.01. Further Assurances............................................38
SECTION 15.02. Assignment by Lessor..........................................39
SECTION 15.03. Notices.......................................................40
SECTION 15.04. Severability..................................................40
SECTION 15.05. Amendment.....................................................40
SECTION 15.06. Headings......................................................41
SECTION 15.07. Benefit.......................................................41
SECTION 15.08. Counterparts..................................................41
SECTION 15.09. Governing Law.................................................41
SECTION 15.10. Survival of Representations, Warranties, Covenants and
Indemnities...................................................41
SECTION 15.11. Performance of Obligations to Bank Parties....................41
SECTION 15.12. Schedules and Exhibits........................................41
SECTION 15.13. Recording of Lease Agreement..................................41
SECTION 15.14. Estoppel Certificates.........................................42
SECTION 15.15. Time of the Essence...........................................42
SECTION 15.16. No Partnership................................................42
SECTION 15.17. Lessor's Consent..............................................42
SECTION 15.18. Effective Date................................................42
</TABLE>
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SCHEDULE I Base Rent Amounts and Payment Dates
SCHEDULE II INTENTIONALLY OMITTED
SCHEDULE III Pricing Assumptions
SCHEDULE IV Stipulated Loss Values
SCHEDULE V Additional Rent Amounts
SCHEDULE VI INTENTIONALLY OMITTED
SCHEDULE VII Schedule VII Contracts
EXHIBIT A Description of the Facility
EXHIBIT B Description of the Site
EXHIBIT C Description of the Facility Site
EXHIBIT D Intentionally Omitted
EXHIBIT E Description of the Reserved Areas
EXHIBIT F Form of Memorandum of Amended and Restated Lease
EXHIBIT G Transmission Line Survey
APPENDIX I Definitions
</TABLE>
v
<PAGE>
This AMENDED AND RESTATED LEASE AGREEMENT, dated December 22, 1995 (this
"Lease"), is entered into by and between SCRUBGRASS GENERATING COMPANY, L.P., a
-----
Delaware limited partnership, as Lessor ("Lessor"), and BUZZARD POWER
------
CORPORATION, a Delaware corporation, as Lessee ("Lessee").
------
Lessor and Lease have previously entered into that certain Lease Agreement
dated as of June 17, 1994 (the "Original Lease Agreement"), for which a
Memorandum of Lease was filed in the records of the County Clerk of Venango
County at Book 0012, Page 0523 on July 6, 1994 (the "Original Memorandum of
Lease").
Lessor and Lessee desire to amend and restate the Original Lease Agreement
as set forth herein.
It is a condition precedent to the amendment and restatement of the
Original Participation Agreement (as defined below) that the parties hereto
enter into this Lease and amend and restate the Original Lease Agreement.
Lessor and Lessee desire to continue (but not terminate) the lease of the
Site and the Facility (as each such term is defined in the Original Lease
Agreement) subject to the terms and conditions of this Lease.
In consideration of the mutual agreements herein contained and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
ARTICLE I
INTERPRETATION
SECTION 1.01. Definitions. Except as otherwise expressly provided or unless
-----------
the context otherwise requires, capitalized terms used in this Lease and its
Schedules and Exhibits and not otherwise defined shall have the meanings given
in Appendix I to the Amended and Restated Participation Agreement, dated
December 22, 1995, (the "Amended and Restated Participation Agreement"), among
--------------------------------------------
Lessor, Lessee, the Bond Trustee, the Lessee Parent, Agent and the Disbursement
Agent, a copy of which Appendix I is attached hereto and which amends and
restates (as and to the extent set forth in the Amended and Restated
Participation Agreement) that certain 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 by Amendment Number
Four to Participation Agreement dated as of June 17, 1994 (as so amended and in
effect immediately prior to the Effective Date, the "Original Participation
----------------------
Agreement"). Except as
- ---------
1
<PAGE>
otherwise required by the context, such definitions shall be equally applicable
to the singular or plural forms of the terms defined. References to "Articles,"
"Sections," "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules
or Exhibits of this Lease and references to paragraphs shall be to separate
paragraphs of the Section or subsection in which the reference occurs, unless
otherwise expressly provided. All references herein to any agreements shall be
to such agreement as amended and supplemented or modified to the date of
reference. All references to a particular entity shall include a reference to
such entity's successor and permitted assigns. The words "herein", "hereof" and
"hereunder" shall refer to this Lease as a whole and not to any particular
section or subsection of this Lease. "Includes" or "including" shall mean
"including without limitation."
ARTICLE II
LEASE
SECTION 2.01. Lease. In reliance on the truth and accuracy of the
-----
representations and warranties set forth in the Amended and Restated
Participation Agreement and subject to the terms and conditions set forth in
this Lease and the other Transaction Documents, the lease by Lessor pursuant to
the Original Lease Agreement, subject to Permitted Liens, of all of its right,
title and interest in and to the Site, together with the Facility, to Lessee is
hereby ratified, confirmed and continued pursuant to the terms of this Lease,
and the acceptance and lease by Lessee, subject to Permitted Liens, of the Site,
together with the Facility, from Lessor pursuant to the Original Lease
Agreement, for a term (the "Basic Term") which commenced on the Lease
----------
Commencement Date and shall terminate on the twenty-second (22nd) anniversary of
the Lease Commencement Date, subject to earlier termination pursuant to Section
7.01 or 13.02 hereof or Article XI of the Amended and Restated Participation
Agreement and renewal pursuant to Section 9.01 hereof (the Basic Term, together
with any Renewal Term being the "Lease Term") is hereby ratified, confirmed and
----------
continued pursuant to the terms of this Lease. The Facility is more particularly
described in Exhibit A and the Site is more particularly described in Exhibit B.
SECTION 2.02. Utility Easements. Each party hereto grants to the other the
-----------------
nonexclusive right and easement, and agrees to join in the granting of such
easements to appropriate public authorities or public utilities, during the
Lease Term, to install, maintain, relocate, reopen, and replace at locations
reasonably acceptable to the affected party, utility facilities, such as, but
not limited to conduits for water, gas, electricity, and telephone, and storm
and sanitary sewers, over, through and under the Site, as are reasonably
required to provide proper services for the Facility and any other improvements
now or hereafter constructed on the Site by Lessor or Lessee.
SECTION 2.03. Lessor Assignment During Lease Term. (a) The assignment,
-----------------------------------
transfer and setting over pursuant to the Original Lease Agreement by the
Lessor, for and during the Lease Term, but subject to the limitations set forth
herein and in any other Transaction
2
<PAGE>
Document, to and for the benefit of Lessee, of all of Lessor's rights, title,
interests and obligations in and under the Principal Project Agreements (except
the Partnership Agreement, any Schedule VII Contract (as defined in paragraph
(b)(below) and this Lease) (and including any contract assigned to Lessor
pursuant to Section 2.04), including, in each case, the right to enforce, at
Lessee's expense, the rights and warranties in such Principal Project Agreements
and, subject to the assumption by Lessee of all duties, liabilities and
obligations during the term of such assignment, all rights to any payments made
and all amounts due and payable during the Lease Term pursuant to such Principal
Project Agreements is hereby ratified, confirmed and continued pursuant to the
terms of this Lease; provided, however, that, subject to Section 2.03(c) hereof,
-------- -------
Lessor shall reserve and retain the right, but not to the exclusion of Lessee,
to take any action or exercise any rights in respect of any of the following:
(i) Lessor's right to exercise remedies against the Operator upon a
default by the Operator under the O&M Agreement;
(ii) Lessor's right to exercise remedies against the Project Manager
upon a default by the Project Manager under the Project Management
Agreement; and
(iii) Lessor's right to replace, remove or appoint a successor to the
Operator under the O&M Agreement and the Project Manager under the Project
Management Agreement;
provided, further, that notwithstanding anything contained herein or in any
- -------- -------
other Transaction Document to the contrary, and without limiting any rights
which Lessor otherwise may have, Lessor shall reserve and retain the right to
all Segregated Lessor Revenues (as defined in the Amended and Restated
Reimbursement Agreement) to the exclusion of Lessee, but in accordance with the
Loan Documents.
Lessee (X) hereby confirms that it has, pursuant to the Original Lease
Agreement, performed and discharged prior to the Effective Date, and (Y) hereby
assumes and agrees to perform and discharge, on and after the Effective Date,
all the duties, liabilities and obligations to be performed by Lessor under, and
to satisfy all the terms and conditions of and to keep in full force and effect,
such Principal Project Agreements during the Lease Term, including (i) all
obligations to deliver energy or capacity during the Lease Term pursuant to the
Power Purchase Agreement and (ii) prosecution, settlement or compromise of all
claims for damages arising under any representation, warranty, covenant,
indemnity, guarantee or agreement in any such Principal Project Agreement, all
as though Lessee were named in each such Principal Project Agreement at all
times during the Lease Term in lieu of Lessor; provided, however, that Lessee
-------- -------
shall have no obligation to keep in effect any Principal Project Agreement past
the date on which the term of such agreement expires without the occurrence of
any default or other early termination event thereunder.
(b) Lessor and Lessee acknowledge that the contracts listed on Schedule VII
hereto (the "Schedule VII Contracts") require prior written consent to
assignment, which as of the
3
<PAGE>
Effective Date has not been received, and that the Schedule VII Contracts,
although Principal Project Agreements, have not been assigned by Lessor to
Lessee. Operator shall have the right to use any equipment covered by the
Schedule VII Contracts in the operation of the Project. Lessee agrees that it
shall together with Lessor and the Operator comply with all of the terms and
conditions of the Schedule VII Contracts as though such contracts had been
assigned to Lessee as of the Lease Commencement Date. At such time as written
consent to assign any Schedule VII Contract is received, such contract shall be
deemed to be effectively assigned to Lessee hereunder and shall thereupon be
removed from Schedule VII.
(c) If at any time a Default shall have occurred and be continuing under
any Transaction Document, Lessee shall consult with Lessor and act upon
instructions from Lessor with respect to the Principal Project Agreements, and
if at any time an Event of Default under any Transaction Document shall have
occurred and be continuing: (i) at Lessor's option, the authorization given
hereunder to Lessee to enforce rights and claims in lieu of Lessor shall
thenceforth cease to be effective and Lessor shall, to the exclusion of Lessee,
be entitled to assert and enforce such rights and claims as substitute party
plaintiff or otherwise, and Lessee shall cooperate with Lessor and take such
action as Lessor reasonably deems necessary to enable Lessor to enforce such
rights and claims, and (ii) whether or not Lessor exercises its option under
clause (i) above, Lessor shall, subject to Section 2.07 hereof, be entitled to
receive all proceeds and revenues from any Principal Project Agreement and any
proceeds from proceedings relating to the enforcement of rights under the
Principal Project Agreements. Upon the termination of this Lease by reason of
the exercise of remedies or otherwise, the assignments created or continued
under Section 2.03(a) herein shall cease to be effective and all rights and
obligations under the Principal Project Agreements shall revert to Lessor.
(d) The exercise by Lessor of any of the rights assigned hereunder shall
not release Lessee from any of its duties or obligations to the other parties
under the Principal Project Agreements except to the extent that such exercise
by Lessor shall constitute performance of such duties and obligations.
SECTION 2.04. Lessee Assignment. (a) Lessee agrees to assign, transfer and
-----------------
set over to and for the benefit of Lessor, all of Lessee's rights, title,
interests and obligations in and under any Additional Contract to which Lessee
becomes a party during the Lease Term, and any such Additional Contract shall be
automatically assigned back to Lessee for the Lease Term pursuant to Section
2.03.
(b) Lessee agrees to assign, transfer and set over to and for the benefit
of Lessor (and, during the period while any Senior Debt is outstanding, the Bank
Parties), as collateral security for its obligations hereunder, all of its
right, title and interest in and to each Principal Project Agreement, including
each Additional Contract, assigned to it by Lessor for the Lease Term under
Section 2.03.
SECTION 2.05. Use; EPC Contracts: Sale of Transmission Line. (a) Lessee
---------------------------------------------
shall use the Facility and Facility Site solely for the purposes and in the
manner contemplated by the
4
<PAGE>
Transaction Documents. Lessee shall not use the Reserved Areas except as
permitted by the Transaction Documents and with the prior written consent of
Lessor, which consent may be withheld in Lessor's sole discretion. Lessor hereby
reserves to itself the use of the Reserved Areas for any use whatsoever so long
as such use does not unreasonably interfere with the use of the Facility Site by
Lessee pursuant to this Lease.
(b) Lessee acknowledges the terms of the Facility EPC Contract, the
Transmission Line EPC Contract and the Contract for Engineering, Procurement and
Construction Services dated as of November 25, 1991 between Lessor and Roberts &
Schaefer Company, a Delaware corporation, and agrees that none of Lessor, any of
its Partners, or any officers, directors, employees or agents of any of them,
shall be liable to Lessee for, and that Lessor shall be under no obligation to
Lessee due to, and that Lessee shall have no rights against Lessor, any of its
Partners, or any officers, directors, employees or agents of any of them, due
to, the failure of any party to fulfill its obligations under the Facility EPC
Contract, the Transmission Line EPC Contract or the Contract for Engineering,
Procurement and Construction Services dated as of November 25, 1991 between
Lessor and Roberts & Schaefer Company, a Delaware corporation, whether prior to
the Lease Commencement Date or otherwise.
(c) Notwithstanding anything contained herein or in any other Transaction
Document to the contrary, and without limiting any rights which Lessor otherwise
may have, Lessor hereby retains the sole right (i) to sell or otherwise transfer
or dispose of the Transmission Line and that portion of the Site and the
Facility Site described in the Transmission Line Survey attached hereto as
Exhibit G, and (ii) to receive the proceeds of such sale or transfer (the
"Lessor Transmission Line Proceeds"), such rights being subject to and
---------------------------------
conditioned upon Lessor, Lessee and a third-party reasonably acceptable to
Lessor and Lessee entering into a transmission services agreement for the
transmission of electricity to the Power Purchaser reasonably satisfactory to
Lessor and Lessee (collectively, the "Transmission Line Transfer Rights").
---------------------------------
Lessee hereby confirms Lessor's Transmission Line Transfer Rights. Lessor's use
and application of the Lessor Transmission Line Proceeds shall be subject to the
requirements of the Loan Documents.
SECTION 2.06. Personal Property. Lessee and Lessor agree for purposes of
-----------------
this Lease that the Facility and every part of the Facility shall be considered
as personal and not real property. Lessee and Lessor agree that the Facility and
every part of the Facility is severed from any real property and is readily
moveable and, even if physically attached to such real property, it is the
intention of Lessee and Lessor that the Facility and every part of the Facility
(i) shall retain the character of personal property, (ii) shall be removable,
(iii) shall be treated as personal property with respect to the rights of all
Persons whomsoever, (iv) shall not become part of any real property, and (v) by
virtue of its nature as personal property, shall not be affected in any way by
any instrument dealing with any real property.
SECTION 2.07. Application of Funds. Each of Lessor and Lessee hereby
--------------------
acknowledge and agree that all Project Revenues paid or payable to Lessee or
Lessor from any party during the term hereof shall be paid directly to the
Operating Account held by the
5
<PAGE>
Disbursement Agent in accordance with the terms of the Amended and Restated
Disbursement Agreement. Any payments made directly to or received by Lessee in
contravention of this Section 2.07 shall be held by Lessee in trust for the
benefit of the Disbursement Agent and promptly remitted to the Disbursement
Agent by Lessee.
SECTION 2.08. Original Lease Agreement. Effective on the Effective Date,
------------------------
the Original Lease Agreement shall automatically, without any further notice,
consent or other act, be amended and restated hereby and to the extent this
Lease restates the Original Lease Agreement, the Original Lease Agreement is
restated and to the extent this Lease amends the Original Lease Agreement, the
Original Lease Agreement is amended; provided, that the lease of the Facility
--------
and the Site by the Lessee pursuant to the Original Lease Agreement and the
security interests granted to the Lessor by the Lessee pursuant to, and the
liens in favor of the Lessor created by, the Original Lease Agreement and the
Lessee Security Agreement in favor of the Lessor, shall be ratified, confirmed
and continued (but not be terminated) upon the effectiveness of this Lease, as
the terms and conditions thereof may be amended and restated hereby.
ARTICLE III
RENT
SECTION 3.01. Amounts of Rent.
---------------
(a) Basic Rent. Basic Rent shall consist of Basic Rent (Interest),
----------
Basic Rent (Principal) and Basic Rent (Equity). Lessee shall pay to Lessor
Basic Rent as follows:
(i) Basic Rent (Interest). Lessee shall pay to Lessor, as Basic
---------------------
Rent (Interest), such amounts as shall equal all interest payable in
respect of the Senior Debt and Fees for the Letters of Credit and for
undisbursed loan proceeds in respect of the Senior Debt. All amounts
of Basic Rent (Interest) shall be payable by Lessee on the same day
and in the same amounts as the corresponding interest and/or Fees are
payable by Lessor in respect of the Senior Debt pursuant to the
Amended and Restated Reimbursement Agreement and the Bond Documents.
Prior to any payment of Basic Rent (Interest), Lessor shall notify or
cause the notification of Lessee and Disbursement Agent on behalf of
Lessee, of the amount and due date for such payment, but failure by
Lessor to provide such notice shall not relieve Lessee of its
obligation to pay all Basic Rent (Interest) due hereunder.
(ii) Basic Rent (Principal). Subject to adjustments as provided
----------------------
herein, Lessee shall pay to Lessor, as Basic Rent (Principal), on each
Rent Payment Date, an amount equal to the amount of Basic Rent
(Principal) set forth opposite such Rent Payment Date on Schedule I
hereto, provided, however, that in the event scheduled principal
-------- -------
amortization of the Senior Debt shall be accelerated
6
<PAGE>
pursuant to the Amended and Restated Reimbursement Agreement, then the
amount of Basic Rent (Principal) due on any Rent Payment Date during
such period of acceleration shall be increased so as to equal the
increased installment of principal then due on the Senior Debt. In the
event the scheduled principal amortization of the Senior Debt shall be
decelerated (following a prior acceleration) pursuant to the Amended
and Restated Reimbursement Agreement, then the amount of Basic Rent
(Principal) due on any Rent Payment Date shall equal the amount which
was originally due, prior to the acceleration and deceleration;
provided, however, installments of Basic Rent (Principal) shall be
-------- -------
reduced dollar-for-dollar by the amount of Basic Rent (Principal) paid
during any period of acceleration which is applied to the repayment of
principal of Senior Debt to the same extent and in the same manner
that installments of principal of the Senior Debt are reduced pursuant
to the Amended and Restated Reimbursement Agreement.
(iii) Basic Rent (Equity). Subject to adjustments as provided
-------------------
herein, Lessee shall pay to Lessor as Basic Rent (Equity), on each
Rent Payment Date an amount equal to the amount of Basic Rent (Equity)
set forth opposite such Rent Payment Date on Schedule I hereto. In the
event the scheduled principal amortization of the Senior Debt shall be
accelerated pursuant to the Amended and Restated Reimbursement
Agreement, then all amounts of Basic Rent (Equity) due on any Rent
Payment Date during any period of acceleration shall be suspended and
deferred pending adjustment upon the deceleration of the scheduled
principal amortization of the Senior Debt pursuant to the Amended and
Restated Reimbursement Agreement or until payment in full of the
Senior Debt.
(iv) Effective Date Adjustments. Without limiting the generality
--------------------------
of this Section 3.01(a), Section 3.04 and Section 5.06, on the
Effective Date, the Lessor will incur the New Term Loan and all
Supplemental Term Loans (as defined in the Original Participation
Agreement) will be repaid by the application of certain of the
proceeds of such New Term Loan. Accordingly, Lessor and Lessee
expressly acknowledge and agree (A) that the amount of Basic Rent
(Principal) and the Stipulated Loss Value set forth for each Rent
Payment Date on Schedule I and Schedule IV respectively reflect the
adjustment of Senior Debt as a result of the repayment of the
Supplemental Term Loans and the incurrence by Lessor of the New Term
Loan on the Effective Date and (B) that all payments of Basic Rent
(Interest), Basic Rent (Principal) and Stipulated Loss Value under
this Lease shall reflect the incurrence of the New Term Loan by the
Lessor and the related adjustment of Senior Debt.
(b) Additional Rent. In addition to Basic Rent, on each Rent Payment
---------------
Date Lessee shall pay to Lessor as additional rent (the "Additional Rent")
---------------
an amount equal to the product of all Project Revenues (if any) remaining
for distribution following distribution of all amounts through and
including item Seventeenth as directed under
-----------
7
<PAGE>
Section 13.01(c)(ii) of the Amended and Restated Reimbursement Agreement
times the Additional Rent Percentage. Lessee shall record on Schedule V
hereto the amount of each payment of Additional Rent paid to Lessor
pursuant to this Section 3.01(b). Calculations of Additional Rent hereunder
shall be adjusted to reflect any amounts paid to Lessor and/or Lessee in
accordance with Section 7.03(b) or 7.03(e) of the Tax Indemnity Agreement
(which provides for the repayment of certain deposits as if subject to
calculation under this Section 3.01(b)).
(c) Supplemental Rent. Lessee shall pay to Lessor, or to whomever
-----------------
shall be entitled thereto (as set forth herein or in any other Transaction
Document), any and all Supplemental Rent as the same shall become due and
payable. Without limiting the generality of the foregoing, Lessee shall
pay, as Supplemental Rent (Senior Debt), such amounts as shall be equal to
the amounts due and payable with respect to the Senior Debt other than
principal and interest thereon, such amounts to include, without
limitation, any penalties or other amounts due as a result of redemption,
declaration of acceleration or otherwise.
SECTION 3.02. Method and Place of Payment. Lessor hereby directs, and
---------------------------
Lessee agrees that all Rent payable to Lessor or any other Person shall be paid
by the Disbursement Agent by disbursement of funds at the times and in the
manner provided in the Amended and Restated Disbursement Agreement. Each payment
of Rent shall be made on the scheduled date on which such payment shall be due,
unless such scheduled date shall not be a Business Day, in which case such
payment shall be made on the next succeeding Business Day, together with
interest accrued from the scheduled payment date to such Business Day at the
Applicable Rate.
SECTION 3.03. Late Payment. If there shall be any failure to pay any Rent
------------
or any other amount due hereunder, Lessee shall pay on demand to Lessor or such
other Person as is entitled thereto, as Supplemental Rent, interest at the
Default Rate on such overdue Rent or other amount, from and including the due
date therefor to but excluding the date of payment. If any Rent payment shall be
received by the payee after 12:00 noon, local time at the place of receipt, on
the date due, Lessee shall pay interest as aforesaid at the Default Rate for
each additional day up to but excluding the succeeding Business Day.
SECTION 3.04. Recomputation of Basic Rent and Stipulated Loss Value for
---------------------------------------------------------
Changes After the Lease Commencement Date.
------------------------------------------
(a) Adjustment Events Not Caused by Acceleration. The amounts of Basic
--------------------------------------------
Rent (Equity) and Stipulated Loss Value, and, only in the case of
adjustment under clauses (ii) or (iii), Basic Rent (Principal), shall be
adjusted pursuant to this Section 3.04 where one or more of the following
occur after the Effective Date:
(i) Payments under Tax Indemnity Agreement. An Indemnifiable Tax
--------------------------------------
Loss occurs pursuant to Section 4.01 of the Tax Indemnity Agreement;
8
<PAGE>
(ii) Financing of Alterations. Lessor or the Banks shall finance
------------------------
the making of any Alterations in accordance with the terms of Section
5.06 hereof;
(iii) Prepayments with Lessor Transmission Line Proceeds. Any of
--------------------------------------------------
the Lessor Transmission Line Proceeds (as defined in Section 2.05(c)
of this Lease) are used to make any prepayment of any Loan.
(b) Adjustments for Acceleration. If at any time the amortization of
----------------------------
principal due on the Senior Debt is accelerated pursuant to the Amended and
Restated Reimbursement Agreement and thereafter decelerated or paid in
full, Basic Rent (Equity) shall be recalculated to provide to Lessor, over
the remaining term of the Lease, its Economic Return at the same level as
assumed upon originally entering into the Original Lease Agreement.
Stipulated Loss Values shall be adjusted to appropriately reflect any
adjustments to Basic Rent made pursuant to this Section.
(c) Adjustments for Refinancing. If at any time after the Effective
---------------------------
Date all or a portion of the Senior Debt is subject to a Refinancing, Basic
Rent (Principal), Basic Rent (Equity) and Stipulated Loss Value shall be
adjusted as Lessor, Lessee, any holders of Senior Debt and any holder of
Debt which replaces Senior Debt may agree. It is understood that
adjustments of Basic Rent (Interest) shall be made automatically in
accordance with the terms of Section 3.01(a)(i) hereof.
(d) Principles of Adjustments. All adjustments pursuant to
-------------------------
subsections (b) of Section 3.04 hereof shall be made as promptly as
practicable after either Lessor or Lessee gives written notice to the other
that an event has occurred which might require an adjustment. All such
adjustments shall be calculated in a manner which:
(i) under all circumstances and in any event, notwithstanding
anything contained herein or in any other Transaction Document,
maintains Basic Rent (Interest), Basic Rent (Principal), Supplemental
Rent (Senior Debt) and Stipulated Loss Value at levels required to
enable Lessor to pay the principal, interest, penalty and any other
amounts due with respect to Senior Debt, whether at maturity, by
redemption, by declaration of acceleration or otherwise;
(ii) maintains the Economic Return of the Partners, by
adjustments to Basic Rent (Equity) during the Basic Term or upon the
payment, when due, of Stipulated Loss Value;
(iii) to the extent possible consistent with clauses (i) and (ii)
above, minimizes the Present Value of Basic Rent payable over the
Basic Term, provided, that in the case of an adjustment affecting
--------
Basic Rent (Principal), such Basic Rent (Principal) may only be
adjusted to the extent agreed by the Bank Parties in approving any
such adjustment; and
9
<PAGE>
(iv) utilizes the same methodology and assumptions used by Lessor
in determining the Basic Rent (Principal) and Basic Rent (Equity) and
Stipulated Loss Value as of the Lease Commencement Date, except as
such assumptions have been modified hereunder, and satisfying the
requirements, to the extent practicable, of Section 467 of the Code as
in effect at the time of such recalculation or adjustment (on a
prospective basis), but the provisions of this clause (d) shall not
adversely affect any right of Lessor to indemnification in respect of
the application of Section 467 of the Code as a result of such event
under the Tax Indemnity Agreement and, except to the extent the same
was not satisfied on the Lease Commencement Date, in all cases, on a
prospective basis, Rev. Procs. 75-21 and 75-28 as in effect on the
Lease Commencement Date and F.A.S.B. Statement No.13 for treatment in
respect of the Lessor as a leveraged lease; provided that any
--------
requirement identified in this paragraph shall not apply to the extent
the same was not satisfied as of the Lease Commencement Date.
(e) Manner of Making Adjustments. (i) Lessor shall calculate all
----------------------------
adjustments to be made pursuant to Section 3.04(a) or (b) and shall notify
Lessee and, so long as the Senior Debt or any Obligations are outstanding,
Agent, of the proposed adjustments and the event(s) causing such
adjustments, at least 30 days prior to the date on which such adjustments
shall become effective. If Lessee believes that any such calculations by
Lessor are in error, then a nationally recognized firm of accountants
selected by Lessee and acceptable to Lessor shall verify such calculations
and Lessor will make available to such firm (subject to the execution by
such firm of a confidentiality agreement reasonably acceptable to Lessor,
which agreement shall prohibit disclosure of Lessor's assumptions to any
third party, including Lessee) such methodology and assumptions and any
changes made hereunder. In the event of such a verification, the
determination by such firm of accountants shall be final. Lessor will pay
the reasonable costs and expenses of the verification if such verification
procedure results in a decrease in Basic Rent which decreases the Present
Value of Basic Rent (Equity) by more than fifty basis points from the
Present Value of Basic Rent (Equity) as recalculated by Lessor. In all
other cases, such costs and expenses shall be payable by Lessee.
(ii) Any adjustments made in connection with a Refinancing shall be
made at the time of such Refinancing upon agreement by Lessee, Lessor, any
holders of Senior Debt and any holder of Debt replacing Senior Debt upon
the terms of such adjustments.
(iii) Any increase of Basic Rent (Equity) in respect of any Rent
Payment Date as a result of an adjustment pursuant to Section 3.04(a)(i)
shall be payable in accordance with Sections 4.04 and 4.07 of the Tax
Indemnity Agreement.
(f) Further Assurances. At the time any adjustment is made pursuant to
------------------
this Section 3.04, the parties hereto agree to enter into an amendment or
supplement hereto to reflect such adjustment and to enter into such
amendments and supplements to the other Transaction Documents (including an
amendment to Schedule III to reflect any
10
<PAGE>
altered pricing assumptions and an amendment to the Tax Indemnity
Agreement to reflect any changes in the Assumed Tax Consequences) and do
such further acts and things as may be reasonably required in order to
effectuate such adjustment.
SECTION 3.05. Net Lease; No Setoff. (a) This Lease is a net lease, and it
--------------------
is intended that Lessee shall pay or cause to be paid all costs and expenses of
every character, whether foreseen or unforeseen, ordinary or extraordinary, in
connection with the Facility and the Site, whether with respect to the use,
possession, control, operation, maintenance, repair (structural or
nonstructural), or reconstruction of the Facility and the Site by Lessee or
otherwise, including without limitation all costs, license and technical service
fees, taxes (except as otherwise provided herein) and all other costs and
expenses particularly set forth in this Lease.
(b) Notwithstanding any other provision of this Lease or any other
Transaction Document, the obligations of Lessee under the Amended and Restated
Participation Agreement, the Amended and Restated Disbursement Agreement, this
Lease and any other Transaction Document to which it is a party shall be
unconditional and absolute and all Rent shall be paid, and all obligations of
Lessee hereunder and under the other Transaction Documents shall be performed,
when due without notice, demand, counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction of any kind
whatsoever. The obligations and liabilities of Lessee hereunder shall in no way
be released, discharged or otherwise affected (other than by full and complete
performance) for any reason, including without limitation: (i) abandonment,
curtailment or cessation of operation or occupancy of the Facility or the Site;
(ii) failure of the Facility to produce electricity; (iii) any defect in the
condition, quality or fitness for use of the Site, the Facility, or any Part or
portion thereof; (iv) the breach by any party of its obligations under any
Transaction Document by any other party thereto; (v) any damage to or removal,
abandonment, salvage or scrapping of the Site, the Facility, or any Part or
portion thereof; (vi) any restriction, loss, prevention or curtailment of, or
interference with, any or all use, occupancy or employment of the Site, the
Facility, or any Part or portion thereof, whether due to changes in any
Requirement of Law or Governmental Approvals or otherwise; (vii) any defect in
or any Lien on title to the Site, the Facility, or any Part or portion thereof,
or any forbearance by Lessor or any other Person, whether as to payment or time
of performance or exercise of rights or remedies given in any Transaction
Document or any other agreement relating to the Site, the Facility, or any Part
or portion thereof, at law or in equity or by foreclosure, repossession, sale or
otherwise; (viii) any change, waiver, extension, indulgence or other action or
omission in respect of any obligation or liability of Lessee, Lessor, any Bank
Party, the Operator, the Disbursement Agent or any other Person; (ix) any
proceeding under any Bankruptcy Law relating to Lessee, Lessor, any Bank Party,
the Disbursement Agent or any other Person, or any action taken with respect to
this Lease by any Custodian of Lessee, Lessor, any Bank Party, the Disbursement
Agent or any other Person, or by any court; (x) any claim, counterclaim or
setoff that Lessee or any other Person has or might have against Lessor, any
Bank Party, the Operator, the Disbursement Agent or any other Person; (xi) any
failure on the part of Lessor, any Bank Party, the Disbursement Agent or any
other Person to perform or comply with any of the terms hereof or of any other
agreement; (xii) any
11
<PAGE>
invalidity, unenforceability, disaffirmance or lack of binding effect of this
Lease or any provision hereof or of any other Transaction Document, in each case
whether against or by Lessee or otherwise; (xiii) any sale, assignment or other
transfer of all or any part of the estate, right, title or interest of Lessor,
to, under or in respect of the Site, the Facility, or any Part or portion
thereof, any Transaction Document or other agreement relating thereto (whether
with or without the consent of the Agent, except as expressly provided in a
Transaction Document); (xiv) any exchange, release or nonperfection of any Lien
or any collateral for, or any release or amendment or waiver of, or consent to
any departure from, any other guarantee of any obligation hereunder or under any
other Transaction Document; (xv) any change in the ownership, direct or
indirect, of the capital stock of Lessee; (xvi) any occurrence of an Event of
Force Majeure or any doctrine of impossibility, frustration or failure of
consideration; (xvii) any change in any federal, state or local tax or other
Laws or any action of any Governmental Authority; (xviii) any nonpayment by the
Power Purchaser under the Power Purchase Agreement; or (xix) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing, whether
or not Lessee shall have notice or knowledge of any of the foregoing.
(c) Except as expressly provided herein, this Lease is not cancelable or
terminable by Lessee. Lessee, to the extent permitted by any Requirement of Law
or Governmental Approval, waives all rights now or hereafter conferred by any
Requirement of Law, Governmental Approval or otherwise to quit, terminate or
surrender this Lease other than as expressly provided herein. All payments by
Lessee made hereunder shall be final, and Lessee shall not seek to recover any
such payment or any part thereof for any reason whatsoever. Nothing in this
Lease shall be construed as a guarantee by Lessee of any residual value of the
Project or the Facility.
ARTICLE IV
OPERATION AND MAINTENANCE
SECTION 4.01. Operation and Maintenance. (a) Lessee, at its sole cost and
-------------------------
expense, shall at all times during the Lease Term operate, maintain, service,
repair and protect, or cause to be operated, maintained, serviced, repaired and
protected, the Facility, in a manner consistent with the operating assumptions
underlying the Effective Date Projections and shall keep the Facility in good
working order and condition and make all repairs, replacements and renewals with
respect thereto, in each case that are necessary (i) to keep the Facility in
good operating condition in accordance with the standards required by the Power
Purchase Agreement and the maintenance and operation standards required by the
other Transaction Documents and to comply in all respects with any other
requirements or standards imposed thereby, (ii) to cause the Facility to comply
with any applicable requirements of insurance policies in effect at any time
with respect to the Facility or any Part or portion thereof, (iii) to cause the
Facility to be maintained and operated consistent with Prudent Utility Practices
for similar facilities, (iv) to keep in full force and effect for their stated
term any material warranties with respect to the Facility or any Part thereof
and to keep the Facility and each Part thereof maintained in a
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manner consistent with the manufacturer's maintenance and service
recommendations, (v) to cause the Facility to remain in compliance with any
Requirement of Law and Governmental Approval (including all water, energy,
zoning, environmental protection, pollution, sanitary and safety Laws), (vi) to
maintain the Facility in good operating condition and good physical condition
and repair as on the Lease Commencement Date, ordinary wear and tear excepted,
(vii) to cause the Facility to continue to have the capacity and functional
ability to perform, on a continuing basis, in normal commercial operation, the
functions for which it was specifically designed and (viii) to maintain the
Facility as a Qualifying Facility; provided, however, that Lessee shall have no
-------- -------
liability for or duty to cure any Lessor QF Casualty, although Lessee recognizes
that such a Lessor QF Casualty could, under certain circumstances, create an
Event of Default under certain of the Transaction Documents. Lessor shall have
no obligation to operate, maintain, service, repair, protect or rebuild the
Facility or to make any repairs, replacements or renewals with respect thereto
or additions or betterments thereto.
(b) Lessee, at its sole cost and expense, shall at all times during the
Lease Term maintain, repair and protect, or cause to be maintained, repaired and
protected, the Site. Lessor shall have no obligation to Lessee to maintain,
repair or protect the Site or to make any repairs with respect thereto or
additions or betterments thereto.
(c) Intentionally Omitted.
SECTION 4.02. Operating Logs; Books and Accounts. (a) Lessee shall (i)
----------------------------------
maintain, or cause to be maintained, daily operating logs ("Operating Logs")
--------------
showing the production from the Facility, (ii) keep, or cause to be kept,
maintenance and repair reports ("Maintenance Reports") in sufficient detail to
-------------------
indicate the nature and date of all significant maintenance and repair
activities, and (iii) maintain, or cause to be maintained, all records and other
materials required by each applicable regulatory authority ("Regulatory
----------
Records") to be maintained in respect of the Facility. Such Operating Logs,
- -------
Maintenance Reports and Regulatory Records shall be kept on file at the Facility
and shall be made available to Lessor, Agent, the LOC Issuers and the Banks, or
the representatives of any of them upon request. Lessee shall maintain the
Operating Logs and Maintenance Reports for a period of not less than five years
after the end of each calendar year or such longer period as may be necessary to
keep in full force and effect any warranty, except that Maintenance Reports
respecting the maintenance history for major items of equipment shall be
maintained for the term of the Lease. Regulatory Records shall be maintained for
at least the period required by the applicable Governmental Authority or by any
Requirement of Law or Governmental Approval. Any such Operating Logs,
Maintenance Reports or Regulatory Records which Lessee is not required to
maintain pursuant to the foregoing provisions and which Lessee plans to destroy
shall be offered for delivery to Lessor before being destroyed by Lessee. At the
end of the Lease Term, Lessee shall deliver all Operating Logs, Maintenance
Reports and Regulatory Records in its possession to Lessor. If requested by
Lessor prior to the end of a calendar year, Lessee shall furnish Lessor, within
30 days after the end of such calendar year, at Lessor's expense, a complete
copy of the Operating Logs, Maintenance Reports and Regulatory Records for such
calendar year.
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(b) [Intentionally Omitted]
SECTION 4.03. Manuals. Lessee shall maintain, or cause to be maintained, at
-------
the Facility an accurate and complete set of operation and maintenance manuals,
vendor manuals, original plans and all supplements thereto, and an accurate and
complete set of "as built" drawings for the Facility and an "as built" survey of
the Site, which shall be amended and supplemented from time to time to reflect
on a current basis all improvements, additions and modifications to the
Facility. Each time a new manual or drawing is created, Lessee shall deliver a
copy of such manual or drawing to Lessor and Agent. At the end of the Lease
Term, Lessee shall deliver all such manuals and drawings to Lessor.
SECTION 4.04. Spare Parts. On the Lease Commencement Date, Lessor provided
-----------
to Lessee a supply of spare parts (the "Lessor Spare Parts"). Lessee shall
------------------
maintain, or cause to be maintained, at the Facility an adequate supply of spare
parts, in addition to the Lessor Spare Parts, with due consideration being given
to the nature of the Facility and the availability of spare parts, in order to
meet the reasonably anticipated needs for the operation of the Facility. At the
end of the Lease Term, Lessee shall make available for purchase by Lessor, and
Lessor shall purchase, at the Fair Market Value thereof, spare parts, other than
the Lessor Spare Parts, adequate to fulfill all normally anticipated needs of
the Facility for the succeeding twelve months. Fair Market Value shall be
determined by mutual agreement or, in the absence of such mutual agreement
within 30 days after the termination of the Lease Term, by the Appraisal
Procedure.
SECTION 4.05. Limitation on Liens. Lessee acknowledges that this Lease is
-------------------
in all respects subject and subordinate to the Lien of the Security Documents.
Lessee will not directly or indirectly create, incur, assume or suffer to exist
any Lien on or with respect to the Site, the Facility, any Project Revenues, the
Principal Project Agreements, the Collateral or any portion of any thereof,
title thereto or any interest therein or upon any of its property, assets or
revenues, including any interest in this Lease, whether now or hereafter
acquired, except for Permitted Liens and Lessor Liens. Lessee, at its own
expense, shall promptly take such action as may be necessary duly to discharge
or eliminate or bond in a manner satisfactory to Lessor and the Agent any Lien
not permitted above if the same shall arise at any time. In connection
therewith, Lessor agrees to cooperate with Lessee to the extent that such
cooperation is necessary by reason of Lessor's ownership of or other interest in
the Facility, any Project Revenues, the Site, the Principal Project Agreements
or the Collateral. Lessee further agrees that it shall pay or cause to be paid
on or before the time or times prescribed by Law any Taxes imposed on Lessee (or
any affiliated or related group of which Lessee is a member) or on the Site, the
Facility, the Project Revenues, the Principal Project Agreements, the Collateral
or any portion of any thereof under the laws of any jurisdiction that, if
unpaid, would result in any Lien prohibited by this Lease or in any penalty.
SECTION 4.06. Regulation. Lessee shall not engage in any activities or, to
----------
the extent within its control, permit actions or omissions that would cause the
Project to fail to meet the criteria for a Qualifying Facility.
14
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ARTICLE V
PARTS; ALTERATIONS
SECTION 5.01. Replacement of Parts. If any Damage which does not constitute
--------------------
an Event of Loss shall occur to any Part, Lessee, at its own expense and,
pursuant to the terms of the Amended and Restated Disbursement Agreement and the
Amended and Restated Reimbursement Agreement, with any Insurance Proceeds with
respect thereto, shall promptly restore and repair, or cause to be restored and
repaired, or replace, or cause to be replaced, any such Part in a good and
workmanlike manner. Lessee may remove, or cause to be removed, any Part in the
ordinary course of maintenance, service, repair or testing, but shall replace,
or cause to be replaced, such Part as promptly as practicable in accordance
herewith; provided, however, that if the fair market value of any removed Part
-------- -------
exceeds $10,000 and such Part must be taken out of the Commonwealth of
Pennsylvania for such purpose, Lessee shall provide Lessor and the Agent with
evidence that the Lien of the Security Documents with respect to such Part is
perfected; and provided, further that Lessee shall not make any such removal or
-------- -------
replacement if such removal or replacement shall cause Lessee to be in violation
of Section 4.01 or 4.05. All replacement Parts shall be free and clear of all
Liens except Permitted Liens and Lessor Liens and shall be in at least as good
an operating condition as, and shall have a fair market value, residual value,
remaining economic useful life and utility to Lessor at least equal to the Parts
replaced, assuming such replaced Parts were in the condition and repair required
to be maintained by the terms hereof. Any item which replaces a Part hereunder
shall, immediately upon installation or identification as such replacement,
become a Part hereunder, and title thereto shall immediately and automatically
vest in Lessor.
SECTION 5.02. Alterations.
-----------
(a) Required Alterations. Lessor shall, at its sole cost and expense,
--------------------
as soon as practicable after any such requirements shall arise and with
reasonable dispatch, make or cause to be made in a good and workmanlike
manner all such Alterations to the Facility and the Site as may be
necessary from time to time to meet any Requirement of Law or Governmental
Approval or any insurance policies in effect at any time with respect to
the Facility or the Site or to obtain any Governmental Approval necessary
for the operation of the Facility in such manner as will comply with the
requirements of the Transaction Documents, or otherwise to comply with the
terms of Section 4.01. Such Alterations shall be effected in a manner which
does not (i) decrease the Fair Market Value of the Facility or the Site or
(ii) decrease the remaining economic useful life or residual value of the
Facility or the Site or (iii) cause the Facility to become "limited use
property" within the meaning of Revenue Procedure 76-30 or (iv) diminish
the net kilowatt output capacity, performance or efficiency of the
Facility, except as an unavoidable consequence of an Alteration required by
any Requirement of Law or Governmental Approval. Title to any Alteration
made pursuant to this Section 5.02(a) shall immediately vest in Lessor.
15
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(b) At Option of Lessee. Lessee shall not make any Alterations to the
-------------------
Facility or the Site without the prior written consent of Lessor, which
consent may be withheld in Lessor's sole discretion. Such Alterations shall
be effected in a manner (i) consistent with the terms of Section 4.01, (ii)
which docs not, either alone or when aggregated with all prior voluntary
Alterations, decrease the Fair Market Value of the Facility or the Site or
decrease the remaining economic useful life or residual value of the
Facility or the Site or cause the Facility to become "limited use property"
within the meaning of Revenue Procedure 76-30 or diminish the net kilowatt
output capacity, performance or efficiency of the Facility, and (iii) which
would not adversely affect the status of the Facility as a Qualifying
Facility. Title to any Nonseverable Alteration made pursuant to this
Section 5.02(b) shall immediately vest in Lessor. Title to any Severable
Alteration made pursuant to this Section 5.02(b) shall, subject to Lessor's
right to purchase set forth in Section 5.05 and to the Security Documents
remain with Lessee. Unless purchased or leased by Lessor, all such
Severable Alterations owned by Lessee shall be removed by Lessee upon the
expiration or other termination of this Lease, and Lessee shall restore the
Facility to the condition required by Section 4.01; provided, however, that
-------- -------
upon termination of this Lease as a result of the exercise of remedies by
Lessor, all Severable Alterations then part of the Facility shall be deemed
to be part of the Facility, title thereto shall immediately vest in Lessor,
and Lessee shall have no right to remove any such Alteration.
(c) Other Improvements. Lessee acknowledges the scope of certain
------------------
additional improvements to the Facility and the Site contemplated in the
Effective Date Projections to be completed after the Effective Date and
agrees that it shall, to the extent such improvements are or will in a
timely fashion be paid for by Lessor, and as soon as practicable and with
reasonable dispatch, make or cause to be made in a good and workmanlike
manner all such improvements to the Facility and the Site. Lessor agrees to
pay for any such improvements to the extent proceeds are available therefor
from New Term Loans or funds remaining in the Construction Account, and
title to any improvements made pursuant to this Section 5.02(c) shall
immediately vest in Lessor.
SECTION 5.03. Title to Parts . All Parts (other than Severable Alterations
--------------
pursuant to Section 5.02(b) title to which is vested in Lessee) at any time
removed from the Facility shall remain the property of Lessor, no matter where
located, until such time as such Parts shall be replaced by Parts that have been
incorporated in the Facility and that meet the requirements for replacement
Parts specified in Section 5.01. Immediately upon any replacement Parts becoming
identified for use in connection with the Facility, without further act, so long
as no Default or Event of Default under any Transaction Document shall have
occurred and be continuing, (a) title to the removed Part shall thereupon vest
in Lessee, free and clear of all rights of Lessor, (b)title to such replacement
Part shall thereupon vest in Lessor and be subject to the Lien of the Security
Documents and (c) such replacement Part shall become subject to this Lease and
be deemed part of the Facility for all purposes hereof to the same extent as the
Parts originally incorporated in the Facility. Prior to or on the date of
installation of any replacement Part or of any Nonseverable Alteration or upon
any Severable Alteration's becoming a Nonseverable
16
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Alteration, Lessee, if requested by Lessor, at no expense to Lessor, shall (A)
cause to be furnished to Lessor a bill of sale, in form and substance reasonably
satisfactory to Lessor and the Agent conveying title to such replacement Part or
Nonseverable Alteration to Lessor, free and clear of all Liens except Permitted
Liens and Lessor Liens and (B) cause to be furnished to Lessor and the Agent
such further evidence of Lessor's title to and the condition of such replacement
Part as Lessor or the Agent shall reasonably request.
SECTION 5.04. Reports of Alterations. Within 60 days following (i) the end
----------------------
of each calendar year during the Lease Term and (ii) the Lease Termination Date,
Lessee shall furnish Lessor with a report stating the total cost of all
Alterations made to and all material Parts installed in the Facility and the
Site during the period from the end of the period covered by the last previous
report to the end of such calendar year (or, if such report is rendered on the
Lease Termination Date, to the Lease Termination Date) and describing separately
and in sufficient detail such Alterations and material Parts which shall have
been made or installed, as the case may be, during such period, or stating that
no such Alterations or material Parts were made or installed, as the case may
be, during such period. Each such report shall indicate the actual installed
cost thereof. Failure to report any such Alteration in the manner required
herein shall not, however, affect the ownership of such Alteration in Lessor.
SECTION 5.05. Removal of Parts; Lessor's Right To Purchase Certain Parts.
----------------------------------------------------------
Subject to the proviso of the last sentence of Section 5.02(b), all Parts
incorporated in the Facility to which Lessee shall have title pursuant to the
provisions of this Article V may, so long as such removal shall not result in
any violation of any Requirement of Law or Governmental Approval and so long as,
prior to and after giving effect to such removal, no Default, or Event of
Default by Lessee or Lessor under any Transaction Documents shall have occurred
and be continuing, be removed by Lessee in accordance with the terms of this
Section 5.05 prior to the delivery of the Facility to Lessor under Article VII
on the Lease Termination Date, in accordance with the provisions of this Lease
and title to such Parts shall at all times remain in Lessee, subject to the
Security Documents. If Lessee removes any Part pursuant to this Section, Lessee
shall restore the Facility to the condition required by Section 4.01. Lessee
shall give Lessor written notice of its election to remove any such Parts not
less than 90 days prior to the Lease Termination Date. Lessor may elect to
purchase for cash any such Parts owned by Lessee. If Lessor fails to purchase
such Parts on or before the Lease Termination Date, and Lessee fails to remove
such Parts from the Site within 60 days after the Lease Termination Date, title
to such Parts shall immediately vest in Lessor and Lessee shall no longer have
the right to remove any such Part. Lessee agrees not to remove any such Parts
prior to the Lease Termination Date except to the extent Lessee in good faith
determines such Parts are not necessary, desirable or useful for the efficient
and economic operation of the Facility. The purchase price of the Parts shall be
the Fair Market Value thereof, assuming the actual condition of such Parts as of
the date of purchase, less any cost that would be incurred in removing such
Parts from the Facility, including the assembling and packaging thereof, as
determined by mutual agreement or, in the absence of such agreement within 30
days after the date of such written notice, by the Appraisal Procedure. The
purchase price of the Parts will be paid at the later of the date when (i) the
Parts are delivered or (ii) the price of the Parts is determined. On the date of
purchase, Lessee
17
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shall (x) cause to be furnished to Lessor a bill of sale, in form and substance
reasonably satisfactory to Lessor conveying title to such Parts to Lessor, free
and clear of all Liens except Permitted Liens and Lessor, Liens and (y) cause to
be furnished to Lessor such further evidence of Lessor's title to and the
condition of such Parts as Lessor or the Agent shall reasonably request.
SECTION 5.06. Financing of Alterations. Lessor agrees that so long as it is
------------------------
Lessor hereunder, it will, after the Effective Date, at Lessee's request, use
its reasonable best efforts to obtain financing from the Banks in accordance
with the terms of the Loan Documents for any Alterations which are Nonseverable
Alterations proposed to be made pursuant to Section 5.02(b) which it has
approved. Any such financing shall be subject to agreement among Lessee, Lessor,
Agent, the LOC Issuers and the Banks on the terms thereof. Lessee agrees that
the Basic Rent (Principal), Basic Rent (Equity) and Stipulated Loss Values
hereunder shall be amended in the event of any such financing, as set forth in
Section 3 .04(a)(ii) and Basic Rent (Interest) shall be payable on such adjusted
amounts.
SECTION 5.07. Release of Parts Upon Certain Conditions. Parts which in the
----------------------------------------
good faith judgment of Lessee are worn out, damaged beyond reasonable repair,
undesirable, obsolete or unnecessary for the normal efficient operation of the
Facility may be removed or otherwise disposed of, provided that (a) no Default
or Event of Default by Lessee or Lessor under any Transaction Document exists or
will exist as a consequence of such removal or disposition or prior to or after
giving effect to such removal or disposition, (b) such removal or disposition
shall not impair the rights of the Bank Parties or the security under the
Security Documents or be prejudicial to holders of the Senior Debt and is
desirable in the proper conduct of the business of Lessee as contemplated by the
Transaction Documents and (c) any worn out, damaged or obsolete part which is
necessary or desirable in the proper conduct of the business of Lessee as
contemplated by the Transaction Documents is replaced, prior to the replaced
Part being released from the Lien of the Security Documents, by a Part or Parts
of similar or better character and of utility, Fair Market Value and economic
useful life at least equal to that sold or disposed of, in good operational
order and otherwise in compliance with Articles IV and V, and such replacement
Part is free and clear of all Liens other Permitted Liens and Lessor Liens.
Lessee will provide to Lessor an Officer's Certificate of Lessee, stating
therein that Lessor may rely thereon, to the effect that:
(i) The Fair Market Value on the date of such certificate, in the
opinion of the signer, of the property to be released, which Fair Market
Value shall not be more than the Fair Market Value (as if the Lessor and
Lessee were seller and buyer, respectively) of the consideration received
or to be received by Lessee from the sale or other disposition of the
property to be released, and a description in reasonable detail of the
property to be released;
(ii) The property to be released (after giving effect to any
substantially simultaneous replacement therefor) is not necessary or
desirable for the proper operation of the Facility as contemplated by the
Transaction Documents;
18
<PAGE>
(iii) Such release (after giving effect to a substantially
simultaneous replacement therefor), in the opinion of the signer, will not
impair the rights of the Bank Parties or the security under the Security
Documents or be prejudicial to the holders of the Senior Debt, and is
desirable in the proper conduct of the business of Lessee and the operation
of the Facility by Lessee as contemplated by the Transaction Documents;
(iv) No Default or Event of Default under any Transaction Document
exists or will exist after giving effect to such release;
(v) (Unless cash in an amount equal to the Fair Market Value of the
property as specified in paragraph (i) above is being paid to Lessor) the
property to be released is in Lessee's judgment being replaced by property
of similar or better character and of a utility, Fair Market Value and
economic useful life at least equal to that sold or disposed of and in good
operational order, and subjected to the Lien of the Security Documents and
to no prior Lien; and
(vi) All of the conditions referenced in the first paragraph of this
Section 5.07 have been satisfied.
SECTION 5.08. Liens. Notwithstanding anything to the contrary set forth in
-----
this Article V, Lessee shall at all times during the Lease Term keep the Parts
free and clear of all Liens other than Permitted Liens and Lessor Liens.
ARTICLE VI
INSURANCE
SECTION 6.01. Coverage. (a) Without limiting any of the other obligations
--------
or liabilities of Lessee under this Lease, Lessee at its own cost and expense
shall carry and maintain or cause to be carried and maintained with insurers of
recognized responsibility having the legal authority to enter into valid and
enforceable contracts of insurance as insurers of the risks covered therein in
the Commonwealth of Pennsylvania at all times prior to expiration or earlier
termination of this Lease at least the following insurance coverage with respect
to the Facility and the Site; provided, however, that the coverages and limits
-------- -------
listed below may be revised as deemed appropriate by Agent in consultation with
its insurance consultant as long as the revisions to such coverages and limits
are (A) obtainable in the market place, (B) obtainable at a reasonable cost
which is justifiable in terms of the risk to be insured and are generally being
carried by similarly situated facilities, (C) then deemed by Agent and the
Insurance Consultant to be adequate to protect the interests of the insured
parties, and (D) otherwise reasonable or necessary due to changes in
circumstances:
(i) insurance against physical loss or damage to the Project
(including damage to the Transmission Line (if owned by Lessor), the Fuel
located on the Site, any other
19
<PAGE>
property or equipment for which Lessee, Lessor or any Bank Party has an
insurable interest, property of other Persons and all improvements and
inventory located on the Site or elsewhere which comprise part of the
Project) by fire and any of the risks covered by insurance of the type now
known as "all risk" coverage (including collapse and transit coverage,
coverage against lightning, windstorm, explosion, subsidence, riot, riot
attending a strike, civil commotion, action of civil or military authority,
damage from aircraft and vehicles, electrical injury, flood, earthquake and
volcanic eruption, and vandalism and malicious mischief), in an amount not
less than 100% (or such lesser sublimits as are available on commercially
reasonable terms with respect to flood, earthquake and volcanic eruption
coverage to the extent such lesser sublimits are supported by probable
maximum loss studies satisfactory to the Agent in form and substance) of
the aggregate outstanding amount (from time to time) of the Senior Debt,
with losses adjusted on a full replacement cost basis and including a "no
co-insurance" clause, with not more than $250,000 deductible from the loss
payable for any single casualty or occurrence, which insurance shall also
include coverage for property in transit of not less than $250,000 for any
one shipment and such higher amount as shall be requested by Lessor for all
shipments in excess of $250,000;
(ii) boiler and machinery insurance covering, to the extent that any
or all of the Facility and the Site contain equipment of such nature, all
insurable objects, including pressure vessels, motors, air tanks, boilers,
machinery, pressure piping, heating, air conditioning equipment, elevator
and escalator equipment or similar apparatus and insurance against loss of
occupancy or use arising from breakdown of any of the foregoing, in an
amount not less than 100% of the full replacement value thereof, with not
more than $250,000 deductible from the loss payable for any single
occurrence, except that the deductible for insurance against loss of
occupancy or use arising from breakdown shall be no more than a 180-day
deductible;
(iii) business interruption, contingent business interruption and
extra expense insurance covering loss of Project Revenues and/or any
additional expenses required to resume operation of the Project by reason
of a total or partial suspension or delay of, or interruption in, the
operation of the Project as a result of the occurrence of an event or
events insured by clauses (i) and (ii) above, in an amount not less than
that which would be required to cover lost Project Revenues and any
additional expenses required to resume operation of the Project for a
period of at least twelve (12) months, subject to a maximum deductible of
thirty (30) days (or such period as is available on commercially reasonable
terms) for outages resulting from accidents;
(iv) comprehensive or commercial general liability insurance against
claims for personal injury (including bodily injury and death) and property
damage liability arising from the Project, such insurance to afford
$1,000,000 coverage per occurrence and an aggregate coverage of $2,000,000
with respect to personal injury or death to any one or more Persons or
damage to property and any such policy to contain "broad form", "amended
notice of occurrence", "amended knowledge of occurrence" and "unintentional
20
<PAGE>
errors or omissions" endorsements covering, among other things, products
and completed operations, contractual liability, broad form property
damage, explosion, collapse and underground hazards;
(v) commercial automobile liability insurance against claims for
bodily injury, death or property damage arising out of the use of all
owned, non-owned and hired motor vehicles by Lessee's agents and employees
and, including without limitation, Lessor, the Operator, the Project
Manager and the agents and employees of any of them, including loading and
unloading, such insurance to afford $1,000,000 coverage per occurrence with
respect to bodily injury or death to any one or more Persons or damage to
property;
(vi) where exposures involving watercraft or aircraft are present,
comprehensive watercraft and aircraft liability (including passengers'
liability) insurance against claims for bodily injury, death or property
damage arising out of the use of all owned, non-owned and hired watercraft
or aircraft by Lessee's agents and employees and, including without
limitation, the Operator, the Operator's agents and the Operator's
employees, including loading and unloading, such insurance to afford
$10,000,000 "single-limit" coverage with respect to personal injury or
death to any one or more Persons or damage to property, with such increase
therein as shall be requested by the Lessor or Agent from time to time,
with not more than $250,000 deductible from the loss payable for any single
occurrence;
(vii) workers' compensation insurance (including employer's liability
insurance of not less than $1,000,000) for all employees of Lessee, Lessor,
the Operator, the Project Manager (and Lessee shall require and be
reasonably satisfied that all subcontractors engaged in or with respect to
work on or about the Project shall have obtained such insurance) in such
amount as is required by the Governmental Rules of the Commonwealth of
Pennsylvania, which policy shall contain "all states", "voluntary
compensation", "amended notice of occurrence", "amended knowledge of
occurrence" and "unintentional errors or omissions" endorsements to the
extent permitted by the Governmental Rules of the Commonwealth of
Pennsylvania and available on commercially reasonable terms;
(viii) environmental impairment liability insurance, which insurance
shall afford $5,000,000 limit per occurrence (or such limit as is available
on commercially reasonable terms);
(ix) "umbrella liability" or "excess liability" insurance (against
risks of the types described in clauses (iv), (v) and (vi) above and in
excess of the employer's liability insurance described in clause (vii)
above) in an amount that results in a combined amount of primary and excess
insurance required hereby of not less than $20,000,000 for any occurrence
and not less than $20,000,000 in the aggregate, with such increases therein
as shall be reasonably requested by Lessor or Agent in consultation with
the Insurance Consultant from time to time; and
21
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(x) comprehensive crime insurance in an amount of not less than
$1,000,000 against claims for theft or other dishonest acts (including, but
not limited to, forgery) by the employees of Lessee, Lessor, the Operator
or the Project Manager of money, securities or other property.
(b) All policies of insurance required under the provisions of this Section
6.01, to the extent reasonably available in the commercial insurance market,
shall be written on an "occurrence" basis rather than on a "claims made" basis.
(c) All policies of insurance required under the provisions of this Section
6.01 shall name Lessor, Agent (for the benefit of the Bank Parties), the Bond
Issuer and the Bond Trustee as additional insureds as their interests may
appear, and all such policies covering risks of physical loss shall have
attached thereto a standard non-contributory lender's loss payable endorsement
in scope and form satisfactory to Lessor, Agent and the Insurance Consultant.
Lessee shall furnish or cause to be furnished to Lessor and Agent originals of
all such policies or certificates thereof. All policies of insurance required
under the provisions of this Section shall contain an endorsement by the insurer
that any loss shall be payable in accordance with the terms of such policy
notwithstanding any breach or violation by Lessee, Lessor or any other insured
party of any warranties, declarations or conditions contained in such policies,
any action or inaction of Lessee, Lessor or any other insured party or any other
Person, any foreclosure relating to the Project, any change in ownership of the
Project or any negligence of Lessee, Lessor or any other insured party that
might otherwise give rise to a defense by the insurer to its payment of such
loss and a waiver by the insurer of all rights of subrogation to any rights of
the additional insureds against Lessee, Lessor or any other Person and of all
rights of setoff, counterclaim or deduction against the insureds other than
Lessee. Lessee shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required by this Lease unless the
same shall contain a standard non-contributory lender's loss payable endorsement
in scope and form satisfactory to the Majority Banks with loss payable to the
LOC Issuers, Agent and the Banks as their interests may appear.
(d) All policies of liability insurance required by the provisions of this
Section 6.01 shall contain endorsements (i) as to severability of interest or
cross liability and (ii) that such insurance is primary and not in excess of or
contributing with any other insurance or self-insurance maintained by Lessee,
Lessor or Agent.
(e) Without limiting any of the foregoing, each of the insurance policies
required by this Section 6.01 which is required to name Lessor or Agent as an
insured party thereunder shall provide:
(i) that no material adverse change in coverage thereof shall be
effective until at least 30 days (or 10 days in the case of cancellation
for non-payment of premiums) after receipt by Lessor and Agent of written
notice thereof;
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(ii) that, in the case of any policies covering property loss or
damage in respect of the Project, (A) there shall be no recourse against
Lessor or any Bank Party for payment of premiums or other amounts with
respect thereto, (B) the insurer is required to provide Agent and Lessor
with at least thirty (30) days (or ten (10) days in the case of nonpayment
of premiums) prior written notice of any material adverse change in any
policy and (C) the proceeds of such policies shall be payable directly to
the Disbursement Agent pursuant to a standard first mortgagee endorsement,
without contribution; provided, that if the proceeds thereof are less than
--------
$1,000,000, Lessee shall have the right to adjust any such loss with the
insurer; and provided, further, that Lessor and Agent shall have the right
-------- -------
to join Lessee in adjusting any loss in excess of $1,000,000; and
(iii) that neither Lessor nor any Bank Party shall have any obligation
or liability for premiums, commissions, assessments or calls in connection
with such insurance.
(f) Lessee, upon the reasonable request of Lessor or Agent in consultation
with the Insurance Consultant, shall amend or shall cause the Project Manager or
the Operator to amend the amount and scope of coverage of any of the insurance
policies required by this Section 6.01 to cover any risks which were not
foreseen on the Effective Date and which render such coverage materially
inadequate.
(g) On the Effective Date and thirty (30) days prior to each renewal of
each policy, Lessee shall deliver to Lessor and Agent a Certificate of Insurance
which evidences that the required coverages are in place.
(h) In the event that Lessee fails to take out or maintain, or fails to
cause the Project Manager or the Operator to take out or maintain, the full
insurance coverage required by this Section 6.01, Lessor upon fifteen (15) days
prior notice (unless the aforementioned insurance would lapse within such
period, in which event notice should be given as soon as reasonably possible) to
Lessee of any such failure, may (but shall not be obligated to) take out the
required policies of insurance and pay the premiums on the same. All amounts so
advanced therefor by Lessor shall become additional obligations of Lessee to
Lessor, and Lessee shall forthwith pay such amounts to Lessor, together with
interest thereon at the Default Rate from the date so advanced.
SECTION 6.02. Annual Insurance Report. As soon as practicable after the end
-----------------------
of each fiscal year of Lessee commencing with the end of fiscal year 1995, and
in any event within 90 days thereafter, Lessee shall deliver to Lessor, Agent
and Bond Trustee (i) an Officers' Certificate of Lessee setting forth the
insurance obtained by Lessee pursuant to this Article VI and as then in effect,
stating whether, in the opinion of such officer, such insurance policies comply
with the requirements of this Article VI, that all premiums then due thereon
have been paid and that the same are in full force and effect, (ii) a report by
an independent insurance broker or independent insurance consultant reasonably
satisfactory to Agent and Bond Trustee,
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confirming the most recent report delivered pursuant to the preceding sentence
and (iii) certification of all insurance required to be maintained under this
Article VI, executed by each insurer, or by an authorized representative of each
insurer, identifying underwriters, the type of insurance, the insurance limits
(including applicable deductibles) and the policy term, and other material
policy terms, including the special provisions enumerated for such insurance
required by Section 6.01(c). Upon request, and without limiting the rights of
the Bank Parties or the Bond Trustee under Section 4.02 or any other Transaction
Documents, Lessee will make available for inspection, review and reproduction at
Lessee's offices by Agent or Bond Trustee copies of all insurance policies,
binders and cover notes or other evidence of such insurance in respect of all
insurance required to be maintained pursuant to this Article VI, certified by
authorized representatives of the insurers.
SECTION 6.03. Additional Insurance by Lessor. Nothing in this Article VI
------------------------------
shall prohibit any of Lessee or Lessor from maintaining, at its expense,
insurance in addition to that required by the Amended and Restated Reimbursement
Agreement for its own account with respect to loss or damage to the Site, the
Facility or any Part thereof provided that such additional insurance shall not
provide for or result in a reduction of coverage or amounts payable under
insurance required to be maintained under this Article VI.
ARTICLE VII
DAMAGE; EVENTS OF LOSS
SECTION 7.01. Event of Loss; Stipulated Loss Value Payment. If an Event of
--------------------------------------------
Loss shall occur, Lessee shall give Lessor and so long as the Loan Documents
shall be in effect, the Agent, written notice thereof and of the date of such
Event of Loss as soon as practicable, and in any event within 5 days after
becoming aware thereof. On the date which is no later than 90 days after the
date of such Event of Loss (such date being the "Loss Payment Date"), Lessee
-----------------
shall pay to Lessor, as compensation for such Event of Loss, the sum of (i) the
Stipulated Loss Value specified in Schedule IV for such date, if it is a Rent
Payment Date, and, if it is not a Rent Payment Date, the Stipulated Loss Value
for the Rent Payment Date immediately preceding the Loss Payment Date, together
with interest at the Applicable Rate on such Stipulated Loss Value for each day
from and including such preceding Rent Payment Date to but excluding the Loss
Payment Date, plus (ii) Basic Rent (Principal), Basic Rent (Equity) and Basic
----
Rent (Interest) accrued and unpaid to the Loss Payment Date, plus (iii)
----
Supplemental Rent, if any, then due and payable. Any proceeds of any Insurance
Proceeds and Eminent Domain Proceeds received by Lessee from any source, net of
all expenses associated with obtaining such Insurance Proceeds and Eminent
Domain Proceeds, shall be applied as provided in Sections 13.02 and 13.03 of the
Amended and Restated Reimbursement Agreement or, after the Security Documents
are no longer in effect, to the obligation of Lessee to pay such amount referred
to in the preceding sentence, or, if already paid by Lessee, to reimburse Lessee
for its payment. Any excess proceeds shall, after the Security Documents are no
longer in effect, be paid to Lessor and to Lessee in amounts calculated
consistently with the calculation of Additional Rent under
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Section 3.01(b) as if such balance were an amount remaining for distribution
following the distribution of all amounts through and including item Seventeenth
-----------
as directed under Section 13.01(c)(ii) of the Amended and Restated Reimbursement
Agreement. Upon payment in full of such amounts, and all other sums due and
owing from Lessee to Lessor or any other Person hereunder or under the other
Transaction Documents, the Lease Term shall end and the obligations of Lessee
hereunder (other than any such obligation expressed herein as surviving
termination of this Lease) shall terminate as of the date of such payment.
SECTION 7.02. Damage Not Constituting an Event of Loss; Application of
--------------------------------------------------------
Proceeds. (a) In case of Damage or an Event of Eminent Domain not constituting
- --------
an Event of Loss, this Lease shall continue with respect to the Facility and the
Site and each and every obligation of Lessee hereunder and under each other
Transaction Document to which Lessee is a party shall remain in full force and
effect. In such event, Lessee shall restore and repair the Project at its own
expense to its former condition, and, in any event, to the condition required by
Article IV.
(b) During any period when the Obligations are outstanding pursuant to the
Loan Documents, all Insurance Proceeds and Eminent Domain Proceeds shall be paid
and applied as set forth in the Amended and Restated Reimbursement Agreement.
After the Obligations have been fully discharged and released, all proceeds of
insurance maintained pursuant to paragraph (a) of Section 6.01 on account of any
Damage not constituting an Event of Loss (less the actual costs, fees and
expenses incurred in the collection thereof) shall:
(i) so long as no Default or Event of Default hereunder shall have
occurred and be continuing, be paid to Lessee if the amount of such
Insurance Proceeds or Eminent Domain Proceeds payable by reason of such
Damage or condemnation is $50,000 or less, and applied by Lessee to the
costs and expenses relating to the repair or restoration of the Site, the
Facility or Part suffering such Damage or condemnation; and
(ii) if not payable to Lessee under clause (i) of this Section
7.02(b), be paid to Lessor and, so long as no Default or Event of Default
hereunder shall have occurred and be continuing, all such proceeds actually
so received on account of any such Damage or condemnation other than in
connection with a Default or Event of Default shall be paid over to Lessee
or as it may direct to be applied to the costs and expenses relating to the
repair or restoration of the Facility and the Site suffering such Damage or
condemnation, but only upon receipt of an Officers' Certificate of Lessee
stating that no Default or Event of Default hereunder has occurred and is
continuing, that the repair of restoration relating to such Damage or
condemnation has been completed and that the Facility and the Site are in
the condition required by Section 4.01; and
(iii) if a Default or Event of Default hereunder shall have occurred
and be continuing, be paid to Lessor for application or retention as it may
determine in its sole discretion; and
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(iv) if Lessee shall have received and not yet applied insurance
proceeds pursuant to clause (i) above in an aggregate amount in excess of
$50,000, then Lessee shall pay or cause to be paid such amount in excess of
$50,000 to Lessor, for application pursuant to clause (ii) above; and
(v) if any balance remains after application as provided in clause
(i), (ii) or (iv) above, less any portion identified as business
interruption proceeds or the like, such balance shall be paid to Lessor and
to Lessee in amounts calculated consistently with the calculation of
Additional Rent under Section 3.01(b) as if such balance were an amount
remaining for distribution following the distribution of all amounts
through and including item Seventeenth as directed under Section
-----------
13.01(c)(ii) of the Amended and Restated Reimbursement Agreement.
ARTICLE VIII
RETURN OF FACILITY
SECTION 8.01. Return of Facility. Lessee shall in connection with any
------------------
transfer of the Facility comply with subsections (a) and (b) below.
(a) On the Lease Termination Date and upon any other transfer of the
Facility pursuant to the terms hereof, Lessee shall, at its sole cost and
expense, return the Facility and the Site to Lessor or to any Person
designated by Lessor by surrendering the Facility and the Site into the
possession of Lessor or such Person free and clear of all Liens other than
Lessor Liens and Permitted Liens, and in the condition required by Article
IV. Lessee covenants, during the six-month period after the Lease
Termination Date, to cooperate with Lessor or any transferee or assignee of
Lessor in order to facilitate the ownership and operation of the Facility
and the Site after the expiration of the Lease Term by Lessor or such
transferee or assignee of Lessor, as the case may be, including, to the
extent it has the right and power to do so, providing all know-how, data
and technical information and granting licenses, if any, necessary or
useful for the operation and maintenance of the Facility.
(b) In connection with any transfer or return of the Facility and the
Site to Lessor or to a third party, whether at the end of the Lease Term or
otherwise, Lessee will cooperate with Lessor, and will take all actions
reasonably requested by Lessor, with respect to such transfer, including
taking all actions deemed necessary or advisable by Lessor to confirm and
validate the transfer of any Principal Project Agreements not already in
the name of Lessor, and all other rights with respect to the Site and the
Facility (including without limitation all Governmental Approvals necessary
or desirable in connection with operation of the Facility) to Lessor or
such third party.
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SECTION 8.02. Survival of Lessee's Obligations. Lessee's obligations under
--------------------------------
this Article VIII shall survive the termination of this Lease.
ARTICLE IX
RENEWAL OPTION; PURCHASE OPTION
SECTION 9.01. Right to Renew. (a) So long as no Event of Default by Lessee
--------------
or Lessee Parent hereunder or under any other Transaction Document shall have
occurred and be continuing at the time of giving by Lessee of the notice
referred to in Section 9.01(b) and, at the commencement date of the Fixed Rental
Renewal Term (i) no Senior Debt is outstanding and (ii) no Default or Event of
Default by Lessee or Lessee Parent hereunder or under any Transaction Document
has occurred and is continuing, Lessee shall have the right to renew this Lease
at the end of the Basic Term for the Fixed Rental Renewal Term of thirty-six
(36) months. All the terms and provisions of this Lease shall be applicable
during any Renewal Term, except that during the Fixed Rental Renewal Term,
Lessee shall pay Basic Rent to Lessor on each Rent Payment Date in an amount
equal to 50% of the average of the Basic Rent payments during the last
thirty-six (36) months of the Basic Term.
(b) In order to exercise its right to renew this Lease for the Fixed Rental
Renewal Term, Lessee shall notify Lessor in writing at least three hundred and
sixty (360) days prior to the expiration of the Basic Term that it will renew
the Lease for the Fixed Rental Renewal Term.
(c) Notwithstanding anything in this Section 9.01 to the contrary, no Fixed
Rental Renewal Term shall become effective unless an appraiser mutually
acceptable to Lessee and Lessor shall have determined in an appraisal delivered
no more than twelve months prior to the commencement of such term that the sum
of the Basic Term and the proposed Fixed Rental Renewal Term will not exceed 80%
of the useful life of the Facility, and that the Fair Market Value of the
Facility at the end of such proposed Fixed Rental Renewal Term shall equal or
exceed 20% of the Project Costs, without consideration of deflation or
inflation.
ARTICLE X
INTERESTS OF LESSEE AND LESSOR
SECTION 10.01. Lessee's Interest. This Lease is an agreement of lease and
-----------------
does not convey to Lessee any right, title or interest in or to the Facility and
the Site except as a lessee of the Facility and the Site.
SECTION 10.02. Transfer of Lessee's Interests. Lessee shall not sell,
------------------------------
lease, assign, sublease, transfer or otherwise dispose of (by operation of Law
or otherwise) any of its assets,
27
<PAGE>
including any of its interests or rights hereunder, in each case, without having
obtained the prior written consent of the Lessor and the Agent, which consent
may be withheld in their sole discretion. Any attempted sale, lease, assignment,
sublease or other transfer in violation of the terms of this Lease shall be null
and void.
SECTION 10.03. Successors and Assigns. The rights and obligations of Lessor
----------------------
and Lessee hereunder shall inure to the benefit of, and be binding upon, the
permitted successors and assigns of Lessor and Lessee, respectively.
SECTION 10.04. Location. Lessee shall not remove, or permit any other
--------
Person to remove, the Facility or any Part thereof, including Alterations, from
the Facility Site without the prior written consent of Lessor, except that
Lessee or any other Person may remove any Part in accordance with the terms of
Article V.
SECTION 10.05. Quiet Enjoyment. This Lease is subject and subordinate to
---------------
the Lien of the Security Documents. Subject to the foregoing, so long as no
Event of Default under this Lease shall have occurred and be continuing, and
subject to Article XIV hereof, neither Lessor nor any of its assigns will take
any action in violation of Lessee's rights to possession and use of the Facility
and the Site in accordance with the terms hereof and the other Transaction
Documents.
ARTICLE XI
DISCLAIMER OF WARRANTIES
Without waiving any claim that Lessor or Lessee may have against the
Facility EPC Contractor, or any seller, supplier or manufacturer of equipment
with respect to the Facility, LESSEE REPRESENTS, WARRANTS, ACKNOWLEDGES AND
AGREES THAT, AS BETWEEN LESSEE AND LESSOR, AS OF THE LEASE COMMENCEMENT DATE AND
THE EFFECTIVE DATE (A) THE FACILITY IS OF THE SIZE, DESIGN, CAPACITY AND
MANUFACTURE ACCEPTABLE TO LESSEE; (B) LESSEE IS SATISFIED THAT THE SITE AND THE
FACILITY (AND EACH PART THEREOF) ARE SUITABLE FOR ITS PURPOSES; (C) LESSEE IS IN
THE BUSINESS OF LEASING ELECTRIC GENERATING SYSTEMS; (D) LESSOR IS NOT A
MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND; AND (E) THE FACILITY AND THE
SITE ARE LEASED HEREUNDER AND SUBJECT TO ALL REQUIREMENTS OF LAW AND
GOVERNMENTAL APPROVALS AND GOVERNMENTAL REGULATIONS NOW IN EFFECT OR HEREAFTER
ADOPTED AND ARE IN THE STATE AND CONDITION OF EVERY PART THEREOF WHEN THE SAME
FIRST BECAME OR BECOMES SUBJECT TO THIS LEASE, WITHOUT REPRESENTATION OR
WARRANTY OF ANY KIND BY LESSOR OR ANY PARTNER THEREOF, EXPRESS OR IMPLIED, AS TO
THE TITLE, VALUE, MERCHANTABILITY OR SUITABILITY OR FITNESS FOR USE OR FOR ANY
PARTICULAR PURPOSE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN,
OPERATION,
28
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FREEDOM FROM PATENT, COPYRIGHT OR TRADEMARK INFRINGEMENT, ABSENCE OF LATENT
DEFECTS, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED,
WITH RESPECT TO THE SITE AND THE FACILITY (OR ANY PART THEREOF), except that
Lessor hereby represents and warrants that the Site and the Facility are and
shall be free of Lessor Liens. Lessee agrees that, except as expressly provided
herein, all risks incident to the matters discussed in the preceding sentence as
between Lessor, on the one hand, and Lessee, on the other, are to be borne by
Lessee. Lessee hereby waives (to the extent permitted by Law) any right to
perform obligations of Lessee under Article IV at the cost or expense of Lessor
pursuant to any Law at any time in effect. The provisions of this paragraph have
been negotiated and, except to the extent otherwise expressly stated, the
foregoing provisions are intended to be a complete exclusion and negation of any
express or implied representations or warranties by Lessor with respect to the
Facility and the Site that may arise pursuant to any Law or governmental
regulation now or hereafter in effect or otherwise. Lessee has examined the
Facility and the Site and has found it satisfactory for all purposes, and Lessee
acknowledges that the Facility was constructed to specifications satisfactory to
Lessee.
As between Lessee and Lessor, Lessee expressly assumes all risk and
liability of and relating to the nonperformance by any other party to a
Principal Project Agreement and any failure of the Facility to meet projected
performance levels.
ARTICLE XII
ADDITIONAL COVENANTS
SECTION 12.01. Identification. Lessee shall affix and maintain through the
--------------
Lease Term in prominent places in and about the Facility and the Site an
inscription reading substantially as follows:
"NOTICE
This facility is owned by Scrubgrass Generating Company, L.P. and leased to
Buzzard Power Corporation as Lessee."
In addition, so long as the Facility or the Site shall constitute part of
the Collateral, such inscription shall also include the following sentence:
"A mortgage and security interest in this Facility and Site has been
granted to Credit Lyonnais, acting through its New York Branch, as Agent."
Lessee shall replace any such inscription which may be removed or destroyed
or become illegible or which shall no longer be correct because of a change in
the identity of Lessor or Agent and, to the extent necessary to give legal
notice of Agent's security interest in the Facility
29
<PAGE>
and the Site, make such other changes and post such other signs regarding the
interest of Agent in the Facility and the Site as Agent may reasonably request.
Except as above provided or as otherwise directed by Lessor or Agent, Lessee
shall not allow the name of any Person other than that of Lessee to be placed on
any part of the Facility and the Site as a designation that might reasonably be
interpreted as a claim of ownership or right to possession or use thereof
SECTION 12.02. Lessee's Covenants in Amended and Restated Participation
--------------------------------------------------------
Agreement. Lessee hereby agrees to perform each and every covenant set forth in
- ---------
Article VIII of the Amended and Restated Participation Agreement to be performed
by it as though set forth in full herein and agrees to indemnify each Indemnitee
to the extent provided in the Amended and Restated Participation Agreement as
though all agreements to indemnify provided in Article X thereof were set forth
in full herein.
SECTION 12.03. Reports to Regulatory Authorities. Lessee shall prepare and
---------------------------------
file or cause to be prepared and filed in timely fashion or, where Lessor or any
Bank Party shall be required to file, upon reasonable notice Lessee shall
prepare and deliver or cause to be prepared and delivered to such Person within
a reasonable time prior to the date for filing, any report with respect to the
Facility or the Site that shall be required to be filed with any Governmental
Authority.
ARTICLE XIII
LEASE EVENTS OF DEFAULT AND REMEDIES
SECTION 13.01. Lease Events of Default. The following events shall
-----------------------
constitute Events of Default hereunder (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any Governmental Authority):
(a) (i) Lessee shall fail to pay when due (A) any Basic Rent
(Principal) or (B) any Supplemental Rent (Senior Debt) which is to be used
by Lessor to pay any principal amount due on any of the Notes, or (ii)
Lessee shall fail to pay when due any Basic Rent (Equity);
(b) (i) Lessee shall fail to pay (A) any Basic Rent (interest) or (B)
any Supplemental Rent (Senior Debt) which is attributable to Fees on the
date such amount is due and payable, and such Default shall continue for
five (5) days, or (ii) Lessee shall fail to pay any Supplemental Rent
(Equity) or Additional Rent on the date such amount is due and payable, and
such Default shall continue for five (5) days;
(c) Lessee shall fail to make any payment of amounts (other than those
described in clauses (a) or (b) above) payable hereunder or under any other
Transaction Document as Supplemental Rent when the same shall become due
and payable and any
30
<PAGE>
such default shall continue for a period of thirty (30) days after written
notice of nonpayment thereof has been received by Lessee; or
(d) Lessee shall fail to perform or observe in any respect any
covenant, condition or agreement to be performed or observed by it under
Article VI and Section 10.02 hereof, or Sections 8.3, 8.8, 8.10, 8.11,
8.20, 8.24, 8.26 or 8.27 of the Amended and Restated Participation
Agreement or Lessee Parent shall fail to perform or observe in any respect
any covenant, condition or agreement to be observed or performed under
Sections 9.2, 9.3, 9.5 or 9.6 of the Amended and Restated Participation
Agreement; or
(e) Lessee shall fail to perform or observe any of its covenants
contained in Section 8.9 of the Amended and Restated Participation
Agreement or Section 5.08 hereof and such failure shall continue uncured
for 45 or more days, or Lessee shall not have posted a bond in amount and
form satisfactory to Lessor and the Majority Banks insuring Lessor and the
Bank Parties against any loss by virtue of Lessee's default under this
subsection; or
(f) Lessee or Lessee Parent shall fail to perform or observe any of
its covenants contained in any other provision of this Lease or any other
Transaction Document (other than those covered by another paragraph of this
Section 13.01) and such failure shall continue uncured for thirty (30) or
more days after notice thereof to Lessee by Lessor or Agent, provided that
--------
if (i) such failure cannot be cured within such 30-day period, (ii) Lessee
or Lessee Parent, as the case may be, is proceeding with diligence and in
good faith to cure such failure, (iii) the existence of such failure does
not materially impair the Liens on the Collateral pursuant to the Security
Documents and (iv) Lessor, and so long as the Loan Documents are in effect,
Agent, shall have received a certificate of an authorized representative of
Lessee or Lessee Parent, as the case may be, to the effect of subclauses
(i), (ii) and (iii) above and stating what action Lessee or Lessee Parent
is taking to cure such failure, the time within which such failure may be
cured shall be extended to such period, not to exceed an additional one
hundred thirty -five (135) days, as shall be necessary for Lessee or Lessee
Parent diligently to cure such failure; or
(g) any representation or warranty made by Lessee or Lessee Parent
herein or in any other Transaction Document, or any representation,
warranty or statement in any certificate, financial statement or other
document furnished by or on behalf of Lessee or Lessee Parent to Lessor or
any Bank Party or any agent or advisor of Lessor or any Bank Party in
connection herewith or therewith, shall prove to have been false or
misleading in any material respect as of the time made, confirmed or
furnished which in the opinion of Lessor, or so long as the Loan Documents
shall be in effect, the Majority Banks, could have a Material Adverse
Effect; or
(h) a judgment or judgments for the payment of money in excess of
$250,000 (other than a judgment which is fully covered by insurance) shall
be rendered against
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Lessee or the Project, and the same shall remain in effect and unstayed for
a period of 30 or more consecutive days; or
(i) Lessee shall fail to make any payment in respect of any obligation
in an amount exceeding $250,000 for the payment of borrowed money when due
or within any applicable grace period; or
(j) Lessee or Lessee Parent shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) admit in writing its inability, or be generally unable, to
pay its debts as such debts become due, (iii) make a general assignment for
the benefit of its creditors, (iv) commence a voluntary case under the
Federal Bankruptcy Code, (v) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization, winding
up, or composition or readjustment of debts, (vi) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition
filed against such Person in an involuntary case under the Federal
Bankruptcy Code, or (vii) take any corporate or other action for the
purpose of effecting any of the foregoing; or
(k) a proceeding or case shall be commenced without the application or
consent of Lessee or Lessee Parent, in any court of competent jurisdiction,
seeking (i) its liquidation, reorganization, dissolution, winding-up, or
the composition or readjustment of debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of such Person under
any law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, or a warrant of attachment, execution
or similar process shall be issued against property of Lessee or Lessee
Parent having a value of (or original cost, if higher) in excess of
$250,000 and such proceeding, case, warrant or process shall continue
undismissed, or any order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect for a
period of 30 or more days, or any order for relief against Lessee or Lessee
Parent shall be entered in an involuntary case under the Federal Bankruptcy
Code; or
(1) the Lessee Security Agreement or the Buzzard Stock Pledge
Agreement shall cease, for any reason, to be in full force and effect or
Lessee, Lessee Parent or any Affiliate of either of them shall so assert in
writing, or the Lessee Security Agreement shall cease to be effective to
grant a perfected Lien to Lessor on the Lessee Collateral described therein
with the priority purported to be created thereby; or
(m) the Project, as designed and owned shall cease to satisfy or shall
be unable to satisfy the requirements for a Qualifying Facility, provided
that the failure to satisfy such requirements shall not be an Event of
Default as long as such cessation would not have a material adverse effect
on the Project and Lessee or Lessor, as the case may be, is making a
diligent effort to cure such cessation; or
32
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(n) Lessee shall terminate, attempt to terminate or fail to maintain
in full force and effect, or shall breach its obligations under, the O&M
Agreement or any successor agreement for the operation, maintenance,
service and repair of the Facility and the Site in form and scope
satisfactory to Lessor and Agent and with an Operator approved by Lessor
and Agent; or
(o) Lessee shall terminate, attempt to terminate or fail to maintain
in full force and effect, or shall breach its obligations under, the
Project Management Agreement or any successor agreement for the management
of the Facility and the Site in form and scope satisfactory to Lessor and
Agent and with a Project Manager approved by Lessor and Agent, or
(p) Lessee shall fail to obtain, renew, maintain or comply with all
Governmental Approvals that shall at the time be necessary (i) for the
performance by Lessee of its rights and obligations under any Principal
Project Agreement to which it is a party, (ii) for the operation of the
Project as contemplated by the Principal Project Agreements, or (iii) for
the grant by Lessee of the Liens created hereunder or under the Lessee
Security Agreement, or for the validity and enforceability or for the
perfection of or the exercise by Lessor of its rights and remedies
thereunder, or any such Governmental Approval shall be revoked, terminated,
withdrawn, suspended, modified or withheld or shall cease to be in full
force and effect, or any proceeding shall be commenced by or before any
Governmental Authority for the purpose of so revoking, terminating,
withdrawing, suspending, modifying or withholding any such Governmental
Approval and such proceeding is not dismissed within 90 days; or
(q) at any time prior to the discharge in full of the Obligations, any
Event of Default under the Amended and Restated Reimbursement Agreement not
otherwise covered by another paragraph of this Section 13.01 shall have
occurred.
SECTION 13.02. Remedies. Upon the occurrence and during the continuance of
--------
any Lease Event of Default described in clause (j) (other than subclause (j)(i)
and subclause (j)(v) to the extent it relates to subclause (j)(i)) or (k) of
Section 13.01, this Lease shall terminate without any notice of any kind, Lessee
shall at its own expense promptly return and surrender possession of the Site,
the Facility and all Parts thereof to Lessor and the assignments made pursuant
to Section 2.03 hereof shall terminate and Lessee shall surrender each Principal
Project Agreement and any right it may have thereunder. Upon the occurrence and
during the continuance of any other Event of Default hereunder, Lessor may by
notice to Lessee declare this Lease to be in default. At any time after
declaring this Lease to be in default, Lessor may do one or more of the
following, as Lessor in its sole discretion shall determine, to the extent
permitted by any Requirement of Law then in effect:
(a) Lessor may, by notice to Lessee, terminate this Lease, but
Lessor's rights and Lessee's obligations under this Section 13.02 shall
survive such termination (together
33
<PAGE>
with such other rights and obligations under this Lease expressly stated to
survive the termination of this Lease);
(b) Lessor may (i) demand that Lessee, and Lessee shall at its expense
upon the written demand of Lessor, return and surrender possession of the
Facility and the Site promptly to Lessor in the manner and condition
required by Section 8.01, as if the Facility and the Site were being
returned at the end of the Lease Term, and Lessor shall not be liable for
the reimbursement of Lessee for any costs and expenses incurred by Lessee
in connection therewith and (ii) enter upon the premises where the Facility
shall be located and take immediate possession (to the exclusion of Lessee)
of the Facility and the Site by summary proceedings or otherwise, all
without liability to Lessee for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by
such taking or otherwise, and change all locks on the Facility and bar
entry into and possession of the Facility and Site by Lessee and by any and
all other persons as Lessor, in its discretion, may elect. In addition to
the foregoing, Lessor shall have the right, whether or not Lessor elects to
terminate this Lease, to recover possession of the Facility and the Site
and to that end, Lessor may enter the Facility and the Site and take
possession, without the necessity of giving Lessee any notice to quit or
any other further notice, and with or without (as Lessor may elect) legal
process or proceedings, breaking locks and doors if Lessor so chooses, and
in so doing, Lessor may remove all or any part of Lessee's property as well
as all or any part of the property of others as may be in the Facility and
the Site. Lessee hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Lessee being
evicted or dispossessed of the Facility and the Site for any cause, or in
the event of Lessor obtaining possession of the Facility and the Site, by
reason of Lessee committing an Event of Default hereunder or otherwise;
(c) Lessor may sell all or any part of the Facility or the Site at
public or private sale, as Lessor may determine, free and clear of any
rights of Lessee and without any duty to account to Lessee with respect to
such action or inaction for any proceeds with respect thereto, in which
event Lessee's obligation to pay Basic Rent hereunder for periods
commencing after the date of such sale shall be terminated or
proportionately reduced, as the case may be;
(d) Lessor may hold, keep idle or lease to others the Site, the
Facility or any Part, as Lessor in its sole discretion may determine, free
and clear of any rights of Lessee and without any duty to account to Lessee
with respect to such action or inaction or for any proceeds with respect to
such action or inaction, except that Lessee's obligation to pay Basic Rent
for any period during which Lessee shall have been deprived of use of the
Site, the Facility or any Part pursuant to this paragraph shall, subject to
the provisions of Section 13.02(f), be reduced by the net proceeds, if any,
received by Lessor from leasing the Facility Site, the Facility or any Part
to any Person other than Lessee for such period;
34
<PAGE>
(e) whether or not Lessor shall have exercised or thereafter at any
time shall exercise its rights under paragraph (a), (b), (c) or (d) of this
Section 13.02, Lessor may demand, by written notice to Lessee specifying a
payment date which shall be a Rent Payment Date not earlier than 30 days
after the date of such notice, that Lessee pay to Lessor, and Lessee shall
pay to Lessor, on such specified payment date, as liquidated damages for
loss of a bargain and not as a penalty (in lieu of the Basic Rent accruing
after such specified payment date), any unpaid Rent accrued to such
specified payment date, plus whichever of the following amounts Lessor, in
its sole discretion, shall specify in such notice (together with interest
on such amount at the Applicable Rate from such specified payment date to
the date of actual payment):
(i) an amount equal to the sum of (x) the excess, if any, of (A)
the sum of (1) the Stipulated Loss Value specified in Schedule IV for
such Rent Payment Date plus (2) Basic Rent accrued to such Rent
Payment Date, over (B) the rental Fair Market Value (as if the Lessor
and Lessee were seller and buyer, respectively) of the Facility and
the Facility Site during the remaining Lease Term, after discounting
such rental Fair Market Value semiannually to Present Value as of such
specified payment date at a rate equal to the Default Rate plus (y)
all Supplemental Rent, if any, then due and owing under any
Transaction Document; or
(ii) an amount equal to the excess of (A) the Present Value as of
such specified payment date of all installments of Basic Rent and
projected Additional Rent until the end of the Lease Term, over (B)
the Present Value as of such specified payment date of the rental Fair
Market Value of the Facility and the Facility Site until the end of
the Lease Term, discounted semiannually at a rate equal to the Default
Rate;
(f) if the Lessor shall have sold all of the Facility or the Site, as
a whole or by a series of sales of portions thereof pursuant to paragraph
(c) of this Section 13.02, Lessor, in lieu of exercising its rights under
paragraph (e) of this Section 13.02, may, if it shall so elect, demand that
Lessee pay to Lessor and Lessee shall pay to Lessor on the date of such
sale, as liquidated damages for loss of a bargain and not a penalty (in
lieu of Basic Rent accruing after the next Rent Payment Date following the
date of such sale), any unpaid Rent accrued to such Rent Payment Date, plus
the amount of any excess of Stipulated Loss Value, computed as of such Rent
Payment Date, over the proceeds of such sale, together with interest at the
Default Rate on the amount of such Rent and such deficiency from the date
of such sale until the date of actual payment;
(g) Lessor may apply any amounts held by Lessor pursuant to this Lease
or any other Transaction Document in the same manner as other amounts
realized upon the exercise of remedies pursuant to this Section 13.02;
35
<PAGE>
(h) Lessor shall be entitled to exercise its rights under the Lessee
Security Agreement with respect to its security interest in all of Lessee's
right, title and interest in and to the Lessee Collateral; and
(i) Lessor may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court action
to enforce the terms hereof or to recover damages for the breach hereof;
provided, however, that in the event that Lessee should abandon the
-------- -------
Facility or the Site, Lessor may, at its option, treat this Lease as
continuing in effect for so long as Lessor does not terminate Lessee's
right to possession, and enforce all of its rights and remedies under this
Lease, including the right to recover Rent as it becomes due hereunder.
If proceedings shall be commenced to recover possession of the Facility and
the Site either at the end of the Lease Term or upon sooner termination of this
Lease for nonpayment of Rent or for any other reason, Lessee specifically waives
the right to the three months notice to quit and the 15 or 30 days notice to
quit required by the Act of April 6, 1951, P.L. 69, as amended, and agrees that
one days notice shall be sufficient in either or any such case.
Lessee expressly waives the benefits of all laws, now or hereafter in
force, exempting any property or goods on the Facility or the Site or elsewhere,
and the proceeds of the sale thereof, from distraint, levy, sale, execution or
other legal proceedings taken by the Lessor to enforce any rights under this
Lease.
The right to enforce all of the provisions of this Lease may, at the option
of any assignee of Lessor's rights in this Lease, be exercised by any such
assignee, notwithstanding that Lessee may not have had notice of such assignment
or that any such assignment may not be executed and/or witnessed in accordance
with any applicable Acts of Assembly, as the same may be now or hereafter
amended or supplemented, Lessee hereby expressly waiving the requirements of any
said Acts.
Lessee hereby authorizes and empowers Lessor or any Prothonotary, Clerk of
Court or Attorney of any Court of Record to appear for and confess judgment
against Lessee and agrees that Lessor may commence an action pursuant to
Pennsylvania Rules of Civil Procedure No. 2950 et seq. for the recovery from
-- ---
Lessee of all Rent hereunder (including all accelerations of Rent permissible
under the provisions of this Lease) and/or for all charges reserved hereunder as
Rent, as well as for interest and costs and attorney's commission, for which
authorization to confess judgment, this Lease, or a true and correct copy
thereof, shall be sufficient warrant. Such judgment may be confessed against
Lessee for the amount of Rent in arrears (including all accelerations of Rent
permissible under the provisions of this Lease) and/or for all charges reserved
hereunder as Rent, as well as for interest and costs; together with an
attorney's commission of five percent (5%) of the full amount of Lessor's claim
against Lessee. Neither the right to institute an action pursuant to
Pennsylvania Rules of Civil Procedure No 2950 et seq. nor the authority to
-- ---
confess judgment granted herein shall be exhausted by one or more exercises
thereof, but successive complaints may be filed and successive judgments may be
36
<PAGE>
entered for the aforedescribed sums five days or more after they become due as
well as after the expiration of the Basic Term and/or during or after expiration
of any extension or renewal of this Lease.
Lessee hereby authorizes and empowers any Prothonotary, Clerk of Court or
Attorney of any Court of Record to appear for Lessee and to confess judgment
against Lessee in Ejectment for possession of the Site and the Facility, and
agrees that Lessor may commence an action pursuant to Pennsylvania Rules of
Procedure No.2970 et seq. for the entry of an order in Ejectment for the
-- ---
possession of real property, and Lessee further agrees that a Writ of Possession
pursuant thereto may issue forthwith, for which authorization to confess
judgment and for the issuance of a Writ or Writs of Possession pursuant thereto,
this Lease, or a true and correct copy thereof, shall be sufficient warrant.
Lessee further covenants and agrees, that if for any reason whatsoever, after
said action shall have commenced the action shall be terminated and the
possession of the Site and the Facility shall remain in or be restored to
Lessee, Lessor shall have the right upon any subsequent Event of Default or upon
the termination of this Lease as above set forth to commence successive actions
for possession of real property and to cause the entry of successive Judgments
by Confession in Ejectment for possession of the Facility and the Site.
In any procedure or action to enter Judgment by Confession for Money or to
enter Judgment by Confession in Ejectment for possession of real property, if
Lessor shall first cause to be filed in such action an affidavit or averment of
the facts constituting the Event of Default hereunder or under the Loan
Documents or occurrence of the condition precedent, or event, the happening of
which Event of Default, occurrence, or event authorizes and empowers Lessor or
Agent to cause the entry of judgment by confession, such affidavit or averment
shall be conclusive evidence of such facts, defaults, occurrences, conditions
precedent, or events; and if a true copy of this Lease (and of the truth of
which such affidavit or averment shall be sufficient evidence) be filed in such
procedure or action, it shall not be necessary to file the original as a Warrant
of Attorney, any rule of court, custom, or practice to the contrary
notwithstanding.
Lessee hereby releases to Lessor and to any and all attorneys who may
appear for Lessee all errors in any procedure or action to enter Judgment by
Confession by virtue of the warrants of attorney contained in this Lease, and
all liability therefor. Lessee further authorizes the Prothonotary or any Clerk
of any Court of Record to issue a Writ of Execution of other process, and
further agrees that real estate may be sold on a Writ of Execution or other
process.
Lessee acknowledges that it has agreed to certain remedies herein and under
the Lessee Security Agreement and the other Transaction Documents and that
nothing herein shall in any way limit or affect any remedy that Lessor, any Bank
Party or the Disbursement Agent may have thereunder.
SECTION 13.03. Survival of Lessee's Obligations. Except as specifically
--------------------------------
provided in Section 13.02 or by any Requirement of Law, no termination of this
Lease, in whole or in part,
37
<PAGE>
or repossession of any of the Facility or the Site or exercise of any remedy
under Section 13.02 shall relieve Lessee of any of its liabilities and
obligations hereunder and Lessee shall be liable, except as otherwise provided
above, for any and all unpaid Rent due hereunder before, after or during the
exercise of any of the foregoing remedies, including all expenses incurred by
Lessor as a result of any Event of Default hereunder or the exercise of Lessor's
remedies, including all expenses incurred to return the Facility and the Site to
the condition required by Section 4.01, and Lessee shall have no right to
receive any of the funds in the Rent Suspense Account.
SECTION 13.04. Remedies Cumulative. Except as specifically provided in
-------------------
Section 13.02 or by any Requirement of Law, Lessor's rights, powers and remedies
given under this Lease and at law are cumulative and in addition to each other.
No delay or omission by Lessor shall impair any right, power, or remedy or be
construed to be a waiver of, or acquiescence in, any Default or Event of Default
hereunder. No express or implied waiver by Lessor of any Default or Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Default or Event of Default hereunder. To the extent
permitted by law, Lessee hereby waives any rights now or hereafter conferred by
statute or otherwise that may otherwise limit or modify any of Lessor's rights
or remedies under this Article XIII.
ARTICLE XIV
LESSOR RIGHT TO PERFORM FOR LESSEE
If Lessee shall fail to make any payment of Rent to be made by it hereunder
or shall fail to perform or comply with any of its other agreements or covenants
contained herein or in any of the other Transaction Documents, Lessor may, but
shall not have any obligation to, make such payment or perform or comply with
such agreement or covenant and Lessee shall pay to Lessor on demand, on an After
Tax Basis, as Supplemental Rent, the amount of such payment and the amount of
the expenses of Lessor incurred in connection with such payment or the
performance of or compliance with such agreement, as the case may be, together
with interest thereon at the Default Rate from the date Lessor made such payment
or incurred such expense to the date of payment by Lessee.
ARTICLE XV
MISCELLANEOUS
SECTION 15.01. Further Assurances. Lessee shall cause the Transaction
------------------
Documents and any amendments and supplements to any of them (together with any
other instruments, financing statements, continuation statements, records or
papers necessary in connection therewith) to be recorded or filed or rerecorded
or refiled in each jurisdiction as and to the extent necessary in order to, and
shall take such other actions as may from time to time he necessary to,
establish, perfect and maintain (a) Lessor's right, title and interest in and
to the
38
<PAGE>
Site, the Facility and the Transaction Documents, subject to no Liens other
than Permitted Liens and Lessor Liens, (b)for the benefit of the Bank Parties,
the first Lien and first priority security interest in the Collateral provided
for in the Security Documents and (c) each of the other rights and interests
created by the Amended and Restated Disbursement Agreement and the Security
Documents or any of the other Transaction Documents in Lessor, or any of the
Bank Parties. Lessee will promptly and duly execute and deliver to Lessor and
Agent such documents and assurances and take such further action as Lessor or
Agent may from time to time reasonably request in order to carry out more
effectively the intent and purpose of this Lease and the other Transaction
Documents and the transactions contemplated hereby or thereby, to establish and
protect the rights and remedies created or intended to be created in favor of
Lessor, to establish, perfect and maintain Lessor's rights, title and interest
in and to the Facility and the Site and, for the benefit of the Bank Parties,
the first mortgage lien and first priority security interest provided for in the
Security Documents, including if requested by Lessor, at the expense of Lessee,
the recording or filing of counterparts or appropriate memoranda of any
Transaction Document or of such financing statements or other documents with
respect thereto as Lessor may from time to time reasonably request.
SECTION 15.02. Assignment by Lessor. (a) Lessee acknowledges that in
--------------------
connection with the financing of the Facility, Lessor has entered into the
Project Mortgage and the Security Agreement providing, among other things, for
the assignment by Lessor to Agent, to the extent set forth therein, of its
right, title and interest in and to this Lease, as security for the Obligations,
including the right to receive all payments of Rent payable to Lessor (but
excluding Excluded Payments), and Lessee hereby:
(i) accepts and consents to such assignment pursuant to the terms of
the Project Mortgage and the Security Agreement;
(ii) agrees that until it receives written notice from Agent stating
that the Project Mortgage has been released it will (except as otherwise
instructed by the Agent with respect to all or any part of any payments)
make all payments of Rent and other amounts payable hereunder in accordance
with Section 3.02 hereof;
(iii) acknowledges that such assignments and security interests
provide for the exercise by Agent of all rights of Lessor hereunder to give
any consents, approvals, waivers, notices or the like, to make any
elections, demands or the like or to take any other discretionary action
hereunder, except as specifically set forth in the Project Mortgage and the
Security Agreement;
(iv) agrees that amounts payable to the Disbursement Agent or any
other party hereunder shall not be subject to any defense, counterclaim,
compensation, set-off or any other right or claim of any kind which Lessee
may have against Lessor;
(v) agrees to furnish to Agent copies of all notices and opinions
delivered by Lessee to Lessor; and
39
<PAGE>
(vi) agrees to the appointment of any successor, additional or
separate Agent or Bond Trustee or Disbursement Agent as contemplated by the
Amended and Restated Reimbursement Agreement or the Indenture or the
Amended and Restated Disbursement Agreement and that any such successor,
additional or separate Agent or Bond Trustee or Disbursement Agent shall be
entitled to exercise such of the rights and powers of Agent or the Bond
Trustee or the Disbursement Agent, as the case may be, under the Security
Documents or the Indenture or the Amended and Restated Disbursement
Agreement, as applicable, and, in the case of Agent or a successor agent,
of Lessor hereunder as shall be specified in the instrument appointing such
Agent or the Bond Trustee or the Disbursement Agent, without any necessity
of any consent to such appointment or approval of such instrument by
Lessee.
(b) To the extent, if any, that this Lease constitutes chattel paper (as
such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction), no security interest in this Lease may be created by
the transfer or possession of any counterpart hereof other than the original
chattel paper counterpart, which shall be identified as the counterpart
containing the receipt therefor executed by Agent on or immediately following
the signature page hereof.
(c) No provision in this Lease pertaining to a limitation or disclaimer of
any obligations, representations or responsibilities of Lessor as between Lessor
and Lessee shall in any way limit or affect any obligations and responsibilities
Lessor may incur with respect to other Persons in the Transaction Documents.
SECTION 15.03. Notices. Unless otherwise specifically provided herein, all
-------
notices, consents, directions, approvals, instructions, requests and other
communications to be given to any Person under this Lease shall be delivered in
accordance with the Notice Provisions.
SECTION 15.04. Severability. If any provision of this Lease shall be
------------
invalid, illegal or unenforceable in any jurisdiction, the remaining provisions
hereof shall continue to be valid and enforceable and such provision shall
continue to be valid and enforceable in any other jurisdiction. To the extent
permitted by applicable law, each of Lessor and Lessee hereby waives any
provision of law that renders any provision hereof prohibited or unenforceable
in any respect.
SECTION 15.05. Amendment. 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, this Lease 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, except as permitted by and
provided in the Lessee Security Agreement.
40
<PAGE>
SECTION 15.06. Headings. The Table of Contents and headings of the
--------
Articles, Sections and subsections hereof are for convenience and shall not
affect the meaning of this Lease.
SECTION 15.07. Benefit. The parties hereto and their permitted successors
-------
and assigns, but no others, shall be bound hereby and entitled to the benefits
hereof.
SECTION 15.08. Counterparts. The parties may sign this Lease in any number
------------
of counterparts and on separate counterparts, each of which when so executed and
delivered shall be an original (except to the extent provided in Section
15.02(b)), but all such counterparts shall together constitute but one and the
same instrument.
SECTION 15.09. Governing Law. This Lease shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania as applied to
agreements made and wholly performed within said commonwealth.
SECTION 15.10. Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Indemnities. Subject to any provisions of the Transaction Documents which impose
- -----------
limitations as to liability solely between Lessor, Lessee and Lessee Parent
(without regard to the rights of Agent, the LOC Issuers and the Banks which
remain unaffected by any such limitations), all representations, warranties,
covenants and indemnities of Lessee contained herein or in the other Transaction
Documents shall survive the execution and delivery of this Lease, any
disposition of any interest of Lessor in the Site, the Facility or the Principal
Project Agreements and the expiration or other termination of any of the other
Transaction Documents and shall be and continue in effect until the end of the
Lease Term and thereafter to the extent elsewhere provided herein or in any
other Transaction Document notwithstanding any investigation made by any of such
parties and the fact that compliance with any of the other terms, provisions or
conditions of any of the Transaction Documents shall have been waived.
SECTION 15.11. Performance of Obligations to Bank Parties. The provisions
------------------------------------------
of this Lease 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 15.12. Schedules and Exhibits. All Schedules and Exhibits hereto
----------------------
are hereby incorporated by reference herein and made a part hereof.
SECTION 15.13. Recording of Lease Agreement. Lessor and Lessee agree that
----------------------------
this Lease or a memorandum hereof, substantially in the form of Exhibit F
hereto, shall, upon request of either party, be recorded in the real property
records of the County Clerks of
41
<PAGE>
Venango County, Armstrong County and Allegheny County, all located in
Pennsylvania. The parties further agree, however, that the terms, covenants and
conditions of this Lease shall control over any such memorandum.
SECTION 15.14. Estoppel Certificates. Either party hereto, without charge,
---------------------
at any time and from time to time, within ten (10) days after receipt of written
request by the other party hereto, shall deliver a written instrument, duly
executed, certifying to such requesting party or any other person, firm or
corporation specified by such requesting party:
(a) that this Lease is unmodified and in full force and effect, or if
there has been any modification, that the same is in full force and effect
as so modified, and identifying any such modification;
(b) whether or not to the knowledge of such party there are then
existing any offsets or defenses in favor of such party against the
enforcement of any of the terms, covenants and conditions of this Lease
and, if so, specifying the same, and also whether or not to the knowledge
of such party the other party has observed and performed all of the terms,
covenants and conditions on its part to be observed and performed, and, if
not, specifying the same; and
(c) the dates to which the Basic Rent, Additional Rent and
Supplemental Rent and all other charges hereunder have been paid.
The failure of either Lessor or Lessee to deliver such statement within
such ten (10) day period shall constitute a Default hereunder and shall be
conclusive upon the requesting party or any other person, firm or corporation
for whose benefit the statement was requested, that this Lease is in full force
and effect without modification except as may be represented by the requesting
party, that there are no uncured defaults on the part of the requesting party
and that no Basic Rent has been paid in advance.
SECTION 15.15. Time of the Essence. Time wherever specified herein for
-------------------
satisfaction of conditions or performance of obligations by Lessee is of the
essence of this Lease.
SECTION 15.16. No Partnership. The parties do not intend to create hereby
--------------
any partnership or joint venture between themselves with respect to the Site or
the Facility or any other matter.
SECTION 15.17. Lessor's Consent. Except as otherwise expressly provided
----------------
herein, any consent or approval required or permitted to be given by Lessor,
Agent or any Bank Party may be given or withheld in its sole and absolute
discretion.
SECTION 15.18. Effective Date. Notwithstanding the date of execution of
--------------
this Lease or the prior occurrence of the Lease Commencement Date under the
Original Lease Agreement, but subject to Section 2.08, this Lease is effective
on the Effective Date.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Lease 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: /s/ Donald C. Sturmer
--------------------------------
Name: DONALD C. STURMER
Title: VICE PRESIDENT
LESSEE: BUZZARD POWER CORPORATION, a
Delaware corporation
By: /s/ [SIGNATURE APPEARS HERE]
--------------------------------
Name:
Title:
[Amended and Restated Lease Agreement]
<PAGE>
EXHIBIT 10.82
LEASE
This Lease is entered into as of this 20th day of February, 1996, by and
between Meadow Holdings Corp. (hereinafter called "Lessor"), and Environmental
Power Corporation (hereinafter called "Lessee").
1. Description of Premises. The Lessor hereby agrees to lease to the
-------------- --------
Lessee, and the Lessee hereby agrees to lease from the Lessor, subject to the
terms and conditions hereinafter set forth, the following premises: Condominium
Unit lE of the Noble's Island Condominium situated at 500 Market Street,
Portsmouth, New Hampshire, consisting of 1,028 + square feet, together with
-
appurtenant rights thereto, including without limitation the right to use the
portion of the common parking area of the Condominium described in Exhibit A
hereto (all of the foregoing being hereinafter referred to as the "Leased
Premises").
2. Term. The term of this Lease shall be three years commencing February
----
20, 1996, and ending February 19, 1999.
3. Rent. The base rent for the term of this Lease is One Thousand Three
----
Hundred ($1,300.00) Dollars per month for year one, One Thousand Four Hundred
Dollars ($1,400.00) Dollars per month for year two, and One Thousand Five
Hundred ($1,500.00) Dollars per month for year three. The Lessee shall pay rent
in these equal monthly installments, each such installment being due by the 20th
day of the month for the following month.
4. Security Deposit. A security deposit equivalent to one months rent,
----------------
or $1,300.00, is due upon execution of this Lease Agreement.
5. Real Estate Taxes. The Lessor shall pay all real estate taxes assessed
-----------------
against the Leased Premises at the time of execution of this Lease. Any tax
increases during the term of the Lease shall be allocated to and payable by the
Lessee.
<PAGE>
6. Heat, Water, Utility, Charges. The Lessee shall pay all charges for
-----------------------------
electricity, telephone service, and water and sewer utility service, and the
Lessor shall pay all condominium association assessments and other fees with
respect to the Leased Premises.
7. Use of Premises. The Lessee shall use the Leased Premises only for the
---------------
following purposes: offices for the transaction of Lessee's professional
activities; provided, however, the Lessee shall not carry on any trade or
occupation, or make any use of the Leased Premises, which will be unlawful,
improper, noisy, offensive, or contrary to the Noble's Island Condominium
Declaration, Bylaws or Rules ("Condominium Documents") as they now exist or are
hereafter amended, which Condominium Documents are hereby incorporated by
reference, or contrary to any law, ordinance, or regulation of the United States
government or any agencies thereof, the State of New Hampshire, or any
municipality or other subdivision thereof authorized to make regulations, or
which will be injurious to any person or property, or which will make void or
voidable any insurance on the Leased Premises, or which may cause an increased
or extra premium to be payable for such insurance.
8. Condition of Premises. The Lessee is fully familiar with the physical
---------------------
condition of the Leased Premises and the building which is part thereof. The
Lessor and its agent have made 110 representation in connection with the
condition of the building or of the remainder of the Leased Premises and shall
not be liable for any latent defects therein; provided, however, that if the
Lessor renders the Leased Premises untenantable for the purpose of the Lessee,
the Lessee may at its own option terminate this Lease
9. Repairs. Subject to the terms and conditions of the Noble's Island
-------
Condominium Documents, as they now exist or are hereafter amended, the Lessee,
during the term of the Lease, shall at its expense maintain in good repair and
state of cleanliness the Leased Premises and in connection therewith, shall
perform all normal maintenance, and all repairs of conditions caused by Lessee's
use or occupancy of the Leased Premises not otherwise performed by the
Condominium Owners Association, including without limitation all clearing of
snow and ice, and shall make all interior and exterior repairs, not otherwise
made by the Condominium Owners Association, to the Leased Premises necessary to
keep the Leased Premises, and at the end of the term of the Lease, the Lessee
shall surrender the Leased
<PAGE>
Premises, in such repair, order and condition as the same are in at the
commencement of the term, or, if better, as they may be put into during the
continuance thereof, together with any alterations or additions made with the
Lessor's consent, reasonable wear and tear since the last necessary repair made
by the Lessee excepted.
10. Fixture and Improvement. Any improvements or fixtures installed by the
-----------------------
Lessee which are affixed to the real estate by nails, screws, or some other
detachable means may be removed upon the termination of this Lease, provided all
damage or defacement of the Leased Premises caused by such removal is repaired
by the Lessee to the satisfaction of the Lessor. Any such improvements or
fixtures not so removeable, or which are not removed prior to the termination of
this Lease, shall become the property of the Lessor.
11. Alterations and Improvements. The Lessee shall not, without the
----------------------------
written consent of the Lessor, make any alterations, or additions to or upon the
Leased Premises, except minor alterations which do not materially alter the
design or layout of the Leased Premises, or reduce the available usable space,
or weaken the structure thereof. Any alterations or additions shall be
constructed in accordance with all applicable laws, regulations and the
Condominium Documents, with a proper permit and in a workmanlike manner.
12. Risk of Loss. All persons and property of every kind in or on the
------------
Leased Premises shall be at the sole risk of the Lessee and the Lessor shall not
be liable to the Lessee or any other person for any injury, loss, damage, or
inconvenience occasioned by any cause whatsoever to said persons or property
except the willful or negligent acts or omission of the Lessor.
13. Indemnity. The Lessee agrees to indemnify the Lessor against all loss,
---------
damage, liability, or expense arising out of injury to third parties or their
property in or on the Leased Premises and Lessee shall at its expense procure
and maintain at all times public liability insurance on the Leased Premises in
the name and for the benefit of Lessor and Lessee providing coverage of at least
---
$1,000,000 with respect to each occurrence and deposit annually certificates
thereof with Lessor. The Lessee shall actually name the Lessor as an insured,
and insure the Lessor received a copy of the endorsement naming
<PAGE>
the Lessor of same. The Lessee's insurance company is required to notify the
Lessor in case of cancellation of any such insurance.
14. Insurance. The Lessee shall, at all times during the term hereof or
---------
any renewal or extension thereof, keep the contents of the Leased Premises,
including all impermanent improvements, alterations and additions that may be
made, insured against fire with extended coverage in amounts, with insurers, and
subject to terms and conditions to the satisfaction of Lessor and/or as required
by the Condominium Documents.
15. Insurance Rights. Neither party will assign, transfer, or set over to
--------------
its insurer any rights of subrogation against the other because of any payment
required to be made under any policy of insurance on the Leased Premises or the
contents thereof and each agrees that a waiver of such subrogation rights will
be procured and written into any such insurance policies issued to either party.
16. Subletting and Assignment. The Lessee shall not assign this Lease or
-------------------------
sublet the whole or any portion of the Leased Premises without them consent of
them Lessor, in writing, first obtained. This Lease may be assigned at any time
by the Lessor.
17. Inspection. The Lessor or its agent shall have the right to enter the
----------
Leased Premises at reasonable times for the purpose of inspecting its condition
subject to a twenty-four hour notice with Lessee present, or for making repairs.
18. Right to Show Premises. Lessee acknowledges that property is available
----------------------
for sale and agrees that the Lessor or Lessor's agent, upon 24 hour notice to
the Lessee, may show them leased premises to prospective buyers.
19. Quiet Possession. The Lessor covenants and warrants that them Lessor
----------------
has full right and lawful authority to enter into this Lease for the full term
hereof, and for all extensions herein provided, and that the Lessor is lawfully
seized of the entire premises hereby leased and has good title thereto free and
clear of all tenancies, liens and encumbrances. The Lessor further covenants and
warrants that if the Lessee shall discharge the obligations herein set forth to
be performed by the Lessee, then the Lessee shall have the right to enjoy,
during the term hereof, the quiet and undisturbed possession of the Leased
Premises for the uses herein described, together with all appurtenances thereof.
<PAGE>
20. Default. If the rent hereby reserved shall be in arrears for a period
-------
of more than fifteen (15) days, or if the Lessee shall violate any of the
covenants, conditions, warranties or provisions contained herein and such
violations shall continue for more than fifteen (15) days after notice in
writing, or if the Lessee shall be declared insolvent, or shall be adjudicated a
bankrupt, or shall assign for the benefit of creditors, or if the Leased
Premises shall be taken on execution, the Lessor may immediately, or at any time
thereafter, and without demand or notice upon the Lessee to quit, elect to enter
upon said Leased Premises and take possession thereof whereupon this Lease shall
absolutely terminate, and it shall be no defense to the Lessee that previous
violations of any covenants have been waived by the Lessor, either expressly or
by implication. In the event of any such election by the Lessor, Lessee shall be
liable for Lessor's expenses and costs including attorney's fees and Lessor
shall further have all of its rights in law or equity to relet them Leased
Premises and to seek damages or other relief if resulting from such default.
21. Redelivery of Premises. The Lessee shall peaceably and quietly quit
----------------------
and deliver up to the Lessor, or its duly authorized agent, the Leased Premises
at the expiration or other termination of this Lease or any renewal thereof,
leaving the Leased Premises in such condition as required by Paragraph 9 hereof.
Such delivery shall include all keys to the Leased Premises and failure to
deliver such keys shall make the Lessee responsible for them expense of lock
changes.
22. Waiver. The Lessee covenants with them Lessor that them failure of
------
the Lessor to insist in any one or more instances upon them strict and literal
performance of any of them covenants, terms or conditions of this Lease, or to
exercise any option of the Lessor herein contained, shall not be construed as a
waiver or a relinquishment for the future, of such covenant, term, condition
or option, but the same shall continue and remain in full force and effect.
Acceptance by the Lessor of rent or other payment, with knowledge of breach by
Lessee of any covenant, term, or condition or provision of this Lease, shall not
constitute a waiver by the Lessor of such breach, uniess expressly so stated in
writing by the Lessor over its signature.
<PAGE>
23. Successors. The obligations and benefits of this Lease shall be final
----------
upon, and shall inure to the benefit of, the successors and assigns of the
Lessor, and the successors and assigns of the Lessee.
IN WITNESS WHEREOF, the parties have hereunto set their hands on the date
above stated.
In the Presence of: Meadow Holdings Corp.
/s/ Mildred A. Walker By: /s/ Richard Millette
- --------------------- -----------------------
Title: President
---------------------
Duly Authorized
Environmental Power Corporation
/s/ Doreen S. Garland By: /s/ Donald A. Livingston
- --------------------- -------------------------
Title: President
---------------
Duly Authorized
STATE OF NEW HAMPSHIRE
COUNTY OF ROCKINGHAM
The foregoing instrument was acknowledged before me the 20 th day of
February, 1996, by Richard P. Millette, to be his free act and deed.
/s/ Mildred A. Walker
------------------------
Notary Public
My commission expires:
January 31, 2001
------------------------
STATE OF NH
COUNTY OF Rockingham, SS
The foregoing instrument was acknowledged before me this 20th day of
February, 1996 by Donald A. Livingston, to be his/her free act and deed duly
authorized to do so.
/s/ Doreen S. Garland
------------------------
Justice of the Peace
My commission expires:
1/12/99
------------------------
<PAGE>
EXHIBIT A
USE OF PARKING AREA
The Lessee shall have the right to the use of the common parking
facilities in common with the occupants of other units in the Noble's Island
Condominium although the Lessor may make rules governing such parking. The
Lessee shall be limited to three parking spaces for its employees. However,
there shall be no limit to the amount of parking spaces that clients,
customers, or guests of the Lessee may use. The Noble's Island Condominium
Association may make rules governing parking which would have jurisdiction over
the Lessor.
<PAGE>
Exhibit 10.83
EXECUTION COPY
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
DISBURSEMENT AND SECURITY AGREEMENT
by and among
SCRUBGRASS GENERATING COMPANY, L.P.
as Lessor,
BUZZARD POWER CORPORATION,
as Lessee,
BANKERS TRUST COMPANY,
as Disbursement Agent,
and
CREDIT LYONNAIS,
acting through its New York Branch,
as Agent.
-----------------------------------
Dated December 22, 1995
-----------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS; ORIGINAL DISBURSEMENT AGREEMENT
<S> <C> <C>
SECTION 1.01. Definitions.................................................. 3
SECTION 1.02. Original Disbursement Agreement.............................. 3
ARTICLE II
APPOINTMENT AND DIRECTION OF DISBURSEMENT AGENT;
CONTINUATION OF ACCOUNTS
SECTION 2.01. Appointment and Direction of Disbursement Agent.............. 4
SECTION 2.02. Continuation of Lessor Accounts; Creation of Hedge
Account...................................................... 5
SECTION 2.03. Continuation of Lessee Accounts.............................. 6
SECTION 2.04. Creation of Capital Expenditure Fund......................... 7
ARTICLE III
ASSIGNMENT, PLEDGE AND GRANT OF
SECURITY INTERESTS
SECTION 3.01. Assignment by Lessee......................................... 7
SECTION 3.02. Assignment by Lessor......................................... 8
SECTION 3.03. Transaction Documents Govern Obligations; No
Waiver....................................................... 9
ARTICLE IV
CONSTRUCTION ACCOUNT
SECTION 4.01. [INTENTIONALLY OMITTED)...................................... 9
SECTION 4.02. Disbursements from Construction Account...................... 9
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE V
OPERATING ACCOUNT
<S> <C> <C>
SECTION 5.01. Deposits into Operating Account............................. 10
SECTION 5.02. Disbursements from Operating Account........................ 10
ARTICLE VI
RENT SUSPENSE ACCOUNT; AVAILABLE CASH FLOW ACCOUNT
SECTION 6.01. Deposits into the Rent Suspense Account and the
Available Cash Flow Account................................. 14
SECTION 6.02. Disbursements from the Rent Suspense Account and
the Available Cash Flow Account............................. 14
ARTICLE VII
AMORTIZATION ACCOUNT
SECTION 7.01. Deposits into Amortization Account.......................... 15
SECTION 7.02. Disbursement from the Amortization Account.................. 15
ARTICLE VIII
MAINTENANCE RESERVE ACCOUNT
SECTION 8.01. Deposits into the Maintenance Reserve Account............... 15
SECTION 8.02. Disbursements from the Maintenance Reserve Account.......... 15
SECTION 8.03. Deposits into the Maintenance Reserve Sub-Account........... 16
SECTION 8.04. Disbursements from the Maintenance Reserve Sub-
Account..................................................... 16
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE IX
INSURANCE ACCOUNT
<S> <C> <C>
SECTION 9.01. Deposit of Condemnation or Insurance Proceeds............... 17
SECTION 9.02. Disbursement from Insurance Account......................... 17
ARTICLE X
LESSOR REVENUE ACCOUNT
SECTION 10.01. Deposits into the Lessor Revenue Account................... 17
SECTION 10.02. Disbursements from the Lessor Revenue Account.............. 17
ARTICLE XI
AGENT DEFAULT NOTICE; DISBURSEMENT BLOCK CERTIFICATE
SECTION 11.01. Delivery of Agent Default Notice and Disbursement
Block Certificate........................................... 18
SECTION 11.02. Distribution After Agent Default Notice, Disbursement
Block Certificate........................................... 18
SECTION 11.03. Distribution After Lessor Default Notice After Receipt
of Agent Release Notice..................................... 18
ARTICLE XII
INFORMATION ACCOMPANYING DEPOSITS; CERTIFICATES
SECTION 12.01. Information to Accompany Amounts Delivered to
Disbursement Agent; Deposits Irrevocable.................... 19
SECTION 12.02. Delivery of Certificates; Timing of Payments................ 19
SECTION 12.03. Books of Account; Statements................................ 19
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE XIII
INVESTMENT
<S> <C> <C>
SECTION 13.01. Investment of Funds in Accounts............................. 20
ARTICLE XIV
DISBURSEMENT AGENT
SECTION 14.01. Limitation of Liability..................................... 20
ARTICLE XV
DETERMINATIONS
SECTION 15.01. Action in Accordance with Instructions...................... 22
SECTION 15.02. Cash Available.............................................. 22
SECTION 15.03. Regarding Disbursement and Enhancement Certificates......... 22
ARTICLE XVI
MISCELLANEOUS
SECTION 16.01. Fees and Indemnification of Disbursement Agent.............. 23
SECTION 16.02. Appointment of the Disbursement Agent as Attorney........... 23
SECTION 16.03. Replacement or Resignation of Disbursement Agent............ 23
SECTION 16.04. Termination................................................. 24
SECTION 16.05. Severability................................................ 24
SECTION 16.06. Counterparts................................................ 25
SECTION 16.07. Amendments.................................................. 25
SECTION 16.08. Applicable Law.............................................. 25
SECTION 16.09. Notices..................................................... 25
SECTION 16.10. Benefit of Agreement........................................ 25
SECTION 16.11. Further Actions............................................. 25
SECTION 16.12. Submission to Jurisdiction; Waivers......................... 25
SECTION 16.13. Copies to Lessee............................................ 26
</TABLE>
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE XVII
BORROWER ENVIRONMENTAL LIABILITY RESERVE ACCOUNT
<S> <C> <C>
SECTION 17.01. Deposits into the Borrower Environmental Liability
Reserve Account............................................. 26
SECTION 17.02. Disbursements from the Borrower Environmental
Liability Reserve Account................................... 27
ARTICLE XVIII
LESSEE ENVIRONMENTAL LIABILITY RESERVE ACCOUNT
SECTION 18.01. Deposits into the Lessee Environmental Liability
Reserve Account............................................. 27
SECTION 18.02. Disbursements from the Lessee Environmental Liability
Reserve Account............................................. 27
ARTICLE XIX
CAPITAL EXPENDITURE FUND
SECTION 19.01. Deposits into the Capital Expenditure Fund.................. 28
SECTION 19.02. Disbursements from the Capital Expenditure Fund............. 28
SECTION 19.03. Discretion of Lessor and Lessee............................. 28
ARTICLE XX
HEDGE ACCOUNT
SECTION 20.01. Deposits into Hedge Account................................. 29
SECTION 20.02. Disbursement from the Hedge Account......................... 29
</TABLE>
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE XXI
AMORTIZATION SUB-ACCOUNT
<S> <C> <C>
SECTION 21.01. Deposits into Amortization Sub-Account...................... 29
SECTION 21.02. Disbursement from the Amortization Sub-Account.............. 29
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
EXHIBIT 5.02(a)(1) Disbursement Certificate
EXHIBIT 5.02(a)(2) Disbursement Block Certificate
EXHIBIT 5.02(a)(3) Disbursement Release Certificate
EXHIBIT 5.02(a)(4) Capital Expenditure Fund Deposit Certificate
EXHIBIT 5.02(b) Advance Payment Certificate
EXHIBIT 5.02(d)(1) Agent Release Notice
EXHIBIT 5.02(d)(2) Lessor Release Notice
EXHIBIT 8.02(d) Maintenance Reserve Account Reduction Certificate
EXHIBIT 8.04(a) Enhancement Certificate
EXHIBIT 8.04(b) Enhancement Consent Certificate Certificate
EXHIBIT 9.02(a) Insurance Proceeds Disbursement
EXHIBIT 11.01(a)(1) Agent Default Notice
EXHIBIT 11.01(a)(2) Default Notice Withdrawal
EXHIBIT 11.01(a)(3) Agent Post-Default Disbursement Certificate
EXHIBIT 11.02(a)(1) Lessor Default Notice
EXHIBIT 11.02(a)(2) Lessor Post-Default Disbursement Certificate
EXHIBIT 17.02(b) Borrower Environmental Liability Reserve Account
Disbursement Certificate
EXHIBIT 17.02(c) Borrower Environmental Liability Reserve Account Release
Notice
EXHIBIT 18.02(b) Lessee Environmental Liability Reserve Account Disbursement
Certificate
EXHIBIT 18.02(c) Lessee Environmental Liability Reserve Account Release
Notice
EXHIBIT 19.02 Capital Expenditure Fund Disbursement Certificate
EXHIBIT 21.02(a) Amortization Sub-Account Disbursement Certificate
</TABLE>
vi
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SCHEDULE I Addresses for Payments or Notices
SCHEDULE II Installment Payments
SCHEDULE III [RESERVED]
SCHEDULE IV Basic Rent (Equity)
SCHEDULE V [RESERVED]
SCHEDULE VI Junior Debt Holders and Junior Debt Amortization
</TABLE>
vii
<PAGE>
AMENDED AND RESTATED
DISBURSEMENT AND SECURITY AGREEMENT
AMENDED AND RESTATED DISBURSEMENT AND SECURITY AGREEMENT (this
"Disbursement Agreement") dated December 22, 1995, by and among:
----------------------
(a) Buzzard Power Corporation, a Delaware corporation ("Lessee"),
------
(b) Scrubgrass Generating Company, L.P., A Delaware limited partnership
("Lessor"),
------
(c) Bankers Trust Company, a New York banking corporation (the
"Disbursement Agent," in its individual capacity in Section 2.01 and
------------------
otherwise in its capacity as disbursement agent hereunder), and
(d) Credit Lyonnais, acting through its New York branch, as agent for the
Banks, the Bond LOC Issuer and the Contract LOC Issuer (as each such term is
defined in the Amended and Restated Participation Agreement referred to below)
(in such capacity, the "Agent").
-----
W I T N E S S E T H
WHEREAS, the Lessee, the Lessor, Environmental Power Corporation ("EPC"),
---
Bankers Trust Company, not in its individual capacity but solely as trustee
under the Indenture (as defined in the Original Participation Agreement referred
to below) (in such capacity, the "Bond Trustee"), the Disbursement Agent,
------------
National Westminster Bank Plc ("NatWest"), as issuer of the Bond Letter of
-------
Credit and the Contract Letter of Credit (as each such term is defined in the
Original Participation Agreement referred to below) (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 referred to
below (the "Original Banks") (in such capacity, the "Original Agent"), are
-------------- --------------
parties to a Participation Agreement dated as of December 15, 1990 (as amended,
supplemented and otherwise modified and in effect to but excluding the date
hereof, the "Original Participation Agreement"), which provides for, among other
--------------------------------
things, the financing and leasing of an approximately 85 megawatt coal and waste
coal-fired power generation facility located in Venango County, Pennsylvania;
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;
1
<PAGE>
WHEREAS, in connection with the transactions contemplated by the Original
Participation Agreement and the Original Reimbursement Agreement, Lessor and
Lessee have entered into that certain Lease Agreement, dated as of June 17, 1994
(as amended, restated, modified or supplemented in accordance with the
Participation Agreement and in effect to but excluding the date hereof, the
"Original Lease Agreement"), pursuant to which Lessee has leased the Project
------------------------
from Lessor, and in consideration of which Lessee has assigned to Lessor, as
collateral, all of Lessee's right, title and interest in and to, inter alia, the
----- ----
Project and all Project Revenues or other proceeds therefor.
WHEREAS, in connection with the transactions contemplated by the Original
Participation Agreement and the Original Reimbursement Agreement, the Lessor,
the Lessee, the Disbursement Agent and the Original Agent entered into the
Disbursement and Security Agreement dated as of December 15, 1990, as amended by
Amendment Number One to Disbursement Agreement, dated as of November 30, 1992,
and Amendment Number Two to Disbursement Agreement, dated as of June 17, 1994
(the "Original Disbursement Agreement");
-------------------------------
WHEREAS, NatWest has resigned as Agent under (and as defined in) the
Original Participation Agreement, the Original Reimbursement Agreement, the
Original Disbursement 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, the Original
Disbursement Agreement and certain other documents entered into in connection
therewith (and the Lessor has acknowledged and ratified such appointment);
WHEREAS, the Lessee, the Lessor, EPC, the Bond Trustee, the Disbursement
Agent and the Agent have entered into an Amended and Restated Participation
Agreement dated the date hereof (as amended, restated, supplemented and in
effect from time to time, the "Amended and Restated Participation Agreement"),
--------------------------------------------
providing for the amendment and restatement of the Original Participation
Agreement;
WHEREAS, the Lessor and the Lessee have entered into an Amended and
Restated Lease Agreement dated the date hereof (as amended, restated,
supplemented and in effect from time to time, the "Amended and Restated Lease"),
--------------------------
providing for the amendment and restatement of the Original Lease Agreement;
WHEREAS, the Lessor, certain banks (the "Banks"), the Original LOC Issuer
-----
and the Agent have entered into an Amended and Restated Reimbursement and Loan
Agreement, dated the date hereof (as amended, restated, supplemented and in
effect from time to time, the "Amended and Restated Reimbursement Agreement"),
--------------------------------------------
providing for the amendment and restatement of the Original Reimbursement
Agreement, it being the intent that the loans and other extensions of credit
outstanding under the Original Reimbursement Agreement shall not be deemed to be
repaid or terminated upon the effectiveness of the Amended and Restated
2
<PAGE>
Reimbursement Agreement but shall continue to remain outstanding under the
Amended and Restated Reimbursement Agreement; and
WHEREAS, it is a condition precedent to the amendment and restatement of
the Original Participation Agreement and the Original Reimbursement Agreement
that the Lessee, the Lessor and the Disbursement Agent enter into this
Disbursement Agreement with the Agent, it being the intent that the security
interests granted by the Lessee and the Lessor, respectively, pursuant to, and
the liens created by, the Original Disbursement Agreement in favor of the
Disbursement Agent for the benefit of the Persons specified therein, be ratified
and continued (but not be terminated) in favor of the Disbursement Agent for the
benefit of the Persons specified herein upon the effectiveness of this
Disbursement Agreement.
NOW THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; ORIGINAL DISBURSEMENT AGREEMENT
--------------------------------------------
SECTION 1.01. Definitions. Capitalized terms used herein shall, unless the
-----------
context otherwise requires or they are otherwise defined herein, have the
meanings set forth in Appendix I to the Amended and Restated Participation
Agreement. Capitalized references to any notice or certificate attached as an
Exhibit hereto shall mean a duly executed and completed notice or certificate
substantially in the form of the applicable Exhibit. References in this
Disbursement Agreement to articles, sections, paragraphs and clauses are to
articles, sections, paragraphs and clauses of this Disbursement Agreement unless
otherwise indicated. All references herein to any agreements shall be to such
agreement as amended, restated, modified or supplemented to the date of
reference in accordance with the terms and conditions of the Transaction
Documents. All references to a particular entity shall include a reference to
such entity's permitted 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 Disbursement Agreement as a whole and not to any
particular section or subsection of this Disbursement Agreement. "Includes" or
"including" shall mean "including without limitation."
SECTION 1.02. Original Disbursement Agreement. Effective on the Effective
-------------------------------
Date, the Original Disbursement Agreement shall automatically, without any
further notice, consent or other act, be amended and restated hereby and to the
extent this Disbursement Agreement restates the Original Disbursement Agreement,
the Original Disbursement Agreement is restated and to the extent this
Disbursement Agreement amends the Original Disbursement Agreement, the Original
Disbursement Agreement is amended; provided, that the security interests granted
--------
by the Lessee and the Lessor, respectively, pursuant to, and the liens created
by, the Original
3
<PAGE>
Disbursement Agreement in favor of the Disbursement Agent for the benefit of
Persons specified therein, shall be ratified and continued (but not be
terminated) in favor of the Disbursement Agent for the benefit of the Persons
specified herein upon the effectiveness of this Disbursement Agreement, as the
terms and conditions thereof may be amended and restated hereby.
ARTICLE II
APPOINTMENT AND DIRECTION OF DISBURSEMENT AGENT;
CONTINUATION OF ACCOUNTS
------------------------
SECTION 2.01. Appointment and Direction of Disbursement Agent. Lessor and
-----------------------------------------------
Agent, on behalf of itself and the Secured Parties, hereby appoint Bankers Trust
Company as disbursement agent hereunder and Bankers Trust Company hereby accepts
such appointment, agrees to act as such and to accept all proceeds of Working
Capital Loans, Debt Service Loans, the New Term Loan, Project Revenues and other
amounts to be delivered to or held by the Disbursement Agent in trust and as
collateral agent for Lessor and for Agent, on behalf of the Secured Parties and
Lessor, as their interests appear, pursuant to the terms of this Disbursement
Agreement. Notwithstanding the preceding sentence or any other provision of this
Disbursement Agreement to the contrary, until the Disbursement Agent shall have
received an Agent Release Notice from Agent, the Disbursement Agent shall be
deemed the agent solely of Agent, and, except as expressly provided in Sections
8.02(d), 8.04(a), 13.01, 16.03(b) and 16.04 and the following provisos, shall
accept instructions solely from Agent; provided, however, that, the foregoing
-------- -------
notwithstanding, unless and until the Disbursement Agent shall have received an
Agent Default Notice (which has not been withdrawn by the further receipt of a
Default Notice Withdrawal), the Disbursement Agent shall accept and be entitled
to rely on instructions delivered by Lessor and Agent (or instructions delivered
by Lessor and deemed delivered by Agent) pursuant to a completed original
counterpart of a Disbursement Certificate or Enhancement Certificate, in each
case delivered or deemed delivered in accordance with the terms of this
Disbursement Agreement and containing the applicable required certifications and
having attached thereto the applicable required schedules, and provided,
--------
further, that, following the Disbursement Agent's receipt of a Disbursement
- -------
Block Certificate (which has not been withdrawn by the further receipt of a
Disbursement Release Certificate), the Disbursement Agent shall accept and be
entitled to rely on instructions delivered by Lessor only pursuant to a
completed Disbursement Certificate or Enhancement Certificate, in each case
executed by each of Lessor and Agent. In respect of each Disbursement
Certificate and Enhancement Certificate delivered to the Disbursement Agent
hereunder, (i) the original counterpart of such Disbursement Certificate or
Enhancement Certificate shall be delivered to the Agent with a true and complete
copy thereof contemporaneously delivered to the Disbursement Agent and the Agent
shall, provided such certificate meets the requirements of this Disbursement
Agreement, transmit the original counterpart of such Disbursement Certificate or
Enhancement Certificate to the Disbursement Agent on or prior to the date
disbursement of funds is to be made as specified in such certificate, provided
that if the Agent shall fail to deliver to the Disbursement Agent such original
counterpart of such Disbursement Certificate or Enhancement Certificate prior to
such
4
<PAGE>
date and the Agent shall not have delivered an Agent Default Notice or a
Disbursement Block Certificate (which has not been withdrawn by the further
receipt of a Default Notice Withdrawal or a Disbursement Release Certificate, as
applicable) then the Agent shall be deemed to have delivered to the Disbursement
Agent the original counterpart of the Disbursement Certificate or Enhancement
Certificate and (ii) each Disbursement Certificate and Enhancement Certificate
shall have attached thereto any applicable schedules setting forth, as
applicable, the identity of any recipients of funds to be disbursed, the nature
or purpose of any disbursement, computations demonstrating compliance with any
applicable Debt Service Coverage Ratio or Net Cash Flow test, and such other
information reasonably related to such certificate and any disbursement
requested thereby as the Agent may request, in each case in form and substance
reasonably satisfactory to the Agent. Upon receipt of an Agent Release Notice,
the Disbursement Agent shall be deemed the agent solely of Lessor, and except as
expressly permitted herein, shall accept instructions solely from Lessor. The
Disbursement Agent shall hold and safeguard the Accounts (and the revenues,
cash, payments, securities, insurance proceeds, condemnation proceeds,
investments and other amounts from time to time on deposit therein) during the
term of this Disbursement Agreement in segregated accounts for disbursement
strictly in accordance with the terms hereof.
SECTION 2.02. Continuation of Lessor Accounts; Creation of Hedge Account.
----------------------------------------------------------
(a) Construction Account. The "Construction Account" as defined in and
--------------------
created under the Original Disbursement Agreement is hereby ratified,
confirmed and continued (but not terminated) under this Disbursement
Agreement as a special, segregated and irrevocable account of Lessor
entitled the "Construction Account" (the "Construction Account") to be held
--------------------
in the custody of the Disbursement Agent. No payments shall be made out of
the Construction Account except for the purposes and on the terms herein
stated.
(b) Amortization Account; Amortization Sub-Account. The "Amortization
----------------------------------------------
Account" as defined in and created under the Original Disbursement
Agreement is hereby ratified, confirmed and continued (but not terminated)
under this Disbursement Agreement as a special, segregated and irrevocable
account of Lessor entitled the "Amortization Account" (the "Amortization
------------
Account") to be held in the custody of the Disbursement Agent. No payments
-------
shall be made out of such account except for the purposes and on the terms
herein stated. There is hereby created and established a special,
segregated and irrevocable sub-account of the Amortization Account entitled
the "Amortization Sub-Account" (the "Amortization Sub-Account") to be held
------------------------
in the custody of the Disbursement Agent. No payments shall be made out of
such sub-account except for the purposes and on the terms herein stated.
(c) Insurance Account. The "Insurance Account" as defined in and
-----------------
created under the Original Disbursement Agreement is hereby ratified,
confirmed and continued (but not terminated) under this Disbursement
Agreement as a special, segregated and irrevocable account of Lessor
entitled the "Insurance Account" (the "Insurance Account")
-----------------
5
<PAGE>
to be held in the custody of the Disbursement Agent. No payments shall be
made out of such account except for the purposes and on the terms herein
stated.
(d) Lessor Revenues Account. The "Lessor Revenues Account" as defined
-----------------------
in and created under the Original Disbursement Agreement is hereby
ratified, confirmed and continued (but not terminated) under this
Disbursement Agreement as a special, segregated and irrevocable account of
Lessor entitled the "Lessor Revenues Account" (the "Lessor Revenues
---------------
Account") to be held in the custody of the Disbursement Agent. No payments
-------
shall be made out of such account except for the purposes and on the terms
herein stated.
(e) Rent Suspense Account. The "Rent Suspense Account" as defined in
---------------------
and created under the Original Disbursement Agreement is hereby ratified,
confirmed and continued (but not terminated) under this Disbursement
Agreement as a special segregated and irrevocable account of Lessor
entitled the "Rent Suspense Account" (the "Rent Suspense Account") to be
---------------------
held in the custody of the Disbursement Agent. No payments shall be made
out of such account except for the purposes and on the terms herein stated.
(f) Borrower Environmental Liability Reserve Account. The "Borrower
------------------------------------------------
Environmental Liability Reserve Account" as defined in and created under
the Original Disbursement Agreement is hereby ratified, confirmed and
continued (but not terminated) under this Disbursement Agreement as a
special, segregated and irrevocable account of Lessor entitled the
"Borrower Environmental Liability Reserve Account" (the "Borrower
--------
Environmental Liability Reserve Account") to be held in the custody of the
---------------------------------------
Disbursement Agent. No payments shall be made out of such account except
for the purposes and on the terms herein stated.
(g) Hedge Account. There is hereby created and established a special,
-------------
segregated and irrevocable account of Lessor entitled the "Hedge Account"
(the "Hedge Account") to be held in the custody of the Disbursement Agent.
-------------
No payments shall be made out of the Hedge Account except for the purposes
and on the terms herein stated.
SECTION 2.03. Continuation of Lessee Accounts.
-------------------------------
(a) Operating Account. The "Operating Account" as defined in and
-----------------
created under the Original Disbursement Agreement is hereby ratified,
confirmed and continued (but not terminated) under this Disbursement
Agreement as a special, segregated and irrevocable account of Lessee
entitled the "Operating Account" (the "Operating Account") to be held in
-----------------
the custody of the Disbursement Agent. No payments shall be made out of
such account except for the purposes and on the terms herein stated.
(b) Maintenance Reserve Account. The "Maintenance Reserve Account" as
---------------------------
defined in and created under the Original Disbursement Agreement is hereby
ratified,
6
<PAGE>
confirmed and continued (but not terminated) under this Disbursement
Agreement as a special, segregated and irrevocable account of Lessee
entitled the "Maintenance Reserve Account" (the "Maintenance Reserve
-------------------
Account") to be held in the custody of the Disbursement Agent. No payments
-------
shall be made out of such account except for the purposes and on the terms
herein stated. There is hereby created and established a special,
segregated and irrevocable sub-account of the Maintenance Reserve Account
entitled the "Maintenance Reserve Sub-Account" (the "Maintenance Reserve
-------------------
SubAccount") to be held in the custody of the Disbursement Agent. No
----------
payments shall be made out of such sub-account except for the purposes and
on the terms herein stated.
(c) Available Cash Flow Account. The "Available Cash Flow Account" as
---------------------------
defined in and created under the Original Disbursement Agreement is hereby
ratified, confirmed and continued (but not terminated) under this
Disbursement Agreement as a special, segregated and irrevocable account of
Lessee entitled the "Available Cash Flow Account" (the "Available Cash Flow
-------------------
Account") to be held in the custody of the Disbursement Agent. No payments
-------
shall be made out of such account except for the purposes and on the terms
herein stated.
(d) Lessee Environmental Liability Reserve Account. The "Lessee
----------------------------------------------
Environmental Liability Reserve Account" as defined in and created under
the Original Disbursement Agreement is hereby ratified, confirmed and
continued (but not terminated) under this Disbursement Agreement as a
special, segregated and irrevocable account of Lessee entitled the "Lessee
Environmental Liability Reserve Account" (the "Lessee Environmental
--------------------
Liability Reserve Account") to be held in the custody of the Disbursement
-------------------------
Agent. No payments shall be made out of such account except for the
purposes and on the terms herein stated.
SECTION 2.04. Creation of Capital Expenditure Fund. There is hereby created
------------------------------------
and established a special, segregated and irrevocable account of Lessor and
Lessee entitled the "Capital Expenditure Fund" (the "Capital Expenditure Fund")
------------------------
to be held in the custody of the Disbursement Agent, solely for the benefit of
Lessor and Lessee. No payments shall be made out of such account except for the
purposes and on the terms herein stated. The Capital Expenditure Fund shall not
constitute a "Lessor Account," a "Lessee Account" or an "Account" and shall not
constitute part of the Collateral of the Bank Parties.
ARTICLE III
ASSIGNMENT PLEDGE AND GRANT OF
------------------------------
SECURITY INTERESTS
------------------
SECTION 3.01. Assignment by Lessee. To secure the timely payment and
--------------------
performance of all of the obligations of Lessee under the Amended and Restated
Lease, the Amended and Restated Lessee Working Capital Loan Agreement, the
Lessee Security Agreement
7
<PAGE>
and the other Transaction Documents, Lessee does hereby assign, transfer, pledge
and grant to the Disbursement Agent, as security agent for Lessor and for Agent,
on behalf of the Bank Parties, a security interest in all of the Lessee's right,
title and interest in, to and under the following, whether now owned or
hereafter acquired and whether now existing or hereafter coming into existence:
(i) all Project Revenues or proceeds of Lessee Working Capital Loans, (ii) each
of the Lessee Accounts, including all monies and investment securities held in
the Lessee Accounts and all other funds of Lessee held, from time to time, by
the Disbursement Agent under this Disbursement Agreement, and (iii) the proceeds
of all the foregoing (all the collateral described in clauses (i) through (iii)
above being herein collectively called the "Lessee Account Collateral"). Lessee
-------------------------
acknowledges that the Disbursement Agent is the agent solely of the Lessor or
the Agent, as provided in Section 2.01 hereof, and hereby irrevocably
relinquishes to the Disbursement Agent as security agent for Lessor and the
Agent on behalf of the Secured Parties, all right, title and interest which
Lessee has in the Lessee Account Collateral, subject to the terms and conditions
of this Disbursement Agreement and grants the Disbursement Agent sole dominion
and control over such Lessee Account Collateral. The Lessee shall not have the
right to withdraw monies from any Account hereunder except to the extent such
monies are disbursed by the Disbursement Agent pursuant to the terms of this
Disbursement Agreement. Lessee further disavows and waives any claim that the
Disbursement Agent is a fiduciary of or owes any fiduciary duty to Lessee.
Lessee hereby acknowledges and agrees that the application and disbursement of
funds from the Lessee Accounts will occur pursuant to Disbursement Certificates,
the other Exhibits to this Disbursement Agreement and otherwise in accordance
with this Disbursement Agreement (including, without limitation, Article XI
hereof). In connection with the foregoing, Lessee shall, or shall cause the
Project Manager to, prepare and deliver to the appropriate Person in a timely
fashion all information, documentation and calculations reasonably required or
necessary to complete and deliver Disbursement Certificates and each other
applicable Exhibit in accordance with this Disbursement Agreement.
SECTION 3.02. Assignment by Lessor. To secure the timely payment of the
--------------------
Obligations, Lessor does hereby assign, transfer, pledge and grant to the
Disbursement Agent, as security agent for Agent, on behalf of the Bank Parties,
a security interest in all of the Lessor's right, title and interest in, to and
under the following, whether now owned or hereafter acquired and whether now
existing or hereafter coming into existence: (i) all of Lessor's right, title
and interest in and to the Lessee Account Collateral, (ii) all proceeds of the
New Term Loan, Working Capital Loans, Debt Service Loans, any proceeds of
Construction Borrowings in the Construction Account, and all revenues, cash,
insurance proceeds, condemnation proceeds, and other monies derived from
Lessor's interest in and operation of the Project (including all Rent), (iii)
each of the Lessor Accounts, including all monies and investment securities held
in the Lessor Accounts and all other funds held by the Disbursement Agent under
this Disbursement Agreement, and (iv) the proceeds of all the foregoing (all the
collateral described in clauses (i) through (iv) above being herein collectively
called the "Lessor Account Collateral"). Lessor acknowledges that, except after
-------------------------
the Disbursement Agent's receipt of an Agent Release Notice, the Disbursement
Agent is the agent solely of Agent and hereby relinquishes to the Disbursement
Agent as security agent for Agent on behalf of the Secured Parties, all right,
title and interest which Lessor has in the Lessor Account Collateral, subject
8
<PAGE>
to the terms and conditions of this Disbursement Agreement and grants the
Disbursement Agent sole dominion and control over such Lessor Account
Collateral. The Lessor shall not have the right to withdraw monies from any
Account hereunder except to the extent such monies are disbursed by the
Disbursement Agent pursuant to the terms of this Disbursement Agreement. Lessor
further disavows and waives, during any period the Disbursement Agent is acting
solely as agent of Agent, any claim that the Disbursement Agent is a fiduciary
of or owes any fiduciary duty to Lessor.
SECTION 3.03. Transaction Documents Govern Obligations; No Waiver. The
---------------------------------------------------
parties hereto acknowledge that, except as provided in Article III hereof, the
interests of any party to the funds held in any Lessee Account or Lessor Account
and the obligations of Lessee or Lessor to pay any funds held in such Accounts
are created by the Amended and Restated Participation Agreement, the Amended and
Restated Reimbursement Agreement, the Amended and Restated Lease, the Amended
and Restated Lessee Working Capital Loan Agreement, the Indenture and the other
Transaction Documents and the transactions contemplated thereby. Each of Lessor
and Agent hereby covenant to each other and the Lessee that such party shall not
deliver any certificates or notices contemplated herein to the Disbursement
Agent or direct payment of any funds held in any Lessor Account or Lessee
Account except in strict compliance with such parties' rights under the
Transaction Documents; provided, however, that the direction by Agent or Lessor
to the Disbursement Agent to disburse funds from any Account shall not
constitute a waiver by Agent or Lessor of any of the obligations or conditions
of any party in any Transaction Document.
ARTICLE IV
CONSTRUCTION ACCOUNT
--------------------
SECTION 4.01. [INTENTIONALLY OMITTED].
-----------------------
SECTION 4.02. Disbursements from Construction Account.
---------------------------------------
(a) Distribution on or after Effective Date. Upon receipt by the
---------------------------------------
Disbursement Agent of written notice from Agent and Lessor from time to
time prior to December 31, 1996, the Disbursement Agent shall apply amounts
remaining in the Construction Account to the payment of costs, fees and
expenses incurred or to be incurred in connection with improvements to the
boiler area of the Facility and the ash handling area of the Facility.
9
<PAGE>
ARTICLE V
OPERATING ACCOUNT
-----------------
SECTION 5.01. Deposits into Operating Account. During the period commencing
-------------------------------
on the Effective Date and ending on the last day of the term of the Amended and
Restated Lease, Lessee shall deposit or cause to be deposited with the
Disbursement Agent (i) all Project Revenues, (ii) all amounts received pursuant
to any business interruption insurance and (iii) all proceeds of Lessee Working
Capital Loans. The Disbursement Agent shall deposit all such Project Revenues
(other than investment earnings on amounts on deposit in any Account, which
shall be held as part of such Account in accordance with Section 13.01 of this
Disbursement Agreement) into the Operating Account.
SECTION 5.02. Disbursements from Operating Account.
------------------------------------
(a) Timing and Priority of Disbursements. Subject to Article XI and
------------------------------------
Section 15.03 of this Disbursement Agreement and provided the Disbursement
Agent shall not have received an Agent Default Notice or, following receipt
of an Agent Release Notice, a Lessor Default Notice (which in either case
shall not have been withdrawn by the further receipt of a Default Notice
Withdrawal) upon satisfaction of any condition described below, the
Disbursement Agent shall disburse, from the cash available in the Operating
Account, the following amounts to the extent thereof at the times, for the
purposes and in the order of priority set forth below:
(X). AT ANY TIME, FROM TIME TO TIME, upon receipt, at least three (3)
Business Days prior to the date of disbursement specified therein, of a
completed original counterpart of a Disbursement Certificate substantially
in the form of Exhibit 5.02(a)(1) hereto specifying that such Disbursement
Certificate is delivered or deemed delivered pursuant to this Section
5.02(a)(X) (with all applicable schedules completed and attached thereto),
in the following order of priority (to the extent any of the following
amounts are to be paid at such time):
First to the Bond Trustee, certain rebates due with respect to
-----
certain interest income on funds to the extent required by Section
4.07 of the Indenture as described in Schedule 1 to such Disbursement
Certificate;
Second to the applicable taxing authority, property taxes on the
------
Facility or the Site as described in Schedule 1 to such Disbursement
Certificate;
Third to the Lessee or Lessee's designee, the Operating Expenses
-----
as described in Schedule 1 to such Disbursement Certificate;
Fourth to Agent, any Unpaid Drawings or interest thereon, as
------
described in Schedule 1 to such Disbursement Certificate;
10
<PAGE>
Fifth to Agent or the Bond Trustee, as applicable, interest on
-----
any Loans or Bonds, as described in Schedule 1 to such Disbursement
Certificate;
Sixth to the Disbursement Agent or the Bond Trustee, its periodic
-----
fees and expenses, as described in Schedule 1 to such Disbursement
Certificate;
Seventh to Agent, Fees due and payable, as described in Schedule
-------
1 to such Disbursement Certificate; and
Eighth to Agent, an amount selected by Lessor to repay principal
------
of outstanding Working Capital Loans and/or Debt Service Loans, as
described in Schedule 2 to such Disbursement Certificate.
(Y). ON EACH PAYMENT DATE, upon receipt, at least three (3) Business
Days prior to the date of disbursement specified therein, of a completed
original counterpart of a Disbursement Certificate substantially in the
form of Exhibit 5.02(a)(1) hereto specifying that such Disbursement
Certificate is delivered or deemed delivered pursuant to this Section
5.02(a)(Y) (with all applicable schedules completed and attached thereto),
in the following order of priority:
First (i) to payment of the appropriate amounts described in Part
-----
X above which are due and unpaid as of such Payment Date, as described
in Schedule 1 to such Disbursement Certificate, (ii) to retention in
the Operating Account of any other amounts described in Part X above
which are accrued and unpaid (but not due) as of such Payment Date, as
described in Schedule 1 to such Disbursement Certificate and (iii) to
retention in the Operating Account, up to $25,000 for application by
the Disbursement Agent, upon written direction of Lessor, to the
payment of costs and expenses relating to the Project;
Second to the Amortization Account, the installment due on such
------
Payment Date in respect of the redemption of Bonds as set forth in
Schedule 5.02 of the Amended and Restated Reimbursement Agreement, a
copy of which is attached hereto as Schedule II, as described in
Schedule 1 to such Disbursement Certificate;
Third to Agent, any scheduled installments of principal due on
-----
any Loan (other than the Debt Service Loans and Working Capital Loans)
on such Payment Date as set forth in Schedule II hereto, as described
in Schedule 1 to such Disbursement Certificate;
Fourth to Agent, any other amounts due and payable to the Bond
------
LOC Issuer, the Contract LOC Issuer, the Agent or any Bank under any
Transaction Document, as described in Schedule 1 to such Disbursement
Certificate;
11
<PAGE>
Fifth to (i) the Remarketing Agent, remarketing fees, if any, in
-----
respect of the Bonds and (ii) then, if the restriction in Section
13.01(f)(iii) of the Amended and Restated Reimbursement Agreement
shall apply, 100% of the balance remaining in the Operating Account
shall be deposited into the Amortization Sub-Account, in each case as
described in Schedule 1 to such Disbursement Certificate;
Sixth to Lessor, an amount equal to the installment of Basic Rent
-----
(Equity) due on such Payment Date, as set forth in Schedule IV hereto
(as such schedule may be amended from time to time) and as described
in Schedule 1 to such Disbursement Certificate, unless the
restrictions set forth in Section 11.08 of the Amended and Restated
Reimbursement Agreement shall apply, then such amount shall be
deposited in the Rent Suspense Account, in either case as set forth in
paragraph 4 of such Disbursement Certificate;
Seventh to Agent, the unpaid principal amount of any Debt Service
-------
Loan as described in such certificate;
Eighth if the restrictions set forth in Section 11.08 of the
------
Amended and Restated Reimbursement Agreement shall apply, then 100% of
the balance remaining in the Operating Account shall be deposited into
the Available Cash Flow Account;
Ninth, in the following order of priority:
-----
(i) to the Maintenance Reserve Account, the amount required
or permitted by Section 13.01(e) of the Amended and Restated
Reimbursement Agreement to be deposited in the Maintenance
Reserve Account, as described in Schedule 1 to such Disbursement
Certificate and then
(ii) if required by Section 13.01(i) of the Amended and
Restated Reimbursement Agreement, then 100% of the balance
remaining in the Operating Account shall be deposited into the
Hedge Account;
Tenth to Agent on behalf of Lessor, an amount, as determined by
-----
Lessee and communicated to Lessor, up to the outstanding principal, if
any, of any Lessee Working Capital Loans, as described in Schedule 1
to such Disbursement Certificate (to be applied by Agent to the
payment of outstanding Working Capital Loans and by Lessor to the
payment of outstanding Lessee Working Capital Loans);
Eleventh, in the following order of priority:
--------
12
<PAGE>
(i) to the Bond Issuer, the payment of Bond Issuer Fees
then due, as described in Schedule 1 to such Disbursement
Certificate; and then
(ii) to the Project Manager, amounts due and owing to
Project Manager, as described in Schedule 1 to such Disbursement
Certificate;
Twelfth to the Operator, the amount of Subordinated Operating
-------
Expenses due and owing to the Operator, as described in Schedule 1 to
such Disbursement Certificate;
Thirteenth to the holders of Junior Debt, if any, listed in
----------
Schedule VI hereto, accrued interest and any installment of principal
on Junior Debt due on or prior to such Payment Date as set forth in
Schedule VI hereto (as such Schedule may be established or amended
from time to time pursuant to written instructions from Lessor) and
described in Schedule 1 to such Disbursement Certificate;
Fourteenth to Lessor or its designee, any indemnity payment due
----------
under Article X of the Amended and Restated Participation Agreement
not otherwise paid pursuant to clause "Third" of Section 5.02(X), as
-----
described in Schedule 1 to such Disbursement Certificate;
Fifteenth to Lessor or an account specified by Lessor (if a
---------
deposit is required to be made pursuant to Section 7.03(b) of the Tax
Indemnity Agreement), the amount of any Indemnifiable Tax Loss
described in Schedule 1 to such Disbursement Certificate;
Sixteenth, for deposit in the Capital Expenditure Fund, provided
---------
a Capital Expenditure Fund Deposit Certificate of Lessee is delivered
to the Agent and the Disbursement Agent with the applicable
Disbursement Certificate, the amount set forth in Schedule 1 to such
Disbursement Certificate for application against Capital Expenditures
in accordance with Article XX of this Disbursement Agreement; and
Seventeenth, the balance remaining in the Operating Account to
-----------
payment to Lessor and Lessee of the amounts set forth in Schedule 1 to
such Disbursement Certificate.
(b) Advance Payment of Basic Rent (Equity). From time to time, upon
--------------------------------------
receipt by Disbursement Agent of an Advance Payment Certificate of Agent
authorizing such a distribution for the payment of income taxes and the
amount thereof, the Disbursement Agent shall make a disbursement from the
Operating Account to Lessor of the amounts referred to in clause "Sixth" of
-----
Section 5.02(a)(Y) on a date other than the Payment Date on which such
amount was otherwise due.
13
<PAGE>
(c) Distribution after an Agent Default Notice or Disbursement Block
----------------------------------------------------------------
Certificate. Upon receipt of (i) an Agent Default Notice (which has not
-----------
been withdrawn by the further receipt of a Default Notice Withdrawal), or
(ii) a Disbursement Block Certificate (which has not been withdrawn by a
Disbursement Release Certificate), the Disbursement Agent shall in each
case suspend any further distribution from the Operating Account under
Section 5.02(a) and shall thereafter disburse funds from the Operating
Account pursuant to Article XI hereof.
(d) Distribution after Discharge of Obligations. Upon receipt from
-------------------------------------------
Agent of an Agent Release Notice, the Disbursement Agent shall disburse
from the cash available in the Operating Account at the times, in the
amounts and in the order of priority specified in a Disbursement
Certificate in accordance with 5.02(a)(X), clauses "First", "Second",
----- ------
"Third" and "Sixth" and 5.02(a)(Y) clauses "Fifth" , "Sixth" "Ninth" and
----- ----- ----- ----- -----
"Eleventh" through "Seventeenth" (without any application as provided in
-------- -----------
any other clause of Section 5.02). Upon receipt from Agent of the Agent
Release Notice and from Lessor of a Lessor Release Notice the Disbursement
Agent shall immediately disburse all remaining cash available in the
Operating Account as provided in the preceding sentence (after giving
effect to Section 8.02(c)).
ARTICLE VI
RENT SUSPENSE ACCOUNT; AVAILABLE CASH FLOW ACCOUNT
--------------------------------------------------
SECTION 6.01. Deposits into the Rent Suspense Account and the Available
---------------------------------------------------------
Cash Flow Account. The Disbursement Agent shall deposit into the Rent Suspense
- -----------------
Account and the Available Cash Flow Account all amounts so directed pursuant to
a Disbursement Certificate delivered pursuant to Section 5.02(a)(Y), clauses
"Sixth" and "Eighth" , respectively.
----- ------
SECTION 6.02. Disbursements from the Rent Suspense Account and the
----------------------------------------------------
Available Cash Flow Account. Subject to Article XI and Section 15.03, the
- ---------------------------
Disbursement Agent (a) shall disburse cash available in the Rent Suspense
Account and the Available Cash Flow Account promptly to the Amortization Account
upon receipt, at least three (3) Business Days prior to the date of disbursement
specified therein, of a completed original counterpart of a Disbursement
Certificate and as directed in a completed original counterpart of a
Disbursement Certificate (with all applicable schedules completed and attached
thereto) and (b) shall disburse cash available in the Rent Suspense Account to
the Lessor and cash available in the Available Cash Flow Account to the
Operating Account upon receipt of, at least three (3) Business Days prior to the
date of disbursement specified therein, of a completed original counterpart of a
Disbursement Certificate and as directed in such Disbursement Certificate (with
all applicable schedules completed and attached thereto).
14
<PAGE>
ARTICLE VII
AMORTIZATION ACCOUNT
--------------------
SECTION 7.01. Deposits into Amortization Account. The Disbursement Agent
----------------------------------
shall make such deposits into the Amortization Account as provided in clause
"Second" of Section 5.02(a)(Y) or Section 6.02(a).
------
SECTION 7.02. Disbursement from the Amortization Account. Subject to
------------------------------------------
Article XI and Section 15.03, the Disbursement Agent, from time to time, shall
disburse to the Bond Trustee or Agent, as the case may be, such amounts in the
Amortization Account upon receipt, at least three (3) Business Days prior to the
date of disbursement specified therein, of a completed original counterpart of a
Disbursement Certificate and as instructed in a completed original counterpart
of a Disbursement Certificate (with all applicable schedules completed and
attached thereto).
ARTICLE VIII
MAINTENANCE RESERVE ACCOUNT
---------------------------
SECTION 8.01. Deposits into the Maintenance Reserve Account. The
---------------------------------------------
Disbursement Agent shall make deposits into the Maintenance Reserve Account as
provided in Clause "Ninth" of Section 5.02(a)(Y) On the Effective Date, the
-----
Agent shall transfer to the Disbursement Agent proceeds of the New Term Loan in
the amount of $1,700,000. The Disbursement Agent shall deposit such amount in
the Maintenance Reserve Account for application in accordance with this
Disbursement Agreement.
SECTION 8.02. Disbursements from the Maintenance Reserve Account.
--------------------------------------------------
(a) Payments for Maintenance. Subject to Article XI and Section 15.03,
------------------------
upon receipt, at least three (3) Business Days prior to the date of
disbursement specified therein, of a completed original counterpart of a
Disbursement Certificate (with all applicable schedules completed and
attached thereto), the Disbursement Agent shall, from time to time,
transfer from the funds available in the Maintenance Reserve Account, the
amounts specified in such certificate to the Person(s) specified therein.
(b) Excess Amounts. On each Payment Date, if there is on deposit in
--------------
the Maintenance Reserve Account an amount in excess of the Required
Maintenance Reserve Account Balance, the Disbursement Agent shall transfer
to the Operating Account from the Maintenance Reserve Account an amount
equal to such excess.
(c) Distribution to Operating Account. Upon receipt from Agent of an
---------------------------------
Agent Release Notice and receipt from Lessor of a Lessor Release Notice,
the Disbursement
15
<PAGE>
Agent shall promptly close-out the Maintenance Reserve Account, deposit all
remaining cash available in the Maintenance Reserve Account into the
Operating Account, and clause "Ninth" of Section 5.02(a)(Y) and this
-----
Article VIII shall be of no further effect.
(d) Reductions of Required Balance. The Agent (acting at the
------------------------------
direction of the Majority Banks) and Lessor, until the Disbursement Agent
shall have received an Agent Release Notice, and thereafter Lessor, may,
from time to time, reduce (but not increase) the Required Maintenance
Reserve Account Balance. The Disbursement Agent shall, upon receipt of a
Maintenance Reserve Account Reduction Certificate of the Agent and Lessor,
or, following Disbursement Agent's receipt of an Agent Release Notice,
Lessor, so instructing the Disbursement Agent of a reduction in the
Required Maintenance Reserve Account Balance disburse any excess cash
available in the Maintenance Reserve Account over the reduced Required
Maintenance Reserve Account Balance:
First: To Agent to prepay pro rata such portion of the
-----
outstanding principal of the Loans, as may be directed by Agent in
such Maintenance Reserve Account Reduction Certificate; and
Second: the balance to the Operating Account.
------
SECTION 8.03. Deposits into the Maintenance Reserve Sub-Account. On the
-------------------------------------------------
Effective Date, the Agent shall transfer to the Disbursement Agent any proceeds
of the New Term Loan remaining after the payment in full of items (i) through
(vii) of Section 5.01(e) of the Amended and Restated Reimbursement Agreement.
The Disbursement Agent shall deposit such amount in the Maintenance Reserve
Sub-Account for application in accordance with this Disbursement Agreement.
SECTION 8.04. Disbursements from the Maintenance Reserve Sub-Account.
------------------------------------------------------
(a) Payments for Facility Enhancements. Upon receipt of an original
----------------------------------
counterpart of an Enhancement Certificate of Lessor substantially in the
form of Exhibit 8.04(a) delivered in accordance with Section 2.01 and
confirmed in writing by the Independent Engineer (which confirmation the
Agent shall not cause through its actions or withholding of any relevant
information to be unreasonably withheld or delayed) and accompanied by an
Enhancement Consent Certificate of Lessee, the Disbursement Agent shall,
from time to time, transfer from the funds available in the Maintenance
Reserve Sub-Account, the amounts specified in such Enhancement Certificate
to the Person(s) specified therein for application to the payment of
Facility Enhancements.
(b) Distribution Following Six Months after Effective Date. Upon
------------------------------------------------------
receipt of written notice of Agent not less than six (6) months after the
Effective Date so directing the Disbursement Agent, the Disbursement Agent
shall transfer cash remaining in the Maintenance Reserve Sub-Account which
has not been designated for use in accordance with the Amended and Restated
Reimbursement Agreement to the Agent for prepayment
16
<PAGE>
of the New Term Loan in accordance with the Amended and Restated
Reimbursement Agreement.
ARTICLE IX
INSURANCE ACCOUNT
-----------------
SECTION 9.01. Deposit of Condemnation or Insurance Proceeds. Each of the
---------------------------------------------
parties hereto agrees that all amounts and proceeds (including instruments) in
respect of the proceeds of any casualty insurance policy covering the Project
(the "Insurance Proceeds") or in respect of any Event of Eminent Domain (the
------------------
"Eminent Domain Proceeds") received after the Effective Date, shall be paid by
-----------------------
the respective insurers or other parties directly to the Disbursement Agent, and
if any Insurance Proceeds or Eminent Domain Proceeds are paid directly to
Lessor, Lessee, the Agent or the Bond Trustee, such Insurance Proceeds and
Eminent Domain Proceeds shall be received only in trust for the Disbursement
Agent, shall be segregated from other funds of Lessor, Lessee, the Agent or the
Bond Trustee, as the case may be, and shall be forthwith paid over to the
Disbursement Agent (minus the reasonable costs incurred by such party in
collecting such proceeds) in the same form as received (with any necessary
endorsement). The Disbursement Agent shall deposit all such Insurance Proceeds
and Eminent Domain Proceeds into the Insurance Account.
SECTION 9.02. Disbursement from Insurance Account. The Disbursement Agent
-----------------------------------
shall disburse funds held in the Insurance Account as directed from time to time
by an Insurance Proceeds Disbursement Certificate from Agent or, if the
Disbursement Agent shall have received an Agent Release Notice from Agent, as
directed from time to time by an Insurance Proceeds Disbursement Certificate
from Lessor.
ARTICLE X
LESSOR REVENUE ACCOUNT
----------------------
SECTION 10.01. Deposits into the Lessor Revenue Account. The Disbursement
----------------------------------------
Agent shall make deposits into the Lessor Revenue Account (i) from the proceeds
of Working Capital Loans from time to time deposited with the Disbursement
Agent, (ii) of any Segregated Lessor Revenues (as defined in Section 10.22 of
the Amended and Restated Reimbursement Agreement) from time to time deposited
with the Disbursement Agent, and (iii) of any other monies to which the Lessor
is entitled the deposit or payment of which is not otherwise provided for
herein.
SECTION 10.02. Disbursements from the Lessor Revenue Account. Subject to
---------------------------------------------
Article XI and Section 15.03 and provided the Disbursement Agent shall not have
received an Agent Default Notice (which shall not have been withdrawn by the
further receipt of a Default Notice Withdrawal), the Disbursement Agent shall
transfer cash available in the Lessor Revenue
17
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Account as directed, from time to time, and upon receipt or deemed receipt, at
least three (3) Business Days prior to the date of disbursement specified
therein, of a completed original counterpart of a Disbursement Certificate (with
all applicable schedules completed and attached thereto); provided, however,
that each such Disbursement Certificate shall instruct the Disbursement Agent to
transfer any Segregated Lessor Revenues to the Operating Account for application
in accordance with the terms of this Disbursement Agreement.
ARTICLE XI
AGENT DEFAULT NOTICE; DISBURSEMENT BLOCK CERTIFICATE
----------------------------------------------------
SECTION 11.01. Delivery of Agent Default Notice and Disbursement Block
-------------------------------------------------------
Certificate. (a) Upon the occurrence and during the continuance of an Event of
- -----------
Default the Agent may deliver an Agent Default Notice to the Disbursement Agent.
(b) If an original counterpart of a Disbursement Certificate or Enhancement
Certificate (or a true and complete copy thereof) is not delivered in
substantially the form attached hereto as Exhibit 5.02(a)(i) or 8.04(a),
respectively, or if such certificate is not otherwise completed and delivered as
required hereunder (including with all applicable schedules completed and
attached thereto) , the Agent may deliver a Disbursement Block Certificate to
the Disbursement Agent.
SECTION 11.02. Distribution After Agent Default Notice, Disbursement Block
-----------------------------------------------------------
Certificate. Notwithstanding anything herein to the contrary, upon receipt of
- -----------
(i) an Agent Default Notice (which has not been withdrawn by a Default Notice
Withdrawal), the Disbursement Agent shall only disburse amounts in any Lessor
Account or Lessee Account as Agent may, from time to time direct, pursuant to an
Agent Post-Default Disbursement Certificate, and (ii) a Disbursement Block
Certificate (which has not been withdrawn by a Disbursement Release
Certificate), the Disbursement Agent shall only disburse amounts in any Lessor
Account or Lessee Account as the Lessor and the Agent may, from time to time
direct, pursuant to a Disbursement Certificate or Enhancement Certificate, as
applicable, executed by each of Lessor and Agent.
SECTION 11.03. Distribution After Lessor Default Notice After Receipt of
---------------------------------------------------------
Agent Release Notice. If the Disbursement Agent shall have received an Agent
- --------------------
Release Notice and a Lessor Default Notice (which has not been withdrawn by a
Default Notice Withdrawal) , the Disbursement Agent shall disburse all amounts
in any Lessee Account as Lessor may, from time to time, direct pursuant to a
Lessor Post-Default Disbursement Certificate.
18
<PAGE>
ARTICLE XII
INFORMATION ACCOMPANYING DEPOSITS; CERTIFICATES
-----------------------------------------------
SECTION 12.01. Information to Accompany Amounts Delivered to Disbursement
----------------------------------------------------------
Agent; Deposits Irrevocable. (a) All amounts delivered to the Disbursement Agent
- ---------------------------
shall be accompanied by information in reasonable detail specifying the source
of the amounts and the Account (including any sub-account thereof) or Accounts
into which such amounts are to be deposited.
(b) Any deposit made into any Account (except any deposit made through
clerical or other manifest error) shall be irrevocable and the amount of such
deposit and any security held in any Account and all interest and gains thereon
shall be held in trust by the Disbursement Agent and applied, invested and
transferred solely as provided herein.
SECTION 12.02. Delivery of Certificates; Timing of Payments. (a) Each of
--------------------------------------------
the certificates required to be delivered hereunder shall be delivered to the
Disbursement Agent not later than one Business Day prior to the date of any
transfer or distribution contemplated by such certificate; provided that each
Disbursement Certificate and each Enhancement Certificate shall be delivered in
accordance with the applicable provisions of this Disbursement Agreement and
Section 11.08 of the Amended and Restated Reimbursement Agreement. Any
certificate delivered later than the time specified herein shall nevertheless be
considered valid and shall be honored by the Disbursement Agent on or as
promptly after the date otherwise specified herein for payment as is
practicable, subject to the availability of cash in the applicable Account.
(b) Subject to the timely receipt of a certificate as prescribed herein and
to the availability of cash in the applicable Account, the Disbursement Agent
shall make any payment hereunder required by means of wire transfer of
immediately available funds, to the address of the payee set forth on such
certificate or the applicable schedule to such certificate, prior to 12 Noon
(New York City Time) on the date specified herein for such payment, or by such
other means of payment, to such other address or at such later time as shall be
specified by such payee.
SECTION 12.03. Books of Account; Statements. (a) The Disbursement Agent
----------------------------
shall maintain books of account on a cash basis and record therein all deposits
into and transfers to and from the Accounts and all investment transactions
effected by the Disbursement Agent pursuant to Article XIV. The Disbursement
Agent shall make such books of account available during normal business hours
for inspection and audit by Lessor, Lessee, Bond Trustee, and the Agent.
(b) Not later than the 15th day following each Payment Date (or the next
succeeding Business Day if such day is not a Business Day), the Disbursement
Agent shall deliver to each of the parties hereto a statement setting forth the
transactions into and out of each Account since the previous Payment Date and on
the Payment Date for such period and specifying the
19
<PAGE>
revenues, cash, insurance proceeds, condemnation proceeds, payments, securities,
investments and other amounts held in each Account at the close of business on
such Payment Date and the amount thereof at such time.
ARTICLE XIII
INVESTMENT
----------
SECTION 13.01. Investment of Funds in Accounts. Any cash held by the
-------------------------------
Disbursement Agent in any Lessor or Lessee Account shall be invested by the
Disbursement Agent in Permitted Investments from time to time as directed in
writing by Lessor unless an Agent Default Notice has been received (which shall
not have been withdrawn by the further receipt of a Default Notice Withdrawal),
in which case the Agent shall so direct the Disbursement Agent in writing as to
the investment of cash in any Lessor or Lessee Account in Permitted Investments.
The Disbursement Agent may sell any such Permitted Investment (without regard to
maturity date) whenever the Lessor or the Agent, as applicable, in its sole
discretion deems it necessary to make any distribution required by this
Disbursement Agreement and neither Agent nor Disbursement Agent shall be liable
to any Person for any loss suffered because of any such sale. Subject to the
provisions of Section 8.02(b), any income or gain realized as a result of any
such investment shall be held as part of the applicable Account and reinvested
as provided herein. Neither the Agent nor the Disbursement Agent shall have any
liability for any loss resulting from any such investment other than by reason
of its willful misconduct or gross negligence. Any cash held by the Disbursement
Agent in the Capital Expenditure Fund shall be invested by the Disbursement
Agent in investments from time to time as directed in writing by Lessor. The
Disbursement Agent may sell any such investment (without regard to maturity
date) whenever the Lessor in its sole discretion deems it necessary to make any
distribution required by this Disbursement Agreement and the Disbursement Agent
shall not be liable to any Person for any loss suffered because of any such
sale. Any income or gain realized as a result of any such investment shall be
held as part of the Capital Expenditure Fund and reinvested as provided herein.
The Disbursement Agent shall have no liability for any loss resulting from any
such investment other than by reason of its willful misconduct or gross
negligence.
ARTICLE XIV
DISBURSEMENT AGENT
------------------
SECTION 14.01. Limitation of Liability. The acceptance by the Disbursement
-----------------------
Agent of its duties hereunder is subject to the following terms and conditions
which the parties to this Disbursement Agreement hereby agree shall govern and
control with respect to the rights, duties, liabilities and immunities of the
Disbursement Agent:
20
<PAGE>
(a) it shall not be responsible or liable in any manner whatever for
the sufficiency, correctness, genuineness or validity of any revenues,
cash, payments, securities, insurance proceeds, condemnation proceeds,
investments or other amounts deposited with or held by it;
(b) it shall be protected in acting upon any written notice,
certificate, instruction, request or other paper or document as to the due
execution thereof and the validity and effectiveness of the provisions
thereof and as to the truth of any information therein contained, which the
Disbursement Agent in good faith believes to be genuine;
(c) it shall not be liable for any error of judgment or for any act
done or step taken or omitted except in the case of its gross negligence,
willful misconduct or bad faith;
(d) it may consult with and obtain advice from counsel and other
skilled Persons (at the expense of Lessee) in the event of any dispute or
question as to the construction of any provision hereof and shall be fully
protected in taking or not taking any action in good faith in reliance on
such advice;
(e) it shall have no duties as the Disbursement Agent except those
which are expressly set forth herein, and in any modification or amendment
hereof; provided, however, that no such modification or amendment hereof
shall affect its duties unless it shall have given its written consent
thereto;
(f) it may execute or perform any duty hereunder either directly or
through agents or attorneys and shall not be answerable for the negligence
or misconduct of such agents or attorneys;
(g) it may engage or be interested in any financial or other
transaction with any party hereto and may act on, or as depository, trustee
or agent for, any committee or body of holders of obligations of such
persons as freely as if it were not the Disbursement Agent hereunder;
(h) it shall not be obligated to take any action which in its
reasonable judgment would involve it in expense or liability unless it has
been furnished with adequate indemnity to its reasonable satisfaction
against such expense or liability; and
(i) it shall not be obligated to take instructions from any Person
except those given in accordance with this Disbursement Agreement.
21
<PAGE>
ARTICLE XV
DETERMINATIONS
--------------
SECTION 15.01. Action in Accordance with Instructions. The Disbursement
--------------------------------------
Agent shall accept, hold and disburse monies from the Accounts and the Capital
Expenditure Fund only in strict compliance with the terms of this Disbursement
Agreement, and all parties hereto waive irrevocably any and all objections, as
against the Disbursement Agent, to any action taken or not taken by the
Disbursement Agent in accordance with the provisions hereof. The Disbursement
Agent agrees that it shall apply monies in accordance with the directions of
Agent (including, without limitation, as directed by the Agent in accordance
with Article XI), the applicable Exhibits to this Disbursement Agreement
delivered in accordance with, and meeting the requirements of, this Disbursement
Agreement and the other terms and conditions of this Disbursement Agreement.
SECTION 15.02. Cash Available. In determining the amount of cash available
--------------
in any Account and the Capital Expenditure Fund at any time, the Disbursement
Agent shall treat as cash available the net amount that the Disbursement Agent
would have received on such day if the Disbursement Agent had liquidated all the
securities then on deposit in such Account (at then prevailing market prices and
assuming normal sales expenses).
SECTION 15.03. Regarding Disbursement and Enhancement Certificates. The
---------------------------------------------------
Disbursement Agent shall notify the Agent of its receipt of any Disbursement
Certificate or Enhancement Certificate delivered by the Lessor hereunder not
later than one (1) Business Day after the date of such receipt. To the extent
permitted herein, the Disbursement Agent shall disburse monies from the Accounts
only in strict compliance with the terms of properly delivered original
counterparts of Disbursement Certificates and Enhancement Certificates (each
completed and containing the applicable required certifications and having
attached thereto the applicable required schedules), and all parties hereto
waive irrevocably any and all objections, as against the Disbursement Agent, to
any action taken or not taken by the Disbursement Agent in accordance with
thereof. The foregoing notwithstanding, if the Disbursement Agent shall have
received a Disbursement Block Certificate of Agent substantially in the form of
Exhibit 5.02(a)(2) hereto (which has not been withdrawn by the further receipt
of a Disbursement Release Certificate) prior to the making of any disbursement
set forth in a Disbursement Certificate or Enhancement Certificate, the
Disbursement Agent shall disburse monies from the Accounts only in strict
compliance with the terms of properly delivered Disbursement Certificates or
Enhancement Certificates executed by each of Lessor and Agent. Any contrary
provision of this Disbursement Agreement notwithstanding, upon receipt of an
Agent Default Notice (which has not been withdrawn by the further receipt of a
Default Notice Withdrawal), the Disbursement Agent shall suspend any further
distribution from the Accounts and shall thereafter disburse funds from the
Accounts pursuant to Article XI hereof. The Disbursement Agent's receipt of an
Agent Default Notice shall not affect the Lessor's ability to direct the
disbursement of monies from the Capital Expenditure Fund.
22
<PAGE>
ARTICLE XVI
MISCELLANEOUS
-------------
SECTION 16.01. Fees and Indemnification of Disbursement Agent. On and after
----------------------------------------------
the Effective Date, Lessee shall immediately pay from cash available in the
Operating Account, such fees as the Disbursement Agent charges as compensation
for its services under this Disbursement Agreement and such other fees and
expenses (including reasonable counsel fees) as the Disbursement Agent incurs in
connection therewith. In addition, Lessee hereby assumes liability for and
agrees to indemnify protect, save and keep harmless the Disbursement Agent and
its respective successors, assigns, agents and servants, from and against any
and all fees and expenses (including reasonable counsel fees) that may be
imposed on, incurred by, or asserted against, at any time, the Disbursement
Agent (whether or not also indemnified against by any other Person under any
contract or instrument) and in any way relating to or arising out of the
execution and delivery of this Disbursement Agreement, the establishment of the
Accounts and the Capital Expenditure Fund, the acceptance of deposits, the
purchase of securities, the retention of money and securities or the proceeds
thereof and any payment, transfer or other application of money or securities by
the Disbursement Agent in accordance with the provisions of this Disbursement
Agreement, or as may arise by reason of any act, omission or error of the
Disbursement Agent made in good faith in the conduct of its duties; except that
Lessor and Lessee shall not be required to indemnify, protect, save and keep
harmless the Disbursement Agent against its own gross negligence, active or
passive, or willful misconduct. The indemnities contained in this Section 16.01
shall survive the termination of this Disbursement Agreement.
SECTION 16.02. Appointment of the Disbursement Agent as Attorney. Lessor
-------------------------------------------------
and Lessee respectively hereby constitute the Disbursement Agent the true and
lawful attorney-in-fact of Lessor and Lessee, with full power (in the name of
Lessor and Lessee or otherwise) to endorse any checks or other instruments or
orders received in connection herewith. The appointment of the Disbursement
Agent as the attorney-in-fact of Lessor and Lessee is coupled with an interest
and irrevocable.
SECTION 16.03. Replacement or Resignation of Disbursement Agent. (a) The
------------------------------------------------
Disbursement Agent may at any time resign by giving notice to each other party
to this Disbursement Agreement, such resignation to be effective upon the
appointment of a successor Disbursement Agent as hereinafter provided. If a
successor Disbursement Agent shall not have been appointed within 30 days after
the giving of written notice of such resignation, the Disbursement Agent may
apply to any court of competent jurisdiction to appoint a successor Disbursement
Agent to act until such time, if any, as a successor shall have been appointed
as herein provided.
(b) The Majority Banks, with the consent of Lessor, such consent not to be
unreasonably withheld, and after delivery of a Release Notice, Lessor, in its
sole discretion, may remove the Disbursement Agent at any time by giving notice
to each other party to this
23
<PAGE>
Disbursement Agreement, such removal to be effective upon the appointment of a
successor Disbursement Agent as hereinafter provided. Unless an Event of Default
under the Amended and Restated Reimbursement Agreement has occurred and is
continuing, the Majority Banks will replace the Disbursement Agent pursuant to
Section 16.03(c) at the written request of Lessor if the Disbursement Agent has
twice failed to disburse monies held by it on a timely basis in accordance with
this Disbursement Agreement and if a replacement Disbursement Agent meeting the
standards set forth in Section 16.03(c) can be obtained.
(c) In the event of any resignation or removal of the Disbursement Agent, a
successor Disbursement Agent, which shall be a bank or trust company organized
under the laws of the United States of America or any State thereof having a
corporate trust office in Pennsylvania and a capital and surplus of not less
than $100,000,000, shall be appointed by the Majority Banks, subject to the
approval of Lessor (which approval shall not be unreasonably withheld) or after
delivery of an Agent Release Notice, by Lessor, in its sole discretion. Any such
successor Disbursement Agent shall deliver to each party to this Disbursement
Agreement a written instrument accepting such appointment hereunder and
thereupon such successor Disbursement Agent shall succeed to all the rights and
duties of the Disbursement Agent hereunder and shall be entitled to receive the
Accounts from the predecessor Disbursement Agent.
(d) Any corporation into which the Disbursement Agent may be merged or
converted or within which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Disbursement Agent
shall be a party, or any corporation to which substantially all the corporate
trust business of the Disbursement Agent may be transferred, shall, subject to
the terms of Section 16.03(c), be the Disbursement Agent under this Disbursement
Agreement without further act.
SECTION 16.04. Termination. This Disbursement Agreement shall terminate
-----------
(except as to any provision which expressly survives termination) on the earlier
of (i) receipt by the Disbursement Agent of an Agent Release Notice and a Lessor
Release Notice or (ii) any date agreed to by the parties hereto. Upon
termination of this Disbursement Agreement, the Disbursement Agent shall
transfer any cash, securities and investments, together with any interest
thereon, then held in any of the Accounts to the Operating Account for
application as provided in Section 5.02(d). Upon termination of this
Disbursement Agreement, the Disbursement Agent shall transfer any cash,
securities and investments, together with any interest thereon, then held in the
Capital Expenditure Fund to the Lessor and the Lessee for application in
accordance with clause Seventeenth of Section 5.02(a)(Y)
-----------
SECTION 16.05. Severability. If any one or more of the covenants or
------------
agreements provided in this Disbursement Agreement on the part of the parties
hereto to be performed should be determined by a court of competent jurisdiction
to be contrary to law, such covenant or agreement shall be deemed and construed
to be severable from the remaining covenants and agreements herein contained and
shall in no way affect the validity of the remaining provisions of this
Disbursement Agreement.
24
<PAGE>
SECTION 16.06. Counterparts. This Disbursement Agreement may be executed in
------------
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
SECTION 16.07. Amendments. The trust created by this Disbursement Agreement
----------
is irrevocable. This Disbursement Agreement may not be modified or amended
without the prior written consent of each of the parties hereto.
SECTION 16.08. Applicable Law. This Disbursement Agreement has been
--------------
negotiated and delivered in, and shall in all respects be governed by and
construed in accordance with, the laws of the State of New York applicable to
agreements made and to be performed entirely in that state including matters of
construction, validity and performance.
SECTION 16.09. Notices. All certificates, notices, requests, consents,
-------
demands and other communications (collectively, "notices") required or permitted
-------
to be given under this Disbursement Agreement to any Person shall be in writing
and shall become effective upon receipt. Notices may be given in any manner,
including mail, telex, telecopy or telegram, when received, and shall be
directed to the address of such Person set forth in Schedule I hereto or
Schedule IV to the Amended and Restated Participation Agreement.
SECTION 16.10. Benefit of Agreement. This Disbursement Agreement shall be
--------------------
binding upon, and inure to the benefit of, the parties hereto and their
permitted successors and assigns. Nothing in this Disbursement Agreement,
whether expressed or implied, shall be construed to give any Person any legal or
equitable right, remedy or claim under or in respect of this Disbursement
Agreement.
SECTION 16.11. Further Actions. The Disbursement Agent, the Lessor or the
---------------
Lessee will make, execute, endorse, acknowledge, file and/or deliver to the
Lessor and to Agent from time to time such lists, descriptions and designations
of the Lessee Collateral and Lessor Collateral, and take such further steps
relating to such collateral and other property or rights covered by the security
interest hereby granted, which the Lessor or Agent deem reasonably appropriate
or advisable to perfect, preserve or protect its security interest in the Lessee
Account Collateral and Lessor Account Collateral; provided, however, that in no
case shall the Disbursement Agent be obligated to file or register or reregister
any financing statement with respect to the Lessee Account Collateral or the
Lessor Account Collateral nor any amendments or supplements thereto.
SECTION 16.12. Submission to Jurisdiction; Waivers. Each party hereto
-----------------------------------
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Disbursement Agreement, or for recognition and
enforcement of any judgment in respect hereof or thereof, to the
non-exclusive general jurisdiction of the courts of the
25
<PAGE>
State of New York, the courts of the United States of America for the
Southern District of New York, and the appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts, and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient forum and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form and mail), postage prepaid, to such
party at its address specified in Schedule I hereto, or at such other
address of which the Agent shall have been notified pursuant thereto; and
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
SECTION 16.13. Copies to Lessee. Lessor shall, promptly after delivery
----------------
thereof to the Agent or the Disbursement Agent, deliver to Lessee a copy of each
Disbursement Certificate and each other Exhibit delivered by Lessor pursuant to
this Disbursement Agreement, such delivery to be accomplished in accordance with
Section 16.09 of this Disbursement Agreement.
ARTICLE XVII
BORROWER ENVIRONMENTAL LIABILITY RESERVE ACCOUNT
------------------------------------------------
SECTION 17.01. Deposits into the Borrower Environmental Liability Reserve
----------------------------------------------------------
Account.
- -------
(a) Deposit from Proceeds of Sale of Transmission Line. Upon the sale
--------------------------------------------------
of the Transmission Line, together with related easements, by the Lessor to
an unrelated third party, the Disbursement Agent shall deposit into the
Borrower Environmental Liability Reserve Account the first two hundred
fifty thousand dollars ($250,000.00) from the proceeds of the sale of the
Transmission Line.
(b) Deposit of Funds Received from Lessee. The Disbursement Agent
-------------------------------------
shall deposit into the Borrower Environmental Liability Reserve Account all
funds received by the Lessor from the Lessee pursuant to Section 10.1 of
the Amended and Restated Participation Agreement for the indemnification of
any Environmental Liability incurred by the Borrower.
26
<PAGE>
SECTION 17.02. Disbursements from the Borrower Environmental Liability
-------------------------------------------------------
Reserve Account.
- ---------------
(a) Disbursement of Income Earned on Funds Deposited in the Borrower
----------------------------------------------------------------
Environmental Liability Reserve Account. On each Payment Date, the
---------------------------------------
Disbursement Agent shall pay to Lessor any investment income earned on the
principal amount of the Borrower Environmental Liability Reserve Account
that has not been previously disbursed.
(b) Disbursement of Principal Amount Deposited in the Borrower
----------------------------------------------------------
Environmental Liability Reserve Account. Upon receipt of a Borrower
---------------------------------------
Environmental Liability Reserve Account Disbursement Certificate from the
Agent, in substantially the form attached hereto as Exhibit 17.02(b), the
Disbursement Agent shall, from time to time, transfer from the funds
available in the Borrower Environmental Liability Reserve Account the
amounts specified in such certificate to the Person(s) specified therein.
(c) Termination of Account. Upon receipt of a Borrower Environmental
----------------------
Liability Reserve Account Release Notice, in substantially the form
attached hereto as Exhibit 17.02(c), delivered by the Agent pursuant to
Section 13.01(g)(viii) of the Amended and Restated Reimbursement Agreement,
the Disbursement Agent shall promptly liquidate the Borrower Environmental
Liability Reserve Account, disburse all funds remaining in the Borrower
Environmental Liability Reserve Account to the Lessor, and this Article
XVII shall be of no further effect.
ARTICLE XVIII
LESSEE ENVIRONMENTAL LIABILITY RESERVE ACCOUNT
----------------------------------------------
SECTION 18.01. Deposits into the Lessee Environmental Liability Reserve
--------------------------------------------------------
Account. The Disbursement Agent shall deposit into the Lessee Environmental
- -------
Liability Reserve Account all funds loaned to the Lessee by U.S. Generating
Company ("USGen") pursuant to the Agreement, dated November 30, 1992, among
-----
USGen, the Lessor, the Lessee and the Agent as supplemented and affirmed by the
Omnibus Reaffirmation Agreement.
SECTION 18.02. Disbursements from the Lessee Environmental Liability
-----------------------------------------------------
Reserve Account.
- ---------------
(a) Disbursement of Income Earned on Funds Deposited in the Lessee
--------------------------------------------------------------
Environmental Liability Reserve Account. On each Payment Date, the
---------------------------------------
Disbursement Agent shall pay any investment income earned on the principal
amount of the Lessee Environmental Liability Reserve Account that has not
been previously disbursed to Lessee in accordance with clause Seventeenth
-----------
of Section 5.02(a)(Y)
27
<PAGE>
(b) Disbursement of Principal Amount Deposited in the Lessee
--------------------------------------------------------
Environmental Liability Reserve Account. Upon receipt of a Lessee
---------------------------------------
Environmental Liability Reserve Account Disbursement Certificate, in
substantially the form attached hereto as Exhibit 18.02(b) and executed by
Agent, the Disbursement Agent shall, from time to time, transfer from the
funds available in the Lessee Environmental Liability Reserve Account the
amounts specified in such certificate to the Person(s) specified therein.
(c) Termination of Account. Upon receipt of a Lessee Environmental
----------------------
Liability Reserve Account Release Notice, in substantially the form
attached hereto as Exhibit 18.02(c), delivered by the Agent pursuant to
Section 13.01(h)(vi) of the Amended and Restated Reimbursement Agreement,
the Disbursement Agent shall promptly liquidate the Lessee Environmental
Liability Reserve Account, disburse all funds remaining in the Lessee
Environmental Liability Reserve Account to the Lessor, and this Article
XVII shall be of no further effect.
ARTICLE XIX
CAPITAL EXPENDITURE FUND
------------------------
SECTION 19.01. Deposits into the Capital Expenditure Fund. The Disbursement
------------------------------------------
Agent shall deposit into the Capital Expenditure Fund the amount made available
for such purpose in accordance with clause Sixteenth of Section 5.02(a)(Y) or
---------
such other amounts that Lessor and/or Lessee make available from time to time.
SECTION 19.02. Disbursements from the Capital Expenditure Fund. Upon
-----------------------------------------------
receipt of a Capital Expenditure Fund Disbursement Certificate substantially in
the form of Exhibit 19.02 hereto, the Disbursement Agent shall transfer cash
available in the Capital Expenditure Fund as directed, from time to time,
pursuant to such Capital Expenditure Fund Disbursement Certificate solely (i) if
consented to in writing by Agent in accordance with the terms of the Amended and
Restated Reimbursement Agreement, to pay vendors for amounts due or to become
due in respect of Capital Expenditures, (ii) for deposit in the Maintenance
Reserve Account for application in accordance with this Disbursement Agreement
or (iii) for distribution in accordance with clause Seventeenth of Section
-----------
5.02(a)(Y) (without any application as provided in any other clause of Section
5.02).
SECTION 19.03. Discretion of Lessor and Lessee. Disbursement of cash from
-------------------------------
the Capital Expenditure Fund by the Disbursement Agent shall be made at the
discretion of Lessee and Lessor as directed, from time to time, pursuant to
Capital Expenditure Fund Disbursement Certificates delivered to the Disbursement
Agent; provided that disbursements for use in accordance with clause (i) of
Section 19.02 of this Disbursement Agreement shall only be made if consented to
in writing by Agent in accordance with the terms of the Amended and Restated
Reimbursement Agreement. The existence of the Capital Expenditure Fund, and the
disbursement of cash therefrom, shall not prohibit the payment of Capital
Expenditures set forth
28
<PAGE>
in the Operating Budget as an Operating Expense in accordance with the Amended
and Restated Reimbursement Agreement or the payment of Capital Expenditures
otherwise in accordance with the Amended and Restated Reimbursement Agreement.
ARTICLE XX
HEDGE ACCOUNT
-------------
SECTION 20.01. Deposits into Hedge Account. The Disbursement Agent shall
---------------------------
make such deposits into the Hedge Account as provided in clause "Ninth" of
-----
Section 5.02(a)(Y)
SECTION 20.02. Disbursement from the Hedge Account. Subject to Article XI
-----------------------------------
and Section 15.03, the Disbursement Agent, from time to time, shall disburse to
the Agent or transfer to the Operating Account for application in accordance
with clauses Tenth through Seventeenth of Section 5.02(a)(Y), as the case may
----- -----------
be, such amounts in the Hedge Account upon receipt or deemed receipt, at least
three (3) Business Days prior to the date of disbursement specified therein, of
a completed original counterpart of a Disbursement Certificate and as instructed
in a completed original counterpart of Disbursement Certificate (with all
applicable schedules completed and attached thereto).
ARTICLE XXI
AMORTIZATION SUB-ACCOUNT
------------------------
SECTION 21.01. Deposits into Amortization Sub-Account. The Disbursement
--------------------------------------
Agent shall make such deposits into the Amortization Sub-Account as provided in
clause "Ninth" of Section 5.02(a)(Y).
-----
SECTION 21.02. Disbursement from the Amortization Sub-Account. The
----------------------------------------------
Disbursement Agent, from time to time, shall disburse to the Agent or transfer
to the Operating Account, as the case may be, such amounts in the Amortization
Sub-Account upon receipt, at least three (3) Business Days prior to the date of
disbursement specified therein, of an Amortization Sub-Account Certificate and
as instructed in a completed Amortization Sub-Account Certificate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Disbursement
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: /s/ Donald C. Sturmer
----------------------------------------
Name: DONALD C. STURMER
Title: VICE PRESIDENT
AGENT: CREDIT LYONNAIS, acting through its New York
Branch as Agent,
By:/s/ Michael F.G.Kyn
----------------------------------------
Name: Michael F.G. Kyn
Title: Vice President
By:/s/ Nina S. Eshoo
----------------------------------------
Name: Nina S. Eshoo
Title: PVF
LESSEE: BUZZARD POWER CORPORATION, a Delaware
corporation
By: /s/ Joseph E. Cresci
----------------------------------------
Name: Joseph E. Cresci
Title: Vice President
DISBURSEMENT
AGENT: BANKERS TRUST COMPANY
By: /s/ Lisa Lai
----------------------------------------
Name: Lisa Lai
Title: ASSISTANT TREASURER
<PAGE>
Exhibit
10.84
EXECUTION COPY
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
LESSEE WORKING CAPITAL LOAN AGREEMENT
between
SCRUBGRASS GENERATING COMPANY, L.P.
as Lender,
and
BUZZARD POWER CORPORATION,
as Lessee
--------------------------
Dated December 22, 1995
--------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.84
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
CERTAIN DEFINITIONS, CERTAIN DOCUMENTS
AND ACCOUNTING PRINCIPLES
<S> <C> <C>
SECTION 1.01. Certain Definitions ....................................... 3
SECTION 1.02. Additional Definitions .................................... 11
SECTION 1.03. Computation of Time Periods ............................... 11
SECTION 1.04. Accounting Principles and Terms ........................... 11
SECTION 1.05. Rules of Construction ..................................... 12
SECTION 1.06. Continuation of Loans Under Original Lessee Working
Capital Loan Agreement .................................... 12
ARTICLE II
LOANS
SECTION 2.01 Lessee Working Capital Loans .............................. 12
SECTION 2.02 Loans ..................................................... 14
SECTION 2.03 Interest .................................................. 16
SECTION 2.04 Additional Interest on Lessee Eurodollar Rate Loans ....... 16
SECTION 2.05 Interest Rate Determination and Protection ................ 17
SECTION 2.06 Conversion or Continuation of Loans ....................... 18
SECTION 2.07 Payments and Computations ................................. 19
SECTION 2.08 Taxes ..................................................... 19
SECTION 2.09 Right to Set-Off .......................................... 21
ARTICLE III
YIELD PROTECTION AND ILLEGALITY
SECTION 3.01. Increased Costs ........................................... 21
SECTION 3.02. Illegality ................................................ 21
SECTION 3.03. Capital Adequacy .......................................... 22
SECTION 3.04. Compensation and Indemnity ................................ 22
SECTION 3.05. Interest .................................................. 23
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE IV
OBLIGATIONS UNCONDITIONAL
SECTION 4.01. Obligations...................................................23
SECTION 4.02. Release from Obligations......................................25
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. Conditions Precedent to Making the Lessee Working
Capital Loans.................................................25
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties................................26
ARTICLE VII
COVENANTS
SECTION 7.01. Covenants.....................................................26
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default.............................................26
ii
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Indemnification...............................................27
ARTICLE X
EXPENSES
SECTION 10.01. Expenses......................................................28
ARTICLE XI
COMMITMENT FEES
SECTION 11.01. Commitment Fees..............................................28
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. No Waiver; Remedies Cumulative ...............................28
SECTION 12.02. Notices.......................................................28
SECTION 12.03. Binding Effect................................................29
SECTION 12.04. Execution in Counterparts.....................................29
SECTION 12.05. Successors and Assigns........................................29
SECTION 12.06. Submission to Jurisdiction; Waivers...........................29
SECTION 12.07. Severability..................................................30
SECTION 12.08. Headings......................................................30
SECTION 12.09. Amendments, Etc...............................................30
SECTION 12.10. Survival......................................................30
SECTION 12.11. Governing Law.................................................30
SECTION 12.12. Effective Date................................................30
iii
<PAGE>
TABLE OF CONTENTS
EXHIBIT A FORM OF AMENDED AND RESTATED LESSEE WORKING
CAPITAL NOTE
EXHIBIT B FORM OF NOTICE OF LESSEE WORKING CAPITAL LOAN NO. _____
EXHIBIT C [INTENTIONALLY OMITTED]
EXHIBIT D FORM OF NOTICE OF CONVERSION OR CONTINUATION OF
LESSEE WORKING CAPITAL LOAN
iv
<PAGE>
AMENDED AND RESTATED LESSEE WORKING CAPITAL LOAN AGREEMENT
AMENDED AND RESTATED LESSEE WORKING CAPITAL LOAN AGREEMENT (this
"Agreement"), dated December 22, 1995, by and between Buzzard Power Corporation,
---------
a Delaware corporation (the "Lessee"), and Scrubgrass Generating Company, L.P.,
------
a Delaware limited partnership (the "Lender").
------
WITNESSETH
WHEREAS, the Lender has developed an approximately 85 megawatt waste
coal-fired electrical power generating facility located in Venango County,
Pennsylvania, as more fully described below as the Project (as hereinafter
defined); and
WHEREAS, the Lessee, the Lender, Environmental Power Corporation ("EPC"),
---
Bankers Trust Company, not in its individual capacity but solely as trustee
under the Indenture (as defined in the Original Participation Agreement referred
to below) (in such capacity, the "Bond Trustee"), the Disbursement Agent,
------------
National Westminster Bank Plc, acting through its New York Branch ("NatWest"),
-------
as issuer of the Bond Letter of Credit and the Contract Letter of Credit (as
each such term is defined in the Original Participation Agreement referred to
below) (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 referred to below (the "Original Banks") (in such
--------------
capacity, the "Original Agent"), are parties to a Participation Agreement dated
--------------
as of December 15, 1990 (as amended, supplemented and otherwise modified and in
effect to but excluding the date hereof, the "Original Participation
----------------------
Agreement"), which provides for, among other things, the financing and leasing
- ---------
of the Project:
WHEREAS, the Lender, 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 Lender, all to be secured by all of the
Lender'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, in connection with the transactions contemplated by the Original
Participation Agreement and the Original Reimbursement Agreement, Lender and
Lessee have entered into that certain Lease Agreement, dated as of June 17,
1994, which on the date of execution hereof will be amended and restated by that
certain Amended and Restated Lease Agreement, dated the date hereof (as amended,
restated, modified or supplemented from time to time in accordance with the
Amended and Restated Participation Agreement referred to
1
<PAGE>
below, the "Amended and Restated Lease"), pursuant to which Lessee has leased
--------------------------
the Project from Lender, and in consideration of which Lessee has assigned to
Lender, as collateral, all of Lessee's right, title and interest in and to,
inter alia, the Project and all Project Revenues or other proceeds therefor:
- ----- ----
WHEREAS, the Lender and the Lessee are parties to a Lessee Working Capital
Loan Agreement dated as of June 17, 1994 (as amended, supplemented and otherwise
modified and in effect to but excluding the date hereof, the "Original Lessee
---------------
Working Capital Loan Agreement"), pursuant to which the Lender provided the
- ------------------------------
Lessee with funds from the proceeds of the Working Capital Loan (as defined
therein) for seasonal working capital requirements with regard to the Project in
the form of working capital advances in an aggregate principal amount which did
not exceed the Working Capital Loan Commitment (as defined in the Original
Reimbursement Agreement);
WHEREAS, NatWest has resigned as Original Agent under the Original
Participation Agreement, the Original Reimbursement Agreement, the Original
Disbursement Agreement (as hereinafter defined) 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 Original Agent under the Original
Participation Agreement, the Original Reimbursement Agreement, the Original
Disbursement Agreement and certain other documents entered into in connection
therewith;
WHEREAS, the Lessee, the Lender, EPC, the Bond Trustee, the Disbursement
Agent and the Agent have entered into an Amended and Restated Participation
Agreement dated the date hereof, providing for the amendment and restatement of
the Original Participation Agreement (the Original Participation Agreement, as
amended and restated by such Amended and Restated Participation Agreement and as
further amended, restated, modified, supplemented and in effect from time to
time, the "Amended and Restated Participation Agreement");
--------------------------------------------
WHEREAS, the Lender, certain banks (the "Banks"), the Bond LOC Issuer, the
-----
Contract LOC Issuer (as each such term is defined in the Amended and Restated
Participation Agreement) and the Agent have entered into an Amended and Restated
Reimbursement and Loan Agreement, dated the date hereof, providing for the
amendment and restatement of the Original Reimbursement Agreement (the Original
Reimbursement Agreement, as amended and restated by such Amended and Restated
Reimbursement Agreement and as further amended; restated, modified, supplemented
and in effect from time to time, the "Amended and Restated Reimbursement
----------------------------------
Agreement"), it being the intent that the loans and other extensions of credit
- ---------
outstanding under the Original Reimbursement Agreement shall not be deemed to be
repaid or terminated upon the effectiveness of the Amended and Restated
Reimbursement Agreement but shall continue to remain outstanding under the
Amended and Restated Reimbursement Agreement;
2
<PAGE>
WHEREAS, it is a condition precedent to the amendment and restatement of
the Original Reimbursement Agreement that the parties hereto enter into this
Agreement;
WHEREAS, the Lender and the Lessee desire to enter into this Agreement, to
provide, subject to the terms and conditions of this Agreement and the Amended
and Restated Reimbursement Agreement, the Lessee with funds for seasonal working
capital requirements with regard to the Project in an aggregate amount of up to
$4,000,000 and to provide for the amendment and restatement of the Original
Lessee Working Capital Loan Agreement, it being the intent that the loans and
other extensions of credit outstanding under the Original Lessee Working Capital
Loan Agreement shall not be deemed to be repaid or terminated upon the
effectiveness of this Agreement but shall continue to remain outstanding
hereunder; and
WHEREAS, in connection with the amendment and restatement of the Original
Lessee Working Capital Loan Agreement the parties hereto desire to amend and
restate the Lessee Working Capital Loan Note issued pursuant to the Original
Lessee Working Capital Loan Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the premises and
the mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS, CERTAIN DOCUMENTS
AND ACCOUNTING PRINCIPLES
SECTION 1.01. Certain Definitions. As used herein, the following terms
-------------------
shall have the following respective meanings (all terms defined in this Section
1.01 and in other provisions of this Agreement used in the singular shall have
the same meanings when used in the plural and vice versa, and the definition of
---- -----
all agreements shall include such agreement as amended, restated, modified or
supplemented from time to time in accordance with its terms and this Agreement):
"Agent" shall mean Credit Lyonnais, a banking corporation organized and
-----
existing under the laws of the Republic of France, acting through its branch
duly licensed under the laws of the State of New York, or such other office as
Credit Lyonnais may from time to time specify as Agent under the Amended and
Restated Reimbursement Agreement, together with its successors and assigns in
such capacity.
"Agreement" shall mean this Amended and Restated Lessee Working Capital
---------
Loan Agreement.
3
<PAGE>
"Amended and Restated Disbursement Agreement" shall have the meaning set
-------------------------------------------
forth in the Amended and Restated Reimbursement Agreement.
"Amended and Restated Lease" shall have the meaning set forth in the
--------------------------
recitals to this Agreement.
"Amended and Restated Lessee Working Capital Note" shall have the meaning
------------------------------------------------
set forth in Section 2.01(b).
"Amended and Restated Participation Agreement" shall have the meaning set
--------------------------------------------
forth in the recitals to this Agreement.
"Amended and Restated Reimbursement and Loan Agreement" shall have the
-----------------------------------------------------
meaning set forth in the recitals to this Agreement.
"Applicable Margin" shall mean, with respect to:
-----------------
(a) any Lessee Working Capital Loan that is a Lessee Base Rate Loan,
(i) during the period from the Effective Date through December 31, 2000,
.375% per annum, and (ii) thereafter, .50% per annum; and
(b) any Lessee Working Capital Loan that is a Lessee Eurodollar Rate
Loan, (i) during the period from the Effective Date through December 31,
2000, 1.125% per annum, and (ii) thereafter, 1.25% per annum.
"Bank" or "Banks" shall have the meaning set forth in the recitals to this
---- -----
Agreement.
"Bank Parties" shall mean the Disbursement Agent, the Agent, the Bond LOC
------------
Issuer, the Contract LOC Issuer and the Banks.
"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 herein 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 any action
by any Person at the time of such change in the Prime Rate or the Federal Funds
Rate, as the case may be.
"Base Rate Loan" shall have the meaning set forth in the Amended and
--------------
Restated Reimbursement Agreement.
"Board of Governors" shall mean the Board of Governors of the Federal
------------------
Reserve System or any successor thereto.
"Bond Issuer" shall mean the Venango County Development Authority, a public
-----------
instrumentality of the Commonwealth of Pennsylvania.
4
<PAGE>
"Bond Letter of Credit" shall have the meaning set forth in the Amended and
---------------------
Restated Reimbursement Agreement.
"Bond LOC Issuer" 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 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, 1990B and 1993, and any additional
bonds issued pursuant to the Indenture.
"Business Day" shall mean any day on which commercial banks located in
------------
cities in which the principal offices of the Agent, the Disbursement 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 principal of, or a Conversion of or into, or an Interest Period
for, a Eurodollar Rate Loan or Lessee Eurodollar Rate Loan or a notice by the
Lessee 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 Agreements" shall have the meaning set forth in the
-------------------------------
Amended and Restated Reimbursement Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Commitment Fees" shall mean any fee payable by the Lessee to the Lender
---------------
pursuant to Article XI hereof.
"Contract LOC Issuer" shall have the meaning set forth in the Amended and
-------------------
Restated Reimbursement Agreement.
"Convert," "Conversion," and "Converted" each shall refer to a conversion
------- ---------- ---------
of a Lessee Loan (or portion thereof) of one Type into a Lessee Loan of the
other Type pursuant to Section 2.06 hereof.
"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.
"Default Rate" shall mean, at any time, an interest rate per annum equal to
------------
the Base Rate plus two percent (2%).
5
<PAGE>
"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.
"Dollars" and "$" shall mean lawful money of the United States of America.
------- -
"Effective Date" shall have the meaning set forth in the Amended and
--------------
Restated Reimbursement Agreement.
"EPC" shall mean Environmental Power Corporation, a Delaware corporation.
---
"Eurocurrency Liabilities" shall have the meaning set forth in Regulation D
------------------------
of the Board of Governors, as in effect from time to time.
"Eurodollar Rate" shall mean, for any Interest Period with respect to a
---------------
Eurodollar Rate Loan or Lessee Eurodollar Rate Loan, the rate of interest per
annum equal at all times during such Interest Period to the rate of interest per
annum at which deposits in Dollars are offered by the Agent to prime banks in
the London interbank market at 11:00 A.M. (London time) or as soon as
practicable thereafter on the second Business Day before the first day of such
Interest Period for a period comparable to such Interest Period and in an amount
comparable to the amount of such Eurodollar Rate Loan or Lessee Eurodollar Rate
Loan.
"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.
"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 or to be 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, a limestone crushing facility, 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 or to be constructed pursuant to the Facility EPC
Contract, the Transmission Line EPC Contract 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 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.
6
<PAGE>
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day; provided, that if such day is not a Business Day, the
--------
Federal Funds Rate for such day shall be such rate on such transactions on the
preceding Business Day as so published on the next succeeding Business Day by
the Accounting Principles Board and the American Institute of Certified Public
Accountants.
"FERC" shall mean the Federal Energy Regulatory Commission or any successor
----
or analogous Federal Governmental Authority.
"Fuel" shall mean (a) the bituminous 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 the
Lessee either owns or has the right to use.
"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.
"Governmental Approvals" shall mean any authorization, consent, approval,
----------------------
license, franchise, lease, ruling, order, permit, tariff, rate, certification,
exemption, filing or registration by or with any Governmental Authority or legal
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 Project Document.
"Governmental Authority" shall mean any nation or government, any state or
----------------------
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Indenture" shall mean the Indenture of Trust, dated as of December 15,
---------
1990, between the Bond Issuer and the Bond Trustee, as supplemented by the First
Supplemental Indenture, dated as of March 1, 1993, between the Bond Issuer and
the Bond Trustee, as supplemented by any supplemental indenture, between the
Bond Issuer and the Bond Trustee, entered into from time to time.
"Interest Period" shall mean, with respect to each Lessee Eurodollar Rate
---------------
Loan, a period commencing on the date of such Lessee Loan (or the date of
Conversion of any other Lessee Loan into such a Lessee Loan) and ending on the
last day of the period selected by the Lessee pursuant to the provisions below
and thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the period
selected by the Lessee pursuant to the provisions below. The duration of each
such Interest
7
<PAGE>
Period shall be 1,2,3 or 6 months (or, subject to availability as determined by
the Agent either (x) such other number of days chosen by the Lender, not to
exceed ninety (90) days or (y) upon the request of the Lender, twelve months) as
the Lessee may, upon notice received by the Lender in accordance with Section
2.02(a) of this Agreement; provided, that whenever the last day of any Interest
--------
Period would otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding Business
Day, provided, in the case of any Interest Period for a Lessee Eurodollar Rate
--------
Loan, that if such extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of such Interest Period
shall occur on the preceding Business Day.
"Lender" shall mean Scrubgrass Generating Company, L.P., a Delaware limited
------
partnership.
"Lessee Base Rate Loan" shall mean a Lessee Loan from the Lender which
---------------------
bears interest as provided in Section 2.03(a)(i).
"Lessee Eurodollar Rate Loan" shall mean a Lessee Loan from the Lender
---------------------------
which bears interest as provided in Section 2.03(a)(ii).
"Lessee Loans" shall mean the Lessee Working Capital Loans.
------------
"Lessee Obligations" shall mean, collectively, the Lessee's obligations
------------------
pursuant to the Transaction Documents.
"Lessee Security Agreement" shall have the meaning set forth in the Amended
-------------------------
and Restated Reimbursement Agreement.
"Lessee Working Capital Loan" shall mean a loan by the Lender to the Lessee
---------------------------
pursuant to Section 2.01.
"Lessee Working Capital Loan Commitment" shall mean the obligation of the
--------------------------------------
Lender under Section 2.01(a) to make Lessee Working Capital Loans.
"Lessor" shall mean the Lender in its capacity as Lessor under the Amended
------
and Restated Lease.
"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).
"Loan Documents" shall have the meaning set forth in the Amended and
--------------
Restated Reimbursement Agreement.
8
<PAGE>
"LOC Expiration Date" shall have the meaning set forth in the Bond Letter
-------------------
of Credit.
"LOC Issuer" shall have the meaning set forth in the Amended and Restated
----------
Reimbursement Agreement.
"NatWest" shall mean National Westminster Bank Plc, acting through its
-------
Applicable Lending Office (as defined in the Amended and Restated Reimbursement
Agreement).
"Notice of Lessee Working Capital Loan" shall have the meaning set forth in
-------------------------------------
Section 2.02(a).
"Operating Account" shall have the meaning set forth in Section 2.03 (a) of
-----------------
the Amended and Restated Disbursement Agreement.
"Original Disbursement Agreement" shall have the meaning set forth in the
-------------------------------
Amended and Restated Reimbursement Agreement.
"Original Lessee Working Capital Loan Agreement" shall have the meaning set
----------------------------------------------
forth in the recitals to this Agreement.
"Original Lessee Working Capital Loan Note" shall mean the promissory note
-----------------------------------------
of Lessee in favor of Lender issued pursuant to the Original Lessee Working
Capital Loan Agreement.
"Original Participation Agreement" shall have the meaning set forth in the
--------------------------------
recitals to this Agreement.
"Original Reimbursement Agreement" shall have the meaning set forth in the
--------------------------------
recitals to this Agreement.
"Other Taxes" shall have the meaning set forth in Section 2.08(b) hereof.
-----------
"Payment Dates" shall have the meaning set forth in the Amended and
-------------
Restated Reimbursement Agreement.
"Period" shall mean, as the context requires, a fiscal year, fiscal
------
quarter, calendar month or specified number of fiscal quarters or calendar
months or specified number of fiscal quarters of the Lessee.
"Persons" shall mean an individual, corporation, partnership, joint
-------
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Power Purchase Agreement" shall have the meaning set forth in the Amended
------------------------
and Restated Reimbursement Agreement.
9
<PAGE>
"Power Purchaser" shall mean Pennsylvania Electric Company, a public
---------------
utility corporation organized and existing under the laws of the Commonwealth of
Pennsylvania.
"Prime Rate" shall mean the rate of interest established by Credit
----------
Lyonnais, New York Branch, as its "base rate" with each change in such rate to
be effective for purposes of this Agreement, without necessity of any action on
the part of any Person, on the day on which such change is effective for Credit
Lyonnais' purposes, it being understood that such rate shall not necessarily be
the best or lowest rate of interest available to Credit Lyonnais' best or most
preferred prime, large commercial customers.
"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 and all Additional Contracts (as such items are
defined in the Amended and Restated Reimbursement Agreement).
"Project" shall mean, collectively, the Facility and the Site, known as the
-------
Scrubgrass Project.
"Project Documents" shall mean each of the Loan Documents and the Principal
-----------------
Project Agreements.
"PURPA" shall mean the Public Utility Regulatory Policies Act of 1978, as
-----
amended from time to time.
"Remarketing Agent" shall have the meaning set forth in the Indenture.
-----------------
"Requirement of Law" shall mean, as to any Person, the certificate of
------------------
incorporation and by-laws, or partnership agreement 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, relevant Environmental Laws (as such term is
defined under the Amended and Restated Reimbursement Agreement) and zoning, use
and building codes, laws, regulations and ordinances.
"Reserve Percentage" shall have the meaning set forth in the Amended and
------------------
Restated Reimbursement Agreement.
"Secured Obligations" shall mean the Lender's obligations to the Bank
-------------------
Parties pursuant to the Loan Documents.
"Secured Parties" shall mean the Agent, the LOC Issuer, the Banks and the
---------------
Bond Trustee.
10
<PAGE>
"Securities" shall mean any shares, stock, bonds, debentures, notes,
----------
evidences of indebtedness or any other instruments commonly known as
"securities".
"Security Agreement" shall have the meaning set forth in the Amended and
------------------
Restated Reimbursement Agreement.
"Security Documents" shall mean, collectively, the Project Mortgage, the
------------------
Security Agreement, the Amended and Restated Collateral Assignments of
Partnership Interests, the Amended and Restated Disbursement Agreement, the
Scrubgrass Security Agreement, the Lessee Security Agreement, the Stock Pledge
Agreements, the Consents, the Bond Pledge Agreement and the Omnibus
Reaffirmation Agreement (as such items are defined under the Amended and
Restated Reimbursement Agreement) and any financing statement or similar filing
with respect to any of the foregoing.
"Site" shall have the meaning set forth in the Project Mortgage.
----
"Taxes" shall have the meaning set forth in Section 2.09 hereof.
-----
"Transaction Documents" shall mean the Project Documents, the Bond
---------------------
Documents, the Amended and Restated Lease, the Amended and Restated
Participation Agreement and this Lessee Working Capital Loan Agreement.
"Type" of any Lessee Loan shall mean either a Lessee Base Rate Loan, or a
----
Lessee Eurodollar Rate Loan as selected by the Lessee in accordance with the
terms of this Agreement.
"Working Capital Loan" shall have the meaning set forth in Section 5.05(a)
--------------------
of the Amended and Restated Reimbursement Agreement.
"Working Capital Loan Commitment" shall mean the obligation of each Bank
-------------------------------
under Section 5.05(a) of the Amended and Restated Reimbursement Agreement to
make Working Capital Loans to the Lender.
"Working Capital Note" shall have the meaning set forth in Section 5.05(b)
--------------------
of the Amended and Restated Reimbursement Agreement.
SECTION 1.02. Additional Definitions. Unless the context otherwise
----------------------
requires, any capitalized terms used in this Agreement which are not defined in
Section 1.01 shall have the meaning ascribed to them in Appendix I to the
Amended and Restated Participation Agreement, if defined therein.
SECTION 1.03. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and words "to" and "until " each
means "to but excluding"
11
<PAGE>
SECTION 1.04. Accounting Principles and Terms. Except as otherwise provided
-------------------------------
in this Agreement, (a) all computations and determinations as to financial
matters, and all financial statements 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 on interim
financial statements) and on a consistent basis and (b) all accounting terms
used in this Agreement shall have the meaning respectively ascribed to such
terms by such principles.
SECTION 1.05. Rules of Construction. When used in this Agreement:
---------------------
(i) The singular includes the plural and the plural includes the
singular;
(ii) "or" is not exclusive:
(iii) a reference to a law includes any amendment or modification to
such law;
(iv) a reference to a Person includes its permitted successors and
permitted assigns; and
(v) a reference to an agreement, instrument or document shall
include such agreement, instrument or document as the same may be amended,
restated, modified or supplemented from time to time in accordance with its
terms and as permitted by the Loan Documents.
SECTION 1.06. Continuation of Loans Under Original Lessee Working Capital
-----------------------------------------------------------
Loan Agreement. Effective on the Effective Date, all outstanding Lessee Working
- --------------
Capital Loans made or deemed made by Lender to Lessee prior to the Effective
Date under and as defined in the Original Lessee Working Capital Loan Agreement
($1,628,142.50 in aggregate principal amount) as evidenced by the Original
Lessee Working Capital Note shall, in accordance with Section 2.01 of this
Agreement, be Lessee Working Capital Loans outstanding under this Agreement and
shall be evidenced by an Amended and Restated Lessee Working Capital Note.
ARTICLE II
LOANS
SECTION 2.01. Lessee Working Capital Loans.
----------------------------
(a) Lessee Working Capital Loan Commitments. Subject to the terms and
---------------------------------------
conditions of this Agreement, the Lender agrees to make Lessee Working
Capital Loans to the Lessee on any Business Day during the period from the
Effective Date until December 31, 2002, so long as no Event of Default has
occurred and is continuing, in an aggregate amount, not to exceed at any
time outstanding the aggregate amount set forth opposite each Bank's name
as its " Working Capital Loan Commitment " on
-------------------------------
12
<PAGE>
Schedule I to the Amended and Restated Reimbursement Agreement, as such
amount may be reduced from time to time pursuant to Section 5.05(g) of the
Amended and Restated Reimbursement Agreement (the foregoing obligation to
make Lessee Working Capital Loans, the Lender's "Lessee Working Capital
Loan Commitment"). ----------------------
---------------
Lessee Working Capital Loans that are repaid may be reborrowed on the terms
and conditions set forth in this Section 2.01. Any repayment on the
Effective Date of the outstanding working capital facility under the
Amended and Restated Reimbursement Agreement by Lender with the proceeds of
the New Term Loan shall be deemed a repayment by Lessee to Lender in the
same amount of the outstanding Working Capital Loan.
(b) Amended and Restated Lessee Working Capital Notes. The Lessee
-------------------------------------------------
Working Capital Loans shall be evidenced by an Amended and Restated Lessee
Working Capital Note of the Lessee in the form of Exhibit A hereto, dated
the Effective Date, payable to the Lender in an initial principal amount
equal to the Lessee Working Capital Loan Commitment and otherwise duly
completed. All Lessee Working Capital Loans made by the Lender and the Type
thereof, all payments and prepayments made on account of the principal
thereof, and all Conversions of such Lessee Working Capital Loans, shall be
recorded by the Lender on a schedule (or a continuation thereof) attached
to such Amended and Restated Lessee Working Capital Note, it being
understood that failure by the Lender to make any such endorsement or any
error therein shall not affect the obligations of the Lessee hereunder or
under the Amended and Restated Lessee Working Capital Note in respect of
the Lessee Working Capital Loans evidenced thereby.
(c) Types of Lessee Working Capital Loans. Lessee Working Capital
-------------------------------------
Loans may be Lessee Base Rate Loans or Lessee Eurodollar Rate Loans (as
initially selected by the Lessee pursuant to Section 2.02(a)) and may be
Converted from time to time pursuant to Section 2.06.
(d) Repayment of Lessee Working Capital Loans.
-----------------------------------------
(i) Mandatory Repayment. The Lessee shall repay the principal
-------------------
amount of the Lessee Working Capital Loans and accrued interest
thereon on December 31, 2002; provided, that if the Bond LOC Issuer
--------
extends the Bond Letter of Credit and Banks holding 100% of the
Working Capital Loans, at their option, permit the Lender to repay
the Working Capital Loans on a date later than December 31, 2002,
Lender shall permit the Lessee to repay the Lessee Working Capital
Loans on such later date. Notwithstanding anything to the contrary in
this Agreement, the Lessee agrees to reduce the principal balance of
Lessee Working Capital Loans outstanding once for twenty consecutive
days during each of the following calendar years to an amount that is
not greater than that set forth under the column titled "Amount" for
each such calendar year.
CALENDAR YEAR AMOUNT
------------- ------
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1996 $2,000,000
1997 $2,000,000
1998 $2,000,000
1999 $2,000,000
2000 $2,000,000
Thereafter $0
</TABLE>
The time period in each calendar year during which the Lessee
reduces the balance of Lessee Working Capital Loans to an amount not
greater than the amount set forth opposite such year shall be
determined by the Lessee and notice of such determination shall be
delivered to the Lender no later than three (3) Business Days after
the end of such time period. Subject to the terms and conditions of
this Agreement, amounts repaid in respect of the Lessee Working
Capital Loans may be reborrowed thereafter until December 31, 2002,
upon which date the Lessee Working Capital Loan Commitments shall
terminate; provided, that if the Bond LOC Issuer extends the Bond
--------
Letter of Credit, Banks holding 100% of the Working Capital Loans may,
at their option, extend the availability of the Working Capital Loan
Commitments to the Lender, Lender shall extend the availability of the
Lessee Working Capital Loan Commitments to the Lessee.
(ii) Optional Repayment. The Lessee may, upon prior written
------------------
notice to the Lender and without premium or penalty (with the
exception of any compensation required pursuant to Article III), repay
the outstanding amount of any Lessee Working Capital Loan, in whole or
in part, with accrued interest to the date of such repayment on the
amount repaid; provided, that each partial repayment shall be in an
aggregate principal amount not less than [$25,000] or an integral
multiple thereof (or such lesser amount as shall equal the then
aggregate outstanding amount of such Lessee Working Capital Loan.)
(e) Use of Proceeds of Lessee Working Capital Loans. The Lessee shall
-----------------------------------------------
use the proceeds of Lessee Working Capital Loans solely to provide for
seasonal working capital requirements with regard to the Project; provided,
--------
however, that such proceeds shall not be used to pay Subordinated Operating
-------
Expenses.
(f) Reduction of Commitment. The making of any Lessee Working Capital
-----------------------
Loan by the Lender shall automatically reduce the Lessee Working Capital
Loan Commitment by an amount equal to such Loan until such amount is repaid
pursuant to Section 2.01(d). In addition, the Lessee may, at any time and
from time to time, reduce the aggregate amount of the Lessee Working
Capital Loan Commitments by providing the Lender with written notice
specifying the amount of such reduction at least six (6) Business Days
prior to the requested effective date thereof. Each such reduction shall
14
<PAGE>
be in the minimum amount of $500,000. Once so reduced, the Lessee Working
Capital Loan Commitment may not thereafter be increased.
SECTION 2.02. Loans. (a) Unless a shorter period is agreed to by the
-----
Lender, each Lessee Working Capital Loan shall be made on notice to the Lender,
given not later than 12:00 Noon (New York City time) on the sixth (6th) Business
Day prior to the date of the making of the proposed Lessee Working Capital Loan.
Such notice shall be given by the Lessee (a "Notice of Lessee Working Capital
--------------------------------
Loan") and shall be in writing, in substantially the form of Exhibit B hereto,
- ----
specifying therein (i) the requested date of the making of such Lessee Working
Capital Loan, (ii) the requested aggregate amount of such Lessee Working Capital
Loan, (iii) any specific payment instructions regarding disbursement of the
proceeds of such Lessee Working Capital Loan, (iv) the Type of Lessee Loans
which will comprise a requested Lessee Working Capital Loan and (v) with respect
to such Lessee Loans, the initial Interest Period applicable thereto; provided,
--------
that no Lessee Loan shall be maintained as (X) a Lessee Eurodollar Rate Loan
unless such Lessee Working Capital Loan is in an amount equal to or greater than
$500,000 or (Y) a Lessee Base Rate Loan unless such Lessee Working Capital Loan
is in an amount equal to or greater than $50,000. The Lender shall, before 11:00
A.M. (New York City time) on the date a Lessee Working Capital Loan is to occur,
make available to the Disbursement Agent at the Disbursement Agent's address
referred to in Section 12.02, in immediately available funds, the amount of any
such Lessee Working Capital Loan. After the Disbursement Agent's receipt of such
loan proceeds and upon fulfillment of the applicable conditions set forth in
Article V, the Disbursement Agent will make such funds immediately available to
the Lessee by depositing such funds in the Operating Account.
(b) Anything to the contrary in this Agreement notwithstanding, at no time
shall there be outstanding more than four (4) Lessee Working: Capital Loans
having different Interest Periods.
(c) Anything in subsection (a) above to the contrary notwithstanding, if
the Agent is unable to determine the Eurodollar Rate for Eurodollar Rate Loans
comprising any Working Capital Loan requested by the Lender which is intended to
provide funds to the Lender to make any Lessee Working Capital Loan, the right
of the Lessee not to select Lessee Eurodollar Rate Loans for such Lessee Working
Capital Loan or any subsequent Lessee Working Capital Loan shall be suspended
until the Agent shall notify the Lender and the Lender shall notify the Lessee
that the circumstances causing such suspension no longer exist; and the
obligation to make Lessee Eurodollar Rate Loans shall be subject to the
provisions of Sections 2.05 and 3.02.
(d) Each Notice of Lessee Working Capital Loan shall be irrevocable and
binding on the Lessee. The Lessee hereby indemnifies the Lender against, and
shall pay to the Lender within five (5) days following a written request
therefor by the Lender (which request shall set forth in reasonable detail the
basis therefor), against any loss, cost or expense incurred by the Lender as a
result of any failure to fulfill on or before the date specified in a Notice of
Lessee Working Capital Loan the applicable conditions precedent set forth in
Article V, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or
15
<PAGE>
reemployment of deposits or other funds required by the Agent or any Bank to
fund any portion of a Working Capital Loan which is intended to provide or does
provide funds to the Lender to make such Lessee Working Capital Loan when such
Lessee Working Capital Loan, as a result of such failure of the Lessee, is not
made on such date.
SECTION 2.03. Interest. (a) The Lessee shall pay interest on the unpaid
--------
principal amount of each Lessee Loan made by the Lender from the date of such
Lessee Loan until such principal amount shall be paid in full, at one of the
following rates per annum:
(I) Lessee Base Rate Loans. If such Lessee Loan is a Lessee Base Rate
----------------------
Loan, a rate per annum equal at all times to the sum of the Base Rate in
effect from time to time plus the Applicable Margin, payable on each
Payment Date and on the date that such Lessee Base Rate Loan shall be
Converted or repaid in full; provided, that any amount of principal which
--------
is not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest, from the date on which such amount is due
until such amount is paid in full, payable on demand, at the Default Rate.
(ii) Lessee Eurodollar Rate Loan. If such Lessee Loan is a Lessee
---------------------------
Eurodollar Rate Loan, a rate per annum equal at all times during each
Interest Period for such Lessee Loan to the sum of the Eurodollar Rate for
such Interest Period for such Lessee Loan plus the Applicable Margin,
payable on the last day of such Interest Period or, if such Interest Period
exceeds 90 days, on each ninetieth day from the first day of such Interest
Period and, if different, on the date such Lessee Eurodollar Rate Loan
shall be paid in full; provided, that any amount of principal which is not
--------
paid when due (whether at stated maturity by acceleration or otherwise)
shall bear interest, from the date on which such amount is due until such
amount is paid in full, payable on demand, at the Default Rate.
(b) Without prejudice to the rights of the Lender under paragraph (a) of
this Section 2.03, the Lessee shall indemnify the Lender against any loss or
expense, including any expense of indemnifying the Agent or any Bank pursuant
to the Amended and Restated Reimbursement Agreement with respect to any Working
Capital Loan providing funds for the Lender's Lessee Working Capital Loans that
it may reasonably sustain or incur as a result of the failure by the Lessee to
pay when due any principal of any Lessee Eurodollar Rate Loan to the extent
that any such loss or expense is not recovered pursuant to such foregoing
provisions. A certificate of the Lender setting forth the basis for the
determination of the interest due on overdue principal and of the amounts
necessary to indemnify the Lender in respect of such loss or expense, submitted
to the Lessee by the Lender shall be conclusive and binding for all purposes
absent manifest error.
SECTION 2.04. Additional Interest on Lessee Eurodollar Rate Loans. (a) So
---------------------------------------------------
long as the Agent or any Bank shall be required under regulations of the Board
of Governors to maintain reserves with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities, the Agent or such Bank may
require the Lender, and, in turn, the Lender may
16
<PAGE>
require the Lessee, to pay, but only in respect of any period during which such
reserves shall actually be maintained by the Agent or such Bank, additional
interest on the unpaid principal amount of each Working Capital Loan of the
Agent or such Bank which provides funding for any Lessee Working Capital Loan,
during such periods as such Lessee Working Capital Loan is a Lessee Eurodollar
Rate Loan, at an interest rate per annum equal at all times during each Interest
Period for such Lessee Eurodollar Rate Loan to the difference obtained by
subtracting (i) the Eurodollar Rate for such Interest Period for such Lessee
Eurodollar Rate Loan from (ii) the rate obtained by dividing such Eurodollar
Rate referred to in clause (i) above by that percentage equal to 100% minus the
-----
Reserve Percentage of the Agent or such Bank for such Interest Period for such
Eurodollar Rate Loan which provides funding to the Lender for such Lessee
Eurodollar Rate Loan payable on each date on which interest is payable on such
Lessee Eurodollar Rate Loan.
(b) If the Lender shall claim entitlement to any additional amount pursuant
to this Section 2.04, then the Lender shall deliver to the Lessee a certificate
setting forth the basis for the determination thereof promptly after the Lender
receives the equivalent certificate from the Agent or any Bank pursuant to
Section 5.12(b) of the Amended and Restated Reimbursement Agreement. No more
than one such certificate may be so delivered. Such certificate shall be
conclusive and binding for all purposes as to the amount due absent manifest
error. The Lessee shall pay to the Lender the amount shown as due on any such
certificate within twenty-eight (28) days after its receipt of the same.
SECTION 2.05. Interest Rate Determination and Protection. (a) The Lender
------------------------------------------
shall give prompt notice to the Lessee of the applicable interest rate
determined by the Lender for purposes of Section 2.03 hereof and of each change
in the Base Rate, after the Lender has received a corresponding notice from the
Agent pursuant to Section 5.13(a) of the Amended and Restated Reimbursement
Agreement; provided, that the Lender's failure to give any such notice shall not
--------
affect the amount of interest payable.
(b) If the Agent shall be unable to determine the Eurodollar Rate for any
Eurodollar Rate Loan under the Amended and Restated Reimbursement Agreement
which is intended to provide or does provide funds to the Lender to make Lessee
Working Capital Loans because of circumstances affecting the markets for such
funds,
(i) the Lender shall, upon receipt of notice from the Agent to such
effect, forthwith notify the Lessee that the interest rate cannot be
determined for such Lessee Eurodollar Rate Loan,
(ii) each such Lessee Loan will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Lessee Base Rate
Loan and
(iii) the obligation of the Lender to make or to Convert Lessee Loans
into Lessee Eurodollar Rate Loans shall be suspended until the Lender shall
notify the Lessee
17
<PAGE>
that the circumstances causing such suspension no longer exist, upon the
Lender's receipt from the Agent of a corresponding notice.
(c) If, with respect to any Eurodollar Rate Loan under the Amended and
Restated Reimbursement Agreement which is intended to provide, or does provide,
funds to the Lender to make Lessee Working Capital Loans, the Agent notifies the
Lender that, for reasons that affect the Eurodollar market generally, the
Eurodollar Rate for any Interest Period for such Working Capital Loans do not
reflect the cost to the Agent of making, funding or maintaining its Eurodollar
Rate Loans for such Interest Period, the Lender shall forthwith so notify the
Lessee, whereupon:
(i) each Lessee Eurodollar Rate Loan will automatically, on the last
day of the then existing Interest Period therefor, Convert into a Lessee
Base Rate Loan; and
(ii) the obligations of the Lender to make, or to Convert Lessee Loans
into Lessee Eurodollar Rate Loans shall be suspended until the Lender shall
notify the Lessee that the circumstances causing such suspension no longer
exist, upon the Lender's receipt from the Agent of a corresponding notice.
(d) If the Lessee shall fail to select the duration of any Interest Period
for any Lessee Eurodollar Rate Loans in accordance with the provisions contained
in the definition of "Interest Period" in Section 1.01, the Lender will
---------------
forthwith so notify the Lessee and such Lessee Loans will automatically, on the
last day of the then existing Interest Period therefor, Convert into Lessee Base
Rate Loans, and will continue as such until the Lessee selects a different Type
as provided in Section 2.06 hereof.
(e) If all or a portion of the principal amount of any Lessee Loan made
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such Lessee Loan, if a Lessee Eurodollar Rate Loan,
shall be Converted to a Lessee Base Rate loan at the end of the last Interest
Period for which the Lender shall have determined a Eurodollar Rate as the case
may be. Any such overdue principal shall bear interest at the Default Rate from
the date such payment was due until payment in full (as well after as before
judgment).
SECTION 2.06. Conversion or Continuation of Loans. Subject to the terms and
-----------------------------------
conditions of this Agreement, the Lessee may on any Business Day upon notice
given to the Lender not later than 12:00 Noon (New York City time) on the fifth
(5th), Business Day prior to the date of the proposed Conversion and subject to
the provisions of Sections 2.02(c), 2.05, and 3.02 hereof, Convert any Lessee
Loans of one Type into Lessee Loans of another Type or continue any Lessee
Eurodollar Rate Loans as such for an additional Interest Period on the
expiration of the Interest Period applicable thereto; provided that (a) any
--------
Conversion of any Lessee Eurodollar Rate Loans into Lessee Loans of another Type
shall be made on, and only on, the last day of an Interest Period for such
Lessee Eurodollar Rate Loans, (b) each Conversion or continuation shall be in an
aggregate principal amount not less than $1,000,000 or an integral multiple
thereof (or such lesser amount as shall equal the then aggregate
18
<PAGE>
outstanding amount of the Lessee Base Rate Loans or the Lessee Eurodollar Rate
Loans, as the case may be), and (c) no Conversion into, or continuation as,
Lessee Eurodollar Rate Loans shall be permitted when an Event of Default under
the Amended and Restated Reimbursement Agreement or hereunder has occurred and
is continuing. Such notice shall be given by delivery of a notice in writing (a
"Notice of Conversion or Continuation"), in substantially the form of Exhibit D,
------------------------------------
specifying within the restrictions specified above, (i) the date of such
Conversion or continuation, (ii) the Lessee Loans to be Converted or continued
and (iii) if such Conversion or continuation is into Lessee Eurodollar Rate
Loans, the duration of the initial Interest Period for such Lessee loans.
SECTION 2.07. Payments and Computations. (a) The Lessee shall make each
-------------------------
payment of the amount payable to the Lender hereunder not later than 1:00 p.m.
(New York City time) on the day when due in Dollars in immediately available
funds to the Disbursement Agent at its address referred to in Section 15.1 of
the Amended and Restated Participation Agreement.
(b) (i) All computations of interest based on the Base Rate and of the
Commitment Fees due from Lessee to the Lender shall be made by the Lender on the
basis of a year of 365 days, and (ii) all computations of interest based on the
Eurodollar Rate shall be made by the Lender (other than computations of interest
pursuant to Section 2.04, which shall be made by the Agent) on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or Commitment Fees are payable. Each determination by the Lender (or,
in the case of Section 2.04, by the Agent) of an interest rate hereunder shall
be conclusive and binding for all purposes absent manifest error. The Lender
hereby agrees to give the Lessee at least two (2) Business Days' prior notice of
the amount of interest due on any date that interest is due (specifying therein
the pertinent date for determining such amount), it being understood and agreed
that failure by the Lender to give such notice shall in no event affect the
Lessee's obligation to pay interest in the amounts and on the date due.
(c) Whenever any payment hereunder or under the Amended and Restated Lessee
Working Capital Note shall be stated to be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest or commitment fee, as the case may be.
SECTION 2.08. Taxes. (a) Any and all payments by the Lessee hereunder or
-----
under the Amended and Restated Lessee Working Capital Note shall be made, in
accordance with Section 2.07 hereof, free and clear of and without deduction for
any and all taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding taxes imposed on the Lender's
overall net income (and franchise taxes imposed in lieu of net income taxes) by
the jurisdiction under the laws of which the Lender is organized or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred
to as "Taxes"). If the Lessee shall be
-----
19
<PAGE>
required by law to withhold or deduct any Taxes from or in respect of any sum
payable hereunder or under the Amended and Restated Lessee Working Capital Note
to the Lender (i) the sum payable by the Lessee hereunder shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the Lender
receives an amount equal to the sum the Agent would have received had no such
deductions been made, (ii) the Lessee shall make such deductions and (iii) the
Lessee shall pay the full amount deducted to the relevant taxation authority or
other authority in accordance with applicable law. If the Lender must withhold
or deduct any amounts attributable to taxes payable in connection with any
Working Capital Loans pursuant to Section 5.17 of the Amended and Restated
Reimbursement Agreement, the Lessee shall increase the sum payable by it
hereunder as may be necessary so that the Lender receives an amount equal to the
sum of the amount of such withholding or deduction and the amount the Lender
would have received had no such deduction or withholding been made.
(b) In addition, the Lessee agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise under the laws of the United States of America or Commonwealth
of Pennsylvania from any payment made hereunder or under the Amended and
Restated Lessee Working Capital Note or from the execution or delivery or
otherwise with respect to this Agreement or the Amended and Restated Lessee
Working Capital Note (hereinaffer referred to as "Other Taxes").
-----------
(c) The Lessee shall indemnify the Lender for the full amount of Taxes and
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section) paid by the Lender or
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. The Lender shall give written notice to the Lessee no later
than six (6) months after the Lender learns of the imposition of any Taxes or
Other Taxes. Payments by the Lessee pursuant to this indemnification shall be
made within twenty-eight (28) days from the date the Lender makes written demand
therefor, which demand shall be accompanied by a certificate describing in
reasonable detail the basis thereof and any legal or other action taken or
proposed to be taken by the Lender in connection with any contested Taxes or
Other Taxes.
(d) Within 30 days after the date of any payment of Taxes by the Lessee,
the Lessee shall furnish to the Lender, at its address referred to in Section
12.02 hereof, the original or a certified copy of a receipt evidencing payment
thereof. The Lessee shall compensate the Lender for all losses and expenses
sustained by the Lender as a result of any failure by the Lessee to so furnish
such copy of such receipt.
(e) Subject to the limitation set forth in clause (c) above, without
prejudice to the survival of any other agreement of the Lessee hereunder, the
agreements and obligations of the Lessee contained in this Section shall survive
the payment in full of principal and interest hereunder and under the Amended
and Restated Lessee Working Capital Note.
20
<PAGE>
(f) The Lessee shall indemnify the Lender for the full amount of any
indemnification or other payment obligation in respect of taxes paid by or
imposed on the Lender pursuant to Section 5.17 of the Amended and Restated
Reimbursement Agreement with respect to any Working Capital Loan incurred in
connection with any Lessee Working Capital Loan hereunder.
SECTION 2.09. Right to Set-off. Any deposits or other sums at any time
----------------
credited by or due from the Lender and any securities or other property of the
Lessee in the possession of the Lender may, subject to the rights of the Secured
Parties under the Security Documents, at all times be treated as collateral
security for the payment of the Amended and Restated Lessee Working Capital Note
and all other obligations of the Lessee hereunder. To the extent permitted by
applicable law and subject at all times to the interests of the Secured Parties
under the Loan Documents, regardless of the adequacy of any collateral, any
such deposits or other sums credited by or due from the Lender to the Lessee may
be applied to or set-off against the Lessee's obligations to Lender under the
Amended and Restated Lessee Working Capital Note and this Agreement at any time
after the occurrence and during the continuance of any Event of Default.
ARTICLE III
YIELD PROTECTION AND ILLEGALITY
SECTION 3.01. Increased Costs. If, due to either (a) the enactment of or
---------------
any change (other than any change by way of imposition or increase of reserve
requirements referred to in Section 2.04 hereof) in, or in the interpretation
of, any law or regulation or (b) the compliance with any guideline or request
from any central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to the Agent or any Bank
of agreeing to make or making, funding or maintaining Eurodollar Rate Loans for
Working Capital Loans to Lender, then the Lessee shall from time to time, within
30 days after demand by the Lender, which demand shall be accompanied by the
certificate referred to in the next sentence, pay to the Lender for the account
of the Agent or such Bank additional amounts sufficient to reimburse the Agent
or such Bank for such increased cost. A certificate as to any such increased
cost submitted to the Lessee by the Lender, which may be a copy of a
certificate furnished by the Agent or any Bank to the Lender, accompanied by an
explanation in reasonable detail of the basis therefore, shall be conclusive and
binding for all purposes absent manifest error.
SECTION 3.02. Illegality. Notwithstanding any other provision of this
----------
Agreement, if the enactment of or any change in or in the interpretation of any
law or regulation shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for the Agent or any
Bank to perform its obligations under the Amended and Restated Reimbursement
Agreement to make Eurodollar Rate Loans thereunder or to continue to fund or
maintain Eurodollar Rate Loans thereunder, then, on notice thereof and demand
therefor by the Lender to the Lessee, (a) the obligation of the Lender to make
or maintain Lessee Eurodollar
21
<PAGE>
Rate Loans and to Convert Lessee Base Rate Loans into Lessee Eurodollar Rate
Loans shall be suspended so long as such law, interpretation or assertion shall
continue and (b) all Lessee Eurodollar Rate Loans of the Lender then outstanding
shall be Converted automatically to Lessee Base Rate Loans on the last day of
the then current Interest Period or on such earlier date as may be required by
law. If any such Conversion of Lessee Eurodollar Rate Loans is made on a day
that is not the last day of an Interest Period, the Lessee shall pay to the
Agent for the account of the applicable Banks, upon the Lender's request, such
amount or amounts as may be necessary to compensate the Agent or each such Bank
for any loss or expense sustained or incurred as a result of such Conversion by
the Agent or such Bank in respect of its Eurodollar Rate Loans to the Lender
which were made to provide funds for Lessee Working Capital Loans hereunder,
including but not limited to any interest or fees payable by the Agent or such
Bank to lenders of funds obtained by it in order to make or maintain such
Eurodollar Rate Loans to the Lender and shall pay to the Agent for the account
of the applicable Banks the interest rate on such Eurodollar Rate Loans to the
date of such automatic Conversion. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by the Lender to the
Lessee, which may be a copy of a certificate furnished by the Agent or such Bank
to the Lender, shall be conclusive and binding for all purposes absent manifest
error.
SECTION 3.03. Capital Adequacy. In the event that the Agent or any Bank
----------------
shall have determined that any law, rule or regulation regarding capital
adequacy, or any change therein or in the interpretation or application thereof
or compliance by the Agent or any Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) from any central bank
or Governmental Authority including, without limitation, the issuance of any
final rule, regulation or guideline, does or shall have the effect of reducing
the rate of return on the Agent's or such Bank's capital as a consequence of its
obligations under the Agent's or such Bank's Loan Commitments or Notes (as such
items are defined under the Amended and Restated Reimbursement Agreement) to a
level below that which the Agent or any Bank could have achieved but for such
adoption, change or compliance (taking into consideration the Agent's or such
Bank's policies with respect to capital adequacy) by an amount deemed by the
Agent or any Bank to be material under Section 6.03 of the Amended and Restated
Reimbursement Agreement, then from time to time, within 15 days after demand by
the Agent or any Bank to the Lender, and, in turn, the Lender to Lessee, the
Lessee shall pay to the Agent for the account of the applicable Banks such
additional amount or amounts as will compensate the Agent and each such Bank for
such reduction, in the same proportion that the outstanding principal of Working
Capital Loans bears to the outstanding principal of all the Loans outstanding
under the Amended and Restated Reimbursement Agreement. A certificate as to any
such reduction and compensation amount submitted to the Lessee by the Lender,
which may be a copy of a certificate furnished by the Agent or any Bank to the
Lender, accompanied by an explanation in reasonable detail of the basis
there for, shall be conclusive and binding for all purposes absent manifest
error,
SECTION 3.04. Compensation and Indemnity. (a) The Lessee shall compensate
--------------------------
the Agent for the account of the applicable Banks or the Lender, as the case may
be, upon written request by the Lender (which request shall set forth the basis
for requesting such amounts), for
22
<PAGE>
all losses and expenses, including, without limitation, any interest, premium or
penalty paid by the Agent or any Bank to lenders of funds borrowed by it or
deposited with it for the purpose of making or maintaining its Eurodollar Rate
Loans under the Amended and Restated Reimbursement Agreement which are intended
to provide or do provide funds for Lessee Working Capital Loans hereunder, that
the Agent, such Bank or Lender may sustain, to the extent not otherwise
compensated for hereunder and not mitigated by the reemployment of such funds,
(i) if for any reason (other than a default by any Bank) a borrowing of any
Lessee Loan does not occur on the date specified therefor in a Notice of Lessee
Working Capital Loan given pursuant to Section 2.02 hereof, (ii) if any
prepayment or repayment of its Lessee Eurodollar Rate Loans occur on a date that
is not the expiration date of the relevant Interest Period or (iii) if any
prepayment of any Lessee Eurodollar Rate Loans is not made on any date specified
in a notice of prepayment given by the Lessee. Without prejudice to the
foregoing, the Lessee shall indemnify the Lender against any loss or expense
that the Lender may sustain or incur as a consequence of the default by the
Lessee in payment of principal or interest on any such Lessee Eurodollar Rate
Loan, or any part thereof, including, but not limited to, any interest, premium
or penalty paid by the Lender to the Agent or any Bank or by the Agent or any
Bank to lenders of funds borrowed by it or deposited with it for the purpose of
making or maintaining a Eurodollar Rate Loan to the Lender for the purpose of
such Lessee Working Capital Loan, as determined by the Agent or such Bank in the
exercise of its sole discretion. A certificate as to any such loss or expense in
reasonable detail (specifying the basis of such loss or expense), which may be a
copy of a certificate furnished by the Agent or any Bank to the Lender, shall be
promptly submitted by the Lender to the Lessee and shall be conclusive and
binding as to the amount thereof absent manifest error.
(b) The provisions of this Section 3.04 shall survive termination of this
Agreement and payment in fall of the Amended and Restated Lessee Working
Capital Note with respect to liabilities, costs and expenses resulting from
events or circumstances occurring during the tern of this Agreement.
SECTION 3.05. Interest. Anything in this Agreement notwithstanding, in the
--------
event that the interest rate chargeable on any Lessee Loan pursuant to the terms
of this Agreement shall exceed the highest lawful rate that may be charged under
applicable law, the interest rate shall be deemed to be equal to such highest
lawful rate.
ARTICLE IV
OBLIGATIONS UNCONDITIONAL
SECTION 4.01. Obligations. The payment obligations of the Lessee under this
-----------
Agreement shall be unconditional and absolute and shall not be affected,
modified or impaired by any circumstance or upon the occurrence from time to
time of any of the following, whether or not with notice to or the consent of
the Lessee:
23
<PAGE>
(a) The compromise, settlement, release, modification, amendment or
termination of any or all of the obligations, conditions, covenants or
agreements of any Person in respect of any of the Transaction Documents;
(b) The occurrence, or the failure by the Lender or any other Person
to give notice to the Lessee of the occurrence, of any Default or Event of
Default under this Agreement or any default under any of the other
Transaction Documents;
(c) The assignment or pledging or the purported assignment or pledging
of all or any part of the interest of the Lessee or the Lender in the
Project or any failure of title with respect to the interest in the Project
of the Lessee or the Lender;
(d) The waiver of the payment, performance or observance of any of the
obligations, conditions, covenants or agreements of any Person contained in
any of the Transaction Documents;
(e) The extension of the time for payment of the principal of or
interest on the Bonds or any of the Loans to the Lender made pursuant to
the Amended and Restated Reimbursement Agreement or any of the other
Secured Obligations or of the time for performance of any other
obligations, covenants or agreements of any Person under or arising out of
any of the Transaction Documents;
(f) The taking or the omission of any of the actions referred to in
any of the Transaction Documents;
(g) The exchange, surrender, substitution or modification of any
security for any of the Secured Obligations;
(h) Any failure, omission or delay on the part of any Bank Party, the
Bond Issuer, the Lender, the Bond Trustee, the Lessee or the holders of the
Bonds or any other Person to enforce, assert or exercise any right, power
or remedy conferred by the Amended and Restated Reimbursement Agreement,
this Agreement, any of the other Transaction Documents or any other act or
acts on the part of any Bank Party, the Bond Trustee, the Lender, the Bond
Issuer, the Lessee or the holders of the Bonds or any other Person;
(i) The voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all the assets of, the
marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition with creditors or readjustment of, or other
similar proceedings that affect the Lessee, the Lender, the Bond Issuer,
any Bank Party or any other party to any of the Transaction Documents;
24
<PAGE>
(j) Any lack of validity or enforceability of this Agreement or of any
of the other Transaction Documents, any allegation of invalidity or
unenforceability or any contest of the validity or enforceability thereof;
(k) The existence of any claim, set-off, defense or other right that
the Lessee may have at any time against the Lender or any other Person, or
that the Lender may have against the Bond Trustee, any Bank Party or any
other Person, whether in connection with this Agreement, the Amended and
Restated Reimbursement Agreement or any of the Transaction Documents or any
of the transactions contemplated hereby or thereby or any unrelated
transaction;
(l) The release or discharge by operation of law of the Lessee or the
Lender from the performance or observance of any obligation, covenant or
agreement contained in any Transaction Document;
(m) The existence or assertion of any claim or defense on the part of
the Lessee against any Person or the failure of the Lender to make any
payment to be made by it under this Agreement; and
(n) Any other circumstance, occurrence or happening whatsoever,
whether or not similar to any of the foregoing.
SECTION 4.02. Release from Obligations. Notwithstanding Section 4.01
------------------------
herein, to the extent the Lender's payment obligations relating to its Working
Capital Loans under the Amended and Restated Reimbursement Agreement have been
suspended or terminated, the payment obligations of the Lessee under this
Agreement shall be suspended or terminated on the same terms and conditions as
the suspension or termination of the Lender's payment obligations.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. Conditions Precedent to Making the Lessee Working Capital
---------------------------------------------------------
Loans. The Lender shall not be obligated to provide Lessee Working Capital Loans
- -----
unless the Lender shall have received the Amended and Restated Lessee Working
Capital Note, duly executed and delivered by the Lessee, and the Lessee has
satisfied on or prior to the date of any such Lessee Working Capital Loan the
following conditions precedent:
(a) Notice of Lessee Working Capital Loan. The Lender shall have
-------------------------------------
received, at least six (6) Business Days prior to the Lessee Working
Capital Loan, a Notice of Lessee Working Capital Loan, which notice shall
be accompanied by the documents and certificates specified hereunder and in
Exhibit B.
25
<PAGE>
(b) No Event of Default. No Default or Event of Default shall have
-------------------
occurred and be continuing under (i) any Transaction Document (other than
the Fuel Agreements, Limestone Agreements, and Transportation Agreements)
or (ii) any Fuel Agreement, Limestone Agreements, and Transportation
Agreements that individually or in the aggregate with any other Defaults
under all such agreements could have a material adverse affect on the
Project in the judgment of the Agent and the Independent Engineer.
Any agreement, certificate, document or schedule delivered pursuant to this
Section 5.01 shall be deemed to satisfy the conditions set forth herein only if
it is satisfactory in form and substance to the Lender.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties. The Lessee represents and
------------------------------
warrants to Lender that the representations and warranties set forth in Section
6.2 of the Amended and Restated Participation Agreement shall be true and
correct on the Effective Date and the date of the initial Lessee Working Capital
Loan. Any capitalized terms used in such Section shall have the meanings
ascribed to them in Appendix 1 to the Amended and Restated Participation
Agreement.
ARTICLE VII
COVENANTS
SECTION 7.01. Covenants. The Lessee covenants and agrees, so long as this
---------
Agreement is in effect and until the Amended and Restated Lessee Working Capital
Note, together with interest, and all other obligations hereunder, are paid in
full, unless the Lender shall otherwise consent in writing, to the covenants set
forth in Article XII of the Amended and Restated Lease and Article VIII of the
Amended and Restated Participation Agreement. Any capitalized terms used in such
Sections shall have the meaning ascribed to them in Appendix 1 to the Amended
and Restated Participation Agreement.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. Unless waived in writing by the Lender,
-----------------
if any of the following events ( "Events of Default") shall occur and be
-----------------
continuing:
26
<PAGE>
(a) The Lessee shall fail to pay or prepay any principal of the
Amended and Restated Lessee Working Capital Note when the same becomes due
and payable, whether by scheduled maturity or required prepayment or by
acceleration or otherwise; or
(b) The Lessee shall fail to pay any interest on the Amended and
Restated Lessee Working Capital Note or any Commitment Fees and any such
Default shall continue for five (5) days; or
(c) An Event of Default shall occur under the Amended and Restated
Lease;
then, and in any such event, and at any time thereafter if an Event of Default
shall then be continuing the Lender may, by notice to the Lessee, take any of
the following actions; (i) declare its Lessee Working Capital Loan Commitment
terminated, whereupon such commitment shall forthwith terminate immediately and
any accrued Commitment Fees shall forthwith become due and payable without any
other notice of any kind, (ii) declare the principal of and any accrued interest
in respect of the Amended and Restated Lessee Working Capital Note and all other
amounts payable under this Agreement to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Lessee, (iii) proceed to
enforce or cause to be enforced any remedies provided under the Lessee Security
Agreement, subject to the rights of the Secured Parties pursuant to the Loan
Documents, and (iv) subject to the rights of the Secured Parties pursuant to the
Security Documents, exercise any other remedies available at law or in equity.
The Lessee hereby assigns and quitclaims to the Lender, to the fullest
extent that it effectively may do so under applicable law, all sums advanced
hereunder and all sums in escrow hereunder, such assignment to become effective,
however, only upon the occurrence and continuance of an Event of Default
hereunder and the delivery by the Lender to the Lessee of notice that it
considers such assignment to have been effected.
Without prejudice to the rights of any Bank under the Amended and Restated
Reimbursement Agreement or of the Lender hereunder or of the definition of
"Default Rate", (i) any amount that is not paid when due hereunder shall, to the
extent permitted by law, bear interest thereon at the Default Rate (unless
another rate shall be specifically provided for herein with respect thereto) and
(ii) the Lessee shall indemnify the Lender against any loss or expense which it
may reasonably sustain or incur as a result of the failure by the Lessee to pay
when due any principal of any Lessee Loan to the extent that any such loss or
expense is not recovered pursuant to the provisions of Section 3.04. A
certificate of the Lender setting forth the basis for the determination of the
interest due on overdue principal and of the amounts necessary to indemnity the
Lender in respect of such loss or expense, submitted to the Lessee by the
Lender, shall be conclusive and binding for all purposes, absent manifest error.
27
<PAGE>
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Indemnification. The Lessee agrees, so long as this Agreement
---------------
is in effect and until the Amended and Restated Lessee Working Capital Note,
together with interest and all other obligations hereunder, are paid in full, to
indemnify the Lender for the indemnities set forth in Article X of the Amended
and Restated Participation Agreement. Any capitalized terms used in such Article
shall have the meanings ascribed to them in Appendix I to the Amended and
Restated Participation Agreement.
ARTICLE X
EXPENSES
SECTION 10.01. Expenses. All statements, reports, certificates, opinions
--------
and other documents or information required to be furnished by the Lessee to the
Lender under this Agreement shall be supplied without cost. The Lessee shall
pay, on demand, whether or not any Loan is made hereunder, (a) all reasonable
out-of-pocket costs and expenses of the Lender in connection herewith, and (b)
all costs and expenses of the Lender (including fees and disbursements of
counsel for the Lender) incident to the enforcement, collection, protection or
preservation of any right or claim of the Lender hereunder.
ARTICLE XI
COMMITMENT FEES
SECTION 11.01. Commitment Fees. Beginning on the Effective Date, the Lessee
---------------
shall pay the Lender a commitment fee of .375% per annum on the unutilized
amount of Lender's Lessee Working Capital Loan Commitment. The Commitment Fees
shall be computed using the arithmetic average of the daily unutilized Working
Capital Loan Commitment, and shall be payable to Lender, quarterly in arrears on
each Payment Date.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. No Waiver; Remedies Cumulative. No failure to exercise and
------------------------------
no delay in exercising on the part of the Lender of any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof, or the exercise of any other right, power
28
<PAGE>
or privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 12.02. Notices. Unless otherwise specifically provided herein, all
-------
notices, consents, directions, approvals, instructions, requests and other
communications to be given to any Person under this Agreement shall be delivered
in accordance with the notice provisions set forth in Schedule IV of the Amended
and Restated Participation Agreement.
SECTION 12.03. Binding Effect. This Agreement shall become effective when
--------------
it shall have been executed by the Lessee and the Lender and thereafter shall be
binding upon and inure to the benefit of the Lessee and the Lender and their
respective successors and permitted assigns, except that the Lessee shall not
have the right to assign its rights hereunder or any interest herein or under
the Amended and Restated Lessee Working Capital Note without the prior written
consent of Lender.
SECTION 12.04. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
SECTION 12.05. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the Lessee and the Lender and their respective
successors and assigns, except that the Lessee may not assign or otherwise
transfer all or any part of its rights or obligations hereunder without the
prior written consent of the Lender.
SECTION 12.06. Submission to Jurisdiction; Waivers. (a) The Lessee hereby
-----------------------------------
irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement or any other Transaction Document to
which it is a party, or for recognition and enforcement of any judgment in
respect hereof or thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of America
for the Southern District of New York, and the appellate courts from any
thereof;
(ii) consents that any such action or proceeding may be brought in
such courts, and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in any inconvenient forum and agrees not
to plead or claim the same;
(iii) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form and mail), postage prepaid, to the
Lessee at its address specified in Section
29
<PAGE>
12.02 hereof, or at such other address of which the Lender shall have been
notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
(b) The Lessee hereby irrevocably and unconditionally waives trial by jury
in any legal action or proceeding referred to in this Section 12.06 or
otherwise.
SECTION 12.07. Severability. Any provision hereof that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and without affecting the validity or enforceability
of any provision in any other jurisdiction.
SECTION 12.08. Headings. The headings of the various Articles, Sections and
--------
paragraphs of this Agreement are for convenience of reference only, do not
constitute a part hereof and shall not affect the meaning of constitution of any
provision hereof.
SECTION 12.09. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement, or the Amended and Restated Lessee Working Capital Note, shall
in any event be effective unless the same shall be in writing and signed by the
Lessee and the Lender and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. No amendment
to any provision of this Agreement or the Amended and Restated Lessee Working
Capital Note shall in any event be effective unless all filings, recordings and
other actions required to be made or taken, in the sole judgment of the Lender,
to preserve for the benefit of the Lender and the Secured Parties, as assignees
of the Lender, the security and interests intended to be provided hereby shall
have been made or taken to the satisfaction of the Lender.
SECTION 12.10. Survival. Without prejudice to the survival of any other
--------
agreement of the Lessee hereunder, the agreements and obligations of the Lessee
contained in the last paragraph of Section 2.03 hereof and Sections 2.08, 3.03,
3.04 and Article IX hereof shall survive the payment in full of the Lessee
Working Capital Loans and the Amended and Restated Lessee Working Capital Note
and termination of this Agreement.
SECTION 12.11. Governing Law. This Agreement and the Amended and Restated
-------------
Lessee Working Capital Note shall be governed by and construed in accordance
with the laws of the State of New York.
SECTION 12.12. Effective Date. This Agreement is effective on the Effective
--------------
Date and the Original Lessee Working Capital Loan Agreement shall automatically,
without any further notice, consent or other act, be amended and restated hereby
and to the extent this Agreement restates the Original Lessee Working Capital
Loan Agreement, the Original Lessee
30
<PAGE>
Working Capital Loan Agreement is restated and to the extent this Agreement
amends the Original Lessee Working Capital Loan Agreement, the Original Lessee
Working Capital Loan Agreement is amended; provided, that loans made or deemed
--------
made under the Original Lessee Working Capital Loan Agreement shall continue
hereunder, as the terms and conditions thereof may be amended and restructured
hereby, and shall not be deemed by reason hereof to be extinguished.
Notwithstanding anything contained in any balance sheet or other documents which
may record the amount of the loans made or deemed made under the Original Lessee
Working Capital Loan Agreement at an amount less than their respective stated
principal amounts (together with accrued interest, expenses and other charges
provided for thereunder), it is understood and agreed that the claims of the
Lender arising hereunder or under any other related document on account of such
loans or deemed loans constitute (and will constitute, in any bankruptcy or
similar proceeding with respect to the Lessee) continuing claims arising out of
the obligations of the Lessee under the Original Lessee Working Capital Loan
Agreement and related documents based upon actual funds advanced or deemed
advanced to or for the full stated principal amount of such loans made or deemed
made by Lender (together with all interest, expenses and other charges provided
for thereunder), in each case as such principal amount, interest, expenses and
charges may be reduced from time to time by payments in respect thereof.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first above written.
SCRUBGRASS GENERATING COMPANY,
L.P., a Delaware limited partnership
By: /s/ Donald C. Sturmer
-----------------------------------------
Name: DONALD C. STURMER
Title: VICE PRESIDENT
BUZZARD POWER CORPORATION, a
Delaware corporation
By: /s/Joseph E. Cresci
--------------------------------------
Name: JOSEPH E. CRESCI
Title: VICE-PRESIDENT
<PAGE>
EXHIBIT A TO THE AMENDED
AND RESTATED LESSEE
WORKING CAPITAL LOAN
AGREEMENT
---------
FORM OF
AMENDED AND RESTATED LESSEE WORKING CAPITAL NOTE
U.S. $4,000,000 New York, New York
December 22, 1995
BUZZARD POWER CORPORATION, a Delaware corporation (the "Lessee") FOR VALUE
RECEIVED, hereby promises to pay to the order of SCRUBGRASS GENERATING COMPANY,
L.P., a Delaware limited partnership (the "Lender"), at the offices of the
Disbursement Agent (as defined below) for the account of Scrubgrass Generating
Company, L.P. (or such other office designated by the Lender), the principal sum
of FOUR MILLION DOLLARS ($4,000,000), or if less, the aggregate unpaid principal
amount of all Lessee Loans under this Lessee Working Capital Note made by the
Lender to the Lessee (or deemed made by the Lender to the Lessee pursuant to the
Amended and Restated Working Capital Loan Agreement referred to below). at the
times and in the manner provided in the Lessee Working Capital Loan Agreement.
All capitalized terms used herein without definition shall have the meanings
ascribed thereto in such Amended and Restated Lessee Working Capital Loan
Agreement.
The Lessee also promises to pay interest on the unpaid principal amount
hereof in like money at said office until paid at the rates per annum which
shall be determined in accordance with the provisions of Article II of the
Amended and Restated Lessee Working Capital Loan Agreement, dated December 22,
1995 by and between the Lessee and the Lender (as amended, restated, modified.
supplemented and in effect from time to time, the "Amended and Restated Lessee
Working Capital Loan Agreement"). All Lessee Working Capital Loans made or
deemed made by the Lender and the Type thereof, all payments and prepayments
made on account of the principal thereof. and all Conversions of such Lessee
Loans, shall be recorded by the Lender on the schedule (or a continuation
thereof) attached hereto, it being understood that failure by the lender to make
any such endorsement or any error therein shall not affect the obligations of
the Lessee hereunder.
This note is the Amended and Restated Lessee Working Capital Note referred
to in the Amended and Restated Lessee Working Capital Loan Agreement and is
entitled to the benefits thereof and the other Loan Documents referred to
therein. This Amended and Restated Lessee Working Capital Note amends and
restates the Original Lessee Working Capital Note issued by
Exhibit A - 1
<PAGE>
The Lessee to the Lender pursuant to the Original Lessee Working Capital Loan
Agreement and effective on the Effective Date, such Original Lessee Working
Capital Note shall automatically, without any further notice, consent, or other
act, be amended and restated hereby and to the extent this Amended and Restated
Lessee Working Capital Note restates such Original Lessee Working Capital Note,
such Original Lessee Working Capital Note is restated and to the extent this
Amended and Restated Lessee Working Capital Note amends such Original Lessee
Working Capital Note, such Original Lessee Working Capital Note is amended;
provided, that the Lessee Working Capital Loans (as defined in the Original
- --------
Lessee Working Capital Loan Agreement) made or deemed made by the Lender to the
Lessee under the Original Lessee Working Capital Loan Agreement shall be Lessee
Working Capital Loans evidenced hereby and shall continue hereunder (to the
extent outstanding and not repaid on the Effective Date) as the terms and
conditions thereof may be amended and restated hereby. and shall not be deemed
by reason hereof to be extinguished.
As provided in the Lessee Working Capital Loan Agreement, this Amended and
Restated Lessee Working Capital Note is subject prepayment, in whole or in part.
In case an Event of Default under the Amended and Restated Lessee Working
Capital Loan Agreement shall occur and be continuing, the principal of and
accrued interest on this Amended and Restated Lessee Working Capital Note may be
declared to be due and payable in the manner and with the effect provided in the
Amended and Restated Lessee Working Capital Loan Agreement.
The Lessee hereby waives presentment, demand. protest or notice of any kind
in connection with this Amended and Restated Lessee Working Capital Note.
Exhibit A - 2
<PAGE>
THIS LESSEE WORKING CAPITAL NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK
BUZZARD POWER CORPORATION, a
Delaware corporation
By: /s/ Joseph E. Cresci
--------------------------------------
Name: Joseph E. Cresci
Title: Vice President
[AMENDED AND RESTATED LESSEE WORKING CAPITAL NOTE]
<PAGE>
Schedule to
Amended and Restated Lessee
---------------------------
Working Capital Note
--------------------
WORKING CAPITAL LOANS OUTSTANDING
---------------------------------
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Date Advance/Type Payments Outstanding Balance
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Exhibit A - 4
<PAGE>
EXHIBIT B TO THE AMENDED
AND RESTATED LESSEE
WORKING CAPITAL LOAN
AGREEMENT
----------------
FORM OF
NOTICE OF LESSEE WORKING CAPITAL LOAN NO.
-----------
Pursuant to the Amended and Restated Lessee Working Capital Loan Agreement,
dated December 22, 1995 by and between Buzzard Power Corporation, a Delaware
corporation (the "Lessee"), and Scrubgrass Generating Company, L.P., a Delaware
limited partnership (the "Lender"), the Lessee hereby gives notice of its desire
to incur a Lessee Working Capital Loan in accordance with the terms set forth
below (all capitalized terms used herein and not otherwise defined herein shall
have the meaning specified in the Amended and Restated Lessee Working Capital
Loan Agreement):
(i) The aggregate amount of the Lessee Working Capital Loan shall be
$______________ .
(ii) The date of the Lessee Working Capital Loan shall be ____________
[not less than 6 Business Days from the date hereof].
(iii) The requested Lessee Working Capital Loan shall be maintained as a
[Eurodollar] [Base Rate] Loan:
(iv) The initial Interest Period of such requested Lessee Working Capital
Loan shall be [[1] [2] [3] [6] months] [[1-90 days] [12 months], subject to
availability as determined by the Agent];
(v) As of the date of the Notice of Lessee Working Capital Loan No._____ ,
there does not exist any Default or Event of Default under any Transaction
Document except _________________ [specify exceptions, if none state "None"].
The Lessee hereby certifies to the Lender that the hereto are true and correct.
BUZZARD POWER CORPORATION, a
Delaware corporation
By:
--------------------------------------
Name:
Title:
Exhibit B - 1
<PAGE>
EXHIBIT D TO THE AMENDED
AND RESTATED LESSEE
WORKING CAPITAL LOAN
AGREEMENT
------------------------
FORM OF
NOTICE OF CONVERSION OR CONTINUATION OF
LESSEE WORKING CAPITAL LOAN
In connection with the Notice of Lessee Working Capital Loan No. ____ , and
pursuant to the Amended and Restated Lessee Working Capital Loan Agreement,
dated December 22, 1995 by and between Buzzard Power Corporation, a Delaware
corporation (the "Lessee"), and Scrubgrass Generating Company, L.P., a Delaware
limited partnership (the "Lender"), the Lessee hereby gives notice of conversion
of the Lessee Working Capital Loan made under the Notice of Lessee Working
Capital Loan No. ______ (all capitalized terms used herein and not otherwise
defined herein shall have the meaning specified in the Amended and Restated
Lessee Working Capital Loan Agreement):
(i) The date of the [Conversion] [continuation] Lessee Working Capital Loan
shall be ___ , 1995 [not less than 5 Business Days from the date hereof].
(ii) The Lessee Working Capital Loan to be [Converted] [continued]
currently is a [Lessee Eurodollar Rate] [Lessee Base Rate] Loan in the principal
amount of $[____]1 outstanding on the date hereof (the "Current Loan").
(iii) [The entire] [A portion (in the amount of $____) of the]/2/ is to be
[Converted] [continued] on [insert date]/3/ as a [Lessee Base Rate Loan] [Lessee
Eurodollar Rate Loan with an Interest Period of [[1] [2] [3] [6] months] [[1-90
days] [12 months], subject to availability as determined by the Agent]] [and the
remaining portion of the Current Loan (in the amount of $____)is to be
[Converted] [continued] as a [Lessee Base Rate Loan] [Lessee Eurodollar Rate
Loan with an Interest Period of [[1] [2] [3] [6] months] [[1-90 days] [12
months], subject to availability as determined by the Agent]]
- ------------------------
/1/Not to be less than $1,000,000 or an integral multiple thereof (or such
lesser amount as shall equal the aggregate amount of the outstanding Lessee Base
Rate Loans or Lessee Eurodollar Rate Loans, as applicable).
/2/Conversion of a portion of Current Loan to be pro rata.
--- ----
/3/To be a Business Day that, with respect to Lessee Eurodollar Rate Loans
being continued, is the date on which the existing Interest Period expires.
Exhibit D - 1
<PAGE>
The Lessee hereby certifies to the Lender that the data set forth herein
and in any attachments hereto are true and correct.
BUZZARD POWER Corporation, a
Delaware corporation
By:
--------------------------------------
Name:
Title:
Exhibit D - 2
<PAGE>
EXHIBIT #11
ENVIRONMENTAL POWER CORPORATION
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
PRIMARY EARNINGS PER COMMON SHARE:
NET EARNINGS FOR YEAR ENDED DECEMBER 31, 1996 1,565,279
=============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,159,966
DILUTIVE COMMON STOCK EQUIVALENTS OUTSTANDING 105,887
-------------
WEIGHTED AVERAGE COMMON SHARES AND DILUTIVE COMMON STOCK EQUIVALENTS OUTSTANDING 11,265,853
=============
PRIMARY EARNINGS PER SHARE 0.14
=============
FULLY DILUTIVE EARNINGS PER COMMON SHARE:
NET EARNINGS FOR YEAR ENDED DECEMBER 31, 1996 1,565,279
=============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,159,966
DILUTIVE COMMON STOCK EQUIVALENTS OUTSTANDING 161,935
-------------
WEIGHTED AVERAGE COMMON SHARES AND DILUTIVE COMMON STOCK EQUIVALENTS OUTSTANDING 11,321,901
=============
PRIMARY EARNINGS PER SHARE 0.14
=============
</TABLE>
<PAGE>
Exhibit 21
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........................
<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 19, 1997 appearing in the Annual Report on Form 10-K of Environmental
Power Corporation for the year ended December 31, 1996.
/s/ Deloitte & Touche
- -----------------------------
DELOITTE & TOUCHE LLP
New York, New York
April 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AS OF DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,043,423<F1>
<SECURITIES> 0
<RECEIVABLES> 9,228,142<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,319,166<F3>
<PP&E> 7,312,299
<DEPRECIATION> 78,612
<TOTAL-ASSETS> 52,503,144
<CURRENT-LIABILITIES> 9,472,533
<BONDS> 8,346,580
0
0
<COMMON> 121,954
<OTHER-SE> 2,557,762
<TOTAL-LIABILITY-AND-EQUITY> 52,503,144
<SALES> 47,853,639
<TOTAL-REVENUES> 47,853,639
<CGS> 18,190,037
<TOTAL-COSTS> 18,190,037
<OTHER-EXPENSES> 24,963,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,290
<INCOME-PRETAX> 3,459,314
<INCOME-TAX> 1,894,035
<INCOME-CONTINUING> 1,565,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,565,279
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<FN>
<F1>CASH INCLUDES $1,864,899 WHICH IS RESTRICTED IN USE.
<F2>RECEIVABLES INCLUDES NOTES RECEIVABLE OF $85,190 WHICH ARE NONCURRENT.
<F3>CURRENT ASSETS OF $3,158,818 ARE SUBJECT TO A LEGAL PROCEEDING.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.01
PENNSYLVANIA
PUBLIC UTILITY COMMISSION
Harrisburg, PA 17120
Public Meeting held September 21, 1989
Commissioners Present:
Bill Shane, Chairman
William H. Smith, Vice Chairman
Joseph Rhodes, Jr.
Frank Fischl, dissenting
Petitions of West Penn Power Company for
Approval of Electric Energy Purchase
Agreements and for Orders Granting Rate
Recognition of Purchase Power Costs
Docket Nos.
Re: Milesburg Energy, Inc. P-870216
Monongahela Lock & Dam No. 8 P-880283
Burgettstown Project P-880284
Shannopin Mine Project P-880286
ORDER
BY THE COMMISSION:
Before us for consideration is the Recommended Decision ("R.D.") of
Administrative Law Judge Larry Gesoff ("ALJ") issued June 27, 1989 in the above-
captioned consolidated proceedings, as well as the Exceptions and the Reply
Exceptions filed by the various parties. Also before us is the Application for
Stay of Proceedings and Motion for Reconsideration filed by North Branch Energy
Partners, L.P. ("North Branch") on August 21, 1989 and September 12, 1989,
respectively, at Docket No. P-880284, as well as various responsive pleadings
thereto. For the reasons stated more fully below, we will (1) grant West Penn
Power Company's ("West Penn") petition at Docket No. P-880283 for approval of
the Electric Energy Purchase Agreement ("EEPA"-) with Noah Corp., the developer
<PAGE>
of the Monongahela Lock & Dam No. 8 Project; (2) grant West Penn's petition at
Docket No. P-880286 for approval of the EEPA with Mon Valley Energy Corp. ("Mon
Valley"), the developer of the Shannopin Mine Project; (3) grant West Penn's
petition at Docket No. P-880284 for approval of the EEPA with North Branch, the
developer of the Burgettstown Project, while granting North Branch's Petition
for Modification and Application for Stay with respect to the Financing Closing
Date and related milestones in its EEPA; and (4) require West Penn to execute a
new EEPA with Milesburg Energy, Inc. ("Milesburg"), similar in terms and
conditions to Milesburg's 1987 EEPA but with modifications to the Financing
Closing Date and related milestones and revisions to the capacity credit, grant
approval of the revised EEPA, and deny West Penn's petition to withdraw its rate
recovery petition. With respect to the rate structure issue raised in this
proceeding, we find merit in the concept of allocating capacity charges to
customers on a demand/energy basis through West Penn's Energy Cost Rate ("ECR")
mechanism. However, rather than requiring West Penn to modify its ECR in its
next annual filing, we will open a separate proceeding to consider modifications
to West Penn's ECR after receipt of an advisory report from our Bureau of
Audits.
- 2 -
<PAGE>
BACKGROUND
----------
The long history of these proceedings was fully described at pp. 1-32
of the ALJ's R.D., which we will incorporate by reference herein.
Following issuance of the ALJ's R.D. on June 27, 1989, Exceptions were
filed by Milesburg, North Branch, the Office of Consumer Advocate ("OCA"), and
Armco Advanced Materials Corp./Allegheny Ludlum Corp. ("Armco/Allegheny").
The West Penn Power Industrial Intervenor's ("WPPII")/1/ filed a letter stating
that it did not intend to file Exceptions to the ALJ's R.D. Reply Exceptions
were filed by West Penn, OCA, WPPII, Armco/Allegheny and jointly by North
Branch, Milesburg, and Mon Valley.
On August 21, 1989 North Branch filed an Application for Stay of
Proceedings with respect to the Financing Closing Date of October 1, 1989 in its
EEPA. West Penn filed an Answer and Armco/Allegheny filed a Protest opposing
North Branch's Application on August 25 and August 28, respectively. On
September 12, 1989 North Branch filed an Amendment to its
______________________
/1/ WPPII is an ad hoc group of industrial customers comprised, in these
proceedings, of Airco Industrial Gases, Latrobe Steel Co., National Roll
Co., Pennsylvania Pressed Metals, Powder Metal Products, Inc., and PPG
Industries, Inc.
- 3 -
<PAGE>
Exceptions, thereby withdrawing its request for modification to its capacity
rates, and a Motion for Reconsideration. Answers to the Motion for
Reconsideration were filed by West Penn and Armco/Allegheny on September 15 and
September 13, respectively. North Branch filed a Response to West Penn's Answer
on September 19, 1989.
Our decision of today's date addresses the merits of the issues raised
in these consolidating proceedings and grants North Branch's Application for
Stay.
DISCUSSION
----------
We will address the issues raised in this proceeding seriatim by
reference to the ALJ's R.D. regarding each issue, which we incorporate by
reference herein, and the Exceptions and Reply Exceptions thereto. A discussion
and ruling on the North Branch Application for Stay will follow. Phase I of the
proceeding generally addresses the reasonableness of the capacity credits set
forth in the various EEPAs as well as the rate structure issue regarding the
methodology by which the capacity costs paid by West Penn to developers of
qualifying facilities ("QFs") should be recovered from ratepayers. Phase II of
the proceeding addresses issues raised by the lengthy delay in the approval
process to which the EEPAs have been subjected.
- 4 -
<PAGE>
A. PHASE I.
------------
1. The Legal Standard to be Applied; R.D. 32-42.
---------------------------------------------
The ALJ rejected the arguments of Armco/Allegheny and OCA that the
Commission's regulations cannot be used as a benchmark to assess the
reasonableness of capacity rates in negotiated contracts. Rather, the ALJ
concluded that, if negotiated rates are at or below the rates to which a QF
would be entitled as a matter of law (i.e., as defined by the Commission's
regulations), the rates are per se reasonable. The ALJ rejected the collateral
--- --
attack by Armco/Allegheny and OCA on the Commission's regulations, stating that
they are in full force and effect unless and until they are modified by the
Commission or invalidated by the Commonwealth Court. Nevertheless, the ALJ
concluded that, due to the nature of the evidence in this record, in these
proceedings the reasonableness of the various capacity credits should be
measured against West Penn's methodology as opposed to the Commission's
regulations.
Milesburg excepts to the ALJ's conclusion that, due to the evidence in
this record, the Commission's regulations cannot be used as the benchmark in
these proceedings Milesburg states that West Penn's witness introduced the
calculations under the regulations into the record on behalf of the parties to
this proceeding, and that whether West
- 5 -
<PAGE>
Penn or other parties are critical of the regulations is irrelevant. Milesburg
notes that the Commission consistently has held that its regulations should
serve as the standard against which the reasonableness of rates in an EEPA are
to be evaluated.
North Branch excepts to this portion of the ALJ's R.D. as well, noting
that West Penn's witness stated on the record that West Penn's avoided cost
filing of July 31, 1986, which reflected a capacity credit for 1991 of 4.85
cents per kwh, represented West Penn's best estimate of its avoided costs based
on its interpretation of the regulations. North Branch states that the ALJ erred
in disregarding the calculations based on West Penn's opposition to and
collateral attack of the regulations.
OCA excepts to the portion of the R.D. that states that calculations
under the Commission's regulations could serve as a proper benchmark against
which the reasonableness of the capacity credits could be measured based on
OCA's argument that the Commission's regulations do not employ discounting and
therefore violate Section 210 of the Public Utility Regulatory Policies Act of
1978, 16 U.S. (S)824a-3 ("PURPA 210").
West Penn's Reply Exceptions at p. 2 state that "[n]o party has
challenged the formulas developed by [West
- 6 -
<PAGE>
Penn] for computing avoided cost, which produce a lower avoided cost figure than
under the Commission's own regulations, but rather only the inputs used in the
formulas." West Penn states that it is not necessary in this case to choose
between West Penn's and the Commission's methodologies because, except for a
minor adjustment to the Milesburg calculation, use of either methodology results
in approval of the contract rates as being at or below avoided costs.
North Branch, Milesburg and Mon Valley, jointly filed Reply Exceptions
("Projects' Reply Exceptions") stating that OCA's criticism of the Commission's
regulations should be given no consideration in these proceedings.
OCA's Reply Exceptions state, inter alia, that the ALJ's
----- ----
recommendation not to apply the Commission's regulations was not based on West
Penn's criticisms, but on the lack of an adequate evidentiary foundation for
their consideration. OCA states that the Projects had an opportunity to file
answering testimony and alternate calculations. OCA argues that the testimony
of West Penn witness Kave and West Penn's 1986 avoided cost filing were not
sufficient evidence.
Armco/Allegheny's Reply Exceptions state that, since the R.D. assessed
the various capacity credits based on West Penn's methodology, it makes no
difference that the R.D. did not compare the capacity credits to rates derived
- 7 -
<PAGE>
under the Commission's regulations. Armco/Allegheny argue that the regulations
are ambiguous and produce rates in excess of avoided costs; that West Penn's
avoided cost filings apply only to QFS of 500 kw or less; and that the QFs in
this proceeding are not automatically entitled to capacity rates set forth in
annual avoided cost filings.
On this issue, we adopt the ALJ's recommendation. The reasonableness
of rates in negotiated contracts generally is to be determined by a comparison
to rates that would be required by an application of the Commission's
regulations. This is a fundamental concept that has been the basis for nearly
all of the Commission's Orders approving rate recovery of amounts to be paid to
QFs under negotiated agreements. The methodology in the Commission's regulations
is binding upon all in Pennsylvania unless and until the Commission revises it
as a result of the generic investigation at Docket No. 1-860025 or otherwise.
We find no merit in arguments that our regulations overstate a utility's avoided
costs. State regulatory commissions have been granted a substantial degree of
latitude in the implementation of PURPA 210, and avoided costs are defined by
-------
our regulations. In other words, our regulations determine what a utility's
avoided costs are under the law, notwithstanding arguments that a different
methodology or methodologies might be preferable. The possibility that our
regulations may not be perfect in some party's view is irrelevant. The
regulations
- 8 -
<PAGE>
were finalized in January 1983 after an extended notice and comment period in a
proceeding where all interested parties had the opportunity to make their views
known. Although we may refine our regulations as a result of our generic
investigation, in our view the regulations are basically sound. In particular,
our coal proxy regulation at 52 Pa. Code (S)57.34(c) recognizes the fact that
logically the next base load unit for a utility in Pennsylvania that is
anticipating a need for additional base load capacity would be a coal plant. By
basing capacity credits on a capital-intensive unit with relatively stable
associated energy credits, the coal proxy regulation encourages the development
of capital-intensive qualifying facilities such as those that are fueled by coal
or coal waste. From both a ratepayer and a public policy perspective, in our
view it is important that our regulations under PURPA 210. permit continued
development of coal and coal waste facilities.
Notwithstanding the fact that generally avoided costs are to be
determined by application of our regulations, we agree with West Penn that it is
not necessary in this proceeding to choose between West Penn's and the
Commission's methodologies because use of either methodology results in approval
of the contract rates. All parties agree that West Penn's methodology produces
rates that are lower than rates produced by the Commission's regulations. None
of the Projects have requested rates calculated under the regulations.
Therefore, as a practical matter, we adopt the ALJ's recommendation
- 9 -
<PAGE>
to utilize West Penn's methodology as the benchmark for determining West Penn's
avoided costs in these proceedings. Since rates calculated under our regulations
would be per se reasonable, and West Penn's methodology produces lower rates, it
--- --
follows that rates calculated under West Penn's methodology (assuming the inputs
are appropriate) are per se reasonable as well. Our decision on this issue also
--- --
renders it unnecessary to resolve any ambiguities that may exist in our
regulations at this time.
2. Burden of Proof, R.D. at 42-44.
-------------------------------
The ALJ concluded that under Section 332(a) of the Public Utility
Code, 66 Pa. C.S. (S)332(a), West Penn has the burden of proof in these
proceedings as the proponent of an Order. The ALJ states that West Penn must
meet its burden of proof by substantial evidence. No party filed an exception
to this conclusion. We adopt the ALJ's recommendation on this issue.
3. Time Frame, R.D. at 44-52.
--------------------------
With respect to the time frame that will be utilized to determine West
Penn's avoided costs, the ALJ recommended adoption of West Penn's agreement in
principal on rates as the time of serious negotiations under the Commission's
standard set forth in Pennsylvania Public Utility Commission v.
-----------------------------------------
- 10 -
<PAGE>
Duquesne Light Company, Docket No. R-860556 (July ___, 1987). Agreement in
- ----------------------
principle on rates was reached in April 1985, May 1986, September 1986, and
October 1986 for the Monongahela, Milesburg, Shannopin and Burgettstown
Projects, respectively.
The only party to file an exception to this recommendation was
Armco/Allegheny, which argue that the date that the EEPAs were executed should
be utilized. Armco/Allegheny state that two tax changes occurred prior to the
contract signing dates that should be incorporated into the calculation of the
capacity credits for the Milesburg, Shannopin and Burgettstown Projects, namely
the Tax Reform Act of 1986, signed into law October 22, 1986 and effective in
tax years 1987 and beyond, and a reduction in the Pennsylvania Corporate Net
Income Tax effective January 1, 1987. Armco/Allegheny argue that the dates of
contract execution (February 25, 1987 and October 15, 1987) are the earliest
dates that the serious negotiations standard should be deemed satisfied because
these were the dates the Projects were legally committed.
West Penn's Reply Exceptions state that the issue is whether West
Penn's use of time of agreement in principle to determine avoided costs was
reasonable. West Penn notes that Armco/Allegheny offered no witness with
experience in negotiating QF contracts or with experience in financing
- 11 -
<PAGE>
such contracts; witnesses with such experience were West Penn's chief
contract negotiator; representatives of the Projects, and a Vice-President
of Mellon Bank with considerable experience in project financing. West Penn
states that the testimony of these witnesses demonstrates that calculation
of avoided costs at the time of agreement in principle on rates is critical
to encourage and stabilize the process of voluntary negotiation of
contracts under PURPA, since the developer of a QF needs rates upon which
it can rely in evaluating the potential feasibility of a project.
Typically, a developer has only limited available resources and has to
borrow between 75% and 85%, and sometimes more, of the funds necessary to
construct a facility. Usually this money is loaned without recourse to any
assets other than the project itself; therefore, lending institutions must
rely on the revenue stream generated by the sales of power to repay the
debt. As a result, substantive evaluation of project financing cannot be
made until the qualifying facility and the utility have agreed upon a
particular rate. An up-front evaluation of economic feasibility is
important because often the substantial investment to lay the groundwork
for a project is not possible without some assurance that the project is
economically feasible. If West Penn were not able to agree to purchase
rates until a contract is signed, the QF could get all the way to final
contract negotiations only to find that avoided costs for capacity have
dropped. West Penn states that, although a broad "serious negotiation"
standard
-12-
<PAGE>
creates problems for a utility, West Penn's selection of a specific point
during negotiations (agreement in principle) is consistent with the intent
of the serious negotiation standard. In calculating avoided costs for these
contracts, West Penn selected a specific time during the negotiation
process at which its risk of relying on a project's capacity for planning
purposes is significantly reduced. West Penn states that Armco/Allegheny's
argument on this point applies hindsight because, in this case, lower rates
would result. However, avoided costs just as easily could have increased.
The Projects' Reply Exceptions state that Armco/Allegheny's position
on the tax issue in reality is a request that the Commission change its
policy on the serious negotiations standard, and that any changes in policy
should not be made retroactively. Acceptance of Armco/Allegheny's argument
would assume that existing policy is meant to be changed on a case-by-case
basis and would seriously undermine the Commission's credibility. The
Projects support the Commission's standard because it ensures that
negotiated rates will be preserved as negotiations continue; under
Armco/Allegheny's proposal developers would be required to petition the
Commission for higher rates under the regulations in order to "lock-in"
avoided cost estimates. The Projects note that Armco/Allegheny relied
solely on the testimony of one witness to support their argument who had no
experience in advising parties to QF contracts, had never negotiated a QF
contract, and did
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<PAGE>
not consider the effect of his theory on potential developers.
Nevertheless, with no experience or background, the witness stated that
"[t]he time frame of serious negotiations is completely nebulous and
ambiguous. Such a time frame could expanse years of negotiations prior to
the signing of a contract." Projects' Reply Exceptions, p. 3. The Projects
assert the time frame for serious negotiations is neither nebulous nor
ambiguous, and that each project has identified a specific period, none
longer than seven months, during which rates were agreed upon and
expenditures were made in reliance thereon. The Projects state that
Armco/Allegheny's witness has confused negotiation of rates with
negotiation of technical terms and conditions. The Projects refer to
testimony that, without a firm commitment on price (1) contractors and
engineers are reluctant to provide bids and financing is unavailable; (2)
developers would not risk the substantial development costs required to
perform essential activities necessary to advance a project from the early
feasibility study stage to contract signing; and (3) use of contract
execution date would have a chilling effect on cogeneration and small power
production. The Projects state that use of hindsight would establish a
constantly moving target with respect to avoided capacity rates and could
be used by a utility to circumvent the requirement to provide capacity
credits to a QF merely by refusing to enter into an EEPA or by delaying
execution of an EEPA. The Projects
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<PAGE>
argue that the rates quoted to the Projects were reasonable at the time,
and any change thereto would be retroactive policy-making which has never
been contemplated by this Commission even in the generic investigation.
Finally, the Projects' Reply Exceptions briefly describe the negotiations
and project development work that took place for each Project and conclude
that each Project satisfied the serious negotiations standard in Duquesne.
--------
The Projects aver that Armco/Allegheny's proposal is totally unrealistic
and cannot result in a negotiated EEPA because an EEPA cannot be executed
without the prior completion of substantial development work. With respect
to the related tax issue, the Projects state that West Penn correctly
applied the tax laws in effect at the time of serious negotiations in the
calculation of the Fixed Charge Rate ("FCR"). The Projects' rates were
calculated in or before May 1986 while the Conference Report on the Tax
Reform Act of 1986 was not issued until September 19, 1986. Thus, it is
unreasonable to argue that West Penn should have recalculated its prior
firm price quotes after the Projects had expended substantial amounts of
money in reliance upon those rates.
On this issue we adopt the ALJ's recommendation, and reiterate our
longstanding policy that avoided costs are to be determined as of the time
of serious negotiations. Objective criteria are needed and must be applied
consistently to give reliability to negotiations between utilities and
-15-
<PAGE>
QFs. Otherwise, avoided cost rates would evolve into a constantly moving
target, a phenomenon that would undermine contract negotiations and chill
the continued development of cogeneration and small power production
facilities. Our policy was formulated in recognition of the fact that a
utility's avoided costs could drop; however, a utility's avoided costs just
as easily could rise. The ALJ correctly noted that, "[u]ltimately, no
matter what time is used to fix EEPA purchase rates, the ratepayers bear a
risk that avoided costs will go down after that time and the QF bears the
risk that avoided costs will go up." R.D. at 51. For the reasons set forth
in the Reply Exceptions of West Penn and the Projects, we find that
Armco/Allegheny's argument that time of contract execution should control
is without merit. Therefore, we affirm our policy on the serious
negotiations standard and accept West Penn's agreement in principle on
rates as the time that the serious negotiations standard was satisfied. Our
adoption of the agreement in principle on rates is limited to the facts of
the instant proceeding since utilities other than West Penn utilize
different practices and procedures when negotiating QF contracts. Moreover,
if the evidence in a proceeding demonstrated that a utility unreasonably
delayed the issuance of project price proposals, the time frame for serious
negotiations would be set prior to the agreement in principle on rates. In
addition to the need to prevent avoided costs from evolving into a moving
target, there is a need to assure that utilities
-16-
<PAGE>
cannot deprive QFs of avoided cost rate entitlement by delaying
negotiations.
4. The Reasonableness of the Capacity Rates in the EEPAs.
-----------------------------------------------------
a. West Penn's Methodology, R.D. at 52-55.
--------------------------------------
The ALJ's description of West Penn's methodology is not a
recommendation on a contested issue, and does not require a discussion.
Nevertheless, the ALJ's R.D. aptly summarizes West Penn's methodology and
the remaining issues in Phase I of these proceedings. Therefore, for
purposes of clarity and completeness, we will set forth in full this
section of the R.D.
West Penn's methodology for calculating the avoided costs in the EEPAs
is set forth in WPP Exhibit 1 and described in WPP Statement 1 at pages 15-
20 generally and at pages 20-24 for each Project. West Penn's methodology
is included in a report captioned "The Value of Generating Capacity". WPP
Ex. 1. West Penn's methodology calculates avoided costs by determining the
amount of overlap between the QF's supply of capacity and the APS need for
capacity. This overlap shows how much capacity (in months) can be avoided
by recognizing the in-service date and economic life of the APS plant as
well as the in-service date and contract term of the QF. These avoided
costs are spread over the QF contract term as
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<PAGE>
a levelized rate such that the present value of the avoided APS plant costs
equals the present value of the payments to the QF. According to Mr. Kave,
these equivalent present values ensure that the ratepayers pay no more for
QF capacity than the avoided costs of the APS plant, regardless of the in-
service date and contract term of the QF. WPP St. 1 at 15-16.
The APS need for generating capacity is determined from the APS
Integrated Resource Plan which, for these Projects, shows that new,
avoidable generating capacity would be needed in the form of three, 300 Mw
coal-fired units. These units were included as a part of West Penn's annual
system cost data filing (52 Pa. Code (S)57.33) and the annual resource
planning report (52 Pa. Code (S)57.49). Mr. Kave states that these units
are also consistent with the coal proxy definitions used within the
Commission's regulations. WPP St. 1 at 16.
The rates in cents per Kwh will differ among projects depending on the
length of the contract term and the QF's in-service date. Generally, the
closer a QF's in-service date is to WPP's need for capacity, and the longer
the contract term overlaps the life of the avoided plant, the greater the
costs are that can be avoided.
-18-
<PAGE>
Similarly, avoided capacity rates differ depending on when the next
APS plant is needed. That is, for a given QF contract term and in-service
date, the rate may change if the APS Integrated Resource Plan changes. All
other things being equal, the farther into the future the next need for an
APS plant, the lower the avoided capacity cost rates will be under APS's
methodology. This tends to discourage capacity additions by QFs that are
not needed. Conversely, if there is a near term need for capacity, the
methodology tends to encourage QF development by offering higher rates
According to Mr. Kave, this sensitivity to forces of supply and demand
creates a built-in safeguard against excess capacity problems. WPP St. 1 at
17.
Another reason that capacity rates may differ among projects is that
capacity rate calculations are performed using standard APS information and
estimates which are available at the time of calculation. Since these
calculations are performed at different times, the underlying information
may change. WPP St. 1 at 17.
Capacity rates are normally paid to QFs on a cents per Kwh basis for
Kwh's of energy which are scheduled and delivered. This provides a strong
incentive for the QF to maximize its availability and deliveries. Under
dispatch conditions the QF is paid a capacity rate for the amount of
capacity which is available and scheduled for possible
-19-
<PAGE>
delivery. Under certain conditions of poor performance, such as excessive
deliveries during off-peak hours and inability to meet dispatch criteria,
the capacity payments to the QF are reduced. WPP St. 1 at 17.
As noted above, West Penn maintains that the EEPA rates are below its
avoided costs under either its methodology or the Commission's regulations.
No party challenged West Penn's methodology or the calculated energy rate
in the EEPAs.
At issue are the correctness of the inputs West Penn used in its
methodology regarding the capacity rate calculation. These inputs include
the reserve margin, the type of avoided unit used (coal v. combustion
turbine), the avoided unit's availability, and the fixed charge rate.
Also at issue is WPPII's assertion that West Penn's capacity rates
should be based on the renovated Springdale and Mitchell plants which will
come on line before any of the QFs. In addition, OCA argues in favor of a
correction to the Milesburg Project avoided capacity costs to reflect
monthly payments required by the EEPA. Finally, Armco/Allegheny and WPPII
argue for EEPA capacity rates to be passed through to West Penn's
ratepayers on a demand/energy basis instead of on an energy basis only.
These issues are addressed below.
-20-
<PAGE>
b. Reserve Margin, R.D. at 55-71.
------------------------------
The ALJ recommended adoption of West Penn' planning reserve margin of
25%. Armco/Allegheny and OCA argued for reserve margins of 15% and 20%,
respectively. The ALJ's R.D. accurately summarizes the position of each
party and is, as stated above, fully incorporated herein by reference. The
ALJ concluded that West Penn demonstrated that its planning reserve margin
was not out of line with the electric industry throughout the United States
and within the North American Reliabilitiy Council's ("NERC") regional
council; that West Penn's high load factors and number of super-critical
generating units supported its 25% margin; that West Penn used correct
judgment in 1986 that the planning reserve margin should not be changed in
response to a then recent improvement in generation availability; and that
West Penn used correct judgment in considering potential acid rain
legislation as one of several reasons why current availability data might
not hold in the future. The ALJ concluded by noting that forecasting a
reserve margin requires the use of studies and computer analyses, but the
final decision requires informed judgment based on experience. The ALJ
found that West Penn demonstrated that its 25% reserve margin decision was
supported by studies available when the decision was made and by informed
judgment based on experience, and recommended approval of the 25% planning
reserve margin.
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<PAGE>
OCA and Armco/Allegheny excepted to the recommendation OCA reiterates
its claim that Allegheny Power Systems ("APS"), West Penn's parent company,
should have conducted new reserve margin and generation planning studies in
1986, which would have indicated that the planning reserve margin should
have been no more than 20% based primarily on an increase in unit
availability on the APS system between 1983 and 1986 and OCA's view that
large interconnected systems generally have a reserve margin of 15% to 20%.
Armco/Allegheny reiterate their claim that West Penn did not meet its
burden of proof with respect to its 25% planning reserve margin because the
studies relied upon by West Penn were outdated and because West Penn and
APS have allowed their reserve margins to drop below 25% by entering into
agreements for the sale of 700 MW to out-of-state utilities.
West Penn's Reply Exceptions state that the issue is not, as OCA and
Armco/Allegheny would like to frame it, whether APS should have done a
formal study in 1986 but whether, in light of the objective information
available to APS planners in 1986, the judgment to use a 25% planning
reserve margin in calculating avoided costs for these contracts was
reasonable. West Penn states that the ALJ correctly concluded that its
judgment regarding the proper planning reserve margin was appropriate
given, inter alia, the existence of the super-critical units on the APS
----- ----
system, APS' high load factor, and the availability of the units. With
respect
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<PAGE>
to Armco/Allegheny's exception, West Penn states that the 700 MW off-system
sale in the winter of 1988/89 has no bearing on APS' planning reserve
margin because the sale is interruptible and subordinate to native system
load, which permits APS to use its existing capacity effectively without
compromising system reliability. APS does not plan for off-system sales
when determining that new capacity is needed; therefore the projected
addition of capacity in 1995 was planned to meet native load plus a 25%
reserve margin, as opposed to native load, plus off-system sales, plus 25%.
West Penn notes that the 700 MW off-system sale actually was a sale of 700
MW for one year dropping to 300 MW for six years and zero thereafter.
The Projects' Reply Exceptions emphasize that West Penn's 25% planning
reserve margin had been sanctioned by the Commission in two prior
proceedings, that the reserve margin is being used for planning purposes by
West Penn to this day, and that West Penn still projects a need for energy
in 1995. The Projects state that the reasonableness of West Penn's planning
reserve margin is the issue, not the exact results of West Penn's
forecasts.
Upon review of the Exceptions and Reply Exceptions we find nothing
that was not considered by the ALJ prior to making his recommendation that
West Penn's planning reserve margin of 25% be adopted. The ALJ's decision
on this issue
-23-
<PAGE>
is persuasive and we adopt it as our own. We find particularly persuasive
the rebuttal testimony of West Penn's Director of Planning regarding the
factors that were taken into account in establishing the reserve criterion,
particularly the existence of ten super-critical units ranging in size from
540 mw to 640 mw, each of which is about 10% of the APS system peak load;
APS' high load factor, which is normally one of the ten highest load
factors of the top 100 investor-owned utilities in the country; and the
uncertainty whether the recent improvement in unit availability would
continue given, inter alia, the fact that the equipment is aging and the
----- ----
temporary lower stress levels on individual units resulting from
temporarily higher operating reserves. One issue raised on exception that
was not addressed by the R.D. was Armco/Allegheny's argument that the
interruptible off-system sale of 700 MW in 1988/89 (dropping to 300 MW for
-------------
six years) demonstrated that West Penn did not need additional capacity. We
find this completely unpersuasive for the reasons set forth in West Penn's
Reply Exceptions.
c. Coal Unit v. Combustion Turbine, R.D. at 71-80.
-----------------------------------------------
The capacity credits in this proceeding were based on West Penn's
projection in 1986 that the next generating unit it would construct would
be a series of three 300 MW coal units, the first of which would be brought
on line in 1995. OCA argued that in 1986 West Penn should have planned
-24-
<PAGE>
to construct oil or gas fired combustion turbines ("CTs") to provide
peaking capacity before constructing additional coal units. The ALJ
concluded that West Penn submitted substantial evidence to support the APS
decision in 1986 that a coal unit would be required in 1995.
OCA excepted to this finding, arguing that peaking units (oil or gas
fired CTs) should have been planned by West Penn rather than base load
generation in the form of coal fired units. OCA's preference for oil or gas
fired units is based on arguments pertaining to need for fuel diversity,
projected fuel costs for the coal plant v. marginal fuel costs on the
system, and the use of a dependent forced outage rather than actual unit
unavailability in West Penn's studies.
West Penn's Reply Exceptions state that the APS 1986 Generation Plan
was supported by considered judgment based on the following factors:
(1) the many years of satisfactory service provided by coal-fired
units to APS and its ratepayers;
(2) the drastic escalation in the price of oil and gas even though
tempered by a drop in prices in late 1985 and early 1986;
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<PAGE>
(3) the results of studies that at best showed only a minor financial
advantage for combustion turbines;
(4) the technological limitation(s) on combustion turbines at that
time; and
(5) public policies and laws designed to encourage the use of coal.
West Penn's Reply Exceptions refer to its Main Brief and Reply Brief, which
refute the arguments in support of an oil or gas fired peaking unit raised
by OCA. With respect to fuel diversity, West Penn states that the objective
is not to provide a pre-determined fuel mix, but to provide a reliable
power supply at the lowest cost, which should be done by using the fuel
sources that are the most reliable and cost the least over the planning
horizon. West Penn notes that the APS service area has large reserves of
coal that have over time provided a stable supply of fuel at a reasonable
cost; that the availability and price of oil and gas have been
unpredictable and uncertain; and that the economy of the APS service area
benefits from the use of coal.
With respect to OCA's argument comparing fuel costs of a coal plant to
the fuel costs of the APS system,
-26-
<PAGE>
West Penn states that even if the new coal units were projected to have a
higher operating cost than the average costs on the system, it is
inappropriate to compare operating costs between types of generation. West
Penn notes that if this type of comparison were to be made, CTs always
would have exceedingly high costs (about 4 (cents) to 1O (cents)/kwh
depending on oil and gas prices) compared to coal. West Penn states that
neither of the computer runs discussed by OCA shows either a large benefit
or cost to installing CTs, and that there certainly was not enough
difference to make a decision based only on computer runs. West Penn avers
----
that "[t]he decision to stay with coal fired generation was based on the
experience of many years and common sense. The use of coal has been the
----------------------------
reason the APS cost of electricity has been among the lowest in the
-----------------------------------------------------
country." West Penn Reply Brief at 12 (emphasis supplied).
--------
With respect to OCA's argument on the use of dependent forced outage
rates, West Penn states that the purpose of using these rates is to better
model the way the power system actually operates. While most computer
models use an average forced outage rate, in actual practice many units may
be out of service at one time, necessitating the use of CTs. West Penn
states that if there are many units out of service at the same time,
usually it is due to some type of dependency, i.e., weather-related,
equipment similarities, storms, etc. When these dependent forced outage
conditions
- 27 -
<PAGE>
do occur, necessitating the use of CTs, it might be necessary to run them
eight to thirteen hours a day because of the APS high daily load factors,
where hourly loads do not vary much over long periods during the day.
The Projects' Reply Exceptions state that OCA's entire argument that
the avoided unit should have been a CT rather than a coal-fired unit is
that planning and judgment cannot be used along with a least cost study.
The Projects state that, while all of West Penn's planning for the mid-
1990's included adding base load plant in 1995, OCA unilaterally decided
that West Penn should add peaking power in that year and assumed a low cost
and available source of oil in 1995 and beyond. The Projects state that
none of OCA's assumptions as to oil prices were known in early 1986, and
that OCA's continued reliance on its argument with respect to cheap and
stable oil prices in the future is unsupportable in light of the current
state of the fuel market. Finally, the Projects note that West Penn added
considerable peaking capacity in 1986 (the Bath County Pumped Storage
Unit), and that there is nothing on the record to support the proposition
that another large peaking unit is needed next.
We agree with the ALJ's recommendation on this issue; further we find
compelling reasons supporting West Penn's choice of a coal-fired base load
unit as opposed to
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<PAGE>
an oil or gas-fired CT as the next generating plant on the system. Even
assuming for the purposes of argument that studies showed a financial
advantage to CTs, the advantage was minor at best. West Penn appropriately
used its experience and judgment as well as formal studies when formulating
its capacity addition plans. Its experience supported the choice of a coal
unit for many reasons, including the many years of satisfactory service of
coal units to its ratepayers, and the fact that the reason West Penn's
rates are the lowest in Pennsylvania and among the lowest in the country is
due to the use of coal. The volatility in the supply and price of natural
gas and oil as well as the public policy in Pennsylvania of encouraging the
use of coal also supported its decision. Additionally, West Penn's high
daily load factor supports the decision to add additional base load
capacity, as opposed to oil or gas fired peaking units (with low capital
costs but high fuel costs), as well as the use of dependent forced outage
rates in its studies. In sum, we strongly endorse West Penn's decision to
add a coal-fired unit as opposed to an oil or gas-fired CT as its next
generating unit. Selection of a CT over a coal unit due to at best a minor
financial advantage produced by a formal study in our opinion would have
been unwise. First, it would have exposed ratepayers to the volatility in
the supply and price of oil and gas in the future; whereas coal supplies in
the APS service territory are abundant and can be procured under long term
contract. Second, in our opinion
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<PAGE>
West Penn gave appropriate consideration to the public policy in
Pennsylvania of encouraging the use of our indigenous coal resources and
the economic benefits in the service territory resulting from the use of
coal. The choice of a coal unit over a CT has more than theoretical
consequences for the Projects under consideration, even though the Projects
are designed to avoid or defer the construction of the next unit by APS.
The Projects are themselves capital-intensive as they are designed to
utilize coal and coal waste. Generally speaking, a capital-intensive
project cannot be supported by capacity credits derived from a low cost
combustion turbine. Moreover, we note that OCA did not advocate revising
the Projects' energy credits (which were not challenged by any party to
------
these proceedings) to reflect the fact that its avoided unit of choice
would be fired by oil or gas as opposed to coal. It is an interesting
position that advocates capacity rates based on a cheap oil- or gas-fired
combustion turbine and energy credits based on coal.
There is an independent reason why basing the capacity credits in this
proceeding on a coal plant was required that was not addressed by the ALJ's
R.D. As West Penn notes in its Reply Brief, in 1986 it was anticipating
inadequate system reliability within the next ten years as a result of not
being committed to sufficient plant because its reliability criterion of a
25% reserve margin would not
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<PAGE>
be met without additional generating units. Under 52 Pa. Code
(S)57.34(c)(4)(iii) this triggers the required use of a coal plant as a
proxy. Therefore, in addition to the fact that West Penn reasonably
selected a coal plant as its next generating unit, our regulations would
have required the payment by West Penn of capacity credits based on a coal
plant even if West Penn had not selected any particular type of generating
unit at all.
For all of the foregoing reasons, we find that the capacity credits in
this proceeding should be based on the costs of a coal-fired generating
unit.
d. Mitchell and Springdale Units, R.D. at 81-85.
---------------------------------------------
In 1983 West Penn's Springdale and Mitchell generating units were
placed in cold reserve and removed from West Penn's rate base. In the Bath
County litigation it was determined that the Springdale and Mitchell units,
collectively 361 MW, would not be considered installed capacity for the
purpose of evaluating whether the Bath County pumped storage project was
excess capacity. WPPII argued that West Penn could return the units to
active service by expending $71 million, and that West Penn's capacity
credits should have been based on the reactivation costs rather than a new
300 MW coal unit. West Penn responded by noting that its 1986 Generating
Capacity Plan showed the need for additional capacity in
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<PAGE>
1995 despite the planned reactivation of Springdale and Mitchell in 1992
-------
and 1993. West Penn also noted that Mitchell and Springdale are oil-fired
peaking units, and the Commission's regulations base capacity credits on a
peaking unit only when it is due on-line within five years. Since in 1986
springdale and Mitchell were not "committed" units under the regulations,
they were properly not used as the basis of the capacity credits in West
Penn's avoided costs calculations.
The ALJ agreed with West Penn's application of the facts to the
Commission's regulations at 52 Pa. Code (S)57.34(c)(4)(i) and (iii), while
disagreeing with West Penn's conclusion that the regulations require the
use of costs associated with a new plant, as opposed to one in cold
reserve. The ALJ rejected Armco/Allegheny's argument that the capacity
credits in these proceedings should be based on the costs of reactivating
Springdale and Mitchell.
No exceptions to the ALJ's recommendation on this issue were filed. We
agree with the ALJ and find that the costs of reactivating springdale and
Mitchell were not the proper basis for determining West Penn's avoided
costs in these proceedings. West Penn's Generating Capacity Plans in 1986
showed West Penn's need for a 300 MW coal unit in 1995 in addition to the
-- -------- --
planned reactivation of Springdale and Mitchell in 1992 and 1993.
-32-
<PAGE>
Where a utility projects a need for more than one capacity addition,
nothing in our regulations bars the payment of capacity credits based on
more than one plant. Therefore, although it was appropriate for West Penn
to offer the projects in these proceedings capacity credits based on its
1995 coal plant, West Penn also could have offered capacity credits to
other QFs based on the reactivation of Springdale/Mitchell in 1987-1988
(five years before the planned reactivation). Although the resulting
capacity credit would have been extremely small, the energy credit
associated with Springdale and Mitchell, which are oil-fired, would have
been substantially higher than the energy credits at issue in these
proceedings. In sum, just as utility capacity addition plans are not
mutually exclusive, capacity credits based on different capacity addition
plans likewise are not mutually exclusive. In 1986 the appropriate plant
upon which West Penn's avoided costs were based was the 1995 coal plant;
even if West Penn had planned to reactivate Springdale and Mitchell within
five years or by 1991, the Projects in question would have had the choice
of which capacity addition plan they would help defer or avoid, which would
in turn determine their appropriate avoided costs.
e. Fixed Charge Rate, R.D. at 85-95.
---------------------------------
West Penn utilizes a levelized annual fixed charge rate ("FCR") to
estimate the cost of owning capital assets.
-33-
<PAGE>
The principal elements of the-FCR are the cost of capital, depreciation,
income taxes, insurance, and property related taxes. West Penn used a FCR
of 17.7% for all three contested Projects. Armco/Allegheny argued for a FCR
of 13.88% for Milesburg and 14.65% for Burgettstown and Shannopin. The ALJ
concluded that West Penn calculated its FCR correctly and recommended its
acceptance.
No exceptions were filed with respect to the ALJ's findings on cost of
capital, capital structure, cost of debt, cost of preferred stock, state
and federal taxes, ad valorem rate (insurance and property taxes), or rate
base. We adopt the ALJ's recommendation on these issues as our own.
Armco/Allegheny excepted to the ALJ's recommendation to adopt West
Penn's forecasted return on equity of 15%. West Penn's forecast was made by
adding a risk premium of 400 basis points to forecasted bond rates, since
it is universally recognized that investments in common stock are riskier
than investments in bonds. To encourage investment in common stock, it is
necessary to provide a higher return than an investor could receive in the
bond market.
Armco/Allegheny argue that the most appropriate return on equity would
be the return of 14.25% approved by the Commission in July 1986 in West
Penn's Bath County rate
-34-
<PAGE>
proceeding at Docket No. R-85022O. Armco/Allegheny argue that only the
Commission can set a utility's return on equity, and that West Penn
unlawfully usurped the Commission's authority by forecasting a higher rate
of return. Armco/Allegheny state that West Penn committed its ratepayers to
pay a higher return on equity to the QF developers than the Commission had
required West Penn's ratepayers to pay to the utility.
West Penn's Reply Exceptions note that the return on equity in
the FCR for these avoided cost calculations required economic forecasting
for the life of the contracts, i.e., as far out as the year 2031 (33 years
----
past 1998). Armco/Allegheny did not contest the reasonableness of West
Penn's projections; rather, Armco/Allegheny contended that using any
---
projection was an error of law. West Penn states that Armco/Allegheny's
argument defies logic and erroneously assumes that West Penn's return on
equity is static and will remain at 14.25% for over 33 years. The Projects'
Reply Exceptions note that Armco/Allegheny did not argue that West Penn's
forecast was incorrect, and that the rates for each of these Projects were
first quoted to developers prior to July 24, 1986, when the return on
common equity from the then prior rate case was 15.5%.
Armco/Allegheny's argument on this point requires little
discussion. We agree with West Penn that it defies logic to assume that
West Penn's rate of return on equity
- 35 -
<PAGE>
will remain static for the next 30-40 plus years. All components of an
avoided cost calculation, including a fixed charge rate, require the use of
reasonable projections. The use of a forecasted 15% return on equity did
not usurp a Commission function. Therefore, we adopt the ALJ's
recommendation on this issue.
f. Availability Factor.
-------------------
Armco/Allegheny have excepted to the fact that, through an oversight,
the ALJ's R.D. failed to rule on their argument that the availability
factor of the avoided coal unit should have been 8.0% rather than 75%. The
availability factor is the percentage of time during the year that the
avoided unit would be expected to operate, and is used as a component in
the calculation of West Penn's capacity credit. The lower the assumed
availability factor, the higher the capacity credit because the cost of the
avoided unit will be spread over fewer Kwh. Armco/Allegheny aver that the
newest scrubbed coal-fired units on the APS system are the 621 MW Pleasants
Units, which had average availabilities of 80-81% between 1983-1987.
Armco/Allegheny aver that, although the only other scrubbed coal-fired unit
on the APS system, Mitchell No. 3, had an availability of only 73.9%
between 1983-1987, it is more appropriate to use the Pleasants Units
because they are newer and provide a better indication of the expected
availability of units that would be built in the mid-1990s.
- 36 -
<PAGE>
West Penn's Reply Exceptions state that Armco/Allegheny
selectively analyzed APS availability data in order to find an example to
support its contention. West Penn takes into account many factors,
including potential acid rain legislation, in forecasting future
availability. Selection of one four year average availability of one unit
does not support an assumption that West Penn should anticipate that
particular availability over the economic-life of the avoided unit. The
Projects' Reply Exceptions similarly state that the selection of only one
---
time period for one unit does not support use of the corresponding
---
availability factor.
On this issue we agree with West Penn, and reject the argument of
Armco/Allegheny. Selection of one four year period for one unit does not
support an assumption that the avoided unit would have had an equivalent
availability factor over its useful life. Even if the Pleasants Units were
selected as the best representative units on the APS system, the four year
-----
period of 1983-1987 selected by Armco/Allegheny occurred very soon after
------
Pleasants Units 1 and 2 were placed in-service in 1979-1980. It is
unreasonable to assume that a plant will continue to operate over its 30-33
year life at the same availability factor that it did when it was nearly
new. Over time, equipment ages and must be replaced. Therefore, we find
that the four year availability factor cited by Armco/Allegheny is not
particularly relevant, and adopt West Penn's projection of a 75%
availability factor for the life of the avoided unit.
- 37 -
<PAGE>
5. Section 527 of the Code, R.D. at 95-97.
--------------------------------------
The ALJ's R.D. rejected Armco/Allegheny's argument that Section
527 of the Public Utility Code, 66 Pa.C.S. (S)527, requires discounts from
full avoided costs. We rejected this argument previously in our Order on
Reconsideration in these proceedings entered January 19, 1989.
Nevertheless, Armco/Allegheny argue that Section 527 applies to negotiated
rates as opposed to rates set administratively by the Commission.
The ALJ rejected Armco/Allegheny's argument as "engaging in
legislative mindreading with no support except stretched logic." R.D. at
97. The ALJ concluded that, since Section 527 cannot be used against full
avoided cost rates calculated under the Commission's regulations, neither
can it be applied to full avoided cost rates in a voluntary agreement. The
ALJ notes that, even though not mandated by Section 527, the record in
these proceedings demonstrates that the EEPA rates are below West Penn's
avoided costs.
Armco/Allegheny's Exceptions at p. 32 repeat their assertion that
"Section 527 clearly requires that in Pennsylvania rates paid to QFS should
be less than avoided costs since this is the only way to provide ratepayers
---- ----
with savings as a result of cogeneration." (emphasis supplied). While
conceding that the federal full avoided cost standard applies to rates
imposed by the Commission as a result of a complaint proceeding,
- 38 -
<PAGE>
Armco/Allegheny assert that PURPA does not apply to a negotiated contract.
Armco/Allegheny also argue that none of the contracts under consideration
provide for savings since West Penn's input assumptions into its
methodology were erroneous, and that even if the inputs were correct, the
savings under the contracts are not enough.
West Penn's Reply Exceptions state that Section 527 is clear on
its face and, rather than mandating discounts from avoided costs, requires
only that discounts that do exist be passed on to ratepayers. West Penn
states that there is no legislative history to support Armco/Allegheny's
interpretation of Section 527, and that any requirement that rates
available to QFs in voluntary contracts be below avoided costs would be
preempted by federal law.
The Projects' Reply Exceptions characterize Armco/Allegheny's
argument on this issue as farfetched, and note that the Federal Energy
Regulatory Commission ("FERC") directly addressed the savings issue and
mandated that rates to QFs be set at a utility's full avoided costs. The
----
Projects echo West Penn's interpretation of Section 527 as requiring
utilities to pass any savings that exist to customers rather than retaining
a profit on purchases of power from QFs.
On this issue we agree with the ALJ's R.D. Armco/Allegheny's
argument is based on stretched logic and, if
- 39 -
<PAGE>
accepted, would result in an interpretation of Section 527 that would
violate federal law. When promulgating its rules under PURPA 210, FERC
considered and rejected arguments that rates to QFs should produce savings
to customers. FERC mandated that rates for purchases be set at a utility's
full avoided costs. Small Power Production and Cogeneration Facilities;
---- --------------------------------------------------
Regulation Implementing Section 210 of the Public Utility Regulatory
-------------------------------------------------------------------
Policies Act of 1978, Docket No. RM79-55, Order No. 69 (February 19, 1980),
--------------------
45 Fed. Reg. 12214, 12222 (February 25, 1980). The full avoided cost
---- ----
standard was reviewed and approved by the U.S. Supreme Court in American
--------
Paper Institute v. American Electric Power Service Corp., 461 U.S. 402
--------------------------------------------------------
(1983). Therefore, unless and until the full avoided cost standard is
revised by FERC, any interpretation of Section 527 as requiring discounts
from full avoided costs would be unconstitutional. Hines v. Davidowitz,
-------------------
312 U.S. 52, 67 (1941). Armco/Allegheny's argument that negotiated rates
are not governed by PURPA is equally invalid. Although FERC's and this
Commission's regulations allow a QF to voluntarily accept rates below a
utility's avoided costs, there is nothing to support an argument that a
utility cannot voluntarily agree to pay full avoided cost-based rates. If
this were so, a utility could not voluntarily comply with PURPA 210!
Rather, utility compliance with PURPA could be achieved only upon the
filing of a formal complaint. This is clearly unsupported and we reject
Armco/Allegheny's argument in its entirety.
- 40 -
<PAGE>
6. OCA's Corection to Milesburg's EEPA, R.D. at 97-100.
---------------------------------------------------
This issue was addressed in Phase I of the ALJ's R.D. We will
address it in Phase II. Our intention is that Phase I issues addressed in
our Order be applicable to four peoceedings. Issues that are specific to an
individual Project will be discussed in Phase II, and our Order(s) in Phase
II will be specific as to each individual docket number.
7. Capacity Costs Allocated on a Demand/Energy
-------------------------------------------
Basis, R.D. at 101-105.
-----------------------
This rate structure issue involves the methodology by which QF
capacity payments will be recovered from ratepayers. Currently, all QF
costs (energy and capacity) are recovered through West Penn's Energy Cost
Rate mechanism ("ECR"). a West Penn currently has approximately 135 MW of
QF capacity on-line. The Projects in these proceedings represent another
205 MW. While rates paid to Monongahela, Milesburg, Burgettstown and
Shannopin will not be reflected in customers' bills until the Projects are
financed and constructed, West Penn's existing ECR recovers all costs paid
to QFs on an energy or kwh basis. WPPII and Armco/Allegheny advocate
recovery of QF capacity payments from ratepayers on a demand/energy basis
through the ECR in a manner similar to that which
-41-
<PAGE>
would have occurred if the capacity had been built by West Penn and the
costs allocated on cost-of-service principles in base rates.
Armco/Allegheny advocated the adoption of a particular mechanism to
achieve a demand/energy allocation based on a single coincident peak
methodology.
The OCA opposed Armco/Allegheny's proposal on the basis that (1)
it would add complexity to West Penn's ECR; (2) the single coincident peak
methodology was not utilized for Bath County; (3) a single coincident peak
methodology could result in volatile changes in cost allocations depending
on peak responsibility for a single day; and (4) the rate structure issue
has not been set for decision by the Commission in these proceedings.
The ALJ concluded that both Armco/Allegheny and OCA were correct.
Finding that the reasons for using a demand/energy allocation are sound,
but that the allocation should not be set in this proceeding, the ALJ
recommended that West Penn be directed to make a demand/energy allocation
in its next ECR filing, and that all existing on-line QF capacity be
included. OCA excepted, reiterating its position that no action on the rate
structure issue should be taken in these proceedings. OCA states that the
Commission has never held that it is necessary to determine QF rate
structure years in advance of the time when the costs will be collected
from customers. OCA also states that no notice was provided
-42-
<PAGE>
to ratepayers that rate structure issues would be determined in these
proceedings. North Branch also excepts, stating that West Penn's Petition
for Approval of the North Branch EEPA did not request approval to pass the
costs through to ratepayers pursuant to any particular allocation method,
and that the allocation issue should be decided in a separate proceeding.
WPPII's Reply Exceptions state that the Commission has expressed
an unwillingness to review the demand/energy allocation of QF purchased
power costs in the context of an ECR proceeding, and that the ALJ
recommended only that the principal of a demand/energy allocation be
---------
adopted in this proceeding, leaving the particular methodology to a later
proceeding where all parties will be afforded an opportunity to be heard.
WPPII notes that West Penn currently is collecting QF purchased power costs
through its ECR. WPPII argues that the rate structure issue is relevant to
these proceedings because rate recognition permits West Penn to recover
costs through its ECR mechanism. WPPII states that ratepayer indifference
embodied in PURPA should be preserved. Finally, WPPII states that modifying
the practice of allocating QF capacity costs on a kwh basis will alleviate
any need for industrial intervention in QF development.
Armco/Allegheny's Reply Exceptions state that the demand
allocation issue is within the scope of these proceedings
- 43 -
<PAGE>
because: (1) fai1ure to allocate capacity costs on a demand basis would
violate the underlying premise of PURPA of customer indifference; (2) West
Penn's rate recovery petitions sought ECR pass through; and (3) The ALJ did
not recommend that any particular type of allocation be adopted in these
proceedings.
We agree in part with the ALJ's recommendation and adopt the R.D.
on this issue up to the conclusion of the first paragraph on p. 104.
However, the ALJ's statement that the costs in question will not be
recovered until West Penn's next ECR proceeding is inaccurate. The capacity
costs at issue in these proceedings will not be recovered for several years
as the Projects proceed to financing construction. Therefore, there is no
overriding necessity to revise West Penn's ECR in its next ECR filing.
This rate structure issue is one that will take on added
importance in the future as utilities begin to substitute purchases from
QFs for their own construction. If QFS begin to represent a more
significant portion of a utility's installed capacity, continued recovery
of capacity charges on an energy basis through a fuel clause mechanism
would incorporate a bias against high load factor customers (usually energy
intensive industrial customers). While we have strongly supported the
continued development of cogeneration and small power production as in
ratepayers' best long-term
-44-
<PAGE>
interests, a rate structure bias against a particular customer class
certainly would not be our intent. In order to fully analyze the
complexities inherent in a modification to West Penn's ECR so as to achieve
ratepayer indifference, we will require a report and recommendation from
our Bureau of Audits, with the assistance of the Law Bureau, on how best to
proceed. Upon receipt of this report we will determine whether opening a
formal investigation into West Penn's ECR or some other action is required.
As stated above, the capacity costs currently being recovered through West
Penn's ECR are not substantial, and there is no overriding need to
implement an ECR modification in West Penn's next ECR filing. Our
preference is to proceed on this issue at a slower pace to ensure that the
final result will accomplish our objectives. Therefore, we will request the
Audits/Law Bureau report within three months of the date of this Order and
will endeavor to initiate formal action shortly thereafter.
8. Excess Capacity, R.D. at 105-107.
--------------------------------
The ALJ recommended a finding that the addition of the QF
capacity under consideration does not result in excess capacity under
Section 1323 of the Public Utility Code, 66 Pa.C.S. (S)1323, with respect
to the capacity itself or as to any existing West Penn capacity.
-45-
<PAGE>
The OCA's Exceptions request clarification of the scope of the
excess capacity determination. Specifically OCA requests a finding that the
QF capacity in these proceedings must be considered in determining whether
----
future West Penn plant additions represent excess capacity. No Reply
------
Exceptions were filed.
We affirm the ALJ's decision on this issue. Section 5.3(i) of
each of the EEPAs at issue requires, as a condition precedent to West
Penn's obligations thereunder, that the Commission either adopt policy
guidelines or enter an order to the effect that the QF capacity in question
will not be treated as "excess capacity" under Section 1323 either as to
the projects themselves or as to any existing West Penn capacity, including
the Bath County project. That determination has been made. We see no need
to clarify the determination as OCA has suggested. To do so would
constitute ruling on the merits of a case that is not before us and clearly
would be improper. However, we note in general terms that it has never been
our intention to exclude consideration of existing QF capacity from excess
capacity determinations for future utility plant. A more specific statement
is not appropriate at this time.
-46-
<PAGE>
9. Conclusion.
----------
Phase I of our Order addresses issues that are applicable to each
Project and is hereby adopted with respect to all four proceedings and
docket numbers under consideration. Resolution of Phase I issues concludes
our Order with respect to the Monongahela and Shannopin EEPA. On the basis
of Phase I of our Order, the capacity credits of 3.6 (cents)/kwh and
4.0 (cents)/kwh for Monongahela and Shannopin, respectively, are approved.
Orders specific to these two proceedings are appended to this order. Phase
II issues remaining for consideration are specific to the Milesburg and
Burgettstown Projects. Phase II of our Order in turn will be separated
between Docket Nos. P-870216 (Milesburg) and P-880284 (Burgettstown).
B. Phase II - Burgettstown
--------------------------
Docket No. P-880284.
-------------------
North Branch filed a Petition for Modification of its EEPA on
April 5, 1989 requesting modification of milestone dates and an increase to
its capacity rate to reflect the delay in its in-service date occasioned by
the lengthy approval process to which it has been subjected. The capacity
credit for Burgettstown was based on the Project being placed in service on
October 1, 1991. Among other related milestones, under its EEPA
Burgettstown must hold a full financial closing before October 1, 1989 or
its EEPA will by
-47-
<PAGE>
its own terms expire. Although West Penn filed the Burgettstown EEPA with
the Commission for approval in January 1988, unforseen circumstances have
delayed approval for nearly two years Without Commission approval of the
EEPA in the form of a final and nonappealable Commission Order, financing
-------------
and construction cannot take place. As a result, it is impossible for
Burgettstown to meet its contractual milestones. North Branch presented
unrebutted testimony that financial closing would take six (6) months from
the date of a final and nonappealable order, and that construction would
take approximately thirty-three (33) additional months, for a total of
thirty-nine (39) months.
The ALJ recommended that North Branch's Petition for Modification
be denied. North Branch excepts to the ALJ's failure to recommend
modification of the milestones in its EEPA. North Branch also excepted to
the failure of the ALJ to recommend an increase to its capacity credit of
3.6 (cents) /Kwh. However, on September 8, 1989 North Branch filed an
Amendment to its Exceptions, thereby withdrawing its request for an
increase to its capacity credit. Therefore, the only issue before us is
whether or not North Branch's request for an extension to its financing and
related milestones should be granted.
North Branch states that the ALJ's recommendation not to modify
the various milestone dates is illogical
-48-
<PAGE>
because litigation before the Commission has prevented North Branch from
meeting the milestones. Although the ALJ recommended that North Branch's
EEPA be approved, approval Of the FEPA without the requested modification
effectively cancels the EEPA and rewards the intervenors for having
presented a meritless case. With respect to the ALJ's characterization of
North Branch's request for an extension as open-ended, North Branch states
it requested six (6) months from a final order for the Financing Closing
Date, which is not open-ended. Given the fact that the plant does not have
to be in-service until October 1, 1995 to meet West Penn's needs, the
Financing Closing Date could occur as late as January 1, 1993 without
presenting a risk to West Penn's planning process. North Branch states that
the Commission should consider the environmental and economic benefits of
the Burgettstown Project, the substantial savings to ratepayers from the
Project, the inequity of not granting the extensions, the great effort and
expense incurred by the developers, and the reasonableness of the
modifications requested when reviewing North Branch's 5 Exception.
West Penn's Reply Exceptions state that the extensions entail risk to
ratepayers that West Penn will not have sufficient time to replace the
capacity at a reasonable cost if the Project fails to go in-service at a
time when the need is critical. West Penn asserts that projects of this
magnitude require years of lead time before construction
-49-
<PAGE>
commences. West Penn states that the developer has the ability to limit its
exposure and walk away from the Project at any time, while West Penn does
not have the same luxury with respect to its obligation to serve its
customers. West Penn states that the ALJ properly questioned whether forced
extensions of milestone dates in fully negotiated contracts for an
unpredictable period of time should take precedence over a utility's
obligation to serve.
Armco/Allegheny's Reply Exceptions argue that the Commission cannot
turn a negotiated PURPA contract into a non-negotiated PURPA contract if
the resulting contract is not in compliance with federal and state
regulations. Armco/Allegheny state that, if Burgettstown is no longer
satisfied with its FEPA, it is free to seek a non-negotiated agreement in
compliance with the state and federal regulations through the initiation of
a new proceeding at the Commission.
We will reverse the ALJ's recommendation on this issue. The
Burgettstown Project has been before us for approval since January 1988.
Due to unforseen events, primarily the issuance of the Commonwealth Court
decision in Barasch v. Pennsylvania Public Utility Commission, 119 Pa.
-------------------------------------------------
Commonwealth Ct. 81, 546 A.2d 1296 (1988) ("Milesburg") and the resulting
---------
necessity to initiate a bill insert notification procedure and evidentiary
hearings thereafter, resolution of this proceeding has been delayed
substantially. In essence,
-50-
<PAGE>
a proceeding that began as a request for a declaratory order evolved in a
vigorously contested rate proceeding that took over twice as long to
complete as a major general rate increase proceeding under 66 Pa. C.S.
(S)1308(d). At today's conclusion of the proceeding, we have affirmed the
ALJ's recommendation and found that the Burgettstown EEPA should be
approved as providing for rates that are at or below West Penn's avoided
costs. If we were to deny North Branch's request for modification to its
milestone dates, its EEPA with West Penn would expire by its own terms on
October 1, 1989. This result would be untenable, akin perhaps to a doctor
meticulously evaluating diagnostic procedures for a patient that died for
want of treatment.
In our view it is essential that regulatory delay in the proceeding be
recognized and reflected in our Order. To do otherwise would merely extend
an open invitation to interventions in opposition to future QF proceedings
since intervenors would realize that they could win by default, through the
passage of time alone, results that could not be won on the merits.
Although we are cognizant of West Penn's concerns regarding orderly
capacity planning, our failure to grant North Branch the requested
extension would leave an 80 MW shortfall in West Penn's generation plans.
If West Penn attempted to make up for the shortfall by beginning the
contract negotiation process anew with another developer, we would question
the fate of that contract as well in the face
- 51 -
<PAGE>
of probable opposition and a Commission policy against reflecting and
accounting for regulatory delay. To date North Branch has completed
substantial development work and the lengthy review process by The
Commission finally has been completed. North Branch is ready to proceed to
financing, barring any appeals of our Order. Therefore, to in essence "pull
the plug" on the Burgettstown Project at this late stage would inject the
very uncertainty in West Penn's generation plans that it seeks to avoid.
Similarly, it is no answer to, as Amco/Allegheny suggest, require North
Branch to begin anew with a new evidentiary proceeding to obtain a contract
with West Penn at rates established under the Commission's regulations. The
point of requiring North Branch to begin from square one with a complaint
proceeding requesting rates higher than the ones it has accepted is lost to
us, unless of course the point is to defeat this Project through a war of
attrition.
We therefore will grant North Branch's petition for modification and
extend the Financing Closing Date to six months after the issuance of a
final nonappealable Commission Order in this proceeding, with corresponding
adjustments to related contractual milestones. We also will grant North
Branch's August 21, 1989 Application for Stay of the Financing Closing Date
in recognition of the fact that, under Section 508, 66 Pa. C.S. (S)508, an
Order modifying a
-52-
<PAGE>
contractual provision does not take effect until thirty (30) days after it
is entered. Therefore, the effect of Section 10.2(c) of the EEPA will be
stayed pending the effective date of the portion of our Order granting the
contractual modifications.
C. Phase II - Milesburg
Docket No. P-870216.
--------------------
As stated above, Milesburg's contract has been before the Commission
and/or the Commonwealth Court since April 2, 1987. The issuance of the
Commonwealth Court's decision in Milesburg in August 1988 necessitated the
---------
preparation and mailing of a bill insert notice and the holding of hearings
before an ALJ. The ALJ has recommended, and we have adopted, an Order
affirming the reasonableness of the input assumptions utilized by West
Penn's in the calculation of its avoided costs.
The capacity credit of 3.3c/Kwh in the EEPA was based on an in-service
date in 1990. Milesburg's original Financing Closing Date of September 1,
1988 was extended to February 28, 1989 by a Consent Order entered into by
all parties and approved by the Commission on September 1, 1988. On
February 9, 1989 Milesburg filed a petition to, inter alia, further extend
----- ----
its Financing Closing Date. Although the ALJ issued an order on February
21, 1989 granting the petition, he rescinded it on February 27, 1989 in
recognition
- 53 -
<PAGE>
of the fact that it was issued without a hearing as required by Section 508
of the Public Utility Code, 66 Pa. C.S. (S)508. N.T. at 7. On March 3,
1989 Milesburg filed a Petition for the Issuance of an Interim Emergency
Order or Appeal of Judge Gesoff's February 27, 1989 Order. Milesburg
requested that the Commission issue an emergency order granting relief from
the Financing Closing Date of February 28, 1989 or, in the alternative,
reinstate the portion of the ALJ's February 21, 1989 Order that extended
the Financing Closing Date while remanding the issue to the ALJ for a
hearing on the merits. West Penn and Armco/Allegheny filed responsive
pleadings in opposition to Milesburg's March 3, 1989 emergency petition. By
Order entered March 31, 1989 the Commission denied Milesburg's request for
an Emergency Order but granted limited interlocutory review of the ALJ's
February 27, 1989 Order and required all parties to maintain the status quo
with respect to the EEPA pending consideration by the ALJ, and ultimately
the Commission, on Milesburg's February 9, 1989 petition for modification.
Our Order parenthetically noted that:
[I]t may be in the interests of West Penn and its ratepayers to retain
[Milesburg] under a Voluntary agreement setting forth a negotiated
rate for the sale of power. Absent a negotiated rate, [Milesburg] is
entitled to a capacity (and associated energy) rate determined in
accordance with our regulations. A key issue of first impression
would be the time frame to be utilized in determining [Milesburg's]
avoided cost-based rate. Although we express no opinion on this issue
at this time, our preliminary observation is that [Milesburg's]
situation may be distinctly different from the situation considered by
-54-
<PAGE>
us in Petition of Pagnotti Enterprises, Docket No. P-870281 (August
--------------------------------
19, 1988). In Pagnotti, a negotiated purchased power rate had been
--------
approved by the Commission on June 30, 1986, and our June 30, 1986
Order became final and nonappealable on July 30, 1986. The project
participants in that proceeding failed to meet, in large part, an
agreed-upon financing deadline of December 3l, 1986, which occurred
approximately five (5) months after the issuance of the final,
nonappealable order that is necessary for a project's financing. We
found in Pagnotti that, by missing the financing deadline, the project
--------
participants had waived their entitlement to rates based on
Pennsylvania Power & Light Company's ("PP&L's") avoided cost
projections as of the time that serious negotiations took place, and
that the project therefore was entitled to rates based on PP&L's
avoided costs projections as of January 1, 1987. In the instant
proceeding, [Milesburg] has never been the beneficiary of a final,
nonappealable Commission Order approving rate recovery of amounts
proposed to be paid by West Penn. In fact, [Milesburgs] agreement
with West Penn has been before the Commission and/or the Commonwealth
Court for nearly two years. Without a final nonappealable Commission
Order, a project such as [Milesburg's] cannot receive financing.
Therefore, it may be that, if asked to rule upon this issue of first
impression in Pennsylvania, we may determine that [Milesburg) has not
waived its entitlement to rates based on West Penn's avoided costs as
of the time that serious negotiations between West Penn and
[Milesburg] took place;
Order at 8-9.
The ALJ recommended that Milesburg's requests to extend its milestone
dates and to revise its capacity credit to reflect its delayed in-service
date be denied. In the event that the Commission reversed this
recommendation, the ALJ recommended that Milesburg's capacity credit be
recalculated by incorporating a change in West Penn's methodology to
reflect-monthly; as opposed to annual, payments.
- 55 -
<PAGE>
Milesburg excepted, stating that it has been clearly demonstrated that
the requested modified rates are at or below West Penn's avoided costs and
substantially below the rates to which Milesburg is entitled under the
regulations, and that the Project will bring considerable economic and
environmental benefits to Pennsylvania. Milesburg states that the requested
modified capacity rates are merely the rates that would have been available
to it had the delayed in-service date been anticipated. Milesburg asserts
that the ALJ's suggestion that Milesburg initiate another proceeding to
seek rates under the regulations is illogical because it would cost the
ratepayers more for power. Milesburg argues that there never was any intent
that the Commission intended to forego review of Milesburg's request,
notwithstanding the fact that its EEPA lapsed on February 28, 1989.
Milesburg points to language in the September 1, 1988 Consent Order as
indicative of an agreement among the parties that the Commission would
consider an extension beyond February 28, 1989. Milesburg further points to
the Commission's Order of March 31, 1989 as indicative of the Commission's
intent that the petition for modification be considered on the merits.
Milesburg avers that if the ALJ had correctly recognized the Commission's
intent and authority to modify the EEPA, the ALJ would have found the
modifications to be in the public interest. Milesburg takes specific
exception to the conclusion of the ALJ that there is no evidence on the
record upon which to conclude that West Penn is hostile to the Projects,
- 56 -
<PAGE>
since West Penn refused on two occasions to negotiate modifications to the
EEPA, and to the conclusion that West Penn would not have sufficient time
to replace the Milesburg capacity should it fail to go in-service.
Milesburg states that there is no evidence on the record that indicates
Milesburg would fail if its milestones were extended, or that West Penn
could not replace the Milesburg capacity. Milesburg states that arguably
ratepayers would be better off if the milestones were extended since they
would not pay for capacity until a date closer to 1995. Milesburg states
that it would be erroneous to deny the extensions based on the fact that
the Commission's Order may be appealed --rather, the modifications should
be decided on the merits as opposed to the fear of appeals by industrial
intervenors. Milesburg states it was incorrect to link consideration of the
request for milestone extensions with the request for capacity rate
modifications since each issue should be viewed separately on the merits.
Milesburg objects to the fact that the ALJ gave little consideration to the
fact that Milesburg has spent substantial time and money to advance its
Project, noting that adoption of the ALJ's recommendation would discourage
other developers from risking an undertaking in Pennsylvania.
With respect to the ALJ's recommendation to deny the request for
increased capacity rates, Milesburg notes that it is merely attempting to
duplicate the EEPA that
-57-
<PAGE>
would have been available to it under West Penn's methodology had the
regulatory delay been anticipated, and that it is not inconsistent with
the serious negotiations standard to use 1986 assumptions with a modified
in-service date for the Project. Finally, Milesburg objects to the ALJ's
conclusion that the September 1, 1989 Consent Order bars any modification
to the capacity credit since the rates requested are not in excess of the
rates in the EEPA corrected for the new in-service date.
With respect to the ALJ's recommendation to modify the methodology
utilized for calculating its capacity credit (in the event the Commission
ordered extensions to the milestones), Milesburg states that the reduction
would be in error since either the Commission's regulations or West Penn's
methodology at the time the EEPA was negotiated is the proper benchmark.
OCA's Exceptions regarding the portion of the R.D. pertaining to
modifications to capacity credits state that the ALJ's conclusion that the
notice issue would not bar an increase is in error. OCA states that notice
would have to be given if any significant increase to the originally
noticed EEPAs is granted. Armco/Allegheny similarly excepted to this
finding.
- 58 -
<PAGE>
West Penn's Reply Exceptions addressed Phase II issues for
Burgettstown and Milesburg together. A brief description of West Penn's
Reply Exceptions on the milestone extensions is set forth in the previous
section of this Order. With respect to the requested increase to the
capacity rates, West Penn states that Milesburg's argument that updating
the rate is not an increase is a strained reading of the Consent Order.
West Penn states that the EEPA automatically terminated on February 28,
1989 and that the Commission therefore has no authority under Section 508
to modify it. West Penn states that the Commission has no authority to
order a new contract because avoided costs must be determined at the time a
legally enforceable obligation is incurred. West Penn asserts that, since
the EEPA lapsed, it has no legally enforceable obligation.
OCA's Reply Exceptions do not address the request for extensions to
milestone dates. However, OCA supports the recalculation under West Penn's
revised methodology of Milesburg's capacity credit, stating that the
purpose of the proceeding is to determine West Penn's avoided costs and set
rates accordingly. With respect to Milesburg's request for an increase to
its capacity credit, OCA states that if rates are locked in as of the time
of serious negotiations they cannot be revised, and to do so would give the
QF the best of both worlds. Finally, OCA states that Milesburg's on-line
date of January 1990 was 33 months from the date West Penn's
- 59 -
<PAGE>
rate recovery petition was filed and that it is unlikely that the on-line
date would have been met under any circumstances.
Armco/Allegheny's Reply Exceptions state that Section 508 does not
empower the Commission to modify a contract that has lapsed and that an
increase to rates would violate the September 1, 1988 Consent Order.
The Projects' Reply Exceptions take issue with OCA's and
Armco/Allegheny's argument that an additional bill insert would be required
before granting an increase to the capacity credits. The Projects state
that the bill insert provided all interested parties with sufficient notice
of the nature of the hearing, and that the ratepayers are well represented
in these proceedings. The Projects state that a new notice is not required
by the Commission every time an impact is modified during the course of a
rate proceeding.
On Milesburg's Phase II issues, we reverse the ALJ. In our opinion the
resolution of these issues is clear. We agree with the ALJ that Milesburg's
EEPA has lapsed and that modification to the EEPA under Section 508 is a
moot point. Nevertheless, Milesburg has been endeavoring to obtain an
approved power purchase agreement with West Penn since 1986. Although West
Penn does not have a legally enforceable obligation to purchase power under
the lapsed
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1987 EEPA, it does have a legally enforceable obligation under PURPA 210 to
purchase Milesburg's power at rates determined in accordance with West
Penn's avoided cost projections in effect in 1986. The Commission has the
responsibility to enforce the provisions of PURPA 210 in Pennsylvania.
Milesburg has requested rates based on West Penn's methodology, which we
have determined to be the appropriate benchmark of avoided costs in these
proceedings. Milesburg has done nothing to waive its entitlement to rates
based on avoided costs as of the time of serious negotiations. Therefore,
it is our responsibility to require West Penn to enter into a new EEPA with
Milesburg, identical in terms with the lapsed EEPA, with extensions to the
milestone dates and revised capacity rates that reflect the Project's later
in-service date. Specifically, we will require a financing closing date six
months after the issuance of a final and nonappealable Order, with similar
extensions to related milestones. With respect to the capacity rates, we
find no inconsistency with reflecting the Project's later in-service date
in the calculation under West Penn's methodology. All of the inputs
regarding West Penn's avoided costs will remain the same. The in-service
date is not a component of West Penn's avoided costs, or the cost of the
300 MW coal unit, but a component in the calculation of the QF's ability to
defer or avoid West Penn's projected costs. West Penn's avoided costs do
-----
not change with changes in a Project's in-service date. Rather, a change in
the in-service date
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changes the capacity credit while keeping West Penn's avoided costs
------ -----
constant.
With respect to the issue of whether or not the Consent Order bars any
in-crease to Milesburg's capacity credit, a reasonable interpretation
thereof is that Milesburg agreed to forego an increase based on the six
month extension agreed upon by all of the parties. In other words, a
reasonable interpretation is that the quid pro quo for getting parties to
---- --- ---
agree to the limited six month extension was Milesburg's agreement not to
seek a capacity credit increase based on that particular six months.
Therefore, we will deduct six months from the anticipated financing and
construction period of 36-42 months and set the in-service date at 30
months past the issuance of a final and nonappealable Order in this
proceeding.
With respect to the use of the revised West Penn formula, we agree
with the ALJ that the capacity credit should be calculated using the
revision. West Penn "fine tuned" its methodology after the issuance of
price proposals to Milesburg. Since we are requiring the execution of a new
contract, the revision should be incorporated.
With respect to the suggestion of the ALJ that Milesburg be required
to seek a contract in a new evidentiary proceeding under the Commission's
regulations, we find that
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such a requirement would make no sense. Milesburg should not be denied
rates based on West Penn's methodology and forced to seek higher rates.
------
Moreover, requiring Milesburg to begin anew with another vigorously
contested proceeding likely would result in the abandonment of this
Project. For the policy reasons set forth in the section of the Order
addressing Burgettstown's Phase II proceeding, we find that a failure in
this proceeding to recognize and account for regulatory delay would have
consequences contrary to the public interest.
Finally, we agree with the ALJ's recommendation regarding the notice
issue. The original bill insert provided adequate notice to ratepayers of
the nature of these proceedings. We cannot help but note that all of the
active parties to these proceedings were before us before the preparation
and issuance of the bill insert. In other words, the bill insert elicited
no active parties. Therefore, a finding that a new bill insert would be
required before granting Milesburg's request for modified capacity-rates
would elevate form over substance; THEREFORE,
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Petition of West Penn Docket No.
Power Company Re: P-880283
Monongahela Lock and Dam
No. 8.
IT IS ORDERED:
1. That the Petition of West Penn Power Company ("West Penn") for
approval of an Electric Energy Purchase Agreement ("EEPA") with Noah
Corporation is granted.
2. That the rates established by the EEPA are approved as just,
reasonable, and in the public interest.
3. That West Penn is authorized to fully collect all costs paid
pursuant to the EEPA through the Energy Cost Rate ("ECR"), or such
mechanism as may replace the ECR in the future.
4. That capacity costs paid pursuant to the EEPA will be recovered
through the ECR on a demand/energy basis, the particular methodology for
which will be established in a separate proceeding that will be initiated
after receipt of an advisory report from the Commission's Bureau of Audits.
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5. - That-the addition of capacity under the EEPA does not result in
excess capacity under Section 1323 of the Public Utility Code as to the
capacity itself or as to any existing West Penn capacity.
BY THE COMMISSION,
\s\ Jerry Rich
------------------
Jerry Rich
Secretary
(SEAL)
ORDER ADOPTED: September 2l, 1989
ORDER ENTERED: September 29, 1989
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Petition of West Penn Docket No.
Power Company Re: P-880286
Shannopin Mine Project
IT IS ORDERED:
1. That the Petition of West Penn Power Company ("West Penn") for
approval of an Electric Energy Purchase Agreement ("EEPA") with Mon Valley
Energy Corporation is granted.
2. That the rates established by the EEPA are approved as just,
reasonable, and in the public interest.
3. That West Penn is authorized to fully collect all costs paid
pursuant to the EEPA through the Energy Cost Rate ("ECR"), or such
mechanism as may replace the ECR in the future.
4. That capacity costs paid pursuant to the EEPA will be recovered
through the ECR on a demand/energy basis, the particular methodology for
which will be established in a separate proceeding that will be initiated
after receipt of an advisory report from the Commission's Bureau of Audits.
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5. That the addition of capacity under the EEPA does not result in
excess capacity under Section 1323 of the Public Utility Code as to the
capacity itself or as to any existing West Penn capacity.
BY THE COMMISSION,
/s/ Jerry Rich
--------------------
Jerry Rich
Secretary
(SEAL)
ORDER ADOPTED: September 2l, 1989
ORDER ENTERED: September 29, 1989
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Petition of West Penn Docket No.
Power Company Re: P-880284
Burgettstown Project
IT IS ORDERED:
1. That the Petition of West Penn Power Company ("West Penn") for
approval of an Electric Energy Purchase Agreement ("EEPA") with North
Branch Energy Partners, L.P. ("North Branch") is granted.
2. That the Petition of North Branch for modification of its EEPA is
granted insofar as the Financing Closing Date will be extended to six
months after the issuance of a final and nonappealable Order in this
proceeding and related contractual milestones will be adjusted accordingly.
3. That North Branch's Application for Stay of the effect the
Financing Closing Date is granted.
4. That the rates established by the EEPA are approved as just,
reasonable, and in the public interest.
5. That West Penn is authorized to fully collect all costs paid
pursuant to the EEPA through the Energy Cost Rate ("ECR"), or such
mechanism as may replace the ECR in the future.
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6. That capacity costs paid pursuant to the EEPA will be recovered
through the ECR on a demand/energy basis, the particular methodology for
which will be established in a separate proceeding that will be initiated
after receipt of an advisory report from the Commission's Bureau of Audits.
7. That the addition of capacity under the EEPA does not result in
excess capacity under Section 1323 of the Public Utility Code as to the
capacity itself or as to any existing West Penn capacity.
BY THE COMMISSION,
/s/Jerry Rich
-------------------
Jerry Rich
Secretary
(SEAL)
ORDER ADOPTED: September 2l, 1989
ORDER ENTERED: September 29, 1989
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Petition of West Penn Docket No.
Power Company Re: P-870216
Milesburg Energy, Inc.
IT IS ORDERED:
1. That West Penn Power Company ("West Penn") is directed to enter
into an Electric Energy Purchase Agreement ("EEPA") with Milesburg Energy,
Inc. within thirty (30) days of the date on which this Order becomes final
and nonappealable. The terms and conditions shall be identical to the 1987
EEPA with the milestone extensions and capacity credit modifications set
forth in the foregoing Order.
2. That the rates established by the resulting EEPA are approved as
just, reasonable, and in the public interest.
3. That West Penn is authorized to fully collect all costs paid
pursuant to the EEPA through the Energy Cost Rate ("ECR"), or such
mechanism as may replace the ECR in the future.
4. That capacity costs paid pursuant to the EEPA will be recovered
through the ECR on a demand/energy basis, the particular methodology for
which will be established in a separate proceeding that will be initiated
after receipt of an advisory report from the Commission's Bureau of Audits.
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