SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number 1-13434
EDISON MISSION ENERGY
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4031807
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18101 VON KARMAN AVENUE
IRVINE, CALIFORNIA 92612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 752-5588
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Securities registered pursuant to Section 12(b) of the Act:
9-7/8% CUMULATIVE MONTHLY
INCOME PREFERRED SECURITIES, SERIES A * NEW YORK STOCK EXCHANGE
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(Title of Class) (name of each exchange on
which registered)
8-1/2% CUMULATIVE MONTHLY NEW YORK STOCK EXCHANGE
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INCOME PREFERRED SECURITIES, SERIES B * (name of each exchange on
---------------------------------------
(Title of Class) which registered)
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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(Title of Class)
___________________________
* Issued by Mission Capital, L.P., a limited partnership in which Edison
Mission Energy is the sole general partner. The payments of distributions
on the preferred securities and payments on liquidation or redemption
are guaranteed by Edison Mission Energy.
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 this Form 10-K X .
----
Aggregate market value of the registrant's Common Stock held by non-
affiliates of the registrant as of March 28, 1997: $0. Number
of shares outstanding of the registrant's Common Stock as of March 28,
1997: 100 shares (all shares held by an affiliate of the registrant).
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TABLE OF CONTENTS
Item Page
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PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 25
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters 25
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 27
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 28
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 37
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 37
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . . . . 70
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 75
12. Security Ownership of Certain Beneficial Owners and Management . . . . 83
13. Certain Relationships and Related Transactions . . . . . . . . . . . . 84
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . 84
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
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PART I
ITEM 1. BUSINESS
THE COMPANY
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Edison Mission Energy (EME), through its subsidiaries, is engaged in the
business of developing, acquiring, owning and operating independent electric
power generation facilities. EME is a wholly owned subsidiary of The Mission
Group, which is a wholly owned, non-utility subsidiary of Edison International.
Edison International is also the parent holding company of Southern California
Edison Company (SCE), one of the largest electric utilities in the United
States.
EME was formed in 1986 with two domestic operating projects. Currently, EME
owns interests in 28 domestic and 24 international operating electrical power
generation facilities with an aggregate generating capacity of 7,549 megawatts
(MW), of which EME's share is approximately 4,706 MW. Two international projects
totaling 1,742 MW of generating capacity (of which EME's anticipated share is
approximately 743 MW) are currently in the construction stage. At December 31,
1996, the Company had consolidated assets of $5.2 billion and total
shareholder's equity of $1 billion.
EME is incorporated under the laws of the State of California. Its
headquarters and principal executive offices are located at 18101 Von Karman
Avenue, Suite 1700, Irvine, California 92612, and its telephone number is (714)
752-5588. Unless indicated otherwise or the context otherwise requires,
references in this Annual Report on Form 10-K to EME shall be deemed to include
EME, its subsidiaries and the partnerships or limited liability entities through
which EME and its partners own and manage their project investments.
SEGMENT INFORMATION
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EME operates in only one industry segment: independent electric power
generation.
DESCRIPTION OF BUSINESS
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GENERAL OVERVIEW
EME is one of the leading independent producers of electricity worldwide.
Through its subsidiaries, EME is engaged in the business of developing,
acquiring, owning and operating independent electric power generation
facilities. EME was formed in 1986 with two domestic operating projects.
Currently, EME owns interests in 28 domestic and 24 international operating
electrical power generation facilities.
Until the enactment of the Public Utility Regulatory Policies Act of 1978
(PURPA), utilities were the only producers of bulk electric power intended for
sale to third parties in the United States. PURPA encouraged the development of
independent power by removing regulatory constraints relating to the production
and sale of electric energy by certain non-utilities and requiring electric
utilities to buy electricity from certain types of non-utility power producers
(qualifying facilities or QFs) under certain conditions. The passage of the
Energy Policy Act of 1992 (the Energy Policy Act) further encouraged the
development of independent power by significantly expanding the options
available to independent power producers (IPPs) with respect to their regulatory
status and by liberalizing transmission access. As a result, a significant
market for electric power produced by IPPs, such as EME, has developed in the
United States since the enactment of PURPA.
The movement toward privatization of existing power generation capacity in
many foreign countries and the growing need for new capacity in developing
countries have also led to the development of significant new markets for IPPs
outside the United States. EME believes that it is well-positioned to continue
to realize opportunities in these new foreign markets. See "--Strategy" below.
STRATEGY
EME's business strategy is to play an active role, as a long-term owner, in
all phases of power generation, from planning and development through
construction and commercial operation. EME believes that such involvement
allows EME to better ensure, through the use of its experienced personnel, that
its projects are well-planned, structured and managed.
In making investment decisions, EME evaluates potential project returns
against rate of return guidelines. EME establishes these guidelines by
identifying a base rate of return and adjusting the base rate by potential risk
factors, such as risks associated with anticipated project reliability, project
location and stage of project development. EME endeavors to mitigate project
development risk by (i) selecting partners with complementary skills and local
experience, (ii) structuring investments through subsidiaries, (iii) managing
up-front development costs and (iv) linking revenue and expense components where
appropriate. Many of EME's projects are operated by its subsidiaries or
affiliates (e.g., Edison Mission Operation and Maintenance, Inc. - Edison
Mission O&M), which seeks to preserve and enhance the value of EME's
investments.
In response to increasing globalization of the independent power market, EME
has organized its operations and development activities into three geographic
divisions: (i) Americas, (ii) Asia Pacific and (iii) Europe, Central Asia,
Middle East and Africa. Each division is served by one or more teams consisting
of business development, operations, finance and legal personnel, and each team
is responsible for all the activities of EME within a particular geographic
region. Also, EME has mobilized personnel from outside a particular region when
needed in order to assist in the development of certain projects.
Set forth below is a brief discussion of the current strategy for each of
the three regions and a summary of certain of EME's projects that are currently
in the construction, development, pre-finance or early operations stage in each
of the regions. While EME anticipates the successful completion of these
projects, no assurance can be given that any of these projects, or any other
projects currently in the construction stage, development or pre-finance stage,
will be successfully completed or financed or that the expected MW capacity (and
EME's anticipated share thereof) will be achieved. See"--Project Development--
Certain Considerations Associated with Project Development, Finance and
Operation".
Americas
The Americas division is comprised of the U.S./Canada and Latin America
region headquartered in Irvine, California. The strategy for the U.S./Canada and
Latin America region is to (i) manage certain operating independent power
projects located throughout the United States, (ii) pursue the acquisition of
existing generating assets from utilities, industrial companies and other IPPs
and (iii) pursue the development of new power projects throughout the region.
EME has 28 operating projects in this region. For further information regarding
EME's 28 domestic operating projects, see"--EME's Operating Power Generation
Facilities--Description of Domestic Operating Projects."
Asia Pacific
The Asia Pacific division is headquartered in Singapore with additional
offices located in Australia and Indonesia. Among the three geographic
divisions, the countries covered by the Asia Pacific division are expected to
experience the fastest electric demand growth. Most governments in the region do
not have the capability or resources to finance and develop new generating
capacity and are looking to the private sector to meet a portion of the need for
new power generation facilities.
The strategy for this region is to (i) pursue projects in countries where
there exists strong political commitment and the structural framework necessary
for private power, (ii) seek opportunities to employ indigenous fuels and (iii)
seek strategic, complementary alliances with partners who bring value to the
project by providing fuel, equipment and construction services.
EME's activity in the Asia Pacific region commenced in December 1992 with
the acquisition of a 51% interest in the Loy Yang B Power Station, Australia's
first electric privatization effort. The remaining 49% of the power station is
owned by the State of Victoria. The first of two 500-MW units at Loy Yang B
began commercial operations in October 1993. Unit 2 commenced commercial
operations in October 1996. An EME affiliate provides operation and maintenance
services for both units.
In April 1995, EME and its partners, Mitsui & Co. Ltd., General Electric
Corporation and P.T. Batu Hitam Perkasa, an Indonesian limited liability
company, commenced construction of the $2.5 billion Paiton project, a 1,230-MW
coal-fired power plant in East Java, Indonesia. The project will consist of two
units, each of which is expected to have a capacity of 615 MW. Construction of
the plant continues on schedule, with commercial operation expected in early
1999. In January 1996, EME purchased an additional 7.5% interest in the Paiton
project from a subsidiary of General Electric Corporation, thereby increasing
its ownership interest to 40%.
Kwinana is a $108 million 116-MW gas-fired cogeneration project located at
the British Petroleum Kwinana refinery near Perth, Australia. The project,
which is 100% owned by EME, began commercial operations in December 1996. The
project supplies electricity to Western Power (formerly the State Electricity
Commission of Western Australia) and both electricity and steam to the British
Petroleum Kwinana refinery.
In June 1995, EME (40% ownership), along with its partners, Siam City Cement
(30% ownership) and Lanna Lignite (30% ownership), submitted a bid to develop a
734-MW coal-fired power generation project at Kui Buri in Thailand in response
to a request for proposals from the Electricity Generating Authority of Thailand
(EGAT). In December 1996, the project was selected by EGAT. Negotiation of the
power purchase agreement and other project documents is currently underway, with
commercial operations expected to commence in 2001.
In January 1997, the San Pascual project, a consortium including EME (37.5%
ownership), Texaco Inc. (37.5% ownership), Caltex (10% ownership) and others
(15% ownership), was awarded a contract to develop a 304-MW low-sulfur residual
fuel oil cogeneration project in the Philippines. Commercial operations are
expected to commence in 2001.
Asia Pacific regional management is also considering other opportunities in
this region.
Europe, Central Asia, Middle East and Africa
The European organization is headquartered in London, England with
additional offices located in Barcelona, Spain and Rome, Italy. The London
office was established in 1989, concurrent with the privatization of the power
industry in the United Kingdom. The territorial scope of the region includes
Europe, Africa, the Middle East, India and Pakistan. The region is characterized
by a blend of both mature and less developed markets. The regional strategy is
to pursue the development and acquisition of medium to large scale power and
cogeneration facilities with diversified fuel sources and generation technology.
EME's operating projects in the region are the First Hydro project located
in North Wales, the Roosecote project in northwest England, the Derwent project
located in Derby, England and the Iberian Hy-Power projects (which consist of 18
small, hydroelectric facilities) in Spain.
Iberian Hy-Power I was acquired in December 1992, and Iberian Hy-Power II
was acquired in August 1993. In January 1996, EME purchased the remaining equity
stake in Iberian Hy-Power Amsterdam B.V., increasing its ownership percentage to
approximately 100% (minority interests are owned in three of the projects by
third parties).
In December 1995, First Hydro Finance Plc (First Hydro Finance), an indirect
subsidiary of EME, purchased all of the outstanding shares of First Hydro
Company (First Hydro, formerly First Hydro Limited) for approximately $1 billion
(653 million pounds sterling). First Hydro's principal assets consist of two
pumped-storage electric power stations located in North Wales at Dinorwig and
Ffestiniog, which have a combined capacity of 2,088 MW. The Dinorwig station,
which was commissioned in 1983, comprises six units totaling 1,728 MW. The
Ffestiniog station was commissioned in 1963 and comprises four units totaling
360 MW. First Hydro is an independent generating company with three main
sources of revenues: (i) selling power into the electricity trading market or
"pool" in England and Wales, (ii) providing system support services to The
National Grid Company plc, and (iii) selling its installed capacity forward by
entering into "contracts for differences" with large electricity suppliers.
In June 1995, EME (49% ownership) and its partner, ISAB S.p.A. (51%
ownership), signed a twenty-year power purchase contract with ENEL S.p.A.,
Italy's state electricity corporation, pursuant to which ENEL S.p.A. will
purchase 507 MW of output from the 512-MW ISAB power project, which is located
near Siracusa in Sicily, Italy. The project will employ gasification technology
to convert heavy oil residues from the ISAB refinery in Priolo Gargallo into
clean-burning syngas that will be used to generate electricity in a combustion
turbine. The approximately 2 trillion lira ($1.3 billion) project financial
closing was completed in April 1996 with construction commencing in July 1996.
Commercial operation is expected in late 1999.
In February 1995, EME (80% ownership) signed a shareholders agreement to
develop the $180 million Doga Enerji A.S. project in Esenyurt, near Istanbul,
Turkey. The 180-MW combined cycle gas-fired cogeneration facility is expected
to commence commercial operations in 1998.
PROJECT DEVELOPMENT
The development of power generation projects involves numerous elements,
including evaluating and selecting development opportunities, designing and
engineering the project, obtaining power sales agreements and, in some cases,
steam sales agreements, acquiring necessary land rights, permits and fuel
resources, obtaining financing and managing construction.
EME initially evaluates and selects potential development projects based on
a variety of factors, including whether a project is based on a proven
technology, the strength of the potential partners in the project, the
feasibility of the project, the likelihood of obtaining a power sales agreement,
the probability of obtaining required licenses and permits and the projected
economic return from the project. During the development process, EME monitors
the viability of the project and makes business judgments concerning
expenditures for both internal and external development costs. Completion of the
financing arrangements for a project is generally an indication that business
development activities are substantially complete.
Although EME has in the past been successful in developing projects with
long-term contracts and arranging for necessary permits and approvals, there can
be no assurance that EME will continue to be successful in doing so in the
future. EME believes that future market conditions for independent power,
particularly in the United States, may become increasingly characterized by
shorter-term power sales agreements or spot sales arrangements. Under such
circumstances, EME may be required to take on increased market or "merchant"
risk and, accordingly, may not be able to achieve the same degree of leverage
from project finance lenders.
Project Type
The selection of power generation technology for a particular project is
influenced by various factors, including regulatory requirements, availability
of fuel and anticipated economic advantages for a particular application. The
principal technology used in EME's operating projects has been gas-fired
combustion turbine technology, predominately through an application known as
"cogeneration". Cogeneration facilities sequentially produce two or more useful
forms of energy (e.g., electricity and steam) from a single primary source of
fuel (e.g., natural gas or coal). Many of EME's cogeneration projects are
located near large industrial steam users or in oil fields that inject steam
underground to enhance recovery of heavy oil. The regulatory advantages for
cogeneration facilities under PURPA have become less significant because of
expanded project options made available to IPPs under the Energy Policy Act.
Accordingly, although cogeneration applications may hold advantages in specific
circumstances, EME expects that the majority of its future projects will
generate power without selling steam to industrial users.
EME also has interests in projects that use renewable resources such as
geothermal and hydroelectric energy. EME's geothermal projects use technologies
that convert the heat from geothermal fluids and underground steam into
electricity. EME's hydroelectric projects, excluding First Hydro, use "run-of-
the-river" technology to generate electricity. The First Hydro project utilizes
pumped-storage stations which consume electricity when it is comparatively less
expensive in order to pump water up for storage in an upper reservoir. Water is
then allowed to flow back through turbines in order to generate electricity when
its market value is higher. This type of generation is characterized by its
speed of response, its ability to work efficiently at wide variations of load
and the basic reliance of revenue on the difference between the peak and trough
prices of electricity during the day.
Recent international development efforts include large scale, coal-fired
projects that will shift EME's portfolio to a greater mix of coal-fired
generation technology. In the United States, EME has developed coal and waste
coal-fired projects that employ both traditional stoker technology as well as
circulating fluidized bed technology.
Power and Steam Sales Contracts
The electrical power generated by EME's operating projects in the U.S. is
generally sold to domestic electric utilities pursuant to long-term (typically,
15 to 30 year) power sales contracts. The electrical power generated overseas,
excluding the U.K., is sold primarily under long-term power sales contracts to
electric utilities located in the country where the power is generated. A
project's revenue from a power sales contract usually consists of two
components: energy payments and capacity payments. Energy payments are generally
based on actual deliveries of electric energy (e.g., kilowatt-hours) to the
purchasing utility. Energy payment rates are usually indexed to certain variable
costs that the purchasing utility avoids by purchasing such electric energy
directly as opposed to operating its own power plant(s) to produce the same
amount of electric energy. The variable components typically include the fuel
cost and certain operation and maintenance expenses. These costs may be indexed
to the utility's cost of fuel and/or certain inflation indices. Energy payments
may also be time-differentiated to provide relatively higher payments for
electric energy delivered during periods of peak electricity demand. Capacity
payments are generally based on a project s proven capability to deliver
reliable electric energy, whether or not the plant is called on to operate.
Capacity payment rates are usually associated with certain fixed costs that the
purchasing utility avoids by having the independent power producer build and
maintain the availability of a power plant. To receive capacity payments, there
are typically minimum performance standards that must be met and often there is
a performance range that further influences the amount of capacity payments.
EME's power sales contracts are typically negotiated during the planning
stage of a project. In negotiating the power sales contracts, EME attempts to
secure long-term contracts that are expected to result in consistent cash flow
under a wide range of economic and operating circumstances. To accomplish this,
EME structures the revenue provisions of the power sales contract so that
changes in the cost components of a facility (e.g., fuel costs) will correspond
to, as effectively as possible, similar changes in the revenue components of the
contract.
In addition to entering into a power sales agreement, EME must make
arrangements to interconnect its project to a local utility's electric system.
The arrangement is typically evidenced through an interconnection agreement that
sets forth the provisions for construction, payment and technical requirements
for the interconnection facilities. In some cases, the project will interconnect
with a utility system that is not the ultimate purchaser of electric power. In
such circumstances, the project must arrange for the local utility to transmit
or "wheel" its power to the ultimate purchaser.
Projects in the U.K. sell their electrical energy and capacity through a
centralized electricity pool, which establishes a half-hourly clearing price
(also referred to as the "pool price"). The half-hourly pool price is extremely
volatile and can vary by as much as a factor of ten or more over the course of a
few hours, due to the large differentials in demand according to the time of
day. First Hydro mitigates a portion of the market risk of the pool by entering
into contracts for differences (electricity rate swap agreements), related to
either the selling or purchasing price of power, whereby a contract specifies a
price at which the electricity will be traded, and the parties to the agreement
make payments, calculated based on the difference between the price in the
contract and the half-hourly pool clearing price for the element of power under
contract. These contracts can be sold in two structures: one-way contracts, the
most commonly used by First Hydro, where a specified monthly amount is received
in advance and difference payments are made when the pool price is above the
price specified in the contract, and two-way contracts, where the counter party
pays First Hydro when the pool price is below that in the contract instead of a
specified monthly amount. These contracts act as a means of stabilizing
production revenues or purchasing costs by removing an element of First Hydro's
net exposure to pool price volatility. The Roosecote project has avoided the
pool price volatility by entering into a long-term power sales contract that
provides for contract pricing. The Roosecote project's power sales contract
provides for the escalation of capacity payments according to an inflation index
for the U.K.
Steam produced from EME's cogeneration facilities is sold to industrial
steam users, such as petroleum refineries or companies involved in the enhanced
recovery of oil through steam flooding of oil fields, under long-term steam
sales contracts. Steam sales contracts typically require the purchaser to take
at least the minimum amount of steam necessary for the project to retain its QF
status under PURPA.
Steam payments are generally based on formulas that reflect the cost of
water, fuel and capital. In some cases, EME has provided steam purchasers with
discounts from their previous cost for producing such steam and/or partially
indexed steam payments to other indices including certain oil prices.
Fuel Supply Contracts
EME seeks to enter into long-term fuel supply and transportation agreements.
Market prices for oil, gas and coal historically have fluctuated significantly.
EME believes, however, that its financial condition will not be substantially
adversely affected by such fluctuations because its long-term contracts to sell
power and steam typically are structured so that fluctuations in fuel costs will
produce similar fluctuations in electric energy and/or steam revenues. The
degree of linkage between such revenues and expenses varies from project to
project, but generally permits the projects to operate profitably under a wide
array of potential price fluctuation scenarios.
Project Financing
Each power generation project developed by EME requires a substantial
capital investment. The permanent project financing for a project is often
arranged immediately prior to or during the early stages of construction of the
project. With limited exceptions, such debt financing is for approximately 60 to
80% of each project's costs and is expected to be structured, on a basis that is
nonrecourse to EME and its other projects. In addition, the collateral security
for each project's financing generally has been limited to the physical assets,
contracts and cash flow of that project.
In general, each of EME's direct or indirect subsidiaries is organized as a
legal entity separate and apart from EME and its other subsidiaries. Any asset
of any such subsidiary may not be available to satisfy the obligations of EME or
any of its other such subsidiaries; provided, however, that unrestricted cash or
other assets which are available for distribution may, subject to applicable law
and the terms of financing arrangements of such parties, be advanced, loaned,
paid as dividends or otherwise distributed or contributed to EME or affiliates
thereof.
The ability to arrange for financing and the cost of such financing are
dependent upon numerous factors, including general economic and capital market
conditions, conditions in energy markets, regulatory developments, credit
availability from banks or other lenders, investor confidence in the industry,
EME and other project participants, the continued success of EME's current
projects, and provisions of tax and securities laws that are conducive to
raising capital.
To obtain project financing, EME and its partners are sometimes required to
provide certain guarantees and warranties to lenders, particularly with respect
to construction financing. However, because permanent financing is usually
arranged on a nonrecourse basis, EME's liability is generally substantially
reduced when construction has been completed and the project has passed all
acceptance tests. EME's financial exposure in any project is generally limited
by contractual arrangement to its equity commitment, which is usually about 20
to 40% of EME's share of the aggregate project cost. In addition, the project
loan agreements are generally structured so that a default under one project
loan agreement will have no effect on the loan agreements of other EME projects.
Permits and Approvals
Because the process for obtaining initial environmental, siting and other
governmental permits and approvals is complicated and lengthy (often taking a
year or longer), EME seeks to obtain all permits, licenses and other approvals
required for the construction and operation of the project, including siting,
construction and environmental permits, rights-of-way and planning approvals,
early in the development process. See "Certain Regulatory Matters--General".
Construction and Implementation
In the project implementation stage, EME provides project and construction
management and start-up and testing services. The detailed engineering and
construction of the projects typically are done by outside contractors under
fixed-price, "turnkey" contracts. Under such contracts, the contractor
generally is required to pay liquidated damages to EME in the event of cost
overruns or schedule delays or if the facility fails to meet certain capacity,
efficiency and emission standards.
As a project goes into operation, EME generally provides operation and
maintenance services to the project through Edison Mission O&M or contracts for
services with another operation and maintenance contractor. The day-to-day
operation of each project is generally managed by an executive director.
Management committees comprised of the project partners generally meet monthly
or quarterly to review and manage the operating performance of each project.
Certain Considerations Associated with Project Development, Finance and
Operation
Independent power projects are necessarily subject to a variety of
commercial, financial and other risks, including those described below. By
managing, or participating in the management of each project in which it
invests, EME seeks to hedge, insure against or otherwise manage these risks.
EME attempts to minimize the financial risk in the development of a project
by securing a favorable long-term power sales agreement, obtaining all required
governmental permits and approvals and arranging adequate financing prior to
the commencement of construction. However, the development of a power project
may require EME to expend significant sums for preliminary engineering,
permitting and legal and other expenses before it can determine whether a
project is feasible, economically attractive or financeable. Power sales
agreements often enable the utility to terminate such agreement, or to retain
security posted by the developer as liquidated damages, in the event that a
project fails to achieve commercial operation or certain operating levels by
specified dates or fails to meet other significant contractual requirements.
Furthermore, utility regulators or other parties may attempt to abrogate or
amend contracts under which a project is entitled to receive material revenues
or other benefits. If such events were to occur, the default provisions in a
financing agreement could be triggered (rendering such project debt immediately
due and payable) and, as a result, EME could lose its interest in the project.
Although contractual and regulatory risks cannot be eliminated, EME believes
that it has relevant experience in developing contracts and mitigating
regulatory concerns.
Certain geographic areas in which EME operates and is developing projects
are subject to frequent earthquakes of low intensity, and earthquakes of greater
intensity are possible. EME's existing power generation facilities are built to
withstand earthquakes of relatively significant intensity and EME believes it
maintains adequate insurance protection for such occurrences and other
catastrophic events.
The operation of a project involves many risks, including start-up problems,
the breakdown or failure of equipment or processes, performance below expected
levels of output and the inability to meet expected efficiency standards. EME
takes steps to mitigate these risks by obtaining equipment and plant warranties
and arranging for insurance that it believes is adequate. Nonetheless, these
measures may not be adequate to cover lost revenues or increased expenses and,
as a result, a project may be unable to fund principal and interest payments
under its financing obligations and may operate at a loss. A default under such
a financing obligation could result in EME losing its interest in such power
generation facility. EME believes, however, that it will continue to maintain a
successful record of plant performance and operation.
EME's operations are conducted through its subsidiaries and EME's cash flow
is dependent upon the operating revenues of its subsidiaries and the ability of
those subsidiaries to pay cash dividends or make distributions to EME. Financing
agreements for EME's subsidiaries and affiliates generally place certain
limitations on the ability of those subsidiaries and affiliates to pay
dividends, make distributions or otherwise transfer funds to EME. In addition,
financing agreements for EME's subsidiaries and affiliates, although generally
nonrecourse to EME, contain certain representations, warranties, covenants and
other agreements that, if not met, could lead to a default under such financing.
After a default under a project financing, project lenders may exercise certain
rights and remedies typically granted to secured parties, including the ability
to take control of the project's collateral assets.
The financing and development of international projects entail additional
political and financial risks including uncertainties associated with
privatization efforts, currency exchange rates, currency repatriation, political
instability and other issues that have the potential to cause delays or
impairment of value to the project being developed for which EME may not be
fully capable of insuring against. The uncertainty of the legal structure in
certain foreign countries in which EME may develop or acquire projects could
make it more difficult to enforce its rights under agreements relating to such
projects. In addition, the laws and regulations of certain countries may limit
the ability of EME to hold a majority interest in some of the projects that it
may develop or acquire. Although the risks of participation in international
markets are significant, EME targets relatively higher rates of return on its
international investments and mitigates risk by seeking complementary alliances
with well-established partners and hedging foreign exchange exposure where it
deems appropriate.
OPERATION AND MAINTENANCE SERVICES
Certain EME subsidiaries provide specialized operating, maintenance, testing
and start-up services for EME-owned projects. At December 31, 1996, Edison
Mission O&M or affiliates had a total of 661 employees and operated 37 of EME's
projects totaling 5,161 MW of capacity.
The projects that Edison Mission O&M operates have achieved an average 97%
capacity factor during 1996. Capacity factor is a measure of the total electric
energy actually delivered by a project as a percentage of the electric energy
that would have been delivered if the project operated continuously at its
design or capacity rating.
EME'S OPERATING POWER GENERATION FACILITIES
Domestic Overview
EME currently owns interests in 28 domestic operating projects in nine
states. These operating projects consist of 18 natural gas cogeneration
projects, one coal cogeneration project, one waste coal project, five geothermal
projects and three gas-fired EWG (as defined herein) projects. All of EME's
domestic cogeneration and geothermal projects, as well as the waste coal
project, are qualifying facilities under PURPA. EME's domestic operating
projects have total generating capacity of 3,825 MW, of which EME's net
ownership share is 1,662 MW.
Each of EME's projects generally relies on one power sales contract with a
single electric utility customer for the majority, and in some cases all, of its
power sales revenues over the life of the power sales contract. The primary
power sales contracts for eight of EME's operating projects are with SCE. EME's
share of revenues from these projects accounted for 17% and 29% of EME's
consolidated revenues in 1996 and 1995, respectively. The failure of SCE to
fulfill its contractual obligations could have a substantial negative impact on
a primary source of EME's revenues. Under the terms of an agreement between SCE
and the Office of Ratepayer Advocates (ORA), the consumer advocacy branch of the
California Public Utility Commission (CPUC), SCE is prohibited from entering
into future power sales contracts with EME or its affiliates without ORA and
CPUC consent. The terms of the agreement, however, do not affect the terms of
the existing power sales contracts between EME and SCE.
EME's geothermal projects have power sales agreements that provide for
energy payments that escalate at predetermined rates during the first 10 years
of plant operation. After the initial 10-year period, the energy payments will
be based on rates published monthly by the purchasing utility that reflect its
cost for natural gas and/or oil. Based on current forecasts of natural gas and
oil prices, EME expects the energy payment rate to drop substantially after the
initial 10-year period, as experienced by one project. Accordingly, cash
distributions received from these projects are recorded as reductions in the
equity investments. Future cash distributions are estimated to be sufficient to
recover the remaining geothermal investment balances. In April 1996, CalEnergy
Company, Inc., EME's partner in four operating geothermal projects in
California, purchased all of the stock of four wholly owned subsidiaries of EME,
which held 50% interests in these projects. The purchase price of $70 million
resulted in a pre-tax gain of $20 million. There will be no impact on EME's
future revenues as EME discontinued recognizing earnings from these projects
during 1993.
Fuel supply for EME's projects generally is arranged through third-party
suppliers and transporters. The March Point 1 and March Point 2 projects are
currently the only projects that receive fuel from oil and gas properties in
which EME has an ownership interest. Under a 15-year arrangement, B.C. Star
Partners (B.C. Star, 50%-owned by EME) provides five million cubic feet per day
of gas to the March Point 1 and March Point 2 projects through gas marketing
intermediaries. This volume of gas represents approximately 15% of the projects
total fuel requirement. On March 4, 1997, EME entered into an agreement to sell
its ownership interest in B.C. Star. This transaction is expected to close on
or about April 30, 1997. See "--Oil and Gas Investments".
Description of Domestic Operating Projects
<TABLE>
EME has ownership interests in the following domestic operating projects:
<CAPTION>
ELECTRIC PRIMARY OPERATION/
CAPACITY ELECTRIC TYPE OF OWNERSHIP ACQUISITION
PROJECT LOCATION (in MW) PURCHASER<F3> FACILITY<F4> INTEREST DATE
------- -------- -------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Aidlin<F1> Cloverdale, California 20 PG&E Geothermal 5% 1990
American Bituminous<F2> Grant Town, West Virginia 80 MPC Waste Coal 50% 1993
Auburndale<F2> Polk County, Florida 150 FPC Cogeneration 50% 1994
Bayonne Bayonne, New Jersey 165 JCP&L/PSE&G Cogeneration 0.38% 1989
Beowawe North Central, Nevada 15 SCE Geothermal 50% 1985
Brooklyn Navy Yard Brooklyn, New York 286 CE Cogeneration 50% 1996
Coalinga<F2> Coalinga, California 38 PG&E Cogeneration 50% 1991
Commonwealth Atlantic Chesapeake, Virginia 340 VEPCO EWG 50% 1992
GEO East Mesa<F1,F2> Holtville, California 40 SCE Geothermal 50% 1989
Gordonsville<F2> Gordonsville, Virginia 240 VEPCO EWG 50% 1994
Harbor<F2> Wilmington, California 80 SCE Cogeneration 30% 1989
Hazleton Hazleton, Pennsylvania 131 --- Cogeneration 11.25% 1989
Hopewell Hopewell, Virginia 356 VEPCO Cogeneration 25% 1990
James River Hopewell, Virginia 110 VEPCO Cogeneration 50% 1987
Kern River<F2> Oildale, California 300 SCE Cogeneration 50% 1985
Lost Hills Lost Hills, California 10 PG&E Cogeneration 46.85% 1989
March Point 1 Anacortes, Washington 80 PSE Cogeneration 50% 1991
March Point 2 Anacortes, Washington 60 PSE Cogeneration 50% 1993
Mid-Set<F2> Fellows, California 38 PG&E Cogeneration 50% 1989
Midway-Sunset<F2> Fellows, California 225 SCE Cogeneration 50% 1989
Nevada Sun-Peak Las Vegas, Nevada 210 NVP EWG 50% 1991
Saguaro<F2> Henderson, Nevada 90 NVP Cogeneration 50% 1991
Salinas River<F2> San Ardo, California 38 PG&E Cogeneration 50% 1991
Sargent Canyon<F2> San Ardo, California 38 PG&E Cogeneration 50% 1991
Sycamore<F2> Oildale, California 300 SCE Cogeneration 50% 1988
Watson Carson, California 385 SCE Cogeneration 49% 1988
<FN>
<F1> Consists of two projects on the same site.
<F2> Operated by Edison Mission O&M.
<F3> Electric purchaser abbreviations are as follows:
CE Consolidated Edison Company of New York, Inc. PG&E Pacific Gas & Electric Company
FPC Florida Power Corporation PSE Puget Sound Energy
JCP&L Jersey Central Power & Light Company PSE&G Public Service Electric & Gas Company
MPC Monongahela Power Company SCE Southern California Edison Company
NVP Nevada Power Company VEPCO Virginia Electric & Power Company
<F4> All of the cogeneration projects are gas-fired facilities, except for the James River project, which uses coal.
</FN>
</TABLE>
International Overview
EME owns interests in 24 operating projects outside the United States. The
total generating capacity of such facilities is 3,724 MW, of which EME's net
ownership share is 3,044 MW.
Description of International Operating Projects
<TABLE>
EME has ownership interests in the following international operating
projects:
<CAPTION>
ELECTRIC PRIMARY OPERATION/
CAPACITY ELECTRIC OWNERSHIP ACQUISITION
PROJECT LOCATION (IN MW) PURCHASER<F2> INTEREST DATE
------- -------- -------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Alos<F1> Spain 5 FECSA 100% 1993
Bocos<F1> Spain 2 FECSA 100% 1993
Castellas<F1> Spain 2 FECSA 100% 1993
Derwent<F1> England 214 SE<F4> 33% 1995
Dinorwig<F1> Wales 1,728 Pool 100% 1995
Ffestiniog<F1> Wales 360 Pool 100% 1995
Gelsa<F1> Spain 7 FECSA 100% 1993
Kwinana<F1> Australia 116 WP 100% 1996
La Flecha<F1> Spain 3 FECSA 100% 1993
La Ribera<F1> Spain 4 FECSA 100% 1993
Logrono<F1> Spain 4 FECSA 100% 1993
Loy Yang B Unit 1 & Unit 2<F1> Australia 1,000 SECV 51% 1993, 1996
Mendavia<F1> Spain 6 FECSA 100% 1993
Menuza<F1> Spain 16 FECSA 90.1% 1992
Monasterio<F1> Spain 2 FECSA 100% 1993
Olvera<F1> Spain 2 FECSA 100% 1992
Quintana<F1> Spain 1 FECSA 100% 1993
Roosecote England 220 NORWEB<F3> 80% 1992
Sardon Bajo<F1> Spain 2 FECSA 100% 1993
Sastago I<F1> Spain 3 FECSA 90.1% 1992
Sastago II<F1> Spain 17 FECSA 90.1% 1992
Sossis<F1> Spain 4 FECSA 100% 1992
Toro<F1> Spain 5 FECSA 100% 1993
Tudela<F1> Spain 1 FECSA 100% 1993
<FN>
<F1> Operated by Edison Mission O&M
<F2> Electric purchaser abbreviations are as follows:
FECSA Fuerzas Electricas de Cataluma, S.A. Pool Electricity trading market for England & Wales
NORWEB North Western Electricity Board SE Southern Electric plc.
SECV State Electricity Commission of Victoria WP Western Power
<F3> Sells to the pool with a long-term contract with NORWEB
<F4> Sells to the pool with a long-term contract with SE
</FN>
</TABLE>
OIL AND GAS INVESTMENTS
In 1988, EME formed a wholly owned subsidiary, the Mission Energy Fuel
Company, to develop and invest in fuel interests. Since that time, EME has
invested in a number of oil and gas properties and a production company. Oil and
gas produced from the properties are generally sold at spot or short-term market
prices.
Four Star
As of December 31, 1996, EME owned 46.85% of the stock of Four Star Oil &
Gas Company (Four Star), a subsidiary of Texaco Inc. The underlying value of
Four Star is attributable to production of oil and gas from nine producing
properties. EME's proportionate interest in net quantities of proved reserves
at December 31, 1996 totaled 182 billion cubic feet of natural gas and 23.7
million barrels of oil.
In July 1994, Four Star purchased certain gas properties in the San Juan
Basin from Texaco Exploration and Production, Inc., a wholly owned subsidiary of
Texaco Inc., for $143 million. The purchase of the gas properties was initially
funded by a loan guaranteed by Texaco Inc. The proceeds from a $330 million
financing by Four Star in September 1994 were used to repay the loan and provide
dividends to Texaco Inc. and EME totaling $187 million (EME's share $51.2
million). EME applied a portion of its dividend towards the purchase of an
additional 12.6% interest in Four Star. During 1995, EME and/or Four Star
entered into a series of transactions which resulted in a net increase in EME's
ownership of Four Star by 2.47%. During 1996, EME purchased additional shares
of stock of Four Star increasing its ownership by 4.38%.
B.C. Star
B.C. Star was formed in 1991 when a subsidiary of EME and a subsidiary of
Texaco Inc. each purchased a 50% partnership interest in certain proved
producing properties from Esso Resources Canada Limited. These properties are
geographically concentrated in the northeast region of British Columbia and
enjoy proximity and direct pipeline access to the Pacific Northwest and
California. Texaco Canada Petroleum Inc. operates the majority of B.C. Star's
properties. EME's proportionate interest in net quantities of proved reserves
at December 31, 1996 totaled 105.5 billion cubic feet of natural gas and 1.8
million barrels of oil.
On March 4, 1997, EME entered into an agreement to sell its ownership
interest in B.C. Star to Remington Energy Ltd. for approximately $71 million.
The transaction is expected to close on or about April 30, 1997. EME expects to
record an after-tax gain upon the closing of the transaction in the second
quarter of 1997.
COMPETITION
EME competes with many other companies, including multinational development
groups, equipment suppliers and other IPPs (including affiliates of utilities),
in obtaining long-term contracts to sell electric power and steam, and with
electric utilities in obtaining the right to install new generating capacity.
Over the past decade, obtaining a power sales contract with a utility has
generally become a progressively more difficult, expensive and competitive
process. Many power sales contracts are now awarded by competitive bidding,
which both increases the costs of obtaining such contracts and decreases the
chances of obtaining such contracts. As a result of competition, it may be
difficult to obtain a power sales agreement for a proposed project, and the
prices offered in new power sales agreements for both electric capacity and
energy may be less than the prices in prior agreements. EME evaluates each
potential project in an effort to determine when the probability of success is
high enough to justify expenditures in developing a proposal or bid for the
project.
Amendments to the Public Utility Holding Company Act of 1935 (PUHCA) made by
the Energy Policy Act have increased the number of competitors in the domestic
independent power industry by reducing certain restrictions applicable to
projects that are not QFs under PURPA. Proposals to permit "retail wheeling" of
power could also lead to increased competition in the independent power market.
See "Certain Regulatory Matters--Retail Competition" .
TAX SHARING AGREEMENTS
EME is included in the consolidated federal income tax and state franchise
tax returns of Edison International. EME calculates its currently payable tax
liability on a separate company basis under a tax sharing agreement with The
Mission Group, which in turn has a tax sharing agreement with Edison
International. The Mission Group receives payment from Edison International for
tax benefits and pays Edison International for tax liabilities. The Mission
Group similarly pays EME for tax benefits and EME pays The Mission Group for tax
liabilities.
EMPLOYEES AND OFFICES
At February 28, 1997, EME employed 939 people, all of whom were full-time
employees and approximately 177 and 141 of whom were covered by a collective
bargaining agreement in Wales and Australia, respectively. EME has never
experienced a work stoppage, strike or labor dispute. EME believes its relations
with its employees to be good.
EME leases its corporate headquarters in Irvine, California and its
principal regional offices in London, Melbourne and Singapore. It also leases
other smaller offices in the United States and certain foreign countries.
CERTAIN REGULATORY MATTERS
- --------------------------
GENERAL
EME's domestic projects are subject to energy, environmental and other
governmental laws and regulations at the federal, state and local levels in
connection with the development, ownership and operation of its projects.
Federal laws and regulations govern, among other things, transactions by and
with utility companies, the operations of a project and the ownership of a
project. Under certain circumstances where exclusive federal jurisdiction is not
applicable or specific exemptions are otherwise unavailable, state utility
regulatory commissions may have broad jurisdiction over non-utility owned
electric power plants. Energy-producing projects are also subject to federal,
state and local laws and regulations that govern the geographical location,
zoning, land use and operation of a project. Federal, state and local
environmental requirements generally require that a wide variety of permits and
other approvals be obtained before the commencement of construction or operation
of an energy-producing facility and that the facility then operate in compliance
with such permits and approvals. While EME believes the requisite approvals for
its existing projects have been obtained and that its business is operated in
substantial compliance with applicable laws, EME remains subject to a varied and
complex body of laws and regulations that both public officials and private
parties may seek to enforce. There can be no assurance that future developments
will not have a material adverse effect on EME's business or results of
operations, nor can there be any assurance that EME will be able to obtain and
comply with all necessary licenses, permits and approvals for proposed projects.
In addition, regulatory compliance for the construction of new facilities is a
costly and time consuming process. Intricate and changing environmental and
other regulatory requirements may necessitate substantial expenditures and may
create a significant risk of expensive delays or significant loss of value in a
project if the project is unable to function as planned due to changing
requirements or local opposition.
Each of EME's international projects will be (or, to the extent that such
projects are already in operation or under construction, currently are) subject
to the energy and environmental laws and regulations of the foreign jurisdiction
in which it is located. The degree of regulation will vary according to each
country and may be materially different from the regulatory regime in the United
States.
U.S. FEDERAL ENERGY REGULATION
The enactment of PURPA in 1978 and the adoption of regulations thereunder by
the Federal Energy Regulatory Commission (FERC) provided incentives for the
development of cogeneration facilities and small power production facilities
(those utilizing alternative or renewable fuels). The passage of the Energy
Policy Act in 1992 further encouraged independent power production by providing
certain exemptions from PUHCA (but not from the Federal Power Act (FPA) or state
regulation) for exempt wholesale generators (EWGs) and foreign utility companies
(FUCOs).
A domestic electricity generating project must be a QF under FERC
regulations in order to take advantage of certain rate and regulatory incentives
provided by PURPA. Subject to certain exceptions, PURPA exempts owners of QFs
from PUHCA, exempts QFs from most provisions of the FPA and, except under
certain limited circumstances, state laws concerning rate or financial
regulation. In order to be a QF, a cogeneration facility must (i) sequentially
produce both useful thermal (e.g., steam) and electric energy, (ii) meet certain
operating standards and energy efficiency standards when oil or natural gas is
used as a fuel source and (iii) not be controlled, or more than 50% owned by, an
electric utility, electric utility holding company or an affiliate thereof. A
non-cogeneration facility may also be a QF if it produces power from renewable
energy (e.g., geothermal energy) or a waste source of fuel (e.g., waste coal).
Before 1990, non-cogeneration QFs were subject to 30-MW or 80-MW size limits,
depending upon their fuel source. In 1990, these limits were lifted for solar,
wind, waste, and geothermal QFs, provided that applications for or notices of QF
status were filed with FERC for such facilities on or before December 31, 1994,
and provided, in the case of new facilities, the construction of such facilities
commenced on or before December 31, 1999.
Amendments made to PUHCA by the Energy Policy Act provide that owners or
operators of EWGs and FUCOs will not be considered "electric utility companies"
under PUHCA. An EWG is an entity determined by the FERC to be exclusively
engaged, directly or indirectly, in the business of owning and/or operating
certain eligible facilities and selling electric energy at wholesale (or, if
located in a foreign country, at wholesale or retail). A FUCO is, in general, an
entity located outside the United States that owns or operates facilities used
for the generation, distribution or transmission of electric energy for sale or
the distribution at retail of natural or manufactured gas, but derives none of
its income, directly or indirectly, from such activities within the United
States.
The exemptions from federal and state regulation afforded to QFs, and the
exemptions from PUHCA afforded to EWGs and FUCOs, are important to EME and to
its competitors. Under present federal law, EME is not and will not be subject
to regulation as a holding company under PUHCA as long as the projects in which
it has an interest are QFs, EWGs or FUCOs (or are subject to another exemption
from regulation). Of the projects that EME currently owns, operates or has an
investment in, 25 projects have been certified as QFs by the FERC, three
projects have been certified as EWGs and 15 projects are FUCOs. Most of the U.S.
projects currently in the planning or development stage are expected to be QFs
and the international projects are expected to be FUCOs. To the extent that any
of EME's projects in the development stage will not be QFs or FUCOs, EME expects
to qualify those projects as EWGs. See "PUHCA".
PURPA
PURPA provides two primary benefits to QFs. First, QFs are relieved of
compliance with extensive federal and state regulations that control the
development, financial structure and operation of an energy-producing project
and the prices and terms on which wholesale energy may be sold by the project.
Second, FERC regulations promulgated under PURPA require that electric utilities
purchase electricity generated by QFs at a price based on the purchasing
utility's "avoided cost," and that the utility sell back-up power to the QF on a
non-discriminatory basis. The term "avoided cost" is defined by PURPA as the
"incremental cost to an electric utility of electric energy or capacity or both
which, but for the purchase from the qualifying facility or qualifying
facilities, such utility would generate itself or purchase from another source."
FERC regulations also permit QFs and utilities to negotiate agreements for
utility purchases of power at prices lower than the utility's avoided costs.
While public utilities are not explicitly required by PURPA to enter into
long-term contracts, it has been common for long-term contracts to be negotiated
in order, among other things, to facilitate project financing of independent
power facilities and to reflect the deferral by the utility of capital costs for
new plant additions. However, increasing competition and power brokering may
result in a trend toward shorter term power contracts that would place greater
risk on the project owner.
EME endeavors to develop its QF projects, monitor regulatory compliance by
such projects and choose its customers in a manner that minimizes the risks of
losing such projects' QF status. However, certain factors necessary to maintain
QF status are subject to the risk of events outside EME's control. For example,
loss of a thermal energy customer or failure of a thermal energy customer to
take required amounts of thermal energy from a cogeneration facility that is a
QF could cause the facility to fail requirements regarding the level of useful
thermal energy output. Upon the occurrence of such an event, EME would seek to
replace the thermal energy customer or find another use for the thermal energy
that meets PURPA's requirements, but no assurance can be given that this would
be possible.
If one of the projects in which EME has an interest were to lose its status
as a QF, the project would no longer be entitled to the QF-related exemptions
from regulation under PUHCA and the FPA. This could subject the project to rate
regulation as a public utility under the FPA and could result in EME
inadvertently becoming a public utility holding company by owning more than 10%
of the voting securities of, or controlling, a facility that would no longer be
exempt from PUHCA. Loss of QF status may also trigger defaults under covenants
to maintain QF status in the project's power sales agreements, steam sales
agreements and financing agreements and result in termination, penalties or
acceleration of indebtedness under such agreements. Such loss of QF status may
be on a retroactive or a prospective basis. If a power purchaser ceased taking
and paying for electricity or sought to obtain refunds of past amounts paid due
to the loss of QF status, there can be no assurance that the costs incurred in
connection with the project could be recovered through sales to other
purchasers. Moreover, EME's business and financial condition could be adversely
affected if regulations or legislation were modified or enacted that changed the
standards for achieving QF status or that eliminated or reduced the benefits
currently enjoyed by QFs. If a project were to lose its QF status, EME could
attempt to avoid holding company status on a prospective basis by qualifying the
project as an EWG. However, assuming this changed status would be permissible
under the terms of the applicable power sales agreement, rate approval from the
FERC would be required. In addition, the project would be required to cease
selling electricity to any retail customers (in order to qualify for EWG status)
and could become subject to state regulation of sales of thermal energy. Loss of
QF status on a retroactive basis could lead to, among other things, fines and
penalties being levied against EME and its subsidiaries, or claims by the
utility customer for refund of payments previously made. Loss of QF status by
one project could also, because of PURPA ownership restrictions, adversely
affect the QF status of other projects having one or more of the same partners.
In addition, pursuant to Section 26(b) of PUHCA, any project contracts that are
entered into in violation of PUHCA are subject to possible voidability by the
courts should a lawsuit to void the contract be filed.
The Energy Policy Act
The passage of the Energy Policy Act in 1992 significantly expanded the
options available to IPPs with respect to their regulatory status. The Energy
Policy Act created a new class of power producer, the EWG, that (like a QF) is
not considered an electric utility company under PUHCA. EWGs may own facilities
of any size, use any fuel source and may be owned by utilities or non-utilities.
Thus, in addition to QF status, an IPP now can also apply to the FERC to be
granted status as an EWG. EWGs, however, are not exempt from regulation by the
FERC or state public utility commissions. The effect of such amendments is to
enhance the development of non-QFs that do not have to meet the fuel, production
and ownership requirements of PURPA. EME believes that the amendments benefit
EME by expanding its ability to own and operate facilities that do not qualify
for QF status, but may also result in increased competition because utilities
and other companies (e.g., equipment suppliers) may now develop facilities that
are not subject to the constraints of PUHCA. The Energy Policy Act also expanded
FERC authority to order utilities to grant transmission access to QFs and EWGs
and lifts restrictions on ownership of foreign utilities by U.S. companies.
Pursuant to the Energy Policy Act, FUCOs are also considered not to be electric
utility companies under PUHCA.
PUHCA
Under PUHCA, any corporation, partnership or other entity or organized group
that owns, controls or holds with power to vote 10% or more of the outstanding
voting securities of a "public-utility company" or a company that is a "holding
company" of a public utility company, is subject to registration with the
Securities and Exchange Commission (SEC) and regulation under PUHCA, unless
eligible for an exemption or unless an appropriate application is filed with,
and an order is granted by, the SEC declaring it not to be a holding company. A
registered public utility holding company regulated under PUHCA is required to
limit its utility operations to a single integrated utility system and to divest
any other operations not functionally related to the operation of that utility
system. Approval by the SEC is required for major financial commitments and
other business dealings of the regulated holding company or its subsidiaries.
As noted above, however, regulations have been adopted under PURPA and the
Energy Policy Act providing that QFs, EWGs and FUCOs are not public utility
companies. Accordingly, EME is not regulated as a "holding company" under PUHCA
because the power generation facilities owned by EME or in which EME has
investments are either QFs, EWGs or FUCOs. All international projects and
certain U.S. projects that EME is currently developing will be non-QF
independent power projects. EME intends for each such project to qualify as an
EWG or as a FUCO. Loss of EWG or FUCO status (like loss of QF status, as
discussed above) could also result in EME becoming subject to registration and
regulation as a public utility holding company under PUHCA and could trigger
defaults under covenants in project agreements. Loss of EWG or FUCO status on a
retroactive basis could lead to, among other things, fines and penalties and
could cause certain project contracts to be voidable.
Natural Gas Act
Twenty-one of the domestic operating facilities that EME owns, operates or
has investments in are fueled by natural gas. Pursuant to the Natural Gas Act,
the FERC has jurisdiction over the sale, transportation and storage of natural
gas in interstate commerce. With respect to most transactions that do not
involve the construction of pipeline facilities, regulatory authorization can be
obtained on a self-implementing basis. However, pipeline rates for such services
are subject to continuing FERC oversight. Order No. 636, issued by the FERC in
April 1992 (and affirmed in Orders 636A and 636B issued, respectively, in August
and November 1992), mandated the restructuring of interstate natural gas
pipeline sales and transportation services and changed the terms and conditions
under which interstate pipelines provide transportation services, as well as the
rates pipelines may charge for such services. The restructuring required by the
rule included (i) the separation (unbundling) of a pipeline's sales,
transportation and storage services, (ii) the implementation of a straight
fixed-variable rate design methodology under which all of a pipeline's fixed
costs are recovered through its reservation charge, (iii) the implementation of
a capacity releasing mechanism under which holders of firm transportation
capacity on pipelines can release that capacity for resale by the pipeline, and
(iv) the opportunity for pipelines to recover 100% of their prudently incurred
costs (transition costs) associated with implementing the restructuring mandated
by the rule.
FPA
The FPA grants the FERC exclusive ratemaking jurisdiction over wholesale
sales of electricity in interstate commerce, including ongoing as well as
initial rate jurisdiction, which enables the FERC to revoke or modify previously
approved rates. Such rates may be based on a cost-of-service approach or may, in
competitive markets, be market-based. While qualifying facilities under PURPA
generally are exempt from the ratemaking and certain other provisions of the
FPA, EWGs and other non-QF independent power projects are subject to the FPA and
to FERC ratemaking jurisdiction, which may limit their flexibility in
negotiations with power purchasers. However, since such projects would not be
bound by PURPA's thermal energy use requirement, they have greater latitude in
site selection and facility size.
Currently, only three of EME's operating projects, Nevada Sun-Peak, Brooklyn
Navy Yard and Commonwealth Atlantic, are subject to FERC rate-making regulation
under the FPA. EME's future domestic non-QF independent power projects will
also be subject to FERC jurisdiction on rates.
STATE ENERGY REGULATION
State public utility commissions (PUCs) have broad jurisdiction over non-QF
independent power projects (including EWGs), which are considered public
utilities in many states. Such jurisdiction often includes the issuance of
certificates of public convenience and necessity (CPCNs) to construct a facility
as well as regulation of organizational, accounting, financial and other
corporate matters on an ongoing basis. QFs may also be required to obtain CPCNs
in some states. Although the FERC generally has exclusive jurisdiction over the
rates charged by a non-QF independent power project to its wholesale customers,
PUCs have the ability, in practice, to influence the establishment of such rates
by asserting jurisdiction over the purchasing utility s ability to pass-through
the resulting cost of purchased power to its retail customers. PUCs also have
the authority to determine avoided cost for QFs. In addition, states may assert
jurisdiction over the siting and construction of independent power projects and,
among other things, the issuance of securities, related party transactions and
the sale or other transfer of assets by these facilities. The actual scope of
jurisdiction over independent power projects by state PUCs varies from state to
state.
In addition, state PUCs may seek to modify, suspend or terminate a QF's
power sales contract under certain circumstances. This could occur if the state
PUC determined that the pricing mechanism of the power sales contract is
unfairly high in light of the current prevailing market cost of power for the
utility purchasing the power. In such instance, the state PUC may attempt to
alter the terms of the power sales contract to reflect more accurately market
conditions for the prevailing cost of power. While EME believes that such
attempts are not common and that the state PUCs may not have any jurisdiction to
modify the terms of the wholesale power sales, there can be no assurance that
the power sales contracts of its projects will not be subject to adverse
regulatory actions.
The CPUC has authorized the electric utilities in California to "monitor"
compliance by QFs with PURPA rules and regulation. However, the United States
Court of Appeals for the Ninth Circuit recently found in 1994 that a CPUC
program was preempted by PURPA insofar as it authorized utilities to determine
that a QF was not in compliance with PURPA rules and regulations, to then pay a
reduced avoided cost rate and to take other action contrary to a facility's
status as a QF. The court did, however, uphold reasonable monitoring of QF
operating data. Other states, such as New York, have also instituted QF
monitoring programs.
EME buys and transports the natural gas used at its domestic facilities
through local distribution companies (LDCs). State PUCs have jurisdiction over
the transportation of natural gas by LDCs. Each state's regulatory laws are
somewhat different; however, all generally require the LDC to obtain approval
from the PUC for the construction of facilities and transportation services if
the LDC's generally applicable tariffs do not cover the proposed transaction.
LDC rates are usually subject to continuing PUC oversight.
TRANSMISSION OF WHOLESALE POWER
Projects that sell power to wholesale purchasers other than the local
utility to which the project is interconnected require the transmission of
electricity over power lines owned by others (wheeling). The prices and other
terms and conditions of transmission contracts are regulated by FERC, when the
entity providing the wheeling service is a jurisdictional public utility under
the FPA. Until 1992, FERC's ability to compel wheeling was very limited, and
the availability of voluntary wheeling service could be a significant factor in
determining whether a site was viable for project development.
FERC's authority under the FPA to require electric utilities to provide
transmission service on a case-by-case basis to QFs, EWGs, and other power
generators was expanded substantially by the Energy Policy Act. Furthermore, in
1996 FERC issued a rulemaking order, Order 888, in which FERC asserted the
power, under its authority to eliminate undue discrimination in transmission, to
compel all jurisdictional public utilities under the FPA to file open access
transmission tariffs consistent with a pro forma tariff drafted by FERC.
Although the pro forma tariff does not cover the pricing of transmission
service, Order 888 is expected to improve transmission access for independent
power producers such as EME.
RETAIL COMPETITION
In response to pressure from retail electric customers, particularly large
industrial users, the state commissions or state legislatures of most states are
considering, or have considered, whether to open the retail electric power
market to competition. Retail competition is possible when a customer's local
utility agrees, or is required, to "unbundle" its distribution service (e.g.,
the delivery of electric power through its local distribution lines) from its
transmission and generation service (e.g., the provision of electric power from
the utility's generating facilities or wholesale power purchases). A few state
commissions and legislatures have already issued orders or passed legislation
requiring utilities to begin to offer unbundled retail distribution service
(retail wheeling) beginning as soon as 1998. Other states are expected to move
toward retail competition in 1997.
The competitive pricing environment that will result from retail competition
may cause utilities to experience revenue shortfalls and deteriorating
creditworthiness. However, EME expects that most, if not all, state plans will
insure that utilities receive sufficient revenues, through a distribution
surcharge if necessary, to pay their obligations under existing long-term power
purchase contracts with QFs and EWGs. On the other hand, QFs and EWGs may be
subject to pressure to lower their contract prices in an effort to reduce the
"stranded investment" costs of their utility customers.
EME believes that, as a predominately low cost producer of electricity, it
will ultimately benefit from any increased competition that may arise from the
opening of the retail market. Although EME's EWGs are forbidden under PUHCA
from selling electric power at retail, its QFs will be permitted to market power
directly to large industrial users that could not previously be served, because
of local franchise laws or the inability to obtain retail wheeling. EME also
believes it will be an attractive supplier to power marketers serving the newly-
open retail markets.
ENVIRONMENTAL REGULATION
The construction and operation of power projects are subject to
environmental regulation by federal, state and local authorities in the United
States and regulatory authorities with jurisdiction over the projects located
outside the United States. EME believes that it is in substantial compliance
with environmental regulatory requirements and that maintaining compliance with
current requirements will not materially affect its financial condition or
results of operations. EME conducted a review of some of its sites in 1995 and
does not believe that a material liability exists as of December 31, 1996.
However, possible future developments, such as more stringent environmental laws
and regulations, could affect the costs and the manner in which EME conducts its
business. There can be no assurance that in such event EME would be able to
recover such increased costs from its customers or that its financial position
and results of operations would not be materially adversely affected.
Typically, environmental laws require a lengthy and complex process for
obtaining licenses, permits and approvals prior to construction and operation of
a project. Meeting all of the necessary requirements can delay or sometimes
prevent the completion of a proposed project as well as require extensive
modifications to existing projects, which may involve significant capital
expenditures.
In 1990, Congress passed amendments (the 1990 Amendments) to the Clean Air
Act that greatly expand the scope of federal regulations in several significant
respects. Certain EME projects are anticipated to make capital expenditures of
approximately $23.5 million ($11.75 million is EME's share) from 1997 through
1999 in order to comply with the 1990 Amendments. Provisions related to
nonattainment, air toxins, permitting, enforcement and "acid rain" may affect
EME's projects; however, final details of all these programs have not been
issued by the United States Environmental Protection Agency and state agencies.
The Comprehensive Environmental Response, Compensation, and Liability Act
(Superfund) requires the cleanup of sites from which there has been a release or
threatened release of hazardous substances. At the present time, EME is not
aware of any Superfund liability; however, there can be no assurance that EME
will not incur such liability in the future.
FOREIGN AND DOMESTIC OPERATIONS
- -------------------------------
A summary of EME's operations by geographic area including operating
revenues, net income (loss) and identifiable assets is incorporated herein by
reference from note 15 (Geographic Areas--Financial Data) of Notes to the
Consolidated Financial Statements.
ITEM 2. PROPERTIES
EME leases its principal office in Irvine, California. This lease is
approximately 89,500 square feet contained on five floors. The term of the lease
for approximately 65,500 square feet expires on December 31, 2002 with two five-
year options to extend. The term of the lease for the balance of approximately
24,000 square feet expires on December 31, 2002 with no options to extend. EME
also leases office space in Fairfax, Virginia which is not material.
Subsidiaries of EME also lease office space in Barcelona, Spain; Esenyurt,
Turkey; Jakarta, Indonesia; London, England; Melbourne, Australia; Rome, Italy;
and Singapore, none of which are material.
The following table shows the material properties owned or leased by EME,
its subsidiaries, or partnerships. Each property represents at least five
percent of EME's income before tax or is one in which EME has an investment
balance greater than $50 million. All of these properties are subject to
mortgages or other liens or encumbrances granted to the lenders providing
financing for the plant or project.
DESCRIPTION OF PROPERTIES
<TABLE>
<CAPTION>
INTEREST
PLANT OR PROJECT LOCATION IN LAND PLANT DESCRIPTION
---------------- -------- -------- -----------------
<S> <C> <C> <C>
Brooklyn Navy Yard Brooklyn, New York Leased Natural gas-turbine cogeneration facility
First Hydro Dinorwig, Wales Owned Pumped-storage electric power facility
First Hydro Ffestiniog, Wales Owned Pumped-storage electric power facility
Kern River Oildale, California Leased Natural gas-turbine cogeneration facility
Loy Yang B Unit 1 and 2 Victoria, Australia Owned Coal-fired power facility
March Point 1 and 2 Anacortes, Washington Leased Natural gas-turbine cogeneration facility
Midway-Sunset Fellows, California Leased Natural gas-turbine cogeneration facility
Paiton East Java, Indonesia Leased Coal-fired power facility under construction
Roosecote Barrow-in-Furness, Cumbria, UK Owned Combined cycle generation technology
Sycamore Oildale, California Leased Natural gas-turbine cogeneration facility
Watson Carson, California Leased Natural gas-turbine cogeneration facility
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
PMNC Litigation -In February 1997, a civil action was commenced in the
---------------
Superior Court of the State of California, Orange County, entitled The Parsons
-----------
Corporation and PMNC v. Brooklyn Navy Yard Cogeneration Partners, L.P., Mission
- -------------------------------------------------------------------------------
Energy New York, Inc. and B-41 Associates. L.P., Case No. 774980, in which
- -----------------------------------------------
plaintiffs assert general monetary claims under the Construction Turnkey
Agreement in the amount of $136,800,000. Brooklyn Navy Yard has also filed an
action entitled Brooklyn Navy Yard Cogeneration Partners, L.P. v. PMNC, Parsons
---------------------------------------------------------------
Main of New York, Inc., Nab Construction Corporation, L.K. Comstock & Co., Inc.
- -------------------------------------------------------------------------------
and The Parsons Corporation, in the Supreme Court of the State of New York,
- ---------------------------
Kings County, Index No. 5966/97 asserting general monetary claims in excess of
$13,000,000 under the Construction Turnkey Agreement. EME believes that the
outcome of this litigation will not have a material adverse effect on its
consolidated financial position or results of operations.
EME experiences other routine litigation in the normal course of its
business. None of such pending litigation is expected to have a material adverse
effect on the consolidated financial position or results of operations of EME.
See "Certain Regulatory Matters--Environmental Regulation".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
All of the outstanding Common Stock of EME is, as of the date hereof, owned
by The Mission Group, which is a wholly owned subsidiary of Edison
International. There is no market for the Common Stock.
Dividends of the Common Stock will be paid when declared by the Board of
Directors of EME. In 1996, EME made a dividend payment of $150 million to The
Mission Group. At present, EME has no plans to pay a dividend on the Common
Stock.
In November 1994, Mission Capital, L.P. (Mission Capital), a limited
partnership of which EME is the sole general partner, issued 3.5 million 9-7/8%
Cumulative Monthly Income Preferred Securities, Series A (the Preferred
Securities) and EME issued $90,206,186 of 9-7/8% junior subordinated deferrable
interest debentures due 2024 (the Debentures) pursuant to a subordinated
indenture dated as of November 30, 1994 (the Subordinated Indenture) between EME
and The First National Bank of Chicago, as trustee. During August 1995, Mission
Capital issued 2.5 million 8-1/2% Cumulative Monthly Income Preferred
Securities, Series B (the Preferred Securities) and EME issued $64,432,990 of 8-
1/2% junior subordinated deferrable interest debentures due 2025 pursuant to the
Subordinated Indenture. EME issued a guarantee (the Guarantee) in favor of the
holders of the Preferred Securities, which guarantees the payments of
distributions declared on the Preferred Securities, payments upon a liquidation
of Mission Capital and payments on redemption with respect to any Preferred
Securities called for redemption by Mission Capital. So long as any Preferred
Securities remain outstanding, EME will not be able to declare or pay, directly
or indirectly, any dividend on, or purchase, acquire or make a distribution or
liquidation payment with respect to, any of its Common Stock if at such time (i)
EME shall be in default with respect to its payment obligations under the
Guarantee, (ii) there shall have occurred any event of default under the
Subordinated Indenture, or (iii) EME shall have given notice of its selection of
an extended interest payment period as provided in the Indenture and such
period, or any extension thereof, shall be continuing.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN MILLIONS) YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues $843.6 $467.3 $380.6 $290.5 $183.1
Operating expense 476.5 264.0 199.9 258.7<F1> 60.6
------ ------ ------ ------ ------
Income from operations 367.1 203.3 180.7 31.8 122.5
Interest expense (164.2) (93.1) (89.0) (33.5) (5.7)
Interest and other income 40.7 33.1 38.8 4.7 12.0
Minority interest (69.5) (48.3) (46.1) (11.4) --
------ ------ ------ ------ ------
Income (loss) before income taxes 174.1 95.0 84.4 (8.4) 128.8
Provision (credit) for income taxes 82.0 31.0 29.4 (4.2) 39.5
------ ------ ------ ------ ------
Income (loss) before cumulative effect
of change in accounting principle 92.1 64.0 55.0 (4.2) 89.3
Cumulative effect on prior periods of
change in accounting for income taxes -- -- -- 6.5 --
------ ------ ------ ------ ------
Net income $ 92.1 $ 64.0 $ 55.0 $ 2.3 $ 89.3
====== ====== ====== ====== ======
(IN MILLIONS) DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA
Assets $5,152.5 $4,374.0 $2,842.9 $2,286.1 $2,387.6
Current liabilities 270.9 199.8 170.9 116.3 186.7
Long-term obligations 2,419.9 1,839.0 1,159.0 962.6 866.0
Shareholder's equity 1,019.9 1,028.5 622.2 551.3 710.3
(IN MILLIONS) YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
PROPORTIONATE DATA (UNAUDITED)<F2>
Operating revenues $1,261.8 $865.4 $733.0 $712.8 $625.5
Operating expense 912.4 650.3 552.5 667.5<F1> 474.1
-------- ------ ------ ------ ------
Income from operations 349.4 215.1 180.5 45.3 151.4
Interest expense (212.8) (160.9) (138.5) (69.8) (46.9)
Interest and other income 44.2 42.1 45.7 16.1 24.3
-------- ------ ------ ------ ------
Income (loss) before income taxes 180.8 96.3 87.7 (8.4) 128.8
Provision (credit) for income taxes 88.7 32.3 32.7 (4.2) 39.5
-------- ------ ------ ------ ------
Income (loss) before cumulative effect
of change in accounting principle 92.1 64.0 55.0 (4.2) 89.3
Cumulative effect on prior periods of
change in accounting for income taxes -- -- -- 6.5 --
-------- ------ ------ ------ ------
Net income $ 92.1 $ 64.0 $ 55.0 $ 2.3 $ 89.3
======== ====== ====== ====== ======
Operating cash flow<F3> $ 493.7 $326.5 $264.9 $202.9 $197.3
======== ====== ====== ====== ======
<FN>
<F1> For the year ended December 31, 1993, operating expenses include special charges of $98.4 million. Special charges include
(1) costs (unreimbursed development expenses and capitalized interest) associated with the termination of negotiations for
the Carbon II project in Mexico of $28.0 million; (2) a reserve of $52.4 million, which reflects the reduced value of
investments in five geothermal power plants due to lower gas price forecasts; and (3) a reserve of $18.0 million for project
development and other costs.
<F2> Reflects EME's pro rata ownership interest in its energy projects and oil and gas investments. While pro rata or
proportionate accounting is not in accordance with generally accepted accounting principles, except in certain industries, it
is presented to provide a better understanding and assessment of EME's consolidated financial statements. A discussion of
EME's operations on a proportionate basis is included in Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
<F3> Income from operations plus depreciation, amortization and other non-cash charges.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This Annual Report on Form 10-K includes certain forward-looking statements, the
realization of which may be affected by certain important factors discussed in
Management's Discussion and Analysis of Results of Operations and Financial
Condition thereunder and elsewhere herein.
GENERAL
- -------
Edison Mission Energy (EME) is one of the leading independent producers of
electricity worldwide. Through its subsidiaries, EME is engaged in the business
of developing, acquiring, owning and operating independent electric power
generation facilities. EME's investments include 54 projects totaling 9,291
megawatts (MW) of generation capacity, of which 7,549 are in operation and 1,742
are under construction.
EME's operating revenues are derived primarily from electric revenues and
equity in income from energy projects. Electric revenues accounted for 77%, 64%
and 54% of total operating revenues during 1996, 1995 and 1994, respectively.
Operating revenues also include equity in income from oil and gas investments
and revenue attributable to operation and maintenance services.
Electric revenues are derived from consolidated results of operations of
five international entities. Equity in income from energy projects relates to
EME's ownership interest of 50% or less in projects. The equity method of
accounting is generally used to account for the operating results of entities
over which a company has a significant influence but in which it does not have a
controlling interest. With respect to entities accounted for under the equity
method, EME recognizes its proportional share of the income or loss of such
entities. Equity in income from oil and gas investments is EME's proportional
interest in the net income derived from investments in certain fuel interests.
ACQUISITIONS
- ------------
In December 1995, First Hydro Finance Plc (First Hydro Finance), an
indirect subsidiary of EME, purchased all of the outstanding shares of First
Hydro Company (First Hydro), formerly First Hydro Limited, for approximately $1
billion (653 million pounds sterling). First Hydro's principal assets consist
of two pumped-storage electric power stations located in North Wales at Dinorwig
and Ffestiniog, which have a combined capacity of 2,088 MW.
This acquisition was funded through a combination of (i) a $621 million (400
million pounds sterling) credit facility with a bank and (ii) a $455 million
(295.3 million pounds sterling) equity investment funded from a combination of a
$350 million capital contribution from Edison International (EME's parent
company), and from EME's working capital and credit lines. In January 1996, the
400 million pounds sterling credit facility was canceled upon repayment of all
outstanding principal and accrued interest with proceeds from the issuance of
400 million pounds sterling of 9% Guaranteed Secured Bonds due on July 31, 2021.
The acquisition has been accounted for utilizing the purchase method,
whereby the cost of the acquisition was allocated to the assets acquired and the
liabilities assumed based upon their respective fair values. The excess of the
cost over the fair value of the net assets acquired was allocated to goodwill.
The consolidated statement of income for 1995 includes operating results of the
acquired business beginning in December 1995.
In January 1996, EME purchased the remaining 66% of Iberian Hy-Power
Amsterdam B.V. (Iberian Hy-Power) for approximately $20 million increasing its
ownership to 100%. Iberian Hy-Power owns interests in 18 run-of-the-river
hydroelectric facilities in Spain totaling 86 MW.
RESULTS OF OPERATIONS
- ---------------------
Operating Revenues
Operating revenues increased significantly in 1996 and 1995, resulting
primarily from increases in electric revenues primarily due to (1) the
acquisition of First Hydro in December 1995 combined with its strong operating
performance since acquisition, (2) the start of commercial operation of Loy Yang
B Unit 2 in October 1996 and the Kwinana project in December 1996, both of which
were previously under construction, and (3) the increase in ownership of Iberian
Hy-Power from 34% to 100% in January 1996. There were no comparable revenues
for First Hydro for the first 11 months of 1995 and no comparable electric
revenues for Iberian Hy-Power, Loy Yang B Unit 2 and Kwinana for fiscal year
1995. The 1995 increase in electric revenues over 1994 was primarily due to the
acquisition of First Hydro and a $42.1 million increase in revenues from the
Roosecote project, which was operational for the full year in 1995.
Equity in income from energy projects in 1996 rose slightly over 1995,
compared with a 7% decrease in 1995 from 1994. The 1995 decrease resulted from
one-time reductions in fuel transportation charges for several domestic projects
in 1994 and lower electric and steam revenues for several domestic projects in
1995 attributable to lower fuel prices upon which the revenues are based.
Equity in income from oil and gas investments increased substantially in 1996
compared with 1995, primarily due to higher oil and gas prices and increased gas
production. Operation and maintenance services revenues increased both in 1996
and 1995 due to increases in the number of operating projects under contract.
A significant number of EME's domestic projects are located on the West
Coast. These projects generally have power sales contracts that provide for
higher payments during the summer months. Both First Hydro and Iberian Hy-Power
provide for higher electric revenues during the winter months. In addition,
First Hydro experienced higher energy sales in 1996 due to higher capacity
prices resulting from narrowing of the margin between the demand and available
generation forecast over the summer months and increased utilization. Unusual
weather conditions and unanticipated facility maintenance may have an effect on
future quarterly revenues.
Operating Expenses
Total operating expenses increased $212.4 million in 1996 and $64.1 million
in 1995. The 1996 increase resulted from higher fuel expense, plant operations
and depreciation and amortization resulting from no comparable expenses for
First Hydro for the first 11 months of 1995 and no comparable expenses for
Iberian Hy-Power, Loy Yang B Unit 2 and Kwinana for fiscal year 1995. The 1995
increase resulted from higher fuel and plant operating expenses at the Roosecote
project, which was operational for the full year in 1995, and the addition of
operations related to First Hydro in December 1995. Fuel and plant operations
expense increased $140.4 million in 1996 and $41.9 million in 1995, and
depreciation and amortization expense increased $44.3 million in 1996 and $5.6
million in 1995. Administrative and general expenses increased $26.6 million in
1996 and $12.8 million in 1995 primarily due to continued worldwide development.
The 1996 increase is also attributable to an increase of approximately $18
million in compensation expense as a result of charges related to EME's phantom
stock plan and to a voluntary retirement offer for non-union employees.
Operation and maintenance services expense increased in 1996 and 1995 due to the
increased number of operating projects during those periods.
Other Income (Expense)
Interest and other income decreased $9.3 million in 1996 from 1995, compared
with a decrease of $4.7 million in 1995 from 1994. The 1996 decrease was
primarily due to income recognized in August 1995 for reimbursement of certain
1994 development expenses not previously recognized in settlement of EME's
remaining investment in Minera Carbonifera Rio Escondido. The decrease in 1995
was principally due to insurance proceeds received from the business
interruption claim related to a transformer failure at the Roosecote project in
1994.
During the second quarter of 1996, CalEnergy Company, Inc., EME's partner in
four operating geothermal projects in California, purchased all of the stock of
four wholly owned subsidiaries of EME, which held 50% interests in these
projects. The purchase price of $70 million resulted in a pre-tax gain of $20
million. There will be no impact on EME's future revenues as EME discontinued
recognizing earnings from these projects during 1993.
Interest incurred increased $65.8 million in 1996 and $7 million in 1995.
The 1996 increase was due primarily to a full year's inclusion of interest on
the debt related to the First Hydro acquisition and debt related to Iberian Hy-
Power. Higher interest incurred in 1995 was associated with higher project debt
levels. Capitalized interest decreased slightly in 1996 from 1995, compared
with an increase of $12.2 million in 1995 over 1994. The 1996 decrease is due
to lower amounts capitalized on construction projects primarily related to the
completion of construction and resultant commercial operation of Loy Yang B Unit
2 in October 1996. The 1995 increase was due to higher amounts capitalized on
construction projects principally related to Loy Yang B Unit 2.
Dividends on preferred securities increased $3 million in 1996 and $9.4
million in 1995. The significant increase in 1995 is due to the issuance of
Series A preferred securities during the fourth quarter of 1994 and the issuance
of Series B preferred securities during the third quarter of 1995. The increase
in 1996 was due to the inclusion of a full year of dividends on the Series B
preferred securities.
Minority interest expense increased $21.2 million in 1996 over 1995,
compared with an increase of $2.2 million in 1995 over 1994. The 1996 increase
is due to Loy Yang B Unit 2 commencing commercial operation in October 1996.
Provision for Income Taxes
EME had an effective tax provision rate of 47.1%, 32.6% and 34.8% in 1996,
1995 and 1994, respectively. The increase in the 1996 effective tax rate was
primarily due to higher international earnings taxed at higher tax rates and
expenditures not deductible in foreign jurisdictions. The decrease in the 1995
effective tax rate was primarily due to a larger dividends received deduction in
1995. The dividends received deduction represents dividend income from
unconsolidated entities that is not subject to tax because taxes have already
been provided at the entity level.
PROPORTIONATE RESULTS OF OPERATION
- -----------------------------------
Because significant investments of EME are not consolidated, EME believes
that the discussion set forth below of certain proportionate data facilitates an
understanding and assessment of its results of operations. Proportionate
accounting reflects EME's pro rata ownership interest in its energy projects and
oil and gas investments. Except for certain industries, proportionate
accounting is not in accordance with generally accepted accounting principles.
Operating revenues increased in 1996 and 1995, resulting primarily from
increases in electric revenues primarily due to (1) the acquisition of First
Hydro in December 1995 combined with its strong operating performance since
acquisition, (2) the start of commercial operations of Loy Yang B Unit 2 in
October 1996 and the Kwinana project in December 1996, both of which were
previously under construction, and (3) the increase in ownership of Iberian Hy-
Power from 34% to 100% in January 1996. The 1995 increase was a result of the
addition of the First Hydro project and increased revenues at the Roosecote
project, which was operational for the full year in 1995. The 1996 increase in
operating expenses resulted from higher fuel expense, plant operations and
depreciation and amortization resulting from no comparable expenses for First
Hydro for the first 11 months of 1995 and no comparable expenses for Iberian Hy-
Power, Loy Yang B Unit 2 and Kwinana for fiscal year 1995. The 1995 increase in
operating expenses was primarily due to higher fuel and plant operations
expenses at the Roosecote project and the addition of operations at the First
Hydro project.
Interest expense increased in 1996 and 1995, principally a result of higher
project debt levels. Interest and other income increased in 1996 over 1995,
compared with a decrease in 1995 from 1994. The 1996 increase is primarily due
to a pre-tax gain of $20 million on the sale of EME's interest in four operating
geothermal projects (discussed above) partially offset by income recognized in
1995 for reimbursement of certain 1994 development expenses not previously
recognized in settlement of EME's remaining investment in Minera Carbonifera Rio
Escondido. The decrease in 1995 was principally due to insurance proceeds from
the business interruption claim related to the transformer failure at the
Roosecote project in 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities is derived primarily from
distributions from energy projects and dividends from investments in oil and
gas. For the year ended December 31, 1996, net cash provided by operating
activities increased $144.6 million over 1995, compared with a slight decrease
of $2 million in 1995 from 1994. The 1996 improvement primarily reflects higher
net income, increased dividends from oil and gas investments and improved
accounts receivable collections principally attributable to First Hydro.
Dividends from investments in oil and gas rose $31.1 million in 1996 over
1995, and decreased $38.1 million in 1995 from 1994. The 1996 increase was
principally due to increased dividends paid by Four Star Oil & Gas Company (Four
Star) as a result of higher earnings in 1996. The 1995 decrease was primarily
the result of special one-time dividends paid by Four Star in 1994, which were
not paid out of current year operating cash flow. In 1994, Four Star paid a
$51.2 million dividend to EME from the proceeds received from a $330 million
project financing. A portion of the financing proceeds was also utilized by
Four Star to purchase certain gas properties from Texaco Exploration and
Production, Inc. for $143 million.
Net cash provided by financing activities significantly decreased during
1996 from 1995, compared with a substantial increase during 1995 over 1994.
The 1996 decrease was primarily attributable to (1) a reduction in net
borrowings under EME's $500 million revolving credit facility in 1996, (2) a
dividend paid to Edison International of $150 million in 1996 compared with a
$350 million capital contribution received from Edison International in 1995
(pursuant to the acquisition of First Hydro) and (3) proceeds of $62.5 million
received in 1995 from the issuance of Series B Preferred Securities. In
addition, EME issued 400 million pounds sterling of 9% Guaranteed Secured Bonds
(U.S. $603.8 million) in January 1996. The net proceeds received were used to
repay the borrowings under the 400 million pounds sterling credit facility
entered into by First Hydro Finance in December 1995 in connection with the
First Hydro acquisition. The 1995 increase was principally due to the $350
million capital contribution received from Edison International and the issuance
of debt related to the First Hydro acquisition.
On December 20, 1996, Edison Mission Energy Funding Corp., 99% owned by
Broad Street Contract Services, Inc. and 1% owned by EME, completed a sale of
$450 million of senior notes and bonds to institutional investors pursuant to
the Rule 144A exemption under the U.S. Securities Act of 1933 for non-public
sales. The senior notes and bonds are secured by the pledge of (i) notes issued
by four EME subsidiaries that own interests in four California cogeneration
projects: the Kern River project (300 MW), the Midway-Sunset project (225 MW),
the Sycamore project (300 MW) and the Watson project (385 MW), (ii) 99% of the
capital stock of Edison Mission Energy Funding Corp. and (iii) a guarantee
issued by the four EME subsidiaries. The financing structure was designed to
pool and cross-collateralize available cash flow to the four EME subsidiaries
from the four projects thus providing for repayment of the senior notes and
bonds with available cash flow from the four projects. The obligations of the
four EME subsidiaries are non-recourse to EME.
The $450 million of securities issued by Edison Mission Energy Funding Corp.
consist of $260 million of Series A Notes and $190 million of Series B Bonds
which mature in September 2003 and September 2008, respectively. The Series A
Notes and Series B Bonds bear an interest rate of 6.77% and 7.33%, respectively,
and were rated BBB by Standard & Poor's Corporation and Baa1 by Moody's
Investors Services, Inc. The principal and interest payments under the notes
issued by the four EME subsidiaries are identical in terms as the Series A Notes
and Series B Bonds.
The net proceeds from the sale of securities were used by EME to repay
borrowings under its $500 million revolving credit facility, retire EME's 200
million Australian dollar credit facility, defease other project debt and for
other general corporate purposes.
Net cash used in investing activities significantly decreased in 1996 from
1995, compared with an increase in 1995 over 1994. The decrease in 1996 and the
increase in 1995 were principally due to the purchase of First Hydro for
approximately $1 billion in December 1995. Proceeds of $70 million received
from the sale of four of EME's operating geothermal facilities in April 1996
also contributed to the decline in 1996. EME invested $119.4 million, $192.8
million and $138.8 million in 1996, 1995 and 1994, respectively, in new plant
and equipment principally related to Loy Yang B Unit 2 and the Kwinana project.
At December 31, 1996, EME had cash and cash equivalents of $383.6 million
and had available $430 million of borrowing capacity under a $500 million
revolving credit facility that expires in 2001. The credit facility provides
credit available in the form of cash advances or letters of credit, and bears
interest on advances under the London Interbank Offered Rate plus the applicable
margin as determined by EME's long-term debt ratings (0.275% margin at December
31, 1996), the Base Rate (substantially similar to what is commonly known as the
"prime" rate, which was 8.25% at December 31, 1996), or on a competitive auction
basis. This borrowing capacity under the revolving credit facility will be
reduced by borrowings for firm commitments to contribute project equity and to
fund capital expenditures of its project facilities.
FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
<TABLE>
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
-------- -------------- --------------------
<S> <C> <C>
Paiton (i) 223
ISAB (ii) 244 billion Italian Lira 161
Kwinana (iii) 31 million Australian Dollar 24
</TABLE>
(i) Paiton is a 1,230-MW coal-fired power plant under construction in East
Java, Indonesia. A wholly owned subsidiary of EME owns a 40% interest.
Equity contributions are currently being made and will continue until
commercial operation, which is currently scheduled for early 1999.
(ii) ISAB is a 512-MW gas-fired power plant under construction near Siracusa in
Sicily, Italy. A wholly owned subsidiary of EME owns a 49% interest.
Equity will be contributed at commercial operation which is currently
scheduled for late 1999.
(iii) Kwinana is a 116-MW gas-fired cogeneration power plant near Perth,
Australia. Two wholly owned subsidiaries of EME own a 100% interest.
Kwinana began commercial operation in December 1996. Equity was
contributed on January 31, 1997.
Firm commitments to contribute project equity could be accelerated due to
certain events of default as defined in the non-recourse project financing
facilities. Management has no reason to believe that these events of default
will occur to require acceleration of the firm commitments.
CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
<TABLE>
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
-------- -------------- --------------------
<S> <C> <C>
Brooklyn Navy Yard (i) 294
Paiton (ii) 141
Kwinana 3 million Australian Dollar 3
Loy Yang B 5 million Australian Dollar 4
All Other 19
</TABLE>
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in
Brooklyn, New York. A wholly owned subsidiary of EME owns 50% of the
project, but funded all of the required equity during construction.
Estimated total cost is $485 million of which $442 million has been spent
through December 31, 1996. In December 1995, a tax-exempt bond financing
for the project in the amount of $254 million was obtained through the New
York City Industrial Development Agency (NYCIDA). EME has guaranteed the
obligations of the project pursuant to the financing as well as an
indemnity agreement on behalf of NYCIDA in the amount of $40 million. In
the fourth quarter of 1996, EME executed a new Energy Sales Agreement with
Consolidated Edison Company of New York, which has contracted to buy most
of the project's power and steam, and began selling power and steam under
that agreement on November 1. The contractor has recently asserted
general monetary claims under the turnkey agreement against Brooklyn Navy
Yard Cogeneration Partners, L.P. (BNY) and has served a Complaint for
damages in the amount of $136.8 million against BNY. BNY has asserted
general monetary claims against the contractor. EME believes that the
outcome of this litigation will not have a material adverse effect on its
consolidated financial position or results of operations.
(ii) Contingent obligations to contribute additional project equity to the
Paiton project would be based on events principally related to capital
cost overruns during the plant construction.
Management has no reason to believe that these contingent obligations or any
other contingent obligations to contribute project equity will be required.
OTHER COMMITMENTS AND CONTINGENCIES
Certain of EME's subsidiaries entered into indemnification agreements
whereby the subsidiaries agreed to repay capacity payments to the projects'
power purchasers, in the event the projects unilaterally terminate their
performance or reduce their electric power producing capability during the term
of the power contract. Obligations under these indemnification agreements as of
December 31, 1996, if required, would be $248 million. Management has no reason
to believe that the projects will either terminate their performance or reduce
their electric power producing capability during the term of the power
contracts.
Certain EME subsidiaries are required to fund capital expenditures of
project facilities, which are estimated to be $47 million at December 31, 1996
(principally related to the Brooklyn Navy Yard project).
EME and its subsidiaries may incur additional obligations to make equity and
other contributions to projects in the future. EME believes that it will have
sufficient liquidity on both a short and long-term basis to fund pre-financing
project development costs, make equity contributions to partnerships, pay
corporate debt obligations and pay other administrative and general expenses as
they are incurred from (1) distributions from energy projects and dividends from
investments in oil and gas, (2) proceeds from the repayment of loans to energy
projects, (3) funds available from EME's revolving credit facility and (4)
additional corporate borrowings.
CHANGES IN INTEREST RATES, CHANGES IN ELECTRICITY POOL PRICING, FOREIGN CURRENCY
FLUCTUATIONS AND OTHER CONTRACTUAL OBLIGATIONS
Changes in interest rates, changes in electricity pool pricing in the U.K.,
and fluctuations in foreign currency exchange rates can have a significant
impact on EME's results of operations. Interest rate changes affect the cost of
capital needed to construct and finance projects. EME has mitigated the risk of
interest rate fluctuations by arranging for fixed rate financing or variable
rate financing with interest rate swaps or other hedging mechanisms for the
majority of its project financing. Interest expense was increased by $6.2
million, $6.5 million and $7.9 million for the years 1996, 1995 and 1994,
respectively, as a result of interest rate hedging mechanisms. EME has entered
into several interest rate swap agreements whereby the maturity date of the
swaps occurs prior to the final maturity of the underlying debt. EME does not
believe that interest rate fluctuations will have a materially adverse effect on
financial position or results of operations.
Projects in the U.K. sell their electrical energy and capacity through a
centralized electricity pool, which establishes a half-hourly clearing price
(also referred to as the "pool price") for electrical energy. The half-hourly
pool price is extremely volatile and can vary by as much as a factor of 10 or
more over the course of a few hours, due to the large differentials in demand
according to the time of day. First Hydro mitigates a portion of the market
risk of the pool by entering into contracts for differences (electricity rate
swap agreements), related to either the selling or purchasing price of power,
whereby a contract specifies a price at which the electricity will be traded,
and the parties to the agreement make payments, calculated based on the
difference between the price in the contract and the half-hourly pool clearing
price for the element of power under contract. These contracts can be sold in
two structures: one-way contracts, the most commonly used by First Hydro, where
a specified monthly amount is received in advance and difference payments are
made when the pool price is above the price specified in the contract, and two-
way contracts, where the counter party pays First Hydro when the pool price is
below that in the contract instead of a specified monthly amount. These
contracts act as a means of stabilizing production revenues or purchasing costs
by removing an element of First Hydro's net exposure to pool price volatility.
First Hydro electric revenues were decreased by $4.5 million for the year ended
December 31, 1996 and $29 million in December 1995, as a result of electricity
rate swap agreements.
Fluctuations in foreign currency exchange rates can affect, on a U.S. dollar
equivalent basis, the amount of EME's equity contributions to, and distributions
from, its foreign projects. As EME continues to expand into foreign markets,
fluctuations in foreign currency exchange rates can be expected to have a
greater impact on EME's results of operations in the future. At times, EME has
hedged a portion of its current exposure to fluctuations in foreign exchange
rates where it deems appropriate through financial derivatives, offsetting
obligations denominated in foreign currencies, and indexing underlying project
agreements to U.S. dollars or other indices reasonably expected to correlate
with foreign exchange movements. In addition, EME has used statistical
forecasting techniques to help assess foreign exchange risk and the
probabilities of various outcomes. There can be no assurance, however, that
fluctuations in exchange rates will be fully offset by hedges or that currency
movements and the relationship between certain macro economic variables will
behave in a manner that is consistent with historical or forecasted
relationships. Foreign exchange considerations for certain major international
projects are discussed below.
The First Hydro project in the U.K. has been financed in the local currency
(pound sterling) thereby hedging the majority of the acquisition cost against
foreign exchange fluctuations. Furthermore, EME has evaluated the return on the
remaining equity portion of the investment with regard to the likelihood of
various foreign exchange scenarios. These analyses use market derived
volatilities, statistical correlations between certain variables, and long-term
forecasts to predict ranges of expected returns. Management has determined that
the investment return for First Hydro is adequately insulated from a broad range
of foreign exchange scenarios at this time.
The Paiton project's power sales contract provides for payments denominated
in Rupiah that are adjusted to account for exchange rate fluctuations between
the Rupiah and U.S. dollar. Both capacity and energy payments have a Rupiah
component and U.S. dollar component. Each component is adjusted annually
beginning in 1999 (when the project becomes fully operational) based on changes
in the Indonesian and U.S. consumer price indices after 1997.
In December 1996, EME repaid a 200 million Australian dollar loan that was
originally structured to hedge a portion of the foreign exchange risk associated
with EME's equity investment in the Loy Yang B project in Australia. The
decision to repay the loan was based on management's view that the cost of the
hedge was high relative to the current volatility of the Australian dollar and
the sensitivity of EME's investment returns to likely and less likely
fluctuations.
EME will continue to monitor its foreign exchange exposure and analyze the
effectiveness and efficiency of hedging strategies in the future.
The electric power generated by EME's operating projects that are generally
sold to a limited number of electric utilities pursuant to long-term (typically,
15 to 30 year) power sales contracts are expected to result in consistent cash
flow under a wide range of economic and operating circumstances. To accomplish
this, EME structures its long-term contracts so that fluctuations in fuel costs
will produce similar fluctuations in electric and/or steam revenues and by
entering into long-term fuel supply and transportation agreements.
ENVIRONMENTAL MATTERS OR REGULATIONS EME is subject to environmental regulation
by federal, state and local authorities in the U.S. and foreign regulatory
authorities with jurisdiction over projects located outside the U.S. EME
believes that it is in substantial compliance with environmental regulatory
requirements and that maintaining compliance with current requirements will not
materially affect its financial position or results of operations.
EME completed a review of some of its sites in 1995 and does not believe
that a material liability exists as of December 31, 1996. The implementation of
Clean Air Act Amendments is expected to result in increased operating expenses;
however, these increased operating expenses are not expected to have a material
impact on EME's financial position or results of operations.
PROPOSED NEW ACCOUNTING STANDARD During 1996, the Financial Accounting
Standards Board issued an exposure draft, that would establish accounting
standards for the recognition and measurement of closure and removal
obligations. The exposure draft would require the estimated present value of an
obligation to be recorded as a liability, along with a corresponding increase in
the plant asset accounts when the obligation is incurred. Management has
commenced a review of the potential impact of this exposure draft and will
conclude such review during 1997. Based on information obtained to date,
management does not expect the impact of this proposed new accounting standard
to have a material impact on EME's financial position or results of operations.
RECENT DEVELOPMENTS On March 4, 1997, EME entered into an agreement to sell its
ownership interest in B.C. Star Partners (B.C. Star) to Remington Energy Ltd.
for approximately $71 million. B.C. Star, an oil and gas partnership between
Texaco Canada Petroleum Inc. and Mission Energy Canada Corporation, a wholly
owned subsidiary of EME, operates 11 producing properties in British
Columbia, Canada, with current production of approximately 60 million cubic
feet per day of natural gas and 1,000 barrels per day of oil and natural gas
liquids. The transaction is expected to close on or about April 30, 1997.
EME expects to record an after-tax gain upon the closing of the transaction
in the second quarter of 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
Report of Independent Accountants.
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994.
Consolidated Balance Sheets at December 31, 1996 and 1995.
Consolidated Statements of Shareholder's Equity for the years ended December
31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
EDISON MISSION ENERGY AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Edison Mission Energy:
We have audited the accompanying consolidated balance sheets of Edison
Mission Energy (a California corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholder's
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
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Edison
Mission Energy 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.
Arthur Andersen LLP
Orange County, California
March 14, 1997
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES:
Electric revenues $650,838 $297,200 $206,990
Equity in income from energy projects 128,823 125,880 135,794
Equity in income from oil and gas 25,090 9,939 10,206
Operation and maintenance services 38,867 34,327 27,609
--------- --------- ---------
Total operating revenues 843,618 467,346 380,599
--------- --------- ---------
OPERATING EXPENSES:
Fuel 137,151 79,162 54,840
Plant operations 124,451 42,078 24,515
Operation and maintenance services 28,065 26,845 22,999
Depreciation and amortization 89,853 45,589 39,946
Administrative and general 96,954 70,354 57,585
--------- --------- ---------
Total operating expenses 476,474 264,028 199,885
--------- --------- ---------
Income from operations 367,144 203,318 180,714
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest and other income 20,766 30,034 34,779
Gain on sale of interest in energy projects 19,986 3,144 4,107
Interest expense (151,139) (83,050) (88,285)
Dividends on preferred securities (13,100) (10,095) (744)
Minority interest (69,547) (48,343) (46,158)
--------- --------- ---------
Total other income (expense) (193,034) (108,310) (96,301)
--------- --------- ---------
Income before income taxes 174,110 95,008 84,413
Provision for income taxes 82,045 31,000 29,369
--------- --------- ---------
NET INCOME $ 92,065 $ 64,008 $ 55,044
========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 383,634 $ 137,540
Accounts receivable - trade 71,046 88,988
Accounts receivable - affiliates 10,798 10,348
Prepaid expenses and other 13,747 13,268
---------- ----------
Total current assets 479,225 250,144
---------- ----------
Investments
Energy projects 794,646 723,935
Oil and gas 121,237 156,905
---------- ----------
Total investments 915,883 880,840
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 3,401,006 2,845,422
Less accumulated depreciation and amortization 152,458 83,275
---------- ----------
Net property, plant and equipment 3,248,548 2,762,147
---------- ----------
OTHER ASSETS
Long-term receivables 91,567 86,030
Goodwill 334,481 311,942
Deferred financing costs and other 82,768 82,933
---------- ----------
Total other assets 508,816 480,905
---------- ----------
TOTAL ASSETS $5,152,472 $4,374,036
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $ 35,996 $ 11,500
Accounts payable and accrued liabilities 118,824 137,623
Interest payable 35,076 13,641
Current maturities of long-term obligations 80,994 37,009
---------- ----------
Total current liabilities 270,890 199,773
---------- ----------
LONG-TERM OBLIGATIONS NET OF CURRENT MATURITIES 2,419,890 1,839,003
---------- ----------
LONG-TERM DEFERRED LIABILITIES
Deferred taxes and tax credits 545,449 502,611
Other 39,049 23,958
---------- ----------
Total long-term deferred liabilities 584,498 526,569
---------- ----------
Total liabilities 3,275,278 2,565,345
---------- ----------
MINORITY INTERESTS 707,289 630,154
---------- ----------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
SECURITY OF PARTNERSHIP HOLDING SOLELY
PARENT DEBENTURES 150,000 150,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 11 and 12)
SHAREHOLDER'S EQUITY
Common stock, no par value; 10,000 shares
authorized; 100 shares issued and outstanding 64,130 64,130
Additional paid-in capital 629,289 629,289
Retained earnings 262,594 320,529
Cumulative translation adjustments 63,892 14,589
---------- ----------
Total shareholder's equity 1,019,905 1,028,537
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,152,472 $4,374,036
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-in Retained Translation Shareholder's
Stock Capital Earnings Adjustments Equity
------ -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $64,130 $285,789 $203,165 $ (1,794) $ 551,290
Net income -- -- 55,044 -- 55,044
Non-cash dividends -- -- (1,688) -- (1,688)
Translation adjustments -- -- -- 17,601 17,601
------- -------- -------- ---------- -----------
BALANCE AT DECEMBER 31, 1994 64,130 285,789 256,521 15,807 622,247
Net income -- -- 64,008 -- 64,008
Cash contributions -- 350,000 -- -- 350,000
Issuances of stock by a
subsidiary -- (6,500) -- -- (6,500)
Translation adjustments -- -- -- (1,218) (1,218)
------- -------- --------- ---------- -----------
BALANCE AT DECEMBER 31, 1995 64,130 629,289 320,529 14,589 1,028,537
Net income -- -- 92,065 -- 92,065
Cash dividends -- -- (150,000) -- (150,000)
Translation adjustments -- -- -- 49,303 49,303
------- -------- --------- ---------- -----------
BALANCE AT DECEMBER 31, 1996 $64,130 $629,289 $262,594 $63,892 $1,019,905
======= ======== ========= ========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 92,065 $ 64,008 $ 55,044
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income from energy projects (128,823) (125,880) (135,794)
Equity in income from oil and gas (25,090) (9,939) (10,206)
Distributions from energy projects 125,717 158,226 145,688
Dividends from oil and gas 50,576 19,500 57,642
Depreciation and amortization 89,853 45,589 39,946
Deferred tax provision (credit) 3,378 (4,559) (16,770)
Gain on sale of interest in energy projects (19,986) (3,144) (4,107)
Decrease (increase) in accounts receivable 31,356 (9,662) (2,187)
Decrease (increase) in prepaid expenses and other 4,193 190 (11,115)
Increase in interest payable 18,635 3,293 7,168
Increase (decrease) in accounts payable and accrued liabilites 10,869 (10,692) 12,717
Other, net 41,723 22,920 13,865
--------- --------- ---------
Net cash provided by operating activities 294,466 149,850 151,891
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on long-term obligations 188,482 770,320 357,987
Payments on long-term obligations (871,734) (67,643) (269,372)
Issuance of Guaranteed Secured Bonds 603,840 -- --
Issuance of debt securities 414,275 -- --
Issuance of preferred securities -- 62,500 87,500
Cash dividend to parent (150,000) -- --
Capital contribution from parent -- 350,000 --
--------- ---------- ---------
Net cash provided by financing activities 184,863 1,115,177 176,115
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in energy projects (78,575) (98,403) (22,611)
Loans to energy projects (106,443) (243,894) (124,023)
Payments for common stock of acquired companies (34,640) (1,042,591) (29,724)
Capital expenditures (119,407) (192,808) (138,757)
Proceeds from energy projects loan repayments 32,067 375,330 6,838
Proceeds from sale of interest in energy projects 70,000 12,457 10,596
Other, net (9,321) (1,358) (18,749)
--------- ----------- ---------
Net cash used in investing activities (246,319) (1,191,267) (316,430)
--------- ----------- ---------
Effect of exchange rate changes on cash 13,084 (365) 1,325
--------- ----------- ---------
Net increase in cash and cash equivalents 246,094 73,395 12,901
Cash and cash equivalents at beginning of period 137,540 64,145 51,244
--------- ----------- ---------
Cash and cash equivalents at end of period $ 383,634 $ 137,540 $ 64,145
=========== ============ =============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
NOTE 1. ORGANIZATION
- --------------------
Edison Mission Energy (EME) is a wholly owned subsidiary of The Mission
Group (TMG), a wholly owned, non-utility subsidiary of Edison International, the
parent holding company of Southern California Edison Company (Edison). EME is
engaged in the business of developing, acquiring, owning and operating
independent electric power generation facilities.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Consolidations
The consolidated financial statements include EME and its majority owned
subsidiaries, partnerships and a joint venture. At December 31, 1996, EME
indirectly owned 51% of the Loy Yang B joint venture, which owns the Loy Yang B
project, and 80% of the stock of Lakeland Power Limited, which owns the
Roosecote project. All significant intercompany transactions have been
eliminated. Certain prior year reclassifications have been made to conform to
the current year financial statement presentation.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Investments
Cash equivalents include time deposits and other investments totaling $240
million at December 31, 1996, with maturities of three months or less. All
investments are classified as available-for-sale.
Investments in energy projects and oil and gas that are 50% or less owned
are accounted for by the equity method. The majority of energy projects and all
investments in oil and gas are accounted for under the equity method at December
31, 1996.
Property, Plant and Equipment
Property, plant and equipment, including leasehold improvements and
construction in progress, are capitalized at cost and are principally comprised
of five energy entities' plants and related facilities. Depreciation and
amortization are computed by using the straight-line method over the useful life
of the property, plant and equipment and over the lease term for leasehold
improvements.
Useful lives for property, plant and equipment are as follows:
Furniture and office equipment 3 - 10 years
Building, plant and equipment 25 - 50 years
Civil works 60 - 80 years
Capitalized leased equipment 10 - 30 years
Leasehold improvements Life of lease
Goodwill
Goodwill represents the cost incurred in connection with the purchase of
First Hydro Company (First Hydro) in excess of the fair value of the net assets
acquired in December 1995. This amount is being amortized over 40 years on a
straight-line basis. Accumulated amortization was $9.3 million and $0.7 million
at December 31, 1996 and 1995, respectively.
Impairment of Investments and Long-Lived Assets
EME periodically evaluates the potential impairment of its investments in
projects and other long-lived assets (including goodwill) based on a review of
estimated future cash flows expected to be generated. If the carrying amount of
the investment or asset exceeds the amount of the expected future cash flows, an
impairment loss is recognized accordingly. Effective January 1, 1996, EME
adopted Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires, among other things, that an impairment loss shall only
be recognized when the carrying amount of a long-lived asset exceeds the
expected future cash flows (undiscounted and without interest charges) and that,
when appropriate, the amount of loss to be recognized shall be measured as the
amount by which the carrying value exceeds the fair value of the asset. The
adoption of this statement did not have a material adverse effect on the
consolidated financial position or results of operations of EME.
Capitalized Interest
Interest incurred on funds borrowed by EME to finance project construction
is capitalized. Capitalization of interest is discontinued when the projects
are completed and deemed operational. Such capitalized interest is included in
investment in energy projects and property, plant and equipment.
Capitalized interest is amortized over the depreciation period of the major
plant and facilities for the respective project.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Interest incurred $207.2 $141.4 $134.4
Interest capitalized (56.1) (58.3) (46.1)
------- ------- -------
$151.1 $ 83.1 $ 88.3
======= ======= =======
</TABLE>
Income Taxes
EME is included in the consolidated federal income tax and combined state
franchise tax returns of Edison International. EME calculates its income tax
provision on a separate company basis under a tax sharing arrangement with TMG,
which in turn has an agreement with Edison International. Tax benefits
generated by EME and used in the Edison International consolidated tax return
are recognized by EME without regard to separate company limitations.
EME accounts for income taxes using the asset-and-liability method, wherein
deferred tax assets and liabilities are recognized for future tax consequences
of temporary differences between the carrying amounts and the tax bases of
assets and liabilities using enacted rates. Investment and energy tax credits
are deferred and amortized over the term of the power-purchase agreement of the
respective project and production tax credits and certain other allowances are
accounted for by the flow-through method. Income tax accounting policies are
discussed further in Note 8.
Project Development Costs
EME capitalizes only the direct costs incurred in developing new projects.
These costs consist of professional fees, salaries, permits, bids and other
directly related development costs incurred by EME before a partnership or joint
venture is formed to develop the project. The capitalized costs are amortized
over the life of operational projects or charged to expense if management
determines the costs to be unrecoverable.
Deferred Financing Costs
Bank, legal and other direct costs incurred in connection with obtaining
financing are deferred and amortized as interest expense on a basis which
approximates the effective interest rate method over the term of the related
debt. Accumulated amortization amounted to $6.9 million in 1996 and $2.5
million in 1995.
Financial Instruments
EME enters into interest rate swap and cap agreements to manage its interest
rate exposure. The related net interest rate differentials to be paid or
received are recorded currently as adjustments to interest expense. In
addition, EME enters into electricity rate swap agreements to manage its
exposure to the U.K. market (pool) price volatility. The related price
differentials to be paid or received are currently recorded as adjustments to
electric revenues.
Translation of Foreign Financial Statements
Assets and liabilities of most foreign operations are translated at current
rates of exchange and the income statements are translated at the average rates
of exchange for the year. Gains or losses resulting from foreign currency
transactions are normally included in other income in the consolidated
statements of income. Foreign currency transaction gains and losses were
immaterial for 1996 and 1995. Foreign currency transaction gains amounted to
$7.8 million for 1994. Gains or losses from translation of foreign currency
financial statements are included in shareholder's equity.
Stock-based Compensation
EME measures compensation expense relative to stock-based compensation by
the intrinsic-value method.
NOTE 3. ACQUISITIONS
- ---------------------
In December 1995, First Hydro Finance Plc (First Hydro Finance), an indirect
subsidiary of EME, purchased all of the outstanding shares of First Hydro,
formerly First Hydro Limited, for approximately $1 billion (653 million pounds
sterling). First Hydro's principal assets consist of two pumped-storage
electric power stations located in North Wales at Dinorwig and Ffestiniog, which
have a combined capacity of 2,088 MW.
This acquisition was funded through a combination of (i) a $621 million (400
million pounds sterling) credit facility with a bank (see Note 6) and (ii) a
$455 million (295.3 million pounds sterling) equity investment funded from a
combination of a $350 million capital contribution from Edison International,
and from EME's working capital and credit lines.
The acquisition has been accounted for utilizing the purchase method,
whereby the cost of the acquisition was allocated to the assets acquired and the
liabilities assumed based upon their respective fair values. The consolidated
statement of income for 1995 includes operating results of the acquired business
beginning in December 1995.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of First Hydro had occurred at the beginning
of the periods presented, after giving effect to certain adjustments, including
the depreciation and amortization of the assets acquired based on the fair
values, interest expense on acquisition debt and related income tax
adjustments. These results have been prepared for comparative purposes only
and do not purport to be indicative of what would have occurred had the
acquisition been made at the beginning of 1995 or 1994 or of the results
which may occur in the future.
<TABLE>
<CAPTION>
(Unaudited)
Years Ended December 31,
----------------------------
1995 1994
------ ------
<S> <C> <C>
Operating revenue $690.4 $595.8
Net income 80.8 63.8
</TABLE>
The table below summarizes additional stock acquisitions by EME or its
wholly owned subsidiaries during 1994, 1995 and 1996.
<TABLE>
<CAPTION>
Percentage Purchase
Date Acquired By Acquisition Acquired Price
- ---------------- ---------------------- ------------------------------- ---------- --------
<S> <S> <S> <C> <C>
Energy Projects
August 8, 1995 MEC Indo Coal B.V. P.T. Adaro Indonesia 10.0% $19.0
January 23, 1996 MEC International B.V. Iberian Hy-Power Amsterdam B.V. 66.0% 19.5
January 31, 1996 MEC Indonesia B.V. P.T. Paiton Energy Company 7.5% 10.2
Oil and Gas
September 30, 1994 Mission Energy Oil & Gas Four Star Oil & Gas Company 12.6% 29.7
Company (MEO&GC) (Four Star)
January 1, 1995 MEO&GC Four Star 6.0% 8.8
August 1, 1996 MEO&GC Four Star 4.4% 4.9
</TABLE>
NOTE 4. INVESTMENTS
- --------------------
Investments in Energy Projects
Investments in energy projects, generally 50% or less owned partnerships and
corporations, accounted for by the equity method are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
-------- -------
<S> <C> <C>
Domestic energy projects
Equity investment $419.6 $481.3
Notes receivable 202.6 141.5
------ ------
Subtotal 622.2 622.8
International energy projects:
Equity investment and advances 172.4 101.1
------ ------
Total $794.6 $723.9
====== ======
</TABLE>
EME's subsidiaries have provided loans or advances related to certain
projects. One loan totaled $153.9 million and bears interest at a 10% rate.
Another loan amounting to $26.3 million, comprising promissory notes bearing
interest at 5% payable semiannually, is due in April 2008. Loans to three other
domestic projects amounted to $22.4 million at December 31, 1996, and bear
interest at variable rates (8.25% to 12.5%).
The following table presents summarized financial information of the
investments in energy projects, accounted for by the equity method:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue $1,383.3 $1,128.9 $1,092.1
Expenses 1,083.1 862.4 811.4
-------- -------- --------
Net income $ 300.2 $ 266.5 $ 280.7
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
-------- -------
<S> <C> <C>
Current assets $ 480.0 $ 448.8
Noncurrent assets 3,653.9 3,647.8
-------- --------
Total assets $4,133.9 $4,096.6
======== ========
Current liabilities $ 614.0 $ 448.7
Noncurrent liabilities 2,341.7 2,349.0
Equity 1,178.2 1,298.9
-------- --------
Total liabilities and equity $4,133.9 $4,096.6
======== ========
</TABLE>
The majority of noncurrent liabilities are comprised of project financing
arrangements that are non-recourse to EME.
The following table presents, as of December 31, 1996, the energy projects
accounted for by the equity method that represent at least five percent (5%) of
EME's income before tax or in which EME has an investment balance greater than
$50 million.
<TABLE>
<CAPTION>
Energy Project Location Investment Operating Status
-------------- -------- ---------- ----------------
<S> <S> <C> <C>
Brooklyn Navy Yard Brooklyn, NY $175.5 Operating cogeneration facility
Watson Carson, CA 127.4 Operating cogeneration facility
Paiton East Java, Indonesia 121.8 Coal-fired facility under
construction
Sycamore Bakersfield, CA 60.4 Operating cogeneration facility
Kern River Bakersfield, CA 52.5 Operating cogeneration facility
Midway-Sunset Fellows, CA 37.2 Operating cogeneration facility
March Point 1 & 2 Anacortes, WA 9.8 Operating cogeneration facility
</TABLE>
Investments in Oil and Gas
At December 31, 1996, EME had one 46.85% owned and two 50% owned investments
in oil and gas. These investments are accounted for utilizing the equity
method. The difference between the carrying value of one oil and gas investment
and the underlying equity in the net assets amounted to $49.9 million at
December 31, 1996. The difference is being amortized on a unit of production
basis over the life of the reserves. The following table presents summarized
financial information of the investments in oil and gas:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Operating revenue $313.7 $230.5 $223.6
Operating expenses 222.3 187.5 172.2
------ ------ ------
Operating income 91.4 43.0 51.4
Provision for income taxes 17.2 2.9 10.7
------ ------ ------
Net income (before non-operating items) 74.2 40.1 40.7
Non-operating expense, net (12.0) (12.5) (4.0)
------ ------ ------
Net income $ 62.2 $ 27.6 $ 36.7
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
------ ------
<S> <C> <C>
Current assets $109.1 $114.0
Noncurrent assets 526.8 627.8
------ ------
Total assets $635.9 $741.8
====== ======
Current liabilities $ 46.2 $ 39.9
Noncurrent liabilities 336.2 347.6
Deferred income taxes 59.0 76.3
Equity 194.5 278.0
------ ------
Total liabilities and equity $635.9 $741.8
====== ======
</TABLE>
The undistributed earnings of investments accounted for by the equity method
were $138.9 million in 1996 and $118.8 million in 1995.
Long-Term Receivables
At December 31, 1996, long-term receivables include notes receivable
totaling $86 million from EME's former partner in the Carbon II power plant.
These notes are secured with shares of stock of its former partner (and certain
subsidiaries) in the Carbon II power plant and Micare mines in Mexico. Interest
on these notes is payable quarterly at LIBOR plus 2% (7.6% at December 31,
1996), with principal due in November 1999.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Buildings, plant and equipment $ 2,198.9 $ 889.9
Civil works 996.0 912.3
Construction in progress 0.6 857.9
Capitalized leased equipment 205.5 185.3
--------- ---------
3,401.0 2,845.4
Less accumulated depreciation and amortization 152.5 83.3
--------- ---------
$ 3,248.5 $ 2,762.1
========= =========
</TABLE>
NOTE 6. FINANCIAL INSTRUMENTS
- ------------------------------
Long-Term Obligations
Long-term obligations include both corporate debt and non-recourse project
debt, whereby lenders are generally relying on specific project assets to repay
such obligations. Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
-------- -------
<S> <C> <C>
EME (parent only):
Senior Notes, net:
due 1999 (7.75%) $ 99.7 $ 99.6
due 2002 (8.125%) 99.1 99.0
200 million Australian dollar Credit Facility
due 2001 (offshore Australian dollar deposit
rate +.05%) (7.875% at 12/31/95) -- 148.6
$500 million revolving line of credit<F1>
due 2001 (LIBOR + 0.4%)
(6.025% at 12/31/95) -- 55.0
Edison Mission Energy Funding Corp.:
Series A Notes, net
due 1997-2003 (6.77%) 258.4 --
Series B Bonds, net
due 2004-2008 (7.33%) 188.7 --
First Hydro Finance:
400 million pounds sterling Credit Facility
due 1999 (sterling LIBOR +.25 to .85%)
(6.813% to 7.413% at 12/31/95) -- 621.4
400 million pounds sterling Guaranteed Secured Bonds
(9%) due 2021 684.9 --
Iberian Hy-Power project:
Project credit facilities
due 2003 (MIBOR + 1.5 to 2%)
(7.836% to 8.336% at 12/31/96) 85.7 --
Loy Yang B project:
Latrobe Project Facilities Agreement
due 2008 (BER + 1.75 to 1.95%)
(7.737% to 7.937% at 12/31/96) 744.6 568.9
Roosecote project:
Capital lease obligation (see Note 12) 90.3 98.0
Term Loan and Guarantee Facility
due 2005 (sterling LIBOR + 0.7%)
(7.247% at 12/31/96) 58.0 45.3
Kwinana project:
Kwinana Bank Debt
due 2011 (BER + 1.3 to 1.5%)
(7.287% to 7.487% at 12/31/96) 104.2 67.3
Other long-term obligations 87.3 72.9
-------- --------
Subtotal 2,500.9 1,876.0
Current maturities of long-term obligations (81.0) (37.0)
-------- --------
Total $2,419.9 $1,839.0
======== ========
<FN>
<F1> At December 31, 1996, EME had available $430 million of borrowing capacity
and approximately $70 million letters of credit issued under the $500
million revolving credit facility.
</FN>
</TABLE>
On December 20, 1996, Edison Mission Energy Funding Corp., 99% owned by
Broad Street Contract Services, Inc. and 1% owned by EME, completed a sale of
$450 million of senior notes and bonds to institutional investors pursuant to
the Rule 144A exemption under the U.S. Securities Act of 1933 for non-public
sales. The senior notes and bonds are secured by the pledge of (i) notes issued
by four EME subsidiaries that own interests in four California cogeneration
projects: the Kern River project (300 MW), the Midway-Sunset project (225 MW),
the Sycamore project (300 MW) and the Watson project (385 MW), (ii) 99% of the
capital stock of Edison Mission Energy Funding Corp. and (iii) a guarantee
issued by the four EME subsidiaries. The financing structure was designed to
pool and cross-collateralize available cash flow to the four EME subsidiaries
from the four projects thus providing for repayment of the senior notes and
bonds with available cash flow from the four projects. The obligations of the
four EME subsidiaries are non-recourse to EME.
The $450 million of securities issued by Edison Mission Energy Funding Corp.
consist of $260 million of Series A Notes and $190 million of Series B Bonds
which mature in September 2003 and September 2008, respectively. The Series A
Notes and Series B Bonds bear an interest rate of 6.77% and 7.33%,
respectively. The principal and interest payments under the notes issued by
the four EME subsidiaries are identical in terms as the Series A Notes and
Series B Bonds.
The net proceeds from the sale of securities were used by EME to repay
borrowings under its $500 million revolving credit facility, retire EME's 200
million Australian dollar credit facility, defease other project debt and for
other general corporate purposes.
In connection with the First Hydro acquisition, First Hydro Finance entered
into a $621 million (400 million pounds sterling) credit facility with a bank in
December 1995. EME issued two letters of credit totaling $43.5 million (28
million pounds sterling) under its corporate credit facility to meet conditions
precedent to the initial borrowing comprised of a $24.9 million (16 million
pounds sterling) interest reserve letter of credit (Debt Service Letter of
Credit) and a $18.6 million (12 million pounds sterling) revenue support letter
of credit due to expire in five years. In January 1996, First Hydro Finance
issued 400 million pounds sterling of 9% Guaranteed Secured Bonds (Bonds) at par
due on July 31, 2021. First Hydro Finance will commence funding a redemption
reserve for principal repayment beginning in 2017 with interest payments due on
a semi-annual basis beginning July 1996. The Bonds are secured by the two
pumped-storage electric power stations located in North Wales. The net proceeds
of $604 million (396 million pounds sterling) received, along with other funds
held by First Hydro Finance, were used to repay the borrowings under the 400
million pounds sterling credit facility. At such time, the Debt Service Letter
of Credit was retired. Concurrently, EME issued another letter of credit in the
amount of $30.8 million (18 million pounds sterling) to meet a requirement for
six months of interest in a bond interest reserve account.
Annual maturities on long-term debt at December 31, 1996, for the next five
years, excluding capital leases (see Note 12) are summarized as follows: 1997 -
$61.5 million; 1998 - $87.2 million; 1999 - $166 million; 2000 - $80.2 million;
2001 - $99.9 million.
The Latrobe Project Facilities Agreement is secured by the assets of the
Latrobe Power Partnership, which owns 51% of the Loy Yang B joint venture. The
"BER" referred to above is the Bill Exchange Rate, which is the bid rate for
'bills of exchange' accepted by banks in Australia.
Certain cash balances are restricted from being used to make loans and
advances or to pay dividends to EME by the amount required for debt payments,
letter of credit expenses and permitted project costs. The total restricted
cash was $17.8 million at December 31, 1996 and $16 million at December 31,
1995.
Debt service reserves classified in Other Assets (including reserves for
interest on annual lease payments) were $13.2 million at December 31, 1996, and
$24.2 million at December 31, 1995.
Each of EME's direct or indirect subsidiaries is organized as a legal entity
separate and apart from EME and its other subsidiaries. Any asset of any such
subsidiary may not be available to satisfy the obligations of EME or any of its
other such subsidiaries; provided, however, that unrestricted cash or other
assets which are available for distribution may, subject to applicable law and
the terms of financing arrangements of such parties, be advanced, loaned, paid
as dividends or otherwise distributed or contributed to EME or affiliates
thereof.
Other Financial Instruments
Projects in the U.K. sell their electrical energy and capacity through a
centralized electricity pool, which establishes a half-hourly clearing price for
electrical energy. The half-hourly pool price is extremely volatile and can
vary by as much as a factor of 10 or more over the course of a few hours, due to
the large differentials in demand according to the time of day. First Hydro
mitigates a portion of the market risk of the pool by entering into contracts
for differences (electricity rate swap agreements), related to either the
selling or purchasing price of power, whereby a contract specifies a price at
which the electricity will be traded, and the parties to the agreement make
payments, calculated based on the difference between the price in the contract
and the half-hourly pool clearing price for the element of power under
contract. These contracts can be sold in two structures: one-way contracts,
the most commonly used by First Hydro, where a specified monthly amount is
received in advance and difference payments are made when the pool price is
above the price specified in the contract, and two-way contracts, where the
counter party pays First Hydro when the pool price is below that in the
contract instead of a specified monthly amount. These contracts act as a
means of stabilizing production revenues or purchasing costs by removing an
element of First Hydro's net exposure to pool price volatility. The
Roosecote project has avoided the pool price volatility by entering into a
long-term power sales contract that provides for contract pricing. EME's risk
management policy allows for the use of these contracts and other derivative
financial instruments to limit financial exposure on its investments and to
manage exposure to fluctuations in interest rates, foreign exchange rates and
energy prices but prohibits the use of these instruments for speculative
investment purposes. EME does not hold or issue financial instruments for
trading purposes.
EME had the following derivative financial instruments at December 31, 1996
and 1995, except where noted:
<TABLE>
<CAPTION>
Category Contract Amount/Terms Purpose
-------- --------------------- -------
<S> <C> <C>
INTEREST RATE SWAPS
EME (parent only): $200 million expiring in 1999 ($100 Convert fixed-rate debt of 7.75%
million) and 2002 ($100 million) and 8.125% to a floating rate,
such floating rate capped at 9.0%
$45 million expiring in 1999, Convert fixed-rate debt of 9.875%
corresponding preferred securities due to a floating rate
2024
$75 million expired in August 1996 Change interest rate exposure to
a fixed rate of 7.98%
Iberian Hy-Power
project: 10.9 billion Spanish pesetas (U.S. $83.6 Change floating rate debt to
million) expiring 1998-2003 fixed rates ranging from 8.4% to
11.38%
Roosecote project: 45 million pounds sterling (12/31/96) Change floating-rate debt to a
(U.S. $77 million); 51 million pounds fixed rate of 12.4%
sterling (12/31/95) (U.S. $79 million)
expiring in 1997, corresponding debt due
2005
Kwinana project: 41.9 million Australian dollars (12/31/96) Change floating-rate debt to a
(U.S. $33 million); 33.6 million fixed rate of 10.98%
Australian dollars (12/31/95) (U.S. $25
million) expiring in 2007
INTEREST RATE CAP
Kwinana project: 57.5 million Australian dollars (12/31/95) Change interest rate exposure to
(US $42.7 million) expired in November a fixed rate of 11.25%
1996
ELECTRICITY RATE SWAPS
First Hydro project: Approximately 1,735 MW of electrical Change the variable market
generation under selling pricing contracts electricity sales rates to fixed
(12/31/96); 1,500 MW (12/31/95) expiring rates
at various dates through 2000
Approximately 416 MW of electricity under
purchasing pricing contracts (12/31/96) Change the variable market
expiring March 1997 electricity rates to fixed rates
</TABLE>
<TABLE>
Fair values of financial instruments were:
<CAPTION>
December 31,
------------------------------------------------------------
1996 1995
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Instrument Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Long-term receivables $ 91.6 $ 99.9 $ 86.0 $ 90.3
Electricity rate swap agreements -- 26.8 -- 22.1
Long-term obligations 2,419.9 2,434.4 1,839.0 1,863.0
Interest rate swap/cap agreements $ -- $ (17.6) $ -- $ (10.3)
</TABLE>
The fair values for long-term receivables, interest rate swap agreements,
the interest rate cap agreement and long-term obligations are based primarily on
quoted market prices. The carrying amounts reported for cash equivalents
approximate fair value due to their short maturities.
The fair value of the electricity rate swap agreements entered into by First
Hydro has been estimated by discounting the future cash flows on the difference
between the average aggregate contract price per MW and a forecasted market
price per MW, multiplied by the amount of MW sales remaining under contract.
Credit Risk
EME's financial instruments and power sales contracts involve elements of
credit risk. Credit risk relates to the risk of loss that EME would incur as a
result of nonperformance by counter parties pursuant to the terms of their
contractual obligations. The counter parties to financial instruments and
contracts consist of a number of major financial institutions and domestic and
foreign utilities. EME attempts to mitigate this risk by entering into
contracts with counter parties that have a strong capacity to meet their
contractual obligations and by monitoring the credit quality of these financial
institutions and utilities. In addition, EME enters into contracts whereby the
structure of the contracts minimizes its credit exposure. Accordingly, EME does
not anticipate any material impact to its financial position or results of
operations as a result of counter party nonperformance.
The electric power generated by EME's operating projects that are generally
sold to a limited number of electric utilities pursuant to long-term (typically,
15 to 30 year) power sales contracts (see Note 13) are expected to result in
consistent cash flow under a wide range of economic and operating circumstances.
To accomplish this, EME structures its long-term contracts so that fluctuations
in fuel costs will produce similar fluctuations in electric and/or steam
revenues and by entering into long-term fuel supply and transportation
agreements. In addition, EME has plants located in different geographic areas
in order to mitigate the effects of regional markets, economic downturns or
unusual weather conditions.
NOTE 7. COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITY OF PARTNERSHIP HOLDING
- --------------------------------------------------------------------------------
SOLELY PARENT DEBENTURES
- ------------------------
During November 1994, Mission Capital, L.P., a limited partnership in which
EME is the sole general partner and a wholly owned subsidiary of EME is the
limited partner, issued 3.5 million of 9-7/8% Cumulative Monthly Income
Preferred Securities, Series A, at a price of $25 per security. These
securities are redeemable at the option of Mission Capital, L.P. in whole or in
part beginning November 1999 with mandatory redemption in 2024 at a redemption
price of $25 per security plus accrued and unpaid distributions.
During August 1995, Mission Capital, L.P., issued 2.5 million of 8-1/2%
Cumulative Monthly Income Preferred Securities, Series B, at a price of $25 per
security. These securities are redeemable at the option of Mission Capital,
L.P. in whole or in part beginning August 2000 with mandatory redemption in 2025
at a redemption price of $25 per security plus accrued and unpaid distributions.
NOTE 8. INCOME TAXES
- ---------------------
Current and Deferred Taxes
Income tax expense includes the current tax liability from operations and
the change in deferred income taxes during the year. The components of the net
accumulated deferred income tax liability were:
<TABLE>
<CAPTION> December 31,
------------------------
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Reserves and other items not currently deductible $ 64.5 $ 73.2
Loss carryforwards 129.9 88.7
Dividends in excess of equity earnings 22.6 13.5
Other 10.0 6.8
------ ------
Total 227.0 182.2
------ ------
Deferred tax liabilities:
Basis differences 741.3 631.6
Tax credits, net 30.7 43.8
Other 0.4 9.4
------ ------
Total 772.4 684.8
------ ------
Deferred taxes and tax credits, net $545.4 $502.6
====== ======
</TABLE>
Loss carryforwards, primarily Australian, total $381 million at December 31,
1996, with no expiration date.
<TABLE>
The components of income before income taxes are as follows:
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
U.S. $ 40.6 $50.6 $78.7
Foreign 133.5 44.4 5.7
------ ----- -----
Total $174.1 $95.0 $84.4
====== ===== =====
</TABLE>
<TABLE>
The provision for income taxes is comprised of the following:
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Current
Federal $33.1 $23.9 $36.9
State 6.7 4.5 6.7
Foreign 38.8 7.2 2.5
------ ------ ------
Total current 78.6 35.6 46.1
------ ------ ------
Deferred
Federal (17.9) (13.0) (12.8)
State 0.4 (2.4) (5.7)
Foreign 20.9 10.8 1.8
------ ------ ------
Total deferred 3.4 (4.6) (16.7)
------ ------ ------
Provision for income taxes $82.0 $31.0 $29.4
====== ====== ======
</TABLE>
<TABLE>
The components of the deferred tax provision (credit), which arise from tax
credits and timing differences between financial and tax reporting, are
presented below:
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Basis differences $55.3 $ 47.1 $ 40.6
Loss carryforwards (41.2) (23.4) (36.8)
State tax deduction (2.9) 2.1 2.1
Reserves and other items not currently deductible 8.7 (24.1) (13.9)
Elimination of book income (10.0) (6.8) (1.8)
Dividends in excess of equity earnings (9.2) (0.5) (6.9)
Other 2.7 1.0 --
------ ------- -------
Total deferred provision (credit) $ 3.4 $ (4.6) $(16.7)
====== ======= =======
</TABLE>
<TABLE>
Variations from the 35% federal statutory rate are as follows:
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Expected provision for federal income taxes $60.9 $33.2 $29.5
Increase (decrease) in the provision for taxes resulting
from:
State tax - net of federal deduction 4.4 1.4 0.6
Dividends received deduction (7.9) (4.0) (2.1)
Amortization of tax credits (8.6) (1.6) (1.6)
Production tax credits -- (1.0) (1.0)
Taxes on foreign operations at different rates 17.3 2.5 2.3
Book and tax basis differences 15.4 -- --
Other 0.5 0.5 1.7
------ ------ ------
Total provision for income taxes $82.0 $31.0 $29.4
====== ====== ======
Effective tax rate 47.1% 32.6% 34.8%
===== ===== =====
</TABLE>
NOTE 9. EMPLOYEE BENEFIT PLANS
- -------------------------------
U.S. employees of EME are eligible for various benefit plans of Edison
International. Certain EME Australian and U.K. subsidiaries also participate in
defined benefit pension plans.
Pension Plans
The noncontributory, defined benefit pension plans, administered by
trustees, cover employees who fulfill minimum service requirements. Benefits
are based on years of credited service and average base salary. Annual
contributions meet the minimum legal funding requirements and do not exceed the
maximum deductible for income taxes. Prior service costs from pension plan
amendments are funded over 30 and 15 years for the U.S. plan and Australian
plan, respectively. There are no prior service costs included in the U.K.
plan. Plan assets are primarily U.S., U.K. and Australian common stock,
corporate and government bonds and short-term investments.
In 1996, EME offered special benefits to its non-union employees in
connection with its special voluntary early retirement program. The special
termination benefit was a lump-sum payment to be made upon termination, payable
in addition to the employee's regular plan benefits or increased monthly plan
benefits. The special termination benefit was paid directly from the employer's
assets and plan assets.
<TABLE>
Funded status of pension plans:
<CAPTION>
December 31,
--------------------------------------------
1996 1995 1996 1995
------ ------ ------ ------
U.S. Plan Non U.S. Plans
------------------- -------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 7.4 $ 6.6 $20.9 $ 1.1
Nonvested benefits 1.7 3.0 0.8 0.4
------- ------- ------ -------
Accumulated benefit obligation 9.1 9.6 21.7 1.5
Value of projected future compensation levels 5.6 7.0 2.0 0.6
------- ------- ------ -------
Projected benefit obligation $14.7 $16.6 $23.7 $ 2.1
======= ======= ====== =======
Fair value of plan assets $ 4.9 $14.1 $24.1 $ 2.2
======= ======= ====== =======
Assets (less than) in excess of projected benefit
obligations (9.8) (2.5) 0.4 0.1
Unrecognized net loss (gain) 5.4 (1.0) (0.3) --
Unrecognized prior service cost 0.6 -- -- --
Unrecognized net obligation 1.5 1.6 -- --
------- ------- -------- -------
Pension (liability) asset $(2.3) $(1.9) $ 0.1 $ 0.1
======== ======== ======== =======
Discount rate 7.75% 7.25% 6.5% - 8.0% 7.5%
Rate of increase in future compensation 5.5% 5.0% 4.5% - 5.5% 5.5%
Expected long-term rate of return on plan assets 8.0% 8.0% 8.5% - 9.0% 9.0%
</TABLE>
<TABLE>
Components of pension expense were:
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1996 1995 1994 1996 1995
---- ---- ---- ---- ----
U.S. Plan Non U.S. Plans
----------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Service cost for benefits earned $ 2.0 $ 2.3 $ 1.8 $ 1.2 $ 0.5
Interest cost on projected benefit
obligation 1.5 1.1 1.0 1.5 0.1
Actual return on plan assets (1.7) (0.8) (0.1) (1.5) (0.2)
Net amortization and deferral 0.9 0.1 (0.4) (0.1) 0.1
------- ------ ------ ------- ------
Pension expense 2.7 2.7 2.3 1.1 0.5
Special termination benefits 0.9 -- -- -- --
------- ------ ------- ------- ------
Net pension expense $ 3.6 $ 2.7 $ 2.3 $ 1.1 $ 0.5
======= ====== ======= ======= ======
</TABLE>
In 1995, First Hydro employees were included as part of The National Grid
Company plc (NGC) defined benefit pension plan (Electricity Supply Pension
Scheme), administered by a trustee, which provides pension and other related
benefits. Effective April 1, 1996, First Hydro employees were transferred into
the First Hydro Group of the Electricity Supply Pension Scheme. An actuarial
valuation for the U.K. plan, separate from NGC, was first completed for the 1996
year and, therefore, comparative amounts for prior periods were not included in
the tables above. Pension expense totaled $0.1 million for December 1995.
An actuarial valuation for the Australian plan was first completed for the
1995 year and, therefore, comparative amounts for 1994 were not included in the
tables above. Contributions by the Australian subsidiaries were $0.6 million in
1994.
In addition to the defined benefit plans described above, certain U.K.
subsidiaries of EME sponsor a defined contribution plan. Annual contributions
are based on eight percent of covered employees' salaries. Contribution expense
for the subsidiaries totaled approximately $0.2 million in 1996 and 1995 and
$0.1 million in 1994.
Postretirement Benefits Other Than Pensions
U.S. employees retiring at or after age 55 who have at least 10 years of
service, are eligible for postretirement health care, dental, life insurance and
other benefits. Health care benefits are subject to deductibles, copayment
provisions and other limitations.
<TABLE>
The components of postretirement benefits other than pension expense were:
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995
--------- --------
<S> <C> <C>
Service costs for benefits earned $1.2 $1.2
Interest cost on benefit obligation 0.7 0.6
Amortization of transition obligation 0.2 0.2
---- ----
Net expense 2.1 2.0
Special termination benefits 0.5 --
---- ----
Total expense $2.6 $2.0
==== ====
</TABLE>
<TABLE>
A reconciliation of the plan's funded status with the recorded liability is
presented below:
<CAPTION>
December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Accumulated benefit obligation $11.4 $ 8.4
===== =====
Fair value of plan assets $ -- $ --
===== =====
Accumulated benefit obligation in excess of plan assets $11.4 $ 8.4
Unrecognized transition obligation (2.2) (2.5)
Unrecognized net loss (4.1) (1.1)
------ ------
Recorded liability $ 5.1 $ 4.8
====== ======
Discount rate 7.75% 7.5%
</TABLE>
The assumed rate of future increases in the per capita cost of health care
benefits is 10% for 1997, gradually decreasing to 5% for 2003 and beyond.
Employee Stock Plans
- --------------------
A 401(k) plan is maintained to supplement eligible U.S. employees'
retirement income. The plan received EME contributions of $0.7 million in 1996
and 1995 and $0.6 million in 1994.
NOTE 10. STOCK COMPENSATION PLANS
- ----------------------------------
Under Edison International Officer's Long-Term Incentive Compensation Plan
(LTIP), shares of Edison International common stock were reserved for potential
issuance to key EME employees in various forms, including the exercise of stock
options. Under these programs, there are currently outstanding to officers and
senior managers of EME, options on 328,226 shares of Edison International Common
Stock of which 57,900 and 31,700 were granted in 1996 and 1995, respectively.
Options on Edison International stock include a dividend equivalent feature.
The dividend equivalents may be applied against the grant price at the time of
exercise.
Compensation expense recorded under the stock-compensation program was $0.7
million, $0.3 million and $(0.3) million for 1996, 1995 and 1994, respectively.
A decline during 1994 in the market value of the underlying shares optioned
resulted in the recapture of previously recognized expense.
The weighted-average fair value of options granted during 1996 and 1995 was
$6.27 per share option and $6.92 per share option, respectively. The weighted-
average remaining life of options outstanding as of December 31, 1996 and 1995,
was seven years.
The fair value for each option granted during 1996 and 1995, reflecting the
basis for the pro forma disclosures, was determined on the date of grant using
the Black-Scholes option-pricing model. The following assumptions were used in
determining fair value through the model:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Expected Life 7 years 8 years
Risk-free Interest Rate 5.51% 7.93%
Expected Volatility 17% 17%
</TABLE>
The recognition of dividend equivalents results in no dividends assumed for
purposes of fair-value determination. Stock-based compensation expense under
the "fair-value" method of accounting prescribed by SFAS No. 123 would have
resulted in no material change to EME's reported net income for 1996 and 1995,
but is not necessarily indicative of future income statement effects.
Phantom Stock Options
EME, as a part of the LTIP, issued "phantom stock" option performance awards
to key employees commencing in 1994. Each phantom stock option may be exercised
to realize any appreciation in the deemed value of one hypothetical share of EME
stock over its exercise price. Exercise prices for EME phantom stock are
escalated on an annually-compounded basis over the grant price by 12%. The
deemed value of the phantom stock is recalculated annually as determined by a
formula linked to the value of its portfolio of investments less general and
administrative costs. The options have a 10-year term with one-third of the
total award vesting in each of the first three years of the award term.
Compensation expense recorded with respect to phantom stock options was $16.1
million and $0.8 million in 1996 and 1995, respectively. No compensation
expense was recorded in 1994.
NOTE 11. COMMITMENTS AND CONTINGENCIES
- ----------------------------------------
<TABLE>
Firm Commitments to Contribute Project Equity
<CAPTION>
Projects Local Currency U.S. Currency
-------- -------------- -------------
<S> <C> <C>
Paiton (i) $223
ISAB (ii) 244 billion Italian Lira 161
Kwinana (iii) 31 million Australian Dollar 24
</TABLE>
(i) Paiton is a 1,230-MW coal-fired power plant under construction in East
Java, Indonesia. A wholly owned subsidiary of EME owns a 40% interest. Equity
contributions are currently being made and will continue until commercial
operation, which is currently scheduled for early 1999.
(ii) ISAB is a 512-MW gas-fired power plant under construction near Siracusa in
Sicily, Italy. A wholly owned subsidiary of EME owns a 49% interest. Equity
will be contributed at commercial operation which is currently scheduled for
late 1999.
(iii) Kwinana is a 116-MW gas-fired cogeneration power plant near Perth,
Australia. Two wholly owned subsidiaries of EME own a 100% interest. Kwinana
began commercial operation in December 1996. Equity was contributed on January
31, 1997.
Firm commitments to contribute project equity could be accelerated due to
certain events of default as defined in the non-recourse project financing
facilities. Management has no reason to believe that these events of default
will occur to require acceleration of the firm commitments.
<TABLE>
Contingent Obligations to Contribute Project Equity
<CAPTION>
Projects Local Currency U.S. Currency
-------- -------------- -------------
<S> <C> <C>
Brooklyn Navy Yard (i) $294
Paiton (ii) 141
Kwinana 3 million Australian Dollar 3
Loy Yang B 5 million Australian Dollar 4
All Other 19
</TABLE>
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in
Brooklyn, New York. A wholly owned subsidiary of EME owns 50% of the
project, but funded all of the required equity during construction.
Estimated total cost is $485 million of which $442 million has been spent
through December 31, 1996. In December 1995, a tax-exempt bond financing
for the project in the amount of $254 million was obtained through the New
York City Industrial Development Agency (NYCIDA). EME has guaranteed the
obligations of the project pursuant to the financing as well as an
indemnity agreement on behalf of NYCIDA in the amount of $40 million. In
the fourth quarter of 1996, EME executed a new Energy Sales Agreement with
Consolidated Edison Company of New York, which has contracted to buy most
of the project's power and steam, and began selling power and steam under
that agreement on November 1. The contractor has recently asserted
general monetary claims under the turnkey agreement against Brooklyn Navy
Yard Cogeneration Partners, L.P. (BNY) and has served a Complaint for
damages in the amount of $136.8 million against BNY. BNY has asserted
general monetary claims against the contractor. EME believes that the
outcome of this litigation will not have a material adverse effect on its
consolidated financial position or results of operations.
(ii) Contingent obligations to contribute additional project equity to the
Paiton project would be based on events principally related to capital
cost overruns during the plant construction.
Management has no reason to believe that these contingent obligations or any
other contingent obligations to contribute project equity will be required.
Other Commitments and Contingencies
Certain of EME's subsidiaries entered into indemnification agreements
whereby the subsidiaries agreed to repay capacity payments to the projects'
power purchasers, in the event the projects unilaterally terminate their
performance or reduce their electric power producing capability during the term
of the power contract. Obligations under these indemnification agreements as of
December 31, 1996, if required, would be $248 million. Management has no reason
to believe that the projects will either terminate their performance or reduce
their electric power producing capability during the term of the power
contracts.
Certain EME subsidiaries are required to fund capital expenditures of
project facilities, which are estimated to be $47 million at December 31, 1996
(principally related to the Brooklyn Navy Yard project).
Litigation
EME is routinely involved in litigation arising in the normal course of
business. While the results of such litigation cannot be predicted with
certainty, management, based on advice of counsel, does not believe that the
final outcome of any pending litigation will have a material adverse effect on
EME's financial position or results of operations.
Environmental Matters or Regulations
EME is subject to environmental regulation by federal, state and local
authorities in the U.S. and foreign regulatory authorities with jurisdiction
over projects located outside the U.S. EME believes that it is in substantial
compliance with environmental regulatory requirements and that maintaining
compliance with current requirements will not materially affect its financial
position or results of operations.
EME completed a review of some of its sites in 1995 and does not believe
that a material liability exists as of December 31, 1996. The implementation of
Clean Air Act Amendments is expected to result in increased operating expenses;
however, these increased operating expenses are not expected to have a material
impact on EME's financial position or results of operations.
NOTE 12. LEASE COMMITMENTS
- ----------------------------
EME leases office space, property and equipment under noncancelable lease
agreements that expire in various years through 2063. The capital lease
obligation is primarily for a project located in the U.K. A group of banks
provides a guarantee on the performance of the capital lease obligation under a
term loan and guarantee facility agreement. The facility agreement provides for
an aggregate of $196.5 million in a guarantee to the lessor and in loans to the
project. As of December 31, 1996, the loan obligation stands at $58 million,
which is secured by the plant assets of $20.8 million owned by the project and a
debt service reserve of $7.5 million.
<TABLE>
Future minimum payments for operating and capital leases at December 31, 1996,
are:
<CAPTION>
Year Ending December 31: Operating Capital
Leases Leases
-------- -------
<S> <C> <C>
1997 $ 5.4 $ 28.3
1998 5.1 28.3
1999 4.2 28.2
2000 3.7 28.1
2001 3.6 0.2
Thereafter 24.6 0.7
----- ------
Total future commitments $46.6 113.8
=====
Amount representing interest (9.65%) 23.1
------
Net Commitments $ 90.7
======
</TABLE>
Operating lease expense amounted to $6.3 million in 1996 and $3.9 million in
1995 and 1994.
NOTE 13. RELATED PARTY TRANSACTIONS
- -------------------------------------
Certain administrative services such as payroll and employee benefit
programs, all performed by Edison International or Edison employees, are shared
among all affiliates of Edison International and the costs of these corporate
support services are allocated to all affiliates, including EME. Costs are
allocated based on one of the following formulas: percentage of time worked,
equity in investment and advances, number of employees, or multi-factor
(operating revenues, operating expenses, total assets and number of employees).
In addition, services of Edison International or Edison employees are sometimes
directly requested by EME and such services are performed for EME's benefit.
Labor and expenses of these directly requested services are specifically
identified and billed at cost. Management believes the allocation methodologies
utilized are reasonable. EME made reimbursements for the cost of these programs
and other services, which amounted to $18.3 million, $15.9 million and $11.5
million in 1996, 1995 and 1994, respectively.
EME records accruals for tax liabilities and/or tax benefits which are
settled quarterly according to a series of tax sharing agreements as described
in Note 2. EME recognized tax liabilities under these agreements of $39.8
million for 1996, $28.4 million for 1995, and $43.6 million for 1994 (see Note
8).
Certain EME subsidiaries have ownership in partnerships that sell
electricity generated by their project facilities to Edison and others under the
terms of long-term power-purchase agreements. Sales by such partnerships to
Edison under these agreements amounted to $517.1 million in 1996, $657.3 million
in 1995, and $678.5 million in 1994.
NOTE 14. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
- -----------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
Cash paid:
Interest (net of amount capitalized) $131.5 $ 76.4 $87.3
Income taxes $ 45.9 $ 41.6 $52.4
====== ====== =====
Years Ended December 31,
-----------------------------------
1996 1995 1994
------ -------- -----
Details of companies acquired:
Fair value of assets acquired $152.7 $1,761.1 $29.7
Liabilities assumed 118.1 718.5 --
------ -------- ------
Net cash paid for acquisitions $ 34.6 $1,042.6 $29.7
====== ======== ======
</TABLE>
Non-Cash Investing and Financing Activities
The amount of construction in progress financed by the minority owner in the
Loy Yang B joint venture was $32.7 million in 1996, $77.4 million in 1995 and
$95.4 million in 1994.
NOTE 15. GEOGRAPHIC AREAS - FINANCIAL DATA
- -------------------------------------------
EME operates predominately in one industry segment: independent electric
power generation. Electric power and steam generated domestically is sold
primarily under long-term contracts to electric utilities located in the U.S.
Excluding the U.K., electric power and steam generated overseas (principally
Australia), is sold primarily under long-term contracts to electric utilities
located in the country where the power is generated. Projects located in the
U.K. sell their energy and capacity production through a centralized electricity
pool located in the U.K. These projects enter into short- and/or long-term
contracts to hedge against the volatility of price fluctuations in the pool.
<TABLE>
<CAPTION>
Asia Corporate/
U.S. Pacific Europe Other<F1> Total
----- ------- ------ ----------- -------
1996
----
<S> <C> <C> <C> <C> <C>
Electric & operating revenues $ 16.8 $ 245.1 $ 427.8 $ -- $ 689.7
Equity in income (loss) from
investments 153.3 3.0 2.0 (4.4) 153.9
------ -------- -------- -------- --------
Total operating revenues $170.1 $ 248.1 $ 429.8 $ (4.4) $ 843.6
====== ======== ======== ======== ========
Net income (loss) $ 68.2 $ 22.5 $ 28.8 $ (27.4) $ 92.1
====== ======== ======== ======== ========
Identifiable assets $239.5 $1,512.7 $2,397.1 $ 87.3 $4,236.6
Equity investments and advances 709.2 141.3 30.8 34.6 915.9
------ -------- -------- -------- --------
Total assets $948.7 $1,654.0 $2,427.9 $ 121.9 $5,152.5
====== ======== ======== ======== ========
1995
----
Electric & operating revenues $ 13.9 $ 170.8 $ 146.8 $ -- $ 331.5
Equity in income (loss) from
investments 143.1 -- (2.7) (4.6) 135.8
------ -------- --------- --------- --------
Total operating revenues $157.0 $ 170.8 $ 144.1 $ (4.6) $ 467.3
====== ======== ========= ========= ========
Net income (loss) $ 57.0 $ 15.8 $ 7.9 $ (16.7) $ 64.0
====== ======== ========= ========= ========
Identifiable assets $112.9 $1,302.7 $1,988.6 $ 89.0 $3,493.2
Equity investments and advances 729.4 69.0 31.8 50.6 880.8
------ -------- -------- --------- --------
Total assets $842.3 $1,371.7 $2,020.4 $ 139.6 $4,374.0
====== ======== ======== ========= ========
1994
----
Electric & operating revenues $ 15.4 $ 158.4 $ 60.8 $ -- $ 234.6
Equity in income from investments 142.0 -- 0.7 3.3 146.0
------- --------- -------- --------- --------
Total operating revenues $ 157.4 $ 158.4 $ 61.5 $ 3.3 $ 380.6
======= ========= ======== ========= ========
Net income (loss) $ 67.8 $ (4.9) $ 2.4 $ (10.3) $ 55.0
======= ========= ======== ========= ========
Identifiable assets $ 100.7 $1,418.8 $ 258.3 $ 86.5 $1,864.3
Equity investments and advances 873.1 17.5 28.4 59.6 978.6
------- --------- -------- --------- --------
Total assets $ 973.8 $1,436.3 $ 286.7 $ 146.1 $2,842.9
<FN> ======= ========= ======== ========= ========
<F1> Includes corporate net interest expense and Mexico and Canada investments.
</FN>
</TABLE>
NOTE 16. SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND GAS PRODUCING
- ----------------------------------------------------------------------
ACTIVITIES (UNAUDITED)
- ----------------------
This section provides information required by Statement of Financial
Accounting Standards No. 69, "Disclosures about Oil and Gas Producing
Activities." All of EME's oil and gas operations are carried on by investees
accounted for by the equity method. These investees all follow the successful
efforts method of accounting.
EME's proportionate interest in net quantities of proved reserves at
December 31, 1996, 1995 and 1994, and results of operations for the years then
ended related to equity method investees are shown in the following tables:
<TABLE>
<CAPTION>
Oil Natural Gas
Million of Barrels Billion of Cubic Feet
---------------------------- ---------------------------
U.S. Canada Total U.S. Canada Total
<S> <C> <C> <C> <C> <C> <C> <C>
Proved developed and 1996 23.7 1.8 25.5 182.0 105.5 287.5
undeveloped reserves 1995 23.1 2.0 25.1 180.6 118.5 299.1
1994 22.0 1.9 23.9 229.9 124.0 353.9
Costs incurred in oil and 1996 $ 13.4 $ 4.2 $ 17.6
gas property acquisition 1995 37.2 6.5 43.7
exploration, and 1994 50.4 16.7 67.1
development activities
Aggregate amounts of 1996 $206.6 $ 42.4 $249.0
capitalized costs 1995 202.1 46.6 248.7
(including construction in 1994 229.5 49.0 278.5
progress) for proved and
unproved properties
Results of operations 1996 $ 39.2 $ (2.6) $ 36.6
1995 16.7 (2.5) 14.2
1994 9.5 2.8 12.3
Standardized measure of 1996 $435.8 $ 63.6 $499.4
discounted future net cash 1995 246.5 33.4 279.9
flows 1994 203.1 39.3 242.4
</TABLE>
The increase in 1996 in U.S. results of operations and total standardized
measure resulted primarily from higher oil and gas prices in 1996. The decrease
in 1995 in U.S. gas reserves was primarily the result of revisions to previous
estimates.
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------------
<TABLE>
<CAPTION>
1996 First Second Third<F2> Fourth<F3> Total
------ ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C>
Operating Revenues $190.7 $184.3 $212.0 $256.6 $843.6
Income from operations 85.2 73.3 107.5 101.1 367.1
Net income 22.0 31.0<F1> 31.0 8.1 92.1
1995 First Second Third<F2> Fourth Total
------ ------ --------- ------ -----
Operating Revenues $ 90.4 $108.2 $147.3 $121.4 $467.3
Income from operations 36.6 47.6 86.3 32.8 203.3
Net income 7.5 14.5 38.9 3.1 64.0
<FN>
<F1> Includes a $15.5 million gain on the sale of four operating geothermal
facilities.
<F2> Reflects EME's seasonal pattern, in which the majority of earnings from
domestic projects are recorded in the third quarter of each year.
<F3> Includes operating revenues and income for Loy Yang B Unit 2 and the
Kwinana project which both commenced operations in the fourth quarter of
1996.
</FN>
</TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
POSITIONS WITH EME
The following table sets forth the names and ages of, the positions held
with EME by, and the terms of office of, the directors and executive officers of
EME as of March 1, 1997.
<TABLE>
<CAPTION>
DIRECTOR POSITION HELD
CONTINUOUSLY TERM CONTINUOUSLY TERM
NAME, POSITION AND AGE SINCE EXPIRES SINCE EXPIRES
- ---------------------- ------------------- ------- ------------------ -------
<S> <C> <C> <C> <C>
John E. Bryson, 53 . . . . . . . . . . . . . . . . . . . . . . . . . . 1990 1997 -- --
Chairman of the Board
Bryant C. Danner, 59 . . . . . . . . . . . . . . . . . . . . . . . . . 1993 1997 -- --
Director
Robert M. Edgell, 50 . . . . . . . . . . . . . . . . . . . . . . . . . 1993 1997 1988 1997
Director, Executive Vice President and
Division President of EME, Asia Pacific
Alan J. Fohrer, 46 . . . . . . . . . . . . . . . . . . . . . . . . . . 1992 1997 -- --
Vice Chairman of the Board
Edward R. Muller, 44 . . . . . . . . . . . . . . . . . . . . . . . . . 1993 1997 1993 1997
Director, President and Chief Executive Officer
S. Linn Williams, 50 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997
Senior Vice President and General Counsel
James V. Iaco, Jr, 52. . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997
Senior Vice President and Chief Financial Officer
S. Daniel Melita, 45 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1993 1997
Senior Vice President and Division President of EME,
Europe, Central Asia, Middle East and Africa
Georgia R. Nelson, 47 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1996 1997
Senior Vice President, Operations and Division President of EME, Americas
Robert E. Driscoll, 47 . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1995 1997
Vice President and Division Senior Vice President, Asia Pacific
Lynn M. Gardner, 43 . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1995 1997
Vice President, Administration
Paul R. Gillespie, 49 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1996 1997
Vice President, Tax
Herbert A. Glaser, 40 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1996 1997
Vice President and Associate General Counsel
Walter L. Halander, 53 . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1992 1997
Vice President and Chief Administrative Officer, Asia Pacific
Gregory C. Hoppe, 47 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1986 1997
Vice President and Director, Australia
Mark E. Irwin, 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1995 1997
Vice President, Fuels and U.S. Assets
Thomas E. Legro, 45 . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997
Vice President and Controller
Patricia A. Lyman, 47 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1987 1997
Vice President, Assistant General Counsel, and Assistant Secretary
Paul L. Multari, 41 . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997
Vice President and General Manager,
Edison Mission Operation & Maintenance, Inc.
Kevin M. Smith, 38 . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997
Vice President and Treasurer
John J. Vella, 45 . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1993 1997
Vice President, Construction and Technical Services
</TABLE>
BUSINESS EXPERIENCE
Set forth below is a description of the principal business experience during
the past five years of each of the individuals named above and the name of each
public company in which any director named above is a director.
MR. BRYSON has been Chairman and Chief Executive Officer of Edison
International and SCE since 1990. Edison International is the parent and SCE is
an affiliate of EME. From 1988 until 1990, Mr. Bryson was Executive Vice
President and Chief Financial Officer of Edison International and SCE. Since May
1993, Mr. Bryson has been Chairman of the Board of EME. Mr. Bryson is a director
of The Boeing Company, The Times Mirror Company, the Council on Foreign
Relations and Chairman of the California Business Roundtable.
MR. DANNER has been Executive Vice President and General Counsel of Edison
International and SCE since June 1995. Mr. Danner was Senior Vice President and
General Counsel of Edison International and SCE from July 1992 until May 1995.
From 1970 until 1992, Mr. Danner was a partner with the law firm of Latham &
Watkins.
MR. EDGELL has been Executive Vice President of EME since April 1988. Mr.
Edgell was named Division President of EME's Asia Pacific region in January
1995.
MR. FOHRER has been Vice Chairman of the Board of EME since May 1993. Mr.
Fohrer has been Executive Vice President and Chief Financial Officer of Edison
International and SCE since June 1995. Effective February 1996 and June 1995,
Mr. Fohrer also served as Treasurer of SCE and Edison International,
respectively, until August 1996. Mr. Fohrer was Senior Vice President,
Treasurer and Chief Financial Officer of Edison International, and Senior Vice
President and Chief Financial Officer of SCE from January 1993 until May 1995.
Mr. Fohrer was interim Chief Executive Officer of EME between May 1993 and
August 1993. From 1991 until 1993, Mr. Fohrer was Vice President, Treasurer and
Chief Financial Officer of Edison International and SCE. From 1987 until 1991,
Mr. Fohrer was Assistant Treasurer and Manager of Cost Control of SCE.
MR. MULLER has been President and Chief Executive Officer of EME since August
1993. Prior to joining EME, Mr. Muller served as vice president, chief
administrative officer, general counsel and secretary of Whittaker Corporation,
an aerospace firm, from 1988 until 1992 and as vice president, chief financial
officer, general counsel and secretary of Whittaker Corporation from 1992 until
1993. From 1991 until 1993, Mr. Muller also served as vice president, secretary
and general counsel of BioWhittaker, Inc., a biotechnology company. Mr. Muller
is a director of Whittaker Corporation, Oasis Residential, Inc. and Global
Marine Inc.
MR. WILLIAMS has been Senior Vice President and General Counsel of EME since
November 1994. From 1985 through 1989 and 1992-1993, Mr. Williams was a partner
with the law firm of Gibson, Dunn and Crutcher. From 1989-1991, Mr. Williams
served as Deputy United States Trade Representative (with Rank of Ambassador).
From 1993-1994, Mr. Williams was a partner with the law firm of Jones, Day,
Reavis and Pogue.
MR. IACO has been Senior Vice President and Chief Financial Officer of EME
since January 1994. From November 1991 until September 1992 and from September
1993 until December 1993, Mr. Iaco was self-employed and provided consulting
services, specializing in restructuring, finance, crisis management and other
management services. From October 1992 until September 1993, Mr. Iaco served as
senior vice president and chief financial officer of Phoenix Distributors, Inc.,
a distributor of industrial gas and welding supplies. From November 1990 until
October 1991, Mr. Iaco served as senior vice president and chief financial
officer of Intermark, Inc., a company engaged primarily in real estate
development, manufacturing and retail operations. From 1989 until 1990, Mr. Iaco
served as senior vice president, chief financial officer and treasurer of MAXXAM
Inc., a company engaged in aluminum production, forest products operations and
real estate development.
MR. MELITA has been Senior Vice President of EME since November 1993. Mr.
Melita was named Division President of EME's Europe, Central Asia, Middle East
and Africa region in January 1995. From August 1992 until 1993, Mr. Melita
served as Vice President-European Operations of EME. From 1989 until 1992, Mr.
Melita served as vice president-international operations of EBASCO Overseas
Corporation, an engineering and construction company.
MS. NELSON has been Senior Vice President, Worldwide Operations and Division
President of EME's Americas region since January 1996. Prior to joining EME,
Ms. Nelson served as Senior Vice President of SCE from June 1995 until December
1995 and Vice President of SCE from March 1993 until June 1995. From 1992 to
1993, Ms. Nelson served as a Special Assistant to the Chairman of Edison
International. From 1989 to 1992, Ms. Nelson served as Manager of Procurement
and Material Management for SCE. Ms. Nelson is a director of CalMat Company.
MR. DRISCOLL has been Vice President and Division Senior Vice President of
EME's Asia Pacific region since July 1995. Prior to joining EME, Mr. Driscoll
served as a member of the U.S. - ASEAN Council for Business and Technology,
Inc., a national business association promoting expanded trade and investment
between certain Southern Asian Nations and the United States. He served in this
capacity form 1989 to 1995. From 1975 to 1989, Mr. Driscoll served as executive
vice president of the Fund for Multinational Management Education, an
organization involved in public policy analysis.
MS. GARDNER has been Vice President - Administration of EME since May 1995.
Prior to joining EME, Ms. Gardner served as Special Assistant to the Chairman of
Edison International from 1994 to 1995. In 1994, Ms. Gardner was SCE's Senior
Legal Counsel for labor and employment matters. Between 1991 and 1993, she
served as Generating Station Manager of the Long Beach and Huntington Beach
generating stations. Between 1984 to 1991, Ms. Gardner practiced labor and
employment law in SCE's Law Department.
MR. GILLESPIE has been Vice President of Tax of EME since April 1996. Prior
to joining EME, Mr. Gillespie was Senior Tax Counsel, Federal Appeals and
Litigation for Mobil Corporation from January to April 1996. From July 1991 to
December 1995, Mr. Gillespie was Manager of Tax Planning at Mobil Corporation.
From October 1986 to July 1991, Mr. Gillespie was Director of Taxes at Alcon
Laboratories.
MR. GLASER has been Vice President and Associate General Counsel of EME since
September 1996. From January 1996 to August 1996, Mr. Glaser was Counsel with
the law firm of McDermott, Will & Emery. From 1994 to 1996, Mr. Glaser was
Counsel with the law firm of King & Spaulding. From 1990 to 1994, Mr. Glaser
served as Associated General Counsel for the Overseas Private Investment
Corporation.
MR. HALANDER was named Vice President and Chief Administrative Officer of
EME's Asia Pacific region in March 1995. From May 1991 until March 1995, Mr.
Halander served as Vice President, Administration of EME. From November 1986
until March 1991, Mr. Halander served as Vice President, Controller and
Secretary of Mission Power Engineering Company. Mr. Halander has been President
of Mission Power Engineering Company since March 1991.
MR. HOPPE has been Vice President of EME since April 1986. Mr. Hoppe has
also served as Director, Australia since October 1992.
MR. IRWIN has been Vice President - Fuels, U.S. Assets of EME since July
1995. From 1993 to 1995, Mr. Irwin served as Manager of Asset Management. From
1990 to 1993, Mr. Irwin served as Manager, Acquisitions.
MR. LEGRO has been Vice President of EME since December 1994 and Controller
of EME since December 1993. From 1990 until 1993, Mr. Legro served as Manager of
Financial Planning and Analysis for EME. From 1989 until 1990, Mr. Legro served
as Controller for British Petroleum Advanced Materials International, a division
of BP Chemicals.
MS. LYMAN has been Vice President, Assistant General Counsel and Assistant
Secretary of EME since November 1992. Ms. Lyman also served as Director of Legal
Affairs of EME's Asia Pacific region from November 1992 until January 1995.
Since April 1991, Ms. Lyman has served as Assistant General Counsel and
Assistant Secretary of EME.
MR. MULTARI has been Vice President of EME since August 1994 and Vice
President and General Manager of Edison Mission Operation & Maintenance, Inc.
since September 1992. From 1987 until 1992, Mr. Multari served as Manager of
Operations for Edison Mission Operation & Maintenance, Inc.
MR. SMITH has been Vice President of EME since December 1994 and Treasurer of
EME since September 1992. From 1988 until 1992, he served as Manager of
Corporate Finance for EME.
MR. VELLA has been Vice President of EME since March 1993 and Vice President,
Construction and Technical Services since March 1997. From 1973 until 1993, Mr.
Vella served as manager of business development and senior regional
representative of Bechtel Corporation, an engineering and construction business,
as well as general manager of Bechtel de Mexico, S.A. de C.V., one of Bechtel's
subsidiaries.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information concerning compensation paid by EME
to each of the named executive officers during the years 1996, 1995 and 1994 for
services rendered by such persons in all capacities to EME and its subsidiaries.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#)<F3> ($)<F4>
--------------------------- ---- ------ ----- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward R. Muller 1996 370,000 444,000 2,621 41,000 23,148
President & Chief Executive 1995 335,000 331,700 2,646 53,190 17,521
Officer 1994 310,000 200,000 1,789 31,920<F5> 2,325
Robert M. Edgell 1996 292,000 275,000 133 25,700 88,071<F6>
Executive Vice President 1995 252,000 250,000 700 30,770 8,492
1994 236,000 120,000 516 14,520 4,130
S. Linn Williams 1996 275,000 220,000 734 20,100 13,148
Senior Vice President 1995 250,000 180,000 1,028 24,390 141
and General Counsel 1994 34,532<F2> 25,000<F2> 0 0 0
Georgia R. Nelson <F1> 1996 270,000 190,000 1,337 23,700 14,446
Senior Vice President,
Operations
James V. Iaco, Jr. 1996 250,000 200,000 2,906 19,800 10,416
Senior Vice President and 1995 190,000 140,000 2,223 19,710 0
Chief Financial Officer 1994 164,455 75,000 2,531 9,340 0
<FN>
<F1> Ms. Nelson was appointed Senior Vice President, Operations and Division
President of EME, Americas in January 1996.
<F2> Mr. Williams was appointed Senior Vice President and General Counsel of EME
in November 1994.
<F3> No Stock Appreciation Rights (SARs) were granted. Amounts shown are
comprised of Edison International stock options and EME "phantom stock"
options. For 1996, Mr. Muller, Mr. Edgell, Mr. Williams, Ms. Nelson and
Mr. Iaco received 10,200; 6,600; 5,400; 9,000; and 5,100 Edison
International stock options, respectively; and 30,800; 19,100; 14,700;
14,700; and 14,700 EME phantom stock options, respectively. For 1995, Mr.
Muller, Mr. Edgell, Mr. Williams and Mr. Iaco received 10,000; 5,200;
4,500; and 3,800 Edison International stock options, respectively; and
43,190; 25,570; 19,890; and 15,910 EME phantom stock options, respectively.
For 1994, Mr. Muller, Mr. Edgell, Mr. Williams and Mr. Iaco received
14,100; 3,300; 0; and 2,300 Edison International stock options,
respectively; and 17,820; 11,220; 0; and 7,040 EME phantom stock options,
respectively. Each Edison International stock option gives the named
executive officer the right to purchase one share of Edison International
common stock, and each EME phantom stock option may be exercised to realize
any appreciation in the deemed value of one hypothetical share of EME stock
over annually escalated exercise prices, on the terms described in the
notes to the Option Grants in the 1996 Option Grant Table below.
<F4> Includes the following company contributions to the Stock Savings Plus Plan
(SSPP) and a supplemental defined contribution plan for eligible
participants who are affected by participation limits of the SSPP imposed
on higher-paid individuals by federal tax law: For 1996, Mr. Muller,
$11,455; Mr. Edgell, $4,500; Mr. Williams, $6,301; Ms. Nelson, $7,913; and
Mr. Iaco, $6,077. For 1995, Mr. Muller, $15,988; Mr. Edgell, $8,220; Mr.
Williams, $0; and Mr. Iaco, $0. For 1994, Mr. Muller, $2,325; Mr. Edgell,
$4,130; Mr. Williams, $0; and Mr. Iaco, $0.
Also includes the following amounts of interest accrued on deferred
compensation of the named individuals, which is considered under the rules
of the Securities and Exchange Commission to be at an above-market rate:
For 1996, Mr. Muller, $1,508; Mr. Edgell, $239; Mr. Williams, $926;
Ms. Nelson, $1,882; and Mr. Iaco, $139. For 1995, Mr. Muller, $1,533;
Mr. Edgell $272; Mr. Williams, $141; and Mr. Iaco, $0. For 1994,
Mr. Muller, $0; Mr. Edgell, $0; Mr. Williams, $0; and Mr. Iaco, $0.
<F5> Dividend equivalents related to 10,000 Edison International options granted
to Mr. Muller on January 3, 1994, pursuant to his employment agreement,
accrue unconditionally.
<F6> Includes an overseas service allowance of $75,832. For each employee
serving in an overseas site, the allowance calculation depends on base pay,
family size and location.
</FN>
</TABLE>
EXECUTIVE STOCK OPTIONS
The following table sets forth certain information concerning Edison
International stock options and EME phantom stock options granted pursuant to
the Edison International Officer Long-Term Incentive Compensation Plan (LTIP) to
the executive officers named in the Summary Compensation Table above during
1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996<F1>
Individual Grants
-----------------------------------------------------------------------------
Exercise
Options Percent of Total or Base Grant Date
Granted Options Granted to Price Expiration Present
Name (#) Employees in 1996 ($/Sh) Date Value($)
- ------------------ -------- ------------------- --------- ------------ --------
<F2><F3><F4> <F5> <F6>
<S> <C> <C> <C> <C> <C>
Edward R. Muller
Edison International 10,200 18% 17.6250 01/02/2006 50,592
EME 30,800 12% 77.0300 01/02/2006 210,672
Robert M. Edgell
Edison International 6,600 11% 17.6250 01/02/2006 32,736
EME 19,100 7% 77.0300 01/02/2006 130,644
S. Linn Williams
Edison International 5,400 9% 17.6250 01/02/2006 26,784
EME 14,700 6% 77.0300 01/02/2006 100,548
Georgia R. Nelson
Edison International 9,000 16% 17.6250 01/02/2006 44,640
EME 14,700 6% 77.0300 01/02/2006 100,548
James V. Iaco, Jr.
Edison International 5,100 9% 17.6250 01/02/2006 25,296
EME 14,700 6% 77.0300 01/02/2006 100,548
<FN>
<F1> No SARs were granted. This table reflects all awards made under the LTIP
("LTIP Options") during 1996. In addition to Edison International stock
options, it includes EME "phantom stock" options.
<F2> Each Edison International option represents the right to purchase one share
of common stock of Edison International. The Edison International stock
options include dividend equivalents which will be credited following
the first three years of the option term if certain Edison International
performance criteria discussed below are met. Dividend equivalents
accumulate without interest and are payable in cash (or applicable to the
exercise price) only upon the exercise of the related stock option.
They are forfeited if and when the related option is forfeited.
Dividend equivalents linked to Edison International performance are
measured by Edison International Common Stock total shareholder return.
If the average quarterly percentile ranking is less than the 60th
percentile of that of the companies comprising the Dow Jones Electric
Utilities Group Index, the dividend equivalents are reduced; if the Edison
International total shareholder return ranking is less than the 25th
percentile, the dividend equivalents are canceled. For rankings between the
60th and 25th percentiles, the dividend equivalents are prorated. The
total shareholder return is measured at the end of the initial
three-year period and will set the percentage payable for the entire term.
If less than 100% of the dividend equivalents are earned, the unearned
portion may be restored later in the option term if Edison International's
cumulative total shareholder return ranking for the option term attains at
least the 60th percentile. The terms and conditions of the 1994 and 1995
options are similar to 1996 except as follows. For 1994 options, the
total shareholder return measure is phased in over a three-year period,
after which a rolling three-year average will be used.
<F3> Each EME phantom stock option represents a right to exercise an option on
one hypothetical share of EME stock. The deemed value of the stock is
determined by a formula linked to project values, which are determined
annually, and is based on 10 million total shares. The exercise price is
the base value of the stock on the date of grant escalated at 12% per year,
compounded annually. If the deemed value of a share of EME stock exceeds
the exercise price for any subsequent year, the executive may exercise his
option right with respect to any portion of his vested units during the
60-day exercise window in the second quarter of the following year and
be paid in cash the difference between the exercise price and the deemed
value of the shares. The number of units awarded to each Executive
Officer was ascertained by dividing the calculated value of an EME
phantom option into the present value target for the EME component of the
Executive Officer's LTIP award as determined with reference to the
Compensation and Executive Personnel Committees' survey discussed in their
report below.
<F4> The LTIP Options become exercisable in three equal installments beginning
on the first anniversary of their date of grant. Each option has a term of
10 years, subject to earlier expiration upon termination of employment as
described below. The options are not transferable except upon death. If
an executive retires, dies, or is permanently and totally disabled during
the three-year vesting period, the unvested LTIP Options will vest and be
exercisable to the extent of 1/36 of the grant for each full month of
service during the vesting period. Unvested LTIP Options of any person who
has served in the past on the Edison International or SCE Management
Committee will vest and be exercisable upon the member's retirement,
death, or permanent and total disability. None of the named officers
have served on either of the two committees. Upon retirement, death or
permanent and total disability, the vested LTIP Options may continue to
be exercised within their original term by the recipient or beneficiary.
If an executive is terminated other than by retirement, death or
permanent and total disability, LTIP Options which had vested as of the
prior anniversary date of the grant are forfeited unless exercised
within 180 days of the date of termination in the case of Edison
International options, or during the next 60-day exercise window in the
case of EME phantom stock options. All unvested LTIP Options are
forfeited on the date of termination.
Appropriate and proportionate adjustments may be made by the Compensation
and Executive Personnel Committee to outstanding Edison International
options to reflect any impact resulting from various corporate events such
as reorganizations, stock splits and so forth. If Edison International is
not the surviving corporation in such a reorganization, all LTIP Options
then outstanding will become vested and be exercisable unless provisions
are made as part of the transaction to continue the LTIP or to assume or
substitute stock options of the successor corporation with appropriate
adjustments as to the number and price of the options. The Edison
International Compensation and Executive Personnel Committee administers
the LTIP and has sole discretion to determine all terms and conditions
of any grant, subject to plan limits. In addition, with the consent of
the executive, the Compensation and Executive Personnel Committee may
amend the terms of any agreement, including the price of any option, the
post-termination term, and the vesting schedule. The Compensation and
Executive Personnel Committee may substitute cash equivalent in value to
the LTIP Options.
<F5> The expiration date of the LTIP Options is January 2, 2006; however, the
final 60-day exercise period of EME phantom stock options will occur during
the second quarter of that year. The LTIP Options are subject to earlier
expiration upon termination of employment as described in footnote <F4>
above.
<F6> The grant date present value of each Edison International stock option was
calculated as the sum of (i) the option value and (ii) the dividend
equivalent value. The option value was calculated to be approximately
$1.71 per option share using the Black-Scholes stock option pricing model.
For purposes of this calculation, it was assumed that options would
be outstanding for an average of seven years prior to exercise, the
volatility rate was assumed to be 17%, the risk-free rate of return was
assumed to be 5.51%, the historic average dividend yield was assumed to
be 6.54% and the stock price and exercise price were $17.6250.
The grant date value of the dividend equivalent rights included with
respect to each Edison International stock option was determined by (i)
adding the dividends (without reinvestment) that would be received on a
number of shares of Edison International common stock equal to the
number of shares subject to the option for a period of seven years from the
date on which the option was granted, based on the annual dividend rate at
grant of $1.00 per share and (ii) discounting that amount to its present
value assuming a discount rate of 11.6%, which was Edison's authorized
return on common equity in 1996. This calculation does not reflect any
reduction in value for the risk that Edison International performance
measures may not be met.
The value of an EME option was calculated to be $6.84 using the
Black-Scholes stock option pricing model assuming an average exercise
period of seven years, a volatility rate of 20.35%, a risk-free rate of
return of 5.99%, a dividend yield of 0% and an exercise price of $170.29.
These assumptions are based on average values of a group of peer companies
adjusted for differences in capital structure.
The actual value that an executive may realize will depend on various
factors on the date the option is exercised, so there is no assurance the
value realized by an executive will be at or near the grant date value
estimated by the Black-Scholes model. The estimated values under that
model are based on certain assumptions and are not a prediction as to
future stock price.
</FN>
</TABLE>
The following table sets forth certain information with respect to the
exercise during 1996 by the executive officers named in the Summary Compensation
Table above of options to purchase shares of common stock of Edison
International and exercise hypothetical shares of stock of EME and option values
as of December 31, 1996.
<TABLE>
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT
YEAR-END (#) FISCAL YEAR-END($)<F1>
----------------- ----------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Edward R. Muller
Edison International -- -- 32,732/21,568 42,589/72,714
EME -- -- 26,276/65,534 353,221/565,468
Robert M. Edgell
Edison International -- -- 36,683/11,167 183,616/36,265
EME -- -- 16,003/39,887 212,654/336,543
S. Linn Williams
Edison International -- -- 1,500/8,400 8,156/29,138
EME -- -- 6,630/27,960 119,380/238,760
Georgia R. Nelson
Edison International -- -- 24,933/35,267 86,434/146,199
EME -- -- 0/14,700 0/0
James V. Iaco, Jr.
Edison International -- -- 2,799/8,401 9,306/27,103
EME -- -- 9,996/27,654 132,622/209,561
<FN>
<F1> Edison International options are treated as "in-the-money" if the fair
market value of the underlying shares at December 31, 1996, exceeded the
exercise price with respect thereto reduced by the amount credited to the
named executive officer's dividend equivalent account with respect thereto.
EME phantom stock options are considered "in-the-money" if the deemed value
of EME phantom stock, which is determined annually by a formula linked to
project values, exceeds prescribed exercise prices. The deemed value at
year-end is not available until the second quarter of the following year.
Therefore, amounts shown reflect the deemed value at fiscal year-end for
1995, the most recent data available.
</FN>
</TABLE>
RETIREMENT BENEFITS
-------------------
The following table sets forth estimated gross annual benefits payable upon
retirement at age 65 to the executive officers named in the Summary Compensation
Table above in the remuneration and years of service classifications indicated.
<TABLE>
<CAPTION>
PENSION PLAN TABLE<F1>
YEARS OF SERVICE
-------------------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35 40
------------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 25,000 $ 33,750 $ 42,500 $ 51,250 $ 60,000 $ 65,000 $ 70,000
150,000 37,500 50,625 63,750 76,875 90,000 97,500 105,000
200,000 50,000 67,500 85,000 102,500 120,000 130,000 140,000
250,000 62,500 84,375 106,250 128,125 150,000 162,500 175,000
300,000 75,000 101,250 127,500 153,750 180,000 195,000 210,000
350,000 87,500 118,125 148,750 179,375 210,000 227,500 245,000
400,000 100,000 135,000 170,000 205,000 240,000 260,000 280,000
450,000 112,500 151,875 191,250 230,625 270,000 292,500 315,000
500,000 125,000 168,750 212,500 256,250 300,000 325,000 350,000
550,000 137,500 185,625 233,750 281,875 330,000 357,500 385,000
600,000 150,000 202,500 255,000 307,500 360,000 390,000 420,000
<FN>
<F1> Estimates are based on the provisions of the retirement plans currently
covering EME's executive officers (the "Retirement Plans"), with the
following assumptions: (i) the Retirement Plans will continue to be
maintained, (ii) optional forms of payment that reduce benefit amounts
have not been selected, and (iii) any benefits in excess of limits
contained in the Internal Revenue Code of 1986 (the "Code") and any
incremental retirement benefits attributable to consideration of the
annual bonus or participation in EME's deferred compensation plans will be
paid out of the general assets of EME under an executive retirement plan
(an "ERP"). Amounts in the pension table include neither the Income
Continuation Plan nor the Survivor Income/Retirement Income plans, which
provide postretirement death benefits and supplemental retirement income
benefits. These plans are discussed in "Other Retirement Benefits".
</FN>
</TABLE>
The Retirement Plans and ERP provide monthly benefits at normal retirement
age (65 years) based on a unit benefit for each year of service plus a benefit
determined by a percentage ("Service Percentage") of the executive's average
highest 36 consecutive months of regular salary and, in the case of the ERP, the
average highest three bonuses in the last five years prior to attaining age 65.
The Service Percentage is based on 1-3/4% per year for the first 30 years of
service (52-1/2% upon completion of 30 years' service) and 1% for each year in
excess of 30. Individuals hired prior to September 1, 1978 are grandfathered
into the benefit provisions of the Retirement Plans and ERP as they were then
constituted. These grandfathering provisions may provide slightly higher
benefits for individuals who have less than 22.7 years of service. Executives
with the rank of Senior Vice President (or higher) accrue an additional 0.75
service percentage for each year of service up to ten years. The actual benefit
determined by the Service Percentage would take into account the unit benefit
and be offset by up to 40% of the executive's primary Social Security benefits.
For management and administrative employees in service on or after January 1,
1988, accrual of years of credited service occurs without regard to attainment
of age 65. Effective January 1, 1995, a special provision was added to the
Retirement Plan for non-represented employees who were: (a) in service for at
least one day during the period from January 1, 1995 through December 31, 1996,
(b) were born before January 1, 1952, (c) complete at least 20 years of service
on or before December 31, 2001, and (d) terminate service on or after age 50 but
before age 55. An eligible employee can leave EME after age 50 and before age
55, and begin to receive retirement benefits as if they retired from active
service, any time after age 55. The service and salary used to calculate this
provision stops as of December 1, 1996. For an eligible employee who continues
with EME beyond December 31, 1996, service and salary beyond December 31, 1996,
are only used to calculate the Retirement Plan's regular provisions. In
addition, periods during which participants receive benefits under EME's
long-term disability plan also count for credit under the Retirement Plans and
ERP.
The normal form of benefit is a life annuity with a 50% survivor benefit
following the death of the participant. Retirement benefits are reduced for
retirement prior to age 61. The amounts shown in the Pension Plan Table above do
not reflect reductions in retirement benefits due to the Social Security offset
or early retirement.
Mr. Edgell has elected to retain coverage under a previous benefit program.
This program provided, among other benefits, the post-retirement benefits
discussed in the following section. The ERP benefits provided in the previous
program are less than the benefits shown in the pension table. To determine
these reduced benefits, multiply the dollar amounts shown in each column by the
following factors: 10 years of service--70%, 15 years--78%, 20 years--82%,
25 years--85%, 30 years--88%, 35 years--88%, and 40 years--89%.
At December 31, 1996, Mr. Muller had completed 3 years of service; Mr.
Edgell, 26 years; Mr. Williams, 2 years; Ms. Nelson, 26 years; Mr. Iaco, 2
years.
OTHER RETIREMENT BENEFITS
Additional post-retirement benefits are provided pursuant to the Income
Continuation Plan and the Survivor Income/Retirement Income Plan under the
Executive Supplemental Benefit Program.
The Income Continuation Plan provides a post-retirement survivor benefit
payable to the beneficiary of the executive officer following his or her death.
The benefit is approximately 24% of final compensation (salary at retirement and
the average of the three highest bonuses paid in the five years prior to
retirement) payable for ten years certain. If a named executive officer's final
annual compensation were $600,000 (the highest compensation level in the Pension
Plan Table above), the beneficiary's estimated annual survivor benefit would be
approximately $144,000. Mr. Edgell has elected coverage under this program.
The Survivor Income/Retirement Income Plan provides a post-retirement
survivor benefit payable to the beneficiary of the executive officer following
his or her death. The benefit is 25% of final compensation (salary at retirement
and the average of the three highest bonuses paid in the five years prior to
retirement) payable for ten years certain. At retirement, an executive officer
has the right to elect the Retirement Income benefit in lieu of the Survivor
Income benefit. The Retirement Income benefit is 10% of final compensation
(salary at retirement and the average of the three highest bonuses paid in the
five years prior to retirement) payable to the executive officer for ten years
certain immediately following retirement. If a named executive officer's final
annual compensation were $600,000 (the highest compensation level in the Pension
Plan Table above), the beneficiary's estimated annual survivor benefit would be
approximately $150,000. If a named executive officer were to elect the
Retirement Income benefit in lieu of Survivor Income and had final annual
compensation of approximately $600,000 (the highest compensation level in the
Pension Plan Table above), the named executive officer's estimated annual
benefit would be approximately $60,000. Mr. Edgell has elected coverage under
this program.
The 1985 Deferred Compensation Plan provides a post-retirement survivor
benefit. This plan allowed eligible participants in September 1985 to elect
voluntarily to defer until retirement a portion of annual salary and annual
bonuses otherwise earned and payable for the period October 1985 through January
1990. The post-retirement survivor benefit is 50% of the annual deferred
compensation payable from the participant's account. Survivor benefit payments
begin following completion of the participant's deferred compensation payments.
If the named beneficiary is the executive's spouse, then survivor benefits are
paid as a life annuity, five years certain; the benefit amount will be reduced
actuarially if the spouse is more than five years younger than the executive at
the time of the executive's death. If the beneficiary is not the spouse, then
benefits are paid for five years only.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
- --------------------------
Set forth below is certain information regarding each person who is known to
EME to be the beneficial owner of more than five percent of EME's common stock.
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount and Nature of Percent of
-------------- Beneficial Owner Beneficial Ownership Class
------------------- -------------------- ----------
<S> <S> <C> <C>
Common Stock, no par value The Mission Group 100 shares held directly and with 100%
18101 Von Karman Avenue, exclusive voting and investment power
Suite 1700
Irvine, California 92612
</TABLE>
MANAGEMENT
- ----------
Set forth below is certain information about the beneficial ownership in
equity securities of Edison International by all directors of EME, the executive
owners of EME named in the Summary Compensation Table in Item 6 below and all
directors and executive officers of EME as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Company and Beneficial Ownership as of
Name Class of Stock December 31, 1996<F1><F2><F3><F4><F5>
---- -------------------- -------------------------------------
<S> <C> <C>
John E. Bryson Edison International Common Stock 378,578
Bryant C. Danner Edison International Common Stock 101,606
Robert M. Edgell Edison International Common Stock 54,601
Alan J. Fohrer Edison International Common Stock 103,027
Edward R. Muller Edison International Common Stock 45,966
Mission Capital Preferred Securities 1,370
S. Linn Williams Edison International Common Stock 4,830
Georgia R. Nelson Edison International Common Stock 56,466
James V. Iaco, Jr. Edison International Common Stock 6,533
Mission Capital Preferred Securities 5,900
All directors and executive
officers as a group Edison International Common Stock 842,919
Mission Capital Preferred Securities 8,250
<FN>
<F1> Unless otherwise indicated, each named person has voting and investment
power over the listed shares and such voting and investment power is
exercised solely by the named person or shared with a spouse. No named
person or group owns more than 1% of the outstanding shares of the class.
<F2> Includes the following number of Edison International shares owned under
the SSPP: Mr. Bryson, 12,912 shares; Mr. Danner, 1,474 shares; Mr. Edgell,
12,885 shares; Mr. Fohrer, 11,761 shares; Mr. Muller, 0 shares;
Mr. Williams, 30 shares; Ms. Nelson, 13,066 shares; Mr. Iaco, 0 shares;
and all directors and executive officers as a group, 93,508 shares.
Each such person and group may be deemed to share voting power with the
trustee appointed under the SSPP.
<F3> Includes the following number of Edison International shares with respect
to which the right exists to acquire beneficial ownership within 60 days
through the exercise of options granted under an employee benefit plan
known as the 1987 Long-Term Incentive Compensation Plan as amended and
restated by the Edison International Officer Long-Term Incentive
Compensation Plan effective April 16, 1992: Mr. Bryson, 353,466 shares;
Mr. Danner, 98,132 shares; Mr. Edgell, 41,716 shares; Mr. Fohrer, 90,766
shares; Mr. Muller, 44,166 shares; Mr. Williams, 4,800 shares;
Ms. Nelson, 43,400 shares; Mr. Iaco, 6,533 shares; and all directors and
executive officers as a group, 732,911 shares.
<F4> Includes Edison International shares held in own name by Mr. Fohrer, 500
shares; spouse's name by Mr Bryson, 200 shares; held with another person by
Mr. Bryson, 6,000 shares; held as trustee by Mr. Bryson, 6,000 shares;
held as custodian by Mr. Muller, 400 shares; and held in broker's name
by Mr. Danner, 2,000 shares, and Mr. Muller, 1,400 shares.
<F5> Includes the following number of shares of Monthly Income Preferred
Securities of Mission Capital, a limited partnership of which EME is
the sole general partner: Mr. Muller, 280 shares held in spouse's name
and 290 shares held in custodial names; Mr. Iaco, 750 shares held in
spouse's name; all directors and executive officers as a group, 1,030
shares held in spouses'names and 670 shares held in custodial names.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1994, EME made a loan to S. Daniel Melita, Senior Vice President of
EME, in the amount of $150,000 in exchange for a note executed by Mr. Melita and
payable to EME at seven percent (7%) annual interest. The entire note, together
with accrued interest, was paid in December 1996. The largest aggregate amount
of indebtedness outstanding under the loan during 1996 was $171,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A)(1) LIST OF FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements at Item 8 of this report.
(2) LIST OF FINANCIAL STATEMENT SCHEDULES
The following item is filed as a part of this report pursuant to Item 14(d)
of Form 10-K:
The Cogeneration Group Combined Financial Statements as of December 31, 1996,
1995 and 1994
Schedules pursuant to Item 8 of Form 10-K are omitted because the required
information is either presented in the financial statements or notes thereto, or
is not applicable, required or material.
(3) LIST OF EXHIBITS
(A)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2.1 Agreement for the sale and purchase of shares in First Hydro Limited, dated December 21, 1995
between PSB Holding Limited and First Hydro Finance Plc, incorporated by reference to Exhibit 2.1
to EME's Current Report on Form 8-K, No. 1-13434 dated January 4, 1996.
3.1 Amended and Restated Articles of Incorporation of EME incorporated by reference to Exhibit 3.1 to
EME's Current Report on Form 8-K, No. 1-13434 dated January 30, 1996. Originally filed with EME's
Registration Statement on Form 10 to the Securities and Exchange Commission on September 30, 1994
and amended by Amendment No. 1 thereto dated November 19, 1994 and Amendment No. 2 thereto dated
November 21, 1994 (as so amended, the "Form 10").
3.2 By-Laws of EME, incorporated by reference to Exhibit 3.2 to EME's Form 10.
4.1 Copy of the Global Debenture representing EME's 9-7/8% Junior Subordinated Deferrable Interest
Debentures, Series A, Due 2024.
4.2 Conformed copy of the Indenture dated as of November 30, 1994 between EME and The First National
Bank of Chicago, as trustee.
4.2.1 First Supplemental Indenture dated as of November 30, 1994 to Indenture dated as of November 30,
1994 between EME and The First National Bank of Chicago, as trustee.
10.1 Power Purchase Contract between Southern California Edison Company and Magma Electric Company,
dated March 1, 1984, incorporated by reference to Exhibit 10.1 to EME's Form 10.
10.1.1 Amendment No. 1 to Power Purchase Contract between Southern California Edison Company and Magma
Electric Company, dated May 10, 1984, incorporated by reference to Exhibit 10.1.1 to EME's Form 10.
10.2 Power Purchase Contract between Southern California Edison Company and Champlin Petroleum Company,
dated March 8, 1985, incorporated by reference to Exhibit 10.2 to EME's Form 10.
10.2.1 Amendment to Power Purchase Contract between Southern California Edison Company and Champlin
Petroleum Company, dated July 29, 1985, incorporated by reference to Exhibit 10.2.1 to EME's Form
10.
10.2.2 Amendment No. 2 to Power Purchase Contract between Southern California Edison Company and Champlin
Petroleum Company, dated October 29, 1985, incorporated by reference to Exhibit 10.2.2 to EME's
Form 10.
10.3 Power Purchase Contract between Southern California Edison Company and Magma Electric Company,
dated February 8, 1984, incorporated by reference to Exhibit 10.3 to EME's Form 10.
10.4 Power Purchase Contract between Southern California Edison Company and Imperial Energy Company,
dated February 22, 1984, incorporated by reference to Exhibit 10.4 to EME's Form 10.
10.4.1 Amendment to Power Purchase Contract between Southern California Edison Company and Imperial Energy
Company, dated November 13, 1984, incorporated by reference to Exhibit 10.4.1 to EME's Form 10.
10.5 Power Purchase Contract between Southern California Edison Company and Magma Electric Company,
dated June 15, 1984, incorporated by reference to Exhibit 10.5 to EME's Form 10.
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.5.1 Amendment to Power Purchase Contract between Southern California Edison Company and Magma Electric
Company, dated April 10, 1986, incorporated by reference to Exhibit 10.5.1 to EME's Form 10.
10.5.2 Amendment No. 2 to Power Purchase Contract between Southern California Edison Company and Magma
Electric Company, dated April 10, 1986, incorporated by reference to Exhibit 10.5.2 to EME's Form
10.
10.6 Power Purchase Contract between Southern California Edison Company and Imperial Energy Company
Niland No. 2, dated April 16, 1985, incorporated by reference to Exhibit 10.6 to EME's Form 10.
10.6.1 Amendment No. 1 to Power Purchase Contract between Southern California Edison Company and Magma
Power Company, dated April 10, 1986, incorporated by reference to Exhibit 10.6.1 to EME's Form 10.
10.7 Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated
November 9, 1984, incorporated by reference to Exhibit 10.7 to EME's Form 10.
10.7.1 Amendment No. 1 to Power Purchase Contract between Southern California Edison Company and Chevron
U.S.A. Inc., dated March 29, 1985, incorporated by reference to Exhibit 10.7.1 to EME's Form 10.
10.7.2 Amendment No. 2 to Power Purchase Contract between Southern California Edison Company and Chevron
U.S.A. Inc., dated November 21, 1985, incorporated by reference to Exhibit 10.7.2 to EME's Form 10.
10.7.3 Amendment No. 3 to Power Purchase Contract between Southern California Edison Company and Chevron
U.S.A. Inc., dated November 21, 1985, incorporated by reference to Exhibit 10.7.3 to EME's Form 10.
10.7.4 Amendment No. 4 to Power Purchase Contract between Southern California Edison Company and Beowawe
Geothermal Power Company, dated December 27, 1985, incorporated by reference to Exhibit 10.7.4 to
EME's Form 10.
10.7.5 Amendment No. 5 to Power Purchase Contract between Southern California Edison Company and Beowawe
Geothermal Power Company, dated March 21, 1986, incorporated by reference to Exhibit 10.7.5 to
EME's Form 10.
10.8 Power Purchase Contract between Southern California Edison Company and Arco Petroleum Products
Company (Watson Refinery), incorporated by reference to Exhibit 10.8 to EME's Form 10.
10.9 Power Supply Agreement between State Electricity Commission of Victoria, Loy Yang B Power Station
Pty. Ltd. and the Company Australia Pty. Ltd., as managing partner of the Latrobe Power
Partnership, dated December 31, 1992, incorporated by reference to Exhibit 10.9 to EME's Form 10.
10.10 Power Purchase Agreement between P.T. Paiton Energy Company as Seller and Perusahaan Umum Listrik
Negara as Buyer, dated February 12, 1994, incorporated by reference to Exhibit 10.10 to EME's Form
10.
10.11 Amended and Restated Power Purchase Contract between Southern California Energy Company and Midway-
Sunset Cogeneration Company, dated May 5, 1988, incorporated by reference to Exhibit 10.11 to EME's
Form 10.
10.12 Parallel Generation Agreement between Kern River Cogeneration Company and Southern California
Energy Company, dated January 6, 1984, incorporated by reference to Exhibit 10.12 to EME's Form 10.
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.13 Parallel Generation Agreement between Kern River Cogeneration (Sycamore Project) Company and
Southern California Energy Company, dated December 18, 1984, incorporated by reference to Exhibit
10.13 to EME's Form 10.
10.14 Amendment No. 2 to Power Purchase Agreement between Southern California Energy Company and
Vulcan/BN Geothermal Power Company, dated April 1, 1986, incorporated by reference to Exhibit 10.14
to EME's Form 10.
10.15 U.S. $325 million Bank of Montreal Revolver, dated October 29, 1993, incorporated by reference to
Exhibit 10.15 to EME's Form 10.
10.15.1 U.S. $400 million Bank of America National Trust and Savings Association Credit Agreement, dated
October 27, 1994, incorporated by reference to Exhibit 10.15.1 to EME's Form 10.
10.15.2 Conformed copy of the Amended and Restated U.S. $400 million Bank of America National Trust and
Savings Association Credit Agreement, dated as of November 17, 1994, incorporated by reference to
Exhibit 10.15.2 to EME's Annual Report on Form 10-K for the year ended December 31, 1994.
10.15.3 Conformed copy of the Second Amended and Restated U.S. $400 million Bank of America National Trust
and Savings Association Credit Agreement, dated as of October 11, 1996.*
10.16 Amended and Restated Ground Lease Agreement between Texaco Refining and Marketing Inc. and March
Point Cogeneration Company, dated August 21, 1992, incorporated by reference to Exhibit 10.16 to
EME's Form 10.
10.16.1 Amendment No. 1 to Amended and Restated Ground Lease Agreement between Texaco Refining and
Marketing Inc. and March Point Cogeneration Company, dated August 21, 1992, incorporated by
reference to Exhibit 10.16 to EME's Form 10.
10.17 Memorandum of Agreement between Atlantic Richfield Company and Products Cogeneration Company, dated
September 17, 1987, incorporated by reference to Exhibit 10.17 to EME's Form 10.
10.18 Memorandum of Ground Lease between Texaco Producing Inc. and Sycamore Cogeneration Company, dated
January 19, 1987, incorporated by reference to Exhibit 10.18 to EME's Form 10.
10.19 Amended and Restated Memorandum of Ground Lease between Getty Oil Company and Kern River
Cogeneration Company, dated November 14, 1984, incorporated by reference to Exhibit 10.19 to EME's
Form 10.
10.20 Memorandum of Lease between Sun Operating Limited Partnership and Midway-Sunset Cogeneration
Company, incorporated by reference to Exhibit 10.20 to EME's Form 10.
10.21 Executive Supplemental Benefit Program, incorporated by reference to Exhibits to Forms 10-K filed
by SCEcorp (File No. 1-2313).
10.22 1981 Deferred Compensation Agreement, incorporated by reference to Exhibits to Forms 10-K filed by
SCEcorp (File No. 1-2313).
10.23 1985 Deferred Compensation Agreement for Executives, incorporated by reference to Exhibits to Forms
10-K filed by SCEcorp (File No. 1-2313).
10.24 1987 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K
filed by SCEcorp (File No. 1-2313).
10.25 1988 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K
filed by SCEcorp (File No. 1-2313).
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.26 1989 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K
filed by SCEcorp (File No. 1-9936).
10.27 1990 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K
filed by SCEcorp (File No. 1-9936).
10.28 Annual Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms
10-K filed by SCEcorp (File No. 1-9936).
10.29 Executive Retirement Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed
by SCEcorp (File No. 1-2313).
10.30 Long-Term Incentive Plan for Executive Officers, incorporated by reference to the Registration
Statement (File No. 33-19541) under which SCEcorp registered securities to be offered pursuant to
the Plan under the Securities Act of 1933.
10.31 Estate and Financial Planning Program for Executive Officers, incorporated by reference to Exhibits
to Forms 10-K filed by SCEcorp (File No. 1-9936).
10.32 Letter Agreement with Edward R. Muller, incorporated by reference to Exhibit 10.32 to EME's Form
10.
10.33 Agreement with James S. Pignatelli, incorporated by reference to Exhibit 10.33 to EME's Form 10.
10.34 Conformed copy of the Guarantee Agreement dated as of November 30, 1994, incorporated by reference
to Exhibit 10.34 to EME's Form 10.
10.35 Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration
Technologies, Inc., dated as of December 18, 1989, incorporated by reference to Exhibit 10.35 to
EME's Annual Report on Form 10-K for the year ended December 31, 1994.
10.35.1 First Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and
Cogeneration Technologies, Inc., dated November 1, 1991, incorporated by reference to Exhibit
10.35.1 to EME's Annual Report on Form 10-K for the year ended December 31, 1994.
10.35.2 Second Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and
Cogeneration Technologies, Inc., dated June 3, 1994, incorporated by reference to Exhibit 10.35.2
to EME's Annual Report on Form 10-K for the year ended December 31, 1994.
10.35.3 Third Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and
Cogeneration Technologies, Inc., dated December 12, 1994, incorporated by reference to Exhibit
10.35.3 to EME's Annual Report on Form 10-K for the year ended December 31, 1994.
10.36 Conformed copy of A$200 million Bank of America National Trust and Savings Association Credit
Agreement dated November 22, 1994, incorporated by reference to Exhibit 10.36 to EME's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.36.1 Conformed copy of the Amended and Restated A$200 million Bank of America National Trust and Savings
Associated Credit Agreement dated December 12, 1994, incorporated by reference to Exhibit 10.36.1
to EME's Annual Report on Form 10-K for the year ended December 31, 1994.
10.36.2 Conformed copy of First Amendment to Amended and Restated A$200 million Bank of America National
Trust and Savings Associated Credit Agreement dated June 7, 1995, incorporated by reference to
Exhibit 10.36.2 to EME's Form 10-Q for the quarter ended September 30, 1995.
10.37 Amended and Restated Limited Partnership Agreement of Mission Capital, L.P. dated as of
November 30, 1994, incorporated by reference to Exhibit 10.37 to EME's Annual Report on Form 10-K
for the year ended December 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.38 Action of General Partner of Mission Capital, L.P. creating the 9-7/8% Cumulative Monthly Income
Preferred Securities, Series A, dated as of November 30, 1994, incorporated by reference to Exhibit
10.38 to EME's Annual Report on Form 10-K for the year ended December 31, 1994.
10.39 Action of General Partner of Mission Capital, L.P. creating the 8-1/2% Cumulative Monthly Income
Preferred Securities, Series B, dated as of August 8, 1995, incorporated by reference to Exhibit
10.39 to EME's Form 10-Q for the quarter ended June 30, 1995.
10.40 Power Purchase Contract between ISAB Energy, S.r.l. as Seller and Enel, S.p.A. as Buyer, dated June
9, 1995, incorporated by reference to Exhibit 10.40 to EME's Form 10-Q for the quarter ended June
30, 1995.
10.41 400 million sterling pounds Barclays Bank Plc Credit Agreement, dated December 18, 1995,
incorporated by reference to Exhibit 10.41 to EME's Current Report on Form 8-K, No.
1-13434.
10.42 Guarantee by EME dated December 1, 1995 supporting Letter of Credit issued by Bank of America
National Trust and Savings Association to secure payment of bonds issued pursuant to the Brooklyn
Navy Yard project tax-exempt bond financing, incorporated by reference to Exhibit 10.42 to EME's
Annual Report on Form 10-K for the year ended December 31, 1995.
10.43 Guarantee by EME dated December 1, 1995 supporting Letter of Credit issued by Bank of America
National Trust and Savings Association to secure Brooklyn Navy Yard's indemnity to the New York
City Industrial Development Agency pursuant to the Brooklyn Navy Yard project tax-exempt bond
financing, incorporated by reference to Exhibit 10.43 to EME's Annual Report on Form 10-K for the
year ended December 31, 1995.
10.44 Guarantee by EME dated December 20, 1996 in favor of The Fuji Bank, Limited, Los Angeles Agency, to
secure Camino Energy Company's payments pursuant to Camino Energy Company's Credit Agreement and
Defeasance Agreement.*
21 List of Subsidiaries.*
27 Financial Data Schedule.*
<FN>
---------------
*Filed herewith
</TABLE>
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
(C) EXHIBITS
The Exhibits filed with this report are listed in Item 14(a)(3) above.
(D) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules filed with this report are listed in
Section 14(a)(2) above.
Financial information for the Cogeneration Group for the years ended December
31, 1996, 1995 and 1994. The financial statements of the Cogeneration Group
present the combination of those entities that are 50% or less owned by EME and
that met the requirements of Rule 3-09 of Regulation S-X in 1995 and 1994.
There were no entities which were 50% or less owned by EME that met the
requirements of Rule 3-09 of Regulation S-X in 1996.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Edison Mission Energy:
We have audited the accompanying combined balance sheets of Kern River
Cogeneration Company (a general partnership between Getty Energy Company and
Southern Sierra Energy Company), Sycamore Cogeneration Company (a general
partnership between Texaco Cogeneration Company and Western Sierra Energy
Company) and Watson Cogeneration Company (a general partnership between
Camino Energy Company and Products Cogeneration Company), (collectively the
Cogeneration Group) as of December 31, 1995, and the related combined
statements of income, partners' equity and cash flows for the years ended
December 31, 1995 and 1994. These financial statements are the
responsibility of the Group's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Cogeneration
Group as of December 31, 1995, and the results of its operations and its cash
flows for the years ended December 31, 1995 and 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 15, 1996
THE COGENERATION GROUP
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
(Unaudited)
Operating Revenue
Sales of energy to SCE $347,537 $318,964 $348,458
Sales of energy to TEPI 9,406 8,405 8,873
Sales of energy to ARCO Products 23,631 19,249 31,849
Sales of steam to TEPI 72,038 64,150 71,861
Sales of steam to ARCO Products 43,121 35,018 24,002
-------- -------- --------
Total operating revenues 495,733 445,786 485,043
-------- -------- --------
OPERATING EXPENSES
Fuel 234,509 181,219 209,594
Plant operations 56,662 62,657 58,871
Depreciation and amortization 24,151 24,661 24,510
Administrative and general 5,733 6,824 7,555
-------- -------- --------
Total operating expenses 321,055 275,361 300,530
-------- -------- --------
Income from operations 174,678 170,425 184,513
-------- -------- --------
OTHER INCOME (EXPENSE)
Interest and other income 2,031 2,706 2,968
Interest expense (5,673) (9,454) (9,498)
-------- -------- --------
Total other income (expense) (3,642) (6,748) (6,530)
-------- -------- --------
NET INCOME $171,036 $163,677 $177,983
======== ======== ========
<FN>
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
THE COGENERATION GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
----------- ---------
<S> <C> <C>
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 48,334 $ 19,836
Trade receivables - affiliates 57,051 50,274
Other receivables 825 422
Inventories 16,632 17,809
Prepaid expenses and other assets 3,009 2,187
-------- --------
Total current assets 125,851 90,528
-------- --------
PROPERTY, PLANT AND EQUIPMENT 652,534 641,063
Less accumulated depreciation and amortization 236,517 215,820
-------- --------
Net property, plant and equipment 416,017 425,243
-------- --------
OTHER ASSETS
Emission credits, net 19,584 21,678
Intangible assets, net 23,950 25,077
Other 890 1,807
-------- --------
Total other assets 44,424 48,562
-------- --------
TOTAL ASSETS $586,292 $564,333
======== ========
<FN>
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
THE COGENERATION GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
----------- ---------
<S> <C> <C>
(Unaudited)
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $ 46,680 $ 27,683
Accounts payable and accrued liabilities 32,077 16,645
Current maturities of loans payable 13,404 24,951
-------- --------
Total current liabilities 92,161 69,279
-------- --------
LOANS PAYABLE,
net of current maturities 69,370 82,774
-------- --------
MAINTENANCE ACCRUAL 9,160 12,115
-------- --------
Total liabilities 170,691 164,168
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY 415,601 400,165
-------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY $586,292 $564,333
======== ========
<FN>
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
THE COGENERATION GROUP
COMBINED STATEMENTS OF PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company Texaco ARCO Total
Affiliates Affiliates Affiliates Equity
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 $194,622 $ 84,125 $115,007 $393,754
Cash distributions (86,549) (48,550) (39,550) (174,649)
Net income 88,383 58,554 31,046 177,983
--------- --------- --------- ---------
Balances at December 31, 1994 196,456 94,129 106,503 397,088
Cash distributions (79,550) (42,800) (38,250) (160,600)
Net income 81,182 49,010 33,485 163,677
--------- --------- --------- ---------
Balances at December 31, 1995 198,088 100,339 101,738 400,165
Cash distributions (Unaudited) (77,060) (40,800) (37,740) (155,600)
Net income (Unaudited) 84,865 52,845 33,326 171,036
--------- --------- --------- ---------
Balances at December 31, 1996 (Unaudited) $205,893 $112,384 $ 97,324 $415,601
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
THE COGENERATION GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $171,036 $163,677 $177,983
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 24,151 24,661 24,510
Loss on disposal of assets -- -- 1,742
(Increase) decrease in receivables (7,180) 5,595 (3,166)
Decrease (increase) in inventories 1,177 (1,519) 1,621
Increase (decrease) in payables 27,800 (1,053) (5,233)
Increase in maintenance accrual 3,673 5,456 2,218
Other, net (1,630) (411) 3,287
--------- --------- ---------
Net cash provided by operating activities 219,027 196,406 202,962
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (11,512) (7,386) (5,040)
--------- --------- ---------
Net cash used in investing activities (11,512) (7,386) (5,040)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from escrow account 1,534 1,488 1,488
Loan repayments (24,951) (25,100) (25,100)
Distribution to partners (155,600) (160,600) (174,649)
--------- --------- ---------
Net cash used in financing activities (179,017) (184,212) (198,261)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 28,498 4,808 (339)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,836 15,028 15,367
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 48,334 $ 19,836 $ 15,028
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 5,997 $ 9,553 $ 9,494
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Additions to property, plant and equipment received in
settlement of certain receivables $ -- $ -- $ 778
========= ========= =========
<FN>
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
THE COGENERATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED), 1995 AND 1994
NOTE 1. GENERAL
- ----------------
Principles of Combination
Edison Mission Energy (EME), a wholly owned subsidiary of The Mission Group,
a wholly owned non-utility subsidiary of Edison International, the parent
holding company of Southern California Edison Company (SCE), has a general
partnership interest in Kern River Cogeneration Company (Kern River), Sycamore
Cogeneration Company (Sycamore) and Watson Cogeneration Company (Watson)
(jointly referred to herein as the Group). SSEC, WSEC and CEC (as defined
below) are separate legal entities from EME. The accompanying combined
financial statements have been prepared for purposes of EME complying with
certain requirements of the Securities and Exchange Commission.
Kern River is a general partnership between Getty Energy Company (GEC), a
wholly owned subsidiary of Texaco Inc. (Texaco), and Southern Sierra Energy
Company (SSEC), a wholly owned subsidiary of EME. Kern River owns and operates
a 300-MW natural gas-fired cogeneration facility located near Bakersfield,
California, which sells electricity to SCE and which sells electricity and steam
to Texaco Exploration and Production Inc. (TEPI), a wholly owned subsidiary of
Texaco, for use in TEPI's enhanced oil recovery operations in the Kern River Oil
Field. Partnership income (loss) is allocated equally to the partners.
Sycamore is a general partnership between Texaco Cogeneration Company (TCC),
a wholly owned subsidiary of Texaco, and Western Sierra Energy Company (WSEC), a
wholly owned subsidiary of EME. Sycamore owns and operates a 300-MW natural
gas-fired cogeneration facility located near Bakersfield, California, which
sells electricity to SCE and which sells steam to TEPI for use in TEPI's
enhanced oil recovery operations in the Kern River Oil Field. Partnership
income (loss) is allocated equally to the partners.
Watson is a general partnership between Products Cogeneration Company (PCC),
a wholly owned subsidiary of Atlantic Richfield Company (ARCO) and Camino Energy
Company (CEC), a wholly owned subsidiary of EME. PCC and CEC own 51 percent
and 49 percent, respectively. Effective January 1997, PCC only owns two percent
with 49% held by Carson Cogeneration Company, a subsidiary of ARCO. Watson owns
and operates a 385-MW natural gas-fired cogeneration facility located in Carson,
California, which sells electricity to SCE and which sells electricity and steam
to ARCO Products Company (ARCO Products) for use at ARCO Products' refinery.
Partnership income (loss) is allocated based upon the partners' respective
ownership percentage.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
Inventories are comprised of materials and supplies, and are stated at their
lower of average cost or market.
Property, Plant and Equipment
All costs, including interest and field overhead expenses, incurred during
construction and the precommission phase of the facilities were capitalized as
part of the cost of the facilities. Revenue earned during the precommission
phase was offset against the costs of the facilities. The facilities and
related equipment are being depreciated on a straight-line basis over
approximately 30 years, which is the estimated useful lives of the facilities.
Emission Credits
Two of the Group's facilities were required to obtain assignments of emission
offset credits in order to be certified by the California Energy Commission.
These credits were required to meet the current environmental regulations as
they relate to the emissions being produced from the operation of these
facilities. The cost of these emission credits are stated net of accumulated
amortization of $21.1 million and $19.1 million at December 31, 1996 and 1995,
respectively (see Note 5). The emission credits are being amortized on a
straight-line basis over 21 years.
Intangible Assets
Intangible assets are stated net of accumulated amortization of $11.9 million
and $10.7 million at December 31, 1996 and 1995, respectively, and consist of
outside boundary limit facilities, refinery infrastructure, environment permits
and land use, as outlined in the various partnership agreements, contributed to
the Group. All of the intangible assets relate to the operations of the various
facilities, and as a result, are being amortized on a straight-line basis over
the estimated useful life of the facilities.
Statements of Cash Flows
For purposes of reporting cash flows, the Group considers short-term
temporary cash investments with an original maturity of three months or less to
be cash equivalents.
Maintenance Accruals
The Group performs scheduled inspections and major overhauls periodically
over the life of their combustion turbines. Generally, expenses for these events
are accrued for on a straight-line basis over the expected operating-hour
interval between each like maintenance event. Expenditures for minor
maintenance, repairs and renewals are charged to expense as incurred.
Expenditures for additions and improvements are capitalized.
The accruals for repair and maintenance events are based on management's
estimates of what these events will cost at the time the events occur. Due to
fluctuations in prices and changes in the timing of the scheduled events, the
estimated costs of these events can differ from actual costs incurred.
Fair Value of Financial Instruments
The carrying amount of the short-term investments approximates fair value due
to the short maturity of such investments. The estimated fair value of loans
payable is discussed in Note 4.
Impairment of Investments and Long-Lived Assets
Effective January 1, 1996, the Group adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This statement requires, among
other things, that an impairment loss shall only be recognized when the carrying
amount of a long-lived asset exceeds the expected future cash flows
(undiscounted and without interest charges) and that, when appropriate, the
amount of loss to be recognized shall be measured as the amount by which the
carrying value exceeds the fair value of the asset. The adoption of this
pronouncement did not have an impact on the Group's financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
year presentation.
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
----------- --------
<S> <C> <C>
(unaudited)
(in millions)
Plant and equipment
Power plant facilities $644.8 $633.4
Building, furniture and office equipment 7.7 7.6
------ ------
652.5 641.0
Less - Accumulated depreciation and amortization 236.5 215.8
------ ------
$416.0 $425.2
====== ======
</TABLE>
NOTE 4. LOANS PAYABLE
- ----------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
----------- ---------
<S> <C> <C>
(unaudited)
(in millions)
Watson project:
Note payable to ARCO (5% at 12/31/96)
(9.125% at 12/31/95) $27.4 $27.4
Note payable to Camino (5% at 12/31/96)
(9.125% at 12/31/95) 26.3 26.3
Sycamore project:
$175 million Loan and Credit Agreement due 1999
(Eurodollar rate + 0.625%) (6.2% at 12/31/96)
(6.7% at 12/31/95) 29.1 42.4
Kern River project:
$150 million Loan and Credit Agreement due 1996
(Eurodollar rate + 0.625%) (6.7% at 12/31/95) -- 11.6
----- -----
Subtotal 82.8 107.7
Current maturities of loans payable (13.4) (24.9)
----- -----
Total $69.4 $82.8
===== =====
</TABLE>
The above agreements for the Sycamore and Kern River projects are secured by
certain assets of the Group, and place certain restrictions on capital
distributions. In addition, these agreements require the Group to maintain
escrow deposits based upon outstanding loan amounts. Based upon borrowing rates
currently available to the Group for long-term debt with similar terms and
maturity, the fair value of the amounts outstanding under these agreements
approximates the carrying value.
The fair value of the two Watson project notes was approximately $53 million
at December 31, 1996 and 1995. In February 1996, the interest rates on the two
Waston project notes were reduced to 5% and the maturity dates extended to April
2008.
Annual maturities on the loans payable at December 31, 1996 are as follows
(dollars in millions):
YEAR
--------
1997 $13.4
1998 13.4
1999 2.2
2000 --
2001 --
Thereafter 53.8
-----
Total $82.8
=====
NOTE 5. RELATED-PARTY TRANSACTIONS/CONTRACTUAL OBLIGATIONS
- -----------------------------------------------------------
Operating and Other Costs
The amounts incurred by EME, Texaco and their respective affiliates for
operating and other costs charged to the Group, which are not disclosed
elsewhere, were as follows:
<TABLE>
<CAPTION>
(in millions)
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
(unaudited)
Texaco and affiliates $4.6 $4.5 $4.6
EME and affiliates 2.4 2.8 2.8
</TABLE>
Emission Credits
Certain affiliates of Texaco assigned their rights to certain emission offset
credits to certain of the Group for a period of 21 years. These emission offset
credits were earned by the Texaco affiliates by reducing specified emissions at
other of their operations. Such credits are used by the Group to allow certain
of the Group's facilities to produce a specified level of defined emissions to
meet certain air quality guidelines. The credits were required by those
facilities in order to be certified by the California Energy Commission and are
required to be maintained throughout the period of operations of those
facilities. The credits were reflected as a capital contribution by such
entities at the fair market value of $40.8 million.
Fuels Management Agreement
Certain of the Group are party to agreements with Texaco Natural Gas, Inc.
(TNGI), whereby TNGI is to procure and manage all fuel-gas supplies and
transportation for two of the facilities (except fuel-gas supplies procured and
delivered under tariff-gas contracts, provided under an excepted contract or
otherwise excluded from these agreements by the mutual consent of the partners).
The original termination date of the agreements with TNGI was December 31,
1995. TNGI received a fixed service fee of $.0075 per MMBtu of fuel gas
supplied to certain of the Group, and a variable incentive fee based on the
utility fuel cost applicable to such Group. The agreements include a minimum
annual fee of $.015 per MMBtu of fuel gas utilized if the total of the fixed
service fee and variable incentive fee is less than the minimum annual fee. The
amounts incurred under these agreements were $118.5 million and $131.7 million,
which included fees earned by TNGI of $3.7 million and $2.4 million, for the two
years ended December 31, 1995 and 1994, respectively.
As of January 1, 1996, the Amended and Restated Fuel Management Agreement,
terminating on April 11, 2007, was entered into such that TNGI will receive a
fixed service fee of $.0375 per MMBtu of fuel supplied to certain of the Group.
The amount incurred under the amended agreements was $147.7 million, which
included fees earned by TNGI of $2.6 million, for the year ended December 31,
1996.
Certain of the Group received a non-recurring refund in 1994 from TNGI for
amounts previously paid under the original agreement. The refund of $15.3
million reduced plant and other operating expenses in 1994.
One of the Group has entered into a fuel (refinery gas and butane) purchase
agreement with a subsidiary of ARCO. Such Group's purchases under this
agreement amounted to $38.4 million, $24.2 million and $25.5 million for the
three years ended December 31, 1996, 1995 and 1994, respectively.
Operation and Maintenance Agreement
Two of the Group have agreements with Edison Mission Operation & Maintenance,
Inc. (EMOM), a wholly owned subsidiary of EME, whereby EMOM shall perform all
operation and maintenance activities necessary for the production of electricity
and steam by such Group facilities. The agreements will continue until
terminated by either party. EMOM is paid for all costs incurred in connection
with operating and maintaining the facility. EMOM may also earn incentive
compensation as set forth in the agreements. The amounts incurred by the Group
under these agreements were $6 million, $6.2 million and $5.9 million which
included incentive compensation earned by EMOM of $0.9 million for each of the
three years ended December 31, 1996, 1995 and 1994, respectively.
One of the Group has an agreement with a subsidiary of ARCO, whereby such
subsidiary shall perform all operation and maintenance activities necessary for
the production of electricity and steam by such Group's facility. The agreement
will continue until termination of the Power Purchase Agreement in April 2008.
The ARCO subsidiary is reimbursed for all costs incurred in connection with
operating and maintaining the facility. The amounts incurred under this
agreement were $4.9 million, $5.4 million and $5.6 million for the three years
ended December 31, 1996, 1995 and 1994, respectively. Additionally, ARCO
provides other ancillary services under a service contract for a fee. Total
service fees earned by ARCO were $1.3 million, $1.3 million and $1.2 million for
the three years ended December 31, 1996, 1995 and 1994, respectively.
Steam Purchase and Sale Agreements
Certain of the Group have agreements with TEPI for the sale of steam
generated by such Group's facilities. The agreements terminate 20 years from
the date of the first sale of steam thereunder. TEPI pays such Group a steam
fuel charge based upon the quantity and quality of steam delivered during the
month, which is priced at the lesser of the current Southern California Gas
Company Border Gas Price, or the weighted average posted price of Kern River
Crude, less any severance, excise or windfall profit taxes, and a processing
charge per MMBtu as defined in the agreements. The quantity of steam sold under
this contract is expected to be sufficient for such Group to maintain qualifying
facility status. Total sales of steam under these agreements amounted to
approximately $72 million, $64.2 million and $71.9 million for the three years
ended December 31, 1996, 1995 and 1994, respectively.
These agreements have been amended whereby such Group will reduce steam
prices beginning in 1999 and to a limited extent in 1997. The amount of future
reductions in annual revenues could total approximately $25 million.
Additionally, one of the Group has contracted to sell steam and power
generated by its facility to the ARCO subsidiary's Los Angeles refinery under
separate agreements. Total sales under these contracts amounted to approximately
$66.8 million, $54.3 million and $55.9 million for the three years ended
December 31, 1996, 1995 and 1994 respectively.
Power Purchase Agreements
One of the Group has an agreement with TEPI for the sale of contract capacity
and net energy. This agreement will remain in effect until August 19, 2005.
The amounts paid for the contract capacity and net energy are based on the same
terms as provided for in the agreements with SCE (discussed below). Total sales
of power under the agreement with TEPI amounted to approximately $9.4 million,
$8.4 million and $8.9 million for the three years ended December 31, 1996, 1995
and 1994, respectively.
The Group has agreements with SCE for the sale of contract capacity and net
energy generated by the facilities. These agreements will remain in effect 20
years from the Firm Operation Date of the relevant facility. SCE pays the Group
for energy based upon the price of SCE's Avoided Fuel Cost, the quantity of
kilowatts delivered, the contracted heat rate allocated to on-peak, mid-peak
and off-peak hours and a factor as defined in the agreements to account for
system line loss at the point of delivery. SCE also pays the Group for firm
capacity based upon a contracted amount per kilowatt year. Total sales of
energy under these agreements amounted to $347.5 million, $319 million and
$348.5 million for the three years ended December 31, 1996, 1995 and 1994,
respectively.
As discussed above, the electric power generated by the Group is primarily
sold to SCE pursuant to long-term power sales contracts. When negotiating power
sales contracts, EME negotiates contracts which are expected to result in
consistent cash flow under a wide range of economic and operating
circumstances. To accomplish this end, EME structures its long-term contracts
so that fluctuations in fuel costs will produce similar fluctuations in
electric revenues and by entering into long-term fuel supply and
transportation agreements. In addition, the operation of the facilities
involves many risks including the breakdown or failure of equipment or
processes, performance below expected levels of output, interruptions in fuel
supply, pipeline disruptions, disruptions in the supply of electrical energy,
violation of permit requirements, operator error, the inability to meet
expected efficiency standards and catastrophic events. The occurrence of any
of these events could result in extended unavailability under the power sales
contracts which may entitle the purchaser thereunder to terminate the
relevant power sales contracts.
Natural Gas Supply and Transportation Agreements
The Group purchases gas on the spot market. As such, the Group may be
exposed, in the short-term, to fluctuations in the price of natural gas.
Fluctuations in the prices paid for gas are implicitly tied to the revenues
received for either power or steam under the agreements.
NOTE 6. INCOME TAXES
- ---------------------
Income taxes are not recorded by the Group because the net income or loss
allocated to the partners is included in their respective income tax returns.
NOTE 7. COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Future Obligations
Pursuant to amendments made in 1990 to the Federal Clean Air Act and the
California Clean Air Act, the Group is required to reduce its nitrogen oxide
(NOx) emissions. To fulfill these requirements certain of the Group are
scheduled to retrofit their combustion turbines to employ a Dry-Lo NOx (DLN)
technology. The retrofitting on the combustion turbines is planned to coincide
with maintenance overhauls scheduled through 1999. Such Group's management
estimates that the total cost of the DLN conversions will be $82.9 million. As
of December 31, 1996, the Group has incurred and capitalized $16 million of
costs related to the DLN conversions. It is further anticipated that operating
cash flows will be used to fund the DLN conversions.
Ship-or-Pay
Pursuant to the Master Agreement, entered into as of December 1, 1994,
certain of the Group executed a Security of Supply Agreement with an affiliated
partnership of EME and Texaco. Such Group has agreed to accept and underwrite,
on a pro-rata basis, a portion of Texaco's commitment pursuant to the
transportation agreement (the Transportation Agreement) between Texaco, the
Mojave Pipeline Company (Mojave) and the El Paso Pipeline Company (El Paso),
dated February 15, 1989 and extending through April 1, 2008. The Company has
agreed that Mojave and El Paso shall be the exclusive means of delivery for
certain of the Group of the lesser of 75% of the annual total natural gas fuel
requirements for such Group and 52,012,500 MMBtu per year.
Except upon the occurrence of certain permissible events, two of the Group
are subject to certain terms and conditions, whereby failure to transport the
required quantity of natural gas on the Mojave Pipeline will result in the Group
paying $0.33 per deficit MMBtu. Such Group will share any ship-or-pay
liabilities on a pro-rata basis (as defined in the Transportation Agreement)
with the affiliated partnership.
For each of the years in the three-year period ended December 31, 1996, the
transportation quantities required under the Transportation Agreement were met.
It is the opinion of the relevant Group's management that these commitments will
continue to be met based upon current projections for the operations of such
Group's facilities.
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.
EDISON MISSION ENERGY
(Registrant)
By: James V. Iaco, Jr.
-------------------------------------------------------------
JAMES V. IACO, JR., SENIOR VICE PRESIDENT and CHIEF FINANCIAL
OFFICER
Date: March 28, 1997
-------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
Principal Executive Officer:
Edward R. Muller President and Chief Executive Officer March 28, 1997
Controller or Principal Accounting Officer:
Thomas E. Legro Vice President and Controller March 28, 1997
Majority of Board of Directors:
John E. Bryson Chairman of the Board March 28, 1997
Alan J. Fohrer Vice Chairman of the Board March 28, 1997
Robert M. Edgell Director March 28, 1997
Bryant C. Danner Director March 28, 1997
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of October 11, 1996
among
EDISON MISSION ENERGY
and
CERTAIN COMMERCIAL LENDING INSTITUTIONS,
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
as the Administrative Agent, Syndication Agent
and Money Market Loan Agent for the Lenders
Arranged by
BA SECURITIES, INC.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
<S> <C>
I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . 1
1.1. Defined Terms. . . . . . . . . . . . . . . . . . . 1
1.2. Use of Defined Terms . . . . . . . . . . . . . . . 21
1.3. Cross-References . . . . . . . . . . . . . . . . . 21
1.4. Accounting and Financial Determinations. . . . . . 21
II
REVOLVING LOAN COMMITMENT, BORROWING PROCEDURES AND NOTES. . . 21
2.1. Revolving Loan Commitment. . . . . . . . . . . . . 21
2.1.1. Revolving Loan Commitment. . . . . . . . . . . . . 21
2.1.2. Lenders Not Required To Make Loans . . . . . . . . 22
2.2. Reduction of Revolving Loan Commitment Amount. . . 22
2.3. Borrowing Procedure. . . . . . . . . . . . . . . . 22
2.4. Continuation and Conversion Elections. . . . . . . 23
2.5. Funding. . . . . . . . . . . . . . . . . . . . . . 24
2.6. Notes. . . . . . . . . . . . . . . . . . . . . . . 24
2.7. Increase in Revolving Loan Commitment Amount . . . 24
2.8. Money Market Borrowings. . . . . . . . . . . . . . 26
2.9. Utilization of Revolving Commitments in Offshore
Currencies . . . . . . . . . . . . . . . . . . . . 31
2.10. Currency Exchange Fluctuations . . . . . . . . . . 32
2.11. Judgment Currency. . . . . . . . . . . . . . . . . 32
III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES . . . . . . . . . . 33
3.1. Repayments and Prepayments . . . . . . . . . . . . 33
3.1.1. Payment Terms. . . . . . . . . . . . . . . . . . . 33
3.2. Interest Provisions. . . . . . . . . . . . . . . . 34
3.2.1. Rates. . . . . . . . . . . . . . . . . . . . . . . 34
3.2.2. Post-Maturity Rates. . . . . . . . . . . . . . . . 35
3.2.3. Payment Dates. . . . . . . . . . . . . . . . . . . 36
3.2.4. Interest Rate Determination. . . . . . . . . . . . 36
3.3. Fees . . . . . . . . . . . . . . . . . . . . . . . 36
3.3.1. Facility Fee . . . . . . . . . . . . . . . . . . . 36
3.3.2. Agent's Fee. . . . . . . . . . . . . . . . . . . . 37
IV
CERTAIN LIBO RATE AND OTHER PROVISIONS . . . . . . . . . . . . 37
4.1. LIBO Rate Lending Unlawful . . . . . . . . . . . . 37
4.2. Inability to Determine Rates . . . . . . . . . . . 37
4.3. Increased LIBO Rate Loan and Offshore Currency
Loan Costs.. . . . . . . . . . . . . . . . . . . . 38
4.4. Obligation to Mitigate . . . . . . . . . . . . . . 38
4.5. Funding Losses . . . . . . . . . . . . . . . . . . 39
4.6. Increased Capital Costs. . . . . . . . . . . . . . 40
4.7. Taxes. . . . . . . . . . . . . . . . . . . . . . . 40
4.8. Payments, Computations.. . . . . . . . . . . . . . 42
4.9. Sharing of Payments. . . . . . . . . . . . . . . . 42
4.10. Setoff . . . . . . . . . . . . . . . . . . . . . . 43
4.11. Use of Proceeds. . . . . . . . . . . . . . . . . . 44
V
THE LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . 44
5.1. The Letter of Credit Commitment. . . . . . . . . . 44
5.1.1. Issuance, Amendment and Renewal of Letters of
Credit . . . . . . . . . . . . . . . . . . . . . . 45
5.1.2. Risk Participations, Drawings and
Reimbursements . . . . . . . . . . . . . . . . . . 48
5.1.3. Repayment of Participations. . . . . . . . . . . . 50
5.1.4. Role of the Issuing Bank . . . . . . . . . . . . . 50
5.1.5. Obligations Absolute . . . . . . . . . . . . . . . 51
5.2. Cash Collateral Pledge . . . . . . . . . . . . . . 52
5.3. Letter of Credit Fees. . . . . . . . . . . . . . . 53
5.4. Issuance of Letters of Credit in Offshore
Currencies . . . . . . . . . . . . . . . . . . . . 53
5.5. Uniform Customs and Practice . . . . . . . . . . . 54
5.6. Additional and Successor Issuing Bank. . . . . . . 54
VI
CONDITIONS TO CREDIT EXTENSIONS. . . . . . . . . . . . . . . . 54
6.1. Conditions to Effectiveness. . . . . . . . . . . . 54
6.1.1. Resolutions. . . . . . . . . . . . . . . . . . . . 54
6.1.2. Delivery of Notes. . . . . . . . . . . . . . . . . 55
6.1.3. Opinions of Counsel. . . . . . . . . . . . . . . . 55
6.1.4. Closing Fees, Expenses.. . . . . . . . . . . . . . 55
6.1.5. Condition to Initial Credit Extension. . . . . . . 55
6.2. All Credit Extensions. . . . . . . . . . . . . . . 55
6.2.1. Representations and Warranties, No Default.. . . . 55
6.2.2. Borrowing Request. . . . . . . . . . . . . . . . . 56
6.2.3. Satisfactory Legal Form. . . . . . . . . . . . . . 56
VII
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 56
7.1. Organization; Power. . . . . . . . . . . . . . . . 56
7.2. Due Authorization; Non-Contravention.. . . . . . . 56
7.3. Government Approval; Regulation. . . . . . . . . . 57
7.4. Validity.. . . . . . . . . . . . . . . . . . . . . 57
7.5. Financial Information. . . . . . . . . . . . . . . 57
7.6. No Material Adverse Change . . . . . . . . . . . . 57
7.7. Litigation.. . . . . . . . . . . . . . . . . . . . 57
7.8. Ownership of Properties. . . . . . . . . . . . . . 58
7.9. Taxes. . . . . . . . . . . . . . . . . . . . . . . 58
7.10. Pension and Welfare Plans. . . . . . . . . . . . . 58
7.11. Environmental Warranties . . . . . . . . . . . . . 58
7.12. Regulations G, T, U and X. . . . . . . . . . . . . 59
7.13. Accuracy of Information. . . . . . . . . . . . . . 59
7.14. The Obligations. . . . . . . . . . . . . . . . . . 60
VIII
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.1. Affirmative Covenants. . . . . . . . . . . . . . . 60
8.1.1. Financial Information, Reports, Notices. . . . . . 60
8.1.2. Compliance with Laws.. . . . . . . . . . . . . . . 62
8.1.3. Maintenance of Properties. . . . . . . . . . . . . 62
8.1.4. Insurance. . . . . . . . . . . . . . . . . . . . . 62
8.1.5. Books and Records. . . . . . . . . . . . . . . . . 63
8.1.6. Environmental Covenant . . . . . . . . . . . . . . 63
8.2. Negative Covenants . . . . . . . . . . . . . . . . 64
8.2.1. Restrictions on Secured Indebtedness . . . . . . . 64
8.2.2. [Reserved] . . . . . . . . . . . . . . . . . . . . 64
8.2.3. Liens. . . . . . . . . . . . . . . . . . . . . . . 64
8.2.4. Financial Condition. . . . . . . . . . . . . . . . 65
8.2.5. Investments. . . . . . . . . . . . . . . . . . . . 65
8.2.6. Consolidation, Merger. . . . . . . . . . . . . . . 66
8.2.7. Asset Dispositions.. . . . . . . . . . . . . . . . 67
8.2.8. Transactions with Affiliates . . . . . . . . . . . 67
8.2.9. Restrictive Agreements.. . . . . . . . . . . . . . 67
8.3. ERISA. . . . . . . . . . . . . . . . . . . . . . . 68
IX
EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 68
9.1. Listing of Events of Default . . . . . . . . . . . 68
9.1.1. Non-Payment of Obligations . . . . . . . . . . . . 68
9.1.2. Breach of Warranty . . . . . . . . . . . . . . . . 68
9.1.3. Non-Performance of Certain Covenants and
Obligations. . . . . . . . . . . . . . . . . . . . 68
9.1.4. Non-Performance of Other Covenants and
Obligations. . . . . . . . . . . . . . . . . . . . 69
9.1.5. Default on Other Indebtedness. . . . . . . . . . . 69
9.1.6. Judgments. . . . . . . . . . . . . . . . . . . . . 69
9.1.7. Pension Plans. . . . . . . . . . . . . . . . . . . 70
9.1.8. Control of the Borrower. . . . . . . . . . . . . . 70
9.1.9. Bankruptcy, Insolvency.. . . . . . . . . . . . . . 70
9.2. Action if Bankruptcy . . . . . . . . . . . . . . . 71
9.3. Action if Other Event of Default . . . . . . . . . 71
9.4. Rescission of Declaration. . . . . . . . . . . . . 72
X
THE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.1. Actions. . . . . . . . . . . . . . . . . . . . . . 72
10.2. Funding Reliance.. . . . . . . . . . . . . . . . . 73
10.3. Exculpation. . . . . . . . . . . . . . . . . . . . 74
10.4. Successor. . . . . . . . . . . . . . . . . . . . . 74
10.5. Loans by BofA. . . . . . . . . . . . . . . . . . . 75
10.6. Reliance by Agent. . . . . . . . . . . . . . . . . 75
10.7. Notice of Default. . . . . . . . . . . . . . . . . 75
10.8. Credit Decisions . . . . . . . . . . . . . . . . . 76
10.9. Copies.. . . . . . . . . . . . . . . . . . . . . . 76
XI
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . 76
11.1. Waivers, Amendments. . . . . . . . . . . . . . . . 76
11.2. Notices. . . . . . . . . . . . . . . . . . . . . . 77
11.3. Payment of Costs and Expenses. . . . . . . . . . . 78
11.4. Indemnification. . . . . . . . . . . . . . . . . . 78
11.5. Survival . . . . . . . . . . . . . . . . . . . . . 80
11.6. Severability . . . . . . . . . . . . . . . . . . . 80
11.7. Headings . . . . . . . . . . . . . . . . . . . . . 80
11.8. Execution in Counterparts, Effectiveness.. . . . . 80
11.9. Governing Law; Entire Agreement. . . . . . . . . . 80
11.10. Successors and Assigns . . . . . . . . . . . . . . 80
11.11. Sale and Transfer of Loans and Notes;
Participations in Loans and Notes. . . . . . . . . 81
11.11.1. Assignments . . . . . . . . . . . . . . . . . . 81
11.11.2. Participations. . . . . . . . . . . . . . . . . 82
11.12. Other Transactions . . . . . . . . . . . . . . . . 83
11.13. Forum Selection and Consent to Jurisdiction. . . . 83
11.14. Waiver of Jury Trial . . . . . . . . . . . . . . . 84
11.15. Non-Recourse Persons . . . . . . . . . . . . . . . 84
EXHIBITS
- --------
A-1 - Revolving Note
A-2 - Money Market Note
B-1 - Borrowing Request
B-2 - L/C Application
C - Continuation/Conversion Notice
D - Lender Assignment Agreement
E - Opinion of Counsel to Borrower
F - Certificate of Borrower
G - Money Market Quote Request
H - Invitation for Money Market Quotes
I - Money Market Quote
J - Notice of Money Market Borrowing
SCHEDULES
- ---------
2.1 - Revolving Loan Commitments
2.9 - Agreed Alternative Currencies
11.2 - Addresses for Notices and Lending Offices
</TABLE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of October 11, 1996, among EDISON MISSION ENERGY, a
California corporation (the "Borrower"), the various financial
--------
institutions as are or may become parties hereto (collectively,
the "Lenders"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
-------
ASSOCIATION, ("Agent"), as agent for the Lenders.
-----
RECITALS
--------
A. The Agent, the Lenders, the Issuing Bank and the
Borrower are party to an Amended and Restated Credit Agreement
dated as of November 17, 1994 pursuant to which the Lenders and
the Issuing Bank agreed to provide a letter of credit and
revolving multicurrency facility (the "Existing Credit
Agreement").
B. The Lenders are willing, on the terms and subject
to the conditions hereinafter set forth, to refinance the
Existing Credit Agreement and to increase the Revolving Loan
Commitments and make Revolving Loans to the Borrower and to
purchase risk participations in Letters of Credit issued by the
Issuing Bank (all as hereinafter defined); and
C. The proceeds of such Revolving Loans will be used
for general corporate purposes of the Borrower;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following terms
-------------
(whether or not underscored) when used in this Agreement,
including its preamble and recitals, shall, except where the
context otherwise requires, have the following meanings (such
meanings to be equally applicable to the singular and plural
forms thereof):
"Absolute Rate Auction" means a solicitation of Money
---------------------
Market Quotes setting forth Money Market Absolute Rates pursuant
to Section 2.8.
-----------
"Affiliate" of any Person means any other Person which,
---------
directly or indirectly, controls, is controlled by or is under
common control with such Person (excluding any trustee under, or
any committee with responsibility for administering, any Pension
Plan or Welfare Plan). A Person shall be deemed to be
"controlled by" any other Person if such other Person possesses,
directly or indirectly, power to direct or cause the direction of
the management and policies of such Person whether by contract or
otherwise.
"Agent" means BofA in its capacity as administrative
-----
agent, syndication agent and money market loan agent for the
Lenders hereunder, and includes each other Person as shall have
subsequently been appointed as the successor Agent pursuant to
Section 10.4.
- ------------
"Agent-Related Persons" means BofA and any successor
---------------------
agent arising under Section 10.4 and any successor Issuing Bank
------------
hereunder, together with their respective Affiliates (including,
in the case of BofA, the Arranger), and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agreed Alternative Currency" shall mean the
---------------------------
eurocurrencies listed on Schedule 2.9, as amended from time to
time, pursuant to the procedures specified in Section 2.9.
-----------
"Agreement" means, on any date, this Second Amended and
---------
Restated Credit Agreement as originally in effect on the
Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in
effect on such date.
"Alternate Base Rate" means, on any date and with
-------------------
respect to all Base Rate Loans, a fluctuating rate of interest
per annum equal to the higher of
(a) the rate of interest in effect for such day
as publicly announced from time to time by BofA in San
Francisco California, as its "reference rate." The
"reference rate" is a rate set by BofA based upon
various factors including BofA's costs and desired
return, general economic conditions and other factors,
and is used as a reference point for pricing some
loans, which may be priced at, above, or below such
announced rate, or
(b) the Federal Funds Rate most recently
determined by the Agent plus 1/2 of 1%.
The Alternate Base Rate is not necessarily intended to be the
lowest rate of interest determined by the Agent in connection
with extensions of credit. Changes in the rate of interest on
that portion of any Loans maintained as Base Rate Loans will take
effect simultaneously with each change in the Alternate Base
Rate. The Agent will give notice promptly to the Borrower and
the Lenders of changes in the Alternate Base Rate.
"Applicable Currency" means, as to any particular
-------------------
payment or Loan or L/C Obligation, Dollars or the Offshore
Currency in which it is denominated or is payable, and, if no
Applicable Currency is specified, shall mean Dollars.
"Applicable Margin" means the following basis points
-----------------
per annum depending on the level indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Pricing Level 1 2 3 4 5
Libo Margin 17.50 18.50 24.00 30.00 42.50
Base Rate Margin 0.00 0.00 0.0 0.00 0.00
Facility Fee 7.50 9.00 11.00 15.00 20.00
Financial L/C Fee 17.50 18.50 24.00 30.00 42.50
Performance L/C Fee 5.00 4.75 6.50 7.50 11.25
</TABLE>
"Level 1": The Applicable Margin shall be
-------
determined at Level 1 so long as the Borrower's Debt
Rating is A3 or better by Moody's and A- or better by
S&P.
"Level 2": The Applicable Margin shall be
-------
determined at Level 2 so long as the Borrower's Debt
Rating is Baa1 by Moody's or BBB+ by S&P.
"Level 3": The Applicable Margin shall be
-------
determined at Level 3 so long as the Borrower's Debt
Rating is Baa2 by Moody's or BBB by S&P.
"Level 4": The Applicable Margin shall be
-------
determined at Level 4 so long as the Borrower's Debt
Rating is Baa3 by Moody's or BBB- by S&P.
"Level 5": The Applicable Margin shall be
-------
determined at Level 5 so long as the Borrower's debt
rating is lower than Baa3 by Moody's or BBB- by S&P.
In the event that the Debt Rating established by
Moody's is at a different Level than the Debt Rating
established by S&P's, the higher Debt Rating shall
apply and the Level associated with such higher rating
shall be the Applicable Margin, except that, in the
event that the difference is greater than one rating
Level, the average of the two Debt Ratings by Moody's
and by S&P shall apply to determine the Applicable
Margin; provided, however, that both Debt Ratings set
-------- -------
forth in Level 1 must be in effect for Level 1 to apply
and if either of the Debt Ratings set forth in Level 5
is in effect, Level 5 applies.
Changes in the Level for determining the Applicable
Margin resulting from a change in rating(s) shall
become effective on the day such change in the ratings
is announced by the relevant rating agency. In the
event that the Borrower does not maintain a Debt Rating
with both Moody's and S&P, the Borrower may, with the
reasonable consent of Required Lenders, select Duff &
Phelps, Fitch Investor Services Inc. or another
reputable rating agency to replace Moody's or S&P, and
such replacement agency and the Debt Rating established
by such agency shall be used thereafter in the
calculation of Applicable Margin in the same fashion as
the agency which no longer maintains such Debt Rating.
From the date which the Debt Rating of Moody's or S&P
ceases to be current until the date which is 120 days
thereafter, the Applicable Margin shall be determined
by reference to the Debt Ratings of Moody's and S&P
most recently in effect. In the event that such
replacement agency has not established a Debt Rating
within 120 days after the Debt Rating of Moody's or S&P
ceases to be current, then, until such time as such
Debt Rating is established, the Applicable Margin shall
be determined at one Level lower than the Level
otherwise established based on the remaining Debt
Rating.
"Arranger" means BA Securities, Inc.
--------
"Augmenting Lender" has the meaning set forth in
-----------------
Section 2.7(c).
"Authorized Representative" means, relative to the
-------------------------
Borrower, those of its officers and employees whose signatures
and incumbency shall have been certified to the Agent and the
Lenders pursuant to Section 6.1.1.
-------------
"BBAIRS" has the meaning set forth in Section 3.2.1.
------
"Base Rate Loan" means a Loan bearing interest at a
--------------
fluctuating rate determined by reference to the Alternate Base
Rate.
"BofA" is defined in the preamble.
---- --------
"Borrower" is defined in the preamble.
-------- --------
"Borrowing" means (i) Revolving Loans of the same type
---------
and in the same Applicable Currency and, in the case of LIBO Rate
Loans having the same Interest Period, made by all Lenders on the
same Business Day and pursuant to the same Borrowing Request in
accordance with Section 2.1, (ii) Revolving Loans made in
-----------
accordance with Section 5.1.2, and (iii) Money Market Loans of
the same type and Interest Period made by one or more Lenders on
the same Business Day and pursuant to a Money Market Quote
Request in accordance with Section 2.8.
-----------
"Borrowing Request" means a loan request and
-----------------
certificate duly executed by an Authorized Representative of the
Borrower, substantially in the form of Exhibit B-1 hereto, with
-----------
respect to Loans, and means an L/C Application duly executed by
an Authorized Representative of the Borrower, substantially in
the form of Exhibit B-2 hereto, with respect to Letters of
-----------
Credit.
"Business Day" means
------------
(a) any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or
required to be closed in New York, New York or San
Francisco, California or Tokyo, Japan; and
(b) relative to the making, continuing, prepaying
or repaying of any LIBO Rate Loans or Money Market
LIBOR Loans, any day on which dealings in Dollars are
carried on in the London interbank market; and
(c) relative to the making, continuing, prepaying
or repaying of, and calculations pertaining to, any
Offshore Currency Loan, a day on which commercial banks
are open for foreign exchange business in London,
England, and on which dealings in the relevant Offshore
Currency are carried on in the applicable offshore
foreign exchange interbank market in which disbursement
of or payment in such Offshore Currency will be made or
received hereunder.
"Capitalized Lease Liabilities" of any Person means all
-----------------------------
monetary obligations of such Person under any leasing or similar
arrangement which, in accordance with GAAP, would be classified
as capitalized leases, and, for purposes of this Agreement and
each other Loan Document, the amount of such obligations shall be
the capitalized amount thereof, determined in accordance with
GAAP.
"Cash Collateralize" means to pledge and deposit with
------------------
or deliver to the Agent, for the ratable benefit of the Agent,
the Issuing Bank and the Lenders, as collateral for the L/C
Obligations, cash or deposit account balances pursuant to
documentation in form and substance satisfactory to the Agent and
the Issuing Bank. The Borrower hereby grants the Agent, for the
benefit of the Agent, the Issuing Bank and the Lenders, a
security interest in all such cash and deposit account balances.
Cash collateral shall be maintained in blocked, interest bearing
deposit or investment accounts at the Agent, under the sole
dominion and control of the Agent, subject to investment
instructions from the Borrower, if applicable, and mutually
agreeable documentation.
"Cash Equivalent Investment" means, at any time:
--------------------------
(a) any evidence of Indebtedness, maturing not
more than one year after such time, issued or
guaranteed by the United States Government or an agency
thereof; or
(b) other investments in securities or bank
instruments in each case of investment grade and with
maturities of less than 366 days; or
(c) other securities as to which the Borrower has
demonstrated, to the satisfaction of the Agent,
adequate liquidity through secondary markets or deposit
agreements.
"CERCLIS" means the Comprehensive Environmental
-------
Response Compensation Liability Information System List.
"Change in Control" means the failure of Edison
-----------------
International to own, directly or indirectly, at least 50.1% of
the outstanding shares of voting stock of the Borrower (or any
successor pursuant to Section 8.2.6(c)) on a fully diluted basis.
----------------
"Co-Agents" means Bank of Montreal, Credit Lyonnais,
---------
New York Branch, The Industrial Bank of Japan, The Long-Term
Credit Bank of Japan, NationsBank of Texas, N.A., Societe
Generale and Swiss Bank Corporation.
"Code" means the Internal Revenue Code of 1986, as
----
amended, reformed or otherwise modified from time to time.
"Commitment Termination Event" means
----------------------------
(a) the occurrence of any Default described in
clauses (a) through (e) of Section 9.1.9 with respect
----------- --- -------------
to the Borrower; or
(b) the occurrence and continuance of any other
Event of Default and either
(i) the declaration of the Loans to be due
and payable pursuant to Section 9.3, or
-----------
(ii) in the absence of such declaration, the
giving of notice by the Agent pursuant to
Section 9.3, acting at the direction of the
-----------
Required Lenders, to the Borrower that the
Commitments have been terminated.
"Committed Loan" means a Loan made pursuant to Section
-------------- -------
2.1.
- ---
"Computation Date" has the meaning set forth in Section
---------------- -------
2.9(a).
- ------
"Contingent Liability" means any agreement, undertaking
--------------------
or arrangement by which any Person guarantees, endorses or
otherwise becomes or is contingently liable upon (by direct or
indirect agreement, contingent or otherwise, to provide funds for
payment, to supply funds to, or otherwise to invest in, a debtor,
or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than
by endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon
the shares of any other Person. The amount of any Person's
obligation under any Contingent Liability shall (subject to any
limitation set forth therein) be deemed to be the outstanding
principal amount of the debt, obligation or other liability
guaranteed thereby; provided, however, that if the maximum amount
-----------------
of the debt, obligation or other liability guaranteed thereby has
not been established, the amount of such Contingent Liability
shall be the maximum reasonably anticipated amount of the debt,
obligation or other liability; provided, further, however, that
-------- -------
any agreement to limit the maximum amount of such Person's
obligation under such Contingent Liability shall not, of and by
itself, be deemed to establish the maximum reasonably anticipated
amount of such debt, obligation or other liability.
"Continuation/Conversion Notice" means a notice of
------------------------------
continuation or conversion and certificate duly executed by an
Authorized Representative of the Borrower, substantially in the
form of Exhibit C hereto.
---------
"Controlled Group" means all members of a controlled
----------------
group of corporations and all members of a controlled group of
trades or businesses (whether or not incorporated) under common
control which, together with the Borrower, are treated as a
single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.
"Credit Extension" means and includes (a) any Borrowing
----------------
and (b) any Issuance of, or participation in, any Letters of
Credit.
"Debt Rating" means a rating of the Borrower's long-
-----------
term debt which is not secured or supported by a guarantee,
letter of credit or other form of credit enhancement. If Moody's
or S&P shall have changed its system of classifications after the
date hereof, the Borrower's Debt Rating shall be considered to be
at or above a specified level if it is at or above the new rating
which most closely corresponds to the specified level under the
old rating system.
"Default" means any Event of Default or any condition,
-------
occurrence or event which, after notice or lapse of time or both,
would constitute an Event of Default.
"Dollar" and the sign "$" mean lawful money of the
------ -
United States.
"Dollar Equivalent" means, at any time, (a) as to any
-----------------
amount denominated in Dollars, the amount thereof at such time,
and (b) as to any amount denominated in any other Offshore
Currency, the equivalent amount in Dollars as determined by the
Agent at such time on the basis of the Spot Rate for the purchase
of Dollars with such Offshore Currency on the most recent
Computation Date, as defined in and provided for in Section
2.9(a). -------
- ------
"Domestic Office" means, relative to any Lender, the
---------------
office of such Lender designated on Schedule 11.2 or designated
in the Lender Assignment Agreement or such other office of a
Lender (or any successor or assign of such Lender) within the
United States as may be designated from time to time by notice
from such Lender, as the case may be, to each other Person party
hereto. A Lender may have separate Domestic Offices for purposes
of making, maintaining or continuing, as the case may be, Base
Rate Loans.
"Edison International" means Edison International, a
--------------------
California corporation.
"Effective Date" means the date this Agreement becomes
--------------
effective pursuant to Section 11.8.
------------
"Eligible Assignee" means (i) a commercial bank
-----------------
organized or licensed under the laws of the United States, or any
state thereof, and having a combined capital and surplus of at
least $250,000,000; (ii) a commercial bank organized under the
laws of any other country which is a member of the Organization
for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined
capital and surplus of at least $250,000,000, provided that such
bank is acting through a branch or agency located in the country
in which it is organized or another country which is also a
member of the OECD; and (iii) a Person that is primarily engaged
in the business of commercial banking and that is (A) a
Subsidiary of a Lender, (B) a Subsidiary of a Person of which a
Lender is a Subsidiary, or (C) a Person of which a Lender is a
Subsidiary.
"Environmental Laws" means all applicable federal,
------------------
state or local statutes, laws, ordinances, codes, rules,
regulations and guidelines (including consent decrees and
administrative orders) relating to Hazardous Materials and/or to
public health and safety and protection of the environment,
including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the Resource
Conservation and Recovery Act, as amended.
"ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended, and any successor statute of similar
import, together with the regulations thereunder, in each case as
in effect from time to time. References to sections of ERISA
also refer to any successor sections.
"Event of Default" is defined in Section 9.1.
---------------- -----------
"Federal Funds Rate" means, for any period, a
------------------
fluctuating interest rate per annum equal for each day during
such period to
(a) the weighted average of the rates on
overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds
brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York; or
(b) if such rate is not so published for any day
which is a Business Day, the average of the quotations
for such day on such transactions received by the Agent
from not less than three of the Co-Agents (or if
quotations are unavailable from any of them, up to
three federal funds brokers of recognized standing
selected by the Agent).
"Financial Letter of Credit" means a standby or direct
--------------------------
pay Letter of Credit supporting indebtedness owing to third
parties, which may include workers' compensation requirements.
"Fiscal Quarter" means any quarter of a Fiscal Year.
--------------
"Fiscal Year" means any period of twelve consecutive
-----------
calendar months ending on December 31; references to a Fiscal
Year with a number corresponding to any calendar year (e.g., the
----
"1988 Fiscal Year") refer to the Fiscal Year ending on December
31 occurring during such calendar year.
"F.R.S. Board" means the Board of Governors of the
------------
Federal Reserve System or any successor thereto.
"FX Trading Office" means the Foreign Exchange Trading
-----------------
Center #5193, San Francisco, California, of BofA, or such other
of BofA's offices as BofA may designate from time to time.
"GAAP" is defined in Section 1.4.
---- -----------
"Government Approval" is defined in Section 7.3.
------------------- -----------
"Hazardous Material" means
------------------
(a) any "hazardous substance", as defined by any
Environmental Law;
(b) any "hazardous waste", as defined by any
Environmental Law;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material or substance
within the meaning of any other applicable federal,
state or local law, regulation, ordinance or
requirement (including consent decrees and
administrative orders) relating to or imposing
liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or
material, all as amended or hereafter amended.
"herein", "hereof", "hereto", "hereunder" and similar
------ ------ ------ ---------
terms contained in this Agreement or any other Loan Document
refer to this Agreement or such other Loan Document, as the case
may be, as a whole and not to any particular Section, paragraph
or provision of this Agreement or such other Loan Document.
"including" means including without limiting the
---------
generality of any description preceding such term, and, for
purposes of this Agreement and each other Loan Document, the
parties hereto agree that the rule of ejusdem generis shall not
------- -------
be applicable to limit a general statement, which is followed by
or referable to an enumeration of specific matters, to matters
similar to the matters specifically mentioned.
"Indebtedness" of any Person means, without
------------
duplication:
(a) all indebtedness for borrowed money;
(b) all obligations issued, undertaken or assumed
as the deferred purchase price of property or services
which purchase price is due more than six months from
the date of incurrence of the obligation in respect
thereof or is evidenced by a note or other instrument;
(c) all reimbursement obligations with respect to
surety bonds, letters of credit (to the extent not
collateralized with cash or Cash Equivalent
Investments), bankers' acceptances and similar
instruments (in each case, whether or not matured);
(d) all obligations evidenced by notes, bonds,
debentures or similar instruments, including
obligations so evidenced incurred in connection with
the acquisition of property, assets or businesses;
(e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to
property acquired by the Person (even though the rights
and remedies of the seller or bank under such agreement
in the event of default are limited to repossession or
sale of such property);
(f) all Capitalized Lease Liabilities;
(g) all net obligations with respect to sales of
foreign exchange options;
(h) all indebtedness referred to in
paragraphs (a) through (g) above secured by (or for
--------------------------
which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any
Lien upon or in property (including accounts and
contracts rights) owned by such Person, even though
such Person has not assumed or become liable for the
payment of such Indebtedness; and, without duplication,
(i) all Contingent Liabilities.
For all purposes of this Agreement, the Indebtedness of any
Person shall include the Indebtedness of any partnership or joint
venture in which such Person is a general partner or a joint
venturer.
"Interest Period" means,
---------------
(a) relative to any LIBO Rate Loans, the period
beginning on (and including) the date on which such
LIBO Rate Loan is made or continued as, or converted
into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4
----------- ---
and shall end on (but exclude) the day which
numerically corresponds to such date one, two, three or
six months thereafter (or, if such month has no
numerically corresponding day, on the last Business Day
of such month), in either case as the Borrower may
select in its relevant notice pursuant to Section 2.3
or 2.4; provided, however, that: -----------
--- -------- -------
(i) the Borrower shall not be permitted to
select Interest Periods to be in effect at any one
time which have expiration dates occurring on more
than ten different dates or such other larger
number of dates and on such terms as may be agreed
to by the Borrower and the Agent;
(ii) Interest Periods commencing on the same
date for Loans comprising part of the same
Borrowing shall be of the same duration;
(iii) if such Interest Period would
otherwise end on a day which is not a Business
Day, such Interest Period shall end on the next
following Business Day (unless, if such Interest
Period applies to LIBO Rate Loans, such next
following Business Day is the first Business Day
of a calendar month, in which case such Interest
Period shall end on the Business Day next
preceding such numerically corresponding day); and
(iv) no Interest Period may end later than
the date set forth in clause (a) of the definition
----------
of "Revolving Loan Commitment Termination Date".
------------------------------------------
(b) with respect to each Money Market LIBOR Loan
Borrowing, the period commencing on the date of such
Borrowing and ending such number of days thereafter
(but not less than seven (7) days or more than six
months) as the Borrower may elect in accordance with
Section 2.8; provided that:
----------- --------
(i) any Interest Period which would
otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business
Day unless such Business Day falls in another
calendar month, in which case such Interest Period
shall end on the next preceding Business Day; and
(ii) any Interest Period which would
otherwise end after the date set forth in
clause (a) of the definition of "Revolving Loan
Commitment Termination Date" shall end on the date
set forth in clause (a) of the definition of
"Revolving Loan Commitment Termination Date."
(c) with respect to each Money Market Absolute
Rate Borrowing, the period commencing on the date of
such Borrowing and ending such number of days
thereafter (but not less than seven (7) days or more
than six months) as the Borrower may elect in
accordance with Section 2.8; provided that:
----------- --------
(i) any Interest Period which would
otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business
Day; and
(ii) any Interest Period which would
otherwise end after the date set forth in
clause (a) of the definition of "Revolving Loan
Commitment Termination Date" shall end on the date
set forth in clause (a) of the definition of
"Revolving Loan Commitment Termination Date."
"Investment" means, relative to any Person,
----------
(a) any loan or advance made by such Person to
any other Person (excluding commission, travel and
similar advances to officers and employees made in the
ordinary course of business);
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by
such Person in any other Person.
The amount of any Investment shall be the original principal or
capital amount thereof less all returns of principal or equity
thereon (and without adjustment by reason of the financial
condition of such other Person) and shall, if made by the
transfer or exchange of property other than cash, be deemed to
have been made in an original principal or capital amount equal
to the fair market value of such property.
"Invitation for Money Market Quotes" is defined in
----------------------------------
Section 2.8.
- -----------
"Issuance Date" has the meaning specified in Section
------------- -------
5.1(a).
- ------
"Issue" means, with respect to any Letter of Credit, to
-----
issue or to extend the expiry of, or to renew or increase the
amount of, such Letter of Credit; and the terms "Issued,"
------
"Issuing" and "Issuance" have corresponding meanings.
------- --------
"Issuing Bank" means BofA in its capacity as issuer of
------------
one or more Letters of Credit hereunder, together with any
additional or successor letter of credit issuer appointed
pursuant to Section 5.6 hereof.
"L/C Advance" means each Lender's participation in any
-----------
L/C Borrowing in accordance with its Percentage.
"L/C Application" means an application form for
---------------
issuances of Financial Letters of Credit or Performance Letters
of Credit or for amendment thereof as shall at any time be in use
at the Issuing Bank, as the Issuing Bank shall request, in the
form of Exhibit B-2.
"L/C Borrowing" means an extension of credit resulting
-------------
from a drawing under any Letter of Credit which shall not have
been reimbursed on the date when made nor converted into a
Borrowing of Revolving Loans under Section 5.1.2(c).
----------------
"L/C Commitment" means the commitment of the Issuing
--------------
Bank to Issue, and the commitment of the Lenders severally to
participate in Letters of Credit from time to time Issued or
outstanding under Article V; provided that the L/C Commitment is
--------- --------
a part of the Revolving Loan Commitments, rather than a separate,
independent commitment.
"L/C Obligations" means at any time the sum of (a) the
---------------
aggregate undrawn amount of all Letters of Credit then
outstanding, plus (b) the amount of all unreimbursed drawings
under all Letters of Credit, including all outstanding L/C
Borrowings.
"L/C Related Documents" means the Letters of Credit,
---------------------
the L/C Applications and any other document relating to any
Letter of Credit, including any of the Issuing Bank's standard
form documents for letter of credit issuances.
"Letters of Credit" means any Financial Letters of
-----------------
Credit or Performance Letters of Credit Issued by the Issuing
Bank pursuant to Article V.
"Lender Assignment Agreement" means a Lender Assignment
---------------------------
Agreement substantially in the form of Exhibit D hereto.
---------
"Lenders" is defined in the preamble.
------- --------
"LIBO Rate" is defined in Section 3.2.1.
--------- -------------
"LIBO Rate Loan" means a Loan bearing interest, at all
--------------
times during an Interest Period applicable to such Loan in the
Applicable Currency, at a fixed rate of interest determined by
reference to the LIBO Rate.
"LIBOR Auction" means a solicitation of Money Market
-------------
Quotes setting forth Money Market Margins based on the LIBO Rate
pursuant to Section 2.8.
-----------
"LIBOR Office" means, relative to any Lender, the
------------
office of such Lender designated as such on Schedule 11.2 or
designated in the Lender Assignment Agreement or such other
office of a Lender as designated from time to time by notice from
such Lender to the Borrower and the Agent pursuant to
Section 4.4, whether or not outside the United States, which
- -----------
shall be making or maintaining LIBO Rate Loans and Money Market
LIBOR Loans of such Lender hereunder.
"LIBO Rate (Reserve Adjusted)" means, relative to any
----------------------------
Loan to be made as a Money Market LIBOR Loan or to be made,
continued or maintained as, or converted into, a LIBO Rate Loan
for any Interest Period, a rate per annum (rounded upwards, if
necessary, to the nearest whole multiple of 1/100 of 1%)
determined pursuant to the following formula:
LIBO Rate = LIBO Rate
-----------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest
Period for LIBO Rate Loans and Money Market LIBOR Loans will be
determined by the Agent on the basis of the LIBOR Reserve
Percentage in effect on, and the applicable rates furnished to
and received by the Agent, two Business Days before the first day
of such Interest Period.
"LIBOR Reserve Percentage" means, relative to any
------------------------
Interest Period for LIBO Rate Loans and Money Market LIBOR Loans,
the reserve percentage (expressed as a decimal) equal to the
aggregate reserve requirements (including all basic, emergency,
supplemental, marginal and other reserves and taking into account
any transitional adjustments or other scheduled changes in
reserve requirements) specified under regulations issued from
time to time by the F.R.S. Board and then applicable to assets or
liabilities consisting of and including "Eurocurrency
Liabilities", as currently defined in Regulation D of the F.R.S.
Board, having a term approximately equal or comparable to such
Interest Period.
"Lien" means any security interest, mortgage, pledge,
----
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge against or interest in property,
in each case of any kind, to secure payment of a debt or
performance of an obligation.
"Loan" means, as the context may require, either a
----
Revolving Loan, an L/C Borrowing or a Money Market Loan of any
type.
"Loan Document" means this Agreement, the Notes, the
-------------
L/C Related Documents and the other agreements, documents and
instruments delivered in connection with this Agreement and the
Notes including, without limitation, the fee letter referred to
in Section 3.3.2; each Borrowing Request; each
-------------
Continuation/Conversion Notice; each Money Market Quote Request;
each Invitation for Money Market Quotes; and each Notice of Money
Market Borrowing.
"Material Adverse Effect" means a material adverse
-----------------------
change in, or material adverse effect on the financial condition,
operations, assets, business or properties of the Borrower which
would reasonably be expected to affect the Borrower's ability to
perform the Obligations.
"Money Market Absolute Rate" is defined in Section
-------------------------- -------
2.8(d)(ii)(D).
- -------------
"Money Market Absolute Rate Loan" means a loan to be
-------------------------------
made by a Lender pursuant to an Absolute Rate Auction.
"Money Market LIBOR Loan" means a loan to be made by a
-----------------------
Lender pursuant to a LIBOR Auction.
"Money Market Loan" means a Money Market LIBOR Loan or
-----------------
a Money Market Absolute Rate Loan.
"Money Market Margin" is defined in Section
------------------- -------
2.8(d)(ii)(C).
- -------------
"Money Market Note" means a promissory note of the
-----------------
Borrower payable to any Lender, in the form of Exhibit A-2 hereto
-----------
(as such promissory note may be amended, endorsed or otherwise
modified from time to time), evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from
outstanding Money Market Loans, and also means all other
promissory notes accepted from time to time in substitution or
renewal thereof.
"Money Market Quote" means an offer by a Lender to make
------------------
a Money Market Loan in accordance with Section 2.8.
-----------
"Money Market Quote Request" means a request by the
--------------------------
Borrower to the Agent to conduct an Absolute Rate Auction or a
LIBOR Auction pursuant to Section 2.8.
-----------
"Moody's" means Moody's Investors Service, Inc.
-------
"Net Tangible Assets" means, as of the date of any
-------------------
determination thereof, the total amount of all assets of the
Borrower and its Subsidiaries (determined on a consolidated basis
in accordance with GAAP), less the sum of (a) the consolidated
----
current liabilities of the Borrower and its Subsidiaries
(determined on a consolidated basis in accordance with GAAP) and
(b) assets properly classified as "intangible assets" in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness which the
-----------------
Borrower is not directly or indirectly obligated to repay.
"Non-Recourse Persons" means the Affiliates of the
--------------------
Borrower, including The Mission Group, Edison International and
Southern California Edison Company, and the officers, directors,
employees, shareholders, agents, Authorized Representatives and
other controlling persons of the Borrower or any of its
Affiliates, provided that in no event shall the Borrower be
--------
deemed to be a Non-Recourse Person.
"Note" means, as the context may require, a Revolving
----
Note or a Money Market Note.
"Notice of Money Market Borrowing" is defined in
--------------------------------
Section 2.8(f).
- --------------
"Obligations" means all obligations (monetary or
-----------
otherwise) of the Borrower arising under or in connection with
this Agreement, the Notes and each other Loan Document.
"Offshore Currency" means at any time Australian
-----------------
dollars, Belgian francs, Canadian dollars, Dutch guilders,
English pounds sterling, French francs, Italian lira, Deutsche
marks, Japanese yen, Swiss francs, United States dollars, Spanish
pesetas and any Agreed Alternative Currency.
"Offshore Currency Loan" means any LIBO Rate Loan
----------------------
denominated in an Offshore Currency.
"Organic Document" means, relative to the Borrower, its
----------------
certificate of incorporation, its by-laws and all shareholder
agreements, voting trusts and similar arrangements applicable to
any of its authorized shares of capital stock.
"Participant" is defined in Section 11.11.2.
----------- ---------------
"Partnership" means a general partnership, limited
-----------
partnership, joint venture or similar entity in which the
Borrower or a Subsidiary is a partner, joint venturer or equity
participant.
"PBGC" means the Pension Benefit Guaranty Corporation
----
and any entity succeeding to any or all of its functions under
ERISA.
"Pension Plan" means a "pension plan", as such term is
------------
defined in section 3(2) of ERISA, which is subject to Title IV
of ERISA (other than a multiemployer plan as defined in section
4001(a)(3) of ERISA), and to which the Borrower or any
corporation, trade or business that is, along with the Borrower,
a member of a Controlled Group, may have liability, including any
liability by reason of having been a substantial employer within
the meaning of section 4063 of ERISA at any time during the
preceding five years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.
"Percentage" means, relative to any Lender, the
----------
percentage set forth on Schedule 2.1 opposite its name or set
forth in the Lender Assignment Agreement, as such percentage may
be adjusted from time to time pursuant to Lender Assignment
Agreement(s) executed by such Lender and its Assignee Lender(s)
and delivered pursuant to Section 11.11.
-------------
"Performance Letter of Credit" means a standby Letter
----------------------------
of Credit used directly or indirectly to cover bid, performance,
advance and retention obligations, including, without limitation,
Letters of Credit issued in favor of sureties who in connection
therewith cover bid, performance and retention obligations.
"Person" means any natural person, corporation,
------
partnership, firm, association, trust, government, governmental
agency or any other entity, whether acting in an individual,
fiduciary or other capacity.
"Quarterly Payment Date" means the last day of each
----------------------
March, June, September, and December or, if any such day is not a
Business Day, the next succeeding Business Day.
"Required Lenders" means, at any time, Lenders holding
----------------
at least 66-2/3% of the then aggregate outstanding principal
amount of the Notes (excluding Money Market Notes) then held by
the Lenders, or, if no such principal amount is then outstanding,
Lenders having at least 66-2/3% of the Revolving Loan Commitment
Amount.
"Revolving Loan" means Loans made by the Lenders to the
--------------
Borrower pursuant to Section 2.1, and includes Base Rate Loans
-----------
and LIBO Rate Loans.
"Revolving Loan Commitment" means, relative to any
-------------------------
Lender, such Lender's obligation to make Revolving Loans pursuant
to Section 2.1.1 and to purchase risk participations in Letters
-------------
of Credit Issued by the Issuing Bank pursuant to Section 5.1.2.
-------------
"Revolving Loan Commitment Amount" means, on any date,
--------------------------------
$500,000,000, as such amount may be reduced from time to time
pursuant to Section 2.2 or increased from time to time pursuant
-----------
to Section 2.7.
-----------
"Revolving Loan Commitment Termination Date" means the
------------------------------------------
earliest of
(a) October 10, 2001;
(b) the date on which the Revolving Loan
Commitment Amount is terminated in full or reduced to
zero pursuant to Section 2.2; or
-----------
(c) the date on which any Commitment Termination
Event occurs.
Upon the occurrence of any event described in clause (a), (b) or
----------- ---
(c), the Revolving Loan Commitments shall terminate automatically
- ---
and without any further action.
"Revolving Note" means a promissory note of the
--------------
Borrower payable to any Lender, in the form of Exhibit A-1 hereto
-----------
(as such promissory note may be amended, endorsed or otherwise
modified from time to time), evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from
outstanding Revolving Loans, and also means all other promissory
notes accepted from time to time in substitution therefor or
renewal thereof.
"S&P" means Standard & Poor's Rating Group.
---
"Same Day Funds" means (i) with respect to
--------------
disbursements and payments in Dollars, immediately available
funds, and (ii) with respect to disbursements and payments in any
other Offshore Currency, same day or other funds as may be
determined by the Agent to be customary in the place of
disbursement or payment for the settlement of international
banking transactions in the relevant Offshore Currency.
"Spot Rate" for a currency means the rate quoted by
---------
BofA as the spot rate for the purchase by BofA of such currency
with another currency through its FX Trading Office at
approximately 8:00 a.m. (San Francisco time) on the date as of
which the foreign exchange computation is made.
"Subordinated Debt" means all unsecured Indebtedness of
-----------------
the Borrower for money borrowed which is subordinated, upon terms
(including the terms applicable to the payment, prepayment,
redemption, purchase or defeasance thereof) satisfactory to the
Agent and the Required Lenders, in right of payment to the
payment in full in cash of all Obligations.
"Subsidiary" means, with respect to any Person, any
----------
corporation of which more than 50% of the outstanding capital
stock having ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of whether
at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence
of any contingency) is at the time directly or indirectly owned
by such Person, by such Person and one or more other Subsidiaries
of such Person, or by one or more other Subsidiaries of such
Person.
"Tangible Net Worth" means the net worth of the
------------------
Borrower and its Subsidiaries (determined on a consolidated basis
in accordance with GAAP) after subtracting therefrom the
aggregate amount of any intangible assets of the Borrower and its
Subsidiaries (determined on a consolidated basis in accordance
with GAAP), including goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks and brand
names.
"Taxes" is defined in Section 4.7.
----- -----------
"type" means, relative to any Revolving Loan, the
----
portion thereof, if any, being maintained as a Base Rate Loan or
a LIBO Rate Loan or, relative to any Money Market Loan, its
status as a Money Market Absolute Rate Loan or a Money Market
LIBOR Loan.
"UCP" has the meaning specified in Section 5.5.
--- -----------
"United States" or "U.S." means the United States of
------------- ----
America, its fifty States and the District of Columbia.
"Welfare Plan" means a "welfare plan", as such term is
------------
defined in Section 3(l) of ERISA.
SECTION 1.2. Use of Defined Terms. Unless otherwise
--------------------
defined or the context otherwise requires, terms for which
meanings are provided in this Agreement shall have such meanings
when used in each Note, Borrowing Request, Continuation/
Conversion Notice, Loan Document, notice and other communication
delivered from time to time in connection with this Agreement or
any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise
----------------
specified, references in this Agreement and in each other Loan
Document to any Article or Section are references to such Article
or Section of this Agreement or such other Loan Document, as the
case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to
such clause of such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations.
---------------------------------------
Unless otherwise specified, all accounting terms used herein or
in any other Loan Document shall be interpreted, all accounting
determinations and computations hereunder or thereunder
(including under Section 8.2.4) shall be made, and all financial
-------------
statements required to be delivered hereunder or thereunder shall
be prepared in accordance with, those generally accepted
accounting principles in effect in the United States ("GAAP")
----
applied in the preparation of the financial statements referred
to in Section 7.5, except that quarterly financial statements are
-----------
not required to contain footnotes.
ARTICLE II
REVOLVING LOAN COMMITMENT, BORROWING PROCEDURES AND NOTES
SECTION 2.1. Revolving Loan Commitment. On the terms
-------------------------
and subject to the conditions of this Agreement (including
Article VI), each Lender severally agrees to make Revolving Loans
- ----------
pursuant to the Revolving Loan Commitment described in this
Section 2.1.
- -----------
SECTION 2.1.1. Revolving Loan Commitment. From time to
-------------------------
time on any Business Day occurring prior to the Revolving Loan
Commitment Termination Date, each Lender will make Revolving
Loans (relative to such Lender, its "Revolving Loans") to the
---------------
Borrower equal to such Lender's Percentage of the aggregate
Dollar Equivalent amount of the Borrowing of Revolving Loans
requested or deemed to be requested by the Borrower to be made on
such day, including, without limitation, pursuant to Section
5.1.2(b). The commitment of each Lender described in this
Section 2.1.1 is herein referred to as its "Revolving Loan
- ------------- --------------
Commitment". On the terms and subject to the conditions hereof,
- ----------
the Borrower may from time to time borrow, prepay, in whole or in
part, and reborrow Revolving Loans.
SECTION 2.1.2. Lenders Not Required To Make Loans. No
----------------------------------
Lender shall be required to make
(a) any Revolving Loan if, after giving effect
thereto,
(i) the aggregate outstanding principal
Dollar Equivalent amount of all Revolving Loans,
all L/C Obligations and all Money Market Loans of
all Lenders would exceed the Revolving Loan
Commitment Amount, or
(ii) the aggregate outstanding principal
Dollar Equivalent amount of all Revolving Loans
and of all L/C Obligations of such Lender would
exceed such Lender's Percentage of the Revolving
Loan Commitment Amount; or
(b) any Money Market Loan if, after giving effect
thereto, the aggregate outstanding principal Dollar
Equivalent amount of all Revolving Loans and all Money
Market Loans and L/C Obligations of all Lenders would
exceed the Revolving Loan Commitment Amount.
SECTION 2.2. Reduction of Revolving Loan Commitment
--------------------------------------
Amount. The Borrower may, from time to time on any Business Day
- ------
occurring after the Effective Date, voluntarily reduce the
Revolving Loan Commitment Amount without premium or penalty
(subject, however, to Section 4.5); provided, however, that all
----------- -------- -------
such reductions shall require at least three Business Days' prior
notice to the Agent and be permanent, and any partial reduction
of the Revolving Loan Commitment Amount shall be in a minimum
amount of $10,000,000 and in an integral multiple of $1,000,000
and, provided, further, that the Revolving Loan Commitment Amount
may not be reduced to an amount less than the aggregate amount of
outstanding Revolving Loans, Money Market Loans, and L/C
Obligations.
SECTION 2.3. Borrowing Procedure. By delivering a
-------------------
Borrowing Request to the Agent on or before 10:00 a.m., San
Francisco time (as to Base Rate Loans) or 11:00 a.m., San
Francisco time (as to LIBO Rate Loans), on a Business Day, and
subject to Schedule 2.9 with respect to Agreed Alternative
Currencies, the Borrower may from time to time irrevocably
request, (i) on not less than five Business Days' notice in the
case of LIBO Rate Loans denominated in an Offshore Currency other
than Dollars, (ii) on not less than three Business Days' notice
in the case of Dollar LIBO Rate Loans, and (iii) on the same
Business Day in the case of Base Rate Loans denominated in
Dollars, that a Borrowing of Revolving Loans in the Applicable
Currency be made in a minimum Dollar Equivalent amount of
$10,000,000 and an integral multiple of $1,000,000, or in the
unused amount of the Revolving Loan Commitment Amount. On the
terms and subject to the conditions of this Agreement, each
Borrowing shall be comprised of the same type of Loans, and shall
be made on the Business Day, specified in such Borrowing Request.
On or before 11:00 a.m. (San Francisco time) on the Business Day
such Revolving Loans are to be made, each Lender shall deposit
with the Agent Same Day Funds in an amount equal to such Lender's
Percentage of the requested Borrowing. Such deposit will be made
to an account which the Agent shall specify from time to time by
notice to the Lenders. To the extent funds are received from the
Lenders, the Agent shall make such funds available to the
Borrower by wire transfer to the accounts the Borrower shall have
specified in its Borrowing Request. No Lender's obligation to
make any Loan shall be affected by any other Lender's failure to
make any Loan.
SECTION 2.4. Continuation and Conversion Elections.
-------------------------------------
By delivering a Continuation/Conversion Notice to the Agent on or
before 10:00 a.m., San Francisco time (as to Base Rate Loans) or
11:00 a.m., San Francisco time (as to LIBO Rate Loans), on a
Business Day, and subject to Schedule 2.9 with respect to Agreed
Alternative Currencies, the Borrower may from time to time
irrevocably elect that all, or any portion in an aggregate
minimum amount of $10,000,000 and an integral multiple of
$1,000,000, of any Loans be (i) on not less than five Business
Days' notice, converted into, or continued as, LIBO Rate Loans
denominated in an Offshore Currency other than Dollars, (ii) on
not less than three Business Days' notice, converted into, or
continued as, Dollar LIBO Rate Loans, or (iii) on the same
Business Day, be converted into, or continued as a Base Rate Loan
denominated in Dollars. In the absence of delivery of a
Continuation/Conversion Notice with respect to any LIBO Rate Loan
at least three Business Days before the last day of the then
current Interest Period with respect thereto, such LIBO Rate Loan
shall, on such last day, automatically convert to a Base Rate
Loan denominated in Dollars; provided, however, that (i) each
-------- -------
such conversion or continuation shall be pro rated among the
applicable outstanding Loans of all Lenders, and (ii) no portion
of the outstanding principal amount of any Loans may be continued
as, or be converted into, LIBO Rate Loans when any Default has
occurred and is continuing. Each delivery of a
Continuation/Conversion Notice shall constitute a certification
and warranty by the Borrower that on the date of delivery of such
notice no Default has occurred and is continuing. If prior to
the time of such continuation or conversion any matter certified
to by the Borrower by reason of the immediately preceding
sentence will not be true and correct at such time if then made,
the Borrower will immediately so notify the Agent. Except to the
extent, if any, that prior to the time of such continuation or
conversion the Agent shall have received written notice to the
contrary from the Borrower, such certification and warranty shall
be deemed to be made at the date of such continuation or
conversion as if then made.
SECTION 2.5. Funding. Each Lender may, if it so
-------
elects, fulfill its obligation to make, continue or convert LIBO
Rate Loans hereunder by causing one of its foreign branches or
Affiliates (or an international banking facility created by such
Lender) to make or maintain such LIBO Rate Loan; provided,
--------
however, that such LIBO Rate Loan shall nonetheless be deemed to
- -------
have been made and to be held by such Lender, and the obligation
of the Borrower to repay such LIBO Rate Loan shall nevertheless
be to such Lender for the account of such foreign branch,
Affiliate or international banking facility. In addition, the
Borrower hereby consents and agrees that, for purposes of any
determination to be made for purposes of Sections 4.1, 4.2, 4.3,
------------ --- ---
4.4, or 4.5, it shall be conclusively assumed that each Lender
- --- ---
elected to fund all LIBO Rate Loans by purchasing Applicable
Currency deposits in its LIBOR Office's interbank eurodollar
market.
SECTION 2.6. Notes. Each Lender's Revolving Loans
-----
shall be evidenced by a Revolving Note payable to the order of
such Lender in a maximum principal amount equal to such Lender's
Percentage of the original Revolving Loan Commitment Amount.
Each Lender's Money Market Loans shall be evidenced by a Money
Market Note payable to the order of such Lender in a maximum
principal amount equal to an amount to be agreed upon from time
to time between the Borrower and each Lender and recorded by the
Agent. The Borrower hereby irrevocably authorizes each Lender to
make (or cause to be made) appropriate notations on the grid
attached to such Lender's Notes (or on any continuation of such
grid), which notations, if made, shall evidence, inter alia, the
----- ----
date of the outstanding principal of, the Applicable Currency of,
and the interest rate and Interest Period applicable to the Loans
evidenced thereby. Such notations shall be binding on the
Borrower absent clear and convincing evidence to the contrary;
provided, however, that the failure of any Lender to make any
- -------- -------
such notations shall not limit or otherwise affect any
Obligations of the Borrower.
SECTION 2.7. Increase in Revolving Loan Commitment
-------------------------------------
Amount. (a) The Borrower may from time to time, by notice to
- ------
the Agent (which shall promptly deliver a copy to each of the
Lenders), request that the Revolving Loan Commitment Amount be
increased by an amount that is not less than $50,000,000 and will
not result in the Revolving Loan Commitment Amount exceeding
$600,000,000. Each such notice shall set forth the requested
amount of the increase in the Revolving Loan Commitment Amount
and the date on which such increase is to become effective (which
shall be not fewer than 30 days after the date the Agent receives
such notice (the "Receipt Date")), and shall offer each Lender
the opportunity to increase its Revolving Loan Commitment by its
Percentage of the requested increase in the Revolving Loan
Commitment Amount.
(b) Each Lender shall, by notice to the Borrower and
the Agent given not more than 15 days after the Receipt Date,
either agree to increase its Revolving Loan Commitment by all or
a portion of the offered amount or decline to increase its
Revolving Loan Commitment (and any Lender that does not deliver
such a notice within such period of 15 days shall be deemed to
have declined to increase its Revolving Loan Commitment).
(c) In the event that, by the 15th day after Receipt
Date, all Lenders have not agreed to increase their Revolving
Loan Commitment by their Percentage thereof, the Borrower shall
have the right to arrange for one or more banks (any such bank
being called an "Augmenting Lender"), which may include any
Lender, to extend Revolving Loan Commitments or increase their
existing Revolving Loan Commitments in an aggregate amount equal
to the unsubscribed amount, provided that each Augmenting Lender,
if not already a Lender hereunder, shall be subject to the
approval of the Borrower and the Agent (which approval shall not
be unreasonably withheld) and shall execute all such
documentation as the Agent shall specify to evidence its status
as a Lender hereunder; provided, further, that, after giving
-------- -------
effect to such increase, no Lender or Augmenting Lender shall
hold more than 20% of the Revolving Loan Commitment Amount. If
(and only if) Lenders (including Augmenting Lenders) shall have
agreed to increase their Commitments or to extend new Commitments
in an aggregate amount not less than $50,000,000, shall such
increases and such new Commitments become effective on the date
specified in subsection (e) below.
(d) Any increase in the Revolving Loan Commitment
Amount (or in the Revolving Loan Commitment of any Lender) shall
become effective under this Section 2.7 upon satisfaction of the
following conditions:
(i) all conditions set forth in Sections 6.1.1(a)
and (b), 6.1.2, 6.2.1 and 6.2.3 shall be satisfied
(with all references in such Section to the initial
Credit Extension being deemed to be references to such
increase) and the Agent shall have received a
certificate with respect to Section 6.2.1 to that
effect dated such date and executed by an Authorized
Representative; and
(ii) if the Percentages of the Lenders would
change because of such increase (by reason of not all
Lenders increasing their respective Commitments on a
pro rata basis) and any LIBO Rate Loans are
outstanding, all LIBO Rate Loans shall have been paid
or prepaid effective as of the date the Revolving Loan
Commitment Amount is to be increased (and the Borrower
shall pay to any Lender, in accordance with Section
4.5, any amounts of the type referred to in Section 4.5
as they relate to any such prepayment).
(e) Upon satisfaction of all applicable conditions set
forth in subsection (d) above, the Revolving Loan Commitment
Amount shall be deemed increased, with no further action required
on the part of any party, as of the date specified in the
Borrower's original notice requesting such increase, or, in the
case that subsection (d)(ii) is applicable, on such other date
selected, with the consent of the Borrower and all Lenders, so as
to minimize or eliminate amounts payable pursuant to Section 4.5.
In connection with such increase, the Agent shall distribute a
new Schedule 2.1, which shall be deemed to amend and restate the
existing Schedule 2.1.
SECTION 2.8. Money Market Borrowings.
-----------------------
(a) Money Market Option. In addition to
-------------------
requesting that Loans be made pursuant to Section 2.1,
-----------
the Borrower may, as set forth in this Section, request
the Lenders to make offers to make Money Market Loans
in any Offshore Currency to the Borrower. The Lenders
may, but shall have no obligation to, make such offers
and the Borrower may, but shall have no obligation to,
accept any such offers in the manner set forth in this
Section.
(b) Money Market Quote Request. When the
--------------------------
Borrower wishes to request offers to make Money Market
Loans under this Section, it shall notify the Agent by
telephone, and transmit to the Agent promptly by
facsimile transmission, a Money Market Quote Request
substantially in the form of Exhibit G hereto so as to
---------
be received no later than 11:00 a.m. (San Francisco
time) on or before (x) the fifth Business Day prior to
the date of Borrowing proposed therein, in the case of
a LIBOR Auction or (y) the Business Day next preceding
the date of Borrowing proposed therein, in the case of
an Absolute Rate Auction (or, in either case, such
other time or date as the Borrower and the Agent shall
have mutually agreed and shall have notified the
Lenders not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute
Rate Auction for which such change is to be effective)
specifying:
(i) the proposed day of Borrowing, which
shall be a Business Day,
(ii) the aggregate amount of such Borrowing,
which shall be $10,000,000 or a larger multiple of
$1,000,000 and the Offshore Currency of such
Borrowing,
(iii) the duration of the Interest Period
applicable thereto, subject to the provisions of
the definition of Interest Period, and
(iv) whether the Money Market Quotes
requested are to set forth a Money Market Margin
or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market
Loans for more than one Interest Period in a single
Money Market Quote Request. No Money Market Quote
Request shall be given within five Business Days of any
other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly
----------------------------------
upon receipt of a Money Market Quote Request, the Agent
shall send to the Lenders by facsimile transmission an
Invitation for Money Market Quotes substantially in the
form of Exhibit H hereto, which shall constitute an
---------
invitation by the Borrower to each Lender to submit
Money Market Quotes offering to make the Money Market
Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) Submission and Contents of Money Market
---------------------------------------
Quotes.
------
(i) Each Lender may submit a Money Market
Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for
Money Market Quotes. Each Money Market Quote must
comply with the requirements of this subsection
----------
(d) and must be submitted to the Agent by
---
facsimile transmission at its offices specified in
or pursuant to Section 11.2 not later than (x)
------------
noon (San Francisco time) on the fourth Business
Day prior to the proposed date of Borrowing, in
the case of a LIBOR Auction or (y) 7:30 a.m. (San
Francisco time) on the proposed date of Borrowing,
in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the
Borrower and the Agent shall have mutually agreed
and shall have notified the Lenders not later than
the date of the Money Market Quote Request for the
first LIBOR Auction or Absolute Rate Auction for
which such change is to be effective); provided
--------
that Money Market Quotes submitted by the Agent
(or any Affiliate of the Agent) in the capacity of
a Lender may be submitted, and may only be
submitted, if the Agent or such Affiliate notifies
the Borrower of the terms of the offer or offers
contained therein not later than (x) 15 minutes
prior to the deadline for the other Lenders, in
the case of a LIBOR Auction or (y) 15 minutes
prior to the deadline for the other Lenders, in
the case of an Absolute Rate Auction. Subject to
Articles VI and IX, any Money Market Quote so made
----------- --
shall be irrevocable except with the written
consent of the Agent given on the instructions of
the Borrower.
(ii) Each Money Market Quote shall be in
substantially the form of Exhibit I hereto and
---------
shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount and Offshore
Currency of the Money Market Loan for which
each such offer is being made, which
principal amount (w) may be greater than,
equal to or less than the Commitment of the
quoting Lender, (x) must be $5,000,000 or a
larger multiple of $1,000,000, (y) may not
exceed the principal amount of Money Market
Loans for which offers were requested and (z)
may be subject to an aggregate limitation as
to the principal amount of Money Market Loans
for which offers being made by such quoting
Lender may be accepted,
(C) in the case of a LIBOR Auction, the
margin above or below the applicable LIBO
Rate (Reserve Adjusted) (the "Money Market
------------
Margin") offered for each such Money Market
------
Loan, expressed as a percentage (specified to
the nearest 1/10,000th of 1%) to be added to
or subtracted from such base rate,
(D) in the case of an Absolute Rate
Auction, the rate of interest per annum
(specified to the nearest 1/10,000th of 1%)
(the "Money Market Absolute Rate") offered
--------------------------
for each such Money Market Loan, and
(E) the identity of the quoting Lender.
A Money Market Quote may set forth up to three separate
offers by the quoting Lender with respect to each
Interest Period specified in the related Invitation for
Money Market Quotes.
(iii) Any Money Market Quote shall be
disregarded if it:
(A) is not substantially in conformity
with Exhibit I hereto or does not specify all
---------
of the information required by Section
-------
2.8(d)(ii);
----------
(B) contains qualifying, conditional or
similar language;
(C) proposes terms other than or in
addition to those set forth in the applicable
Invitation for Money Market Quotes; or
(D) arrives after the time set forth in
Section 2.8(d)(i).
-----------------
(e) Notice to Borrower. The Agent shall promptly
------------------
notify the Borrower of the terms (x) of any Money
Market Quote submitted by a Lender that is in
accordance with subsection (d) and (y) of any Money
--------------
Market Quote that amends, modifies or is otherwise
inconsistent with a previous Money Market Quote
submitted by such Lender with respect to the same Money
Market Quote Request. Any such subsequent Money Market
Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted solely to
correct a manifest error in such former Money Market
Quote. The Agent's notice to the Borrower shall
specify (A) the aggregate principal amount of Money
Market Loans for which offers have been received for
each Interest Period specified in the related Money
Market Quote Request, (B) the respective principal
amounts and Money Market Margins, or Money Market
Absolute Rates, as the case may be, so offered and (C)
if applicable, limitations on the aggregate principal
amount of Money Market Loans for which offers in any
single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later
---------------------------------
than (x) 11:00 a.m. (San Francisco time) on the third
Business Day prior to the proposed date of Borrowing,
in the case of a LIBOR Auction or (y) 8:30 a.m. (San
Francisco time) on the proposed date of Borrowing, in
the case of an Absolute Rate Auction (or, in either
case, such other time or date as the Borrower and the
Agent shall have mutually agreed and shall have
notified the Lenders not later than the date of the
Money Market Quote Request for the first LIBOR Auction
or Absolute Rate Auction for which such change is to be
effective), the Borrower shall notify the Agent of its
acceptance or non-acceptance of the offers so notified
to it pursuant to Section 2.8(e). In the case of
--------------
acceptance, such notice (a "Notice of Money Market
----------------------
Borrowing") shall be in substantially the form of
---------
Exhibit J hereto and shall specify the aggregate
---------
principal amount of offers for each Interest Period
that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; provided that:
--------
(i) the aggregate principal amount of each
Money Market Borrowing may not exceed the
applicable amount set forth in the related Money
Market Quote Request,
(ii) the principal amount of each Money
Market Borrowing must be $10,000,000 or a larger
multiple of $1,000,000,
(iii) acceptance of offers may only be made
on the basis of ascending Money Market Margins or
Money Market Absolute Rates, as the case may be,
and
(iv) the Borrower may not accept any offer
that is described in Section 2.8(d)(iii) or that
-------------------
otherwise fails to comply with the requirements of
this Agreement.
(g) Allocation by Agent. If offers are made by
-------------------
two or more Lenders with the same Money Market Margins
or Money Market Absolute Rates, as the case may be, for
a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the
related Interest Period, the principal amount of Money
Market Loans in respect of which such offers are
accepted shall be allocated by the Agent among such
Lenders as nearly as possible (in multiples of
$1,000,000, as the Agent may deem appropriate) in
proportion to the aggregate principal amounts of such
offers. Determinations by the Agent of the amounts of
Money Market Loans shall be conclusive in the absence
of manifest error.
(h) Money Market Loans shall reduce availability
under the Revolving Loan Commitment Amount by the
amount of such Loans during the period which they are
outstanding; provided, however, that the making of a
-------- -------
Money Market Loan by a Lender shall not reduce such
Lender's Revolving Loan Commitment.
SECTION 2.9. Utilization of Revolving Commitments in
Offshore Currencies. ---------------------------------------
- -------------------
(a) The Agent will determine the Dollar
Equivalent amount with respect to any (i) Borrowing comprised of
Offshore Currency Loans as of the date of the requested
Borrowing, (ii) outstanding Offshore Currency Loans as of the
last Business Day of each month, (iii) outstanding Offshore
Currency Loans as of any date they are to be redenominated as set
forth in this Section 2.9 or Section 4.1, (iv) Issuances of
----------- -----------
Letters of Credit in Offshore Currencies as of the requested
Issuance Date, (v) unreimbursed drawing on the date that it is
converted to a Revolving Loan pursuant to Section 5.1.2(b), and
(vi) outstanding L/C Obligations as of the last Business Day of
each month (each such date a "Computation Date").
----------------
(b) The Borrower shall be entitled to request
that Revolving Loans hereunder also be permitted to be made in
any other lawful currency constituting a eurocurrency, in
addition to the eurocurrencies specified in the definition of
"Offshore Currency" herein, that, in the opinion of all Lenders,
is at such time, freely traded in the offshore interbank foreign
exchange markets and is freely transferable and freely
convertible into Dollars (an "Agreed Alternative Currency"). The
---------------------------
Borrower may deliver to the Agent from time to time a request for
designation of Agreed Alternative Currencies. Upon receipt of
any such request, the Agent will promptly notify the Lenders
thereof, and each Lender will use its best efforts to respond to
such request within ten Business Days of receipt thereof. Each
Lender may reject or accept such request in its sole discretion,
and may specify any restrictions which may apply thereto,
including, without limitation, the duration of the period, if
any, for which the Borrower shall be entitled to request that
Revolving Loans be made in such eurocurrency. The Agent will
promptly notify the Borrower of the acceptance or rejection of
any such request, and, if accepted by all of the Lenders, will
circulate to each party to this Credit Agreement a revised
Schedule 2.9, setting forth the Agreed Alternative Currency, the
requirements for the submission of Notices of Borrowing and
Notices of Conversion/Continuation, if different from the
provisions of Section 2.3 or 2.4, and any other restrictions, if
any.
(c) Notwithstanding anything herein to the
contrary, during the existence of a Default or an Event of
Default, upon the request of the Required Lenders, all or any
part of any outstanding Offshore Currency Loans shall be
redenominated and converted into Base Rate Loans in Dollars with
effect from the last day of the Interest Period with respect to
any such Offshore Currency Loans. The Agent will promptly notify
the Borrower of any such redenomination and conversion request.
SECTION 2.10. Currency Exchange Fluctuations. Subject
------------------------------
to Section 4.5, if on any Computation Date the Agent shall have
-----------
determined that the aggregate Dollar Equivalent principal amount
of all Loans and all L/C Obligations then outstanding exceeds the
Revolving Loan Commitment Amount, due to a change in applicable
rates of exchange between Dollars and Offshore Currencies, then
----
the Agent shall give notice to the Borrower that a prepayment is
required under this Section 2.10, and the Borrower agrees
------------
thereupon promptly to make prepayments of Loans or Cash
Collateralize L/C Obligations such that, after giving effect to
such prepayment or Cash Collateralization, the aggregate Dollar
Equivalent amount of all Loans and L/C Obligations does not
exceed the Revolving Loan Commitment Amount.
SECTION 2.11. Judgment Currency. If for the purposes
-----------------
of obtaining judgment in any court it is necessary to convert a
sum due from the Borrower hereunder or under any of the Notes in
any Applicable Currency into another currency, the parties hereto
agree, to the fullest extent that they may effectively do so,
that the rate of exchange used shall be that at which in
accordance with normal banking procedures the Agent could
purchase the Applicable Currency with such other currency at the
Agent's lending office on the Business Day preceding that on
which final, non-appealable judgment is given. The obligations
of the Borrower in respect of any sum due to any Lender or the
Agent hereunder or under any Note shall, notwithstanding any
judgment in currency other than the Applicable Currency, be
discharged only to the extent that on the Business Day following
receipt by such Lender or the Agent (as the case may be) of any
sum adjudged to be so due in such other currency such Lender or
the Agent (as the case may be) may in accordance with normal,
reasonable banking procedures purchase the Applicable Currency
with such other currency. If the amount of the Applicable
Currency so purchased is less than the sum originally due to such
Lender or the Agent, as the case may be, in the Applicable
Currency, the Borrower agrees, to the fullest extent that it may
effectively do so, as a separate obligation and notwithstanding
any such judgment, to indemnify such Lender or the Agent, as the
case may be, against such loss and if the amount of the
Applicable Currency so purchased exceeds (a) the sum originally
due to any Lender or the Agent, as the case may be, in the
Applicable Currency and (b) any amounts shared with other Lenders
as a result of allocations of such excess as a disproportionate
payment to such Lender, such Lender or the Agent, as the case may
be, agrees to remit such excess to the Borrower.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments. The
--------------------------
Borrower shall repay in full the unpaid principal amount of each
Loan in the Applicable Currency on the Revolving Loan Commitment
Termination Date.
SECTION 3.1.1. Payment Terms. Prior to the Revolving
-------------
Loan Commitment Termination Date, the Borrower
(a) may, from time to time on any Business Day,
make a voluntary prepayment, in whole or in part,
without premium or penalty, of the outstanding
principal amount of any Revolving Loans in the
Applicable Currency; provided, however, that
-------- -------
(i) any such prepayment shall be made pro
---
rata among Loans of the same type and, if
----
applicable, having the same Interest Period of all
Lenders;
(ii) any such prepayment of any LIBO Rate
Loan made on any day other than the last day of
the Interest Period for such Loan shall be subject
to the provisions of Section 4.5;
-----------
(iii) all such voluntary prepayments of
Revolving Loans shall require at least three but
no more than seven Business Days' prior written
notice to the Agent; and
(iv) all such voluntary partial prepayments
of Revolving Loans shall be in an aggregate
minimum amount of $5,000,000 and an integral
multiple of $1,000,000.
(b) shall, on each date when any reduction in the
Revolving Loan Commitment Amount shall become
effective, make a mandatory prepayment of all Revolving
Loans and/or Cash Collateralize the Letters of Credit,
equal to the excess, if any, of the aggregate,
outstanding principal amount of all Revolving Loans,
all L/C Obligations and all Money Market Loans over the
Revolving Loan Commitment Amount as so reduced;
(c) shall, on each date when a prepayment is
required pursuant to Section 2.10, make a mandatory
prepayment of Loans, and/or Cash Collateralize the
Letters of Credit, in an amount equal to the excess of
the aggregate outstanding principal amount of all
Revolving Loans, all L/C Obligations and all Money
Market Loans over the Revolving Loan Commitment Amount;
and
(d) shall, immediately upon any acceleration of
any Loans pursuant to Section 9.2 or Section 9.3, repay
----------- -----------
all Loans, and Cash Collateralize all Letters of
Credit, unless, pursuant to Section 9.3, only a portion
-----------
of all Loans is so accelerated.
Each prepayment of any Loans made pursuant to this Section 3.1.1
-------------
shall be without premium or penalty, except as may be required by
Section 4.5. No voluntary prepayment of principal of any
- -----------
Revolving Loans shall cause a reduction in the Revolving Loan
Commitment Amount. Money Market Loans may not be voluntarily
prepaid under any circumstances.
SECTION 3.2. Interest Provisions. Interest on the
-------------------
outstanding principal amount of Loans shall accrue and be payable
in accordance with this Section 3.2.
-----------
SECTION 3.2.1. Rates. Pursuant to an appropriately
-----
delivered Borrowing Request or Continuation/Conversion Notice,
the Borrower may elect that Loans comprising a Borrowing accrue
interest at a rate per annum:
(a) on that portion maintained from time to time
as a Base Rate Loan, equal to the Alternate Base Rate
from time to time in effect;
(b) on that portion maintained as a LIBO Rate
Loan, during each Interest Period applicable thereto,
equal to the sum of the LIBO Rate for such Interest
Period plus the Applicable Margin; and
(c) on that portion maintained as a Money Market
Loan, during each Interest Period applicable thereto,
equal to (i) in the case of a Money Market Absolute
Rate Loan, the Money Market Absolute Rate, or (ii) in
the case of a Money Market LIBOR Loan, the sum of the
LIBO Rate plus the Money Market Margin.
"LIBO Rate" means, for each Interest Period for each
---------
LIBO Rate Loan and Money Market LIBOR Loan in the Applicable
Currency, and subject to Schedule 2.9 with respect to Agreed
Alternative Currencies, the interest rate per annum (rounded, if
necessary, to the nearest whole multiple of 1/100 of 1%)
determined by the Agent as of 11:00 A.M. (London time) on such
Business Day, with respect to Loans denominated in pounds
Sterling, or two Business Days with respect to Loans denominated
in any other Applicable Currency, before the first day of such
Interest Period quoted as the British Bankers' Association
Interest Settlement Rate ("BBAIRS") for such date, provided that
--------
if quotations are not given by BBAIRS for periods comparable to
such Interest Period, the LIBO Rate shall be the interest rate
per annum at which Applicable Currency deposits in immediately
available funds are offered to the Agent in the London interbank
market at approximately 11:00 A.M. (London time) on such Business
Day, with respect to Loans denominated in pounds Sterling, or two
Business Days with respect to Loans denominated in any other
Applicable Currency, before the first day of such Interest
Period, for a period comparable to such Interest Period, and in
an amount substantially equal to the amount of the proposed LIBO
Rate Loan or Money Market LIBOR Loan. Notwithstanding any other
provision hereof, at such time as there shall exist for any
Lender a LIBOR Reserve Percentage which is greater than zero, the
LIBO Rate used in the determination of LIBO Rate Loans and Money
Market LIBOR Loans made by such Lender shall be the LIBO Rate
(Reserve Adjusted).
All LIBO Rate Loans and Money Market LIBOR Loans shall
bear interest from and including the first day of the applicable
Interest Period to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to
such LIBO Rate Loan and Money Market LIBOR Loan.
SECTION 3.2.2. Post-Maturity Rates. After the date any
-------------------
principal amount of any Loan is due and payable (whether on the
Revolving Loan Commitment Termination Date, upon acceleration or
otherwise), or after any other monetary Obligation of the
Borrower shall have become due and payable, the Borrower shall
pay, but only to the extent permitted by law, interest (after as
well as before judgment) on such amounts at a rate per annum
equal to the Alternate Base Rate plus a margin of 1% until such
amount is paid in full.
SECTION 3.2.3. Payment Dates. Interest accrued on each
-------------
Loan shall be payable in the Applicable Currency of the
respective Loan, without duplication:
(a) on the Revolving Loan Commitment Termination
Date;
(b) on the date of any payment or prepayment, in
whole or in part, of principal outstanding on such Loan
(other than a Base Rate Loan);
(c) on the date of any payment of principal on
any Money Market Loan;
(d) with respect to Base Rate Loans, on each
Quarterly Payment Date occurring after the date of the
initial Borrowing hereunder;
(e) with respect to LIBO Rate Loans and Money
Market LIBOR Loans, the last day of each applicable
Interest Period (and, if such Interest Period shall
exceed three months, on the day three months after such
Loan is made or continued); and
(f) on that portion of any Loans which is
accelerated pursuant to Section 9.2 or Section 9.3,
----------- -----------
immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising
under this Agreement or any other Loan Document after the date
such amount is due and payable (whether on the Revolving Loan
Commitment Termination Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 3.2.4. Interest Rate Determination. The Agent
---------------------------
shall determine the interest rate applicable to Revolving Loans
and shall give prompt notice to the Borrower and the Lenders of
such determination, and its determination thereof shall be
conclusive in the absence of manifest error.
SECTION 3.3. Fees. The Borrower agrees to pay the
----
fees set forth in this Section 3.3.
-----------
SECTION 3.3.1. Facility Fee. The Borrower agrees to
------------
pay to the Agent, for the ratable account of each Lender, a
facility fee at the rate per annum based on the Borrower's Debt
Rating determined as provided in the definition of "Applicable
Margin" on the Revolving Loan Commitment Amount. Such fee shall
be payable pro rata for the period since either the Effective
Date or the last Quarterly Payment Date, whichever is applicable,
by the Borrower in arrears on each Quarterly Payment Date,
commencing with the first such day following the Effective Date,
and on the Revolving Loan Commitment Termination Date.
SECTION 3.3.2. Agent's Fee. To the Agent and the
-----------
Arranger for their own accounts, the fees, as agreed to in the
letter dated September 12, 1996 between the Agent, the Arranger
and the Borrower.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. LIBO Rate Lending Unlawful. If any
--------------------------
Lender shall reasonably determine (which determination shall,
upon notice thereof to the Borrower and the Agent, be conclusive
and binding on the Borrower) that the introduction of or any
change in or in the interpretation of any law, rule or regulation
makes it unlawful, or any central bank or other governmental
authority or comparable agency asserts that it is unlawful, for
such Lender to make, continue or maintain any Loan as, or to
convert any Loan into, a LIBO Rate Loan, the obligations of such
Lender to make, continue, maintain or convert any such Loans
shall, unless replaced by Money Market Absolute Rate Loans, upon
such determination, forthwith be suspended until such Lender
shall notify the Agent that the circumstances causing such
suspension no longer exist, and all LIBO Rate Loans of such
Lender shall automatically convert into Base Rate Loans at the
end of the then current Interest Periods with respect thereto or
sooner, if required by such law or assertion. In the case of
Offshore Currency Loans, the Borrowing shall be in an aggregate
amount equal to the Dollar Equivalent amount of the Offshore
Currency Loan, and shall be redenominated and converted into
Revolving Loans in Dollars as of the last day of the related
Interest Period for such Offshore Currency Loan, subject to the
provisions of Section 2.4 hereof.
SECTION 4.2. Inability to Determine Rates or Make or
---------------------------------------
Continue Offshore Currency Loans.
- --------------------------------
(a) If the Agent shall have determined that by
reason of circumstances affecting the Agent's relevant market,
adequate means do not exist for ascertaining the interest rate
applicable hereunder to LIBO Rate Loans of such type in an
Offshore Currency, then, upon notice from the Agent to the
Borrower and the Lenders, the obligations of all Lenders under
Section 2.3 and Section 2.4 to make or continue any Loans as, or
- ----------- -----------
to convert any Loans into, LIBO Rate Loans in such Offshore
Currency shall forthwith be suspended until the Agent shall
notify the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.
(b) If any Lender shall reasonably determine that
by reason of circumstances affecting such Lender's relevant
market, that such Lender cannot make, continue or convert
Revolving Loans in any Offshore Currency, it shall promptly, but
not more than one Business Day after receipt of a Notice of
Borrowing or Continuation/Conversion, notify the Agent thereof,
whereupon, upon notice from the Agent to the Borrower and the
Lenders, the obligations of all Lenders under Section 2.3 or
-----------
Section 2.4 to make, continue or convert any Loans in such
- -----------
Offshore Currency shall forthwith be suspended until the Agent
shall have received notice from such Lender, and notified the
Borrower and the Lenders, that the circumstances causing such
suspension no longer exist.
SECTION 4.3. Increased LIBO Rate Loan and Offshore
-------------------------------------
Currency Loan Costs. If after the date hereof, the adoption of
- -------------------
any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance
by any Lender (or its LIBOR office) with any request or directive
(whether or not having the force of law) of any such authority,
central bank or comparable agency shall increase the cost to such
Lender of, or result in any reduction in the amount of any sum
receivable by such Lender in respect of, making, continuing or
maintaining (or of its obligation to make, continue or maintain)
any Loans as, or of converting (or of its obligation to convert)
any Loans into, LIBO Rate Loans or Offshore Currency Loans, then
the Borrower agrees to pay to the Agent for the account of each
Lender the amount of any such increase or reduction. Such Lender
shall promptly notify the Agent and the Borrower in writing of
the occurrence of any such event, such notice to state, in
reasonable detail, the reasons therefor and the additional amount
required fully to compensate such Lender for such increased cost
or reduced amount. Such additional amounts shall be payable by
the Borrower directly to such Lender within ten Business Days of
its receipt of such notice, and such notice shall be binding on
the Borrower absent clear and convincing evidence to the
contrary.
SECTION 4.4. Obligation to Mitigate. Each Lender
----------------------
agrees that as promptly as practicable after it becomes aware of
the occurrence of an event that would entitle it to give notice
pursuant to Section 4.1, 4.3 or 4.6, and in any event if so
-----------------------
requested by the Borrower, each Lender shall use reasonable
efforts to make, fund or maintain its affected Loans through
another lending office if as a result thereof the increased costs
would be avoided or materially reduced or the illegality would
thereby cease to exist and if, in the reasonable opinion of such
Lender, the making, funding or maintaining of such Loans through
such other lending office would not in any material respect be
disadvantageous to such Lender, contrary to such Lender's normal
banking practices or violate any applicable law or regulation.
No change by a Lender in its Domestic Office or LIBOR Office made
for such Lender's convenience shall result in any increased cost
to the Borrower. The Borrower shall not be obligated to
compensate any Lender for the amount of any additional amount
pursuant to Section 4.1, 4.3 or 4.6 accruing prior to the date
-----------------------
which is 90 days before the date on which such Lender first
notifies the Borrower that it intends to claim such compensation;
it being understood that the calculation of the actual amounts
may not be possible within such period and that such Lender may
provide such calculation as soon as reasonably practicable
thereafter without affecting or limiting the Borrower's payment
obligation thereunder. If any Lender demands compensation
pursuant to Section 4.1, 4.3 or 4.6 with respect to any LIBO Rate
-----------------------
Loan, the Borrower may, at any time upon at least one Business
Day's prior notice to such Lender through the Agent, elect to
convert such Loan into a Base Rate Loan. Thereafter, unless and
until such Lender notifies the Borrower that the circumstances
giving rise to such notice no longer apply, all such LIBO Rate
Loans by such Lender shall bear interest as Base Rate Loans,
notwithstanding any prior election by the Borrower to the
contrary. If such Lender notifies the Borrower that the
circumstances giving rise to such notice no longer apply, the
Borrower may elect that the principal amount of each such Loan
again bear interest as LIBO Rate Loans in accordance with this
Agreement, on the first day of the next succeeding Interest
Period applicable to the related LIBO Rate Loans of other
Lenders. Additionally, the Borrower may, at its option, upon at
least five Business Days' prior notice to such Lender, elect to
prepay in full, without premium or penalty, such Lender's
affected LIBO Rate Loans. If the Borrower elects to prepay any
Loans pursuant to this Section 4.4, the Borrower shall pay within
-----------
ten Business Days' after written demand any additional increased
costs of such Lender accruing for the period prior to such date
of prepayment. If such conversion or prepayment is made on a day
other than the last day of the current Interest Period for such
affected LIBO Rate Loans, such Lender shall be entitled to make a
request for, and the Borrower shall pay, compensation under
Section 4.5.
- -----------
SECTION 4.5. Funding Losses. In the event any Lender
--------------
shall incur any loss or expense (including any loss or expense
incurred by reason of the liquidation or reemployment of deposits
or other funds acquired by such Lender to make, continue or
maintain any portion of the principal amount of any Loan as, or
to convert any portion of the principal amount of any Loan into,
a LIBO Rate Loan) as a result of
(a) any conversion or repayment or prepayment of
the principal amount of any LIBO Rate Loans on a date
other than the scheduled last day of the Interest
Period applicable thereto, whether pursuant to Section
3.1 or otherwise; -------
---
(b) Borrower's failure to borrow any LIBO Rate
Loans or Money Market LIBOR Loans in accordance with
the Borrowing Request or Notice of Money Market
Borrowing therefor; or
(c) any Loans not being continued as, or
converted into, LIBO Rate Loans in accordance with the
Continuation/Conversion Notice therefor,
then, upon the written notice of such Lender to the Borrower
(with a copy to the Agent), the Borrower shall, within five
Business Days of its receipt thereof, pay directly to such Lender
such amount as will (in the reasonable determination of such
Lender) reimburse such Lender for such loss or expense. Such
written notice (which shall include calculations in reasonable
detail) shall be binding on the Borrower absent clear and
convincing evidence to the contrary.
SECTION 4.6. Increased Capital Costs. If after the
-----------------------
date hereof any change in, or the introduction, adoption,
effectiveness, interpretation, reinterpretation or phase-in of,
any applicable law or regulation, directive, guideline, decision
or request (whether or not having the force of law) of any court,
central bank, regulator or other governmental authority affects
the amount of capital required to be maintained by any Lender,
and such Lender reasonably determines that the rate of return on
its capital as a consequence of the Letters of Credit, its
Revolving Loan Commitment or the Loans made by such Lender is
reduced to a level below that which such Lender could have
achieved but for the occurrence of any such circumstance, then,
in any such case upon notice from time to time by such Lender to
the Borrower, the Borrower shall immediately pay directly to such
Lender additional amounts sufficient to compensate such Lender
for such reduction in rate of return. A statement of such Lender
as to any such additional amount or amounts (including
calculations thereof in reasonable detail) shall be binding on
the Borrower absent clear and convincing evidence to the
contrary.
SECTION 4.7. Taxes. All payments by the Borrower of
-----
principal of, and interest on, the Loans and all other amounts
payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp or
franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing
authority, but excluding franchise taxes and taxes imposed on or
measured by any Lender's net income, receipts, net worth or
shareholders' capital (such non-excluded items being called
"Taxes"). In the event that any withholding or deduction from
-----
any payment to be made by the Borrower hereunder is required in
respect of any Taxes pursuant to any applicable law, rule or
regulation, then the Borrower will
(a) pay directly to the relevant authority the
full amount required to be so withheld or deducted;
(b) within 30 days after such payment forward to
the Agent an official receipt or other documentation
satisfactory to the Agent evidencing such payment to
such authority; and
(c) pay to the Agent for the account of the
Lenders such additional amount or amounts as is
necessary to ensure that the net amount actually
received by each Lender will equal the full amount such
Lender would have received had no such withholding or
deduction been required.
Moreover, if any Taxes are directly asserted against the Agent or
any Lender with respect to any payment received by the Agent or
such Lender hereunder, the Agent or such Lender may pay such
Taxes and, upon receipt of notice from the Agent or such Lender
within thirty (30) days after such payment, the Borrower will
promptly pay such additional amounts (including any penalties,
interest or expenses which are not attributable solely to the
actions or inactions of the Agent or such Lender) as is necessary
in order that the net amount received by such person after the
payment of such Taxes (including any Taxes on such additional
amount) shall equal the amount such person would have received
had not such Taxes been asserted.
If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Agent, for
the account of the respective Lenders, the required receipts or
other required documentary evidence, the Borrower shall indemnify
the Lenders for any incremental Taxes, interest or penalties that
may become payable by any Lender as a result of any such failure.
For purposes of this Section 4.7, a distribution hereunder by the
-----------
Agent or any Lender to or for the account of any Lender shall be
deemed a payment by the Borrower.
Each Lender that is organized under the laws of a
jurisdiction other than the United States shall, prior to the due
date of any payments under the Notes, execute and deliver to the
Borrower and the Agent, on or about the first scheduled payment
date in each Fiscal Year, one or more (as the Borrower or the
Agent may reasonably request) United States Internal Revenue
Service Forms 4224 or Forms 1001 or such other forms or documents
(or successor forms or documents), appropriately completed, as
may be applicable to establish the extent, if any, to which a
payment to such Lender is exempt from withholding or deduction of
Taxes. Except with respect to liabilities arising from a change
in laws after the date hereof, no Lender shall be entitled to
receive additional amounts in respect of United States federal
income tax if such forms are inaccurate or not applicable as of
the Effective Date, or have not otherwise been provided to the
Borrower.
SECTION 4.8. Payments, Computations. Unless
----------------------
otherwise expressly provided, all payments by the Borrower
pursuant to this Agreement, the Notes or any other Loan Document
shall be made by the Borrower to the Agent for the pro rata
--- ----
account of the Lenders entitled to receive such payment. All
such payments required to be made to the Agent shall be made,
without setoff, deduction or counterclaim, not later than
11:00 a.m., San Francisco time, on the date due, in Same Day
Funds, to such account as the Agent shall specify from time to
time by notice to the Borrower; provided that such payment shall
--------
be deemed made timely if made by wire transfer and by such time
as an Authorized Representative has advised the Agent of the
applicable Federal Reserve System wire transfer confirmation
number. Funds received after that time shall be deemed to have
been received by the Agent on the next succeeding Business Day.
The Agent shall promptly remit in Same Day Funds to each Lender
its share, if any, of such payments received by the Agent for the
account of such Lender. All interest and fees shall be computed
on the basis of the actual number of days (including the first
day but excluding the last day) occurring during the period for
which such interest or fee is payable over a year comprised of
360 days (or, in the case of interest on a Base Rate Loan, 365
days or, if appropriate, 366 days). Whenever any payment to be
made shall otherwise be due on a day which is not a Business Day,
such payment shall (except as otherwise required by clause
------
(a)(iii) or (b)(i) of the definition of the term "Interest
- -------- ------ --------
Period" with respect to LIBO Rate Loans) be made on the next
- ------
succeeding Business Day and such extension of time shall be
included in computing interest and fees, if any, in connection
with such payment.
SECTION 4.9. Sharing of Payments. If any Lender
-------------------
shall obtain any payment or other recovery (whether voluntary,
involuntary, by application of setoff or otherwise) on account of
any Committed Loan or any L/C Obligation (other than pursuant to
the terms of Sections 4.3, 4.4, 4.5, 4.6, and 4.7) in excess of
------------ --- --- --- ---
its pro rata share of payments then or therewith obtained by all
--- ----
Lenders holding Loans of such type, such Lender shall purchase
from the other Lenders such participations in Committed Loans
made by them as shall be necessary to cause such purchasing
Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of
-------- -------
the excess payment or other recovery is thereafter recovered from
such purchasing Lender, the purchase shall be rescinded and each
Lender which has sold a participation to the purchasing Lender
shall repay to the purchasing Lender the purchase price to the
ratable extent of such recovery together with an amount equal to
such selling Lender's ratable share (according to the proportion
of
(a) the amount of such selling Lender's required
repayment to the purchasing Lender
to
- --
(b) the total amount so recovered from the
purchasing Lender)
of any interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 4.9 may, to the fullest extent
-----------
permitted by law, exercise all its rights of payment (including
pursuant to Section 4.10) with respect to such participation as
------------
fully as if such Lender were the direct creditor of the Borrower
in the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives
a secured claim in lieu of a setoff to which this Section 4.9
-----------
applies, such Lender shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this
Section 4.9 to share in the benefits of any recovery on such
- -----------
secured claim.
SECTION 4.10. Setoff. Each Lender shall, upon the
------
occurrence of any Event of Default described in clauses (a) or
-----------
(b) and, upon the occurrence of any Default described in clauses
- --- -------
(c) through (d) of Section 9.1.9 with respect to the Borrower or,
- --- --- -------------
with the consent of the Required Lenders, upon the occurrence and
continuance beyond the expiration of the applicable grace period,
if any, of any other Event of Default, have the right to
appropriate and apply to the payment of the Obligations owing to
it (whether or not then due), and (as security for such
Obligations) the Borrower hereby grants to each Lender a
continuing security interest in, any and all balances, credits,
deposits, accounts or moneys of the Borrower then or thereafter
maintained with such Lender or any bank controlling such Lender;
provided, however, that any such appropriation and application
- -------- -------
shall be subject to the provisions of Section 4.9. Each Lender
-----------
agrees promptly to notify the Borrower and the Agent after any
such setoff and application made by such Lender; provided,
--------
however, that the failure to give such notice shall not affect
- -------
the validity of such setoff and application. The rights of each
Lender under this Section 4.10 are in addition to other rights
------------
and remedies (including other rights of setoff under applicable
law or otherwise) which such Lender may have.
SECTION 4.11. Use of Proceeds. The Borrower shall
---------------
apply the proceeds of each Borrowing for general corporate
purposes; without limiting the foregoing, no proceeds of any Loan
will be used to acquire any "margin stock", as defined in F.R.S.
Board Regulation U.
ARTICLE V
THE LETTERS OF CREDIT
SECTION 5.1. The Letter of Credit Commitment. (a) On
-------------------------------
the terms and conditions set forth herein (i) the Issuing Bank
agrees, (A) from time to time on any Business Day during the
period from the Effective Date to the Revolving Loan Commitment
Termination Date to Issue Letters of Credit for the account of
the Borrower, and to amend or renew Letters of Credit previously
issued by it, in accordance with Section 5.1.1, and (B) to honor
-------------
drafts under the Letters of Credit; and (ii) the Lenders
severally agree to participate in Letters of Credit Issued for
the account of the Borrower; provided, that the Issuing Bank
--------
shall not be obligated to Issue, and no Lender shall be obligated
to participate in, any Letter of Credit if as of the date of
Issuance of such Letter of Credit (the "Issuance Date") (1) the
-------------
Dollar Equivalent of all L/C Obligations plus the Dollar
Equivalent of all Loans exceeds the Revolving Loan Commitment
Amount, or (2) the participation of any Lender in the Dollar
Equivalent of all L/C Obligations plus the Dollar Equivalent of
the Revolving Loans of such Lender exceeds such Lender's
Revolving Loan Commitment. Within the foregoing limits, and
subject to the other terms and conditions hereof, the Borrower's
ability to obtain Letters of Credit shall be fully revolving,
and, accordingly, the Borrower may, during the foregoing period,
obtain Letters of Credit to replace Letters of Credit which have
expired or which have been drawn upon and reimbursed.
(b) The Issuing Bank is under no obligation to
Issue any Letter of Credit if:
(i) any order, judgment or decree of any
governmental authority or arbitrator shall by its terms
purport to enjoin or restrain the Issuing Bank from
Issuing such Letter of Credit, or any requirement of
law applicable to the Issuing Bank or any request or
directive (whether or not having the force of law) from
any Governmental Authority with jurisdiction over the
Issuing Bank shall prohibit, or request that the
Issuing Bank refrain from, the Issuance of letters of
credit generally or such Letter of Credit in particular
or shall impose upon the Issuing Bank with respect to
such Letter of Credit any restriction, reserve or
capital requirement (for which the Issuing Bank is not
otherwise compensated hereunder) not in effect on the
Effective Date, or shall impose upon the Issuing Bank
any unreimbursed loss, cost or expense which was not
applicable on the Effective Date and which the Issuing
Bank in good faith deems material to it;
(ii) the Issuing Bank has received written
notice from any Lender, the Agent or the Borrower, on
or prior to the Business Day prior to the requested
date of Issuance of such Letter of Credit, that one or
more of the applicable conditions contained in Section
6.2 is not then satisfied; -------
---
(iii) the expiry date of any requested
Letter of Credit is after the Revolving Loan Commitment
Termination Date;
(iv) any requested Letter of Credit is not in
form and substance acceptable to the Issuing Bank, or
the Issuance of a Letter of Credit shall violate any
applicable policies of the Issuing Bank in its sole
discretion;
(v) any standby Letter of Credit is for the
purpose of supporting the issuance of any letter of
credit by any other Person; or
(vi) such Letter of Credit is in a face
amount less than the Dollar Equivalent of $1,000,000 or
denominated in a currency other than Dollars or an
Offshore Currency.
SECTION 5.1.1. Issuance, Amendment and Renewal of
----------------------------------
Letters of Credit. (a) Each Letter of Credit shall be Issued
- -----------------
upon the irrevocable written request of the Borrower received by
the Issuing Bank (with a copy sent by the Borrower to the Agent)
at least five Business Days (or such shorter time as the Issuing
Bank may agree in a particular instance in its sole discretion)
prior to the proposed date of Issuance. Each such request for
Issuance of a Letter of Credit shall be by facsimile, promptly
confirmed in writing, in the form of an L/C Application, and
shall specify in form and detail satisfactory to the Issuing
Bank: (i) the proposed date of Issuance of the Letter of Credit
(which shall be a Business Day); (ii) the face amount and
currency of the Letter of Credit; (iii) the expiry date of the
Letter of Credit; (iv) the name and address of the beneficiary
thereof; (v) any documents to be presented by the beneficiary of
the Letter of Credit in case of any drawing thereunder; (vi) the
full text of any certificate to be presented by the beneficiary
in case of any drawing thereunder; and (vii) such other matters
as the Issuing Bank may require. The Agent shall promptly notify
the Lenders of the receipt by it of any L/C Application.
(b) At least two Business Days prior to the
Issuance of any Letter of Credit, the Issuing Bank will confirm
with the Agent (by telephone or in writing) that the Agent has
received a copy of the L/C Application from the Borrower and, if
not, the Issuing Bank will provide the Agent with a copy thereof.
On or before the Business Day immediately preceding the date the
Issuing Bank is to issue a requested Letter of Credit, the Agent
will confirm to the Issuing Bank that (A) such issuance is then
permitted under Section 5.1; and (B) all conditions specified in
-----------
Section 6.2 are then satisfied. If the Agent shall have directed
- -----------
the Issuing Bank to issue such Letter of Credit, then, subject to
the terms and conditions hereof, the Issuing Bank shall, on the
requested date, issue a Letter of Credit for the account of the
Borrower in accordance with the Issuing Bank's usual and
customary business practices.
(c) From time to time while a Letter of Credit is
outstanding and prior to the Revolving Loan Commitment
Termination Date, the Issuing Bank will, upon the written request
of the Borrower received by the Issuing Bank (with a copy sent by
the Borrower to the Agent) at least four Business Days (or such
shorter time as the Issuing Bank may agree in a particular
instance in its sole discretion) prior to the proposed date of
amendment, amend any Letter of Credit issued by it. Each such
request for amendment of a Letter of Credit shall be made by
facsimile, promptly confirmed in writing, made in the form of an
L/C Application and shall specify in form and detail satisfactory
to the Issuing Bank: (i) the Letter of Credit to be amended;
(ii) the proposed date of amendment of the Letter of Credit
(which shall be a Business Day); (iii) the nature of the proposed
amendment; and (iv) such other matters as the Issuing Bank may
require. The Issuing Bank shall be under no obligation to amend
any Letter of Credit if: (A) the Issuing Bank would have no
obligation at such time to issue such Letter of Credit in its
amended form under the terms of this Agreement; or (B) the
beneficiary of any such Letter of Credit does not accept the
proposed amendment to the Letter of Credit; or (C) the conditions
of Section 5.1(b) shall not have been met. On or before the
--------------
Business Day immediately preceding the date the Issuing Bank is
to amend a Letter of Credit, the Agent will confirm to the
Issuing Bank that (A) such amendment is then permitted under
Section 5.1; and (B) all conditions specified in Section 6.2 are
- ----------- -----------
then satisfied. The Agent shall promptly notify the Lenders of
the receipt by it of any L/C Application.
(d) The Issuing Bank and the Lenders agree that,
while a Letter of Credit is outstanding and prior to the
Revolving Loan Commitment Termination Date, at the option of the
Borrower and upon the written request of the Borrower received by
the Issuing Bank (with a copy sent by the Borrower to the Agent)
at least four Business Days (or such shorter time as the Issuing
Bank may agree in a particular instance in its sole discretion)
prior to the proposed date of notification of renewal, the
Issuing Bank shall be entitled to authorize the automatic renewal
of any Letter of Credit issued by it. Each such request for
renewal of a Letter of Credit shall be made by facsimile,
promptly confirmed in writing, in the form of an L/C Application,
and shall specify in form and detail satisfactory to the Issuing
Bank: (i) the Letter of Credit to be renewed; (ii) the proposed
date of notification of renewal of the Letter of Credit (which
shall be a Business Day); (iii) the revised expiry date of the
Letter of Credit; and (iv) such other matters as the Issuing Bank
may require. The Agent shall promptly notify the Lenders of the
receipt by it of any L/C Application. The Issuing Bank shall be
under no obligation so to renew any Letter of Credit if: (A) the
Issuing Bank would have no obligation at such time to issue or
amend such Letter of Credit in its renewed form under the terms
of this Agreement; or (B) the beneficiary of any such Letter of
Credit does not accept the proposed renewal of the Letter of
Credit; or (C) the conditions of Section 5.1(b) shall not have
--------------
been met. On or before the Business Day immediately preceding
the date the Issuing Bank is to renew a Letter of Credit, the
Agent will confirm to the Issuing Bank that (A) such renewal is
then permitted under Section 5.1; and (B) all conditions
-----------
specified in Section 6.2 are then satisfied. If any outstanding
-----------
Letter of Credit shall provide that it shall be automatically
renewed unless the beneficiary thereof receives notice from the
Issuing Bank that such Letter of Credit shall not be renewed, and
if at the time of renewal the Issuing Bank would be entitled to
authorize the automatic renewal of such Letter of Credit in
accordance with this Section 5.1.1(d) upon the request of the
----------------
Borrower but the Issuing Bank shall not have received any L/C
Application from the Borrower with respect to such renewal or
other written direction by the Borrower with respect thereto, the
Issuing Bank shall nonetheless be permitted to allow such Letter
of Credit to renew, and the Borrower and the Lenders hereby
authorize such renewal, and, accordingly, the Issuing Bank shall
be deemed to have received an L/C Application from the Borrower
requesting such renewal.
(e) The Issuing Bank may, at its election (or as
required by the Agent at the direction of the Required Lenders),
deliver any notices of termination or other communications to any
Letter of Credit beneficiary or transferee, and take any other
action as necessary or appropriate, at any time and from time to
time, in order to cause the expiry date of such Letter of Credit
to be a date not later than the Revolving Loan Commitment
Termination Date.
(f) This Agreement shall control in the event of
any conflict with any L/C Related Document (other than any Letter
of Credit).
(g) The Issuing Bank will also deliver to the
Agent, concurrently or promptly following its delivery of a
Letter of Credit, or amendment to or renewal of a Letter of
Credit, to an advising bank or a beneficiary, a true and complete
copy of each such Letter of Credit or amendment to or renewal of
a Letter of Credit.
SECTION 5.1.2. Risk Participations, Drawings and
Reimbursements. ---------------------------------
- --------------
(a) Immediately upon the Issuance of each Letter
of Credit, each Lender shall be deemed to, and hereby irrevocably
and unconditionally agrees to, purchase from the Issuing Bank a
participation in such Letter of Credit and each drawing
thereunder in an amount equal to the product of (i) the
Percentage of such Lender, times (ii) the maximum Dollar
Equivalent amount available to be drawn under such Letter of
Credit and the Dollar Equivalent amount of such drawing,
respectively. For purposes of Section 2.1, each Issuance of a
-----------
Letter of Credit shall be deemed to utilize the Revolving Loan
Commitment of each Lender by an amount equal to the Dollar
Equivalent amount of such participation.
(b) In the event of any request for a drawing
under a Letter of Credit by the beneficiary or transferee
thereof, the Issuing Bank will promptly notify the Borrower. The
Borrower shall reimburse the Issuing Bank prior to 10:00 a.m.
(San Francisco time), on each date that any amount is paid by the
Issuing Bank under any Letter of Credit (each such date, an
"Honor Date"), in the Applicable Currency and in an amount equal
----------
to the amount so paid by the Issuing Bank. In the event the
Borrower fails to reimburse the Issuing Bank for the full amount
of any drawing under any Letter of Credit by 10:00 a.m. (San
Francisco time) on the Honor Date, the Issuing Bank will promptly
notify the Agent and the Agent will promptly notify each Lender
thereof, and the Borrower shall be deemed to have requested that
Base Rate Loans be made by the Lenders to be disbursed on the
Honor Date under such Letter of Credit. Any notice given by the
Issuing Bank or the Agent pursuant to this Section 5.1.2(b) may
----------------
be oral if immediately confirmed in writing (including by
facsimile); provided that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding
effect of such notice.
(c) Each Lender shall upon any notice pursuant to
Section 5.1.2(b) make available to the Agent for the account of
- ----------------
the relevant Issuing Bank an amount in Dollars and in Same Day
Funds equal to its Percentage of the Dollar Equivalent amount of
the drawing, whereupon the participating Lenders shall (subject
to Section 5.1.2(e)) each be deemed to have made a Revolving Loan
----------------
consisting of a Base Rate Loan to the Borrower in that amount.
If any Lender so notified fails to make available to the Agent
for the account of the Issuing Bank the amount of such Lender's
Percentage of the amount of the drawing by no later than 12:00
noon (San Francisco time) on the Honor Date, then interest shall
accrue on such Lender's obligation to make such payment, from the
Honor Date to the date such Lender makes such payment, at a rate
per annum equal to the Federal Funds Rate in effect from time to
time during such period. The Agent will promptly give notice of
the occurrence of the Honor Date, but failure of the Agent to
give any such notice on the Honor Date or in sufficient time to
enable any Lender to effect such payment on such date shall not
relieve such Lender from its obligations under this Section
5.1.2. -------
- -----
(d) With respect to any unreimbursed drawing that
is not converted into Revolving Loans in whole or in part, for
any reason whatsoever, the Borrower shall be deemed to have
incurred from the Issuing Bank an L/C Borrowing in the Dollar
Equivalent amount of such drawing, which L/C Borrowing shall be
due and payable on demand (together with interest) and shall bear
interest at a rate per annum equal to the Alternate Base Rate
plus 1% per annum, and each Lender's payment to the Issuing Bank
pursuant to Section 5.1.2 shall be deemed payment in respect of
-------------
its participation in such L/C Borrowing and shall constitute an
L/C Advance from such Lender in satisfaction of its participation
obligation under this Section 5.1.2.
-------------
(e) Each Lender's obligation in accordance with
this Agreement to make the Revolving Loans or L/C Advances, as
contemplated by this Section 5.1.2, as a result of a drawing
-------------
under a Letter of Credit, shall be absolute and unconditional and
without recourse to the Issuing Bank and shall not be affected by
any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have
against the Issuing Bank, the Borrower or any other Person for
any reason whatsoever; (ii) the occurrence or continuance of a
Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing; provided,
--------
however, that each Lender's obligation to make Revolving Loans
under this Section 5.1.2 is subject to the conditions set forth
-------------
in Section 5.1.1.
-------------
SECTION 5.1.3. Repayment of Participations. (a) Upon
---------------------------
(and only upon) receipt by the Agent for the account of the
Issuing Bank of immediately available funds from the Borrower (i)
in reimbursement of any payment made by the Issuing Bank under
the Letter of Credit with respect to which any Lender has paid
the Agent for the account of the Issuing Bank for such Lender's
participation in the Letter of Credit pursuant to Section
-------
5.1.2(a) or (ii) in payment of interest thereon, the Agent will
- --------
pay to each Lender, in the same funds as those received by the
Agent for the account of the Issuing Bank, the amount of such
Lender's Percentage of such funds, and the Issuing Bank shall
receive the amount of the Percentage of such funds of any Lender
that did not so pay the Agent for the account of the Issuing
Bank.
(b) If the Agent or the Issuing Bank is required
at any time to return to the Borrower, or to a trustee, receiver,
liquidator, custodian, or any official in any insolvency
proceeding, any portion of the payments made by the Borrower to
the Agent for the account of the Issuing Bank pursuant to Section
-------
5.1.2(a) in reimbursement of a payment made under the Letter of
- --------
Credit or interest or fee thereon, each Lender shall, on demand
of the Agent, forthwith return to the Agent or the Issuing Bank
the amount of its Percentage of any amounts so returned by the
Agent or the Issuing Bank plus interest thereon from the date
such demand is made to the date such amounts are returned by such
Lender to the Agent or the Issuing Bank, at a rate per annum
equal to the Federal Funds Rate in effect from time to time.
SECTION 5.1.4. Role of the Issuing Bank. (a) Each
------------------------
Lender and the Borrower agree that, in paying any drawing under a
Letter of Credit, the Issuing Bank shall not have any
responsibility to obtain any document (other than any sight draft
and certificates if expressly required by the Letter of Credit)
or to ascertain or inquire as to the validity or accuracy of any
such document or the authority of the Person executing or
delivering any such document.
(b) No Agent-Related Person nor any of the
respective correspondents, participants or assignees of the
Issuing Bank shall be liable to any Lender for: (i) any action
taken or omitted in connection herewith at the request or with
the approval of the Lenders (including the Required Lenders, as
applicable); (ii) any action taken or omitted in the absence of
gross negligence or willful misconduct; or (iii) the due
execution, effectiveness, validity or enforceability of any
L/C Related Document.
(c) The Borrower hereby assumes all risks of the
acts or omissions of any beneficiary or transferee with respect
to its use of any Letter of Credit; provided, however, that this
--------
assumption is not intended to, and shall not, preclude the
Borrower pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under any other
agreement. No Agent-Related Person, nor any of the respective
correspondents, participants or assignees of the Issuing Bank,
shall be liable or responsible for any of the matters described
in clauses (i) through (vii) of Section 5.1.5; provided, however,
------------- --------
anything in such clauses to the contrary notwithstanding, the
Borrower may have a claim against the Issuing Bank, and the
Issuing Bank may be liable to the Borrower, for such damages
suffered by the Borrower which the Borrower proves were caused by
the Issuing Bank's willful misconduct or gross negligence or the
Issuing Bank's willful failure to pay under any Letter of Credit
after the presentation to it by the beneficiary of a sight draft
and certificate(s) strictly complying with the terms and
conditions of a Letter of Credit. In furtherance and not in
limitation of the foregoing: (i) the Issuing Bank may accept
documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any
notice or information to the contrary; and (ii) the Issuing Bank
shall not be responsible for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or
assign a Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason.
SECTION 5.1.5. Obligations Absolute. The obligations
--------------------
of the Borrower under this Agreement and any L/C Related Document
to reimburse the Issuing Bank for a drawing under a Letter of
Credit, and to repay any L/C Borrowing and any drawing under a
Letter of Credit converted into Revolving Loans, shall be
unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement and each such other
L/C Related Document under all circumstances, including the
following:
(i) any lack of validity or enforceability
of this Agreement or any L/C Related Document;
(ii) any change in the time, manner or place
of payment of, or in any other term of, all or any of
the obligations of the Borrower in respect of any
Letter of Credit or any other amendment or waiver of or
any consent to departure from all or any of the
L/C Related Documents;
(iii) the existence of any claim, set-off,
defense or other right that the Borrower may have at
any time against any beneficiary or any transferee of
any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the
Issuing Bank or any other Person, whether in connection
with this Agreement, the transactions contemplated
hereby or by the L/C Related Documents or any unrelated
transaction;
(iv) any draft, demand, certificate or other
document presented under any Letter of Credit proving
to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in
order to make a drawing under any Letter of Credit;
(v) any payment by the Issuing Bank under
any Letter of Credit against presentation of a draft or
certificate that does not strictly comply with the
terms of any Letter of Credit; or any payment made by
the Issuing Bank under any Letter of Credit to any
Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other representative
of or successor to any beneficiary or any transferee of
any Letter of Credit, including any arising in
connection with any insolvency proceeding;
(vi) any exchange, release or non-perfection
of any collateral, or any release or amendment or
waiver of or consent to departure from any other
guarantee, for all or any of the obligations of the
Borrower in respect of any Letter of Credit; or
(vii) any other circumstance or happening
whatsoever, whether or not similar to any of the
foregoing, including any other circumstance that might
otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor.
SECTION 5.2. Cash Collateral Pledge. Upon (i) the
----------------------
request of the Agent, (A) if the Issuing Bank has honored any
full or partial drawing request on any Letter of Credit and such
drawing has resulted in an L/C Borrowing hereunder, or (B) if, as
of the Revolving Loan Commitment Termination Date, any Letters of
Credit may for any reason remain outstanding and partially or
wholly undrawn, or (ii) the occurrence of the circumstances
requiring the Borrower to Cash Collateralize Letters of Credit,
then, the Borrower shall immediately Cash Collateralize the L/C
Obligations in an amount equal to such L/C Obligations in the
Applicable Currency, and the Borrower hereby grants to the Agent,
for the ratable benefit of the Lenders, a security interest in
such cash collateral.
SECTION 5.3. Letter of Credit Fees. The Borrower
---------------------
shall pay to the Agent for the ratable account of each of the
Lenders a letter of credit fee with respect to the Letters of
Credit at the rate per annum based on the Borrower's Debt Rating
determined as provided in the definition of "Applicable Margin"
for Financial Letters of Credit or Performance Letters of Credit,
as applicable, of the average daily maximum Dollar Equivalent
amount available to be drawn of the outstanding Letters of
Credit, computed on a quarterly basis in arrears on the last
Business Day of each calendar quarter based upon Letters of
Credit outstanding for that quarter as calculated by the Agent.
Such letter of credit fees shall be due and payable in Dollars
quarterly in arrears on the last Business Day of each calendar
quarter during which Letters of Credit are outstanding,
commencing on the first such quarterly date to occur after the
Effective Date, through the Revolving Loan Commitment Termination
Date (or such later date upon which the outstanding Letters of
Credit shall expire), with the final payment to be made on the
Revolving Loan Commitment Termination Date (or such later
expiration date).
SECTION 5.4. Issuance of Letters of Credit in
Offshore Currencies. --------------------------------
- -------------------
(a) The Issuing Bank shall be under no obligation
to Issue any Letter of Credit denominated in an Offshore Currency
if the Agent has received notice from any of the Lenders by 2:00
p.m. (San Francisco time) four Business Days prior to the day of
such Issuance that the Issuing Bank cannot Issue, or any Lender
cannot purchase a participation in, such Letter of Credit in the
requested Offshore Currency, in which event the Agent will give
notice to the Borrower no later than 9:00 a.m. (San Francisco
time) on the third Business Day prior to the requested date of
such Issuance that the Issuance in the requested Offshore
Currency is not then available, and notice thereof also will be
given promptly by the Agent to the Issuing Bank and the Lenders.
If the Agent shall have so notified the Borrower, the request for
such Letter of Credit shall be deemed withdrawn.
(b) The Borrower shall be entitled to request
that Letters of Credit hereunder also be permitted to be Issued
in any Agreed Alternative Currency. The Borrower shall deliver
to the Agent any request for designation of an Agreed Alternative
Currency by not later than 9:00 a.m. (San Francisco time) at
least ten Business Days in advance of the date of any Letter of
Credit proposed to be Issued in such Agreed Alternate Currency.
Upon receipt of any such request the Agent will promptly notify
the Lenders thereof, and each Lender will use its best efforts to
respond to such request within two Business Days of receipt
thereof. Each Lender may reject or accept such request in its
sole discretion. The Agent will promptly notify the Borrower of
the acceptance or rejection of any such request.
SECTION 5.5. Uniform Customs and Practice. The
----------------------------
Uniform Customs and Practice for Documentary Credits as published
by the International Chamber of Commerce ("UCP") most recently at
---
the time of issuance of any Letter of Credit shall (unless
otherwise expressly provided in the Letters of Credit) apply to
the Letters of Credit.
SECTION 5.6. Additional and Successor Issuing Banks.
--------------------------------------
If (i) the credit rating on the unsecured long term indebtedness
of the Issuing Bank has been materially lowered, suspended or
withdrawn by the applicable rating agencies or (ii) the Issuing
Bank shall reasonably request, the Borrower may, with the written
consent of the Agent and the Required Banks, appoint an
additional Bank or Banks to act as Issuing Bank. Each additional
or successor Issuing Bank shall execute an instrument of
assumption in form and substance satisfactory to the Borrower,
the Agent and the Lenders, whereupon such Bank shall be deemed an
Issuing Bank for all purposes whatsoever pursuant to this
Agreement, and with all the rights, powers, obligations,
privileges and duties inuring thereto.
ARTICLE VI
CONDITIONS TO CREDIT EXTENSIONS
SECTION 6.1. Conditions to Effectiveness. This
---------------------------
Agreement shall become effective upon the prior or concurrent
satisfaction of each of the conditions precedent set forth in
this Section 6.1.
-----------
SECTION 6.1.1. Resolutions. The Agent shall have
-----------
received from the Borrower a certificate, substantially in the
form of Exhibit F hereto, dated the Effective Date, of its
Secretary or Assistant Secretary as to
(a) resolutions of its Board of Directors then in
full force and effect authorizing the execution,
delivery and performance of this Agreement, the Notes
and each other Loan Document to be executed by it;
(b) the incumbency and signatures of those of its
officers and representatives authorized to act with
respect to this Agreement, the Notes and each other
Loan Document executed by it; and
(c) the Borrower's articles of incorporation and
by-laws,
upon which certificate each Lender may conclusively rely until it
shall have received a further certificate of the Secretary of the
Borrower canceling or amending such prior certificate.
SECTION 6.1.2. Delivery of Notes. The Agent shall have
-----------------
received, for the account of each Lender, its Notes duly executed
and delivered by the Borrower.
SECTION 6.1.3. Opinions of Counsel. The Agent shall
-------------------
have received opinions, dated the Effective Date and addressed to
the Agent and all Lenders, from the Assistant General Counsel of
the Borrower, substantially in the form of Exhibit E hereto and
---------
given upon the express instruction of the Borrower.
SECTION 6.1.4. Closing Fees, Expenses. The Agent shall
----------------------
have received for its own account, or for the account of each
Lender, as the case may be, all fees, costs and expenses due and
payable pursuant to Sections 3.3 and 11.3, if invoiced at least
------------ ----
three Business Days before closing.
SECTION 6.1.5. Condition to Initial Credit Extension.
-------------------------------------
The obligation of each Lender to make the initial Credit
Extension shall be subject to the receipt by the Agent of
satisfactory assurances as to the provision for the repayment in
full of all obligations under the Existing Credit Agreement, and
termination thereof.
SECTION 6.2. All Credit Extensions. The obligation
---------------------
of each Lender to make any Credit Extension (including the
initial Credit Extension) shall be subject to the satisfaction of
each of the conditions precedent set forth in this Section 6.2.
-----------
SECTION 6.2.1. Representations and Warranties, No
------------------------------
Default. Both before and after giving effect to any Credit
- -------
Extension (but, if any Default of the nature referred to in
Section 9.1.5 shall have occurred with respect to any other
- -------------
Indebtedness, without giving effect to the application, directly
or indirectly, of the proceeds of such Borrowing) the following
statements shall be true and correct:
(a) the representations and warranties set forth
in Article VII shall be true and correct in all
-----------
material respects with the same effect as if then made
(unless stated to relate solely to an early date, in
which case such representations and warranties shall be
true and correct as of such earlier date); and
(b) no Default shall have then occurred and be
continuing.
SECTION 6.2.2. Borrowing Request. The Agent shall have
-----------------
received a Borrowing Request for such Borrowing. Each of the
delivery of a Borrowing Request and the acceptance by the
Borrower of the proceeds of such Borrowing shall constitute a
representation and warranty by the Borrower that on the date of
such Borrowing (both immediately before and after giving effect
to such Borrowing and the application of the proceeds thereof)
the statements made in Section 6.2.1 are true and correct.
-------------
SECTION 6.2.3. Satisfactory Legal Form. All documents
-----------------------
executed or submitted pursuant hereto by or on behalf of the
Borrower shall be satisfactory in form and substance to the Agent
and its counsel.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter
into this Agreement and to make Loans hereunder, the Borrower
represents and warrants unto the Agent and each Lender as set
forth in this Article VII.
-----------
SECTION 7.1. Organization; Power. The Borrower is a
-------------------
corporation validly organized and existing and in good standing
under the laws of the State of its incorporation, is duly
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the nature of its business
requires such qualification, and has all requisite corporate
power and authority and holds all material requisite governmental
licenses, permits and other approvals to enter into and perform
its Obligations under this Agreement, the Notes and each other
Loan Document and to conduct its business substantially as
currently conducted by it.
SECTION 7.2. Due Authorization; Non-Contravention.
------------------------------------
The execution, delivery and performance by the Borrower of this
Agreement, the Notes and each other Loan Document are within the
Borrower's corporate powers, have been duly authorized by all
necessary corporate action, and do not
(a) contravene the Borrower's Organic Documents;
(b) contravene any contractual restriction, law
or governmental regulation or court decree or order
binding on or affecting the Borrower; or
(c) result in, or require the creation or
imposition of, any Lien on any of the Borrower's
properties.
SECTION 7.3. Government Approval; Regulation. The
-------------------------------
Borrower is not subject to any regulation as an "investment
company" subject to the Investment Company Act of 1940, as
amended, or as a "public utility holding company" subject to the
Public Utility Holding Company Act of 1935, as amended. The
Borrower is not otherwise subject to any regulation as a "public
utility" under any other applicable law, rule or regulation,
which would have a Material Adverse Effect. No authorization,
consent, approval, license, exemption of or filing or
registration with any court or governmental authority or
regulatory body ("Government Approval") is required for the
-------------------
Borrower to execute and perform its obligations under the Loan
Documents, except for those which have been duly obtained or
effected. No material Governmental Approval is required for the
Borrower to carry on its business, except for those which have
been duly obtained or effected.
SECTION 7.4. Validity. This Agreement constitutes,
--------
and the Notes and each other Loan Document will, on the due
execution and delivery thereof, constitute, the legal, valid and
binding obligations of the Borrower enforceable in accordance
with their respective terms (except as may be limited by
bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and general principles
of equity).
SECTION 7.5. Financial Information. The balance
---------------------
sheets of the Borrower as at December 31, 1995, and the related
statements of income and cash flows of the Borrower, copies of
which have been furnished to the Agent, have been prepared in
accordance with GAAP consistently applied, and present fairly the
consolidated financial condition of the Borrower and its
Subsidiaries as at the dates thereof and the results of their
operations for the periods then ended.
SECTION 7.6. No Material Adverse Change. Since the
--------------------------
date of the financial statements described in Section 7.5, there
-----------
has not occurred any event or condition having a Material Adverse
Effect.
SECTION 7.7. Litigation. There is no pending or, to
----------
the knowledge of the Borrower, threatened litigation, action,
proceeding, or labor controversy affecting the Borrower, or any
of its properties, businesses, assets or revenues, which (taking
into account any insurance proceeds payable under a policy where
the insurer has accepted coverage without any reservations) has a
Material Adverse Effect or which purports to adversely affect the
legality, validity or enforceability of this Agreement or any
other Loan Document.
SECTION 7.8. Ownership of Properties. The Borrower
-----------------------
owns good and marketable title to all of its properties and
assets, real and personal, tangible and intangible, of any nature
whatsoever (including patents, trademarks, trade names, service
marks and copyrights), free and clear of all Liens, charges or
claims (including infringement claims with respect to patents,
trademarks, copyrights and the like) except as permitted pursuant
to Section 8.2.3.
-------------
SECTION 7.9. Taxes. The Borrower has filed all tax
-----
returns and reports required by law to have been filed by it and
has paid all taxes and governmental charges thereby shown to be
owing, except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have
been set aside on its books.
SECTION 7.10. Pension and Welfare Plans. During the
-------------------------
twelve-consecutive-month period prior to the date of the
execution and delivery of this Agreement and prior to the date of
any Borrowing hereunder, no steps have been taken to terminate
any Pension Plan, and no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a Lien
under section 302(f) of ERISA. No condition exists or event or
transaction has occurred with respect to any Pension Plan which
could reasonably be expected to result in the incurrence by the
Borrower or any member of the Controlled Group of any material
liability (other than liabilities incurred in the ordinary course
of maintaining the Pension Plan), fine or penalty. Neither the
Borrower nor any member of the Controlled Group has any
contingent liability with respect to any post-retirement benefit
under a Welfare Plan which could reasonably be expected to have a
Material Adverse Effect, other than liability for continuation
coverage described in Part 6 of Title I of ERISA.
SECTION 7.11. Environmental Warranties.
------------------------
(a) All facilities and property owned or leased
by the Borrower or any of its Subsidiaries or
Partnerships have been, and continue to be, owned or
leased by the Borrower and its Subsidiaries in
compliance with all Environmental Laws, except where
the failure so to comply would not have, or be
reasonably expected to have, a Material Adverse Effect;
(b) there are no pending or, to the knowledge of
the Borrower, threatened
(i) claims, complaints, notices or requests
for information received by the Borrower from
governmental authorities with respect to any
alleged violation by the Borrower of any
Environmental Law, or
(ii) complaints, notices or inquiries to the
Borrower from governmental authorities regarding
potential liability under any Environmental Law;
(c) there have been no Releases (as defined under
any Environmental Law) of Hazardous Materials at, on or
under any property now or previously owned or leased by
the Borrower that, singly or in the aggregate, have, or
may reasonably be expected to have, a Material Adverse
Effect;
(d) the Borrower has obtained and is in
compliance with all permits, certificates, approvals,
licenses and other authorizations relating to
environmental matters and necessary for the Borrower's
business, except where the failure to obtain, maintain
or comply with such permits, certificates, approvals,
licenses or other authorizations would not have, or be
reasonably expected to have, a Material Adverse Effect;
(e) no property now or previously owned or leased
by the Borrower is listed or proposed for listing (with
respect to owned property only) on the National
Priorities List pursuant to any Environmental Law, on
the CERCLIS or on any similar state list of sites
requiring investigation or clean-up; and
(f) no conditions exist at, on or under any
property now or previously owned or leased by the
Borrower which, with the passage of time, or the giving
of notice or both, would give rise to liability under
any Environmental Law which liability would have, or
may reasonably be expected to have, a Material Adverse
Effect.
SECTION 7.12. Regulations G, T, U and X. The Borrower
-------------------------
is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock, and no proceeds
of any Loans will be used for a purpose which violates, or would
be inconsistent with, F.R.S. Board Regulation G, T, U or X.
Terms for which meanings are provided in F.R.S. Board Regulation
G, T, U or X or any regulations substituted therefor, as from
time to time in effect, are used in this Section with such
meanings.
SECTION 7.13. Accuracy of Information. All factual
-----------------------
information heretofore or contemporaneously furnished by the
Borrower in writing to the Agent or any Lender for purposes of or
in connection with this Agreement or any transaction contemplated
hereby is, and all other such written factual information
hereafter furnished by the Borrower in writing to the Agent or
any Lender will be, true and accurate in every material respect
on the date as of which such information is dated or certified
and as of the date of execution and delivery of this Agreement by
the Agent and such Lender, and such information is not, or shall
not be, as the case may be, incomplete by omitting to state any
material fact necessary to make such information not misleading;
provided, however, that as to such information prepared by a
- -------- -------
person other than the Borrower (other than information furnished
pursuant to Section 8.1.1), such representation and warranty is
-------------
made only to the actual knowledge of the Borrower.
SECTION 7.14. The Obligations. The Obligations are
---------------
senior, unsecured Indebtedness of the Borrower ranking at least
pari passu with all other senior, unsecured Indebtedness of the
- ----------
Borrower.
ARTICLE VIII
COVENANTS
SECTION 8.1. Affirmative Covenants. The Borrower
---------------------
agrees with the Agent and each Lender that, until all Revolving
Loan Commitments have terminated and all Obligations have been
paid and performed in full, the Borrower will perform the
obligations set forth in this Section 8.1.
-----------
SECTION 8.1.1. Financial Information, Reports, Notices.
---------------------------------------
The Borrower will furnish, or will cause to be furnished, to the
Agent copies of the following financial statements, reports,
notices and information:
(a) as soon as available and in any event within
45 days after the end of each of the first three Fiscal
Quarters of each Fiscal Year of the Borrower,
consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such Fiscal Quarter and
consolidated statements of income and cash flows of the
Borrower and its Subsidiaries for such Fiscal Quarter
and for the period commencing at the end of the
previous Fiscal Year and ending with the end of such
Fiscal Quarter, certified by the controller, treasurer
or chief financial officer of the Borrower;
(b) as soon as available and in any event within
120 days after the end of each Fiscal Year of the
Borrower, a copy of the annual audit report for such
Fiscal Year for the Borrower and its Subsidiaries,
including therein consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such
Fiscal Year and consolidated statements of income and
cash flows of the Borrower and its Subsidiaries for
such Fiscal Year, and accompanied by the opinion of
Arthur Andersen & Co. or other independent public
accountants of recognized national standing selected by
the Borrower which report shall state that such
consolidated financial statements present fairly in all
material respects the financial position for the
periods indicated in conformity with GAAP applied on a
basis consistent with prior periods;
(c) as soon as available and in any event within
45 days after the end of each Fiscal Quarter, a
certificate, executed by the controller, treasurer or
chief financial officer of the Borrower, showing (in
reasonable detail and with appropriate calculations and
computations in all respects satisfactory to the Agent)
compliance with the financial covenants set forth in
Section 8.2.4;
-------------
(d) as soon as possible and in any event within
five Business Days after any Authorized Representative
obtains knowledge of the occurrence of each Default, a
statement of the controller, treasurer or chief
financial officer of the Borrower setting forth details
of such Default and the action which the Borrower has
taken and proposes to take with respect thereto;
(e) as soon as possible and in any event within
five Business Days after (x) the occurrence of any
material adverse development with respect to any
litigation, action, proceeding, or labor controversy of
the type described in Section 7.7 or (y) the
-----------
commencement of any labor controversy, litigation,
action, proceeding of the type described in
Section 7.7, notice thereof and, upon request of the
-----------
Agent, copies of all non-privileged documentation
relating thereto;
(f) promptly after the sending or filing thereof,
copies of all reports and registration statements which
the Borrower files with the Securities and Exchange
Commission or any national securities exchange;
(g) immediately upon becoming aware of the
institution of any steps by the Borrower or any other
Person to terminate any Pension Plan (other than a
standard termination under ERISA Section 4041(b)), or
the failure to make a required contribution to any
Pension Plan if such failure is sufficient to give rise
to a Lien under section 302(f) of ERISA, or the taking
of any action with respect to a Pension Plan which
could result in the requirement that the Borrower
furnish a bond or other security to the PBGC or such
Pension Plan, or the occurrence of any event with
respect to any Pension Plan which could result in the
incurrence by the Borrower or any member of the
Controlled Group of any material liability (other than
liabilities incurred in the ordinary course of
maintaining the Pension Plan), fine or penalty, or any
increase in the contingent liability of the Borrower
with respect to any post-retirement Welfare Plan
benefit which has a Material Adverse Effect, notice
thereof and copies of all documentation relating
thereto;
(h) as soon as known, any changes in Borrower's
Debt Rating by Moody's or S&P or any other rating
agency which maintains a Debt Rating on the Borrower
which is used in the determination of the "Applicable
Margin"; and
(i) such other information respecting the
condition or operations, financial or otherwise, of the
Borrower as any Lender through the Agent may from time
to time reasonably request.
SECTION 8.1.2. Compliance with Laws. The Borrower will
--------------------
comply in all material respects with all applicable laws, rules,
regulations and orders, such compliance to include (without
limitation) the payment, before the same become delinquent, of
all taxes, assessments and governmental charges imposed upon it
or upon its property except to the extent being diligently
contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set
aside on its books.
SECTION 8.1.3. Maintenance of Properties. The Borrower
-------------------------
will, and will use reasonable efforts to cause each of its
Subsidiaries and Partnerships to, maintain, preserve, protect and
keep its properties in good repair, working order and condition,
and make necessary and proper repairs, renewals and replacements
so that its business carried on in connection therewith may be
properly conducted at all times unless the Borrower determines in
good faith that the continued maintenance of any of its
properties is no longer economically desirable and except where
the failure so to do would not have a Material Adverse Effect.
SECTION 8.1.4. Insurance. The Borrower will maintain
---------
or cause to be maintained with responsible insurance companies
insurance with respect to its properties and business against
such casualties and contingencies and of such types and in such
amounts as is customary in the case of similar businesses.
SECTION 8.1.5. Books and Records. The Borrower will,
-----------------
and will cause each of its active Subsidiaries to, keep books and
records which accurately reflect all of its business affairs and
transactions and permit the Agent and each Lender or any of their
respective representatives, at reasonable times and intervals, to
visit all of its offices, to discuss its financial matters with
its officers and independent public accountant. The Borrower
will at any reasonable time and from time to time upon reasonable
prior notice, permit the Agent and the Lenders or any of their
respective agents or representatives to examine and make copies
of and abstracts from the records and books of account of the
Borrower; provided that by virtue of this subsection the Borrower
--------
shall not be deemed to have waived any right to confidential
treatment of the information so obtained, subject to the
provisions of applicable law or court order.
SECTION 8.1.6. Environmental Covenant. The Borrower
----------------------
will, and will use best efforts to cause each of its Subsidiaries
and Partnerships to,
(a) use and operate all of its facilities and
properties in compliance with all Environmental Laws,
keep all necessary permits, approvals, certificates,
licenses and other authorizations relating to
environmental matters in effect and remain in material
compliance therewith, and handle all Hazardous
Materials in material compliance with all applicable
Environmental Laws, in each case where the failure to
do so may reasonably be expected to have a Material
Adverse Effect;
(b) promptly cure and have dismissed with
prejudice to the reasonable satisfaction of the Agent
any actions and proceedings relating to compliance with
Environmental Laws where such action or proceeding may
reasonably be expected to have a Material Adverse
Effect; provided that the Borrower or such Subsidiary
--------
or Partnership may postpone such cure and dismissal
during any period in which it is diligently pursuing
any available appeals in such action or proceeding so
long as such postponement would not be reasonably
likely to have a Material Adverse Effect; and
(c) provide such non-privileged information as
the Agent may reasonably request from time to time to
evidence compliance with this Section 8.1.6.
-------------
SECTION 8.2. Negative Covenants. The Borrower agrees
------------------
with the Agent and each Lender that, until all Revolving Loan
Commitments have terminated and all Obligations have been paid
and performed in full, the Borrower will perform the obligations
set forth in this Section 8.2.
-----------
SECTION 8.2.1. Restrictions on Secured Indebtedness.
------------------------------------
The Borrower will not create, incur, assume or suffer to exist
any secured Indebtedness other than:
(a) Capitalized Lease Liabilities and other
secured Indebtedness of any kind whatsoever (including,
without limitation, Indebtedness secured by a pledge of
the stock of a Subsidiary not otherwise permitted under
clause (b) of this Section 8.2.1) at any time
---------- -------------
outstanding not exceeding an aggregate principal amount
equal to 10% of Net Tangible Assets, subject to Section
8.2.3(g) hereof, and -------
--------
(b) Indebtedness with respect to which the
Borrower has pledged the stock of a Subsidiary in order
to secure initial project financing obtained or being
obtained after the Effective Date hereof by such
Subsidiary (or the Partnership in which such Subsidiary
is a partner) if such Indebtedness, as to the Borrower,
is Non-Recourse Debt.
SECTION 8.2.2. [Reserved].
----------
SECTION 8.2.3. Liens. The Borrower will not create,
-----
incur, assume or suffer to exist any Lien upon any of its
property, revenues or assets, whether now owned or hereafter
acquired, except:
(a) Liens granted to secure payment of
Indebtedness of the type permitted and described in
clause (b) of Section 8.2.1;
---------- -------------
(b) Liens for taxes, assessments or other
governmental charges or levies not at the time
delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its
books;
(c) Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary
course of business for sums not overdue or being
diligently contested in good faith by appropriate
proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its
books;
(d) Liens incurred in the ordinary course of
business in connection with workmen's compensation,
unemployment insurance or other forms of governmental
insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts
(other than for borrowed money) entered into in the
ordinary course of business or to secure obligations on
surety or appeal bonds;
(e) judgment Liens in existence less than 30 days
after the entry thereof or with respect to which
execution has been stayed or the payment of which is
covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance
companies;
(f) Liens upon any property at any time directly
owned by the Borrower to secure any Indebtedness of the
nature described in clause (a) of Section 8.2.1 in
---------- -------------
excess of the amount otherwise permitted thereby,
provided that the Obligations shall be equally and
--------
ratably secured with any and all such Indebtedness and
with any other indebtedness similarly entitled to be
equally and ratably secured; and
(g) any Lien existing on the property of the
Borrower on the Effective Date.
In the event that the Borrower shall propose to create,
incur, assume or suffer to exist any Lien upon any property at
any time directly owned by it to secure any Indebtedness as
contemplated by subdivision (g) above, the Borrower will give
-----------
prior written notice thereof to the Agent, who shall give notice
to the Lenders, and the Borrower will, prior to or simultaneously
with the creation of such Lien, effectively secure the
Obligations equally and ratably with such Indebtedness.
SECTION 8.2.4. Financial Condition. The Borrower will
-------------------
not permit its Tangible Net Worth to be less than $400,000,000
plus 25% of the Borrower's and its Subsidiaries' consolidated net
income earned (without subtracting net losses) in each Fiscal
Quarter commencing with the quarter ending after September 30,
1992.
SECTION 8.2.5. Investments. The Borrower will not, and
-----------
will not permit any of its Subsidiaries to, make, incur, assume
or suffer to exist any Investment in any other Person, except:
(a) Investments existing on the Effective Date;
(b) Cash Equivalent Investments;
(c) without duplication, Investments permitted as
Indebtedness pursuant to Section 8.2.1;
-------------
(d) otherwise in the ordinary course of business;
and
(e) Investments permitted pursuant to Section
8.2.6(b); -------
--------
provided, however, that
- -------- -------
(f) any Investment which when made complies with
the requirements of the definition of the term "Cash
Equivalent Investment" may continue to be held ----
---------------------
notwithstanding that such Investment if made thereafter
would not comply with such requirements.
SECTION 8.2.6. Consolidation, Merger. The Borrower
---------------------
will not, and will not permit any of its Subsidiaries to,
liquidate or dissolve, consolidate with, or merge into or with,
any other corporation, or purchase or otherwise acquire all or
substantially all of the assets of any Person (or of any division
thereof) except
(a) any such Subsidiary may liquidate or dissolve
voluntarily into, and may merge with and into, the
Borrower or any other Subsidiary, and the assets or
stock of any Subsidiary may be purchased or otherwise
acquired by the Borrower or any other Subsidiary; and
(b) so long as no Default (by reason of the
violation of Section 8.2.4) has occurred and is
-------------
continuing or would occur after giving effect thereto,
the Borrower or any of its Subsidiaries may purchase
all or substantially all of the assets of any Person,
or (in the case of any such Subsidiary) acquire such
person by merger; and
(c) provided that no Default has occurred and is
continuing or would occur after giving effect thereto
(including, without limitation, a Change in Control),
the Borrower may consolidate with or merge into any
other Person, or convey, transfer or lease its
properties and assets substantially as an entirety to
any person, or permit any Person to merge into or
consolidate with the Borrower if the Borrower is the
surviving corporation or the surviving corporation or
purchaser or lessee is a corporation incorporated under
the laws of the United States of America or Canada and
assumes the Obligations; provided, however, that no
-------- -------
Default or Event of Default shall have occurred after
giving effect thereto.
SECTION 8.2.7. Asset Dispositions. The Borrower will
------------------
not, and will not permit any of its Subsidiaries to, sell,
transfer, lease, contribute or otherwise convey, or grant
options, warrants or other rights with respect to, all or any
substantial part of its assets (including accounts receivable and
capital stock of Subsidiaries) to any Person, unless
(a) such sale, transfer, lease, contribution or
conveyance is in the ordinary course of its business;
or
(b) the net book value of such assets, together
with the net book value of all other assets sold,
transferred, leased, contributed or conveyed otherwise
than in the ordinary course of business by the Borrower
or any of its Subsidiaries pursuant to this
Section 8.2.7(b) during the most recent 12-month period
----------------
since the Effective Date, does not exceed 10% of Net
Tangible Assets computed as of the end of the most
recent quarter preceding such sale; provided, however,
-------- -------
that any such sales shall be disregarded for purposes
of the 10% limitation of this Section 8.2.7(b) if the
----------------
proceeds are invested in assets in similar or related
lines of business of the Borrower, and provided
--------
further, that the Borrower may sell or otherwise
-------
dispose of assets in excess of such 10% if the proceeds
from such sales or dispositions, which are not so
reinvested, are retained by the Borrower as cash or
Cash Equivalent Investments.
SECTION 8.2.8. Transactions with Affiliates. The
----------------------------
Borrower will not enter into, or cause, suffer or permit to exist
any arrangement or contract with any of its Affiliates unless
such arrangement or contract is fair and equitable to the
Borrower and is an arrangement or contract of the kind which
would be entered into by a prudent Person in the position of the
Borrower with a Person which is not one of its Affiliates.
SECTION 8.2.9. Restrictive Agreements. The Borrower
----------------------
will not, and will not permit any of its Subsidiaries to, enter
into any agreement (excluding this Agreement, any other Loan
Document and any agreement governing any Indebtedness permitted
by clause (b) of Section 8.2.1 as to the assets financed with the
---------- -------------
proceeds of such Indebtedness) prohibiting
(a) the ability of the Borrower to amend or
otherwise modify this Agreement or any other Loan
Document; or
(b) the ability of any Subsidiary to make any
payments, directly or indirectly, to the Borrower by
way of dividends, advances, repayments of loans or
advances, reimbursements of management and other
intercompany charges, expenses and accruals or other
returns on investments, or any other agreement or
arrangement which restricts the ability of any such
Subsidiary to make any payment, directly or indirectly,
to the Borrower where such prohibition or restriction
has a Material Adverse Effect.
SECTION 8.3. ERISA. The Borrower will not engage in
-----
any prohibited transactions under Section 406 of ERISA or under
Section 4975 of the Internal Revenue Code, which would subject
the Borrower to any tax, penalty or other liabilities having a
Material Adverse Effect.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.1. Listing of Events of Default. Each of
----------------------------
the following events or occurrences described in this Section 9.1
-----------
shall constitute an "Event of Default".
----------------
SECTION 9.1.1. Non-Payment of Obligations. The
--------------------------
Borrower shall default in the payment or mandatory prepayment
when due of any principal of or interest on any Loan or L/C
Obligation, or Borrower shall fail to Cash Collateralize L/C
Obligations when required to do so or the Borrower shall default
(and such default shall continue unremedied for a period of five
days after demand) in the payment when due of any facility fee or
of any other Obligation.
SECTION 9.1.2. Breach of Warranty. Any representation
------------------
or warranty of the Borrower made or deemed to be restated or
remade hereunder or in any other Loan Document or any other
writing or certificate furnished by or on behalf of the Borrower
to the Agent or any Lender for the purposes of or in connection
with this Agreement or any such other Loan Document (including
any certificates delivered pursuant to Article VI) is or shall be
----------
incorrect when made or deemed made in any material respect.
SECTION 9.1.3. Non-Performance of Certain Covenants and
----------------------------------------
Obligations. The Borrower shall default in the due performance
- -----------
and observance of any of its obligations under Section 8.2 (other
than Sections 8.2.4 and 8.2.8). -----------
-------------- -----
SECTION 9.1.4. Non-Performance of Other Covenants and
--------------------------------------
Obligations. The Borrower shall default in the due performance
- -----------
and observance of any other covenant or agreement contained
herein or in any other Loan Document, and such default shall
continue unremedied for a period of 30 days after written notice
thereof shall have been given to the Borrower by the Agent.
SECTION 9.1.5. Default on Other Indebtedness. A
-----------------------------
default shall occur in the payment when due (subject to any
applicable grace period), whether by acceleration or otherwise,
of any Indebtedness (other than (x) Indebtedness described in
----------
Section 9.1.1 or (y) Non-Recourse Debt inclusive of Indebtedness
- ------------- ---------
pertaining to the equity financing facility associated at any
time, now or hereafter, with the 1,000 megawatt brown coal fired
power station located approximately 100 miles southwest of
Melbourne, Australia, in which the Borrower owns an indirect
interest, known as the Loy Yang B Project but only so long as (i)
the existing support arrangements from Edison International
referred to as the Loy Yang B Support Arrangements remain in full
force and effect or (ii) Edison International, in the reasonable
discretion and judgment of the Agent, has a fully enforceable
commitment and unconditional agreement to make equity
contributions to Borrower sufficient to reimburse all drawings
under the equity financing facility supporting the Loy Yang B
Project) of the Borrower having a principal amount, individually
or in the aggregate, in excess of $20,000,000, or a default shall
occur in the performance or observance of any obligation or
condition with respect to such Indebtedness if the effect of such
default is to accelerate the maturity of any such Indebtedness or
such default shall continue unremedied for any applicable period
of time sufficient to permit the holder or holders of such
Indebtedness, or any trustee or agent for such holders, to cause
such Indebtedness to become due and payable prior to its
expressed maturity.
SECTION 9.1.6. Judgments. Any judgment or order for
---------
the payment of money in excess of $20,000,000 (taking into
account any insurance proceeds payable under a policy where the
insurer has accepted coverage without reservation) shall be
rendered against the Borrower and either
(a) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order;
or
(b) there shall be any period of fifteen (15)
consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect.
SECTION 9.1.7. Pension Plans. Any of the following
-------------
events shall occur with respect to any Pension Plan:
(a) the institution of any steps by the Borrower,
any member of its Controlled Group or any other Person
to terminate a Pension Plan if, as a result of such
termination, the Borrower or any such member could be
required to make a contribution to such Pension Plan,
or could reasonably expect to incur a liability or
obligation to such Pension Plan, in excess of
$20,000,000; or
(b) a contribution failure occurs with respect to
any Pension Plan sufficient to give rise to a Lien
under section 302(f) of ERISA.
SECTION 9.1.8. Control of the Borrower. Any Change in
-----------------------
Control shall occur.
SECTION 9.1.9. Bankruptcy, Insolvency. The Borrower
----------------------
shall
(a) become insolvent or generally fail to pay, or
admit in writing its inability or unwillingness to pay,
debts as they become due;
(b) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or
other custodian for the Borrower or a substantial
portion of its property, or make a general assignment
for the benefit of creditors;
(c) in the absence of such application, consent
or acquiescence, permit or suffer to exist the
appointment of a trustee, receiver, sequestrator or
other custodian for the Borrower or for a substantial
part of its property, and such trustee, receiver,
sequestrator or other custodian shall not be discharged
within 60 days, provided that nothing in this Agreement
--------
or the Loan Documents shall prohibit or restrict any
right the Agent or any Lender may have under applicable
law to appear in any court conducting any relevant
proceeding during such 60-day period to preserve,
protect and defend its rights under the Loan Documents
(and the Borrower shall not object to any such
appearance);
(d) permit or suffer to exist the commencement of
any bankruptcy, reorganization, debt arrangement or
other case or proceeding under any bankruptcy or
insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of the Borrower,
and, if any such case or proceeding is not commenced by
the Borrower, such case or proceeding shall be
consented to or acquiesced in by the Borrower or shall
result in the entry of an order for relief or shall
remain for 60 days undismissed, provided that nothing
--------
in this Agreement or the Loan Documents shall prohibit
or restrict any right the Agent or any Lender may have
under applicable law to appear in any court conducting
any such case or proceeding during such 60-day period
to preserve, protect and defend its rights under the
Loan Documents (and the Borrower shall not object to
any such appearance); or
(e) take any corporate action authorizing, or in
furtherance of, any of the foregoing.
SECTION 9.2. Action if Bankruptcy. If any Event of
--------------------
Default described in clauses (a) through (d) of Section 9.1.9
----------- --- -------------
shall occur with respect to the Borrower, the Revolving Loan
Commitments (if not theretofore terminated) shall automatically
terminate and the outstanding principal amount of all outstanding
Loans, all other Obligations shall automatically be and become
immediately due and payable, without notice or demand, and the
Borrower shall immediately, without notice or demand, Cash
Collateralize the L/C Obligations.
SECTION 9.3. Action if Other Event of Default. If
--------------------------------
any Event of Default (other than any Event of Default described
in clauses (a) through (d) of Section 9.1.9) shall occur for any
----------- --- -------------
reason, whether voluntary or involuntary, and be continuing, the
Agent, upon the direction of the Required Lenders, shall by
written notice to the Borrower declare all or any portion of the
outstanding principal amount of the Loans, the L/C Obligations
and other Obligations to be due and payable and/or the
Commitments (if not theretofore terminated) to be terminated,
whereupon the full unpaid amount of such Loans and other
Obligations which shall be so declared due and payable shall be
and become immediately due and payable, without further notice,
demand or presentment, and/or, as the case may be, the
Commitments shall terminate and the Borrower shall Cash
Collateralize the L/C Obligations. The rights provided for in
this Agreement and the other Loan Documents are cumulative and
are not exclusive of any other rights, powers, privileges or
remedies provided by law or in equity, or under any other
instrument, document or agreement now existing or hereafter
arising.
SECTION 9.4. Rescission of Declaration. Any
-------------------------
declaration made pursuant to Section 9.3 may, should the Required
-----------
Lenders in their sole and absolute discretion so elect, be
rescinded by written notice to the Borrower at any time after the
principal of the Loans and the Notes shall have become due and
payable, but before any judgment or decree for the payment of the
monies so due, or any part thereof, shall have been entered;
provided that the Borrower shall have paid all arrears of
- --------
interest upon the Loans and the Notes and all other amounts then
owed to the Agent and the Lenders including all costs, expenses
and liabilities incurred by the Agent and the Lenders in respect
of such declaration and all consequences thereof (except that
principal of the Loans and the Notes which by such declaration
shall have become payable) and every other Event of Default shall
have been made good, waived or cured; provided that no such
--------
rescission or annulment shall extend to or affect any subsequent
Event of Default or impair any right consequent thereon.
ARTICLE X
THE AGENT
SECTION 10.1. Actions. (a) Each Lender hereby
-------
appoints BofA as its Agent under and for purposes of this
Agreement, the Notes and each other Loan Document. Each Lender
authorizes the Agent to act on behalf of such Lender under this
Agreement, the Notes and each other Loan Document and, in the
absence of other written instructions from the Required Lenders
received from time to time by the Agent (with respect to which
the Agent agrees that it will comply, except as otherwise
provided in this Section or as otherwise advised by counsel), to
exercise such powers hereunder and thereunder as are specifically
delegated to or required of the Agent by the terms hereof and
thereof, together with such powers as may be reasonably
incidental thereto. Notwithstanding any provision to the
contrary contained elsewhere in this Agreement or in any other
Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor
shall the Agent have or be deemed to have any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be
read into this Agreement or any other Loan Document or otherwise
exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement
with reference to the Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term is
used merely as a matter of market custom, and is intended to
create or reflect only an administrative relationship between
independent contracting parties.
(b) Each Lender hereby indemnifies (which
indemnity shall survive any termination of this Agreement) the
Agent-Related Persons pro rata according to such Lender's
--- ----
Percentage, from and against any and all liabilities,
obligations, losses, damages, claims, costs or expenses of any
kind or nature whatsoever which may at any time be imposed on,
incurred by, or asserted against, the Agent-Related Persons in
any way relating to or arising out of this Agreement, the Notes
and any other Loan Document, including reasonable attorneys'
fees, and as to which the Agent is not reimbursed by the
Borrower; provided, however, that no Lender shall be liable for
-------- -------
the payment of any portion of such liabilities, obligations,
losses, damages, claims, costs or expenses which are determined
by a court of competent jurisdiction in a final proceeding to
have resulted from the Agent-Related Person's gross negligence or
wilful misconduct. No Agent-Related Persons shall be required to
take any action hereunder, under the Notes or under any other
Loan Document, or to prosecute or defend any suit in respect of
this Agreement, the Notes or any other Loan Document, unless it
is indemnified hereunder to its satisfaction. If any indemnity
in favor of the Agent shall be or become, in its determination,
inadequate, the Agent-Related Person may call for additional
indemnification from the Lenders and cease to do the acts
indemnified against hereunder until such additional indemnity is
given. The Co-Agents shall have no rights, duties or obligations
under this Agreement in their capacities as Co-Agents.
(c) The Issuing Bank shall act on behalf of the
Lenders with respect to any Letters of Credit Issued by it and
the documents associated therewith until such time and except for
so long as the Agent may agree at the request of the Required
Lenders to act for such Issuing Bank with respect thereto;
provided, however, that the Issuing Bank shall have all of the
- -------- -------
benefits and immunities (i) provided to the Agent in this
Article X with respect to any acts taken or omissions suffered by
- ---------
the Issuing Bank in connection with Letters of Credit Issued by
it or proposed to be Issued by it and the L/C Related Documents
as fully as if the term "Agent", as used in this Article X,
---------
included the Issuing Bank with respect to such acts or omissions,
and (ii) as additionally provided in this Agreement with respect
to the Issuing Bank.
SECTION 10.2. Funding Reliance. Unless the Agent
----------------
shall have been notified by telephone, confirmed in writing, by
any Lender by 8:30 a.m., San Francisco time, on the day prior to
a Borrowing that such Lender will not make available the amount
which would constitute its Percentage of such Borrowing on the
date specified therefor, the Agent may assume that such Lender
has made such amount available to the Agent and, in reliance upon
such assumption, may, but shall not be required to, make
available to the Borrower a corresponding amount. If and to the
extent that such Lender shall not have made such amount available
to the Agent, such Lender and the Borrower severally agree to
repay the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date the
Agent made such amount available to the Borrower to the date such
amount is repaid to the Agent, at the interest rate applicable at
the time to Loans comprising such Borrowing; provided, that if
--------
such Lender makes available the amount which is its Percentage of
such Borrowing on or before the next Business Day following the
day when due, the interest rate payable on such amount shall be
the Federal Funds Rate.
SECTION 10.3. Exculpation. No Agent-Related Person
-----------
shall be liable to any Lender for any action taken or omitted to
be taken by it under this Agreement or any other Loan Document,
or in connection herewith or therewith, except for its own wilful
misconduct or gross negligence, nor responsible for any recitals
or warranties herein or therein, nor for the effectiveness,
enforceability, validity or due execution of this Agreement or
any other Loan Document, nor to make any inquiry respecting the
performance by the Borrower of its obligations hereunder or under
any other Loan Document. Any such inquiry which may be made by
the Agent shall not obligate it to make any further inquiry or to
take any action. Each Agent-Related Person shall be entitled to
rely upon advice of counsel concerning legal matters and upon any
notice, consent, certificate, statement or writing which the
Agent believes to be genuine and to have been presented by a
proper Person.
SECTION 10.4. Successor. The Agent may resign as such
---------
at any time upon at least 30 days' prior notice to the Borrower
and all Lenders. If the Agent at any time shall resign, the
Required Lenders may, within ten (10) days after such notice and
with the consent of the Borrower (not to be unreasonably
withheld), appoint another Lender as a successor Agent which
shall thereupon become the Agent hereunder. If no successor
Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the
retiring Agent's giving notice of resignation, then the retiring
Agent may, on behalf of the Lenders, after notice to and
consultation with the Borrower, appoint a successor Agent, which
shall be one of the Lenders or an Eligible Assignee, and shall
have a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall be entitled to
receive from the retiring Agent such documents of transfer and
assignment as such successor Agent may reasonably request, and
shall thereupon succeed to and become vested with all rights,
powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and
obligations under this Agreement. After the effective date of
any retiring Agent's resignation hereunder as the Agent, the
provisions of (a) this Article X shall inure to its benefit as
---------
to any actions taken or omitted to be taken by it while it was
the Agent under this Agreement; and (b) Section 11.3 and Section
------------ -------
11.4 shall continue to inure to its benefit.
- ----
SECTION 10.5. Loans by BofA. BofA shall have the same
-------------
rights and powers with respect to (x) the Loans made by it or any
of its Affiliates, and (y) the Notes held by it or any of its
Affiliates as any other Lender and may exercise the same as if it
were not the Agent. BofA and its Affiliates may accept deposits
from, lend money to, and generally engage in any kind of business
with the Borrower or any Subsidiary or Affiliate of the Borrower
as if BofA were not the Agent hereunder.
SECTION 10.6. Reliance by Agent. (a) The Agent shall
-----------------
be entitled to rely, and shall be fully protected in relying,
upon any writing, resolution, notice, consent, certificate,
affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or
made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to the Company),
independent accountants and other experts selected by the Agent.
The Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Loan Document unless
it shall first receive such advice or concurrence of the Required
Lenders as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of the Required
Lenders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with
the conditions specified in Section 6.1, each Lender that has
executed this Agreement shall be deemed to have consented to,
approved or accepted or to be satisfied with, each document or
other matter either sent by the Agent to such Lender for consent,
approval, acceptance or satisfaction, or required thereunder to
be consented to or approved by or acceptable or satisfactory to
the Lender.
SECTION 10.7. Notice of Default. The Agent shall not
-----------------
be deemed to have knowledge or notice of the occurrence of any
Default or Event of Default, except with respect to defaults in
the payment of principal, interest and fees required to be paid
to the Agent for the account of the Lenders, unless the Agent
shall have received written notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default".
The Agent will notify the Lenders of its receipt of any such
notice. The Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Required
Lenders in accordance with Article IX; provided, however, that
-------- -------
unless and until the Agent has received any such request, the
Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best
interest of the Lenders.
SECTION 10.8. Credit Decisions. Each Lender
----------------
acknowledges that it has, independently of the Agent-Related
Person and each other Lender, and based on such Lender's review
of the financial information of the Borrower, this Agreement, the
other Loan Documents (the terms and provisions of which being
satisfactory to such Lender) and such other documents,
information and investigations as such Lender has deemed
appropriate, made its own credit decision to extend its
Commitments. Each Lender also acknowledges that it will,
independently of the Agent and each other Lender, and based on
such other documents, information and investigations as it shall
deem appropriate at any time, continue to make its own credit
decisions as to exercising or not exercising from time to time
any rights and privileges available to it under this Agreement or
any other Loan Document.
SECTION 10.9. Copies. The Agent shall give prompt
------
notice to each Lender of each notice or request required or
permitted to be given to the Agent by the Borrower pursuant to
the terms of this Agreement (unless concurrently delivered to the
Lenders by the Borrower). The Agent will distribute to each
Lender each document or instrument received for its account and
copies of all other communications received by the Agent from the
Borrower for distribution to the Lenders by the Agent in
accordance with the terms of this Agreement.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.1. Waivers, Amendments. The provisions of
-------------------
this Agreement and of each other Loan Document may from time to
time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the
Borrower and the Required Lenders; provided, however, that no
-------- -------
such amendment, modification or waiver which would:
(a) modify any requirement hereunder that any
particular action, including, without limitation, any
amendment of Schedule 2.9, be taken by all the Lenders
------------
or by the Required Lenders shall be effective unless
consented to by each Lender;
(b) modify this Section 11.1, change the
------------
definition of "Required Lenders", increase any
----------------
Revolving Loan Commitment Amount or the Percentage of
any Lender, reduce or change the date for payment of
any fees described in Article III (other than the fees
-----------
described in Section 3.3.2), or extend any Revolving
-------------
Loan Commitment Termination Date shall be made without
the consent of each Lender and each holder of a Note;
(c) extend the due date for, or reduce the amount
of, any scheduled repayment or prepayment of principal
of or interest on any Loan (or reduce the principal
amount of or rate of interest on any Loan) shall be
made without the consent of the holder of that Note
evidencing such Loan; or
(d) affect the interests, rights or obligations
of the Agent qua the Agent or the Issuing Bank qua the
--- ---
Issuing Bank shall be made without consent of the Agent
or the Issuing Bank, respectively.
No failure or delay on the part of the Agent, any Lender or the
holder of any Note in exercising any power or right under this
Agreement or any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power or right preclude any other or further exercise thereof or
the exercise of any other power or right. No notice to or demand
on the Borrower in any case shall entitle it to any notice or
demand in similar or other circumstances. No waiver or approval
by the Agent, any Lender or the holder of any Note under this
Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.
SECTION 11.2. Notices. All notices and other
-------
communications provided to any party hereto under this Agreement
or any other Loan Document shall be in writing or by facsimile
and addressed, delivered or transmitted to such party at its
address or facsimile number set forth on Schedule 11.2 or set
forth in the Lender Assignment Agreement or at such other address
or facsimile number as may be designated by such party in a
written notice to the other parties. Any notice, if mailed and
properly addressed with postage prepaid shall be effective five
Business Days after being sent or if properly addressed and sent
by pre-paid courier service, shall be deemed given when received;
any notice, if transmitted by facsimile, shall be deemed given
when transmitted (if confirmed).
SECTION 11.3. Payment of Costs and Expenses. The
-----------------------------
Borrower agrees to pay promptly on demand all reasonable expenses
of the Arranger and the Agent (including in its capacity as
Issuing Bank, and including the reasonable fees and out-of-pocket
expenses of counsel to the Agent, including the allocated cost of
inhouse counsel and staff, and of local counsel, if any, who may
be retained by counsel to the Agent) in connection with
(a) the negotiation, preparation, execution and
delivery of this Agreement and of each other Loan
Document, including schedules and exhibits, and any
amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan
Document as may from time to time hereafter be
required, whether or not the transactions contemplated
hereby are consummated, and
(b) the preparation and review of the form of any
document or instrument relevant to this Agreement or
any other Loan Document; provided, however, that the
-------- -------
Borrower shall have no obligation to pay for the cost
of the documentation of transfers or participations as
provided in Section 11.11.
-------------
The Borrower further agrees to pay upon demand, and to save the
Agent, the Issuing Bank and the Lenders harmless from all
liability for, any stamp or other taxes which may be payable in
connection with the execution or delivery of this Agreement, the
borrowings hereunder, or the issuance of the Notes or any other
Loan Documents. The Borrower also agrees to reimburse the Agent,
the Issuing Bank and each Lender, as applicable, promptly upon
demand for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses, including non-duplicative
allocated costs of in-house counsel) incurred by (x) the Agent,
the Issuing Bank in connection with the negotiation of any
restructuring or "work-out", whether or not consummated, of any
Obligations and (y) by the Agent, the Issuing Bank and each
Lender in connection with the enforcement of any Obligations
after an Event of Default.
SECTION 11.4. Indemnification. In consideration of
---------------
the execution and delivery of this Agreement by each Lender and
the extension of the Commitments, the Borrower hereby
indemnifies, exonerates and holds the Agent, the Issuing Bank and
each Lender and each of their respective officers, directors,
employees and agents (collectively, the "Indemnified Parties")
-------------------
free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and
expenses incurred in connection therewith (irrespective of
whether any such Indemnified Party is a party to the action for
which indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements (collectively, the "Indemnified
-----------
Liabilities"), incurred by the Indemnified Parties or any of them
- -----------
as a result of, or arising out of, or relating to
(a) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the
proceeds of any Loan;
(b) the entering into and performance of this
Agreement and any other Loan Document by any of the
Indemnified Parties (including any action brought by or
on behalf of the Borrower as the result of any
determination by the Required Lenders pursuant to
Article VI not to fund any Borrowing);
----------
(c) any investigation, litigation or proceeding
related to any environmental cleanup, audit, compliance
or other matter relating to the protection of the
environment or the Release by the Borrower or any of
its Subsidiaries of any Hazardous Material, where such
claim or liability arises out of the relationship of
the parties under this Agreement; or
(d) the presence on or under, or the escape,
seepage, leakage, spillage, discharge, emission,
discharging or releases from, any real property owned
or operated by the Borrower or any Subsidiary thereof
of any Hazardous Material (including any losses,
liabilities, damages, injuries, costs, expenses or
claims asserted or arising under any Environmental
Law), regardless of whether caused by, or within the
control of, the Borrower or such Subsidiary, where such
claim or liability arises out of the relationship of
the parties under this Agreement;
except for any such Indemnified Liabilities arising for the
account of a particular Indemnified Party by reason of the
relevant Indemnified Party's (i) gross negligence or wilful
misconduct or (ii) in the case of Indemnified Liabilities
described in Section 11.4(c) and 11.4(d), to the extent of any
--------------- -------
non-compliance with Environmental Laws. If and to the extent
that the foregoing undertaking may be unenforceable for any
reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable
law.
SECTION 11.5. Survival. The obligations of the
--------
Borrower under Sections 4.3, 4.5, 4.6, 4.7, 11.3 and 11.4, and
------------ --- --- --- ---- ----
the obligations of the Lenders under Section 10.1, shall in each
------------
case survive any termination of this Agreement, the payment in
full of all Obligations and the termination of all Commitments.
The representations and warranties made by the Borrower in this
Agreement and in each other Loan Document shall survive the
execution and delivery of this Agreement and each such other Loan
Document.
SECTION 11.6. Severability. Any provision of this
------------
Agreement or any other Loan Document which is prohibited or
unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or such Loan Document or
affecting the validity or enforceability of such provision in any
other jurisdiction.
SECTION 11.7. Headings. The various headings of this
--------
Agreement and of each other Loan Document are inserted for
convenience only and shall not affect the meaning or
interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 11.8. Execution in Counterparts,
-------------------------
Effectiveness. This Agreement may be executed by the parties
- -------------
hereto in several counterparts, each of which shall be executed
by the Borrower and the Agent and be deemed to be an original and
all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when
counterparts hereof executed on behalf of the Borrower and each
Lender (or notice thereof satisfactory to the Agent) shall have
been received by the Agent and notice thereof shall have been
given by the Agent to the Borrower and each Lender.
SECTION 11.9. Governing Law; Entire Agreement. THIS
-------------------------------
AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF
THE STATE OF CALIFORNIA. This Agreement, the Notes and the other
Loan Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and
supersede any prior agreements, written or oral, with respect
thereto.
SECTION 11.10. Successors and Assigns. This Agreement
----------------------
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns;
provided, however, that:
- -------- -------
(a) the Borrower may not assign or transfer its
rights or obligations hereunder without the prior
written consent of the Agent and all Lenders; and
(b) the rights of sale, assignment and transfer
of the Lenders are subject to Section 11.11.
-------------
SECTION 11.11. Sale and Transfer of Loans and Notes;
------------------------------------
Participations in Loans and Notes. Each Lender may assign, or
- ---------------------------------
sell participations in, its Loans and Commitments to one or more
other Persons in accordance with this Section 11.11.
-------------
SECTION 11.11.1. Assignments. Any Lender,
-----------
(a) with the written consents of the Borrower and
the Agent (which consents shall not be unreasonably
delayed or withheld), and with the written consent of
the Issuing Bank, may at any time assign and delegate
to one or more Eligible Assignees, and
(b) with the written consent of the Issuing Bank
and with notice to the Borrower and the Agent, but
without the consent of the Borrower or the Agent, may
assign and delegate to any of its Affiliates or to any
other Lender
(each Person described in either of the foregoing clauses as
being the Person to whom such assignment and delegation is to be
made, being hereinafter referred to as an "Assignee Lender"), all
---------------
or any fraction of such Lender's total Committed Loans and
Commitments (which assignment and delegation shall be of a
constant, and not a varying, percentage of all the assigning
Lender's Committed Loans and Commitments) in a minimum aggregate
amount of $10,000,000; provided, however, that any such Assignee
-------- -------
Lender will comply, if applicable, with the provisions contained
in the penultimate sentence of Section 4.7 and further, provided,
----------- ------- --------
however, that, the Borrower and the Agent shall be entitled to
- -------
continue to deal solely and directly with such Lender in
connection with the interests so assigned and delegated to an
Assignee Lender until
(c) written notice of such assignment and
delegation, together with payment instructions,
addresses and related information with respect to such
Assignee Lender, shall have been given to the Borrower
and the Agent by such Lender and such Assignee Lender,
(d) such Assignee Lender shall have executed and
delivered to the Borrower and the Agent a Lender
Assignment Agreement, accepted by the Agent, and
(e) the processing fees described below shall
have been paid.
From and after the date that the Agent accepts such Lender
Assignment Agreement, (x) the Assignee Lender thereunder shall be
deemed automatically to have become a party hereto and to the
extent that rights and obligations hereunder have been assigned
and delegated to such Assignee Lender in connection with such
Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan
Documents, and (y) the assignor Lender, to the extent that rights
and obligations hereunder have been assigned and delegated by it
in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan
Documents. Within five Business Days after its receipt of notice
that the Agent has received an executed Lender Assignment
Agreement, the Borrower shall execute and deliver to the Agent
(for delivery to the relevant Assignee Lender) new Notes
evidencing such Assignee Lender's assigned Loans and Commitments
and, if the assignor Lender has retained Loans and Commitments
hereunder, replacement Notes in the principal amount of the Loans
and Commitments retained by the assignor Lender hereunder (such
Notes to be in exchange for, but not in payment of, those Notes
then held by such assignor Lender). Each such Note shall be
dated the date of the predecessor Notes. The assignor Lender
shall mark the predecessor Notes "exchanged" and deliver them to
the Borrower. Accrued interest on that part of the predecessor
Notes evidenced by the new Notes, and accrued fees, shall be paid
as provided in the Lender Assignment Agreement. Accrued interest
on that part of the predecessor Notes evidenced by the
replacement Notes shall be paid to the assignor Lender. Accrued
interest and accrued fees shall be paid at the same time or times
provided in the predecessor Notes and in this Agreement. Such
assignor Lender or such Assignee Lender must also pay a
processing fee to the Agent upon delivery of any Lender
Assignment Agreement in the amount of $2,500. Any attempted
assignment and delegation not made in accordance with this
Section 11.11.1 shall be null and void. Notwithstanding any
- ---------------
other provision of this Agreement, nothing contained in this
Agreement shall prevent any Lender from pledging or assigning its
interest in any Note to the Federal Reserve Bank in accordance
with applicable law; provided, however, that no such pledge or
-------- -------
assignment shall affect the nature of the Borrower's obligations
under this Agreement or such Note.
SECTION 11.11.2. Participations. Any Lender may at
--------------
any time sell to one or more commercial banks or other Persons
(each of such commercial banks and other Persons being herein
called a "Participant") participating interests in any of the
-----------
Loans, Commitments, or other interests of such Lender hereunder;
provided, however, that
- -------- -------
(a) no participation contemplated in this
Section 11.11.2 shall relieve such Lender from its
---------------
Commitments or its other obligations hereunder or under
any other Loan Document,
(b) such Lender shall remain solely responsible
for the performance of its Commitments and such other
obligations,
(c) the Borrower and the Agent shall continue to
deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this
Agreement and each of the other Loan Documents,
(d) no Participant, unless such Participant is an
Affiliate of such Lender, or is itself a Lender, shall
be entitled to require such Lender to take or refrain
from taking any action hereunder or under any other
Loan Document, except that such Lender may agree with
any Participant that such Lender will not, without such
Participant's consent, take any actions of the type
described in clause (b) or (c) of Section 11.1, and
---------- --- ------------
(e) the Borrower shall not be required to pay any
amount under Sections 4.3, 4.4, 4.5, 4.6, 4.7, 4.8,
------------ --- --- --- --- ---
4.9, 11.3 and 11.4, that is greater than the amount
--- ---- ----
which it would have been required to pay had no
participating interest been sold.
SECTION 11.12. Other Transactions. Nothing contained
------------------
herein shall preclude the Agent or any other Lender from engaging
in any transaction, in addition to those contemplated by this
Agreement or any other Loan Document, with the Borrower or any of
its Affiliates in which the Borrower or such Affiliate is not
restricted hereby from engaging with any other Person.
SECTION 11.13. Forum Selection and Consent to
------------------------------
Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
- ------------
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE ISSUING
BANK, THE LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF CALIFORNIA OR IN THE
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF
CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
-------- -------
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES
DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR
BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA.
THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE
OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT
OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 11.14. Waiver of Jury Trial. THE AGENT, THE
--------------------
ISSUING BANK, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE
AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES
AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION 11.15. Non-Recourse Persons. The Lenders
--------------------
acknowledge that no Non-Recourse Person shall have any
responsibility or liability for the Obligations.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the day and year first above written.
EDISON MISSION ENERGY
By: Kevin M. Smith
----------------
Title: V.P. and Treasurer
-------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Agent
By: David Price
-------------
Title: Vice President
----------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing
Bank
By: Robert Eaton
--------------
Title: Vice President
----------------
LENDERS
-------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Lender
By: Robert Eaton
--------------
Title: Vice President
----------------
BANK OF MONTREAL
By: Warren R. Wimmer
------------------
Title: Director
----------
THE BANK OF NOVA SCOTIA
By: John A. Quick
---------------
Title: Officer
---------
THE CHASE MANHATTAN BANK
By: Thomas L. Casey
-----------------
Title: Vice President
----------------
CITICORP USA, INC.
By: James J. Sheridan
-------------------
Title:
----------------
CREDIT LYONNAIS, NEW YORK BRANCH
By: Richard Garcia
----------------
Title: Senior Vice President
-----------------------
INTENTIONALLY LEFT BLANK
CREDIT SUISSE
By: Mark A. Sampson
-----------------
Title: Associate
-----------
By: Marilou Palenzuela
--------------------
Title: Member of Senior Management
-----------------------------
WELLS FARGO BANK, N.A.
By: Daniel H. Hom
---------------
Title: Vice President
----------------
THE FUJI BANK, LIMITED, LOS ANGELES
AGENCY
By: Nobuhiro Umemura
------------------
Title: Joint General Manager
---------------------
THE INDUSTRIAL BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY
By: H. W. Jack
------------
Title: Senior Deputy General Manager
-------------------------------
KREDIETBANK N.V.
By: Robert Snauffer
-----------------
Title: Vice President
----------------
By: Thomas R. Lalli
-----------------
Title: Vice President
----------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: Motokazu Uematsu
------------------
Title: Deputy General Manager
------------------------
THE SANWA BANK, LIMITED,
LOS ANGELES BRANCH
By: Virginia Hart
---------------
Title: Vice President
----------------
SOCIETE GENERALE, LOS ANGELES BRANCH
By: George Chen
-------------
Title: Vice President
----------------
THE SUMITOMO BANK, LIMITED,
LOS ANGELES BRANCH
By: Goro Hirai
------------
Title: Joint General Manager
-----------------------
SWISS BANK CORPORATION
By: Thomas R. Salzano
-------------------
Title: Associate Director
Banking Finance Support, N.A.
-----------------------------
By: Teresa A. Portola
-------------------
Title: Associate Director
--------------------
NATIONSBANK OF TEXAS, N.A.
By: Curtis L. Anderson
--------------------
Title: Senior Vice President
-----------------------
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By: Andrew M. Merrill
-------------------
Title: Vice President
----------------
By: David F. Mikula
-----------------
Title: Vice President
----------------
<TABLE>
SCHEDULE 2.1
REVOLVING LOAN COMMITMENTS
--------------------------
<CAPTION>
Revolving
Loan
Lender Commitment Percentage
------ ---------- ----------
<S> <C> <C>
Bank of America National
Trust and Savings Association $ 42,500,000 8.5%
Bank of Montreal 37,500,000 7.5%
Credit Lyonnais, New York Branch 37,500,000 7.5%
The Fuji Bank, Limited,
Los Angeles Agency 37,500,000 7.5%
The Industrial Bank of Japan,
Ltd., Los Angeles Agency 37,500,000 7.5%
The Long-Term Credit Bank of
Japan, Ltd., Los Angeles Agency 37,500,000 7.5%
Societe Generale, Los Angeles
Branch 37,500,000 7.5%
Swiss Bank Corporation 37,500,000 7.5%
NationsBank of Texas, N.A. 37,500,000 7.5%
The Bank of Nova Scotia 17,500,000 3.5%
The Chase Manhattan Bank 17,500,000 3.5%
Citicorp USA, Inc. 17,500,000 3.5%
Credit Suisse 17,500,000 3.5%
Wells Fargo Bank, N.A. 17,500,000 3.5%
Kredietbank N.V. 17,500,000 3.5%
The Sanwa Bank, Limited,
Los Angeles Branch 17,500,000 3.5%
The Sumitomo Bank, Limited,
Los Angeles Branch 17,500,000 3.5%
Union Bank of Switzerland,
New York Branch 17,500,000 3.5%
------------ ----
Total $500,000,000 100.0%
============ ======
</TABLE>
SCHEDULE 2.9
AGREED ALTERNATIVE CURRENCIES
-----------------------------
Notice of Borrowing or
Notice of Continuation/
Interest Rate to
Currency Conversion to be delivered by1 be Set as of2
- -------- --------------------------------- ----------------
- --------------
1 Unless otherwise indicated, all times are Los Angeles time
five Business Days prior to requested borrowing or conversion/continuation.
2 Unless otherwise indicated, all times are London time three
Business Days prior to requested borrowing or conversion/continuation.
SCHEDULE 11.2
ADDRESSES FOR NOTICES AND LENDING OFFICES
-----------------------------------------
BORROWER
- --------
EDISON MISSION ENERGY
18101 Von Karman Avenue
Suite 1700
Irvine, CA 92715-1007
Attention: Kevin M. Smith
Treasurer
Telephone: (714) 752-5588, Ext. 2116
Facsimile: (714) 752-5624
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- -----------------------
as Agent
Notices of Borrowing, Notices of Conversion/
Continuation, copies of L/C Applications:
Agency Administrative Services #5596
1455 Market Street, 13th Floor
San Francisco, CA 94103
Attention: Jon Kubukawa
Agency Officer
Telephone: (415) 436-4016
Facsimile: (415) 436-2700
Other Notices:
Bank of America National Trust
and Savings Association
Agency Management #10831
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attention: David Price
Vice President
Telephone: (415) 436-3496
Facsimile: (415) 436-3425
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- -----------------------
as Issuing Bank
Bank of America National Trust
and Savings Association
International Trade Banking Division #5655
33 South Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Telephone: (213) 345-6631
Facsimile: (213) 345-6694
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- -----------------------
as a Bank
Domestic and Offshore Lending Office:
1850 Gateway Boulevard, Fourth Floor
Concord, California 94520
Attention: Anne Stader
Account Administrator
Telephone: (510) 675-7368
Facsimile: (510) 675-7531
Notices (other than Notices of Borrowing and Notices of
Conversion/Continuation):
Bank of America National Trust
and Savings Association
555 Flower Street, 10th Floor
Los Angeles, California 90071
Attention: Robert Eaton
Vice President
Credit Products #3283
Telephone: (213) 228-5599
Facsimile: (213) 228-4062
BANK OF MONTREAL
- ----------------
Domestic and Offshore Lending Office:
601 S. Figueroa Street, Suite 4900
Los Angeles, CA 90017
Attention: Warren Wimmer
Director
Telephone: (213) 239-0633
Facsimile: (213) 239-0680
Notices (other than Notices of Borrowing and Notices of
Conversion/Continuation):
Bank of Montreal
601 S. Figueroa Street, Suite 4900
Los Angeles, CA 90017
Attention: Warren Wimmer
Director
Telephone: (213) 239-0633
Facsimile: (213) 239-0680
THE BANK OF NOVA SCOTIA
- -----------------------
Domestic and Offshore Lending Office:
580 California Street, 48th Floor
San Francisco, CA 94104
Attention: John Quick
Senior Relationship Manager
Telephone: (415) 986-1100
Facsimile: (415) 397-0791
THE CHASE MANHATTAN BANK
- ------------------------
Domestic and Offshore Lending Office:
1 Chase Manhattan Plaza, 3rd Floor
New York, NY 10081
Attention: Tom Casey
Telephone: (212) 552-7518
Facsimile: (212) 552-6276
CITICORP USA, INC.
- ------------------
Domestic and Offshore Lending Office:
399 Park Avenue, 4th Floor, Suite 220
New York, NY 10043
Attention: Sandip Seh
Telephone: (212) 559-1275
Facsimile: (212) 793-6130
CREDIT LYONNAIS, NEW YORK BRANCH
- --------------------------------
Domestic and Offshore Lending Office:
4301 Avenue of the Americas
New York, NY 10019
Attention: Bob Colvin
Telephone: (212) 261-7882
Facsimile: (212) 261-3421
CREDIT SUISSE
- -------------
Domestic and Offshore Lending Office:
633 West Fifth Street, 64th Floor
Los Angeles, CA 90071
Attention: Marc Sampson
Telephone: (213) 955-8284
Facsimile: (213) 955-8245
THE FUJI BANK, LIMITED, LOS ANGELES AGENCY
- ------------------------------------------
Domestic and Offshore Lending Office:
333 South Hope Street, Suite 3900
Los Angeles, CA 90071
Attention: Jonathan Bigelow
Vice President and Manager
Telephone: (213) 253-4144
Facsimile: (213) 253-4198
THE INDUSTRIAL BANK OF JAPAN, LTD.,
- -----------------------------------
LOS ANGELES AGENCY
- --------------------
Domestic and Offshore Lending Office:
350 South Grand Avenue, Suite 1500
Los Angeles, CA 90071
Attention: June Minamizono
Telephone: (213) 893-6497
Facsimile: (213) 688-7486
KREDIETBANK N.V.
- ----------------
Domestic and Offshore Lending Office:
550 South Hope Street, Suite 1775
Los Angeles, CA 90071
Attention: Roxanne Cheng
Telephone: (213) 624-0401
Facsimile: (213) 629-5801
With a copy to:
- ---------------
Kredietbank N.V.
New York Branch
125 West 55th Street, 10th Floor
New York, NY 10009
Attention: Michael Curran
Telephone: (212) 541-0708
Facsimile: (212) 956-5580
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
- -----------------------------------------
LOS ANGELES AGENCY
- --------------------
Domestic and Offshore Lending Office:
Los Angeles Agency, Suite 3000
350 South Grand Avenue
Los Angeles, CA 90071
Attention: Ken Nakagawa
Telephone: (213) 689-5244
Facsimile: (213) 626-1067
With a copy to:
- ---------------
Los Angeles Agency, Suite 3000
350 South Grand Avenue
Los Angeles, CA 90071
Attention: Tadashi Onada
Vice President
Telephone: (213) 689-6345
Facsimile: (213) 892-1683
NATIONSBANK OF TEXAS, N.A.
- --------------------------
Domestic and Offshore Lending Office:
64th Floor (75202), Utility Finance Division
901 Main Street
Dallas, TX 75202-3714
Attention: Jeff A. Forbis
Senior Vice President
Telephone: (214) 508-1453
Facsimile: (214) 508-3943
THE SANWA BANK, LIMITED, LOS ANGELES BRANCH
- -------------------------------------------
Domestic and Offshore Lending Office:
601 South Figueroa Street
Mail Code W5-4
Los Angeles, CA 90017
Attention: Virginia Hart
Vice President
Telephone: (213) 896-7469
Facsimile: (213) 623-4912
SOCIETE GENERALE, LOS ANGELES BRANCH
- ------------------------------------
Domestic and Offshore Lending Office:
2029 Century Park East, Suite 2900
Los Angeles, CA 90067
Attention: George Chen
Vice President
Telephone: (310) 788-7105
Facsimile: (310) 551-1537
THE SUMITOMO BANK LIMITED, LOS ANGELES AGENCY
- ---------------------------------------------
Domestic and Offshore Lending Office:
Los Angeles Branch, Suite 2600
777 S. Figueroa Street
Los Angeles, CA 90017-3138
Attention: Alan L. Hills
Vice President
Telephone: (213) 955-0816
Facsimile: (213) 623-6832
SWISS BANK CORPORATION
- ----------------------
Domestic and Offshore Lending Office:
222 Broadway
New York, NY 10038
Attention: Darryl Monascebian
Telephone: (212) 335-1873
Facsimile: (212) 335-1126
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
- ------------------------------------------
Domestic and Offshore Lending Office:
299 Park Avenue, 40th Floor
New York, NY 10171-0026
Attention: Andrew Merrill
Vice President
Telephone: (212) 821-5543
Facsimile: (212) 821-3878
WELLS FARGO BANK, N.A.
- ----------------------
Domestic and Offshore Lending Office:
707 Wilshire Blvd., 16th Floor
Los Angeles, CA 90017
Attention: Daniel H. Hom
Vice President
Telephone: (213) 614-3368
Facsimile: (213) 614-2569
707 Wilshire Blvd., 16th Floor
Los Angeles, CA 90017
Attention: Matthew Frey
Assistant Vice President
Telephone: (213) 614-5038
Facsimile: (213) 614-2569
EXHIBIT A-1
SECOND AMENDED AND RESTATED
---------------------------
REVOLVING NOTE
--------------
$___________ October 11, 1996
FOR VALUE RECEIVED, the undersigned, EDISON MISSION
ENERGY, a California corporation (the "Borrower"), promises to
--------
pay to the order of ______________________ (the "Lender") on
------
_________, 19__ the principal sum of __________________ DOLLARS
($___________) or, if less, the aggregate unpaid principal amount
of all Revolving Loans shown on the schedule attached hereto (and
any continuation thereof) made by the Lender pursuant to that
certain Second Amended and Restated Credit Agreement, dated as of
October 11, 1996 (together with all amendments and other
modifications, if any, from time to time thereafter made thereto,
the "Credit Agreement"), among the Borrower, Bank of America
----------------
National Trust and Savings Association, as Agent and Issuing
Bank, and the various financial institutions (including the
Lender) as are, or may from time to time become, parties thereto.
The Borrower also promises to pay interest on the
unpaid principal amount hereof from time to time outstanding from
the date hereof until maturity (whether by acceleration or
otherwise) and, after maturity, until paid, at the rates per
annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made
in Applicable Currency in same day or immediately available funds
to the account designated by the Agent pursuant to the Credit
Agreement.
This Note is one of the Revolving Notes referred to in,
and evidences Indebtedness incurred under, the Credit Agreement,
to which reference is made for a statement of the terms and
conditions on which the Borrower is permitted and required to
make prepayments and repayments of principal of the Indebtedness
evidenced by this Note and on which such Indebtedness may be
declared to be immediately due and payable. This Note amends and
restates the Revolving Credit Note dated as of November 17, 1994
executed by Borrower in favor of the Bank in connection with that
certain Amended and Restated Credit Agreement, dated as of
November 17, 1994, among the Borrower, the Agent, the Issuing
Bank and the lenders party thereto, and amounts outstanding under
such Revolving Credit Note are deemed outstanding and owing under
this Note. Unless otherwise defined, terms used herein have the
meanings provided in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or
otherwise, severally waive presentment for payment, demand,
protest and notice of dishonor.
If any payment on this Revolving Note becomes due and
payable on a date which is not a Business Day, such payment shall
be made on the next succeeding Business Day.
THIS NOTE HAS BEEN DELIVERED IN LOS ANGELES, CALIFORNIA
AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
EDISON MISSION ENERGY
By_____________________________
Title:
REVOLVING LOANS AND PRINCIPAL PAYMENTS
Type Amount Amount of Outstanding Nota-
of of End of Prin. or Principal tion
Loan Loan Interest Int. Paid Balance Made
Date Made Made Period This Date This Date By
- ---- ---- ---- -------- --------- --------- -----
EXHIBIT A-2
SECOND AMENDED AND RESTATED
---------------------------
MONEY MARKET NOTE
-----------------
$___________ October 11, 1996
FOR VALUE RECEIVED, the undersigned, EDISON MISSION ENERGY,
a California corporation (the "Borrower"), promises to pay to the
--------
order of ______________________ (the "Lender") on _________, 19__
------
the principal sum of __________________ DOLLARS ($___________)
or, if less, the aggregate unpaid principal amount of all Money
Market Loans shown on the schedule attached hereto (and any
continuation thereof) made by the Lender pursuant to that certain
Second Amended and Restated Credit Agreement, dated as of
October 11, 1996 (together with all amendments and other
modifications, if any, from time to time thereafter made thereto,
the "Credit Agreement"), among the Borrower, Bank of America
----------------
National Trust and Savings Association, as Agent and Issuing
Bank, and the various financial institutions (including the
Lender) as are, or may from time to time become, parties thereto.
The Borrower also promises to pay interest on the unpaid
principal amount hereof from time to time outstanding from the
date hereof until maturity (whether by acceleration or otherwise)
and, after maturity, until paid, at the rates per annum and on
the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in
Applicable Currency in same day or immediately available funds to
the account designated by the Agent pursuant to the Credit
Agreement.
This Note is one of the Money Market Notes referred to in,
and evidences Indebtedness incurred under, the Credit Agreement,
to which reference is made for a statement of the terms and
conditions on which the Borrower is permitted and required to
make prepayments and repayments of principal of the Indebtedness
evidenced by this Note and on which such Indebtedness may be
declared to be immediately due and payable. This Note amends and
restates the Money Market Note dated as of November 17, 1994
executed by Borrower in favor of the Bank in connection with that
certain Amended and Restated Credit Agreement, dated as of
November 17, 1994, among the Borrower, the Agent, the Issuing
Bank and the lenders party thereto, and amounts outstanding under
such Money Market Note are deemed outstanding and owing under
this Note. Unless otherwise defined, terms used herein have the
meanings provided in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or
otherwise, severally waive presentment for payment, demand,
protest and notice of dishonor.
If any payment on this Money Market Note becomes due and
payable on a date which is not a Business Day, such payment shall
be made on the next succeeding Business Day.
THIS NOTE HAS BEEN DELIVERED IN LOS ANGELES, CALIFORNIA AND
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA.
EDISON MISSION ENERGY
By_____________________________
Title:
MONEY MARKET LOANS AND PRINCIPAL PAYMENTS
Type Amount Amount of Outstanding Nota-
of of End of Prin. or Principal tion
Loan Loan Interest Int. Paid Balance Made
Date Made Made Period This Date This Date By
- ---- ---- ---- -------- --------- ----------- ------
EXHIBIT B-1
BORROWING REQUEST
-----------------
Bank of America National Trust
and Savings Association, Agent
Agency Administrative Services #5596
1455 Market Street, 13th Floor
San Francisco, CA 94103
Attention: Jon Kubukawa
Agency Officer
EDISON MISSION ENERGY
---------------------
Gentlemen and Ladies:
This Borrowing Request is delivered to you pursuant to
Sections 2.3 and 6.2.2 of the Second Amended and Restated Credit
- ------------ -----
Agreement, dated as of October 11, 1996 (together with all
amendments, if any, from time to time made thereto, the "Credit
------
Agreement"), among EDISON MISSION ENERGY, a California
- ---------
corporation (the "Borrower"), certain financial institutions,
--------
Bank of America National Trust and Savings Association as Issuing
Bank, and Bank of America National Trust and Savings Association
(the "Agent"). Unless otherwise defined herein or the context
-----
otherwise requires, terms used herein have the meanings provided
in the Credit Agreement.
The Borrower hereby requests that a Revolving Loan be made
in [insert Applicable Currency] the aggregate principal amount of
[___________] on __________, 19___ as a [LIBO Rate Loan having an
Interest Period of _______ months] [Base Rate Loan].
Please wire transfer the proceeds of the Borrowing to the
accounts of the following persons at the financial institutions
indicated respectively:
Amount to be Person to be Paid Name, Address
--------------------------
Transferred Name Account No. of Transferee Lender
- ----------- ---- ----------- --------------------
[ ] [$]_________________________________ ____________________
____________________
Attention: _________
[ ] [$]______________________________________________________
____________________
Attention: _________
Balance of The Borrower ___________ ____________________
such proceeds ____________________
Attention: _________
The Borrower has caused this Borrowing Request to be
executed and delivered by its duly Authorized Representative this
___ day of ___________, 19___.
EDISON MISSION ENERGY
By-------------------------------
Title:
EXHIBIT B-2
FORM OF LETTER OF CREDIT APPLICATION
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
------------------------------
Bank of America National Trust
and Savings Association, Agent
Agency Administrative Services #5596
1455 Market Street, 13th Floor
San Francisco, CA 94103
Attention: Jon Kubukawa
Agency Officer
EDISON MISSION ENERGY
---------------------
Gentlemen and Ladies:
This Continuation/Conversion Notice is delivered to you
pursuant to Section 2.4 of the Second Amended and Restated Credit
-----------
Agreement, dated as of October 11, 1996 (together with all
amendments, if any, from time to time made thereto, the "Credit
------
Agreement"), among EDISON MISSION ENERGY, a California
- ---------
corporation (the "Borrower"), certain financial institutions,
--------
Bank of America National Trust and Savings Association as Issuing
Bank, and Bank of America National Trust and Savings Association,
(the "Agent"). Unless otherwise defined herein or the context
-----
otherwise requires, terms used herein have the meanings provided
in the Credit Agreement.
The Borrower hereby requests that on ____________, 19___,
(1) $___________ of the presently outstanding
principal amount of the Revolving Loans originally made on
__________, 19___ [insert Applicable Currency],
(2) and all presently being maintained as 1[Base Rate
Loans] [LIBO Rate Loans],
(3) be [converted into] [continued as],
(4) 2[LIBO Rate Loans having an Interest Period of
______ months] [Base Rate Loans].
- --------------
1 Select appropriate interest rate option.
2 Insert appropriate interest rate option.
(5) in the Offshore Currency of _____________ [insert
Applicable Currency].
The Borrower has caused this Continuation/Conversion Notice
to be executed and delivered by its Authorized Representative
this ___ day of _________, 19___.
EDISON MISSION ENERGY
By
---------------------------------
Title:
EXHIBIT D
LENDER ASSIGNMENT AGREEMENT
---------------------------
To: EDISON MISSION ENERGY
To: Bank of America National Trust
and Savings Association,
as the Agent
EDISON MISSION ENERGY
---------------------
Gentlemen and Ladies:
We refer to clause (d) of Section 11.11.1 of the Second
---------- ---------------
Amended and Restated Credit Agreement, dated as of October 11,
1996 (together with all amendments and other modifications, if
any, from time to time thereafter made thereto, the "Credit
------
Agreement"), among EDISON MISSION ENERGY, a California
- ---------
corporation (the "Borrower"), the various financial institutions
--------
(the "Lenders") as are, or shall from time to time become,
-------
parties thereto, Bank of America National Trust and Savings
Association as Issuing Bank, and Bank of America National Trust
and Savings Association, as agent (the "Agent") for the Lenders.
-----
Unless otherwise defined herein or the context otherwise
requires, terms used herein have the meanings provided in the
Credit Agreement.
This agreement is delivered to you pursuant to clause (d) of
----------
Section 11.11.1 of the Credit Agreement and also constitutes
- ---------------
notice to each of you, pursuant to clause (c) of Section 11.11.1
---------- ---------------
of the Credit Agreement, of the assignment and delegation to
_______________ (the "Assignee") of ___% of the Loans, L/C
--------
Obligations, and Revolving Loan Commitments of _____________ (the
"Assignor") outstanding under the Credit Agreement on the date
--------
hereof. After giving effect to the foregoing assignment and
delegation, the Assignor's and the Assignee's Percentages for the
purposes of the Credit Agreement are set forth on Schedule 2.1.
[Add paragraph dealing with accrued interest and fees with
respect to Loans assigned.]
The Assignee hereby acknowledges and confirms that it has
received a copy of the Credit Agreement and the exhibits related
thereto, together with copies of the documents which were
required to be delivered under the Credit Agreement as a
condition to the making of the Loans thereunder. The Assignee
further confirms and agrees that in becoming a Lender and in
making its Commitments and Loans under the Credit Agreement, such
actions have and will be made without recourse to, or
representation or warranty by the Agent.
Except as otherwise provided in the Credit Agreement,
effective as of the date of acceptance hereof by the Agent
(1) the Assignee
(a) shall be deemed automatically to have become
a party to the Credit Agreement, have all the rights
and obligations of a "Lender" under the Credit
Agreement and the other Loan Documents as if it were an
original signatory thereto to the extent specified in
the second paragraph hereof; and
(b) agrees to be bound by the terms and
conditions set forth in the Credit Agreement and the
other Loan Documents as if it were an original
signatory thereto; and
(2) the Assignor shall be released from its
obligations under the Credit Agreement and the other Loan
Documents to the extent specified in the second paragraph
hereof.
The Assignor and the Assignee hereby agree that the
[Assignor] [Assignee] will pay to the Agent the processing fee
referred to in Section 11.11.1 of the Credit Agreement upon the
---------------
delivery hereof.
The Assignee hereby advises each of you of the following
administrative details with respect to the assigned Loans and
Commitments and requests the Agent to acknowledge receipt of this
document:
1. Address for Notices:
Institution Name:
Attention:
Domestic Office:
Telephone:
Facsimile:
Telex (Answerback):
LIBOR Office:
Telephone:
Facsimile:
Telex (Answerback):
2. Payment Instructions:
The Assignee agrees to furnish the tax form required by the
second to last sentence of Section 4.7 (if so required) of the
-----------
Credit Agreement no later than the date of acceptance hereof by
the Agent.
This Agreement may be executed by the Assignor and Assignee
in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
Adjusted Percentage [ASSIGNOR]
- -------------------
Revolving Loan
Commitment
and
Revolving Loans: __%
L/C Obligations __%
By:_______________________
Title:
Percentage [ASSIGNEE]
- ----------
Revolving Loan
Commitment
and
Revolving Loans: __%
L/C Obligations __%
By:_______________________
Title:
Accepted and Acknowledged
this __ day of _______, 19__
__________________________,
as Agent
By:________________________
Title:
EXHIBIT E
OPINION OF COUNSEL TO THE BORROWER
----------------------------------
[Letterhead of Assistant General Counsel]
October 11, 1996
The Lenders under the Credit Agreement
Ladies and Gentlemen:
This letter is furnished to you pursuant to Section 6.1.3
-------------
of the Second Amended and Restated Credit Agreement, dated
October 11, 1996 (the "Credit Agreement"), between EDISON MISSION
----------------
ENERGY, a California corporation (the "Borrower"), certain
--------
institutional lenders and BofA, as agent for such lenders (the
"Agent") and Issuing Bank. Terms defined in the Credit Agreement
-----
are used herein as therein defined.
I am the Assistant General Counsel of the Borrower and, in
that capacity, am familiar with the business and affairs of the
Borrower; I am, or attorneys acting under my direction are,
familiar with the proceedings taken by the Borrower in connection
with the preparation, negotiation, execution and delivery of, and
the initial borrowing made under, the Credit Agreement.
In that connection, I or attorneys working in Borrower's
legal department who are members of the bar of the State of
California have examined:
1. the Credit Agreement;
2. the Articles of Incorporation of the Borrower and
all amendments thereto (the "Charter");
-------
3. the by-laws of the Borrower and all amendments
thereto (the "By-laws");
-------
4. the other documents furnished by the Borrower
pursuant to Section 6.1 of the Credit Agreement;
-----------
5. a certificate of the Secretary of State of
California attesting to the due incorporation, continued
corporate existence and good standing of the Borrower in
that state.
I, or attorneys working in Borrower's legal department who are
members of the bar of the State of California under my
supervision, have also examined the originals, or copies
certified to my or their satisfaction, of such other corporate
records of the Borrower, certificates of public officials and of
officers of the Borrower, and agreements, instruments and other
documents, as I or they have deemed necessary as a basis for the
opinions expressed below. As to questions of fact material to
such opinions, I or they have, when relevant facts were not
independently established by me, relied, to the extent I deemed
appropriate, upon certificates of the Borrower or its officers,
or of public officials.
For purposes of this opinion, I have assumed, with your
consent, the genuineness of all signatures (other than the
signatures of officers or Authorized Representatives of the
Borrower), the authenticity of all documents submitted to me as
originals, and the conformity to authentic original documents of
all documents submitted to me as certified, conformed or
photostatic copies. I have further assumed, with your consent,
the due authorization, execution and delivery of all such
documents by all parties to such documents other than the
Borrower, including documents to which the Borrower is not a
party, and the legality, validity, and enforceability of such
documents as to and against such other parties and that all
parties other than the Borrower are duly organized, validly
existing and in good standing. Where a particular opinion is
rendered to my knowledge or awareness or similar words, it also
includes the knowledge or awareness of attorneys working under my
supervision.
I am a member of the bar of the State of California and am
therefore rendering this opinion only with respect to the laws of
the State of California and the Federal laws of the United States
of America as in effect on the date hereof.
Based upon the foregoing and upon such investigation as I
have deemed necessary, I am of the following opinion:
1. The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the
State of California.
2. The execution, delivery and performance by the
Borrower of the Credit Agreement and the Notes are within
the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene
(a) the Charter or the By-laws;
(b) any law, rule or regulation applicable to
the Borrower (including, without limitation,
Regulation G, T, U or X of the Board of Governors of
the Federal Reserve System); or
(c) to my knowledge, any contractual or legal
restriction binding on or affecting the Borrower. The
Credit Agreement and the Notes have been duly executed
and delivered on behalf of the Borrower.
3. No authorization, approval or other action by,
and no notice to or filing with, any governmental authority
or regulatory body or other person, including the U.S.
Securities and Exchange Commission, is required for the due
execution, delivery and performance by the Borrower of the
Credit Agreement or the Notes.
4. The Credit Agreement and the Notes are legal,
valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective
terms.
5. To the best of my knowledge, there is no pending
or threatened action or proceeding against the Borrower or
any of its Subsidiaries before any court, governmental
agency or arbitrator which purport to affect the legality,
validity, binding effect or enforceability of the Credit
Agreement or the Notes.
6. The Borrower is not an "investment company" or a
company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
7. The Borrower is not a "holding company" within
the meaning of the Public Utility Holding Company Act of
1935, as amended, or a "subsidiary company" of any "holding
company" that is required to register as such under said
Act.
8. The Borrower is not engaged in the business of
extending credit for the purpose of buying or carrying
margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System).
The opinions set forth above are subject to the following
qualifications:
(a) My opinions above are subject to the effect
of any applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent
transfer or similar law affecting creditors' rights
generally.
(b) My opinions above are subject to the effect
of general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
(c) My opinions are subject to the effect of
California court decisions and statutes which require
parties to any contract to make determinations
thereunder on a reasonable basis in good faith.
This opinion letter is being furnished to the Agent and the
Lenders for their use and the use of its and their counsel. No
other use or distribution of this opinion letter may be made
without my prior written consent.
Very truly yours,
and Assistant General Counsel
EXHIBIT F
CERTIFICATE OF EDISON MISSION ENERGY
------------------------------------
I, the undersigned, [Assistant] Secretary of Edison Mission
Energy, a California corporation (the "Borrower"), DO HEREBY
--------
CERTIFY that:
1. This Certificate is furnished pursuant to Section 6.1.1
-------------
of that certain Second Amended and Restated Credit Agreement,
dated as of October 11, 1996 (the "Credit Agreement"), among the
----------------
Borrower, certain financial institutions, Bank of America
National Trust and Savings Association as Issuing Bank and Bank
of America National Trust and Savings Association (the "Agent").
Unless otherwise defined herein, capitalized terms used in this
Certificate have the meanings assigned to such terms in the
Credit Agreement.
12. There have been no amendments to the Articles of
Incorporation of the Borrower since _______, 19__.
3. Attached hereto as Exhibit I is a true, correct and
complete copy of the by-laws of the Borrower as in effect on the
date hereof.
4. Attached hereto as Exhibit II is a true, correct and
complete copy of resolutions duly adopted at a meeting of the
Board of Directors of the Borrower, convened and held on the ___
day of ____________, 19__ , which resolutions have not been
revoked, modified, amended or rescinded and are still in full
force and effect, and the Credit Agreement, the Notes and the
other Loan Documents to which the Borrower is a party are in
substantially the forms of those documents submitted to and
approved by the Board of Directors of the Borrower at such
meeting.
5. The persons named in Exhibit III attached hereto have
been duly elected, have duly qualified as and at all times since
____________, 19__ (to and including the date hereof), have been
officers of the Borrower holding the respective offices set forth
- ------------------
1 Insert the date of the Secretary of State's Certificate (attached
to which is a copy of the Articles of Incorporation of the Borrower) furnished
to the Agent at the execution of the Credit Agreement.
therein opposite their names, and the signatures set forth
therein opposite their names are their genuine signatures.
6. I know of no proceeding for the dissolution or
liquidation of the Borrower or threatening its existence.
WITNESS my hand and seal of the Borrower this 11th day of
October, 1996.
-----------------------------------
[Assistant Secretary]
[Affix Corporate Seal]
I, the undersigned, [Vice] President of the Borrower, DO
HEREBY CERTIFY that:
1. ___________________ is [a] the duly elected and
qualified [Assistant] Secretary of the Borrower and the signature
above is his genuine signature.
2. The representations and warranties on the part of the
Borrower contained in the Credit Agreement are as true and
correct at and as of the date hereof as though made on and as of
the date hereof.
3. No Default has occurred and is continuing, or would
result from the consummation of the initial borrowing on this
date.
WITNESS my hand on this 11th day of October, 1996.
-----------------------------------
[Vice] President
EXHIBIT 1
TO CERTIFICATE
[Copy of the by-laws of Edison Mission Energy]
EXHIBIT 3
TO CERTIFICATE
Name of Officers
----------------
and Authorized
--------------
Representatives Office Signature
--------------- ------ ---------
------------------- --------------- ---------------------
------------------- --------------- ---------------------
------------------- --------------- ---------------------
------------------- --------------- ---------------------
------------------- --------------- ---------------------
EXHIBIT G
FORM OF MONEY MARKET QUOTE REQUEST
----------------------------------
______________, 199_
To: Bank of America National Trust
and Savings Association ("Agent")
From: Edison Mission Energy
Re: Second Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of October 11, 1996 among
the Borrower, the Lenders listed on the signature pages
thereof, Bank of America National Trust and Savings
Association as Issuing Bank and the Agent
We hereby give notice pursuant to Section 2.8 of the
-----------
Credit Agreement that we request Money Market Quotes for the
following proposed Money Market Borrowing(s):
Date of Borrowing: ______________
Principal Amount* Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market
[LIBO] [Absolute Rate]. [The applicable base rate is the London
Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in
the Credit Agreement.
EDISON MISSION ENERGY
By---------------------------------
Title:
____________________
* Amount must be $10,000,000 or a larger multiple of
$1,000,000.
EXHIBIT H
FORM OF INVITATION FOR MONEY MARKET QUOTES
------------------------------------------
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Edison Mission
Energy (the "Borrower")
Pursuant to Section 2.8 of the Second Amended and
-----------
Restated Credit Agreement dated as of October 11, 1996 among the
Borrower, the Lenders parties thereto and the undersigned, Bank
of America National Trust and Savings Association as Issuing Bank
and Agent, we are pleased on behalf of the Borrower to invite you
to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing: ______________
Offshore
Principal Amount Currency Interest Period
- --------- ------ -------- ---------------
$
Such Money Market Quotes should offer a Money Market
[LIBO] [Absolute Rate]. [The applicable base rate is the London
Interbank Offered Rate.]
Please respond to this invitation by no later than
[____ P.M.] [____ A.M.] (San Francisco time) on [date].
Bank of America National Trust
and Savings Association, Agent
By----------------------------
Authorized Officer
EXHIBIT I
FORM OF MONEY MARKET QUOTE
--------------------------
Bank of America National Trust
and Savings Association, as Agent
Re: Money Market Quote to Edison Mission Energy (the "Borrower")
In response to your invitation on behalf of the
Borrower dated ____________, 19__, we hereby make the following
Money Market Quote on the following terms:
1. Quoting Lender: __________________________
2. Person to contact at Quoting Lender: ______________________
3. Date of Borrowing: ______________________*
4. We hereby offer to make Money Market Loan(s) in the
following principal amounts, for the following Interest
Periods and at the following rates:
Offshore Principal Interest Money Market
Amount** Currency Period*** [LIBO****] [Absolute Rate*****]
------------ -------- ------------- -------------- ------------------------
$
$
[Provided, that the aggregate principal amount of Money
Market Loans for which the above offers may be accepted
shall not exceed $______________.]**
____________________
* As specified in the related Invitation.
** Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if
the sum of the individual offers exceeds the amount of the
Lender is willing to lend. Bids must be made for $5,000,000
or a larger multiple of $1,000,000.
(notes continued on following page)
We understand and agree that the offer(s) set forth
above, subject to the satisfaction of the applicable
conditions set forth in the Second Amended and Restated
Credit Agreement dated as of October 11, 1996, among the
Borrower, the Lenders listed on the signature pages thereof
and yourselves, as Agent, irrevocably obligates us to make
the Money Market Loan(s) for which any offer(s) are
accepted, in whole or in part.
Very truly yours,
[NAME OF LENDER]
Dated:__________ By:---------------------------
Authorized Officer
____________________
*** Not less than 7 days or not more than six months, as
specified in the related Invitation. No more than five
bids are permitted for each Interest Period.
**** Margin over or under the London Interbank Offered Rate
determined for the applicable Interest Period. Specify
percentage (to the nearest 1/[10,000]th of 1%) and specify
whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest
1/[10,000]th of 1%).
EXHIBIT J
NOTICE OF MONEY MARKET BORROWING
--------------------------------
TO: Bank of America National Trust
and Savings Association (the "Agent")
FROM: Edison Mission Energy (the "Borrower")
RE: Acceptance of Offers to Make Money Market Loans
Pursuant to Section 2.8 of the Second Amended and
-----------
Restated Credit Agreement dated as of October 11, 1996, among the
Borrower, the Lenders parties thereto, Bank of America National
Trust and Savings Association as Issuing Bank and the Agent, we
hereby accept the offers made by the following Lenders to make
Money Market Loans on the Date of Borrowing specified below to
the extent set forth below.
Name of [Money Market
Date of Offeror Principal Interest Margin]
Borrowing Bank Amount Currency Period [Absolute Rate]
--------- ------- --------- -------- -------- ---------------
Any offer made by any Lender to make Money Market Loans on the Date
of Borrowing set forth above is, to the extent not accepted above, hereby
rejected.
EDISON MISSION ENERGY
By---------------------------------
Authorized Representative
GUARANTY
--------
The undersigned, EDISON MISSION ENERGY, a California corporation
("Guarantor"), is executing this Guaranty in favor of THE FUJI BANK, LIMITED,
---------
LOS ANGELES AGENCY, as Agent for the equal and ratable benefit of the parties
listed in Schedule A hereto (in such capacity, together with its successors and
----------
assigns in such capacity, the "Agent" and, collectively with the other parties
-----
listed on Schedule A, the "Beneficiaries") to induce the Beneficiaries to enter
-------------
into that certain Defeasance Agreement of even date herewith (the "Defeasance
----------
Agreement") with Camino Energy Company (the "Borrower"), a wholly owned
- --------- --------
subsidiary of Guarantor. The Banks, the Security Representative, the Fronting
Bank (as each such party is identified on Schedule A), the Agent and the
Borrower are each party to a Project Loan and Credit Agreement dated as of
August 27, 1987, as amended to the date hereof (the "Credit Agreement"),
----------------
pursuant to which the Banks and the Fronting Bank made a credit facility
available to the Borrower in the original maximum amount of $140,000,000 to
finance the Borrower's obligations relating to a cogeneration facility in
Carson, California (the "Project"). The only remaining extensions of credit
-------
outstanding under such credit facility as of the date hereof are direct-pay
letters of credit ("LOCs") issued by the Fronting Bank and participated in by
----
the Banks, which LOCs provide credit enhancement and liquidity support for
medium-term notes ("Medium-Term Notes") issued by the Borrower. The Borrower
-----------------
now wishes to refinance its obligations with respect to the Project and to
defease the outstanding Medium-Term Notes, the aggregate principal amount of
which is $30,000,000. Pursuant to the Defeasance Agreement, the Borrower has
agreed to deposit funds into various accounts ("Defeasance Accounts") maintained
-------------------
by the Depositary (as identified on Schedule A) to defease its respective
obligations to each of the Beneficiaries. The Beneficiaries are willing to
enter into the Defeasance Agreement on the condition that Guarantor
unconditionally guaranty the Borrower's obligations thereunder until the
Beneficiaries are able to obtain assurance that amounts deposited by the
Borrower into the Defeasance Accounts would not be subject to recovery by the
Borrower's estate in the event of the Borrower's bankruptcy, insolvency,
reorganization or other like proceeding. Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Defeasance Agreement
(including the cross-reference therein to terms defined in the Credit
Agreement).
1. Guaranty. Guarantor unconditionally and irrevocably
--------
guarantees to the Agent, for the equal and ratable benefit of
the Beneficiaries, the full and punctual payment and
performance of the Borrower's obligations to make irrevocable
and indefeasible payments (in cash and/or securities) to the
Depositary for deposit into the Defeasance Accounts pursuant
to the Credit Agreement and Defeasance Agreement. In the
event the Borrower, any trustee in bankruptcy for the Borrower
or any other Person shall take any action seeking to avoid or
challenge the transfer by the Borrower of any cash or
securities delivered by the Borrower to the Depositary
pursuant to the Defeasance Agreement (any such action shall be
referred to as a "Challenge" and the property subject to such
---------
Challenge shall be referred to as the "Challenged Assets"),
-----------------
Guarantor shall forthwith deliver cash and/or securities to
the Agent (which shall in turn forthwith deliver the same to
the Depositary for deposit into the appropriate Defeasance
Accounts in accordance with the terms of the Defeasance
Agreement) of such value and of such maturities so as to
satisfy the Borrower's obligations under the Defeasance
Agreement (including, without limitation, the obligation to
obtain a certificate of the Accountant pursuant to Section
2(c), 3(c), 4(c), 5(c), 6(c) and/or 7(c) of the Defeasance
Agreement, as applicable) without including the Challenged
Assets as available to satisfy the Borrower's obligations.
Such obligations of Guarantor are referred to in this Guaranty
as the "Shortfall" and will be payable by Guarantor to the
---------
Agent immediately upon demand in the event of any Challenge.
2. Termination of Guaranty. This Guaranty and the
-----------------------
obligations of Guarantor hereunder shall terminate on the date
which is the later of: (a) the date on which the Agent shall
--------
receive, in form and substance satisfactory to the Agent, (i)
a certificate of an authorized officer of each of Guarantor
and the Borrower, dated as of a date not earlier than one
hundred (100) days after the Defeasance Date, that no
voluntary or involuntary bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution,
liquidation or other like filing has been made with respect to
the Borrower and that no action by any Person seeking to avoid
or challenge the transfer by the Borrower of any cash or
securities delivered by the Borrower to the Depository has
occurred; and (ii) a certified national bankruptcy filing
search by a nationally recognized search service acceptable to
the Agent, dated as of a date not earlier than one hundred
(100) days after the Defeasance Date, showing that no
voluntary or involuntary bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution,
liquidation or other like filing has been made with respect to
the Borrower; and (b) the date on which Guarantor shall have
---
fully and indefeasibly satisfied any and all of its
obligations hereunder that may have arisen on or prior to the
date specified in Section 2(a).
3. Rights of Beneficiaries. Guarantor authorizes the
-----------------------
Beneficiaries at any time in their discretion to alter any of
the terms of the Defeasance Agreement, the Credit Agreement,
the Facility Agreement, the Depositary Agreement or any other
Operative Agreement in accordance with the terms thereof, to
take and hold any security for the obligations thereunder and
to accept additional or substituted security, to subordinate,
compromise or release any security, to release the Borrower
from its liability for all or any part of such obligations, to
release, substitute or add any one or more guarantors or
endorsers, and to assign to their successors and assigns under
the Defeasance Agreement, the Credit Agreement, the Facility
Agreement, the Depositary Agreement or any other Operative
Document this Guaranty in whole or in part. The Beneficiaries
may take any of the foregoing actions upon any terms and
conditions as the Beneficiaries may elect, without giving
notice to Guarantor or obtaining the consent of Guarantor and
without affecting the liability of Guarantor hereunder.
4. Independent Obligation. Guarantor's obligation to pay
----------------------
the Shortfall under this Guaranty is independent of the
obligations of the Borrower. Agent may bring a separate
action against Guarantor without first proceeding against the
Borrower or any other Person or any security held by the Agent
and without pursuing any other remedy.
5. Obligations Absolute. The obligations of Guarantor
--------------------
hereunder shall be absolute, unconditional and continuing and
shall remain in full force and effect until terminated in
accordance with Section 2 and without regard to, and shall not
be affected or impaired by the following, any of which may
occur without the consent of, or notice to, Guarantor, nor
shall any of the following give Guarantor any recourse or
right of action against the Agent or any other Beneficiary:
(a) any lack of validity or enforceability
of, or any release or discharge of the
Borrower or any other guarantor from
liability under, the Defeasance Agreement or
any other Operative Agreement;
(b) any change in the time, manner or
place of payment of, or in any other term
of, all or any of the obligations guaranteed
hereunder or any other amendment or waiver
of, or any consent to departure from, the
Defeasance Agreement or any other Operative
Agreement;
(c) any subordination, compromise,
exchange, release, nonperfection or
liquidation of any collateral, or any
release, amendment or waiver of, or consent
to departure from, any other guaranty, for
any or all of the obligations guaranteed
hereunder;
(d) any express or implied amendment,
modification, renewal, addition, supplement,
extension (including, without limitation,
extensions beyond the original term) or
acceleration of the obligations guaranteed
hereunder, the Defeasance Agreement or any
other Operative Agreement;
(e) any exercise or nonexercise by the
Agent or any other Beneficiary of any right
or privilege under this Guaranty, the
Defeasance Agreement or any of the other
Operative Agreements;
(f) any bankruptcy, insolvency,
reorganization, composition, adjustment,
dissolution, liquidation or other like
proceeding relating to Guarantor, the
Borrower, or any other guarantor of the
obligations guaranteed hereunder or any
action taken with respect to this Guaranty
by any trustee, receiver or court in an
such proceeding, whether or not Guarantor
shall have had notice or knowledge of any of
the foregoing;
(g) any assignment or other transfer by
the Agent, in whole or in part, of the
obligations guaranteed hereunder or this
Guaranty, the Defeasance Agreement or any of
the other Operative Agreements;
(h) any acceptance of partial performance of
the obligations guaranteed hereunder;
(i) any consent to the transfer of, or any
bid or purchase at sale of, any collateral
for the obligations guaranteed hereunder;
(j) the failure of any party or parties to
execute this Guaranty or any other document
relating to the obligations guaranteed
hereunder; or
(k) any other circumstance that might
otherwise constitute a defense available to,
or a discharge of, the Borrower, Guarantor
or any other guarantor of the obligations
guaranteed hereunder.
6. Waivers of Defenses. To the extent permitted by law,
-------------------
Guarantor hereby waives and relinquishes all rights and
remedies accorded by applicable law to sureties or guarantors
and agrees not to assert or take advantage of any such rights
or remedies, including without limitation (a) any right to
require the Agent to proceed against the Borrower or any other
Person or to proceed against or exhaust any security held by
the Agent at any time or to pursue any other remedy in the
Agent's power before proceeding against Guarantor, (b) the
defense of the statute of limitations in any action hereunder
or in any action for the collection or performance of the
obligations hereby guaranteed, (c) any defense that may arise
by reason of the incapacity, lack of authority or disability
of the Borrower or any other Person, (d) demand, presentment,
protest and notice of any kind, including without limitation
notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-
action on the part of the Borrower, the Agent, any endorser or
creditor of the Borrower or Guarantor or on the part of any
other Person under this or any other instrument in connection
with any obligation or evidence of indebtedness held by the
Agent as collateral or in connection with the obligation
hereby guaranteed, (e) any defense based upon an election of
remedies by the Agent, including without limitation an
election to proceed by non-judicial rather than judicial
foreclosure, which destroys or otherwise impairs the
subrogation rights of Guarantor, the right of Guarantor to
proceed against the Borrower for reimbursement, or both,
(f) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than
that of the principal, (g) any duty on the part of the Agent
to disclose to Guarantor any facts the Agent may now or
hereafter know about the Borrower, regardless of whether the
Agent has reason to believe that any such facts materially
increase the risk beyond that which Guarantor intends to
assume, or has reason to believe that such facts are unknown
to Guarantor, or has a reasonable opportunity to communicate
such facts to Guarantor, (h) any defense arising under Section
364 of the Federal Bankruptcy Code and (i) any claims of any
nature whatsoever against the Agent or the other Beneficiaries
arising out of or related to the sale or transfer of any
collateral or the resolution or settlement of any dispute
arising under any Operative Agreement, notwithstanding that
such sale or transfer or resolution or settlement occurred at
such time or in such a manner as to directly or indirectly
increase the amount of the Shortfall obligation to be paid by
the Guarantor hereunder. Without limiting the generality of
the foregoing, Guarantor hereby expressly waives, to the
extent permitted by applicable law, any and all benefits which
might otherwise be available to Guarantor under California
Civil Code Sections 2809, 2810, 2819, 2839, 2845 through 2847,
2849, 2850, 2899 and 3433, and California Code of Civil
Procedure Sections 580a, 580b, 580d and 726.
7. No Dissolution or Transfer of the Borrower. Guarantor
------------------------------------------
hereby (i) agrees that, so long as any amounts remain owing
under the Credit Agreement or the other Operative Agreements,
it will not take any action or cause the Borrower to take any
action to file for bankruptcy, reorganization, composition,
adjustment, dissolution or liquidation or to sell or transfer
any stock of the Borrower and (ii) confirms and agrees that
all payment obligations of the Borrower to Guarantor shall be
subject to the provisions of Exhibit 7 to the Credit Agreement
---------
(including, without limitation, any obligation to pay
principal and interest on any loans made to the Borrower by
Guarantor).
8. Borrower's Financial Condition. Guarantor assumes full
------------------------------
responsibility for keeping fully informed of the financial
condition of the Borrower and all other circumstances
affecting the Borrower's ability to perform its obligations to
the Beneficiaries, and agrees that the Beneficiaries will have
no duty to report to Guarantor any information which the
Beneficiaries receive about the Borrower's financial condition
or any circumstances bearing on its ability to perform its
obligations to the Beneficiaries.
9. Impairment of Subrogation Rights. Upon a default of the
--------------------------------
Borrower, the Agent may elect to nonjudicially or judicially
foreclose against any real or personal property security it
holds for the Shortfall, or any other of the Obligations owing
to the Beneficiaries by the Borrower, or any part thereof, or
to exercise any other remedy against the Borrower or any
security. No such action by the Agent will release or limit
the liability of Guarantor to the Beneficiaries, even if the
effect of that action is to deprive Guarantor of the right to
collect reimbursement from the Borrower for any sums paid
hereunder.
10. Right of Setoff. In the event Guarantor fails to pay
---------------
the Shortfall within three (3) Business Days after receipt by
Guarantor of the Agent's demand, in addition to all rights of
setoff or lien against any moneys, securities or other
property of Guarantor given to the Beneficiaries by law, the
Beneficiaries shall have a right of setoff against all moneys,
securities and other property of Guarantor now or hereafter in
the possession of or on deposit with the Beneficiaries,
whether held in a general or special account or deposit, or
for safekeeping or otherwise; and every such right of setoff
may be exercised without demand upon or notice to Guarantor.
No right of setoff shall be deemed to have been waived by any
act or conduct on the part of any of the Beneficiaries, or by
any neglect to exercise such right of setoff, or by any delay
in doing so; and every right of setoff shall continue in full
force and effect until specifically waived or released by an
instrument in writing executed by the Beneficiaries.
11. Default. The Agent may declare Guarantor in default
-------
under this Guaranty if Guarantor breaches any of its
covenants, agreements or undertakings contained hereunder,
fails to pay the Shortfall within three (3) Business Days of
Guarantor's receipt of demand therefor or Guarantor shall
commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due,
or shall take any action to authorize any of the foregoing or
an involuntary case or other proceeding shall be commenced
against Guarantor seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of Guarantor or any
substantial part of its property and such involuntary case or
other proceeding shall remain undismissed and unstayed for a
period of ninety (90) days; or an order for relief shall be
entered against Guarantor under the federal bankruptcy laws as
now or hereafter in effect.
12. Due Authority. Guarantor represents and warrants that
-------------
it has the corporate power to enter into this Guaranty and has
taken all necessary action to authorize the execution,
delivery and performance of this Guaranty. Any authorization,
consent or approval of any governmental body required for the
valid execution, delivery and performance by Guarantor of this
Guaranty has been obtained and is in full force and effect.
13. Enforceable Agreement. Guarantor represents and
---------------------
warrants that this Guaranty constitutes the legal, valid and
binding obligation of Guarantor enforceable in accordance with
its terms (except as the enforceability thereof may be limited
by applicable bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally and subject to general equitable principles).
14. No Violation. Guarantor represents and warrants that
------------
the execution, delivery and performance of this Guaranty will
not violate any law, rule or regulation or any order, judgment
or decree applicable to it or any agreement binding upon it.
15. Financial Condition. Guarantor represents and warrants
-------------------
that the balance sheet of Guarantor as at September 30, 1996
and the related consolidated statements of income, retained
earnings and changes in financial position of Guarantor for
the quarter ended on said date, and the audited balance sheet
of Guarantor as at December 31, 1995 with the opinion thereon
of Arthur Andersen LLP and the related consolidated statements
of income, retained earnings and changes in financial position
of Guarantor for the fiscal year ended on such date,
heretofore furnished to the Agent are complete and correct and
fairly present the financial condition of Guarantor as at said
dates and the results of its operations for the quarter and
fiscal year ended on said dates (subject, in the case of such
financial statements as at September 30, 1996, to normal year-
end audit adjustments), all in accordance with generally
accepted accounting principles applied on a consistent basis.
Guarantor had on said dates no material contingent
liabilities, liabilities for taxes, unusual forward or long-
term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or
provided for in said balance sheets and financial reports as
at said dates. Since September 30, 1996, there has been no
change in the financial condition or operations, or the
prospects or business taken on a whole, of Guarantor from that
set forth in said financial statements as at said date, which
could reasonably be expected to have a material adverse effect
on Guarantor's ability to perform its obligations hereunder.
16. Costs and Expenses. Guarantor agrees to pay the Agent's
------------------
reasonable out-of-pocket costs and expenses, including but not
limited to legal fees and disbursements, incurred in any
effort to collect or enforce payment of the Shortfall or this
Guaranty, whether or not any lawsuit is filed. Until paid to
the Agent, such sums will bear interest at the then Applicable
Rate plus two percentage points per annum.
17. Delay; Cumulative Remedies. No delay or failure by the
--------------------------
Agent to exercise any right or remedy against the Borrower or
Guarantor will be construed as a waiver of that right or remedy.
To the extent permitted by applicable law, all remedies of the
Agent against the Borrower and Guarantor are cumulative.
18. Miscellaneous. The invalidity or unenforceability of any
-------------
one or more provisions of this Guaranty will not affect any
other proven. This Guaranty will be governed by California law
(without reference to choice-of-law principles), and may be
amended only by a written instrument executed by Guarantor and
the Agent. The provisions of this Guaranty will bind and
benfit the successors and assigns of Guarantor and the
Beneficiaries. Whenever the context requires, all terms used in
the singular will be construed in the plural and vice versa, and
each gender will include each other gender. The term "Borrower"
will mean both the named Borrower and any other person or entity
at any time assuming or otherwise becoming primarily liable for
payment of all or any part of the Borrower's obligations under
the Defeasance Agreement and the other Operative Agreements.
Dated as of December 20, 1996.
EDISON MISSION ENERGY,
a California corporation
By: Kevin M. Smith
------------------------------
Title: V.P. and Treasurer
------------------------------
SCHEDULE A
----------
TO GUARANTY
-----------
List of Beneficiaries
---------------------
The "Agent," the "Security Representative" and the "Fronting Bank":
- ------------------------------------------------------------------
The Fuji Bank, Limited
Los Angeles Agency
333 South Hope Avenue
Suite 3900
Los Angeles, California 90071
Attention: Jonathan Bigelow
The "Banks":
- -----------
The Fuji Bank, Limited
Los Angeles Agency
333 South Hope Avenue
Suite 3900
Los Angeles, California 90071
Attention: Jonathan Bigelow
ABN AMRO Bank N.V.
Los Angeles International Branch
300 South Grand Avenue
Suite 1115
Los Angeles, California 90071
Attention: Heather Brandt
Commerzbank Aktiengesellschaft
Los Angeles Branch
660 South Figueroa Street
Suite 1450
Los Angeles, California 90017
Attention: Steven Larsen
Istituto Bancario San Paolo di Torino
444 South Flower Street
45th Floor
Los Angeles, California 90071
Attention:: Annette Bergsten
Banca CRT S.p.A.
New York Branch
c/o 515 South Flower Street
Suite 1690
Los Angeles, California 90071
Attention: Robert Ferrol
The "Depositary":
- ----------------
The Fuji Bank and Trust Company
Two World Trade Center
81st Floor
New York, New York 10048
EXHIBIT 21
EDISON MISSION ENERGY
SUBSIDIARIES AND PARTNERSHIPS
-----------------------------
As of March 13, 1997
Domestic
- --------
Aguila Energy Company (LP)
American Bituminous Power Partners, L.P. (Delaware limited partnership)
American Kiln Partners, Limited Partnership (Delaware Limited
partnership)
Anacapa Energy Company (GP)
Salinas River Cogeneration Company (Partnership)
Arrowhead Energy Company
Crown Energy, L.P. (New Jersey partnership)
Crown Vista Urban Renewal Corporation (New Jersey corporation)
Balboa Energy Company (GP)
Smithtown Cogeneration, L.P. (Delaware Partnership)
Bergen Point Energy Company (GP)
TEVCO/Mission Bayonne Partnership (Delaware general partnership)
Blue Ridge Energy Company (GP)
Bretton Woods Cogeneration, L.P. (Delaware limited partnership)
Bretton Woods Energy Company (GP & LP)
Bretton Woods Cogeneration, L.P. (Delaware limited partnership)
Camino Energy Company (GP)
Watson Cogeneration Company (Partnership)
Capistrano Cogeneration Company (GP)
James River Cogeneration Company (North Carolina Partnership)
Centerport Energy Company (GP & LP)
Riverhead Cogeneration I, L.P. (Delaware Partnership)
Chesapeake Bay Energy Company (formerly Woodland Energy Company) (GP)
Delaware Clean Energy Project (Delaware General Partnership)
Chester Energy Company
Holds option to purchase piece of property (vacant land) located in or
near Richmond/ Chesapeake, Virginia
Clayville Energy Company
Oconee Energy, L.P. (Delaware limited partnership)
Colonial Energy Company (formerly Hentland Farm Energy Company)-Inactive
Coronado Energy Company
Oconee Energy, L.P.
Crescent Valley Energy Company (GP)
Beowawe Geothermal Power Company (California general partnership)
Delaware Energy Conservers, Inc. (Delaware corporation) (inactive)
Del Mar Energy Company (GP)
Mid-Set Cogeneration Company (Partnership)
Desert Sunrise Energy Company (Nevada Corporation)-Inactive
Devereaux Energy Company (LP)
Auburndale Power Partners, Limited Partnership (Delaware limited
partnership)
East Maine Energy Company (Inactive)
Eastern Sierra Energy Company (GP & LP)
Saguaro Power Company, A Limited Partnership (Partnership)
Edison Mission Energy Funding Corp. (Delaware corporation)
Edison Mission Operation & Maintenance, Inc.
Mission Operations de Mexico, S.A. de C.V.
El Dorado Energy Company (GP)
Auburndale Power Partners, Limited Partnership (Delaware limited
partnership)
EMP, Inc. (Oregon Corporation) (GP & LP)
GEO East Mesa Limited Partnership (Partnership)
GEO East Mesa Electric Co. (Nevada corporation)
Four Counties Gas Company (Inactive)
Hanover Energy Company
Chickahominy River Energy Corp.
Commonwealth Atlantic Limited Partnership (Delaware
Partnership)
Holtsville Energy Company (GP & LP)
Brookhaven Cogeneration, L.P. (Delaware Partnership)
Indian Bay Energy Company (GP & LP)
Riverhead Cogeneration III, L.P. (Delaware Partnership)
Jefferson Energy Company (GP & LP) (Inactive)
Kings Canyon Energy Company (Inactive)
Kingspark Energy Company (GP & LP)
Smithtown Cogeneration, L.P. (Delaware Partnership)
Laguna Energy Company (Inactive)
La Jolla Energy Company (Inactive)
Lake Grove Energy Company (Inactive)
Lakeview Energy Company
Georgia Peakers, L.P. (Delaware partnership)
Lehigh River Energy Company (GP)
TEVCO/Mission Assets Partnership (Delaware Partnership)
Continental Energy Associates Limited Partnership) (Massachusetts
partnership)
Longview Cogeneration Company (formerly Columbia River Cogeneration Company and
prior to that, formerly Cabrillo Energy Company)
Madera Energy Company (GP)
Brookhaven Cogeneration , L.P. (Delaware Partnership)
Madison Energy Company (formerly Sunshine Generators, Inc.) (LP)
Gordonsville Energy L. P. (Delaware partnership)
Mission Capital, L.P. (Delaware limited partnership)
Mission/Eagle Energy Company
Crown Energy, L.P.
Crown Vista Urban Renewal Corporation (New Jersey Corporation)
Mission Energy Construction Services, Inc. (formerly Glenwood Springs Property,
Inc.)
Mission Energy Fuel Company
Mission Energy Oil and Gas Company
Four Star Oil & Gas Company
Mission Energy Petroleum Company
Pocono Fuels Company (Inactive)
Southern Sierra Gas Company
TM Star Fuel Company (California general partnership)
Mission Energy Holdings, Inc.
Mission Capital, L.P. (Delaware limited partnership)
Mission Energy Holdings International, Inc. (formerly Patapsco Energy Company)
(Owns 100% of MEC International B.V.)
Mission Energy Indonesia (formerly Chula Energy Company)
Mission Energy Mexico (Inactive)
Mission Energy New York, Inc. (formerly, Allegheny Energy Company) (GP & LP)
Brooklyn Navy Yard Cogeneration Partners, L.P. (Delaware Partnership)
Mission Energy Wales Company (formerly San Jacinto Energy Company)
Mission Energy Westside, Inc. (formerly Sun Coast Energy Company)
Mission Operations de Mexico, S.A. de C.V.
Mission Triple Cycle Systems Company (GP)
Triple Cycle Partnership (Texas general partnership)
Northern Sierra Energy Company (GP)
Sobel Cogeneration Company (California general partnership)
North Jackson Energy Company (Inactive)
Ortega Energy Company
Panther Timber Company (GP)
American Kiln Partners, Limited Partnership (Delaware limited partnership)
Paradise Energy Company
Vista Energy L.P.
Crown Vista Urban Renewal Corporation (New Jersey corporation)
Pleasant Valley Energy Company (GP)
American Bituminous Power Partners, L.P. (Delaware Partnership)
Prince George Energy Company (LP)
Hopewell Cogeneration Limited Partnership (Delaware partnership)
Hopewell Cogeneration Inc. (Delaware corporation)
Hopewell Cogeneration Limited Partnership (Delaware
partnership)
Quartz Peak Energy Company (LP)
Nevada Sun-Peak Limited Partnership (Nevada partnership)
Rapidan Energy Company (GP)
Gordonsville Energy, L.P. (Delaware Partnership)
Reeves Bay Energy Company (GP & LP)
North Shore Energy, L.P. (Delaware Partnership)
Northville Energy Corporation (New York corporation)
Ridgecrest Energy Company (GP)
Riverhead Cogeneration I, L.P. (Delaware Partnership)
Rio Escondido Energy Company
Riverport Energy Company (GP & LP)
Riverhead Cogeneration II, L.P. (Delaware Partnership)
San Gabriel Energy Company (Inactive)
San Joaquin Energy Company (GP)
Midway-Sunset Cogeneration Company, L.P. (Partnership)
San Juan Energy Company (GP)
March Point Cogeneration Company (Partnership)
San Pedro Energy Company (GP)
Riverhead Cogeneration II, L.P. (Delaware Partnership)
Santa Ana Energy Company (GP)
Riverhead Cogeneration III, L.P. (Delaware Partnership)
Santa Clara Energy Company (GP)
North Shore Energy, L.P. (Delaware Partnership)
Northville Energy Corporation (New York corporation)
Silverado Energy Company (GP)
Coalinga Cogeneration Company (Partnership)
Silver Springs Energy Company
Georgia Peaker, L.P. (Delaware limited partnership)
Sonoma Geothermal Company (GP & LP)
Geothermal Energy Partners Ltd. (California partnership)
South Coast Energy Company (GP)
Harbor Cogeneration Company (Partnership)
Southern Sierra Energy Company (GP)
Kern River Cogeneration Company (California general partnership)
Thorofare Energy Company
Crown Energy L.P.
Crown Vista Urban Renewal Corporation (New Jersey corporation)
Viejo Energy Company (GP)
Sargent Canyon Cogeneration Company (Partnership)
Vista Energy Company (New Jersey Corporation) (GP & LP)
Vista Energy, L.P. (New Jersey limited partnership)
Crown Vista Urban Renewal Corporation (New Jersey corporation)
Western Sierra Energy Company (GP)
Sycamore Cogeneration Company (California general partnership)
International
- -------------
Edison Mission Energy Asia Company (formerly Asia Power Development Company)
(Cayman Island)
Mission China Holdings (Cayman Island)
Mission Ningbo Holdings Company (Cayman Islands)
Edison Mission Energy Asia Pte. Ltd. (formerly Mission Energy Asia Pte. Ltd.)
(Singapore)
Edison Mission Energy Asia Pacific Pte. Ltd. (Singapore)
Edison Mission Energy Fuel Pte. Ltd. (Singapore)
P.T. Edison Mission Operation and Maintenance Indonesia
Edison Mission Energy International B.V. (formerly MEC Mission B.V.)
(Netherlands)
Edison Mission Energy Holdings Pty Ltd (Australia) (formerly Mission Energy
Holdings Pty Ltd)
Edison Mission Operation & Maintenance Kwinana Pty Ltd (formerly Mission
Operations (Kwinana) Pty Ltd (Australia)
Edison Mission Operation & Maintenance Loy Yang Pty. Ltd. (formerly
Mission Energy Management Australia Pty. Ltd.) (Australia)
Mission Energy Development Australia Pty. Ltd.
Mission Energy Holdings Superannuation Fund Pty Ltd.
Mission Energy (Kwinana) Pty Ltd
Kwinana Power Partnership (Australian G.P.)
Edison Mission Energy International B.V. (formerly MEC Mission B.V.)
(Netherlands)
Hydro Energy B.V. (Netherlands company)
Edison Mission Energy Espana (formerly Energias Hidraulicas, S.A.) (Spain
corporation)
Saltos del Porma, S.A.
Iberica de Energias, S.A. (Spain corporation)
Electrometalurgica del Ebro, S.A. (Spain corporation)
Monasterio de Rueda, S.L. (inactive)
Iberian Hy-Power Amsterdam, B.V. (Netherlands Antilles corporation)
Aprohiso S.A. (Spain corporation) (Inactive)
Hidroelectrica de Olvera, S.A. (Spain corporation)
Hidroelectrica del Sossis, S.A. (Spain corporation)
Saltos del Porma, S.A. (Spain corporation)
Latrobe Power Pty Ltd (Australian corporation)
Mission Victoria Partnership (an Australian partnership)
Latrobe Power Partnership (Australian partnership)
Loy Yang B Joint Venture (Australia)
Loy Yang Holdings Pty Ltd (Australia)
Edison Mission Energy Australia Ltd (formerly Mission Energy Australia
Ltd (an Australian public company)
Mission Energy Ventures Australia Pty. Ltd. (Australia company)
MEC Colombia B.V. (Netherlands)
MEC Esenyurt B.V. (Netherlands)
Doga Enerji Uretim Sanayi ve Ticaret A.S. (Turkish corporation)
MEC IES B.V. (Netherlands) formerly MEC ESA B.V.
ISAB Energy Services s.r.l. (Operator of ISAB )
MEC India B.V. (Netherlands)
Edison Mission Energy Power (Mauritius corporation)
MEC Indo Coal B.V. (Netherlands)
P.T. Adaro Indonesia (Indonesia)
MEC Indonesia B.V. (Netherlands)
P.T. Paiton Energy Company (Indonesia)
MEC International Holdings B.V.(Netherlands)
MEC Laguna Power B.V. (Netherlands company)
Gulf Power Generation Co. Ltd. (Bangkok corporation)
MEC Perth B.V. (Netherlands)
Kwinana Power Partnership (Australian GP)
MEC Priolo B.V. (Netherlands)
ISAB Energy S.r.l.
MEC San Pascual B.V. (Netherlands)
San Pascual Cogeneration Company International B.V.
MEC Turkey B.V. (Netherlands)
MEC Wales B.V. (Netherlands)
First Hydro Holdings Company
First Hydro Finance plc
First Hydro Company
Mission Hydro Limited Partnership
Mission Energy Italia s.r.l. (Rep. office in Italy)
P.T. Mission Operation and Maintenance Indonesia (Indonesian company)
Mission Energy Canada Corporation (British Columbia company)
B.C. Star Partners (British Columbia partnership)
The Mission Interface Partnership (Province of Ontario general
partnership)
Mission Energy Company (UK) Limited (UK private limited company)
Derwent Cogeneration Limited (UK private limited company)
Edison Mission Energy Limited (UK private limited company)
Mission Energy Services Limited (UK private limited company)
Mission (No. 2) Limited (UK private limited company)
Pride Hold Ltd. (UK corporation)
Lakeland Power Development Company (UK corporation)
Lakeland Power Ltd. (UK corporation)
P.T. Mission Operation and Maintenance Indonesia (Indonesia company)
Traralgon Power Pty Ltd (Australia)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EDISON
MISSION ENERGY AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 383,634
<SECURITIES> 0
<RECEIVABLES> 71,046
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 479,225
<PP&E> 3,401,006
<DEPRECIATION> 152,458
<TOTAL-ASSETS> 5,152,472
<CURRENT-LIABILITIES> 270,890
<BONDS> 2,419,890
150,000
0
<COMMON> 64,130
<OTHER-SE> 955,775
<TOTAL-LIABILITY-AND-EQUITY> 5,152,472
<SALES> 0
<TOTAL-REVENUES> 689,705
<CGS> 0
<TOTAL-COSTS> 289,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,239
<INCOME-PRETAX> 174,110
<INCOME-TAX> 82,045
<INCOME-CONTINUING> 92,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,065
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
