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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1998
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: (949) 752-5588
Securities registered pursuant to Section 12(b) of the Act:
9-7/8% Cumulative Monthly
Income Preferred Securities, Series A * New York Stock Exchange
--------------------------------------- -----------------------
(Title of Class) (name of each exchange on
which registered)
8-1/2% Cumulative Monthly New York Stock Exchange
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
--------------------------
(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 _______.
Aggregate market value of the registrant's Common Stock held by non-affiliates
of the registrant as of March 26, 1999: $0. Number of shares outstanding of the
registrant's Common Stock as of March 26, 1999: 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............................................................. 26
6. Selected Financial Data.............................................. 27
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 29
8. Financial Statements and Supplementary Data.......................... 40
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 40
PART III
10. Directors and Executive Officers of the Registrant................... 74
11. Executive Compensation............................................... 76
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...... 85
Signatures........................................................... 91
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PART I
ITEM 1. BUSINESS
The Company
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Edison Mission Energy (EME) is a leading global power producer. Through its
subsidiaries, EME is engaged in the business of developing, acquiring, owning
and operating electric power generation facilities worldwide. EME is a wholly
owned subsidiary of The Mission Group (TMG), 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 24 domestic and 24 international operating electrical power
generation facilities with an aggregate generating capacity of 9,237 megawatts
(MW), of which EME's share is approximately 7,032 MW. One domestic and one
international operating project totaling 12,326 MW of generating capacity (of
which EME's anticipated share is approximately 10,793 MW) are currently pending
acquisition. One domestic and four international projects totaling 3,162 MW of
generating capacity (of which EME's anticipated share is approximately 1,332 MW)
are currently in the construction stage. At December 31, 1998, EME had
consolidated assets of $5.2 billion and total shareholder's equity of $958
million.
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 (949)
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 predominately in one line of business, electric power
generation, with reportable segments organized by geographic region: Americas,
Asia Pacific and Europe, Central Asia, Middle East and Africa. EME's plants are
located in different geographic areas, which mitigate the effects of regional
markets, economic downturns or unusual weather conditions. These regions take
advantage of the increasing globalization of the independent power market. See
"-- Notes to Consolidated Financial Statements, Note 15. Business Segments".
Description of Business
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General Overview
EME is a leading global power producer. Through its subsidiaries, EME is
engaged in the business of developing, acquiring, owning and operating electric
power generation facilities worldwide. EME was formed in 1986 with two domestic
operating projects. Currently, EME owns interests in 24 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
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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. In
1998, utility deregulation in several states led utilities to divest generating
assets, which has created new opportunities for growth of independent power in
the United States.
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 goal is to be one of the leading owners and operators of
electric generating assets in the world. EME will 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, with its experienced personnel,
that its projects are well-planned, structured and managed, thereby maximizing
value creation. EME has separate strategies for developed and developing
countries.
In developed countries, long-term contracts are likely to be the exception
rather than the rule. EME's strategy focuses primarily on three areas with
respect to uncontracted plants: valuation, trading and regulation. First, EME
continuously improves its valuation tools enabling EME to bid more effectively
and competitively on assets that will be sold over the next five years in the
United States, the United Kingdom, Spain, Italy, Australia and other developed
countries. Second, EME strives to develop its trading skills to enhance the
returns of its generating assets. Third, EME's principal customers continue to
be regulated utilities; therefore, understanding the regulatory and economic
environment in which these utilities operate allows EME to better react to what
they will do.
In developing countries, EME's strategy focuses on investing with good
partners, securing non-recourse financing based upon long-term contracts with
state-owned utilities, and more government support such as the Export-Import
Bank of the United States, the U.S. Overseas Private Investment Corporation and
The Export-Import Bank of Japan.
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 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, (iv) utilizing limited recourse financing and (v) 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 seek to preserve and enhance the
value of EME's investments.
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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, advanced 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, advanced 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 headquartered in Irvine, California with additional
offices located in Fairfax, Virginia and Washington, D.C. The strategy for the
Americas division 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 24
operating projects in this region, all of which are presently located in the
United States.
In March 1999, an indirect, wholly owned subsidiary of EME acquired 100% of
the 1,884-MW Homer City Generating Station for approximately $1.8 billion. EME
financed the acquisition with a combination of debt secured by the project,
corporate debt and cash. This facility is one of the largest coal-fired plants
in the mid-Atlantic region of the United States and has the rights to direct,
high voltage interconnections to both the New York Power Pool and the
Pennsylvania-New Jersey-Maryland Power Pool. EME will operate the plant, which
is one of the lowest-cost generation facilities in the region. EME will invest
additional capital to upgrade the plant's environmental controls. These
upgrades will include the addition of a scrubber on one unit to control sulfur
dioxide and selective catalytic reduction controls at each of the three units to
control nitrogen oxide emissions. Following these upgrades, Homer City will
have the lowest nitrogen oxide emission rate of any large coal plant in the
eastern United States.
In December 1998, EME del Caribe, an indirect, wholly owned subsidiary of
EME, acquired 50% of the 540-MW EcoElectrica liquefied natural gas (LNG)
combined-cycle cogeneration facility under construction in Penuelas, Puerto Rico
for approximately $243 million. The project also includes a desalination plant
and LNG storage and vaporization facilities and is expected to commence
commercial operation by late 1999.
In March 1999, EME entered into agreements to acquire 100% of the fossil-fuel
generating assets of Commonwealth Edison Co., totaling 9,772 MW. EME will
operate the plants, which are located in the Midwest. The closing of the
transaction is subject to various state and federal regulatory approvals and is
expected to be completed by year end 1999. EME plans to finance the
approximately $5 billion acquisition with a combination of debt secured by the
project, corporate debt, cash and funding from Edison International.
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For further information regarding EME's 24 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, Indonesia and the Philippines. Among the three
geographic divisions, the countries covered by the Asia Pacific division have
historically experienced the fastest electric demand growth. Beginning in mid
1997, these economies experienced an economic downturn that is continuing, and
has resulted in a decline in the growth of demand for electric power. Current
forecasts indicate a return to economic health in 1999/2000, and as a result,
electricity demand is expected to recover in most countries, with strong growth
in the medium term. Most governments in the region have committed to
privatization of the electric power industry, and are looking to the private
sector to finance and develop a significant portion of new generating capacity.
The strategy for this region is to (i) pursue projects in countries where
there exist strong political commitment and the structural framework necessary
for private power, (ii) seek opportunities to employ indigenous fuels and (iii)
seek strategic, complimentary 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 of the 1,000-MW Loy Yang B Power Station (Loy Yang
B) from the State Government of Victoria (State), Australia's first electric
privatization effort. In May 1997, a subsidiary of EME acquired the State's 49%
interest in Loy Yang B. 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. 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%.
Construction on the two-unit Paiton project is nearing completion with
commercial operation expected in 1999. The tariff is higher in the early years
and steps down over time. The tariff for the Paiton project includes
infrastructure to be used in common by other units at the Paiton complex. The
plant's output is fully contracted with the state-owned electricity company, PT
Perusahaan Listrik Negara (PLN). Payments are in Indonesian Rupiah, with the
portion of such payments intended to cover non-Rupiah project costs (including
returns to investors) indexed to the Indonesian Rupiah/U.S. dollar exchange rate
established at the time of the Power Purchase Agreement in February 1994. PLN's
payment obligations are supported by the Government of Indonesia. The projected
rate of growth of the Indonesian economy and the exchange rate of Indonesian
Rupiah into U.S. dollars have deteriorated significantly since the Paiton
project was contracted, approved and financed. The project received substantial
finance and insurance support from the Export-Import Bank of the United States,
The Export-Import Bank of Japan, the U.S. Overseas Private Investment
Corporation and the Ministry of International Trade and Industry of Japan. The
Paiton project's senior debt ratings have been reduced from investment grade to
speculative grade based on the rating agencies' perceived increased risk that
PLN might not be able to honor the electricity sales contract with Paiton. The
Government of Indonesia has arranged to reschedule sovereign debt owed to
foreign governments and has entered into discussions
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about rescheduling sovereign debt owed to private lenders. PLN has recently
announced its intentions to commence discussions with independent power
producers to renegotiate the power supply contracts, however it is not yet known
what form the negotiation may take. Any material modifications of the contract
could also require a renegotiation of the Paiton project's debt agreement. The
impact of any such renegotiations with PLN, Government of Indonesia or the
project's creditors on EME's expected return on its investment in Paiton is
uncertain at this time, however, management believes that it will ultimately
recover its investment in the project.
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 electricity and steam to the British
Petroleum Kwinana refinery.
In December 1997, EME (40% ownership), along with its partners, Siam City
Cement (30% ownership) and Lanna Lignite (30% ownership), signed a twenty-five
year power purchase contract with the Electricity Generating Authority of
Thailand (EGAT), pursuant to which EGAT will purchase 734 MW of output from the
coal-fired power generation project at Bo Nok in Thailand. Financial closing
and commencement of construction are anticipated in 1999 with commercial
operation expected to begin in 2002.
In September 1997, the San Pascual project, a consortium including EME (37.5%
ownership), Texaco Inc. (37.5% ownership) and Caltex (25% ownership), signed a
twenty-five year power purchase contract with the National Power Corporation
(NPC), Philippines' state-owned electric utility company, pursuant to which NPC
will purchase 304 MW of output from the San Pascual project. The low-sulfur
residual fuel oil cogeneration project is located in the Philippines. Financial
closing and commencement of construction are anticipated in the first quarter of
1999 with commercial operation expected to begin in 2001.
In July 1998, EME, though an indirect, wholly owned subsidiary, purchased a
25% interest in Tri Energy, a 700-MW gas-fired power plant under construction in
the Ratchaburi Province, Thailand. Commercial operation is expected in mid
2000.
In March 1999, EME entered into agreements to acquire 40% of Contact Energy
Ltd. (Contact), currently owned by the government of New Zealand. Contact owns
and operates hydroelectric, geothermal and natural gas-fired power generating
plants in New Zealand with a total generating capacity of 2,371 MW. Contact
also supplies gas and electricity to customers in New Zealand and has minority
interests in two power projects in Australia. The acquisition is conditional on
the New Zealand government completing an initial public offering of the
remaining 60% of Contact, planned for mid April 1999. EME plans to finance the
approximately $625 million acquisition with debt secured by the project,
corporate debt and cash.
Europe, Central Asia, Middle East and Africa
The Europe, Central Asia, Middle East and Africa division is headquartered in
London, England with additional offices located in Italy, Spain and Turkey. 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
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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.
EME acquired initial ownership interests in Iberian Hy-Power I and II in
December 1992 and August 1993, respectively. 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, EME purchased all of the outstanding shares of First Hydro
Company (First Hydro) for approximately $1 billion (653 million pounds
sterling). First Hydro's principal assets are 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, is comprised of six units totaling 1,728 MW. The Ffestiniog station was
commissioned in 1963 and is comprised of 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.
The project is near completion with commercial operation 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. In April 1997, EME completed financing and commenced construction of
the Doga project. The 180-MW combined cycle gas-fired cogeneration facility is
near completion with commercial operation expected in April 1999.
Project Development
The development of power generation projects involves numerous elements,
including evaluating and selecting development opportunities, evaluating market
risk, designing and engineering the project, acquiring necessary land rights,
permits and fuel resources, obtaining financing, managing construction and, in
some cases, obtaining power and steam sales agreements.
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
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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. Current market conditions for independent power, particularly in the
United States, have become increasingly characterized by shorter-term power
sales agreements or spot sales arrangements. This requires EME to consider
market or "merchant" risk.
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.
EME has interests in operating projects that employ 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 may provide a competitive advantage in the
new marketplace, 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
hydroelectric energy. 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 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.
EME has domestic and international interests in operating projects and
projects under construction and advanced development which are large scale,
coal-fired projects using pulverized coal in coal-fired generation technology.
In the United States, EME has developed and acquired coal and waste coal-fired
projects that employ traditional pulverized coal and circulating fluidized bed
technology.
Power and Steam Sales Contracts
Electric power and steam generated by EME's operating projects in the U.S.,
other than Homer City, is sold primarily to domestic electric utilities and
industrial steam users pursuant to long-term (typically, 15 to 30-year)
contracts. Excluding projects in the U.K. and a project in Australia, electric
power generated overseas is sold primarily under long-term 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
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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.
Electric power generated at Homer City will be sold under bilateral
arrangements with domestic utilities and power marketers under short-term
contracts (two years or less) or to the Pennsylvania-New Jersey-Maryland Power
Pool (PJM) or the New York Power Pool (NYPP). These pools have short-term
markets, which establish an hourly clearing price. Homer City is situated in
the PJM Control Area and is physically connected to high-voltage transmission
lines serving both the PJM and NYPP markets. Power can also be transmitted to
the Midwestern U.S. EME has developed risk management policies and procedures
which, among other matters, address credit risk. It is EME's policy to sell to
investment grade counterparties. EME intends on hedging a portion of the
electric output of the plant in order to lock-in desirable outcomes. It plans
to manage the "spark spread" or margin, that is the spread between electric
prices and fuel prices when deemed appropriate. It plans to use forward
contracts, swaps, futures, or options contracts to achieve those objectives.
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 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 significant 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 pool price for the element of power
under contract. These contracts are sold in various structures. 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.
On July 29, 1998, the Director General of Electricity Supply proposed to the
Minister for Science, Energy and Industry that the current structure of
contracts-for-differences and compulsory trading via the pool at half-hourly
clearing prices bid a day ahead be
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abolished. He proposed in its place, among other things, the establishment of
voluntary forwards and futures markets, organized by independent market
operators and evolving in response to demand; a short-term bilateral market
operating from 24 to 4-hours before a trading period; a balancing market to
enable the system operator to balance generation and demand and resolve any
transmission constraints; a settlement process for recovering imbalances between
contracted and metered volumes with stronger incentives for being in balance;
and a Balancing and Settlement Code Panel to oversee governance of the short-
term bilateral and balancing markets. The Minister for Science, Energy and
Industry has recommended that the proposal be implemented by April 2000. Further
definition of the proposal will be required before the effects of the changes
can be evaluated. Implementation of the proposal may also require legislation.
Loy Yang B sells its electrical energy through a centralized electricity pool
(the National Electricity Market) which provides for a system of generator
bidding, central dispatch and a settlements system based on a clearing market
for each half-hour of every day. The Victorian Power Exchange, operator and
administrator of the pool, determines a system marginal price each half-hour.
To mitigate exposure to price volatility of the electricity traded into the
pool, Loy Yang B has entered into a number of financial hedges. From May 8,
1997 to December 31, 2000, approximately 53% to 64% of the plant output sold is
hedged under "Vesting Contracts" with the remainder of the plant capacity hedged
under the "State Hedge" described below. Vesting Contracts were put into place
by the State, between each generator and each distributor, prior to the
privatization of electric power distributors in order to provide more
predictable pricing for those electricity customers that were unable to choose
their electricity retailer. Vesting Contracts set base strike prices 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 are sold in various structures. These contracts are accounted for as
electricity rate swap agreements. The State Hedge is a long-term contractual
arrangement based upon a fixed price commencing May 8, 1997 and terminating
October 31, 2016. The State guarantees SECV's obligations under the State
Hedge.
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. Domestic steam sales contracts 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 costs 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.
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Project Financing
Each power generation project developed by EME requires a substantial capital
investment. The permanent project financing is often arranged immediately prior
to the construction of the project. With limited exceptions, such debt
financing is for approximately 50 to 80% of each project's costs and is expected
to be structured on a basis that is non-recourse 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 its
affiliates.
The ability to arrange project financing and the cost of such financing are
dependent upon numerous factors, including general economic and capital market
conditions, credit attributes of such project, 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.
EME's financial exposure in any project is generally limited by contractual
arrangement to its equity commitment, which is usually about 20 to 50% of EME's
share of the aggregate project cost. In certain cases, EME provides additional
credit support to projects in the form of debt service reserves, contingent
equity, revenue shortfall support or other arrangements designed to provide
limited support. In addition, the project loan agreements are generally
structured so that 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, schedule delays or if the facility fails to meet certain capacity,
efficiency and emission standards.
As a project goes into operation, operation and maintenance services are
provided to the project by one of EME's operation and maintenance subsidiaries
or another operation and maintenance contractor. An executive director
generally manages the day-to-day operation of each project. Management
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committees comprised of the project's 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,
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 agreements, 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. With the exception of the
Paiton project, EME does not anticipate any material impact to its financial
position or results of operations as a result of counterparty nonperformance.
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, although 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
non-recourse to EME, contain certain representations, warranties, covenants and
other agreements that, if not met, could lead to a default under such
financings. After a default under a project financing for any reason, project
lenders may exercise certain rights and
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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 economic crisis in Indonesia has raised
concerns over the ability of the state owned utility to meet its obligations
under the current power sales contract with EME's Paiton project as discussed
previously in "-- Strategy -- Asia Pacific". 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 complimentary alliances with well-established partners and hedging
foreign exchange exposure where it deems appropriate.
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.
Operation and Maintenance Services
Certain EME subsidiaries provide specialized operating, maintenance, testing
and start-up services for EME-owned projects. At December 31, 1998, Edison
Mission O&M or other subsidiaries had a total of 885 employees and operated 35
of EME's projects totaling 5,121 MW of capacity.
The projects that EME operates have achieved an average 97% availability
during 1998. Availability is a measure of the weighted average number of hours
each generator is available for generation as a percentage of the total number
of hours in a year.
EME's Operating Power Generation Facilities
Domestic Overview
EME currently owns interests in 24 domestic operating projects in nine
states. These operating projects consist of 13 natural gas cogeneration
projects, one coal cogeneration project, one coal-fired EWG (as defined herein)
project, one waste coal project, two geothermal projects and six gas-fired EWG
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 5,513 MW, of which
EME's net ownership share is 3,499 MW.
Each of EME's projects, other than Homer City, 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. Homer City will sell electricity under bilateral arrangements with
domestic utilities and power marketers under short-term contracts (two years or
less) or to the Pennsylvania-New Jersey-Maryland Power Pool (PJM) or the New
York Power Pool (NYPP). The primary power sales contracts for five of EME's
operating projects are with SCE. EME's share of revenues from these projects
accounted for 12% of EME's consolidated revenues in 1998 and 1997.
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The failure of SCE to fulfill its contractual obligations could have a negative
impact on a 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. Fuel supply for EME's
projects generally is arranged through third-party suppliers and transporters.
In January 1998, Oxbow Power of Beowawe, Inc., EME's partner in an operating
geothermal project in Nevada, purchased EME's 50% general partnership interest
in this project from a wholly owned subsidiary of EME. The purchase price of
$4.1 million resulted in an after tax gain of $1.1 million. There has been no
negative impact on EME's revenues as EME discontinued recognizing earnings from
this project in 1996.
In February 1998, the CPUC issued an order which approved an agreement
entered into in August 1997 between an operating geothermal project in
California in which EME has a 50% partnership interest and SCE to terminate two
power sales agreements. There has been no negative impact on EME's revenues as
EME discontinued recognizing earnings from this project in 1993.
In September 1998, the CPUC issued an order which approved an agreement
entered into between an operating cogeneration project in which EME has a 30%
partnership interest and SCE to terminate a power sales agreement. The
termination agreement became effective in February 1999. This will result in a
slight negative impact on EME's future revenues.
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Description of Domestic Operating Projects
EME has ownership interests in the following domestic operating projects:
<TABLE>
<CAPTION>
Electric Operation/
Capacity Primary Electric Ownership Acquisition
Project Location (in MW) Purchaser(3) Type of Facility(4) Interest Date
- ----------------- ---------------- ----------- -------------- ------------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Aidlin(1) Cloverdale,California 20 PG&E Geothermal 5% 1990
American
Bituminous(2) Grant Town, West Virginia 80 MPC Waste Coal 50% 1993
Auburndale(2) Polk County, Florida 150 FPC Cogeneration/EWG 50% 1994
Bayonne Bayonne, New Jersey 165 JCP&L/PSE&G Cogeneration 0.38% 1989
Brooklyn Navy
Yard Brooklyn, New York 286 CE Cogeneration/EWG 50% 1996
Coalinga(2) Coalinga, California 38 PG&E Cogeneration 50% 1991
Commonwealth
Atlantic Chesapeake, Virginia 340 VEPCO EWG 50% 1992
Gordonsville(2) Gordonsville, Virginia 240 VEPCO Cogeneration/EWG 50% 1994
Harbor(2) Wilmington, California 80 Pool EWG 30% 1989
Homer City Pittsburgh, Pennsylvania 1,884 Pool EWG 100% 1999
Hopewell Hopewell, Virginia 356 VEPCO Cogeneration 25% 1990
James River Hopewell, Virginia 110 VEPCO Cogeneration 50% 1987
Kern River(2) Oildale, California 300 SCE Cogeneration 50% 1985
March Point 1 Anacortes, Washington 80 PSE Cogeneration 50% 1991
March Point 2 Anacortes, Washington 60 PSE Cogeneration 50% 1993
Mid-Set(2) Fellows, California 38 PG&E Cogeneration 50% 1989
Midway-Sunset(2) Fellows, California 225 SCE Cogeneration 50% 1989
Nevada Sun-Peak Las Vegas, Nevada 210 NVP EWG 50% 1991
Saguaro(2) Henderson, Nevada 90 NVP Cogeneration 50% 1991
Salinas River(2) San Ardo, California 38 PG&E Cogeneration 50% 1991
Sargent Canyon(2) San Ardo, California 38 PG&E Cogeneration 50% 1991
Sycamore(2) Oildale, California 300 SCE Cogeneration 50% 1988
Watson Carson, California 385 SCE Cogeneration 49% 1988
</TABLE>
(1) Consists of two projects on the same site.
(2) Operated by EME.
(3) Electric purchaser abbreviations are as follows:
<TABLE>
<S> <C> <C> <C>
CE Consolidated Edison Company of New York, Inc. PG&E Pacific Gas & Electric Company
FPC Florida Power Corporation PSE Puget Sound Energy, Inc.
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
Pool Regional electricity trading market
</TABLE>
(4) All of the cogeneration projects are gas-fired facilities, except for
the James River project, which uses coal.
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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 3,533 MW.
Description of International Operating Projects
EME has ownership interests in the following international operating
projects:
<TABLE>
<CAPTION>
Electric Operation/
Capacity Primary Electric Ownership Acquisition
Project Location (in MW) Purchaser(2) Interest Date
- ------- -------- -------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Alos(1) Spain 5 FECSA 100% 1993
Bocos(1) Spain 2 FECSA 100% 1993
Castellas(1) Spain 2 FECSA 100% 1993
Derwent(1) England 214 SE(3) 33% 1995
Dinorwig(1) Wales 1,728 Pool 100% 1995
Ffestiniog(1) Wales 360 Pool 100% 1995
Gelsa(1) Spain 7 FECSA 100% 1993
Kwinana(1) Australia 116 WP 100% 1996
La Flecha(1) Spain 3 FECSA 100% 1993
La Ribera(1) Spain 4 FECSA 100% 1993
Logrono(1) Spain 4 FECSA 100% 1993
Loy Yang B (1) Australia 1,000 Pool(4) 100% 1993,
1996, 1997
Mendavia(1) Spain 6 FECSA 100% 1993
Menuza(1) Spain 17 FECSA 91.3% 1992
Monasterio(1) Spain 2 FECSA 100% 1993
Olvera(1) Spain 2 FECSA 100% 1992
Quintana(1) Spain 1 FECSA 100% 1993
Roosecote England 220 NORWEB(5) 80% 1992
Sardon Bajo(1) Spain 2 FECSA 100% 1993
Sastago I(1) Spain 3 FECSA 91.3% 1992
Sastago II(1) Spain 17 FECSA 91.3% 1992
Sossis(1) Spain 4 FECSA 100% 1992
Toro(1) Spain 4 FECSA 100% 1993
Tudela(1) Spain 1 FECSA 100% 1993
</TABLE>
(1) Operated by EME.
(2) Electric purchaser abbreviations are as follows:
<TABLE>
<S> <C> <C> <C>
FECSA Fuerzas Electricas de Cataluma, S.A. Pool Electricity trading market for England,
NORWEB North Western Electricity Board Wales and Australia
WP Western Power SE Southern Electric plc.
</TABLE>
(3) Sells to the pool with a long-term contract with SE.
(4) Sells to the pool with a long-term contract with the State Electricity
Commission of Victoria.
(5) Sells to the pool with a long-term contract with NORWEB.
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Oil and Gas Investments
In 1988, EME formed a wholly owned subsidiary, 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, 1998, EME owned 50.09% 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, 1998 totaled 190.5 billion cubic feet of natural gas and 21.2
million barrels of oil.
During 1996, EME purchased additional shares of stock of Four Star,
increasing its ownership by 4.38%. During 1998, EME purchased additional shares
of stock of Four Star, increasing its ownership by 3.24% to 50.09% and its
voting ownership to 48.97%.
Competition
EME competes with many other companies, including multinational development
groups, equipment suppliers and other IPPs (including affiliates of utilities),
in selling 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. "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 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.
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Employees and Offices
At February 28, 1999, EME employed 1,186 people, all of whom were full-time
employees and approximately 169 and 140 of whom were covered by collective
bargaining agreements 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
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<PAGE>
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
commences 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, 20 projects have been certified as QFs by the FERC, seven
projects have been certified as EWGs and 16 projects are FUCOs. Most of the
projects currently in the planning or development stage are expected to be
FUCOs. To the extent that any of EME's projects in the development stage will
not be 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 utilities 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 different than the utility's avoided costs.
While public utilities are not explicitly required by PURPA to enter into long-
term contracts, it has been
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<PAGE>
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 have resulted 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 additional state regulation. 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
19
<PAGE>
by expanding its ability to own and operate facilities that do not qualify for
QF status, but 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
lifted 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 or proposing to acquire
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
Nineteen 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 prohibition against
pipelines engaging in sales of gas, (iii) 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, (iv) 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 (v) the
opportunity for pipelines to recover 100% of their prudently incurred costs
(transition costs) associated with implementing the restructuring mandated by
the rule.
20
<PAGE>
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. In addition, as noted above, EWGs may be 100%
owned by EME.
Currently, five of EME's operating projects, Homer City, Nevada Sun-Peak,
Brooklyn Navy Yard, Commonwealth Atlantic and Harbor, 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 and regulate the retail rates
charged by 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 regulations. However, the United States
Court of Appeals for the Ninth Circuit 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 and Virginia, have also instituted QF monitoring
programs.
21
<PAGE>
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
Generally, 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 issued orders or passed legislation requiring
utilities to offer unbundled retail distribution service (retail wheeling)
beginning in 1998. Other states are expected to move toward retail competition
by 2000.
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.
22
<PAGE>
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 partial review of its sites in 1995 and
does not believe that a material liability exists as of December 31, 1998.
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. An EME project is anticipated to make capital expenditures of
approximately $5.7 million ($2.9 million EME's share) during 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.
23
<PAGE>
ITEM 2. PROPERTIES
EME leases its principal office in Irvine, California. This lease is
approximately 119,500 square feet contained on seven floors. The term of the
lease for approximately 65,500 square feet expires on December 31, 2004 with two
five-year options to extend. The term of the lease for the balance of
approximately 54,000 square feet expires on December 31, 2004 with no options to
extend. EME also leases office space in Fairfax, Virginia and Washington, D.C.,
which are not material. Subsidiaries of EME in the Asia Pacific region lease
office space in Manila, Philippines; Melbourne, Australia; Jakarta, Indonesia;
and Singapore. Subsidiaries of EME in the Europe, Central Asia, Middle East and
Africa region lease office space in Barcelona, Spain; Esenyurt, Turkey; London,
England; and Rome, Italy. These subsidiary leases are immaterial.
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>
Business Interest
Plant or Project Segment Location In Land Plant Description
- ---------------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Brooklyn Navy Yard U.S. Brooklyn, New York Leased Natural gas-turbine cogeneration
facility
EcoElectrica U.S. Penuelas, Puerto Rico Owned LNG cogeneration facility under
construction
First Hydro Europe Dinorwig, Wales Owned Pumped-storage electric power
facility
First Hydro Europe Ffestiniog, Wales Owned Pumped-storage electric power
facility
Homer City U.S. Pittsburgh, Owned Coal-fired generation facility
Pennsylvania
Kern River U.S. Oildale, California Leased Natural gas-turbine cogeneration
facility
Loy Yang B Asia Victoria, Australia Owned Coal-fired power facility
Pacific
March Point 1&2 U.S. Anacortes, Washington Leased Natural gas-turbine cogeneration
facility
Midway-Sunset U.S. Fellows, California Leased Natural gas-turbine cogeneration
facility
Paiton Asia East Java, Indonesia Leased Coal-fired power facility under
Pacific construction
Roosecote Europe Barrow-in-Furness, Owned Combined cycle generation
Cumbria, UK technology
Sycamore U.S. Oildale, California Leased Natural gas-turbine cogeneration
facility
Watson U.S. Carson, California Leased Natural gas-turbine cogeneration
facility
</TABLE>
24
<PAGE>
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 $136.8 million. 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 million under the Construction Turnkey Agreement. On March 26, 1998, the
Superior Court in the California action granted PMNC's motion for attachment in
the amount of $43 million against Brooklyn Navy Yard and attached a Brooklyn
Navy Yard bank account in the amount of $0.5 million. Brooklyn Navy Yard is
appealing the attachment order. On the same day, the court stayed all
proceedings in the California action pending an order by the New York Appellate
Court of the appeal by PMNC of a denial of its motion to dismiss the New York
action. That appeal was denied following a hearing on September 29, 1998. 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.
25
<PAGE>
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. EME made cash dividend payments to The Mission Group of $197
million and $150 million in 1997 and 1996, respectively. In 1997, a noncash
dividend of $78 million was also made 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.
26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in millions) Years Ended December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues $893.8 $975.0 $843.6 $467.3 $380.6
Operating expenses 543.3 581.1 476.5 264.0 199.9
------ ------ ------ ------ ------
Income from operations 350.5 393.9 367.1 203.3 180.7
Interest expense (196.1) (223.5) (164.2) (93.1) (89.0)
Interest and other income 50.9 53.9 40.7 33.1 38.8
Minority interest (2.8) (38.8) (69.5) (48.3) (46.1)
------- ------ ------ ------ ------
Income before income taxes 202.5 185.5 174.1 95.0 84.4
Provision for income taxes 70.4 57.4 82.0 31.0 29.4
------- ------ ------ ------ ------
Income before extraordinary loss 132.1 128.1 92.1 64.0 55.0
Extraordinary loss on early extinguishment of debt,
net of income tax benefit -- (13.1) -- -- --
------ ------ ------ ------ ------
Net income $132.1 $115.0 $ 92.1 $ 64.0 $ 55.0
====== ====== ====== ====== ======
<CAPTION>
December 31,
(in millions) ------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Assets $5,158.1 $4,985.1 $5,152.5 $4,374.0 $2,842.9
Current liabilities 501.3 339.8 270.9 199.8 170.9
Long-term obligations 2,366.4 2,532.1 2,419.9 1,839.0 1,159.0
Shareholder's equity 957.6 826.6 1,019.9 1,028.5 622.2
<CAPTION>
(in millions) Years Ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
PROPORTIONATE DATA (Unaudited) (i)
Operating revenues $1,449.6 $ 1,502.2 $1,261.8 $ 865.4 $ 733.0
Operating expenses 1,066.8 1,107.1 912.4 650.3 552.5
-------- --------- --------- --------- --------
Income from operations 382.8 395.1 349.4 215.1 180.5
Interest expense (239.9) (269.2) (212.8) (160.9) (138.5)
Interest and other income 58.4 69.2 44.2 42.1 45.7
-------- --------- -------- -------- --------
Income before income taxes 201.3 195.1 180.8 96.3 87.7
Provision for income taxes 69.2 67.0 88.7 32.3 32.7
-------- --------- -------- -------- --------
Income before extraordinary loss 132.1 128.1 92.1 64.0 55.0
Extraordinary loss on early extinguishment of debt,
net of income tax benefit -- (13.1) -- -- --
------- --------- -------- -------- --------
Net income $ 132.1 $ 115.0 $ 92.1 $ 64.0 $ 55.0
======== ========= ========= ========= =========
Operating cash flow (ii) $ 539.7 $ 559.3 $ 493.7 $ 326.5 $ 264.9
======== ========= ========= ========= =========
</TABLE>
(i) Because Edison Mission Energy does not consolidate significant investments
in which it holds a 50% or less ownership interest, management believes
that the discussion set forth below of certain proportionate data
facilitates an understanding and assessment of its results of operations.
The preceding table sets forth components of Edison Mission Energy's net
income and operating cash flow for each of the last five fiscal years.
Proportionate accounting reflects Edison Mission Energy's pro rata
ownership interest in its energy projects and oil and gas investments.
27
<PAGE>
Except for certain industries, proportionate accounting is not in
accordance with generally accepted accounting principles.
Operating revenues decreased in 1998 compared to an increase in 1997. The
1998 decrease was primarily due to Loy Yang B's new series of power sales-
related contracts associated with Edison Mission Energy's acquisition in
May 1997 of the remaining 49% interest in Loy Yang B (see Management's
Discussion and Analysis - Acquisitions) and lower Australian currency
exchange rates, partially offset by higher energy revenues from First Hydro
as a result of higher energy prices. The 1997 increase resulted primarily
from increases in electric revenues attributable to (1) the start of
commercial operations of Loy Yang B Unit 2 in October 1996 and the Kwinana
project in December 1996 and (2) higher energy revenues from First Hydro as
a result of increased utilization and higher pool prices, partially offset
by lower capacity prices in 1997. There were no comparable electric
revenues for Loy Yang B Unit 2 for the first nine months of 1996 or Kwinana
for the first 11 months of 1996.
Operating expenses decreased in 1998 compared to an increase in 1997. The
1998 decrease was principally due to a decrease in fuel and depreciation
and amortization expense. The decrease in fuel expense in 1998 is primarily
due to the new fuel supply agreement entered into by Loy Yang B related to
the 49% acquisition in May 1997, partially offset by higher fuel expense at
First Hydro as a result of higher prices and increased generation. The 1998
decrease in depreciation and amortization is the result of a full year's
impact of the extension in the useful life of Loy Yang B's plant and
equipment from approximately 30 years, the term of the previous power
purchase agreement, to 50 years, the projected economic life of the plant,
as a result of the May 1997 acquisition combined with lower Australian
currency exchange rates. The 1997 increase in operating expenses was due
mainly to an increase in fuel, plant operations and depreciation and
amortization expense. The 1997 increase in fuel expense and plant
operations was primarily due to commencement of commercial operations of
the Kwinana project in the fourth quarter of 1996 and increased generation
and higher prices at First Hydro. The 1997 increase in depreciation and
amortization resulted from commencement of commercial operations of Loy
Yang B Unit 2 and the Kwinana project in the fourth quarter of 1996.
Interest expense decreased in 1998 due to lower Australian currency
exchange rates and higher capitalized interest as a result of higher
accumulated construction expenditures. Interest expense increased in 1997,
principally as a result of higher project debt levels. Interest and other
income decreased in 1998 compared to an increase in 1997. The 1998 decrease
is the result of lower gains on sale of assets, partially offset by
interest earned on higher cash balances. The 1997 increase resulted from
interest earned on higher cash balances.
(ii) Income from operations plus depreciation, amortization and other non-cash
charges.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This Annual Report 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 a leading global power producer. Through its
subsidiaries, EME is engaged in the business of developing, acquiring, owning
and operating electric power generation facilities worldwide. EME's current
investments include 53 projects totaling 12,399 megawatts (MW) of generation
capacity, of which 9,237 MW are in operation and 3,162 MW are under
construction.
EME's operating revenues are derived primarily from electric revenues and
equity in income from energy projects. Electric revenues accounted for 74%, 76%
and 77% of total operating revenues during 1998, 1997 and 1996, respectively.
Operating revenues also include equity in income from oil and gas investments
and revenues 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 primarily 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.
Acquisitions
- ------------
In March 1999, an indirect, wholly owned subsidiary of EME acquired 100% of
the 1,884-MW Homer City Generating Station for approximately $1.8 billion. This
facility is one of the largest coal-fired plants in the mid-Atlantic region of
the United States. EME financed the acquisition with a combination of debt
secured by the project, corporate debt and cash.
In December 1998, EME del Caribe, an indirect, wholly owned subsidiary of EME,
acquired 50% of the 540-MW EcoElectrica liquefied natural gas (LNG) combined-
cycle cogeneration facility under construction in Penuelas, Puerto Rico for
approximately $243 million. The project also includes a desalination plant and
LNG storage and vaporization facilities and is expected to commence commercial
operation by late 1999.
In 1992, Edison Mission Energy Australia, an indirect, wholly owned subsidiary
of EME (together with other wholly owned affiliates of EME) acquired 51% of the
1,000-MW Loy Yang B Power Station (Loy Yang B) from the State Government of
Victoria (State). In connection with the 1992 acquisition, the State
Electricity Commission of Victoria (SECV) entered into a 30-year power purchase
agreement with EME to purchase its share of the plant output. Loy Yang B's
principal assets are two 500-MW brown-coal-fired units located near Melbourne,
Australia.
In May 1997, a wholly owned subsidiary of EME acquired the State's 49%
interest in Loy Yang B. Consideration for the State's 49% interest consisted of
(1) a cash payment of approximately $64 million (84 million Australian dollars),
(2) termination of the existing power purchase agreement and other
29
<PAGE>
related agreements and (3) entering into a new series of power sales-
related contracts with the State resulting in a total transaction value of
approximately $686 million (900 million Australian dollars).
In January 1996, an indirect, wholly owned subsidiary of 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.
Each of the acquisitions has been accounted for utilizing the purchase method.
The purchase price was allocated to the assets acquired and liabilities assumed
based on their respective fair market values. The consolidated statements of
income, balance sheets and cash flows do not reflect the Homer City Generating
Station acquired in March 1999. The consolidated statement of income for 1997
reflects the operations under the new contracts and the elimination of the
minority interest of Loy Yang B beginning on May 9, 1997.
Results of Operations
- ---------------------
Operating Revenues
Operating revenues decreased in 1998 compared to an increase in 1997 over
1996. The 1998 decrease was primarily due to Loy Yang B's new series of power
sales-related contracts associated with the 49% acquisition in May 1997 and
lower Australian currency exchange rates, partially offset by higher energy
revenues from First Hydro as a result of higher energy prices. The 1997
increase resulted primarily from increases in electric revenues attributable to
the start of commercial operations of Loy Yang B Unit 2 in October 1996 and the
Kwinana project in December 1996 and higher energy revenues from First Hydro as
a result of increased utilization and higher pool prices, partially offset by
lower capacity prices in 1997. There were no comparable electric revenues for
Loy Yang B Unit 2 for the first nine months of 1996 and Kwinana for the first 11
months of 1996.
Equity in income from energy projects rose 14% in 1998 over 1997, and 17% in
1997 over 1996. The 1998 increase is primarily due to earnings from a
geothermal project which were previously deferred and lower fuel gas prices at
various cogeneration projects, partially offset by lower electric and steam
revenues, which are based on fuel prices. The 1997 increase is mainly
attributable to higher electric and steam revenues for several cogeneration
projects due to higher fuel gas prices. Equity in income from oil and gas
investments decreased substantially in 1998 compared with an increase in 1997.
The 1998 decrease was primarily due to lower oil and gas prices, while the 1997
increase was due to higher gas prices.
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.
Operating Expenses
Total operating expenses decreased $37.8 million in 1998, compared to an
increase of $104.6 million in 1997 over 1996. The 1998 decrease is primarily
due to lower fuel and depreciation and amortization expense. Fuel expense
decreased $15.4 million and depreciation and amortization decreased $15.5
million in 1998. The increase in 1997 was principally due to higher fuel
expense, plant operations, depreciation and amortization and administrative and
general expenses. Fuel and plant
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operations expense increased $62.8 million, depreciation and amortization
expense increased $12.9 million and administrative and general expenses
increased $27.6 million in 1997.
The 1998 decrease in fuel expense is primarily due to the new fuel supply
agreement entered into by Loy Yang B related to the 49% acquisition in May 1997,
partially offset by higher fuel expense at First Hydro as a result of higher
prices and increased generation in 1998. The 1997 increase in fuel expense and
plant operations was primarily due to commencement of commercial operations of
the Kwinana project in the fourth quarter of 1996 and increased generation and
higher prices at First Hydro.
The 1998 decrease in depreciation and amortization is the result of a full
year's impact of the extension in the useful life of Loy Yang B's plant and
equipment from approximately 30 years, the term of the previous power purchase
agreement, to 50 years, the projected economic life of the plant, as a result of
the May 1997 acquisition combined with lower Australian currency exchange rates.
The 1997 increase in depreciation and amortization resulted from commencement of
commercial operations of Loy Yang B Unit 2 and the Kwinana project in the fourth
quarter of 1996. Loy Yang B's depreciation expense in 1997 was partially
reduced due to the extension in the useful life of Loy Yang B's plant and
equipment.
Administrative and general expenses decreased slightly in 1998 as a result of
lower compensation expense for charges related to EME's phantom stock plan,
which is part of the Edison International Equity Compensation Plan, partially
offset by higher project development costs. The 1997 increase in administrative
and general expenses is attributable to an increase of approximately $54 million
in compensation expense as a result of charges related to EME's phantom stock
plan. The 1997 increase in compensation expense was partially offset by lower
project development costs.
Other Income (Expense)
Interest and other income increased $22.5 million in 1998 over 1997 and $6.5
million in 1997 over 1996. The 1998 and 1997 increases resulted primarily from
interest earned on higher cash balances.
During the second quarter of 1997, EME completed a sale of its ownership
interest in B.C. Star Partners (B.C. Star) for total cash proceeds of $71.2
million. EME recorded an after-tax gain of approximately $14 million on the
sale in April 1997.
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 interests in these projects.
The purchase price of $70 million resulted in an after-tax gain of $15.5
million. There was no impact on EME's future revenues as EME discontinued
recognizing earnings from these projects during 1993.
Interest expense decreased $27.4 million in 1998 from 1997, compared to a
$59.2 million increase in 1997 over 1996. The decrease in 1998 was due to lower
Australian currency exchange rates and higher capitalized interest as a result
of higher accumulated construction expenditures. Capitalized interest decreased
$51.9 million in 1997 from 1996, due to the completion of construction and
resultant commercial operations of Loy Yang B Unit 2 and the Kwinana project in
the fourth quarter of 1996 at which time EME discontinued recording capitalized
interest related to these projects.
Minority interest expense decreased $36.1 million in 1998 from 1997 and $30.7
million in 1997 from 1996. The decreases resulted from the acquisition of the
remaining 49% ownership interest in Loy Yang B in May 1997.
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<PAGE>
Provision for Income Taxes
EME had effective tax provision rates of 34.8%, 30.9% and 47.1% in 1998, 1997
and 1996, respectively. The 1998 and 1997 tax provisions reflect a benefit from
reductions in the U.K. corporate tax rate from 33% to 31%, effective April 1997
and from 31% to 30%, effective April 1999. In accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," this
reduction in the U.K. income tax rate resulted in reductions in income tax
expense of approximately $11 million and $20 million in 1998 and 1997,
respectively, to adjust the U.K. deferred income tax liability (primarily
related to First Hydro) to the new lower tax rate.
Extraordinary Loss
The early repayment of Loy Yang B's existing debt facilities of $713 million
in connection with the acquisition of the remaining 49% interest in May 1997
resulted in an extraordinary loss of $13.1 million (net of income tax benefit of
$8.6 million) attributable to the write-off of unamortized debt issue costs.
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, 1998, net cash provided by operating activities
increased $7.1 million over 1997, compared with a decrease of $35 million in
1997 from 1996. The 1998 improvement is primarily due to lower income taxes
paid and higher distributions from energy projects, partially offset by lower
dividends from investments in oil and gas and an increase in working capital
requirements. The 1997 decline primarily reflects an increase in working
capital requirements principally due to lower accounts receivable collections
from First Hydro.
Net cash provided by financing activities decreased $43.2 million in 1998 from
1997 and $123.7 million in 1997 from 1996. The decreases were principally due
to a reduction in financing activities. In 1997, the Loy Yang B financing
proceeds received in connection with the acquisition of the remaining 49%
interest were primarily used to repay Loy Yang B's existing debt facilities. In
1996, EME issued 400 million pounds sterling of 9% Guaranteed Secured Bonds
(U.S. $603.8 million), the proceeds of which were used to repay the 400 million
pounds sterling credit facility entered into in December 1995. In addition,
Edison Mission Energy Funding Corp. (EME 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
in December 1996. In 1997 dividends paid to Edison International were $47
million higher than 1996.
The Loy Yang B financing in 1997 consisted of (1) a $373 million (490 million
Australian dollars) 15-year interest only term facility, (2) a $583 million (765
million Australian dollars) 20-year amortizing term facility with principal and
interest payments scheduled quarterly commencing September 30, 1998 and (3) an
$8 million (10 million Australian dollars) working capital facility with a term
equal to that of the 20-year amortizing term facility. The financing was
structured on a non-recourse basis. Lenders look solely to the operating cash
proceeds of Loy Yang B to repay the debt and have taken a security interest in
the Loy Yang B project assets.
The senior notes and bonds issued by EME Funding Corp. in 1996 are secured by
the pledge of (i) notes issued by four EME subsidiaries that own interests in
four California cogeneration projects, (ii) 99% of the capital stock of EME
Funding Corp. and (iii) a guarantee issued by the four EME
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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 EME 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 to 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 increased $311.1 million in 1998 over
1997, compared to a decrease of $149.2 million in 1997 from 1996. The 1998
increase is principally due to the investments and loans totaling $242.8 million
for the purchase of EME's ownership interest in EcoElectrica and lower proceeds
from loan repayments. The 1997 decrease is primarily due to an increase in
proceeds received from loan repayments related to Brooklyn Navy Yard and the
Carbon II project and fewer loans made to energy projects. Proceeds of $71.2
million were received from the sale of EME's ownership interest in B.C. Star in
1997. EME invested $73.4 million, $87.7 million and $119.4 million in 1998,
1997 and 1996, respectively, in new plant and equipment principally related to
the Doga project in 1998 and 1997 and the Loy Yang B Unit 2 and Kwinana projects
in 1996.
At December 31, 1998, EME had cash and cash equivalents of $459.2 million and
had available $441.8 million of borrowing capacity under a $500 million
revolving credit facility that expires in 2001. The credit facility provides
credit available in the form of cash advances or letters of credit, and bears
interest on advances under the London Interbank Offered Rate plus the applicable
margin as determined by EME's long-term debt ratings (0.175% margin at December
31, 1998), the Base Rate (substantially similar to what is commonly known as the
"prime" rate, which was 7.75% at December 31, 1998), or on a competitive auction
basis. In addition to the interest component described above, EME pays a
facility fee as determined by EME's long-term debt ratings (0.075% at December
31, 1998) on the entire credit facility independent of the level of borrowings.
This borrowing capacity under the revolving credit facility may be reduced by
borrowings for firm commitments to contribute project equity and to fund capital
expenditures and construction costs of its project facilities.
Firm Commitments to Contribute Project Equity
<TABLE>
<CAPTION>
Projects Local Currency U.S. ($ in millions)
- --------- -------------- --------------------
<S> <C> <C>
ISAB (i) 244 billion Italian Lira $ 148
Paiton (ii) 52
EcoElectrica (iii) 34
Tri Energy (iv) 25
Doga (v) 7
</TABLE>
(i) ISAB is a 512-MW integrated gasification combined cycle 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.
33
<PAGE>
(ii) 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 1999.
(iii) EcoElectrica is a 540-MW liquefied natural gas combined-cycle cogeneration
facility under construction in Penuelas, Puerto Rico. A wholly owned
subsidiary of EME owns a 50% interest. Equity will be contributed at
commercial operation, which is currently scheduled for late 1999.
(iv) Tri Energy is a 700-MW gas-fired power plant under construction in the
Ratchaburi Province, Thailand. A wholly owned subsidiary of EME owns a 25%
interest. Equity will be contributed at commercial operation, which is
currently scheduled for mid 2000.
(v) Doga is a 180-MW gas-fired power plant under construction near Istanbul,
Turkey. A wholly owned subsidiary of EME owns an 80% interest. Equity
contributions are currently being made and will continue until commercial
operation, which is currently scheduled for April 1999.
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 requiring acceleration of the firm commitments.
Contingent Obligations to Contribute Project Equity
<TABLE>
<CAPTION>
Projects U.S. ($ in millions)
- -------- --------------------
<S> <C>
Paiton (i) $ 141
Tri Energy (ii) 20
Doga (ii) 15
All Other 28
</TABLE>
(i) Contingent obligations to contribute additional project equity (Contingent
Equity) would be based on events principally related to capital cost
overruns during the plant construction, certain partner obligations or
events of default. These contingent obligations are to be cancelled (if
unused) as of the date of term financing by the Export-Import Bank of the
United States. Term financing by the Export-Import Bank of the United
States is the subject of a comprehensive set of conditions and is
scheduled to be achieved by October 1999. A dispute involving a slope
adjacent to the Paiton site will require Contingent Equity to be
contributed for amounts not otherwise covered by insurance. EME's share of
the total costs related to the slope failure are currently estimated to be
between $16 and $44 million.
(ii) Contingent obligations to contribute additional project equity to the
project would be based on events principally related to capital cost
overruns during the plant construction, certain partner obligations or
events of default.
Other than as noted above, management is not aware, at this time, of any other
contingent obligations or obligations to contribute project equity.
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<PAGE>
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,
1998, if payment were required, would be $268 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.
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. In
February 1997, the construction contractor asserted general monetary claims
under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners,
L.P. (BNY) for damages in the amount of $136.8 million. BNY has asserted
general monetary claims against the contractor. In connection with a $407
million non-recourse project refinancing in 1997, EME agreed to indemnify the
partnership and its partner from all claims and costs arising from or in
connection with the contractor litigation, which indemnity has been assigned to
the lenders. EME believes that the outcome of this litigation will not have a
material adverse effect on its consolidated financial position or results of
operations.
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 and has a $336
million investment at December 31, 1998. Construction on the two-unit Paiton
project is nearing completion. The tariff is higher in the early years and
steps down over time. The tariff for the Paiton project includes infrastructure
to be used in common by other units at the Paiton complex. The plant's output is
fully contracted with the state-owned electricity company, PT Perusahaan Listrik
Negara (PLN). Payments are in Indonesian Rupiah, with the portion of such
payments intended to cover non-Rupiah project costs (including returns to
investors) indexed to the Indonesian Rupiah/U.S. dollar exchange rate
established at the time of the Power Purchase Agreement in February 1994. PLN's
payment obligations are supported by the Government of Indonesia. The projected
rate of growth of the Indonesian economy and the exchange rate of Indonesian
Rupiah into U.S. dollars have deteriorated significantly since the Paiton
project was contracted, approved and financed. The project received substantial
finance and insurance support from the Export-Import Bank of the United States,
The Export-Import Bank of Japan, the U.S. Overseas Private Investment
Corporation and the Ministry of International Trade and Industry of Japan. The
Paiton project's senior debt ratings have been reduced from investment grade to
speculative grade based on the rating agencies' perceived increased risk that
PLN might not be able to honor the electricity sales contract with Paiton. The
Government of Indonesia has arranged to reschedule sovereign debt owed to
foreign governments and has entered into discussions about rescheduling
sovereign debt owed to private lenders. PLN has recently announced its
intentions to commence discussions with independent power producers to
renegotiate the power supply contracts, however it is not yet known what form
the renegotiation may take. Any material modifications of the contract could
also require a renegotiation of the Paiton project's debt agreement. The impact
of any such renegotiations with PLN, Government of Indonesia or the project's
creditors on EME's expected return on its investment in Paiton is uncertain at
this time, however, management believes that it will ultimately recover its
investment in the project.
EME's projected construction expenditures that will be funded utilizing non-
recourse project financing are $25 million at December 31, 1998.
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
35
<PAGE>
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 and (3) funds available from EME's
revolving credit facility.
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 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 finance the
construction and operation of its 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 financings. Interest expense included $22.8 million,
$20.5 million and $6.2 million for the years 1998, 1997 and 1996, 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 its
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 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 significant 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 pool price for the element of power
under contract. These contracts are sold in various structures. 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.
On July 29, 1998, the Director General of Electricity Supply proposed to the
Minister for Science, Energy and Industry that the current structure of
contracts-for-differences and compulsory trading via the pool at half-hourly
clearing prices bid a day ahead be abolished. He proposed in its place, among
other things, the establishment of voluntary forwards and futures markets,
organized by independent market operators and evolving in response to demand; a
short-term bilateral market operating from 24 to 4-hours before a trading
period; a balancing market to enable the system operator to balance generation
and demand and resolve any transmission constraints; a settlement process for
recovering imbalances between contracted and metered volumes with stronger
incentives for being in balance; and a Balancing and Settlement Code Panel to
oversee governance of the short-term bilateral and balancing markets. The
Minister for Science, Energy and Industry has recommended that the proposal be
implemented by April 2000. Further definition of the proposal will be required
before the effects of the changes can be evaluated. Implementation of the
proposal may also require legislation.
Loy Yang B sells its electrical energy through a centralized electricity pool
(the National Electricity Market) which provides for a system of generator
bidding, central dispatch and a settlements system based on a clearing market
for each half-hour of every day. The Victorian Power Exchange, operator and
administrator of the pool, determines a system marginal price each half-hour.
To mitigate exposure to price volatility of the electricity traded into the
pool, Loy Yang B has entered into a number of financial hedges. From May 8,
1997 to December 31, 2000, approximately 53% to 64% of the plant output sold is
hedged under "Vesting Contracts" with the remainder of the plant capacity hedged
under the "State Hedge" described below. Vesting Contracts were put into place
by the State, between each
36
<PAGE>
generator and each distributor, prior to the privatization of electric power
distributors in order to provide more predictable pricing for those electricity
customers that were unable to choose their electricity retailer. Vesting
Contracts set base strike prices 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 are sold in various
structures. These contracts are accounted for as electricity rate swap
agreements. The State Hedge is a long-term contractual arrangement based upon a
fixed price commencing May 8, 1997 and terminating October 31, 2016. The State
guarantees SECV's obligations under the State Hedge. The State Hedge and Vesting
Contracts were entered into in connection with the 49% acquisition of Loy Yang B
in May 1997, and therefore electric revenues were not impacted prior to 1997.
EME's electric revenues were increased by $108.4 million and $95.5 million in
1998 and 1997, respectively, compared to a decrease of $4.5 million in 1996, 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 two major international
projects, other than Paiton which was discussed earlier, are discussed below.
The First Hydro project in the U.K. and the Loy Yang B project in Australia
have been financed in their local currency (pound sterling and Australian
dollar, respectively) thereby hedging the majority of their acquisition costs
against foreign exchange fluctuations. Furthermore, EME has evaluated the
return on the remaining equity portion of the investments 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. Based upon these
analyses, management believes that the investment returns for First Hydro and
Loy Yang B are adequately insulated from a broad range of foreign exchange
scenarios at this time. In 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. The
decision to repay the loan was based on management's view that the cost of the
hedge was high relative to the current and expected volatility of the Australian
dollar.
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 domestic operating projects is generally
sold to a limited number of electric utilities pursuant to long-term (typically,
15 to 30-year) power sales contracts and is 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
37
<PAGE>
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 partial review of its sites in 1995 and does not believe that
a material liability exists as of December 31, 1998. 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.
YEAR 2000 ISSUE EME has a comprehensive program in place to remediate potential
Year 2000 impacts from critical systems. EME divides its Year 2000 Issue
activities into five phases: inventory, impact assessment, remediation,
documentation and certification. EME's plan is for critical systems to be
complete by July 1999. A critical system is defined as those applications and
systems, including embedded processor technology, which if not appropriately
remediated may have a significant impact on customers, the revenue stream,
regulatory compliance, or the health and safety of personnel. EME has
essentially completed all phases of the project and is going through the final
review and approval process.
Assurances from third party operated plants have been received indicating
aggressive Year 2000 remediation programs. Monitoring of these efforts is
ongoing. Plants under construction have obtained assurances from new
construction and development contractors, who have been requested to ensure this
is part of their goals. General warranty of plants would likely include any
equipment issues that may arise regarding Year 2000 in the current year.
The other essential component of the EME Year 2000 readiness program is to
identify and assess vendor products and business partners for Year 2000
readiness. EME has a process in place to identify and contact vendors and
business partners to determine their Year 2000 status, and is evaluating the
responses. EME's general policy requires that all newly purchased products be
Year 2000 ready or otherwise designed to allow EME to determine whether such
products present Year 2000 issues.
Plant contingency plans are being developed and are under review for any
significant issues and to schedule appropriate testing and/or training. Such
contingency plans include developing strategies for dealing with Year 2000-
related processing failures or malfunctions due to EME's internal systems or
from external parties. EME's contingency plans evaluate reasonably likely worst
case scenarios or conditions. EME does not expect the Year 2000 issue to have a
material adverse effect on its results of operations or financial position.
However, if not effectively remediated, negative effects from Year 2000 issues,
including those related to external systems, vendors, business partners, the
independent system operator, the power exchange or customers, could cause
results to differ.
STATEMENT OF POSITION 98-5 In April 1998, the American Institute of Certified
Public Accountants issued Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities", which will be effective in January 1999. The
Statement requires that certain costs related to start-up activities be expensed
as incurred and that certain previously capitalized costs be expensed and
reported as a cumulative change in accounting principle. The impact of adopting
SOP 98-5 on EME's net income will be approximately $14 million, after-tax.
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STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133 In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
will be effective in January 2000. The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. A
derivative's gains and losses for qualifying hedges offset related results on
the hedged item in the income statement and a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The impact of adopting Statement 133 on EME's financial statements
has not been quantified at this time.
RECENT DEVELOPMENTS In March 1999, EME entered into agreements to acquire 100%
of the fossil-fuel generating assets of Commonwealth Edison Co. (ComEd),
totaling 9,772 MW. EME will operate the plants, which are located in the
Midwest. The closing of the transaction is subject to various state and federal
regulatory approvals and is expected to be completed by year end 1999. EME
plans to finance the approximately $5 billion acquisition with a combination of
debt secured by the project, corporate debt, cash and funding from Edison
International. The acquisition is expected to have an immaterial effect on
earnings in 1999, 2000 and 2001 as a result of transition contracts whereby
ComEd will retain power purchase agreements with EME, enabling ComEd access to
certain amounts of plant output for the next five years to serve its customers.
In March 1999, EME entered into agreements to acquire 40% of Contact Energy
Ltd. (Contact), currently owned by the government of New Zealand. Contact owns
and operates hydroelectric, geothermal and natural gas-fired power generating
plants in New Zealand with a total generating capacity of 2,371 MW. Contact
also supplies gas and electricity to customers in New Zealand and has minority
interests in two power projects in Australia. The acquisition is conditional on
the New Zealand government completing an initial public offering of the
remaining 60% of Contact, planned for mid April 1999. EME plans to finance the
approximately $625 million acquisition with debt secured by the project,
corporate debt and cash. The acquisition is expected to have an immaterial
effect on earnings through 2001.
39
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
Report of Independent Public Accountants.
Consolidated Statements of Income for the years ended December 31, 1998, 1997
and 1996.
Consolidated Balance Sheets at December 31, 1998 and 1997.
Consolidated Statements of Shareholder's Equity for the years ended December
31, 1998, 1997
and 1996.
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
40
<PAGE>
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, 1998 and
1997, 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,
1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Orange County, California
March 15, 1999
41
<PAGE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Operating Revenues
Electric revenues $ 664,055 $ 744,675 $ 650,838
Equity in income from energy projects 171,819 151,306 128,823
Equity in income from oil and gas investments 17,613 38,079 25,090
Operation and maintenance services 40,293 40,931 38,867
------------- ------------- -------------
Total operation revenues 893,780 974,991 843,618
------------- ------------- -------------
Operating Expenses
Fuel 176,954 192,325 137,151
Plant operations 127,711 132,079 124,451
Operation and maintenance services 28,386 29,314 28,065
Depreciation and amortization 87,339 102,794 89,853
Administrative and general 122,925 124,576 96,954
------------- ------------- -------------
Total operating expenses 543,315 581,088 476,474
------------- ------------- -------------
Income from operations 350,465 393,903 367,144
------------- ------------- -------------
Other Income (Expense)
Interest and other income 49,785 27,306 20,766
Gain on sale of assets 1,148 26,642 19,986
Interest expense (182,901) (210,311) (151,139)
Dividends on preferred securities (13,149) (13,167) (13,100)
Minority interest (2,769) (38,858) (69,547)
------------- ------------- -------------
Total other income (expense) (147,886) (208,388) (193,034)
------------- ------------- -------------
Income before income taxes 202,579 185,515 174,110
Provision for income taxes 70,445 57,363 82,045
------------- ------------- -------------
Income Before Extraordinary Loss $ 132,134 $ 128,152 $ 92,065
------------- ------------- -------------
Extraordinary loss on early extinguishment
of debt, net of income tax benefit -- (13,126) --
------------- ------------- -------------
Net Income $ 132,134 $ 115,026 $ 92,065
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 459,178 $ 585,883
Accounts receivable - trade 74,403 76,935
Accounts receivable - affiliates 13,871 18,139
Prepaid expenses and other 59,864 13,630
---------- ----------
Total current assets 607,316 694,587
---------- ----------
Investments
Energy projects 1,163,597 852,688
Oil and gas 62,949 67,101
---------- ----------
Total investments 1,226,546 919,789
---------- ----------
Property, Plant and Equipment 3,125,747 3,142,551
Less accumulated depreciation and amortization 250,934 201,564
---------- ----------
Net property, plant and equipment 2,874,813 2,940,987
---------- ----------
Other Assets
Long-term receivables 6,862 25,957
Goodwill 308,051 312,606
Restricted cash and other 134,528 91,219
---------- ----------
Total other assets 449,441 429,782
---------- ----------
Total Assets $5,158,116 $4,985,145
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997
------------- -----------
<S> <C> <C>
Liabilities and Shareholder's Equity
Current Liabilities
Accounts payable - affiliates $ 8,339 $ 13,381
Accounts payable and accrued liabilities 99,062 134,411
Accrued incentive compensation 112,652 74,000
Interest payable 56,708 42,627
Current maturities of long-term obligations 224,516 75,383
------------ ----------
Total current liabilities 501,277 339,802
------------ ----------
Long-Term Obligations Net of Current Maturities 2,366,430 2,532,121
------------ ----------
Long-Term Deferred Liabilities
Deferred taxes and tax credits 613,009 517,391
Deferred revenue 490,471 541,176
Other 63,811 68,951
------------ ----------
Total long-term deferred liabilities 1,167,291 1,127,518
------------ ----------
Total Liabilities 4,034,998 3,999,441
------------ ----------
Minority Interests 15,558 9,102
------------ ----------
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 629,406 629,406
Retained earnings 234,345 102,620
Accumulated other comprehensive income 29,679 30,446
------------ ----------
Total Shareholder's Equity 957,560 826,602
------------ ----------
Total Liabilities and Shareholder's Equity $5,158,116 $4,985,145
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Comprehensive Shareholder's
Stock Capital Earnings Income Income Equity
-------- ---------- ---------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $64,130 $629,289 $ 320,529 $ 14,589 $1,028,537
Comprehensive income
Net income 92,065 $ 92,065 92,065
Other comprehensive income
Foreign currency
translation adjustment
net of income tax
provision of $5,040 49,303 49,303 49,303
--------
Total Comprehensive income 141,368
Cash dividends (150,000) (150,000)
-------- ---------- --------- -------- ----------
Balance at December 31, 1996 64,130 629,289 262,594 63,892 1,019,905
Comprehensive income
Net income 115,026 115,026 115,026
Other comprehensive income
Foreign currency
translation adjustment
net of income tax
benefit of $3,933 (33,446) (33,446) (33,446)
--------
Total Comprehensive income 81,580
Cash dividends (197,000) (197,000)
Non-cash dividend (78,000) (78,000)
Non-cash contribution 117 117
-------- ---------- --------- -------- ----------
Balance at December 31, 1997 64,130 629,406 102,620 30,446 826,602
Comprehensive income
Net income 132,134 132,134 132,134
Other comprehensive income
Foreign currency
translation adjustment
net of income tax
provision of $52 (767) (767) (767)
--------
Total Comprehensive income $131,367
Stock option price appreciation
on options exercised (409) (409)
-------- ---------- --------- -------- ----------
Balance at December 31, 1998 $64,130 $629,406 $ 234,345 $ 29,679 $ 957,560
======== ========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 132,134 $ 115,026 $ 92,065
Adjustments to reconcile net income to net cash provided by
operating activities
Equity in income from energy projects (171,819) (151,306) (128,823)
Equity in income from oil and gas (17,613) (38,079) (25,090)
Distributions from energy projects 165,206 133,643 125,717
Dividends from oil and gas 19,812 47,849 50,576
Depreciation and amortization 87,339 102,794 89,853
Deferred taxes and tax credits 85,138 (7,994) 3,378
Gain on sale of assets (1,148) (26,642) (19,986)
Extraordinary loss on early extinguishment of debt, net of tax -- 13,126 --
Decrease (increase) in accounts receivable 6,800 (20,259) 31,356
Decrease (increase) in prepaid expenses and other (32,848) 1,752 4,193
Increase in interest payable 14,081 7,857 18,635
Increase (decrease) in accounts payable and accrued liabilities (8,648) 66,031 10,869
Other, net (11,846) 15,679 41,723
--------- ---------- ---------
Net cash provided by operating activities 266,588 259,477 294,466
--------- ---------- ---------
Cash Flows From Financing Activities
Borrowing on long-term obligations 102,450 1,140,588 188,482
Payments on long-term obligations (84,502) (882,446) (871,734)
Issuance of Guaranteed Secured Bonds -- -- 603,840
Issuance of debt securities -- -- 414,275
Cash dividends to parent -- (197,000) (150,000)
--------- ---------- ---------
Net cash provided by financing activities 17,948 61,142 184,863
--------- ---------- ---------
Cash Flows From Investing Activities
Investments in energy projects (9,997) (62,034) (78,575)
Loans to energy projects (107,219) (63,406) (106,443)
Payments for common stock of acquired companies (221,985) (63,983) (34,640)
Capital expenditures (73,393) (87,706) (119,407)
Proceeds from loan repayments 12,790 160,797 32,067
Proceeds from sale of assets 4,100 71,166 70,000
Decrease (increase) in restricted cash (12,507) (46,275) 17,137
Other, net (32) (5,690) (26,458)
--------- ---------- ---------
Net cash used in investing activities (408,243) (97,131) (246,319)
--------- ---------- ---------
Effect of exchange rate changes on cash (2,998) (21,239) 13,084
--------- ---------- ---------
Net increase (decrease) in cash and cash equivalents (126,705) 202,249 246,094
Cash and cash equivalents at beginning of period 585,883 383,634 137,540
--------- ---------- ---------
Cash and cash equivalents at end of period $ 459,178 $ 585,883 $ 383,634
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
EDISON MISSION ENERGY AND SUBSIDIARIES
NOTES TO 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). Through
its subsidiaries, EME is engaged in the business of developing, acquiring,
owning and operating electric power generation facilities worldwide.
Note 2. Summary of Significant Accounting Policies
- ---------------------------------------------------
Consolidations
The consolidated financial statements include EME and its majority owned
subsidiaries, partnerships and a special purpose corporation. 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 $288.4
million at December 31, 1998, with maturities of three months or less. All
investments are classified as available-for-sale.
Investments in energy projects and oil and gas with 50% or less voting stock
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, 1998.
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.
47
<PAGE>
Useful lives for property, plant and equipment are as follows:
<TABLE>
<CAPTION>
<S> <C>
Furniture and office equipment 2 - 10 years
Building, plant and equipment 25 - 50 years
Civil works 50 - 80 years
Capitalized leased equipment 25 years
Leasehold improvements Life of lease
</TABLE>
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 $25.8 million and $17.2
million at December 31, 1998 and 1997, 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
(undiscounted and without interest charges), then an impairment loss is
recognized in accordance with Statement of Financial Accounting Standards (SFAS)
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The adoption of this statement in 1996 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,
--------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Interest incurred $209.2 $225.3 $215.5
Interest capitalized (26.3) (15.0) (64.4)
------ ------ ------
$182.9 $210.3 $151.1
====== ====== ======
</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.
48
<PAGE>
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. 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 $3.7 million in 1998 and $1.7
million in 1997.
Deferred Revenue
Certain revenues on power sales contracts are deferred and amortized to income
utilizing the unit-of-production method under the contracts.
Revenue Recognition
EME records revenue and related costs as electricity is generated or services
are provided, subject to revenue levelization and amortization of deferred
revenue. Revenues are adjusted for price differentials resulting from its
electricity rate swap agreements in the U.K. and Australia. These rate swap
agreements are discussed further in Note 6.
Financial Instruments
EME enters into interest rate swap, cap and collar agreements to manage its
interest rate exposure. The related net interest rate differentials to be paid
or received are recorded as adjustments to interest expense. In addition, EME
enters into electricity rate swap agreements to manage its exposure to the U.K.
and Australia market (pool) price volatilities. The related price differentials
to be paid or received are currently recorded as adjustments to electric
revenues or fuel expenses. These instruments are discussed further in Note 6.
Translation of Foreign Financial Statements
Assets and liabilities of most foreign operations are translated at end of
period 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) amounted
to $(1.2) million, $(2.9) million and $0.6 million for 1998, 1997 and 1996,
respectively. Gains or losses from translation of foreign currency financial
statements are included in comprehensive income in shareholder's equity.
49
<PAGE>
Stock-based Compensation
EME measures compensation expense relative to stock-based compensation by the
intrinsic-value method.
Note 3. Acquisitions
- ---------------------
In December 1998, EME del Caribe, an indirect, wholly owned subsidiary of EME,
acquired 50% of the 540-MW EcoElectrica liquefied natural gas (LNG) combined-
cycle cogeneration facility under construction in Penuelas, Puerto Rico for
approximately $243 million. The project also includes a desalination plant and
LNG storage and vaporization facilities and is expected to commence commercial
operation by late 1999.
In 1992, Edison Mission Energy Australia, an indirect, wholly owned subsidiary
of EME (together with other wholly owned affiliates of EME) acquired 51% of the
1,000-MW Loy Yang B Power Station (Loy Yang B) from the State Government of
Victoria (State). In connection with the 1992 acquisition, the State
Electricity Commission of Victoria (SECV) entered into a 30-year power purchase
agreement with EME to purchase its share of the plant output. Loy Yang B's
principal assets are two 500-MW brown-coal-fired units located near Melbourne,
Australia.
In May 1997, a wholly owned subsidiary of EME acquired the State's 49%
interest in Loy Yang B. Consideration for the State's 49% interest consisted of
(1) a cash payment of approximately $64 million (84 million Australian dollars),
(2) termination of the existing power purchase agreement and other related
agreements and (3) entering into a new series of power sales-related contracts
with the State resulting in a total transaction value of approximately $686
million (900 million Australian dollars).
Each of the acquisitions has been accounted for utilizing the purchase method.
The purchase price was allocated to the assets acquired and liabilities assumed
based on their respective fair market values. The consolidated statement of
income for 1997 reflects the operations under the new contracts and the
elimination of the minority interest of Loy Yang B beginning on May 9, 1997.
The following unaudited pro forma data summarizes the consolidated results of
operations for the periods indicated as if the acquisition of the 49% interest
in Loy Yang B had occurred at the beginning of 1997 and 1996. The pro forma
data gives effect to certain adjustments including electric revenues, fuel
expense, depreciation and amortization, interest expense 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 acquisitions
been made at the beginning of 1997 or 1996, or of the results which may occur in
the future.
<TABLE>
<CAPTION>
(Unaudited)
Years Ended December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Operating revenues $939.9 $731.2
Income before extraordinary loss 143.9 88.4
Net income 130.8 88.4
</TABLE>
50
<PAGE>
The table below summarizes additional acquisitions by EME or its wholly owned
subsidiaries from 1996 through 1998.
<TABLE>
<CAPTION>
Percentage Purchase
Date Acquired By Acquisition Acquired Price
- ---- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Energy Projects
July 10, 1998 EME Tri Gen B.V. Tri Energy Company Limited 25.0% $ 1.5
January 31, 1996 MEC Indonesia B.V. P.T. Paiton Energy Company 7.5% 10.2
January 23, 1996 MEC International B.V. Iberian Hy-Power Amsterdam B.V. 66.0% 19.5
Oil and Gas
January 1, 1998 Edison Mission Energy Oil Four Star Oil & Gas Company 3.2% 4.1
& Gas (EMEO&G) (Four Star)
August 1, 1996 EMEO&G 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, are accounted for by the equity method. The difference between
the carrying value of energy project investments and the underlying equity in
the net assets amounted to $238.4 million at December 31, 1998. The differences
are being amortized over the life of the projects. The following table presents
summarized financial information of the investments in energy projects:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Domestic energy projects
Equity investment $ 398.8 $ 411.5
Notes receivable 135.2 145.3
-------- -------
Subtotal 534.0 556.8
International energy projects
Equity investment 452.6 230.2
Notes receivable 177.0 65.7
-------- -------
Subtotal 629.6 295.9
Total $1,163.6 $ 852.7
======== =======
</TABLE>
EME's subsidiaries have provided loans or advances related to certain
projects. Domestic loans at December 31, 1998 consist of the following: a
$94.5 million, 10% interest loan; a $26.3 million, 5% interest promissory note,
payable semiannually, due April 2008; and two 8.05% interest loans totaling
$14.4 million. International loans at December 31, 1998 consist of the
following: a $126 million, non-interest bearing loan; a $26 million, LIBOR +
2.25% interest loan (8.0% at December 31, 1998); and a $25 million, 12% interest
loan.
The undistributed earnings of investments accounted for by the equity method
were $176.4 million in 1998 and $163.4 million in 1997.
51
<PAGE>
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,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues $1,585.7 $1,593.4 $1,383.3
Expenses 1,255.6 1,294.7 1,083.1
-------- -------- --------
Net income $ 330.1 $ 298.7 $ 300.2
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
---------- ---------
<S> <C> <C>
Current assets $ 520.6 $ 507.7
Noncurrent assets 5,315.0 4,523.7
-------- --------
Total assets $5,835.6 $5,031.4
======== ========
Current liabilities $1,028.6 $ 750.9
Noncurrent liabilities 3,540.8 2,986.2
Equity 1,266.2 1,294.3
-------- --------
Total liabilities and equity $5,835.6 $5,031.4
======== ========
</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, 1998, 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> <C> <C> <C>
Paiton East Java, Indonesia $335.7 Coal-fired facility under
construction
EcoElectrica Penuelas, Puerto Rico 244.2 Liquefied natural gas facility
under construction
Watson Carson, CA 115.0 Operating cogeneration facility
Brooklyn Navy Yard Brooklyn, NY 89.6 Operating cogeneration facility
Sycamore Bakersfield, CA 70.7 Operating cogeneration facility
Midway-Sunset Fellows, CA 49.2 Operating cogeneration facility
Kern River Bakersfield, CA 48.2 Operating cogeneration facility
March Point Anacortes, WA 15.2 Operating cogeneration facility
</TABLE>
Investments in Oil and Gas
At December 31, 1998, EME had one 50.09% owned (with 48.97% voting stock) and
one 50% owned investment 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
$39.3 million at December 31, 1998. 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:
52
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Operating revenues $211.3 $304.7 $313.7
Operating expenses 164.1 197.4 222.3
------ ------ ------
Operating income 47.2 107.3 91.4
Provision (credit) for income taxes (2.3) 18.5 17.2
------ ------ ------
Net income (before non-operating items) 49.5 88.8 74.2
Non-operating expense, net (13.5) (12.8) (12.0)
------ ------ ------
Net income $ 36.0 $ 76.0 $ 62.2
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------- -------
<S> <C> <C>
Current assets $ 81.5 $ 94.3
Noncurrent assets 384.7 417.6
------ ------
Total assets $466.2 $511.9
====== ======
Current liabilities $111.4 $ 49.5
Noncurrent liabilities 226.9 309.4
Deferred income taxes and other liabilities 42.0 64.5
Equity 85.9 88.5
------ ------
Total liabilities and equity $466.2 $511.9
====== ======
</TABLE>
Long-Term Receivables
At December 31, 1997, long-term receivables included notes receivable from
EME's former partner in the Carbon II power plant. In December 1997, EME's
former partner made a prepayment of $65 million, reducing notes receivable to
$21.2 million at December 31, 1997, which has been reclassified to current
assets at December 31, 1998. These notes are secured by a surety bond.
Interest on these notes is payable quarterly at LIBOR plus 2% (7.07% at December
31, 1998), with the remaining principal due in November 1999.
Note 5. Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
--------- ----------
<S> <C> <C>
Buildings, plant and equipment $1,756.5 $1,857.8
Civil works 1,009.2 1,002.2
Construction in progress 164.0 83.8
Capitalized leased equipment 196.0 198.8
-------- --------
3,125.7 3,142.6
Less accumulated depreciation and amortization 250.9 201.6
-------- --------
Net property, plant and equipment $2,874.8 $2,941.0
======== ========
</TABLE>
53
<PAGE>
Note 6. Financial Instruments
- ------------------------------
Long-Term Obligations
Long-term obligations include both corporate debt and non-recourse project
debt, whereby lenders rely on specific project assets to repay such obligations.
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
--------- ----------
<S> <C> <C>
EME (parent only)
Senior Notes, net
due 1999 (7.75%) $ 99.9 $ 99.8
due 2002 (8.125%) 99.4 99.3
Edison Mission Energy Funding Corp.
Series A Notes, net
due 1997-2003 (6.77%) 198.8 231.5
Series B Bonds, net
due 2004-2008 (7.33%) 188.9 188.7
First Hydro project
First Hydro Finance Plc Guaranteed
Secured Bonds due 2021 (9%) 665.1 657.1
Iberian Hy-Power project
Term Loan
due 2012 (MIBOR + 0.75%)
(3.989% at 12/31/98) 79.3 78.1
Fuerzas Electricas de Cataluna, S.A.
due 2003 (9.408%) 25.1 26.5
Compagnie Generale Des Eaux
due 2003 (non-interest bearing) 22.7 21.8
Loy Yang B project
Energy Capital Partnership Credit Agreement
due 2012-2017 (BBR + 0.4 to 1.1%)
(5.33% to 6.03% at 12/31/98) 766.8 823.6
Roosecote project
Capital lease obligation (see Note 12) 48.4 68.2
Term Loan and Guarantee Facility
due 2005 (sterling LIBOR + 0.6%)
(6.858% at 12/31/98) 92.2 83.1
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C>
Kwinana project
Syndicated Project Facility Agreement
due 2012 (BER + 1.2%)
(6.025% at 12/31/98) 60.6 67.2
Doga project
Overseas Private Investment Corporation
Credit Facility
due 2010 (U.S. Treasury Note + 3.95%)
(8.598% at 12/31/98) 81.2 43.3
Nederlandsche Credietverzekering Maatschappij N.V.
due 2010 (LIBOR + 1.25%)
(6.316% at 12/31/98) 29.9 16.0
Other long-term obligations 132.6 103.3
-------- --------
Subtotal 2,590.9 2,607.5
Current maturities of long-term obligations (224.5) (75.4)
-------- --------
Total $2,366.4 $2,532.1
======== ========
</TABLE>
At December 31, 1998, EME had available $441.8 million of borrowing capacity
and approximately $58.2 million in letters of credit issued under a $500 million
revolving credit facility that expires in 2001.
In May 1997, EME closed financing of $964 million (1.265 billion Australian
dollars) in connection with the acquisition of the remaining 49% interest in the
Loy Yang B project. The proceeds received were used to repay Loy Yang B's
existing debt facilities of $713 million (935.5 million Australian dollars) with
the balance used to finance the acquisition and to return funds to various
affiliates of EME. The financing consists of (1) a $373 million (490 million
Australian dollars) 15-year interest only term facility, (2) a $583 million (765
million Australian dollars) 20-year amortizing term facility with principal and
interest payments scheduled quarterly commencing September 30, 1998, and (3) an
$8 million (10 million Australian dollars) working capital facility with a term
equal to that of the 20-year amortizing term facility. The financing was
structured on a non-recourse basis. Lenders look solely to the operating cash
proceeds of Loy Yang B to repay the debt and have taken a security interest in
the Loy Yang B project assets. The early repayment of Loy Yang B's existing
debt facilities of $713 million resulted in an extraordinary loss of $13.1
million (net of income tax benefit of $8.6 million) attributable to the write-
off of unamortized debt issue costs.
Annual maturities on long-term debt at December 31, 1998, for the next five
years, excluding capital leases (see Note 12) are summarized as follows: 1999 -
$201.8 million; 2000 - $87.5 million; 2001 - $87.9 million; 2002 - $196.2
million; 2003 - $135.3 million. The current portion of Roosecote debt is
included in long-term debt, as proceeds from future borrowings will exceed the
current portion under terms of the Term Loan and Guarantee Facility.
Certain cash balances are restricted primarily to pay amounts required for
debt payments and letter of credit expenses. The total restricted cash was
$72.1 million at December 31, 1998 and $59.5 million at December 31, 1997.
Debt service reserves classified in Other Assets (including reserves for
interest on annual lease payments) were $66.2 million at December 31, 1998 and
$44.7 million at December 31, 1997.
55
<PAGE>
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
(also referred to as the "pool price") for electrical energy. The 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 significant 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 pool price for the element of power
under contract. These contracts are sold in various structures. 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.
On July 29, 1998, the Director General of Electricity Supply proposed to the
Minister for Science, Energy and Industry that the current structure of
contracts-for-differences and compulsory trading via the pool at half-hourly
clearing prices bid a day ahead be abolished. He proposed in its place, among
other things, the establishment of voluntary forwards and futures markets,
organized by independent market operators and evolving in response to demand; a
short-term bilateral market operating from 24 to 4-hours before a trading
period; a balancing market to enable the system operator to balance generation
and demand and resolve any transmission constraints; a settlement process for
recovering imbalances between contracted and metered volumes with stronger
incentives for being in balance; and a Balancing and Settlement Code Panel to
oversee governance of the short-term bilateral and balancing markets. The
Minister for Science, Energy and Industry has recommended that the proposal be
implemented by April 2000. Further definition of the proposal will be required
before the effects of the changes can be evaluated. Implementation of the
proposal may also require legislation.
Loy Yang B has entered into a number of financial hedges to mitigate exposure
to price volatility of the electricity traded into the pool. From May 8, 1997
to December 31, 2000, approximately 53% to 64% of the plant output sold is
hedged under "Vesting Contracts" with the remainder of the plant capacity hedged
under the "State Hedge" described below. Vesting Contracts were put into place
by the State, between each generator and each distributor, prior to the
privatization of electric power distributors in order to provide more
predictable pricing for those electricity customers that were unable to choose
their electricity retailer. Vesting Contracts set base strike prices 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 are sold in various structures. These contracts are accounted for as
electricity rate swap agreements. The State Hedge is a long-term contractual
arrangement based upon a fixed price commencing May 8, 1997 and terminating
October 31, 2016. The State guarantees SECV's obligations under the State
Hedge.
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 fluctuation in
56
<PAGE>
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, 1998
and 1997, 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
corresponding preferred securities due 9.875% to a floating rate
2024
Kwinana project 39.4 million Australian dollars Change floating-rate debt to a
(12/31/98) (U.S. $24 million); 40.8 fixed rate of 10.98%
million Australian dollars (12/31/97)
(U.S. $27 million); expiring in 2007
Loy Yang B project 1.4 billion Australian dollars (U.S. $855 Change floating-rate debt to
million) expiring 2002-2008; 1.2 billion fixed rates ranging from 6.05%
Australian dollars (U.S. $781 million) to 7.93%
expiring 2002-2007
Interest rate collar
Iberian Hy-Power project 11.7 billion Spanish pesetas Change interest rate exposure to
(U.S. $82 million) expiring in 1999 float within range from 4.5%
minimum to 7.5% maximum
Electricity rate swaps
First Hydro project Approximately 2,095 MW related to winter Change the variable market
months (October through March) and 1,691 electricity sales rates to fixed
MW related to summer months (April rates
through September) of electrical
generation under selling pricing
contracts (12/31/98); 1,685 MW related to
winter months and 759 MW related to
summer months (12/31/97); expiring at
various dates through 2000
Approximately 1,120 MW related to winter Change the variable market
months and 860 MW related to summer electricity sales rates to fixed
months of electricity under purchasing rates
pricing contracts (12/31/98);
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
410 MW related to winter months and 200
MW related to summer months (12/31/97);
expiring at various dates through 2000
Loy Yang B project Approximately 920 MW of electrical Change the variable market
generation under selling pricing electricity sales rates to fixed
contracts (12/31/98 and 12/31/97) rates
expiring at various dates through 2016
</TABLE>
Fair values of financial instruments were:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1998 1997
------------------ ------------------
Carrying Fair Carrying Fair
Instruments Amount Value Amount Value
- ----------- -------- ----- -------- -----
<S> <C> <C> <C> <C>
Long-term receivables $ 6.9 $ 6.8 $ 26.0 $27.6
Electricity rate swap agreements -- 19.2 -- 77.1
Long-term obligations 2,366.4 2,293.2 2,532.1 2,715.6
Interest rate swap/collar agreements -- (83.1) -- (68.1)
</TABLE>
The fair values for long-term receivables, interest rate swap agreements, the
interest rate collar 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 and Loy Yang B 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.
In addition, Iberian Hy-Power has entered into a forward-starting interest
rate swap in order to fix the interest rate on a portion of the long-term debt
outstanding. The swap period commences on December 15, 1999 and matures on
December 15, 2007. The notional amount of the swap is based on an amortizing
loan profile. The notional amount at December 15, 1999 is 10.8 billion Spanish
pesetas (U.S. $76 million). As of December 31, 1998, the fair value of this
swap was a negative $9.5 million dollars which has been reflected in the table
above.
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 counterparties pursuant to the terms of their
contractual obligations. The counterparties 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 counterparties that have a strong capacity to meet their
contractual obligations and by monitoring the credit quality of these financial
institutions and utilities. The currency crisis in Indonesia has raised
concerns over the ability of the state owned utility
58
<PAGE>
to meet its obligations under the current power sales contract with EME's Paiton
project as discussed further in Note 11. In addition, EME enters into contracts
whereby the structure of the contracts minimizes its credit exposure.
Accordingly, EME, with the exception of the Paiton project, does not anticipate
any material impact to its financial position or results of operations as a
result of counterparty nonperformance.
The electric power generated by EME's domestic 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 flows 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,
-----------------------------
1998 1997
--------- ----------
<S> <C> <C>
Deferred tax assets
Reserves and other items not currently deductible $109.4 $ 92.0
Loss carryforwards 41.5 8.9
Deferred income 187.9 191.6
Dividends in excess of equity earnings 22.4 22.4
Other 10.1 17.1
------ ------
Total 371.3 332.0
------ ------
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C>
Deferred tax liabilities
Basis differences 963.4 820.0
Tax credits, net 20.6 29.0
Other 0.3 0.4
------ ------
Total 984.3 849.4
------ ------
Deferred taxes and tax credits, net $613.0 $517.4
====== ======
</TABLE>
Loss carryforwards, primarily Australian, total $135 million and $45 million
at December 31, 1998 and 1997, respectively, with no expiration date.
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
U.S. $ 32.8 $ 39.0 $ 40.6
Foreign 169.8 146.5 133.5
------ ------ ------
Total $202.6 $185.5 $174.1
====== ====== ======
</TABLE>
United States income tax has not been provided on unrepatriated foreign
earnings in the amounts of $255 million and $170 million at December 31, 1998
and 1997, respectively.
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current
Federal $(10.5) $ (2.4) $ 33.1
State (19.0) (10.2) 6.7
Foreign 14.8 78.3 38.8
------ ------ ------
Total current (14.7) 65.7 78.6
------ ------ ------
Deferred
Federal 28.1 14.3 (17.9)
State 25.3 9.0 0.4
Foreign 31.7 (31.6) 20.9
------ ------ ------
Total deferred 85.1 (8.3) 3.4
------ ------ ------
Provision for income taxes $ 70.4 $ 57.4 $ 82.0
====== ====== ======
</TABLE>
60
<PAGE>
The components of the deferred tax provision (credit), which arise from tax
credits and timing differences between financial and tax reporting, are
presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Basis differences $116.5 $ 102.6 $ 55.3
Loss carryforwards (32.6) 121.0 (41.2)
Deferred income 3.7 (197.9) --
State tax deduction 4.3 (0.2) (2.9)
Reserves and other items not currently deductible (17.4) (27.6) 8.7
Elimination of book income 6.9 (7.0) (10.0)
Dividends in excess of equity earnings -- 0.2 (9.2)
Other 3.7 0.6 2.7
------ ------- ------
Total deferred provision (credit) $ 85.1 $ (8.3) $ 3.4
====== ======= ======
</TABLE>
Variations from the 35% federal statutory rate are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Expected provision for federal income taxes $ 70.9 $ 64.9 $ 60.9
Increase (decrease) in the provision for taxes
resulting from
State tax - net of federal deduction 4.1 (0.8) 4.4
Dividends received deduction (4.0) (8.2) (7.9)
Amortization of tax credits (6.5) (1.7) (8.6)
Benefit due to foreign tax rate reduction (11.0) (20.0) --
Taxes payable under anti-deferral regimes 6.7 7.0 --
Taxes on foreign operations at different rates 8.4 12.8 17.3
Book and tax basis differences 2.3 3.5 15.4
Other (0.5) (0.1) 0.5
------ ------ -----
Total provision for income taxes $ 70.4 $ 57.4 $82.0
====== ====== =====
Effective tax rate 34.8% 30.9% 47.1%
====== ====== =====
</TABLE>
Note 9. Employee Benefit Plans
- -------------------------------
U.S. employees of EME are eligible for various benefit plans of Edison
International. Certain EME Australian, U.K. and Spanish subsidiaries also
participate in their own respective defined benefit pension plans.
Pension Plans
Noncontributory, defined benefit pension plans cover employees who fulfill
minimum service requirements. 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. and Spanish
plans.
61
<PAGE>
In 1996, EME recorded special termination benefits in connection with its
special voluntary early retirement program. The special termination benefit was
paid directly from the employer's assets and plan assets.
In 1998, EME adopted a new accounting standard that revises the disclosure
requirements for pension plans. Prior periods have been restated.
Information on plan assets and benefit obligations is shown below:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
U.S. Plan Non U.S. Plans
------------------- --------------------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $20.5 $14.7 $ 30.1 $ 26.1
Service cost 2.4 1.8 1.8 1.5
Interest cost 1.4 1.1 1.9 1.9
Actuarial gain 2.0 3.0 3.3 0.8
Plan participants' contribution -- -- 0.6 0.5
Benefits paid (0.2) (0.1) (1.0) (0.7)
----- ----- -------- ---------
Benefit obligation at end of year $26.1 $20.5 $ 36.7 $ 30.1
===== ===== ======== =========
Change in Plan Assets
Fair value of plan assets at beginning of year $16.6 $11.7 $ 28.3 $ 24.1
Actual return on plan assets 2.3 2.7 3.4 1.9
Employer contributions 2.2 2.3 3.7 2.5
Plan participants' contribution -- -- 0.2 0.3
Benefits paid (0.2) (0.1) (0.8) (0.5)
----- ----- -------- ---------
Fair value of plan assets at end of year $20.9 $16.6 $ 34.8 $ 28.3
----- ----- -------- ---------
Funded Status $(5.2) $(3.9) $ (1.9) $ (1.8)
Unrecognized net gain -- (0.8) 2.4 0.7
Unrecognized net obligation (17-year amortization) 1.4 1.4 -- --
Unrecognized prior service cost 0.5 0.5 -- --
----- ----- -------- ---------
Pension asset (liability) $(3.3) $(2.8) $ 0.5 $ (1.1)
===== ===== ======== =========
Discount rate 6.75% 7.0% 4.5-5.5% 5.0-6.75%
Rate of compensation increase 5.0% 5.0% 3.0% 3.5-4.75%
Expected return on plan assets 7.5% 8.0% 6.0-8.0% 7.0%-9.0%
</TABLE>
62
<PAGE>
Components of pension expense were:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
U.S. Plan Non U.S. Plans
-------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 2.4 $ 1.8 $ 2.0 $ 1.8 $ 1.5 $ 1.2
Interest cost obligation 1.4 1.1 1.5 1.9 1.9 1.7
Expected return on plan assets (1.3) (1.1) (1.7) (3.4) (2.9) (1.5)
Net amortization and deferral 0.2 0.2 0.9 1.3 0.9 (0.1)
----- ----- ----- ----- ----- -----
Pension expense 2.7 2.0 2.7 1.6 1.4 1.3
Special termination benefits -- -- 0.9 -- -- --
----- ----- ----- ----- ----- -----
Net pension expense $ 2.7 $ 2.0 $ 3.6 $ 1.6 $ 1.4 $ 1.3
===== ===== ===== ===== ===== =====
</TABLE>
Postretirement Benefits Other Than Pensions
U.S. employees retiring at or after age 55 with at least 10 years of service
are eligible for postretirement health care, dental, life insurance and other
benefits. In 1996, EME recorded special termination expenses from a special
voluntary early retirement program.
In 1998, EME adopted a new accounting standard that revises the disclosure
requirements for postretirement benefit plans. Prior periods have been
restated.
Information on plan assets and benefit obligations is shown below:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $ 11.7 $ 11.4
Service cost 1.4 1.2
Interest cost 0.7 0.7
Actuarial loss (gain) 1.3 (1.3)
Benefits paid (0.2) (0.3)
------ ------
Benefit obligation at end of year $ 14.9 $ 11.7
------ ------
Change in Plan Assets
Fair value of plant assets at beginning of year $ -- $ --
Employer contributions 0.2 0.3
Benefits paid (0.2) (0.3)
------ ------
Fair value of plan assets at end of year $ -- $ --
------ ------
Funded Status $(14.9) $(11.7)
Unrecognized net loss 2.5 1.1
Unrecognized transition obligation (20-year amortization) 2.0 2.0
------ ------
Recorded liability $(10.4) $ (8.6)
------ ------
Discount rate 6.75% 7.0%
</TABLE>
63
<PAGE>
The components of postretirement benefits other than pensions expense were:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Service cost $ 1.4 $ 1.2 $ 1.2
Interest cost 0.7 0.7 0.7
Amortization of transition obligation 0.2 0.1 0.2
----- ----- -----
Net expense 2.3 2.0 2.1
Special termination expense -- -- 0.5
----- ----- -----
Total expense $ 2.3 $ 2.0 $ 2.6
===== ===== =====
</TABLE>
The assumed rate of future increases in the per-capita cost of health care
benefits is 8.25% for 1999, gradually decreasing to 5.0% for 2009 and beyond.
Increasing the health care cost trend rate by one percentage point would
increase the accumulated obligation as of December 31, 1998, by $3.4 million and
annual aggregate service and interest costs by $0.7 million. Decreasing the
health care cost trend rate by one percentage point would decrease the
accumulated obligation as of December 31, 1998, by $2.6 million and annual
aggregate service and interest costs by $0.5 million.
Employee Stock Plans
- --------------------
A 401(k) plan is maintained to supplement eligible U.S. employees' retirement
income. The plan received EME contributions of $0.8 million in 1998 and $0.7
million in 1997 and 1996.
In addition to the defined benefit plans described above, certain Australian
and U.K. subsidiaries of EME sponsor a defined contribution plan. Annual
contributions are based on 8 to 13.5 percent of covered employees' salaries.
Contribution expense for the subsidiaries totaled approximately $0.5 million,
$0.3 million and $0.2 million in 1998, 1997 and 1996, respectively.
Note 10. Stock Compensation Plans
- ----------------------------------
Under the Edison International Equity Compensation Plan (ECP), 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 of EME, options on
352,372 shares of Edison International Common Stock of which 83,000, 61,300 and
57,900 were granted in 1998, 1997 and 1996, respectively. Options on Edison
International stock include a dividend equivalent feature.
Compensation expense recorded under the stock compensation program was $0.5
million for 1998 and 1997 and $0.7 million for 1996.
The weighted-average fair value of options granted during 1998, 1997 and 1996
was $6.33 per share option, $7.62 per share option and $6.27 per share option,
respectively. The weighted-average remaining life of options outstanding as of
December 31, 1998, 1997 and 1996 was seven years.
64
<PAGE>
The fair value for each option granted during 1998, 1997 and 1996, 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>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Expected life 7 years 7 years 7 years
Risk-free interest rate 5.6% 6.5% 5.5%
Expected volatility 17% 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 "Stock-Based
Compensation" would have resulted in pro forma earnings of $132.3 million,
$112.3 million and $92.1 million in 1998, 1997 and 1996, respectively.
Phantom Stock Options
EME, as a part of the ECP, 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 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 9%. The 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, for all awards prior to 1998.
Beginning in 1998, one-fourth of the 1998 and future option awards will vest in
each of the first four years of the award term. Compensation expense recorded
with respect to phantom stock options was $39 million, $70 million and $16.1
million in 1998, 1997 and 1996, respectively.
Note 11. Commitments and Contingencies
- ---------------------------------------
Firm Commitments for Asset Purchase
<TABLE>
<CAPTION>
Project U.S. Currency
- ------- -------------
<S> <C>
Homer City (i) $ 1,801
</TABLE>
(i) Homer City is a 1,884-MW coal-fired generating plant in the mid-Atlantic
region of the United States. A wholly owned subsidiary of EME executed an
Asset Purchase Agreement to purchase 100% of the Homer City Electric
Generating Station, which is currently scheduled to close during the first
quarter of 1999. EME plans to finance the acquisition with a combination of
debt secured by the project, corporate debt and cash.
Firm Commitments to Contribute Project Equity
<TABLE>
<CAPTION>
Projects Local Currency U.S. Currency
- -------- -------------- -------------
<S> <C> <C>
ISAB (i) 244 billion Italian Lira $148
Paiton (ii) 52
EcoElectrica (iii) 34
Tri Energy (iv) 25
Doga (v) 7
</TABLE>
65
<PAGE>
(i) ISAB is a 512-MW integrated gasification combined cycle 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.
(ii) 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 1999.
(iii) EcoElectrica is a 540-MW liquefied natural gas combined-cycle cogeneration
facility under construction in Penuelas, Puerto Rico. A wholly owned
subsidiary of EME owns a 50% interest. Equity will be contributed at
commercial operation, which is currently scheduled for late 1999.
(iv) Tri Energy is a 700-MW gas-fired power plant under construction in the
Ratchaburi Province, Thailand. A wholly owned subsidiary of EME owns a 25%
interest. Equity will be contributed at commercial operation, which is
currently scheduled for mid 2000.
(v) Doga is a 180-MW gas-fired power plant under construction near Istanbul,
Turkey. A wholly owned subsidiary of EME owns an 80% interest. Equity
contributions are currently being made and will continue until commercial
operation, which is currently scheduled for April 1999.
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 requiring acceleration of the firm commitments.
Contingent Obligations to Contribute Project Equity
<TABLE>
<CAPTION>
Projects U.S. Currency
- -------- -------------
<S> <C>
Paiton (i) $141
Tri Energy (ii) 20
Doga (ii) 15
All Other 28
</TABLE>
(i) Contingent obligations to contribute additional project equity (Contingent
Equity) would be based on events principally related to capital cost
overruns during the plant construction, certain partner obligations or
events of default. These contingent obligations are to be cancelled (if
unused) as of the date of term financing by the Export-Import Bank of the
United States. Term financing by the Export-Import Bank of the United
States is the subject of a comprehensive set of conditions and is
scheduled to be achieved by October 1999. A dispute involving a slope
adjacent to the Paiton site will require Contingent Equity to be
contributed for amounts not otherwise covered by insurance. EME's share of
the total costs related to the slope failure are currently estimated to be
between $16 million and $44 million.
(ii) Contingent obligations to contribute additional project equity to the
project would be based on events principally related to capital cost
overruns during the plant construction, certain partner obligations or
events of default.
Other than as noted above, management is not aware, at this time, of any
other contingent obligations or obligations to contribute project equity.
66
<PAGE>
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,
1998, if payment were required, would be $268 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.
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. In
February 1997, the construction contractor asserted general monetary claims
under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners,
L.P. (BNY) for damages in the amount of $136.8 million. BNY has asserted
general monetary claims against the contractor. In connection with a $407
million non-recourse project refinancing in 1997, EME agreed to indemnify the
partnership and its partner from all claims and costs arising from or in
connection with the contractor litigation, which indemnity has been assigned to
the lenders. EME believes that the outcome of this litigation will not have a
material adverse effect on its consolidated financial position or results of
operations.
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 and has a $336
million investment at December 31, 1998. Construction on the two-unit Paiton
project is nearing completion. The tariff is higher in the early years and
steps down over time. The tariff for the Paiton project includes infrastructure
to be used in common by other units at the Paiton complex. The plant's output is
fully contracted with the state-owned electricity company, PT Perusahaan Listrik
Negara (PLN). Payments are in Indonesian Rupiah, with the portion of such
payments intended to cover non-Rupiah project costs (including returns to
investors) indexed to the Indonesian Rupiah/U.S. dollar exchange rate
established at the time of the Power Purchase Agreement in February 1994. PLN's
payment obligations are supported by the Government of Indonesia. The projected
rate of growth of the Indonesian economy and the exchange rate of Indonesian
Rupiah into U.S. dollars have deteriorated significantly since the Paiton
project was contracted, approved and financed. The project received substantial
finance and insurance support from the Export-Import Bank of the United States,
The Export-Import Bank of Japan, the U.S. Overseas Private Investment
Corporation and the Ministry of International Trade and Industry of Japan. The
Paiton project's senior debt ratings have been reduced from investment grade to
speculative grade based on the rating agencies' perceived increased risk that
PLN might not be able to honor the electricity sales contract with Paiton. The
Government of Indonesia has arranged to reschedule sovereign debt owed to
foreign governments and has entered into discussions about rescheduling
sovereign debt owed to private lenders. PLN has recently announced its
intentions to commence discussions with independent power producers to
renegotiate the power supply contracts, however it is not yet known what form
the renegotiation may take. Any material modifications of the contract could
also require a renegotiation of the Paiton project's debt agreement. The impact
of any such renegotiations with PLN, Government of Indonesia or the project's
creditors on EME's expected return on its investment in Paiton is uncertain at
this time, however, management believes that it will ultimately recover its
investment in the project.
EME's projected construction expenditures that will be funded utilizing non-
recourse project financing are $25 million at December 31, 1998.
67
<PAGE>
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 partial review of its sites in 1995 and does not believe that
a material liability exists as of December 31, 1998. 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 primary capital lease
obligation is 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 $190.8 million in a guarantee to the lessor and in loans to the
project. As of December 31, 1998, the loan obligation stands at $92.2 million,
which is secured by the plant assets of $18.4 million owned by the project and a
debt service reserve of $4.6 million.
Future minimum payments for operating and capital leases at December 31, 1998,
are:
<TABLE>
<CAPTION>
Years Ending December 31, Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
1999 $ 9.1 $27.4
2000 7.3 27.4
2001 6.1 0.2
2002 5.0 0.2
2003 4.6 0.2
Thereafter 22.7 0.3
----- -----
Total future commitments $54.8 55.7
=====
Amount representing interest (9.65%) 7.3
-----
Net Commitments $48.4
=====
</TABLE>
Operating lease expense amounted to $6.9 million, $6.7 million and $6.3
million in 1998, 1997 and 1996, respectively.
68
<PAGE>
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 $29.7 million, $23.4 million and $18.3
million in 1998, 1997 and 1996, 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. Under these agreements, EME recognized tax benefits of $29.5 million for
1998 and $12.6 million for 1997 and a tax liability of $39.8 million for 1996
(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 $534.8 million, $579.6 million and $517.1 million
in 1998, 1997 and 1996, respectively.
Note 14. Supplemental Statements of Cash Flows Information
- -----------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Cash paid
Interest (net of amount capitalized) $171.5 $218.1 $131.5
Income taxes $ 8.8 $ 62.3 $ 45.9
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Details of companies acquired
Fair value of assets acquired $248.4 $667.1 $152.7
Liabilities assumed -- 603.1 118.1
------ ------ ------
Net cash paid for acquisitions $248.4 $ 64.0 $ 34.6
====== ====== ======
</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.
In June 1997, EME made a noncash dividend of $78 million to its parent
company, TMG, a wholly owned, non-utility subsidiary of Edison International.
The noncash dividend is in the form of a promissory note with interest at LIBOR
plus 0.275% (5.77% at December 31, 1998) paid on a quarterly basis and principal
is due on June 30, 2007.
69
<PAGE>
Note 15. Business Segments
- ---------------------------
EME operates predominately in one line of business, electric power generation,
with reportable segments organized by geographic region: United States, Asia
Pacific and Europe, Central Asia, Middle East and Africa. EME's plants are
located in different geographic areas, which mitigate the effects of regional
markets, economic downturns or unusual weather conditions. These regions take
advantage of the increasing globalization of the independent power market.
Electric power and steam generated domestically is sold primarily under long-
term contracts to electric utilities and industrial steam users located in the
U.S. Excluding the U.K. and a project in Australia, electric power generated
overseas 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. and a project in Australia sell their energy and capacity production
through a centralized electricity pool. These projects enter into short -
and/or long-term contracts to hedge against the volatility of price fluctuations
in the pool. Intercompany transactions have been eliminated in the following
segment information.
<TABLE>
<CAPTION>
Europe,
Central Asia,
Asia Middle East Corporate/
U.S. Pacific and Africa Other(i) Total
-------------- ------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
1998
- ----
Electric & operating revenues $ 29.9 $ 205.1 $ 469.4 $ -- $ 704.4
Equity in income from investments 184.6 1.3 3.5 -- 189.4
-------- -------- -------- -------------- --------
Total operating revenues $ 214.5 $ 206.4 $ 472.9 $ -- $ 893.8
======== ======== ======== ============== ========
Interest and other income $ -- $ 4.3 $ 26.3 $ 19.2 $ 49.8
Interest expense $ -- $ 71.0 $ 77.3 $ 34.6 $ 182.9
Net income (loss) $ 63.5 $ 28.0 $ 58.0 $ (17.4) $ 132.1
======== ======== ======== ============== ========
Identifiable assets $ 358.0 $1,334.3 $2,239.6 $ (0.3) $3,931.6
Equity investments and advances 841.2 361.2 23.8 0.3 1,226.5
-------- -------- -------- -------------- --------
Total assets $1,199.2 $1,695.5 $2,263.4 $ -- $5,158.1
======== ======== ======== ============== ========
1997
- ----
Electric & operating revenues $ 31.3 $ 302.0 $ 452.3 $ -- $ 785.6
Equity in income from investments 182.7 3.5 0.2 3.0 189.4
-------- -------- -------- -------------- --------
Total operating revenues $ 214.0 $ 305.5 $ 452.5 $ 3.0 $ 975.0
======== ======== ======== ============== ========
Interest and other income $ -- $ 2.9 $ 10.5 $ 13.9 $ 27.3
Interest expense $ -- $ 82.2 $ 84.8 $ 43.3 $ 210.3
Net income (loss) $ 72.8 $ 11.1 $ 47.8 $ (16.7) $ 115.0
======== ======== ======== ============== ========
Identifiable assets $ 306.8 $1,468.0 $ 2,288.9 $ 1.6 $4,065.3
Equity investments and advances 623.9 252.7 42.9 0.3 919.8
-------- -------- --------- ------------- --------
Total assets $ 930.7 $1,720.7 $ 2,331.8 $ 1.9 $4,985.1
======== ======== ========= ============= ========
</TABLE>
70
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1996
- ----
Electric & operating revenues $ 31.6 $ 239.7 $ 418.4 $ -- $ 689.7
Equity in income (loss) from investments 153.3 3.0 2.0 (4.4) 153.9
-------- -------- -------- ------------- --------
Total operating revenues $ 184.9 $ 242.7 $ 420.4 $ (4.4) $ 843.6
======== ======== ======== ============= ========
Interest and other income $ -- $ 0.8 $ 12.0 $ 8.0 $ 20.8
Interest expense $ -- $ 37.1 $ 87.3 $ 26.7 $ 151.1
Net income (loss) $ 68.2 $ 22.5 $ 28.8 $ (27.4) $ 92.1
======== ======== ======== ============= ========
Identifiable assets $ 239.5 $1,865.6 $2,044.2 $ 87.3 $4,236.6
Equity investments and advances 709.2 141.3 30.8 34.6 915.9
-------- -------- -------- ------------- --------
Total assets $ 948.7 $2,006.9 $2,075.0 $ 121.9 $5,152.5
======== ======== ======== ============= ========
</TABLE>
(i) Includes corporate net interest expense and Mexico and Canada investments.
Geographic Information
Foreign operating revenues and assets by country included in the table above
are shown below.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Operating revenues
Australia $199.3 $295.9 $235.9
Other Asia Pacific 7.1 9.6 6.8
------ ------ ------
Total Asia Pacific $206.4 $305.5 $242.7
====== ====== ======
U.K. $448.8 $427.7 $392.7
Spain 24.1 24.8 27.7
------ ------ ------
Total Europe, Central Asia, Middle East and Africa $472.9 $452.5 $420.4
====== ====== ======
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Assets
Australia $1,326.2 $1,460.7 $1,852.1
Other Asia Pacific 369.3 260.0 154.8
-------- -------- --------
Total Asia Pacific $1,695.5 $1,720.7 $2,006.9
======== ======== ========
U.K. $1,787.1 $1,759.5 $1,831.5
Other Europe, Central Asia, Middle East and Africa 476.3 572.3 243.5
-------- -------- --------
Total Europe, Central Asia, Middle East and Africa $2,263.4 $2,331.8 $2,075.0
======== ======== ========
</TABLE>
71
<PAGE>
Note 16. Supplementary Financial Information on Oil and Gas Producing
- ----------------------------------------------------------------------
Activities (unaudited)
- ----------------------
This section provides information required by SFAS 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, 1998, 1997 and 1996, and results of operations for the years then ended
related to equity method investees are shown in the following tables:
<TABLE>
<CAPTION>
U.S. Canada Total
---- ------ -----
<S> <C> <C> <C> <C>
Costs incurred in oil and 1998 $ 11.8 $ -- $ 11.8
gas property acquisition 1997 18.9 -- 18.9
exploration, and 1996 13.4 4.2 17.6
development activities
Aggregate amounts of 1998 $191.9 $ -- $191.9
capitalized costs 1997 194.9 -- 194.9
(including construction in 1996 206.6 42.4 249.0
progress) for proved and
unproved properties
Results of operations 1998 $ 23.7 $ -- $ 23.7
1997 39.2 -- 39.2
1996 39.2 (2.6) 36.6
Standardized measure of 1998 $175.8 $ -- $175.8
discounted future net cash 1997 249.2 -- 249.2
flows 1996 435.8 63.6 499.4
<CAPTION>
Oil Natural
Million Barrels Billion Cubic Feet
--------------- ------------------
U.S. Canada Total U.S. Canada Total
---- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Proved developed and 1998 21.9 -- 21.9 191.3 -- 191.3
undeveloped reserves 1997 21.6 -- 21.6 189.3 -- 189.3
1996 23.7 1.8 25.5 182.0 105.5 287.5
</TABLE>
In 1997, EME completed a sale of its ownersip interest in B.C. Star Partners
which operated eleven producing properties in British Columbia, Canada.
72
<PAGE>
Note 17. Quarterly Financial Data (unaudited)
- ----------------------------------------------
<TABLE>
<CAPTION>
1998 First(i) Second Third(i) Fourth(i) Total
-------- ------ -------- --------- -----
<S> <C> <C> <C> <C> <C>
Operating revenues $ 231.9 $ 207.3 $ 227.5 $ 227.1 $ 893.8
Income from operations 99.3 71.1 103.4 76.7 350.5
Net income 37.7 18.6 44.8 31.0 132.1
<CAPTION>
1997 First(i) Second Third(i) Fourth(i) Total
-------- ------ -------- --------- -----
<S> <C> <C> <C> <C> <C>
Operating revenues $285.0 $ 221.5(ii) $ 234.5 $ 234.0 $ 975.0
Income from operations 133.6 86.6 91.2 82.5 393.9
Net income 32.6 19.4(iii)(iv) 46.1 16.9 115.0
</TABLE>
(i) Reflects EME's seasonal pattern, in which the majority of earnings from
domestic projects are recorded in the third quarter of each year and
higher electric revenues from certain international projects are recorded
during the winter months of each year.
(ii) Decline in revenues as a result of restructuring agreements associated
with the 49% acquisition of Loy Yang B in May 1997.
(iii) Includes a $14 million gain on sale of ownership interest in an oil and
gas investment.
(iv) Includes a $13.1 million extraordinary loss on early extinguishment of
debt.
Events Subsequent to Date of Auditors Report (Unaudited)
- --------------------------------------------------------
In March 1999, EME entered into agreements to acquire 100% of the fossil-fuel
generating assets of Commonwealth Edison Co., totaling 9,772 MW. EME will
operate the plants, which are located in the Midwest. The closing of the
transaction is subject to various state and federal regulatory approvals and is
expected to be completed by year end 1999. EME plans to finance the
approximately $5 billion acquisition with a combination of debt secured by the
project, corporate debt, cash and funding from Edison International.
In March 1999, EME entered into agreements to acquire 40% of Contact Energy
Ltd. (Contact), currently owned by the government of New Zealand. Contact owns
and operates hydroelectric, geothermal and natural gas-fired power generating
plants in New Zealand with a total generating capacity of 2,371 MW. Contact
also supplies gas and electricity to customers in New Zealand and has minority
interests in two power projects in Australia. The acquisition is conditional on
the New Zealand government completing an initial public offering of the
remaining 60% of Contact, planned for mid April 1999. EME plans to finance the
approximately $625 million acquisition with debt secured by the project,
corporate debt and cash.
73
<PAGE>
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, 1999.
<TABLE>
<CAPTION>
Director Position Held
Continuously Term Continuously Term
Name, Position and Age Since Expires Since Expires
- ---------------------- ------------ ------- ------------- -------
<S> <C> <C> <C> <C>
Alan J. Fohrer, 48............................................. 1992 1999 -- --
Chairman of the Board
Bryant C. Danner, 61........................................... 1993 1999 -- --
Director
Robert M. Edgell, 52........................................... 1993 1999 1988 1999
Director, Executive Vice President and
Division President of EME, Asia Pacific
Edward R. Muller, 46........................................... 1993 1999 1993 1999
Director, President and Chief Executive Officer
S. Linn Williams, 52........................................... -- -- 1994 1999
Senior Vice President and Division President of EME, Europe,
Central Asia, Middle East and Africa
James V. Iaco, Jr., 54......................................... -- -- 1994 1999
Senior Vice President and Chief Financial Officer
Division President of EME, Americas
Georgia R. Nelson, 49.......................................... -- -- 1996 1999
Senior Vice President, Worldwide Operations
Raymond W. Vickers, 56......................................... -- -- 1999 1999
Senior Vice President and General Counsel
</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. Fohrer has been Chairman of the Board of EME since January 30, 1998. From
1993 to 1998, Mr. Fohrer served as Vice Chairman of the Board. 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.
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.
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.
74
<PAGE>
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 and Global Marine, Inc.
Mr. Williams has been Senior Vice President of EME since November 1994. Mr.
Williams was named Division President of EME's Europe, Central Asia, Middle East
and Africa region in November 1998. Mr. Williams served as General Counsel of
EME from November 1994 until being named as Division President. From 1985
through 1989 and 1992-1993, Mr. Williams was a partner with the law firm of
Gibson, Dunn and Crutcher. 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 and Division President of EME's Americas region since January
26, 1998. 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.
Ms. Nelson has been Senior Vice President, Worldwide Operations since January
1996. Ms. Nelson was Division President of EME's Americas region from January
1996 to January 26, 1998. 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 June 1993 until May 1995. From 1992 to 1993, Ms. Nelson served as a
Special Assistant to the Chairman of Edison International.
Mr. Vickers has been Senior Vice President and General Counsel of EME since
March 1, 1999. Prior to joining EME, Mr. Vickers was a partner with the law
firm Skadden, Arps, Slate, Meagher & Flom concentrating on international
business transactions, particularly cross-border capital markets and investment
transactions, project implementation and finance. Mr. Vickers originally joined
Skadden, Arps, Slate Meagher & Flom in 1989 as resident partner in the Hong Kong
office.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Pursuant to Item 405 of Regulation S-K, EME is required to disclose the
following recently elected officers who each had one delinquent Form 3 "Initial
Statement of Beneficial Ownership of Securities" filing which is required to be
filed within 10 days of being elected for fiscal year 1998:
Name Date Elected
---- ------------
Gareth Brett, Vice President July 6, 1998
75
<PAGE>
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 1998, 1997 and 1996 for
services rendered by such persons in all capacities to EME and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
ANNUAL COMPENSATION Awards
-------------------------------------------------- ------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year ($) ($) ($) Options (#)(1) ($)(2)
- --------------------------- ---- --- --- --- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Edward R. Muller 1998 432,000 390,000 2,624 21,160 40,172
President and Chief 1997 400,000 456,000 3,478 33,300 28,587
Executive Officer 1996 370,000 444,000 2,621 41,000 23,148
Robert M. Edgell 1998 362,000 265,000 -- 14,760 56,474(3)
Executive Vice President 1997 317,000 325,000 -- 23,300 33,600(3)
1996 292,000 275,000 133 25,700 88,071(3)
S. Linn Williams 1998 325,000 186,000 2,197 9,520 25,841
Senior Vice President 1997 300,000 240,000 1,643 15,400 18,568
1996 275,000 220,000 734 20,100 13,148
Georgia R. Nelson 1998 310,000 170,000 3,125 8,580 29,233
Senior Vice President, 1997 290,000 206,000 7,125 15,400 17,829
Worldwide Operations 1996 270,000 190,000 1,337 23,700 14,446
James V. Iaco, Jr. 1998 300,000 180,000 5,167 8,830 17,648
Senior Vice President and 1997 280,000 224,000 4,913 15,400 14,962
Chief Financial Officer 1996 250,000 200,000 2,906 19,800 10,416
</TABLE>
(1) No Stock Appreciation Rights (SARs) were granted. Amounts shown are
comprised of Edison International nonqualified stock options and EME
"phantom stock" options. For 1998, Mr. Muller, Mr. Edgell, Mr. Williams, Ms.
Nelson and Mr. Iaco received 13,300; 8,700; 6,300; 5,400; and 5,900 Edison
International stock options, respectively; and 7,860; 6,060; 3,220; 3,180;
and 2,930 EME phantom stock options, respectively. For 1997, Mr. Muller, Mr.
Edgell, Mr. Williams, Ms. Nelson and Mr. Iaco received 10,500; 7,500; 5,500;
5,500; and 5,500 Edison International stock options, respectively; and
22,800; 15,800; 9,900; 9,900; and 9,900 EME phantom stock options,
respectively. 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. Each Edison
International nonqualified 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 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 1998 Option Grant Table below.
76
<PAGE>
(2) Includes the following company contributions to a defined contribution plan,
Stock Savings Plus Plan (SSPP) and a supplemental plan for eligible
participants who are affected by SSPP participation limits imposed on
higher-paid individuals by federal tax law: For 1998, Mr. Muller, $26,373;
Mr. Edgell $14,550; Mr. Williams, $16,796; Ms. Nelson, $15,461; and Mr.
Iaco, $15,701. For 1997, Mr. Muller, $25,305; Mr. Edgell $13,000; Mr.
Williams, $15,599; Ms. Nelson, $14,384; and Mr. Iaco, $14,376. For 1996, Mr.
Muller, $11,455; Mr. Edgell, $4,500; Mr. Williams, $6,301; Ms. Nelson,
$7,913; and Mr. Iaco, $6,077.
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
1998, Mr. Muller, $13,520; Mr. Edgell $1,116; Mr. Williams, $9,005; Ms.
Nelson, $7,812; and Mr. Iaco, $1,902. For 1997, Mr. Muller, $3,283; Mr.
Edgell $458; Mr. Williams, $2,969; Ms. Nelson, $3,445; and Mr. Iaco, $586.
For 1996, Mr. Muller, $1,508; Mr. Edgell, $239; Mr. Williams, $926; Ms.
Nelson, $1,882; and Mr. Iaco, $139.
(3) Includes an overseas service allowance of $33,693, $20,142 and $75,832 in
1998, 1997 and 1996, respectively. For each employee serving in an overseas
site, the allowance calculation depends on base pay, family size and
location.
Executive Stock Options
The following table sets forth certain information concerning Edison
International stock options and EME phantom stock options granted pursuant to
the Edison International Equity Compensation Plan (ECP) to the executive
officers named in the Summary Compensation Table above during 1998.
OPTION GRANTS IN 1998(1)
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Exercise
Options Percent of Total or Base Grant Date
Granted Options Granted to Price Expiration Present
Name (#) Employees in 1998 ($/Sh) Date Value ($)
- ---------------------- ------- ------------------ -------- ---------- ----------
(2)(3) (4)(5) (6)
<S> <C> <C> <C> <C> <C>
Edward R. Muller
Edison International 13,300 1% 27.25 01/02/2008 84,189
EME 7,860 9% 264.13 01/02/2008 259,459
Robert M. Edgell
Edison International 8,700 1% 27.25 01/02/2008 55,071
EME 6,060 7% 264.13 01/02/2008 200,041
S. Linn Williams
Edison International 6,300 less than 1% 27.25 01/02/2008 39,879
EME 3,220 4% 264.13 01/02/2008 106,292
Georgia R. Nelson
Edison International 5,400 less than 1% 27.25 01/02/2008 34,182
EME 3,180 4% 264.13 01/02/2008 104,972
James V. Iaco, Jr.
Edison International 5,900 less than 1% 27.25 01/02/2008 37,347
EME 2,930 3% 264.13 01/02/2008 96,719
</TABLE>
77
<PAGE>
(1) No SARs were granted. This table reflects all awards made under the ECP
("ECP Options") during 1998. In addition to Edison International stock
options, it includes EME "phantom stock" options.
(2) Each Edison International nonqualified stock option represents the right to
purchase one share of common stock of Edison International. The Edison
International stock options include dividend equivalents equal to the
dividends that would have been paid on an equal number of shares of Edison
International Common Stock. Dividend equivalents 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. Once earned and vested, the dividend
equivalents are payable in cash (i) upon the request of the holder prior to
the final year of the option term, (ii) upon the exercise of the related
option, or (iii) at the end of the option term regardless of whether the
related option is exercised. After such payment, however, no additional
dividend equivalents will accrue on the related option.
The dividend equivalent performance criteria is 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.
(3) Each EME phantom stock option represents a right to exercise an option to
realize any appreciation in the value of one hypothetical share of EME
stock. The 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. Project values are determined based on economic models whose
assumptions have been approved by Edison International NPV Management and
Calculation Committees. The valuation is consistent with the bases on which
EME invests, acquires, finances, refinances and otherwise makes capital
decisions for new investments and value-maximizing decisions for existing
investments. The exercise price is initially set equal to the value of the
stock on the date of grant escalated on a compound basis (9% per year)
thereafter by a factor reflecting the approximate cost of capital during the
year as determined by the Compensation and Executive Personnel Committee
(CEP Committee) of Edison International. The annual escalation factor will
be adjusted prospectively by the CEP Committee for significant changes in
the cost of capital. If the 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 value of the
shares.
(4) The ECP Options become exercisable in four 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.
Effective January 1, 1998, outstanding ECP Options were amended to allow
certain senior officers to transfer ECP Options to a spouse, child or
grandchild. If an executive retires, dies, or is permanently and totally
disabled during the four-year vesting period, the unvested ECP Options will
vest and be exercisable to the extent of 1/48 of the grant for each full
month of service during the vesting period. Unvested ECP 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 ECP 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, ECP 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 ECP Options are forfeited on the date of termination.
78
<PAGE>
Appropriate and proportionate adjustments may be made by the Edison
International CEP Committee to outstanding Edison International stock
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 ECP Options then
outstanding will become vested and be exercisable unless provisions are made
as part of the transaction to continue the ECP 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 CEP
Committee administers the ECP and has sole discretion to determine all terms
and conditions of any grant, subject to plan limits. It may substitute cash
equivalent in value to the ECP Options and, with the consent of the
executive, may amend the terms of any award agreement, including the price
of any option, the post-termination term, and the vesting schedule.
(5) The expiration date of the ECP Options is January 2, 2007; however, the
final 60-day exercise period of EME phantom stock options will occur during
the second quarter of that year. The ECP Options are subject to earlier
expiration upon termination of employment as described in footnote (4)
above.
(6) 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 $3.08
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
5.63%, the historic average dividend yield was assumed to be 5.89% and the
stock price and exercise price were $27.25.
The dividend equivalent value of each Edison International stock option
granted in 1998 was calculated to be $3.25. 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 1998.
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 $33.01 using the Black-
Scholes stock option pricing model assuming an average exercise period of
seven years, a volatility rate of 18.75%, a risk-free rate of return of
5.81%, a dividend yield of 0% and an exercise price of $482.84. These
assumptions are based on average values of a group of peer companies
adjusted for differences in capital structure.
The actual value that an executive may realize will depend on various
factors on the date the option is exercised, so there is no assurance the
value realized by an executive will be at or near the grant date value
estimated by the Black-Scholes model. The estimated values under that model
are based on certain assumptions and are not a prediction as to future stock
price.
79
<PAGE>
The following table sets forth certain information with respect to the
exercise during 1998 by the executive officers named in the Summary Compensation
Table above of options to purchase shares of common stock of Edison
International and exercise hypothetical shares of stock of EME and option values
as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options in-the-Money Options
at Fiscal Year-End (#) at Fiscal Year-End ($)(1)
---------------------- -------------------------
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- --------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Edward R. Muller
Edison International -- -- 54,400/23,700 408,406/100,038
EME -- -- 89,144/33,326 10,820,845/2,261,844
Robert M. Edgell
Edison International -- -- 48,150/15,900 381,490/68,613
EME -- -- 54,791/22,959 6,608,602/1,483,801
S. Linn Williams
Edison International -- -- 9,934/11,766 111,708/52,174
EME -- -- 32,990/14,720 4,008,594/1,031,546
Georgia R. Nelson
Edison International 20,434 269,795 (2) 0/12,066 0/63,911
EME 3,800 424,581 9,300/14,680 912,422/1,031,546
James V. Iaco, Jr.
Edison International 4,800 55,724(3) 0/11,266 0/50,899
EME 7,040 856,467 29,010/14,430 3,474,007/1,031,546
</TABLE>
(1) Edison International options are treated as "in-the-money" if the fair
market value of the underlying shares at December 31, 1998, exceeded the
exercise price of the options. The dollar amounts shown for Edison
International options are the differences between (i) the fair market value
of the Edison International Common Stock underlying all unexercised "in-the-
money" options at year-end 1998 and (ii) the exercise prices of those
options. The aggregate value at year-end 1998 of all accrued dividend
equivalents, exercisable and unexercisable, for Mr. Muller, Mr. Edgell, Mr.
Williams, Ms. Nelson and Mr. Iaco was $219,930/$0, $306,917/$0, $18,135/$0,
$0/$0 and $0/$0, respectively.
EME phantom stock options are considered "in-the-money" if the value of EME
phantom stock, which is determined annually by a formula linked to project
values, exceeds prescribed exercise prices. The value at year-end is not
available until the second quarter of the following year. Therefore, amounts
shown reflect the value at fiscal year-end for 1997, the most recent data
available.
(2) Includes $66,588 of value realized from dividend equivalents.
(3) Includes $4,444 of value realized from dividend equivalents.
80
<PAGE>
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.
PENSION PLAN TABLE(1)
<TABLE>
<CAPTION>
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
</TABLE>
(1) Estimates are based on the provisions of the retirement plan (the
"Retirement Plan"), a qualified defined benefit employee retirement plan,
currently covering EME's executive officers with the following assumptions:
(i) the present Retirement Plan will 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 a
nonqualified supplemental executive retirement plan (an "ERP"). Amounts in
the Pension Plan 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."
The Retirement Plan 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.
Compensation used to calculate combined benefits under the Retirement Plan and
ERP is based on base salary and bonus as reported in the Summary Compensation
Table. 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. 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.
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
81
<PAGE>
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 Plan 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, 1998, Mr. Muller had completed 5 years of service; Mr.
Edgell, 28 years; Mr. Williams, 4 years; Ms. Nelson, 28 years; Mr. Iaco, 4
years.
Other Retirement Benefits
Additional post-retirement benefits are provided pursuant to the Survivor
Income Continuation Plan and the Survivor Income/Retirement Income Plan under
the Executive Supplemental Benefit Program.
The Survivor 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 23% 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 $138,000. Mr. Edgell has elected
coverage under this program.
The Supplemental 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.
82
<PAGE>
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>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
-------------- ------------------- -------------------- ----------
<S> <C> <C> <C>
Common Stock, no par value The Mission Group 100 shares held directly and 100%
18101 Von Karman with exclusive voting and
Avenue, Suite 1700 investment power
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 and all
directors and executive officers of EME as a group as of December 31, 1998. The
table includes shares that can be acquired through March 1, 1999; through the
exercise of stock options. Unless otherwise indicated, each named person has
sole voting and investment power.
<TABLE>
<CAPTION>
Amount and Nature of
Company and Beneficial Ownership as of
Name Class of Stock December 31, 1998(a)
---- -------------- ----------------------
<S> <C> <C>
John E. Bryson(n) Edison International Common Stock 610,540(b)
Alan J. Fohrer Edison International Common Stock 179,612(c)
Bryant C. Danner Edison International Common Stock 176,282(d)
Robert M. Edgell Edison International Common Stock 71,393(e)
Edward R. Muller Edison International Common Stock Mission 66,425(f)
Capital Preferred Securities 2,478(g)
S. Linn Williams Edison International Common Stock 15,232(h)
Georgia R. Nelson Edison International Common Stock 10,442(i)
James V. Iaco, Jr. Edison International Common Stock Mission 5,008(j)
Capital Preferred Securities 1,950(k)
All directors and executive Edison International Common Stock 1,134,934(l)
officers as a group Mission Capital Preferred Securities 4,428(m)
</TABLE>
(a) No named person or group owns more than 1% of the outstanding shares of the
class.
(b) Includes 6,000 shares held as trustee with shared voting and sole investment
power, 6,000 shares held as co-trustee and co-beneficiary of trust with
shared voting and investment power, 200 shares held by spouse with shared
voting and investment power, 14,805 shares credited under the SSPP and
583,534 shares that can be acquired through the exercise of options. SSPP
shares for which instructions are not received from any plan participant may
be voted by the SSPP Trustee in its discretion.
(c) Includes 12,703 shares credited under the SSPP and 166,409 shares that can
be acquired through the exercise of options.
(d) Includes 2,173 shares credited under the SSPP and 172,109 shares that can be
acquired through the exercise of options.
83
<PAGE>
(e) Includes 16,368 shares credited under the SSPP and 55,025 shares that can be
acquired through the exercise of options.
(f) Includes 64,625 shares that can be acquired through the exercise of options.
(g) Includes 280 shares held by spouse with shared voting and investment power,
and 8 shares held as co-trustee and co-beneficiary with shared voting and
investment power.
(h) Includes 90 shares credited under the SSPP and 15,142 shares that can be
acquired through the exercise of options.
(i) Includes 4,259 shares credited under the SSPP and 6,183 shares that can be
acquired through the exercise of options.
(j) Includes 5,008 shares that can be acquired through the exercise of options.
(k) Includes 750 shares held by spouse with shared voting and investment power.
(l) Includes 6,000 shares held as trustee with shared voting and sole investment
power, 6,000 shares held as co-trustee and co-beneficiary of trust with
shared voting and investment power, 200 shares held by spouse with shared
voting and investment power, 50,398 shares credited under the SSPP and
1,068,035 shares that can be acquired through the exercise of options. SSPP
shares for which instructions are not received from any plan participant may
be voted by the SSPP Trustee in its discretion.
(m) Includes 1,030 shares held by spouse with shared voting and investment
power, and 8 shares held as co-trustee and co-beneficiary with shared voting
and investment power.
(n) Mr. Bryson retired as Chairman of EME's Board effective January 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
84
<PAGE>
Form 10-K
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) List of Financial Statements
See Index to Consolidated Financial Statements at Item 8 of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
(c) Exhibits
<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.
2.2 Transaction Implementation Agreement, dated March 29, 1997 between The State
Electricity Commission of Victoria, Edison Mission Energy Australia Limited, Loy
Yang B Power Station Pty Ltd, Loy Yang Power Limited, The Honourable Alan Robert
Stockdale, Leanne Power Pty Ltd and EME, incorporated by reference to Exhibit
2.2 to EME's Current Report on Form 8-K, No. 1-13434 dated May 22, 1997.
2.3 Stock Purchase and Assignment Agreement dated December 23, 1998 between KES
Puerto Rico, L.P., KENETECH Energy Systems, Inc., KES Bermuda, Inc. and EME del
Caribe for the (i) sale and purchase of KES Puerto Rico, L.P.'s shares in
EcoElectrica Holdings Ltd.; (ii) assignment of KENETECH Energy Systems' rights
and interests in that certain Project Note from the Partnership; and (iii)
assignment of KES Bermuda, Inc.'s rights and interests in that certain
Administrative Services Agreement dated October 31, 1997. *
2.4 Asset Purchase Agreement, dated August 1, 1998 between
Pennsylvania Electric Compnay, NGE Generation, Inc., New York
State Electric & Gas Corporation and Mission Energy Westside,
Inc.*
2.5 Asset Sale Agreement, dated March 22, 1999 between Commonwealth
Edison Company and Edison Mission Energy as to the Fossil
Generating Assets.*
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.
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
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.
10.2 Power Purchase Contact 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.
10.4 Power Purchase Contract between Southern California Edison Company and Imperial Energy
Company, dated February 22, 1984, incorporated by reference to Exhibit 10.4 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.
10.6 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.
10.7 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.
10.8 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.
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
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.
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, incorporated by reference to Exhibit 10.15.3 to EME's Annual
Report on Form 10-K for the year ended December 31, 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
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
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).
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
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
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.
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, incorporated by
reference to Exhibit 10.44 to EME's Annual Report on Form 10-K for the year
ended December 31, 1996.
10.45 Power Purchase Agreement between National Power Corporation and San Pascual
Cogeneration Company International B.V., dated September 10, 1997, incorporated
by reference to Exhibit 10.45 to EME's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.46 Power Purchase Agreement between Gulf Power Generation Co., LTD., and
Electricity Generating Authority of Thailand, dated December 22, 1997,
incorporated by reference to Exhibit 10.46 to EME's Annual Report on Form 10-K
for the year ended December 31, 1997.
10.47 Guarantee by EME dated June 30, 1998 in favor of Tri Energy Company Limited and
the Sanwa Bank, Limited to guarantee payment of 25% of Tri Energy Company
Limited's aggregate capital contributions under the Equity Bridge Loan,
incorporated by reference to Exhibit 10.47 to EME's Form 10-Q for the quarter
ended September 30, 1998.
</TABLE>
89
<PAGE>
<TABLE>
<S> <C>
10.48 Guarantee by EME dated June 30, 1998 in favor of Tri Energy Company Limited and
the Sanwa Bank, Limited to guarantee payment of 37.5% of Tri Energy Company
Limited's aggregate capital contributions attributable to Banpu Gas and BANPU,
incorporated by reference to Exhibit 10.48 to EME's Form 10-Q for the quarter
ended September 30, 1998.
10.49 Equity Support Guarantee by EME dated December 23, 1998, in favor of ABN AMRO
Bank N.V., and the Chase Manhattan Bank to guarantee certain equity funding
obligations of EcoElectrica Ltd. and EcoElectrica Holdings Ltd. pursuant to
EcoElectrica Ltd.'s Credit Agreement dated as of October 31, 1997.*
10.50 Master Guarantee and Support Instrument by EME dated December 23, 1998, in favor
of ABN AMRO Bank N.V., and the Chase Manhattan Bank to guarantee the
availability of funds to purchase fuel for the EcoElectrica project pursuant to
EcoElectrica Ltd.'s Credit Agreement dated as of October 31, 1997 and
Intercreditor Agreement dated as of October 31, 1997.*
10.51 Guarantee Assumption Agreement from EME, dated December 23, 1998, under EME
assumed all of the obligations of KENETECH Energy Systems, Inc. to Union Carbide
Caribe Inc., under the certain Guaranty dated November 25, 1997.*
10.52 Transition Power Purchase Agreement, dated August 1, 1998 between
New York State Electric & Gas Corporation and Mission Energy
Westside, Inc.*
10.53 Transition Power Purchase Agreement, dated August 1, 1998 between
Pennsylvania Electric Company and Mission Energy Westside, Inc.*
10.54 Guarantee, dated August 1, 1998 between Edison Mission Energy,
Pennsylvania Electric Company, NGE Generation, Inc. and New York
State Electric & Gas Corporation.*
21 List of Subsidiaries.*
27 Financial Data Schedule.*
</TABLE>
*Filed herewith
(d) Financial Statement Schedules
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.
90
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Edison Mission Energy
(Registrant)
<TABLE>
<CAPTION>
<S> <C>
By: /s/ James V. Iaco, Jr.
---------------------------------------------------------------------------------------------
JAMES V. IACO, JR., SENIOR VICE PRESIDENT and CHIEF FINANCIAL OFFICER
Date: March 30, 1999
----------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principle Executive Officer:
Edward R. Muller President and Chief Executive Officer March 30, 1999
Controller or Principal Accounting Officer:
Thomas E. Legro Vice President and Controller March 30, 1999
Majority of Board of Directors:
Alan J. Fohrer Chairman of the Board March 30, 1999
Robert M. Edgell Director March 30, 1999
Bryant C. Danner Director March 30, 1999
</TABLE>
91
<PAGE>
EXHIBIT 2.3
- --------------------------------------------------------------------------------
STOCK PURCHASE
AND ASSIGNMENT
AGREEMENT
By and
Among
KES PUERTO RICO, L.P.,
and
KENETECH ENERGY SYSTEMS, INC.
and
KES BERMUDA, INC.
and
EME DEL CARIBE
and
EDISON MISSION ENERGY
dated as
of
December 23, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS................................................................................................... 2
-----------
2. SALE AND PURCHASE............................................................................................. 2
------------------
3. CLOSING....................................................................................................... 2
-------
3.1. Time and Place........................................................................................ 2
---- --- -----
3.2. Transactions at Closing............................................................................... 2
------------ -- -------
4. REPRESENTATIONS AND WARRANTIES OF THE KES ENTITIES............................................................ 4
--------------------------------------------------
4.1. Organization; Authority............................................................................... 4
------------ ---------
4.2. Approval; Binding Effect.............................................................................. 5
-------- ------- ------
4.3. Non-Contravention..................................................................................... 5
-----------------
4.4. Governmental Consents................................................................................. 5
------------ --------
4.5. Proceedings........................................................................................... 5
-----------
4.6. Financial Statements.................................................................................. 6
--------- ----------
4.7. Shareholders Agreement................................................................................ 6
------------ ---------
4.8. Brokers............................................................................................... 6
-------
4.9. Bankruptcy............................................................................................ 6
----------
4.10. Investment Company Act................................................................................ 7
---------- ------- ---
4.11. Capitalization........................................................................................ 7
--------------
4.12. Special Purpose Entities.............................................................................. 8
------- ------- --------
4.13. Title to the Interest, Liens, etc..................................................................... 8
----- -- --- -------- ----- ---
4.14. All Required KPR Capital Contributions Made Under Shareholders Agreement.............................. 8
--- -------- --- ------- ------------- ---- ----- ------------ ---------
4.15. The Project........................................................................................... 8
--- -------
4.16. Limitations on Representations and Warranties......................................................... 10
----------- -- --------------- --- ----------
5. REPRESENTATIONS AND WARRANTIES OF BUYER....................................................................... 11
---------------------------------------
5.1. Organization; Authority............................................................................... 11
------------ ---------
5.2. Corporate Approval; Binding Effect.................................................................... 11
--------- -------- ------- ------
5.3. Non-Contravention..................................................................................... 12
-----------------
5.4. Governmental Consents................................................................................. 12
------------ --------
5.5. Brokers............................................................................................... 12
-------
5.6. No Financing.......................................................................................... 12
-- ---------
5.7. Investment Company Act................................................................................ 12
---------- ------- ---
5.8. Due Diligence Review.................................................................................. 12
--- --------- ------
5.9. No Registration; Investment Representation: Accredited Investor; Sophisticated Person................. 13
-- ------------ ---------- -------------- ---------- -------- ------------- ------
5.10. Employee Benefits Plan................................................................................ 13
----------------------
5.11. Status as an "Electric Utility"....................................................................... 13
------ -- -- --------- --------
5.12. Compliance with Confidentiality Agreement............................................................. 14
---------- ---- --------------- ---------
6. INTENTIONALLY OMITTED......................................................................................... 14
---------------------
</TABLE>
<PAGE>
-ii-
<TABLE>
<S> <C>
7. CONDITIONS PRECEDENT TO BUYER PARTIES' OBLIGATIONS........................................................... 14
--------------------------------------------------
7.1. Representations and Warranties True at Closing....................................................... 14
--------------- --- ---------- ---- -- -------
7.2. Compliance With Agreement............................................................................ 14
---------- ---- ---------
7.3. Officer's Certificate................................................................................ 14
--------- -----------
7.4. Resolution of the QF Issue........................................................................... 14
---------- -- --- --------
7.5. Consents............................................................................................. 14
--------
7.6. Suits and Proceedings................................................................................ 14
----- --- -----------
7.7. No Material Adverse Change........................................................................... 14
-- -------- ------- ------
7.8. Resignations of Directors and Officers............................................................... 15
------------ -- --------- --- --------
7.9. Releases............................................................................................. 15
--------
7.10. Affidavit............................................................................................ 15
---------
7.11. Fieldstone Fairness Opinion.......................................................................... 15
---------- -------- -------
7.12. KPMG Comfort Letter.................................................................................. 15
---- ------- ------
7.13. Notices Under the Credit Agreement................................................................... 16
------- ----- --- ------ ---------
7.14. Opinion of Counsel................................................................................... 16
------- -- -------
7.15. Certificate Documents................................................................................ 16
----------- ---------
8. CONDITIONS PRECEDENT TO KES ENTITY OBLIGATIONS............................................................... 16
----------------------------------------------
8.1. Representations and Warranties True at Closing....................................................... 16
--------------- --- ---------- ---- -- -------
8.2. Compliance with Agreement............................................................................ 16
---------- ---- ---------
8.3. Officer's Certificate................................................................................ 16
--------- -----------
8.4. Opinion of Counsel................................................................................... 17
------- -- -------
8.5. Assumption of Certain Obligations.................................................................... 17
---------- -- ------- -----------
8.6. Certificates, Documents.............................................................................. 17
------------ ---------
9. CONFIDENTIAL INFORMATION..................................................................................... 17
------------------------
10. HSR ACT...................................................................................................... 17
-------
11. POST CLOSING TAX INCENTIVE................................................................................... 17
--------------------------
12. RELEASE...................................................................................................... 17
-------
13. GENERAL...................................................................................................... 18
-------
13.1. Expenses............................................................................................. 18
--------
13.2. Notices.............................................................................................. 18
-------
13.3. Entire Agreement..................................................................................... 20
------ ---------
13.4. Governing Law; CONSENT TO JURISDICTION............................................................... 20
--------- --- ------- -- ------------
13.5. Sections and Section Headings........................................................................ 20
-------- --- ------- --------
13.6. Assigns.............................................................................................. 20
-------
13.7. Further Assurances................................................................................... 20
------- ----------
13.8. No Implied Rights or Remedies........................................................................ 21
-- ------- ------ -- --------
13.9. Knowledge............................................................................................ 21
---------
13.10. Counterparts......................................................................................... 21
------------
13.11. Satisfaction of Conditions Precedent................................................................. 21
------------ -- ---------- ---------
13.12. Time is of the Essence and Best Efforts.............................................................. 21
---- -- -- --- ------- --- ---- ------
13.13. Survival of Representations and Warranties........................................................... 21
-------- -- --------------- --- ----------
</TABLE>
<PAGE>
-iii-
Schedules
---------
4.5 Proceedings
4.6 Material Liabilities
7.5 Required Consents
7.9 Resignations of Directors and Officers
Exhibits
--------
A Assignment and Assumption Agreement
B Confidentiality Agreement
C PREPA Waiver Agreement
<PAGE>
STOCK PURCHASE AND ASSIGNMENT AGREEMENT
---------------------------------------
THIS STOCK PURCHASE AND ASSIGNMENT AGREEMENT (this "Agreement") is dated as
---------
of the 23rd day of December, 1998, by and between (i) EME del Caribe, a Cayman
Islands company limited by shares ("Buyer") and Edison Mission Energy, a
-----
California corporation ("Assignee," collectively with the Buyer, the "Buyer
-------- -----
Parties") and (ii) KES Puerto Rico, L.P., a Bermuda exempted limited partnership
- -------
("KPR"), KENETECH Energy Systems, Inc., a Delaware corporation ("KES") and KES
--- ---
Bermuda, Inc., a Delaware corporation ("KBI", collectively with KPR and KES, the
---
"KES Entities").
------------
WHEREAS, KPR owns a fifty percent (50%) interest in EcoElectrica Holdings,
Ltd., a Cayman Islands company limited by shares (the "Company"), in the form of
-------
the issued and outstanding Class B Shares (as defined in Section 4.11 hereof) of
the Company (the "Interest");
--------
WHEREAS, the Company directly owns a one hundred percent (100%) interest in
EcoElectrica, Ltd., a Cayman Islands company limited by shares (the "General
-------
Partner"), and owns a ninety-nine percent (99%) interest in EcoElectrica, L.P.,
- -------
a Bermuda exempted limited partnership (the "Project Partnership"), which was
------- -----------
formed to develop, design, finance, construct, own and operate an approximately
540 megawatt (net) natural gas-fired cogeneration facility, liquefied natural
gas import terminal, a desalination facility and certain other auxiliary and
related assets (collectively, the "Project"); the General Partner owns a one
-------
percent (1%) interest in the Project Partnership;
WHEREAS, in order to set forth an understanding regarding certain elements
of the relationships involving the Company, the Project Partnership and the
General Partner, KPR entered into that certain Shareholders Agreement, dated as
of December 10, 1997, by and among KPR, the Company and Buenergia Gas & Power,
Ltd., a Cayman Islands company limited by shares (the "Shareholders Agreement");
------------ ---------
WHEREAS, KBI has entered into an Administrative Services Agreement with the
Project Partnership, dated as of October 31, 1997 (the "Administrative Services
-------------- --------
Agreement"), pursuant to which KBI receives a fee, plus expense reimbursement
- ---------
for providing advisory services to the Project Partnership;
WHEREAS, KES has received a note issued by the Project Partnership payable
to KES in the original principal amount of $22,064,185 for unpaid development
fees (the "Project Note");
------- ----
WHEREAS, KPR desires to sell the Interest to Buyer, KES desires to assign
all of its rights and other interests in the Project Note to Assignee, and KBI
<PAGE>
-2-
desires to assign all of its rights and other interests in the Administrative
Services Agreement to Buyer, and Buyer desires to purchase the Interest of KPR
in the Company and to take in assignment the Administrative Services Agreement
from KBI, and Assignee desires to take in assignment the Project Note from KES,
each upon the terms and subject to the conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Buyer Parties and the KES Entities agree as follows:
1. DEFINITIONS. Capitalized terms used herein without definition, which
-----------
are defined in or by reference in the Shareholders Agreement, shall have the
same meanings herein as therein.
2. SALE AND PURCHASE. Subject to the terms and conditions set forth in
-----------------
this Agreement: (a) KPR agrees to sell to Buyer, and Buyer agrees to purchase
from KPR, the Interest; (b) KES agrees to assign to Assignee, and Assignee
agrees to take in assignment from KES, all of KES's rights and other interests
in the Project Note; and (c) KBI agrees to assign to Buyer, and Buyer agrees to
take in assignment from KBI, all of KBI's rights and other interests in the
Administrative Services Agreement. In exchange for these items, the Buyer
Parties shall tender payment of an aggregate cash purchase price equal to
$213,500,000, which payment shall be applied in accordance with Section 3.2(c)
plus the payment, if any, to be made pursuant to Section 11 (such payments
collectively, the "Purchase Price").
-------- -----
3. CLOSING.
-------
3.1. TIME AND PLACE. The closing of the sale and purchase of the
---- --- -----
Interest and the assignment of the Project Note and the Administrative Services
Agreement (the "Closing") shall be held at the offices of Bingham Dana LLP, 399
-------
Park Avenue, New York, NY 10022-4689 at 10:00 a.m. on December 23, 1998, or at
such other time, or at such other place as the Buyer Parties and the KES
Entities may agree. The date on which the Closing is actually held hereunder is
sometimes referred to herein as the "Closing Date".
------- ----
3.2. TRANSACTIONS AT CLOSING. At the Closing:
------------ -- -------
(a) KPR shall deliver to Buyer, free and clear of any lien, claim or
encumbrance, a certificate representing all of the Interest, duly endorsed
in blank or with duly executed stock powers attached, and Buyer shall
undertake certain duties and obligations under the Shareholder's Agreement
pursuant to an Assignment and Assumption Agreement in the form of Exhibit
-------
A-1 hereto. KBI shall assign to Buyer, free and clear of any lien, claim or
---
encumbrance, the Administrative Services Agreement
<PAGE>
-3-
pursuant to an Assignment and Assumption Agreement in the form of Exhibit
-------
A-2 hereto. KES shall assign to Assignee, free and clear of any lien, claim
---
or encumbrance, the Project Note pursuant to an Assignment and Assumption
Agreement in the form of Exhibit A-3 hereto (collectively, the "Assignment
------- --- ----------
and Assumption Agreements").
--- ---------- ----------
(b) The Buyer Parties shall execute and deliver to the KES Entities
the following documents:
(i) an Equity Support Guarantee in the form attached as
Exhibit E-2-B to the Depositary Agreement (as defined in the Credit
------- -----
Agreement), providing a $33.5 million equity funding guarantee;
(ii) a Master Guarantee and Support Instrument in the form
attached as Exhibit D-1 to the Depositary Agreement;
------- ---
(iii) a Guarantee Assumption Agreement in the form attached as
Exhibit C to the Shareholders Agreement;
------- -
(iv) a Consent and Assignment in the form of that which was
delivered by KBI on October 31, 1997, mutatis mutandis, pursuant to
------- --------
the Credit Agreement; and
(v) the Assignment and Assumption Agreements in the forms of
Exhibit A-1, A-2, and A-3.
------- --- --- --- ---
(c) The Buyer Parties shall deliver the Purchase Price by wire
transfer of immediately available funds:
(i) to Fleet National Bank, Hartford, CT to ABA #011-500-010,
for the account of Lyon Credit Corporation at Account No. 007030-0226
in the amount of $27,351,564.53;
(ii) to Sanwa Bank California, Los Angeles, CA to ABA
#122003516, for the account of KENETECH Windpower Inc. Debtor in
Possession, Account No. 0665-28604, in the amount of $6,500,000;
(iii) to Bank of New York, New York, NY to ABA #0210 00018, as
Indenture Trustee for GLA #111-565, for further credit to Account No.
308335, for A/C Risk - KENETECH (the account of the Indenture
Trustee), in the amount of $145,346,695.50;
(iv) to Bank of New York, 48 Wall Street, New York, NY to ABA
#021000018, for the account of Fieldstone Private Capital
<PAGE>
-4-
Group, L.P. at Account Name: FPCG Services, L.P., Account No.:
8900148829, in the amount of $2,000,000;
(v) to Sanwa Bank California, San Francisco, CA to ABA
#122003516, for the account of KENETECH Energy Systems, Inc., Payroll
Account, Account No. 0662-26054 in the amount of $8,000,000; and
(vi) the balance of the Purchase Price (not including any amount
payable under Section 11) to Bank of New York, New York, NY to ABA
#021000018, Account No. 8900 11 8245, for the account of Fidelity
Group of Funds Institutional Account, for further credit to KENETECH
Energy Systems, Inc., Account No. 0059-00080389620 in the amount of
$24,301,740.00.
(d) The Buyer Parties shall make the payment to PREPA under the
Waiver Agreement (each as defined in Section 7.4), to Citibank, NY, New
York, NY to ABA #021000089, for Citibank, PR as Receiving Bank, Account
No. 10-99-1506, for further credit to PREPA Citi-Cogen Funds, Account No.
0-400015-112, in the amount of $29,275,000;
4. REPRESENTATIONS AND WARRANTIES OF THE KES ENTITIES. The KES Entities
--------------------------------------------------
represent and warrant to the Buyer Parties as follows:
4.1. ORGANIZATION; AUTHORITY. Each of KES and KBI is a corporation
------------- ---------
duly organized, validly existing and in good standing in the State of Delaware.
KPR is a Bermuda exempted limited partnership under the Bermuda Exempted
Limited Partnership Act, 1992 and the Bermuda Limited Partnership Act, 1883,
duly established, validly existing and in good standing in Bermuda. Each of the
Company and the General Partner is a Cayman Islands company limited by shares,
duly organized, validly existing and in good standing in the Cayman Islands. The
Project Partnership is a limited partnership under the Bermuda Exempted Limited
Partnership Act, 1992 and the Bermuda Limited Partnership Act, 1883, duly
established, validly existing and in good standing in Bermuda. Each of the KES
Entities has delivered to the Buyer Parties complete and correct copies of its
limited partnership or corporate charter documents and by-laws or other
organizational documents, and all amendments thereto, as applicable. KPR has
delivered to Buyer complete and correct copies of the limited partnership or
corporate charter documents and by-laws or other organizational documents and
all amendments thereto, as applicable, for the Company, the General Partner and
the Project Partnership. Each of KPR, KES and KBI has all requisite power and
authority under its limited partnership or corporate charter documents and
bylaws or other organizational documents, as applicable, and all
<PAGE>
-5-
amendments thereto, and under applicable laws to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, and to perform
all its agreements and obligations under this Agreement in accordance with its
terms, and to sell the Interest and assign the Administrative Services Agreement
to the Buyer and the Project Note to Assignee.
4.2. APPROVAL; BINDING EFFECT. The KES Entities have given all
--------- ------- ------
necessary notices and obtained all necessary authorizations and approvals of any
Person, other than a Governmental Person, required for the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of the KES
Entities and constitutes the legal, valid and binding obligation of each of the
KES Entities, enforceable against each of the KES Entities in accordance with
its terms, except to the extent such enforceability is subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or other law
affecting or relating to creditors' rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
4.3. NON-CONTRAVENTION. Neither the execution and delivery of this
-----------------
Agreement by any KES Entity nor the consummation by any KES Entity of the
transactions contemplated hereby will constitute a violation of, or be in
conflict with, or constitute or create a default under, or result in the
creation or imposition of any lien, claim or encumbrance upon any property of
any KES Entity, KENETECH Corporation ("KES's Parent"), the Company, the General
------ ------
Partner or the Project Partnership, which either individually or in the
aggregate could reasonably be expected to have a material adverse effect on the
business, operations or financial condition of the Company, the General Partner,
the Project Partnership or any of the KES Entities taken as a whole (a "Material
--------
Adverse Effect") pursuant to: (a) the charter documents or by-laws or other
- ------- ------
organizational documents of KES's Parent, the Company, the General Partner, the
Project Partnership or any of the KES Entities, each as amended to date; (b) any
material agreement or commitment to which KES's Parent, the Company, the General
Partner, the Project Partnership or any of the KES Entities is a party; (c) the
Settlement Agreement and any other agreement to which KES is or may be a party
with its creditors; or (d) any statute or any judgment, decree, order,
regulation or rule of any court or other Governmental Person.
4.4. GOVERNMENTAL CONSENTS. No consent, approval or authorization of,
------------ --------
or registration, qualification or filing with, any Governmental Person is
required for the execution and delivery of this Agreement by the KES Entities or
for the consummation by the KES Entities of the transactions contemplated
hereby, other than those already obtained on or prior to Closing.
4.5. PROCEEDINGS. Except as disclosed in Schedule 4.5, to the actual
-----------
knowledge of its officers, the KES Entities know of no material actions, suits,
<PAGE>
-6-
proceedings or investigations pending or threatened against or affecting any KES
Entity, the Company, the General Partner or the Project Partnership, in, by or
before any court, agency, commission, arbitrator, board, authority or other
tribunal.
4.6. FINANCIAL STATEMENTS. Each unaudited balance sheet dated
--------- ----------
December 31, 1997, March 31, 1998, June 30, 1998 and September 30, 1998, and
statement of income for the quarter then ended, delivered to Buyer with respect
to each KES Entity, the Company, the General Partner and the Project Partnership
("Financial Statements") has been prepared in accordance with generally accepted
--------- ----------
accounting principles, consistently applied, and fairly and accurately presents
the financial condition and results of operations of each such entity as at the
date and for the period shown therein, subject to normal year-end adjustments
made to conform such statements to generally accepted accounting principles.
Except as (a) reflected in such Financial Statements or, (b) disclosed in
Schedule 4.6 and which will be released at Closing, none of the KES Entities,
the Company, the General Partner or the Project Partnership has any material
liabilities or obligations, which are required to be disclosed in a balance
sheet prepared in accordance with generally accepted accounting principles.
Since the date of such Financial Statements, each of the KES Entities, the
Company, the General Partner and the Project Partnership has conducted its
business in the ordinary course of its business consistent with past practice,
and has not entered into any material agreement, commitment or transaction
except in the ordinary course of its business or increased its indebtedness
(other than by means of preexisting credit facilities) or other material
liabilities.
4.7. SHAREHOLDERS AGREEMENT. Prior to the date hereof, KPR has
------------ ---------
delivered to the Buyer Parties, true, correct and complete copies of the
Company's charter documents and the Shareholders Agreement, each of which is in
full force and effect and has not been amended, modified or supplemented.
4.8. BROKERS. Except for Fieldstone Private Capital Group, L.P.,
-------
which has been retained by KES, no KES Entity has retained, utilized or been
represented by any broker or finder in connection with the transactions
contemplated by this Agreement. KES shall be responsible for the payment of all
commissions, fees and expenses of Fieldstone Private Capital Group, L.P., other
than those payable by the Buyer in connection with the Opinion mentioned in
Section 7.11.
4.9. BANKRUPTCY. Neither KES's Parent, the Company, the General
----------
Partner, the Project Partnership nor any KES Entity has filed any voluntary
petition in bankruptcy or been adjudicated as bankrupt or insolvent, filed any
petition or answer seeking any reorganization, liquidation, dissolution or
similar relief under any federal bankruptcy, insolvency, or other debtor relief
law, or sought or consented to or acquiesced in the appointment of any trustee,
receiver,
<PAGE>
-8-
hundred percent (100%) in the General Partner, which directly owns a one
percent (1%) interest in the Project Partnership.
4.12. SPECIAL PURPOSE ENTITIES. Each of KPR and KBI is a special
------- ------- ---------
purpose entity, created as a part of the vehicle through which KES holds its
interests in the Project. Neither KPR nor KBI engages in any other business or
activities or holds any material assets other than its indirect interest in the
Project, or is subject to any material contractual liabilities, other than those
incurred in connection with the Project, all of which assets and liabilities
have been disclosed to Buyer in writing on or prior to the date of this
Agreement. Such disclosed liabilities include certain liabilities associated
with employment contracts of certain KES Entity employees and the debt of KES
Penuelas Holdings, Inc., a subsidiary of KES, to Lyon Credit Corporation. All
obligations of KES Penuelas Holdings, Inc. owing to Lyon Credit Corporation
shall be paid in full on the Closing Date. All compensation related to the
Project payable to employees of the KES Entities pursuant to such employment
contracts as of the Closing Date (other than normal salary compensation) will be
paid in full from the proceeds of the transaction contemplated hereby.
4.13. TITLE TO THE INTEREST, LIENS, ETC. Upon consummation of the
----- -- --- -------- ----- ---
transactions contemplated hereby at Closing, Buyer and Assignee, as the case may
be, will have, record and beneficial ownership of, and good marketable title to
the Interest, the Administrative Services Agreement and the Project Note, free
and clear of any mortgage, lien, pledge, charge, security interest, encumbrance,
option, equity or other adverse claim thereto, except as set forth in the
Shareholders Agreement and the Credit Agreement with respect to the
subordination provisions applicable to the Project Note and the Administrative
Services Agreement.
4.14. ALL REQUIRED KPR CAPITAL CONTRIBUTIONS MADE UNDER SHAREHOLDERS
--- -------- --- ------- ------------- ---- ----- ------------
AGREEMENT. KPR has made all capital contributions required by the terms of the
- ---------
Shareholders Agreement payable prior to the date hereof. No capital
contributions are required to be made by KPR in the future, except as required
by the terms of the Shareholders Agreement.
4.15. THE PROJECT.
--- -------
(a) Project Contracts. Prior to the date of this Agreement, the KES
------- ---------
Entities have delivered to the Buyer Parties true, correct and complete
copies of all Project Agreements, and all amendments, supplements and
modifications thereto. The KES Entities have not received any notice of the
occurrence of any default or event of default or material breach by the
Project Partnership, as such terms are defined under any of the Project
Agreements.
<PAGE>
-9-
(b) Project Note and Administrative Services Contract. Each of the
------- ---- --- -------------- -------- --------
Project Note and the Administrative Services Agreement is in full force and
effect and has not been modified, amended or supplemented. No breach or
default by any KES Entity has occurred and is continuing under the Project
Note or the Administrative Services Agreement, or will occur as a result of
the transactions contemplated to occur at Closing pursuant to this
Agreement.
(c) Ownership of Property and Assets. As of the date hereof, each of
--------- -- -------- --- ------
the Company, the General Partner and the Project Partnership, as the case
may be, has good and marketable title to, and is in peaceable possession
of, all properties and assets of the Company, the General Partner and the
Project Partnership, respectively, shown on the most recent balance sheet
of each of the Company, the General Partner and the Project Partnership, as
the case may be, free and clear of any material liens, claims or
encumbrances, except those granted by the Project Partnership, the Company
and the Project Partnership pursuant to the Financing Documents.
(d) Tax Matters. Each of the KES Entities, the Company, the General
--- -------
Partner and the Project Partnership has filed all federal, state and local
tax returns it is required to file, has paid any tax it is required to pay
to the extent due (other than any tax it is contesting in good faith and by
appropriate proceedings and with appropriate reserves therefore). Neither
KPR, the Company, the General Partner nor the Project Partnership has
taken any action to affect in a material adverse manner the Grant of
Industrial Tax Exemption (Case No. 95-8-1-6) and its amendment (Case No.
EI-96-5 (95-8-1-6)A and Case No. EI-97-7(95-8-1-6)B) by the government of
Puerto Rico. On November 25, 1998, the Project Partnership filed a Petition
for Conversion to the Tax Incentives Act of 1998 (Case No. 95-8-I-6) (the
"Project Partnership's Tax Petition").
----------------------------------
(e) Conduct of Business. The Company, the General Partner and the
------- -- --------
Project Partnership have conducted no business other than their activities
with respect to the Project. The Company, the General Partner and the
Project Partnership have no subsidiaries except as set forth in this
Agreement.
(f) Qualifying Facility Status. Without regard to the ownership
---------- -------- ------
criteria set forth in 18 C.F.R. Section 292.206, the Project is designed
to meet all requirements applicable to qualifying cogeneration facilities
pursuant to 18 C.F.R. Section 292.203(b). The Federal Energy Regulatory
Commission on November 1, 1996, in Docket No. QF 95-328-001, found the
project to be a qualifying facility pursuant to its regulations. A Notice
of self-recertification was filed by the Project Partnership on December
15, 1997, in
<PAGE>
-10-
Docket No. QF 95-328-002. Following the consummation of the transactions
pursuant to this Agreement, the Project will no longer qualify to be a
qualifying facility due solely to the change in ownership. Other than the
consummation of the transaction pursuant to this Agreement, there is no
action threatened or pending in respect of the qualifying facility status
of the Project and there have been no other changes that would affect the
qualifying facility status of the Project.
(g) Foreign Utility Company Status. The Project Partnership is a
------- ------- ------- ------
"foreign utility company" within the meaning to Section 33(a) of the Public
Utilities Holding Company Act of 1935, as amended by the Energy Policy Act
of 1992 ("PUHCA"), and is therefore not a public utility company (which
-----
include both electric and gas utility companies) under Section 2(a)(5) of
PUHCA. Pursuant to Section 33(a)(3) of PUHCA, a notice of foreign utility
company status was filed on December 15, 1997, with the Securities and
Exchange Commission. There is no action threatened or pending in respect of
the status of the Project Partnership as a foreign utility company under
PUHCA.
(h) Securities Act. Based in part on the representations and
---------- ---
warranties of Buyer set forth in Section 5.9 hereof, the transfer by KPR to
Buyer of the Interest is exempt from the registration requirements of the
Securities Act of 1933, as amended from time to time, and neither KPR nor
any Affiliate of KPR has taken any action with respect to the Interest,
which would adversely effect the exemption of the sale of the Interest
pursuant hereto from such registration requirements.
(i) Employees and Employee Benefits. Neither the Company, the General
--------- --- -------- --------
Partner nor the Project Partnership has ever maintained or contributed to,
nor has the Company, the General Partner or the Project Partnership ever
been required to contribute to, any "employee welfare benefit plan" (as
defined in Section 3(1) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), any "employee pension benefit plan" (as
-----
defined in Section 3(2) of ERISA), or any foreign pension benefit plan,
which provides or results in the type of benefits described in section 3(1)
or 3(2) of ERISA. Neither the Company, the General Partner nor the Project
Partnership has any ERISA Affiliates (as defined in Section 3(9) of ERISA).
4.16. LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. KPR is selling
----------- -- --------------- --- ----------
to Buyer and Buyer is buying from KPR the Interest, and thereby its indirect
interest in the Project Partnership and the Project, KES is assigning to
Assignee and Assignee taking in assignment from KES, the Project Note and KBI is
assigning to Buyer and Buyer is taking in assignment from KBI, the
Administrative Services Agreement, (together with the Interest and the Project
<PAGE>
-11-
Note, the "Purchased Assets"), each on a "AS IS" and "WITH ALL FAULTS" basis,
--------- ------
except as expressly set forth herein. The Buyer Parties hereby acknowledge that
OTHER THAN THOSE SPECIFIC REPRESENTATIONS AND WARRANTIES MADE IN THIS SECTION 4,
THE KES ENTITIES HAVE NOT MADE, DO NOT MAKE, AND HEREBY DISCLAIM ANY
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO SUCH
PURCHASED ASSETS INCLUDING, BUT NOT LIMITED TO, THE DESIGN, CAPACITY, CONDITION,
MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE, OF ANY
PORTION OF THE PURCHASED ASSETS, INCLUDING WITHOUT LIMITATION, THE INTEREST AND
THE INDIRECT INTEREST IN THE PROJECT PARTNERSHIP AND/OR THE PROJECT. The Buyer
Parties further acknowledge that the KES Entities are not, except to the extent
of representation and warranties set forth in this Section 4, responsible for
compliance with requirements of any laws, ordinances, governmental rules or
regulations including, but not limited to, laws with respect to environmental
matters, patent, trademark, copyright or trade secret infringement, or for any
direct, indirect, incidental, punitive, consequential or other damages arising
out of the ownership, use of or inability to use the Purchased Assets, including
any portion of the Interest or the indirect interest in the Project Partnership
or the Project.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Each of the Buyer Parties
---------------------------------------
represent and warrant to the KES Entities as follows:
5.1. ORGANIZATION; AUTHORITY. Buyer is a Cayman Islands exempted
------------- ---------
company limited by shares, duly organized, validly existing and in good standing
under the laws of the Cayman Islands. Assignee is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Buyer and Assignee each has all requisite power and authority under its charter
or other organization documents as applicable and applicable laws to execute and
deliver this Agreement and to consummate the transactions contemplated hereby,
and to perform all its agreements and obligations under this Agreement in
accordance with its terms, and to purchase the Interest and take assignment of
the Administrative Services Agreement and the Project Note from the KES
Entities.
5.2. CORPORATE APPROVAL; BINDING EFFECT. Each of the Buyer Parties
--------- --------- ------- ------
has obtained all necessary authorizations and approvals required for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Buyer Party and constitutes the legal, valid and binding
obligation of such Buyer Party, enforceable against such Buyer Party in
accordance with its terms, except to the extent such enforceability is subject
to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or
<PAGE>
-12-
other law affecting or relating to creditors' rights generally and general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.3. NON-CONTRAVENTION. Neither the execution and delivery of this
-----------------
Agreement by such Buyer Party nor the consummation by such Buyer Party of the
transactions contemplated hereby will constitute a violation of, or be in
conflict with, constitute or create a default under, or result in the creation
or imposition of any liens upon any property of such Buyer Party pursuant to (a)
the charter documents or by-laws or other organization documents of such Buyer
Party, each as amended to date; (b)any agreement or commitment to which such
Buyer Party is a party or by which such Buyer Party or any of its properties is
bound or to which such Buyer Party or any of its properties is subject; or (c)
any statute or any judgment, decree, order, regulation or rule of any court or
other Governmental Person relating to Buyer.
5.4. GOVERNMENTAL CONSENTS. No consent, approval or authorization of,
------------ --------
or registration, designation, declaration or filing with, any Governmental
Person is required for the execution and delivery of this Agreement by such
Buyer Party or for the consummation by such Buyer Party of the transactions
contemplated hereby, other than those already obtained on or prior to Closing.
5.5. BROKERS. Such Buyer Party has not retained, utilized or been
-------
represented by any broker or finder in connection with the transactions
contemplated by this Agreement. No broker's, finder's or financial advisor's
fees or commissions are or will become payable by any KES Entity arising out of
any action, or omissions to act on the part of such Buyer Party in connection
with the transactions contemplated hereby.
5.6. NO FINANCING. The Buyer Parties have adequate funds at their
-- ---------
disposal to finance the Purchase Price on the Closing Date. The consummation of
the purchase described in this Agreement is not subject to the Buyer Parties'
ability to obtain financing.
5.7. INVESTMENT COMPANY ACT. Neither the Buyer nor Assignee is an
---------- ------- ---
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
5.8. DUE DILIGENCE REVIEW. Each of the Buyer Parties acknowledges and
--- --------- ------
agrees that, except for the representations and warranties of the KES Entities
contained in Section 4 hereof, it is purchasing the Interest and taking
assignment of the Administrative Services Agreement and the Project Note on an
AS IS/WHERE IS basis. Each of the Buyer Parties further acknowledges and agrees
that upon consummation of the transactions contemplated hereby, it
<PAGE>
-13-
will have no further recourse against the KES Entities or KES's Parent with
respect to the Interest, the Administrative Services Agreement or the Project
Note, except in connection with any breach of such representations and
warranties as contemplated by Section 4.16. The Buyer Parties are sophisticated
and knowledgeable with respect to independent power projects and related matters
and have performed their own independent investigation, with due diligence,
assisted by legal counsel and other professionals, of the investment represented
by the sale of the Interest, the Administrative Services Agreement and the
Project Note and have formed their own independent assessment of the risks and
potential returns of the Interest, the Administrative Services Agreement and the
Project Note. The Buyer Parties acknowledge that they have completed to their
satisfaction their own due diligence investigation with respect to the KES
Entities, the Interest, the Project Note and the Administrative Services
Agreement. The Buyer Parties, except as to any representation expressly set
forth in a closing document, are not relying, to any extent, on any
representation or statement of any KES Entity or KES's Parent.
5.9. NO REGISTRATION; INVESTMENT REPRESENTATION; ACCREDITED INVESTOR;
-- ------------- ---------- --------------- ---------- ---------
SOPHISTICATED PERSON. The Buyer Parties acknowledge that the Interest has not
- ------------- ------
been registered under any federal, state or local securities laws, and may not
be resold unless permitted under applicable exemptions contained in such
securities laws or upon satisfaction of the registration or qualification
requirements of such securities laws (nor does KPR have any obligation to
effect any such registration). The Buyer Parties will refrain from acquiring,
transferring or otherwise disposing of the Interest or any interest therein, in
such manner as to violate any registration requirements of any applicable
federal, state or local securities laws, and the rules and regulations
promulgated thereunder regulating the disposition thereof. Buyer is acquiring
the Interest for its own account for investment purposes only, and not with a
view to, or for sale in connection with, any distribution or public offering
thereof or any portion thereof. The Buyer Parties have extensive financial
experience with investments such as the investment contemplated by this
Agreement and therefore have the ability to protect their own interests in
connection with this Agreement. The Buyer is a "Sophisticated Person" as defined
in the Credit Agreement.
5.10. EMPLOYEE BENEFITS PLAN. The Buyer Parties are buying the
----------------------
Interest, the Administrative Services Agreement and the Project Note with their
general assets. No funds used to acquire the Interest, the Administrative
Services Agreement or the Project Note will be furnished directly or indirectly
out of the assets of or in connection with any Employee Benefit Plan.
5.11. STATUS AS AN "ELECTRIC UTILITY". Each Buyer Party is a
------ -- -- ------------------
subsidiary of an electric utility holding company exempt under Section 3(a)(1)
of PUHCA.
<PAGE>
-14-
5.12. COMPLIANCE WITH CONFIDENTIALITY AGREEMENT. The Buyer Parties
---------- ---- --------------- ---------
have complied with all the terms and conditions of that certain Confidentiality
Agreement, by and between KES and Assignee, and attached hereto as Exhibit B
------- -
(the "Confidentiality Agreement").
--------------- ---------
6. INTENTIONALLY OMITTED.
--------------------
7. CONDITIONS PRECEDENT TO BUYER PARTIES' OBLIGATIONS. The obligation of
--------------------------------------------------
the Buyer Parties to consummate the Closing shall be subject to the satisfaction
at the Closing of each of the following conditions:
7.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
--------------- --- ---------- ---- -- -------
representations and warranties made by the KES Entities in or pursuant to this
Agreement shall be true and correct in all material respects at and as of the
Closing Date.
7.2. COMPLIANCE WITH AGREEMENT. The KES Entities shall have performed
---------- ---- ---------
and complied in all material respects with all of their obligations under this
Agreement to be performed or complied with by the KES Entities on or prior to
the Closing Date.
7.3. OFFICER'S CERTIFICATE. The KES Entities shall have delivered to
--------- -----------
the Buyer Parties in writing, at and as of the Closing, a certificate, in form
and substance satisfactory to the Buyer Parties, certifying that the conditions
in each of Sections 7.1 and 7.2 hereof have been satisfied.
7.4. RESOLUTION OF THE QF ISSUE. As of the Closing Date, KES and
---------- -- --- -- -----
Assignee shall have entered into that certain Waiver Agreement with the Puerto
Rico Electric Power Authority ("PREPA"), EcoElectrica, L.P., and Enron
-----
Development Corp., substantially in the form of Exhibit C hereto (the "Waiver
------- - ------
Agreement").
- ---------
7.5. CONSENTS. The Buyer Parties shall have received copies of any
--------
and all consents set forth on Schedule 7.5, which shall be in full force and
effect.
7.6. SUITS AND PROCEEDINGS. There shall not be pending or threatened
----- --- -----------
against the Buyer Parties, any KES Entity, the Company, the General Partner or
the Project Partnership, any suit, action, proceeding or investigation seeking
to challenge, enjoin, delay or set aside any of the transactions contemplated
hereby.
7.7. NO MATERIAL ADVERSE CHANGE. Between July 31, 1998, and the
-- -------- ------- ------
Closing Date, there shall be no change in the business or the assets of the
Company, the General Partner, any KES Entity, or the Project Partnership,
<PAGE>
-15-
including any Unfavorable Decision (as defined in the Credit Agreement), which
either individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect.
7.8. RESIGNATIONS OF DIRECTORS AND OFFICERS. Except as set forth on
------------ -- --------- --- --------
Schedule 7.8 hereto, all the directors, officers and authorized signatories
appointed by KPR to the Company, the General Partner and the Project
Partnership shall have resigned their positions with the Company, the General
Partner or the Project Partnership on or prior to the Closing Date, and all
necessary notices shall have been given pursuant to the Shareholders Agreement
and the Articles of Association and other organizational documents of the
Company, the General Partner and the Project Partnership, as applicable,
substituting representatives of the Buyer Parties on the Board of Directors
pursuant to the Shareholders Agreement and the Articles of Association of the
Company, the General Partner and the Project Partnership as applicable.
7.9. RELEASES. The KES Entities shall have provided to the Buyer
--------
Parties at Closing executed releases of all liens held by Lyon Credit
Corporation and by each Person party to the employment contracts listed on
Schedule 4.6 a Satisfaction and Discharge from the Bank of New York, as
Indenture Trustee and representative of bondholders of KES's Parent evidencing
satisfaction and discharge of claims by the bondholders, a receipt or other
appropriate documentation acknowledging receipt of funds by the bankruptcy
trustee in respect of the KENETECH Windpower Inc. estate in the full amount of
KES's Settlement Obligation as defined in the Settlement Agreement in form and
substance reasonably satisfactory to the Buyer Parties.
7.10. AFFIDAVIT. An affidavit of Michael U. Alvarez in form and
---------
substance acceptable to the Buyer Parties addressing certain issues concerning
the transactions contemplated under this Agreement shall be signed.
7.11. FIELDSTONE FAIRNESS OPINION. Fieldstone Private Capital Group,
---------- -------- -------
L.P., financial advisor to KES, shall have delivered to the Buyer Parties a
written opinion, addressed to the Buyer Parties and dated the Closing Date,
addressing the fairness of the terms and conditions of the transactions
contemplated under this Agreement.
7.12. KPMG COMFORT LETTER. KMPG, auditors of KES's Parent shall have
---- ------- ------
delivered to the Buyer Parties a comfort letter dated as of the Closing Date and
covering all information included in KES's Parent's Form 10-Q filed with the
Securities and Exchange Commission for the quarter ended September 30, 1998,
including a bring down of such information as of the Closing Date, which shall
identify any material changes in the financial condition of KES's Parent
subsequent to September 30, 1998.
<PAGE>
-16-
7.13. NOTICES UNDER THE CREDIT AGREEMENT. The Project Partnership
------- ----- --- ------ ---------
shall provide a copy to the Buyer Parties of the acknowledgment of receipt by
the Administrative Agent of the draft PREPA Waiver Agreement including an
acknowledgment that no further action under the Credit Agreement is required by
the Project Partnership in respect of executing the PREPA Waiver Agreement,
other than the delivery of a certified copy of the same promptly after the
execution and delivery thereof.
7.14. OPINION OF COUNSEL. (a) Bingham Dana LLP, special counsel the
------- -- -------
KES Entities, shall have delivered to the Buyer Parties a written opinion,
addressed to Buyer and dated the Closing Date, covering the matters referred to
in Sections 4.1, 4.2, 4.3(a), Section 4.3(c) hereof relating to the Settlement
Agreement and 4.10 with respect to KES and KBI; (b)Appleby, Spurling & Kempe,
special counsel to KPR in Bermuda and Harney, Westwood & Riegels, special
counsel to the KES Entities in the British Virgin Islands ("HWR"), shall have
each delivered to the Buyer Parties an opinion, addressed to Buyer Parties and
dated the Closing Date, having the matters referenced in 4.1, 4.2, 4.3(a) and
4.10 with respect to KPR; and (c) Richards Layton and Finger, special Delaware
counsel to KES's Parent, shall have delivered to the Buyer Parties a written
opinion, addressed to the Buyer Parties and dated the Closing Date, covering
certain issues identified by the Parties to the KES Entities, including but not
limited to due authorization by KES's Parent of the transactions contemplated by
this Agreement and the corporate separateness of KES's Parent and the KES
Entities (other than KPR).
7.15. CERTIFICATE, DOCUMENTS. The Buyer Parties shall have received
------------ ---------
such other certificates and documents as may be reasonably requested by it with
respect to the foregoing matters.
8. CONDITIONS PRECEDENT TO KES ENTITY OBLIGATIONS. The obligation of the
----------------------------------------------
KES Entities to consummate the Closing shall be subject to the satisfaction, at
the Closing, of each of the following conditions:
8.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
--------------- --- ---------- ---- -- -------
representations and warranties made by the Buyer Parties in this Agreement shall
be true and correct in all material respects at and as of the Closing Date.
8.2. COMPLIANCE WITH AGREEMENT. Each of the Buyer Parties shall have
---------- ---- ---------
performed and complied in all material respects with all of its obligations
under this Agreement that are to be performed or complied with by it at or prior
to the Closing.
8.3. OFFICER'S CERTIFICATE. The Buyer Parties shall have delivered
--------- -----------
to the KES Entities in writing, at and as of the Closing, a certificate, in form
and
<PAGE>
-17-
substance satisfactory to the KES Entities, to the effect that the conditions in
each of Sections 8.1 and 8.2 hereof have been satisfied.
8.4. OPINION OF COUNSEL. Hunton & Williams, counsel to Buyer Parties,
------- -- -------
shall have delivered to the KES Entities a written opinion, addressed to the KES
Entities and dated the Closing Date, covering the matters referred to in
Sections 5.1, 5.2 and 5.3. W.S. Walker & Company, special counsel to the Buyer
in the Cayman Islands, shall have delivered to the KES Entities a written
opinion, addressed to the KES Entities and dated the Closing Date, covering the
matters referenced to in Sections 5.1, 5.2 and 5.3 with respect to the Buyer.
8.5. ASSUMPTION OF CERTAIN OBLIGATIONS. Buyer shall have executed
---------- -- ------- -----------
and/or delivered the documentation required in Section 3.2(b) and the cash
collateral pledged by KES to secure its obligation to Union Bank of California,
shall have been released by Union Bank of California to KES.
8.6. CERTIFICATES, DOCUMENTS. The KES Entities shall have received
------------- ---------
such other certificates and documents as may be reasonably requested by them
with respect to the foregoing material.
9. CONFIDENTIAL INFORMATION. The KES Entities and the Buyer Parties agree
------------------------
that the Confidentiality Agreement shall remain in full force and effect for the
duration thereof, and that the parties hereto shall be governed by its terms and
conditions, which are hereby incorporated into this Agreement by reference.
10. HSR ACT. Each of the Buyer Parties and the KES Entities acknowledge
-------
that they have filed with the United States Department of Justice and the United
States Federal Trade Commission the Notification and Report Form required to be
filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), concerning the transactions contemplated hereby, and that the
-------
waiting period for such filing specified in the HSR Act has expired.
11. POST CLOSING TAX INCENTIVE. Within five (5) business days of receipt
--------------------------
by the Company of notice of final approval not subject to appeal by the
Government of Puerto Rico of the Project Partnership's Tax Petition referred to
in Section 4.15(d), the Buyer Parties shall remit to KES by wire transfer to
Sanwa Bank California, San Francisco, CA to ABA #122003516, for the account of
KENETECH Energy Systems, Inc., Account No. 0668-26065, a payment in an amount
equal to $5,000,000.
12. RELEASE. In consideration of the Purchased Assets, and for other
-------
valuable consideration, the receipt of which is hereby acknowledged, each of the
Buyer Parties, for itself and on behalf of its successors and assigns, hereby
<PAGE>
-18-
releases and discharges the KES Entities and KES's Parent, their past and
present partners, heirs, assigns, successors, officers, directors, agents,
employees and affiliates of and from any and all actions, causes of actions,
claims, demands, damages, liabilities, costs or expenses of any kind arising
from the beginning of time to the date hereof in connection with the KES
Entities, KES's Parent, the Company, the General Partner, the Project
Partnership and/or the Project, except to the extent any liability for breach of
representations and warranties set forth in Section 4 to the extent set forth in
Section 4.13.
13. GENERAL.
-------
13.1. EXPENSES. All expenses of the preparation, execution and
--------
consummation of this Agreement and of the transactions contemplated hereby,
including, without limitation, attorneys', accountants' and outside advisers'
fees and disbursements, shall be borne by (a) the Buyer Parties, if incurred for
the Buyer Parties' account or (b) the KES Entities, if incurred for the account
of the KES Entities or any of the KES Entities. Notwithstanding the foregoing,
all commissions, fees and expenses of Fieldstone Private Capital Group, L.P.
shall be paid by the KES Entities, except for those incurred by the Buyer
Parties at their request, which shall be paid by the Buyer Parties.
13.2. NOTICES. All notices, demands and other communications
-------
hereunder shall be in writing or by written telecommunication, and shall be
deemed to have been duly given if delivered personally or by overnight courier
or if mailed by certified mail, return receipt requested, postage prepaid, or
sent by written telecommunication, as follows:
If to the KES Entities, to: KENETECH Energy Systems, Inc.
1501 E. Main Street
P.O. Box 1007
Meriden, CT 06450-1007
Tel: (203) 238-9892
Fax: (203) 238-7874
Attention: Aaron Samson, Vice President
---------
Scott Taylor, Vice President
with copies sent contemporaneously to:
KENETECH Corporation
500 Sansome Street, Suite 410
San Francisco, CA 94111
Tel: (415) 984-8585
Fax: (415) 984-8100
Attention: Michael U. Alvarez
---------
Vice President and
Chief Financial Officer
<PAGE>
-19-
and to: Marc A. Reardon, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Tel: (617) 951-8000
Fax: (617) 951-8736
If to Assignee, to: Edison Mission Energy
18101 Von Karman Avenue
Suite 1700
Irvine, CA 92612
Tel: (949) 798-7852
Fax: (949) 833-9274
Attention: Michael P. Childers
---------
Regional Vice President
If to Buyer, to: EME del Caribe
c/o W.S. Walker & Company
P.O. Box 265OT
Caledonian House
Grand Cayman, Cayman Islands
Attn: Michael P. Childers, Director
with a copy sent contemporaneously to:
Edison Mission Energy
18101 Von Karman Avenue
Suite 1700
Irvine, CA 92612
Tel: (949) 798-7787
Fax: (949) 752-1420
Attn: Reggie Rice, Esq.
Director, Legal Department Americas
Bruce D. Peterson, Esq.
Hunton & Williams
1900 K Street, N.W.
Washington, D.C. 20006-1109
Tel: (202) 955-1521
Fax: (202) 788-2201
<PAGE>
-20-
13.3. ENTIRE AGREEMENT. This Agreement, together with the
------ ---------
Confidentiality Agreement, incorporated herein by reference and the Assignment
and Assumption Agreements, entered into contemporaneously herewith, contain the
entire understanding of the parties, supersede all prior agreements and
understandings relating to the subject matter hereof and shall not be amended
except by a written instrument hereafter signed by all of the parties hereto. If
the terms of this Agreement shall conflict with any of those of the Assignment
and Assumption Agreements, this Agreement shall govern.
13.4. GOVERNING LAW; CONSENT TO JURISDICTION.
--------- ---- ------- -- ------------
(a) The validity and construction of this Agreement shall be governed
by the internal laws (and not the choice-of-law rules other than Section 5-
1401 of the New York General Obligations Law) of the State of New York.
(B) THE PARTIES AGREE THAT ANY SUIT BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG THE KES
ENTITIES AND BUYER PARTIES AND EITHER PARTY'S SUCCESSORS AND ASSIGNS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR THE FEDERAL COURT OF THE
SOUTHERN DISTRICT OF NEW YORK AND CONSENT TO THE NON-EXCLUSIVE JURISDICTION
OF SUCH COURT AND TO SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON
EITHER PARTY BY MAIL IN THE MANNER SPECIFIED IN SECTION 13.2 HEREOF. EACH
OF BUYER PARTIES AND THE KES ENTITIES HEREBY WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT
OR THAT SUCH SUIT WAS BROUGHT IN AN INCONVENIENT FORUM.
13.5. SECTIONS AND SECTION HEADINGS. All enumerated subdivisions of
-------- --- ------- --------
this Agreement are herein referred to as "Section" or "subsection." The headings
of Sections and subsections are for reference only and shall not limit or
control the meaning thereof.
13.6. ASSIGNS. This Agreement shall be binding upon and inure to the
-------
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. Neither this Agreement nor the obligations of any party
hereunder shall be assignable or transferable by such party without the prior
written consent of the other parties hereto, except that either of the Buyer
Parties may assign or transfer its rights hereunder to one or more Affiliates,
without the prior written consent of the KES Entities. Such transfer shall not
relieve either of the Buyer Parties of any of its obligations hereunder.
13.7. FURTHER ASSURANCES. The KES Entities and Buyer Parties shall
------- ----------
execute and deliver to all appropriate other parties such other instruments as
may be reasonably required in connection with the performance of this
<PAGE>
-21-
Agreement and each shall take all such further actions as may be reasonably
required to carry out the transactions contemplated by this Agreement.
13.8. NO IMPLIED RIGHTS OR REMEDIES. Except as otherwise expressly
-- ------- ------ -- --------
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person, firm or corporation, other than
the KES Entities and the Buyer Parties and their respective shareholders, any
rights or remedies under or by reason of this Agreement.
13.9. KNOWLEDGE. Whenever the phrase "to the knowledge of the
---------
KES Entities" or another similar qualification is used herein, the relevant
knowledge is limited solely to the actual knowledge the officers and directors
of the KES Entities, without imputing to the KES Entities any knowledge of any
other Person.
13.10. COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.11. SATISFACTION OF CONDITIONS PRECEDENT. The KES Entities and
------------ -- ---------- ---------
Buyer Parties will each use their best efforts to cause the satisfaction of the
conditions precedent contained in this Agreement; provided, however, that
--------- -------
nothing contained in this Section 14.11 shall obligate any party hereto to waive
any right or condition under this Agreement.
13.12. TIME IS OF THE ESSENCE AND BEST EFFORTS. With regard to all
---- -- -- --- ------- --- ---- -------
dates and time periods set forth or referred to in this Agreement, time is of
the essence.
13.13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
-------- -- --------------- --- ----------
and warranties contained herein shall survive the execution and delivery of this
Agreement and the Closing, regardless of any investigation made by or on behalf
of any party hereto; provided, however, that all representations and warranties
--------- -------
(and any claim for indemnification made in respect thereof) shall expire and be
of no further force and effect from and after the date six (6) months following
the Closing except to the extent a claim is made in good faith by the aggrieved
party against the other party with respect thereto prior to the expiration of
such 6 month period. If, under any applicable federal or state bankruptcy,
insolvency, reorganization or other laws relating to creditors' rights
generally, any of the transfers contemplated by Section 3.2(a) or the payment
contemplated by Section 3.2(d) is avoided or invalidated within six (6) years of
the Closing, Buyer Parties shall have a claim for damages to the extent of any
such avoidance or invalidation; and any claim for damages they may have as a
result of such avoidance or invalidation shall be expressly preserved.
<PAGE>
-23-
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered by their
respective duly authorized officers as of the date and year first above written.
SELLER:
KES PUERTO RICO L.P.
By: KES LNG, Ltd.,
its General Partner
By: /s/ Michael U. Alvarez
------------------------------
Name: Michael U. Alvarez
Title: President
KENETECH ENERGY SYSTEMS, INC.
By: /s/ Michael U. Alvarez
------------------------------
Name: Michael U. Alvarez
Title: President
KES BERMUDA, INC.
By: /s/ Michael U. Alvarez
------------------------------
Name: Michael U. Alvarez
Title: President
BUYER PARTIES:
EME DEL CARIBE
By: /s/ Michael P. Childers
------------------------------
Name: Michael P. Childers
Title: Director
<PAGE>
-24-
EDISON MISSION ENERGY
By: /s/ Michael P. Childers
------------------------------
Name: Michael P. Childers
Title: Vice-President
<PAGE>
SCHEDULE 4.5
------------
PROCEEDINGS
-----------
1. Settlement Agreement - KENETECH Energy Systems, Inc.
<PAGE>
SCHEDULE 4.6
------------
MATERIAL LIABILITIES
--------------------
1. Employment Contracts for:
Michael U. Alvarez
Aaron T. Samson
Scott J. Taylor
Christopher Diez
<PAGE>
SCHEDULE 7.5
------------
REQUIRED CONSENTS
-----------------
1. Filing with Office of Industrial Tax Exemption of Puerto Rico, request
for approval of Transfer.
2. Puerto Rico Electric Power Authority waiver of requirement under Power
Purchase Agreement that Project maintain Qualifying Facility status by
entry into a Waiver Agreement, substantially in the form of Exhibit C.
------- -
<PAGE>
SCHEDULE 7.8
------------
RESIGNATION OF DIRECTORS,
-------------------------
OFFICERS AND AUTHORIZED SIGNATORIES
-----------------------------------
The following individuals shall resign as of the Closing Date:
1. Company:
-------
A. Directors: Michael U. Alvarez, Director
Aaron T. Samson, Director
B. Officers: Michael U. Alvarez, Assistant Secretary
Aaron T. Samson, Assistant Secretary
C. Authorized Signatory:
Michael U. Alvarez
Aaron T. Samson
Scott J. Taylor
Mark Lerdal
Dianne Urhausen
Jorge El Koury
2. General Partner: EcoElectrica, Ltd.
---------------
A. Directors: Michael U. Alvarez, Director
Aaron T. Samson, Director
B. Officers: Michael U. Alvarez, Assistant Secretary
Aaron T. Samson, Assistant Secretary
C. Authorized Signatory:
Michael U. Alvarez
Aaron T. Samson
Scott J. Taylor
Mark Lerdal
Dianne Urhausen
Jorge El Koury
3. Project Partnership: None
-------------------
<PAGE>
Exhibit C
---------
FORM OF WAIVER AGREEMENT
------------------------
(form to be attached)
<PAGE>
EXHIBIT A-1
ASSIGNMENT AND ASSUMPTION AGREEMENT
(Shareholders Agreement)
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is dated as of
---------
the 23rd day of December, 1998, by and between KES Puerto Rico, L.P., a Bermuda
exempted limited partnership ("Assignor") and EME del Caribe, a Cayman Islands
--------
company limited by shares ("Assignee").
--------
WHEREAS, Assignor owns a fifty percent (50%) interest in EcoElectrica
Holdings, Ltd., a Cayman Islands company limited by shares (the "Company"), in
-------
the form of the issued and outstanding Class B Shares of the Company (the
"Interest");
--------
WHEREAS, the Company directly owns a one hundred percent (100%) interest in
EcoElectrica, Ltd., a Cayman Islands company limited by shares (the "General
-------
Partner"), and owns a ninety-nine percent (99%) interest in EcoElectrica, L.P.,
- -------
a Bermuda exempted limited partnership (the "Project Partnership"), which was
------- -----------
formed to develop, design, finance, construct, own and operate an approximately
540 megawatt (net) natural gas-fired cogeneration facility, liquefied natural
gas import terminal, a desalination facility and certain other auxiliary and
related assets (collectively, the "Project"); the General Partner owns a one
-------
percent (1%) interest in the Project Partnership;
WHEREAS, in order to set forth an understanding regarding certain elements
of the relationships involving the Company, the Project Partnership and the
General Partner, Assignor entered into that certain Shareholders Agreement,
dated as of December 10, 1997, by and among Assignor, the Company and Buenergia
Gas & Power, Ltd., a Cayman Islands company limited by shares ("BGP") (the
"Shareholders Agreement");
------------ ---------
WHEREAS, in connection with that certain Stock Purchase and Assignment
Agreement, dated as of the date hereof, by and between KENETECH Energy Systems,
Inc., a Delaware corporation ("KES"), KES Bermuda, Inc., a Delaware
---
corporation, Edison Mission Energy, a California corporation, Assignee and
Assignor (the "Stock Purchase Agreement"), Assignee is taking in assignment from
----- -------- ---------
Assignor, all of Assignor's rights, title and interest in and obligations under
the Shareholders Agreement, upon the terms and subject to the conditions
contained in the Stock Purchase Agreement (defined terms used herein without
definition shall have the meaning given thereto in the Stock Purchase
Agreement).
NOW, THEREFORE, in consideration of the premises herein contained and of
other good and valuable consideration, and intending legally to be bound
thereby, the parties hereby agree as follows:
<PAGE>
-2-
1. Assignment Assumption and Substitution of Rights and Obligations;
---------- ---------- --- ------------ -- ------ --- -----------
Closing. Assignor hereby sells, transfers and conveys, assigns absolutely to
- -------
Assignee, its successor and assigns, and Assignee hereby purchases and accepts
from Assignor, all of Assignor's right, title and interest, in, to, and under
the Shareholders Agreement, together with all rights, benefits and privileges of
Assignor thereunder, to Assignee in accordance with the Stock Purchase Agreement
all upon the terms and conditions set forth herein and in the Stock Purchase
Agreement. The Assignee hereby expressly, succeeds to, and is substituted for,
and may exercise every right and power, and expressly assumes and is liable for
every duty and obligation of Assignor and agrees to perform and fulfill all
terms, conditions and obligations of Assignor related to the Shareholders
Agreement arising from and after the date hereof. Assignee agrees to be bound by
the Shareholders Agreement from and after the date hereof. Assignee, however,
does not assume any obligation or liability of Assignor for payment of any
amount due and payable under the Shareholders Agreement, arising prior to the
date hereof. The consummation of the sale and assignment transactions
contemplated hereby shall be effected as of the date hereof (the "Closing"). The
-------
sale, transfer and assignment of the Shareholders Agreement hereunder is and
shall be without recourse, representation or warranty of any kind whatsoever,
except as contained in Section 4 of the Stock Purchase Agreement.
2. Withdrawal of Assignor. Contemporaneously with the execution of this
----------------------
Agreement, Assignor will execute all documents necessary to withdraw from the
Project Partnership as contemplated under the Stock Purchase Agreement.
3. Execution of Supplemental Signature Page. Assignee shall execute a
--------- -- ------------ --------- ----
supplemental signature page in the form of Exhibit A hereto.
------- -
4. Governing Law; CONSENT TO JURISDICTION.
---- ------- -- ------------
(a) The validity and construction of this Agreement shall be governed
by the internal laws (and not the choice-of-law rules other than Section 5-
1401 of the New York General Obligations Law) of the State of New York.
(b) THE PARTIES AGREE THAT ANY SUIT BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ASSIGNOR AND
ASSIGNEE AND EITHER PARTY'S SUCCESSORS AND ASSIGNS MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR THE FEDERAL COURT OF THE SOUTHERN
DISTRICT OF NEW YORK AND CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH
COURT AND TO SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON EITHER
PARTY BY MAIL IN THE MANNER SPECIFIED IN SECTION 13.2 OF THE STOCK PURCHASE
AGREEMENT. EACH OF ASSIGNEE AND ASSIGNOR HEREBY WAIVES ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH
COURT OR THAT SUCH SUIT WAS BROUGHT IN AN INCONVENIENT FORUM.
<PAGE>
-3-
5. Entire Agreement. This Agreement, together with the other documents
------ ---------
delivered in connection with the Closing, including the Stock Purchase
Agreement, set forth the entire agreement and understanding of the parties
hereto, and supersede all prior agreements and understandings between the
parties hereto with respect to the transactions contemplated hereby. This
Agreement shall be binding on, and inure to the benefit of, the parties hereto
and their successors and assigns.
6. Counterparts. This Agreement may be signed in counterparts, each of
------------
which shall be an original and both of which taken together shall constitute one
agreement.
7. Successors and Assigns. The terms of this Assignment shall be binding
---------- --- -------
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns.
8. Headings. Section and title headings in this Agreement are for
--------
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-4-
IN WITNESS WHEREOF, the undersigned have duly executed this Assignment and
Assumption Agreement on the date above first written.
KES PUERTO RICO L.P.
By: KES LNG, Ltd.,
its General Partner
By:_____________________________
Name: Michael U. Alvarez
Title: President
EME DEL CARIBE
By:_____________________________
Name: Michael P. Childers
Title: Director
<PAGE>
EXHIBIT A
Supplemental Signature Page
------------ --------- ----
[form attached]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Shareholders Agreement
to be duly executed and delivered by its officer thereunto duly authorized as of
this __th day of December, 1998.
EME DEL CARIBE
____________________________________
By:
Title:
Counterpart Signature Page to that certain
SHAREHOLDER'S AGREEMENT OF ECOELECTRICA
HOLDINGS, LTD., (the "Company") dated as of
December 10, 1997, by and among the Company,
KES Puerto Rico, L.P. (which company is
simultaneously withdrawing from this
agreement) and Buenergia Gas & Power, Ltd.
<PAGE>
-2-
ACKNOWLEDGED AND AGREED TO:
COMPANY: ECOELECTRICA HOLDINGS LTD.,
a Cayman Islands company limited by shares
By: ______________________________________
Name: David Haug
Director and
Class A Authorized Signatory
By: _____________________________________
Name: Aaron T. Samson
Withdrawing Director and
Class B Authorized Signatory
SHAREHOLDERS: BUENERGIA GAS & POWER, LTD.
By: ______________________________________
Title: ______________________________________
Withdrawing Shareholder:
-----------------------
KES PUERTO RICO, L.P.
By: KES LNG, Ltd., its General Partner
By: ______________________________________
Title:______________________________________
<PAGE>
-3-
ACKNOWLEDGED AND AGREED TO:
ECOELECTRICA LTD., a Cayman Islands company
limited by shares, for itself and in its
capacity as general partner of the Project
Partnership
By: __________________________________
Name: David Haug
Director and Class A Authorized Signatory
By: __________________________________
Name: Aaron T. Samson
Withdrawing Director and
Class B Authorized Signatory
<PAGE>
EXHIBIT A-2
ASSIGNMENT AND ASSUMPTION AGREEMENT
(Project Note)
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is dated as of
---------
the 23rd day of December, 1998, by and between KENETECH Energy Systems, Inc., a
Delaware corporation ("Assignor") and Edison Mission Energy, a California
--------
corporation ("Assignee").
--------
WHEREAS, KES is a party to the Financing and Development Services
Agreement, effective as of September 30, 1994 (the "Financing Agreement"), by
--------- ---------
and between Assignor and EcoElectrica, L.P., a Bermuda exempted limited
partnership (the "Obligor"), pursuant to which the Obligor executed and
-------
delivered that certain KESI Subordinated Promissory Note, dated December 15,
1997, in the original principal amount of $22,064,185.00 (the "Project Note",
------- ----
collectively with the Financing Agreement, the "Project Loan Documents");
------- ---- ---------
WHEREAS, in connection with that certain Stock Purchase and Assignment
Agreement, dated as of the date hereof, by and between Assignor, KES Bermuda,
Inc., a Delaware corporation, Assignee, EME del Caribe, a Cayman Islands
exempted company limited by shares and KES Puerto Rico, L.P., a Bermuda
exempted limited partnership (the "Stock Purchase Agreement"), Assignee is
----- -------- ---------
purchasing from Assignor all of the Assignor's right, title and interest in, to,
and under the Project Loan Documents (hereinafter referred to as the "Rights")
------
and taking in assignment from KES the Project Note upon the terms and subject
to the conditions contained in the Stock Purchase Agreement (defined terms used
herein without definition shall have the meaning given thereto in the Stock
Purchase Agreement).
NOW, THEREFORE, in consideration of the premises herein contained and of
other good and valuable consideration, and intending legally to be bound
thereby, the parties hereby agree as follows:
1. Assignment Assumption and Substitution of Rights and Obligations;
---------- ---------- --- ------------ -- ------ --- -----------
Closing. Assignor hereby sells, transfers, conveys and assigns absolutely to
- -------
Assignee, and Assignee hereby purchases and accepts from Assignor, all of
Assignor's right, title and interest, in, to, and under the Rights as evidenced
by the Project Loan Documents, all upon the terms and conditions set forth
herein and in the Stock Purchase Agreement together with all rights, benefits
and privileges of Assignee thereunder. The Assignee hereby expressly succeeds
to, and is substituted for, and may exercise every right and power, and
expressly assumes and is liable for every duty and obligation of Assignor and
agrees to perform and fulfill all terms, conditions and obligations of Assignor
related to the Project Loan Documents arising from and after the effective date
hereof. Assignee, however, does not assume any obligation of any amount due and
payable prior to the date hereof. The consummation of the sale and assignment
transactions contemplated hereby shall be effected as of the date hereof (the
"Closing"). The sale, transfer and assignment of the Rights and the
-------
<PAGE>
-2-
Project Loan Documents hereunder is and shall be without recourse,
representation or warranty of any kind whatsoever, except as contained in
Section 4 of the Stock Purchase Agreement.
2. Governing Law; CONSENT TO JURISDICTION.
--------- ---- ------- -- ------------
(a) The validity and construction of this Agreement shall be governed
by the internal laws (and not the choice-of-law rules, other than Section
5-1401 of the New York General Obligations Law) of the State of New York.
(b) THE PARTIES AGREE THAT ANY SUIT BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ASSIGNOR AND
ASSIGNEE AND EITHER PARTY'S SUCCESSORS AND ASSIGNS MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR THE FEDERAL COURT OF THE SOUTHERN
DISTRICT OF NEW YORK AND CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH
COURT AND TO SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON EITHER
PARTY BY MAIL IN THE MANNER SPECIFIED IN SECTION 13.2 OF THE STOCK PURCHASE
AGREEMENT. EACH OF ASSIGNEE AND ASSIGNOR HEREBY WAIVES ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH
COURT OR THAT SUCH SUIT WAS BROUGHT IN AN INCONVENIENT FORUM.
3. Entire Agreement. This Agreement, together with the other documents
------ ---------
delivered in connection with the Closing, including the Stock Purchase
Agreement, set forth the entire agreement and understanding of the parties
hereto, and supersede all prior agreements and understandings between the
parties hereto with respect to the transactions contemplated hereby. This
Agreement shall be binding on, and inure to the benefit of, the parties hereto
and their successors and assigns.
4. Counterparts. This Agreement may be signed in counterparts, each of
------------
which shall be an original and both of which taken together shall constitute one
agreement.
5. Successors and Assigns. The terms of this Assignment shall be binding
---------- --- -------
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns.
6. Headings. Section and title headings in this Agreement are for
--------
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text.
<PAGE>
-3-
IN WITNESS WHEREOF, the undersigned have duly executed this Assignment and
Assumption Agreement on the date above first written.
KENETECH ENERGY SYSTEMS, INC.
By:__________________________________
Name: Michael U. Alvarez
Title: President
EDISON MISSION ENERGY
By:___________________________________
Name:______________________________
Title:_____________________________
<PAGE>
EXHIBIT A-3
ASSIGNMENT AND ASSUMPTION AGREEMENT
(Administrative Services Agreement)
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is dated as of
---------
the 23rd day of December, 1998, by and between KES Bermuda, Inc., a Delaware
corporation ("Assignor") and EME del Caribe, a Cayman Islands company limited by
--------
shares ("Assignee").
--------
WHEREAS, Assignor is a party to the Administrative Services Agreement, by
and between Assignor and EcoElectrica, L.P., a Bermuda exempted limited
partnership (the "Obligor") dated as of October 31, 1997 (the "Administrative
------- --------------
Services Agreement"), by and between Assignor and the Obligor, pursuant to which
- -------- ---------
Assignor receives a fee, plus expense reimbursement in return for providing
advisory services to the Obligor;
WHEREAS, in connection with that certain Stock Purchase and Assignment
Agreement, dated as of the date hereof, by and between KENETECH Energy Systems,
Inc., a Delaware corporation ("KES"), Assignor, Assignee, Edison Mission Energy,
a California corporation ("EME") and KES Puerto Rico, L.P., a Bermuda exempted
limited partnership ("KPR") (the "Stock Purchase Agreement"), Assignee is
--- ----- -------- ---------
taking in assignment from Assignor the Administrative Services Agreement, upon
the terms and subject to the conditions contained in the Stock Purchase
Agreement (defined terms used herein without definition shall have the meaning
given thereto in the Stock Purchase Agreement).
NOW, THEREFORE, in consideration of the premises herein contained and of
other good and valuable consideration, and intending legally to be bound
thereby, the parties hereby agree as follows:
1. Assignment Assumption and Substitution of Rights and Obligations;
---------- ---------- --- ------------ -- ------ --- -----------
Closing. Assignor hereby sells, transfers, conveys and assigns to Assignee, and
- -------
Assignee hereby purchases and accepts from Assignor, all of Assignor's right,
title and interest, in, to, and under the Administrative Services Agreement. The
Assignee hereby expressly, succeeds to, and is substituted for, and may exercise
every right and power, and expressly assumes and is liable for every duty and
obligation of Assignor and agrees to perform and fulfill all terms, conditions
and obligations of Assignor related to the Administrative Services Agreement
arising from and after the date hereof. Assignee, however does not assume any
obligations of any amount due and payable related to the Administrative Services
Agreement, arising prior to the date hereof. The consummation of the sale and
assignment transactions contemplated hereby shall be effected as of the date
hereof.
<PAGE>
-2-
2. Governing Law; CONSENT TO JURISDICTION.
--------- ---- ------- -- ------------
(a) The validity and construction of this Agreement shall be governed
by the internal laws (and not the choice-of-law rules other than Section 5-
1401 of the new York General Obligations Law) of the State of New York.
(b) THE PARTIES AGREE THAT ANY SUIT BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ASSIGNOR AND
ASSIGNEE AND EITHER PARTY'S SUCCESSORS AND ASSIGNS MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR THE FEDERAL COURT OF THE SOUTHERN
DISTRICT OF NEW YORK AND CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH
COURT AND TO SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON EITHER
PARTY BY MAIL IN THE MANNER SPECIFIED IN SECTION 13.2 OF THE STOCK PURCHASE
AGREEMENT. EACH OF ASSIGNEE AND ASSIGNOR HEREBY WAIVES ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH
COURT OR THAT SUCH SUIT WAS BROUGHT IN AN INCONVENIENT FORUM.
3. Entire Agreement. This Agreement, together with the other documents
------ ---------
delivered in connection with the Closing, including the Stock Purchase
Agreement, set forth the entire agreement and understanding of the parties
hereto, and supersede all prior agreements and understandings between the
parties hereto with respect to the transactions contemplated hereby. This
Agreement shall be binding on, and inure to the benefit of, the parties hereto
and their successors and assigns.
4. Counterparts. This Agreement may be signed in counterparts, each of
------------
which shall be an original and both of which taken together shall constitute one
agreement.
5. Successors and Assigns. The terms of this Assignment shall be binding
---------- --- -------
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns.
6. Headings. Section and title headings in this Agreement are for
--------
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text.
<PAGE>
-3-
IN WITNESS WHEREOF, the undersigned have duly executed this Assignment and
Assumption Agreement on the date above first written.
KES BERMUDA, INC.
By:________________________________
Name: Michael U. Alvarez
Title: President
EME DEL CARIBE
By:________________________________
Name: Michael P. Childers
Title: Director
<PAGE>
Exhibit B
[LETTERHEAD OF KENETECH APPEARS HERE]
CONFIDENTIALITY AGREEMENT
-------------------------
April __, 1998
Edison Mission Energy
18101 Van Karman Avenue, Suite 1700
Irvine, California 92715-1046
Attention: Michael Childers, Vice President
In connection with your consideration of a possible transaction
involving KENETECH Energy Systems, Inc., a Delaware corporation, and/or an
affiliate or subidiary thereof (collectively, the "Company"), you are being
furnished with confidential information regarding the Company and EcoElectrica,
L.P., a Bermuda limited partnership ("Eco"), and you may be furnished with
additional information by the Company or by its representatives or agents in
connection with such potential transaction.
As a condition to your being furnished with such information, you
agree to treat any information concerning the Company and Eco and their
affiliates which is furnished to you by or on behalf of the Company, whether
furnished before or after the date of this letter and regardless of the manner
in which it is furnished, together with analyses, compilations, studies or other
documents or records prepared by you or any of your directors, officers,
employees, agents or advisors (including, without limitation, attorneys,
accountants, consultants, bankers, financial advisors and any representatives of
your advisors) (collectively, "Representatives") to the extent that such
analysis, compilations, studies, documents or records contain or otherwise
reflect or are generated from such information (hereinafter collectively
referred to as the "Evaluation Material"), in accordance with the provisions of
this agreement. The Term "Evaluation Material" does not include information
which (i) was or becomes generally available to the public other than as a
result of a disclosure by you or your Representatives, (ii) was or becomes
available to you on a non-confidential basis from a source other than the
Company or its advisors provided that such source is not known to you to be
bound by a confidentiality agreement with the Company or otherwise prohibited
from transmitting the information to you by a contractual, legal or
<PAGE>
-2-
fiduciary obligation or (iii) was within your possession prior to its being
furnished to you by or on behalf of the Company, provided that the source of
such information was not bound by a confidentiality agreement with the Company
or otherwise prohibited from transmitting the information to you by a
contractual, legal or fiduciary obligation.
You hereby agree that the Evaluation Material will be used solely for
the purpose of evaluating a possible transaction between the Company and you,
and that such information will be kept confidential by you and your
Representatives and you will not permit such information to be discussed,
furnished or disclosed to any person other than as provided herein; provided,
however, that any of such information may be disclosed to your Representatives
who need to know such information for the purpose of evaluating any such
possible transaction between the Company and you (it being understood that each
of such Representatives shall have been advised of and furnished a copy of this
agreement and shall have agreed to be bound by the provisions hereof).
Notwithstanding the foregoing, you hereby agree that you will not disclose any
of the Evaluation Material or otherwise consult with legal counsel or advisors
primarily based or located in Puerto Rico (other than with our express written
permission) until such time as you are notified by us in writing that you have
been included on a short list of bidders. You also agree not to disclose any of
the Evaluation Material to any counsel or other advisor unless such counsel or
other advisor has been approved by us in writing. In any event, you shall be
responsible for any breach of this agreement by any of your Representatives and
you agree, at your sole expense, to take all reasonable measures (including but
not limited to court proceedings) to restrain your Representatives from
prohibited or unauthorized disclosure or use of the Evaluation Material, and
agree that we may do likewise.
In addition, without the prior written consent of the Company, you
will not, and will direct your Representatives not to, disclose to any person
(i) that the Evaluation Material has been made available, to you or your
Representatives, (ii) that discussions or negotiations are taking place
concerning a possible transaction between the Company and you or (iii) any
terms, conditions, suggested price range or other facts with respect to any such
possible transaction, including the status thereof.
You agree not to arrange, participate in or conduct any meeting or
substantive discussions regarding the Company or Eco or any of the Evaluation
Material with representatives of the Puerto Rico Electric Power Authority or any
other Puerto Rican governmental agency or authority prior to being notified in
writing by us that you have been
<PAGE>
-3-
included on a short list of bidders and to notify us of any such meeting or
substantive discussion so that we may have a representative present. You agree
not to disclose in any such meeting or discussions any of the Evaluation
Material. You agree not to arrange, participate in or conduct any meeting or
substantive discussions regarding the Company or Eco with representatives of
Enron Corp. or any of its affiliates or subsidiaries without our prior written
consent and you agree to notify us of the substance of any such meeting or
discussion.
You agree that you will not initiate discussions with any person other
than the Company relating to the purchase of any direct or indirect interest of
such person in EcoElectrica, L.P. until such time as either of us notifies the
other that it no longer desires to pursue a transaction. You agree that you will
not initiate discussions With Enron Corp. or any of its affiliates or
subsidiaries relating to the purchase of any of their respective direct or
indirect interest in EcoElectrica, L.P. until the earlier of June 30, 1999 or
the date on which we notify you in writing that the Company has sold its
interest in Eco.
In the event that you are requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or other process) to disclose any Evaluation Material, it
is agreed that you will provide the Company with prompt written notice of any
such request or requirement so that the Company may seek an appropriate
protective order or waive your compliance with the provisions of this agreement.
If, failing the entry of a protective order or the receipt of a waiver
hereunder, you are, in the opinion of your counsel, compelled to disclose.
Evaluation Material, you may disclose that portion of the Evaluation Material,
which the Company's counsel advises that you are compelled to disclose and will
exercise reasonable efforts to obtain assurance that confidential treatment will
be accorded to that portion of the Evaluation Material which is being disclosed
In any event, you will not oppose action by the Company to obtain an appropriate
protective order or other reliable assurance that confidential treatment will be
accorded the Evaluation Material.
You understand and acknowledge that any and all information contained
in the Evaluation Material is being provided without any representation or
warranty, express or implied, as to the accuracy or completeness of the
Evaluation Material on the part of the Company or the Advisor. You agree that
none of the Company, the Advisor or any of their respective affiliates or
representatives shall have any liability to you or any of your Representatives.
It is understood that the scope of any representations and warranties to be
given by the
<PAGE>
-4-
Company will be negotiated along with other terms and conditions in arriving at
a mutually acceptable form of definitive agreement should discussions between
you and the Company progress to such a point.
In consideration of the Evaluation Material being furnished to you,
you hereby further agree that, without the prior written consent of the Board of
Directors of the Company, for a period of one year from the date hereof, neither
you nor any of your affiliates (as such term is defined in Rule 12b-2 of the
Securities and Exchange Act of 1934, as amended), acting alone or as part of a
group, will acquire or agree to acquire, directly or indirectly, by purchase or
otherwise, any voting securities or securities convertible into voting
securities of the Company, or otherwise seek to influence or control, in any
manner whatsoever (including proxy solicitation or otherwise), the management or
policies of the Company. All Evaluation Material disclosed by the Company shall
be and shall remain the property of the Company. In the event that the parties
do not proceed with the transaction which is the subject of this letter within
a reasonable time, or within five days after being so requested by the Company,
you shall return or destroy all documents thereof furnished to you by the
Company. Except to the extent a party is advised in writing by counsel that such
destruction is prohibited by law, you will also destroy all written material,
memoranda, notes, copies, excerpts and other writings or recordings whatsoever
prepared by you or your Representatives based upon, containing or otherwise
reflecting any Evaluation Material. Any destruction of materials shall be
verified by you in writing and signed by one of your officers. Any Evaluation
Material that is not returned or destroyed, including without limitation, any
oral Evaluation Material, shall remain subject to the confidentiality
obligations set forth in this agreement.
You agree that unless and until a definitive agreement regarding a
transaction between the Company and you has been executed, neither the Company
nor you will be under any legal obligation of any kind whatsoever with respect
to such a transaction by virtue of this agreement except for the matters
specifically agreed to herein. You further acknowledge and agree that the
Company reserves the right, in its sole discretion, to reject any and all
proposals made by you or any of your Representatives with regard to a
transaction between the Company and you, and to terminate discussions and
negotiations with you at any time. It is understood and agreed that money
damages would not be a sufficient remedy for any breach of this agreement and
that the Company shall be entitled to specific performance and injunctive or
other equitable relief as a remedy for any such breach and you further agree to
waive any requirement for the security or posting of any bond in connection with
<PAGE>
-5-
such remedy. Such remedy shall not be deemed to be the exclusive remedy for
breach of this agreement but shall be in addition to all other remedies
available at law or equity to the Company.
In the event of litigation relating to this agreement, if a court of
competent jurisdiction determines in a final, non-appealable order that a party
has breached this agreement, then such party shall be liable and pay to the non-
breaching party the reasonable legal fees such non-breaching party has incurred
in connection with such litigation including any appeal therefrom.
You are aware, and will advise your Representatives who are informed
of the matters that are the subject of this agreement of the restrictions
imposed by the United States securities laws on the purchase or sale of
securities by any person who has received material, non-public information from
the issuer of such securities and on the communication of such information to
any other person when it is reasonably foreseeable that such other person is
likely to purchase or sell such securities in reliance upon such information.
You acknowledge that you have received the attached copy of Article 17
of the LNG Sales Contract between Cabot LNG Corporation and EcoElectrica, L.P.
and agree, on behalf of yourself and each employee to whom you make disclosures
of the Confidential Information (as defined in such Article 17), to notify each
recipient of, and to abide by, the provisions of such Article 17.
This agreement is for the benefit of the Company and the advisor and
shall be governed and construed in accordance with the laws of the State of New
York, without regard to its conflicts of law principles. This agreement may not
be assigned by operation of law or otherwise. Your obligations under this
agreement shall expire three years from the date hereof, except as otherwise
explicitly stated above. Following the consummation of a transaction between
the Company and you, the terms of this agreement may be enforced directly by
either the Company or EcoElectrica, L.P., a Bermuda limited partnership, which
shall after such event be deemed a third party beneficiary of this agreement.
This agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement. Please confirm that the foregoing is in accordance with
your understanding of our agreement by signing and returning to us a copy of
this letter.
<PAGE>
-6-
Very truly yours,
KENETECH Energy Systems Inc.
By: /s/ Michael U. Alvarez
------------------------------
Name: Michael U. Alvarez
Title: President
ACCEPTED AND AGREED:
EDISON MISSION ENERGY
By: /s/ Michael P. Childers
----------------------------
Name: Michael P. Childers
Title: Vice President
<PAGE>
Exhibit to
----------
Confidentiality Agreement
-------------------------
LNG SALES CONTRACT
------------------
ARTICLE 17 - CONFIDENTIALITY
----------------------------
Except as provided below, information or documents which come into the
possession of one Party from the other Party in connection with the negotiation
or performance of this Contract (including this Contract or any summary or
description thereof) ("Confidential Information") may not be communicated or
otherwise disclosed to third parties without mutual written agreement of the
Parties. However, either Party shall have the right to disclose such information
or documents:
(a) to its direct or indirect shareholders (or partners); to Atlantic LNG and
its direct and indirect shareholders; to legal counsel, accountants, other
professional consultants (collectively "Consultants") for either party or for
the parents or owners of a Party, provided, in the case of Consultants, such
disclosure is solely to further the purpose for which such persons were engaged;
(b) to (1) underwriters or providers (or prospective providers) of finance or
equity capital or (2) purchasers (and prospective purchasers) of significant
equity interests in (or interests in assets of) either Party or the parents,
owners of subsidiaries of a Party (and to such person's Consultants) provided
(i) such disclosure is solely to further the purpose for which such persons were
engaged, (ii) in the case of purchasers (or prospective purchasers) that the
material to be disclosed is submitted in advance to the non-disclosing Party for
its consent that such material is not misleading, and (iii) no such disclosure
may be made to any persons identified by the non-disclosing Party to the extent
the non-disclosing Party reasonably believes such disclosure would have a
material adverse impact on the competitive position of such Party and so informs
the other Party;
(c) if required by any order of court or any law, rule, regulation, or
directive of any governmental agency or entity with jurisdiction over a Party or
an affiliate of such Party and having authority to require such disclosure in
accordance with that authority or pursuant to the rules of any recognized stock
exchange or agency established in connection therewith; and
<PAGE>
-2-
(d) to the extent any such information or document has entered the public
domain other than through the fault or negligence of the Party making the
disclosure or by those to whom it previously made disclosures hereunder.
In the case of disclosures under (a) or (b) above, such disclosures can
only be made if the recipient of the information executes the following
acknowledgment: "The undersigned has received the attached copy of Article 17 of
the LNG Sales Contract between Cabot LNG Corporation and EcoElectrica L.P. and
agrees, on behalf of itself and each employee to whom it makes disclosures of
the Confidential Information. to notify each recipient of, and to abide by, the
provisions of such Article 17."
<PAGE>
EXHIBIT C
WAIVER AGREEMENT
This Waiver Agreement (this "Agreement") is made as of December 23, 1998,
by and among EcoElectrica, L.P. ("ECOELECTRICA"), the Puerto Rico Electric Power
Authority ("PREPA"), Enron Development Corp. ("ENRON"), KENETECH Energy Systems,
Inc. ("KES") and Edison Mission Energy ("EME"). Capitalized terms used herein
have the same meanings given in the PPOA (as defined below), unless the context
otherwise requires.
WHEREAS: EcoElectrica and PREPA have entered into that certain Power
Purchase and Operating Agreement, dated as of March 10, 1995, as amended by
Amendment No. 1 to Power Purchase and Operating Agreement, dated as of October
31, 1997 (as amended, the "PPOA");
WHEREAS: KES intends to transfer its indirect interest in EcoElectrica
(the "KES INTEREST") to a subsidiary of EME (EME and/or its subsidiaries,
"MISSION");
WHEREAS: Section 2.3(c) and Article 23 of the PPOA contains certain
requirements regarding Qualifying Facility status;
WHEREAS: EcoElectrica has received an order from FERC (and has filed
notices of self-certification) to the effect that the Facility is a Qualifying
Facility, based on the technical characteristics of the Facility and the current
indirect ownership in EcoElectrica by KES (50%) and affiliates of Enron (50%);
WHEREAS: The regulations promulgated pursuant to PURPA (18 C.F.R.
Section 292.206) limit the ownership of a qualifying facility by a person
primarily engaged in the generation or sale of electric power (i.e., an electric
utility or utilities, or an electric utility holding company, or companies, or
any combination thereof) to no more than 50% of the equity interest in a
qualifying facility (the "Utility Ownership Level");
WHEREAS: EcoElectrica has requested, at the request of Mission and PREPA
has agreed, to grant EcoElectrica pursuant to the terms of this Agreement, a
limited waiver of the provisions of Section 2.3(c) and Article 23 of the PPOA as
set forth below;
NOW THEREFORE, in consideration of the payment to PREPA of the sum of
$29,275,000 and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the undersigned and PREPA acknowledge and
agree as follows:
1. Limited Waiver. PREPA hereby grants a waiver of any requirement that
--------------
EcoElectrica have, achieve, maintain or reobtain status as a Qualifying
Facility under Section 2.3(c) and Article 23 of the PPOA for the
duration of EME's direct or indirect ownership of the KES Interest,
provided that the sole reason for the non-existence of such status is
the failure to comply with the Utility Ownership Level. PREPA also
hereby forgoes, waives and agrees not to assert any right to declare
any claim or default under or breach of the
<PAGE>
-2-
PPOA, to the extent that such claim or default or breach results solely
from EcoElectrica's failure to have, achieve, reobtain, obtain or
maintain Qualifying Facility status due to EME's ownership of the KES
interest and the subsequent failure to comply with the Utility
Ownership Level. This limited waiver shall be effective following
PREPA's receipt of the $29,275,000 payment set forth in this letter
agreement, in full, in United States dollars, from Mission.
2. Limited Indemnity. EME hereby agrees to hold PREPA harmless and to
-----------------
indemnify PREPA against any actual, direct loss, damage, cost, expense
or liability (including reasonable attorneys' fees) resulting solely
from any attempt by KENETECH Corporation or any of its affiliates, or
any creditor or shareholder of KENETECH Corporation or any of its
affiliates, pursuant to this Agreement to invalidate or otherwise
unwind the transfer of consideration by Mission to PREPA for the waiver
granted by PREPA pursuant to this Agreement, within the applicable
state statute of limitations following the date of execution and
delivery of this Agreement ("Kenetech Creditor Claim"). Notwithstanding
anything in this Agreement to the contrary, EME's obligation to
indemnify PREPA shall in no event exceed the value paid for this waiver
by Mission pursuant to Section 1, and EME's obligations under this
paragraph shall expire and terminate without any action by any person,
in the event that no such Kenetech Creditor Claim is raised. The waiver
granted under Section 1 shall remain in full force and effect during
any contest or proceeding with respect to any KENETECH Creditor Claim,
and provided that EME satisfies its indemnity obligations hereunder,
from and after satisfaction of any KENETECH Creditor Claim. PREPA shall
promptly notify EME of any claim as to which indemnification is sought
under this Section 2. Promptly after EME receives notification of such
claim (and in no event later than the 30/th/ day following EME's
receipt of notice of such claim), EME shall notify PREPA whether it
believes such claim to be covered by the indemnity set forth in this
Section 2, and if so, whether it intends to pay, object to, comprise or
defend any matter involving the asserted liability of PREPA.
EME shall have the right to investigate, and the right in its sole
discretion to defend, settle or compromise, any claim for which
indemnification is sought under this Section to the extent that such
claim does not exceed the maximum indemnification amount set forth in
this Section. If EME elects to defend, settle or compromise any such
asserted claim it shall do so at its own expense and by counsel
selected by it and reasonably acceptable to PREPA. Upon EME's election
to defend, settle or compromise any such claim and notification to
PREPA of its intent to do so, EME shall be entitled to control the
defense, settlement or compromise thereof. PREPA shall cooperate with
EME in good faith and comply with all reasonable requests of EME in
connection therewith, at EME's expense. Where EME undertakes the
defense with respect to a claim, no additional legal fees or
<PAGE>
-3-
expenses of PREPA in connection with the defense of such claim shall be
indemnified by EME hereunder unless such fees or expenses are incurred
at the request of EME and except for reasonable fees and expenses
incurred prior to EME's election to defend such claim.
If, after due notice thereof from PREPA, EME fails to acknowledge or
denies that any such claim is one for which it is obligated to
indemnify, then PREPA may pay, settle, compromise, defend or take any
such action it may reasonably deem necessary with respect to such
asserted claim without affecting in any way PREPA's right to claim
indemnification from EME under this Section. EME shall be entitled to
participate at its own expense in any such proceeding controlled by
PREPA and shall be kept informed of the status of such proceeding by
PREPA.
PREPA shall not enter into or agree to any settlement of any claim for
which indemnity is provided hereunder without EME's prior written
consent, unless PREPA waives any indemnification by EME in respect
thereof. PREPA may participate at its own expense in any defense,
settlement, compromise or proceeding controlled by EME, provided that
PREPA's participation does not, in the opinion of counsel appointed by
EME to conduct such proceedings, interfere with such control. In the
event PREPA receives any refund, reimbursement or other payment, in
whole or in part, with respect to any amount paid by EME hereunder, it
shall segregate the same from its own funds and immediately pay the
amount so received to EME.
To the extent a claim against PREPA for which indemnification is sought
under this Section exceeds the maximum indemnification amount provided
for in this Section: (i) PREPA may oppose such claim without EME's
consent or approval; (ii) EME shall consult with and seek PREPA consent
prior to finalizing any settlement or resolution in which an amount in
excess of such maximum indemnification amount is payable; and (iii) EME
and PREPA agree to consult and cooperate with each other in good faith
with regard to such claim.
PREPA agrees that it shall not at any time take any action, and it
shall actively oppose any attempt by others, to challenge the validity
or enforceability of the limited waiver by PREPA contemplated by
Section 1, so long as (a) the payment by Mission pursuant to Section 1
is made and is not invalidated or rescinded, and (b) EME does not
breach its indemnification obligations pursuant to Section 2.
3. No Liability. Each of the undersigned acknowledges and agrees that
------------
EcoElectrica has requested that PREPA grant the waiver set forth in
Section 1 above, that such waiver is satisfactory and is responsive to
such request. Each of the undersigned (other than PREPA) agrees that it
will under no
<PAGE>
-4-
circumstances hold PREPA or its officers, directors, agents, advisors,
employees, parent, subsidiaries, or affiliates, or their officers,
directors, agents, advisors or employees ("PREPA Related Entities")
liable or responsible in any way for performing any actions or
exercising any rights pursuant to this Agreement, including granting
the waiver and receiving the payment, or hold PREPA or any PREPA
Related Entities or any other party liable in any way for any
consequences suffered by the undersigned due to performance of such
actions or exercise of such rights; provided, however, that the
foregoing shall in no way be deemed to waive or release any claim
arising from a breach of the representations, warranties or
acknowledgments contained in Sections 7 or 10 of this Agreement, any
claim arising from any other breach of this Agreement or any other
right of any signatory arising under the terms and conditions of this
Agreement.
4. Other Provisions of the PPOA. Except to the extent set forth herein,
----------------------------
the PPOA remains in full force and effect and is hereby ratified and
confirmed in all respects; provided however, the foregoing ratification
and confirmation shall not be deemed a waiver of any rights any party
may hereto have under the PPOA.
5. Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Puerto Rico.
6. Dispute Resolution. Any dispute relating to the subject matter of this
------------------
Agreement shall be resolved in the manner contemplated in the PPOA with
respect to disputes arising thereunder.
7. Authority. Each of the undersigned and PREPA represents and warrants to
---------
the other that the execution and delivery of this Agreement by such
party: (a) has been authorized by all necessary corporate or
partnership action, as the case may be, of such party, and this
Agreement is a legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms; (b) does
not conflict with or result in a breach of (i) any provision of its
organizational or governance documents or (ii) any other agreement or
instrument binding on it or its properties; and (c) does not require
any consent or approval from any governmental authority or other person
or entity which has not been obtained prior to the date hereof.
8. No Bankruptcy Court Approval Required for KES or KES Affiliates. KES
---------------------------------------------------------------
hereby represents and warrants to PREPA and to Mission that the
execution and delivery of this Agreement and other transactions
relating to the transfer of the KES Interest by KES do not require any
approval or consent from any bankruptcy or insolvency court, and will
not constitute a breach of its obligations under that certain
Settlement Agreement and Release dated as of May 13, 1998, among KES,
KENETECH Windpower, Inc., the Official
<PAGE>
-5-
Unsecured Creditors' Committee of KWI, and certain other parties named
therein.
9. Payoff of Noteholders. KES hereby represents and warrants to PREPA and
---------------------
to Mission that concurrently with the execution and delivery of this
Agreement by KES, the noteholders under that certain Indenture, dated
as of December 28, 1992, by and between KENETECH Corporation and Bank
of New York (as successor trustee for Meridian Trust Company of
California) shall be paid from or payment shall be provided for out of
the proceeds from the disposition of the KES Interest at the closing
for the transfer thereof.
10. Miscellaneous. This Agreement shall bind and be for the benefit of the
-------------
parties hereto and their respective successors, affiliates and assigns.
The waiver set forth in this Agreement is limited to the transaction
described in this Agreement and may not be relied upon by any other
person or entity other than the parties hereto and their respective
successors, affiliates and assigns. It may be signed in separate
counterparts. Other than any invalidity or rescission of the payment
from Mission to PREPA as a result of a KENETECH Creditor Claim for
which EME does not indemnify PREPA in accordance with Section 2, if any
term or provision of this Agreement, or the application thereof to any
person or circumstance, shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid
and be enforceable to the fullest extent permitted by law. The captions
in this Agreement are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this
Agreement or the scope or content of any of its provisions. This
Agreement may not be modified except by a written agreement duly
executed by all parties. The parties acknowledge that Mission has
agreed to purchase the KES Interest in reliance, among other things, on
the acknowledgments and agreements set forth in this Agreement;
provided, however that no party hereto other than Mission or KES shall
have any liability under the agreements by which Mission agrees to
acquire the KES Interest. Each of the undersigned acknowledges that it
has no objection to such purchase. PREPA acknowledges that
EcoElectrica, its affiliates, and Mission will continue to rely on
these waivers for the duration of Mission's ownership of an interest in
EcoElectrica and the PPOA.
<PAGE>
-6-
IN WITNESS WHEREOF, the undersigned have duly caused this Agreement to be
executed and delivered as of the day and year first above written.
PUERTO RICO ELECTRIC POWER
AUTHORITY
By: __________________________
Title: _______________________
ECOELECTRICA, L.P.
By: ECOELECTRICA, LTD.,
its General Partner
By: ________________________________
Title: Class B Authorized Signatory
-----------------------------
By: ________________________________
Title: Class B Authorized Signatory
-----------------------------
ENRON DEVELOPMENT CORP.
By: __________________________
Title: _______________________
KENETECH ENERGY SYSTEMS, INC.
By: __________________________
Title: _______________________
EDISON MISSION ENERGY
By: __________________________
Title: _______________________
<PAGE>
EXHIBIT 2.4
PRIVILEGED AND CONFIDENTIAL
EXECUTION COPY
HOMER CITY ELECTRIC GENERATING STATION
ASSET PURCHASE AGREEMENT
BY AND AMONG
PENNSYLVANIA ELECTRIC COMPANY, NGE GENERATION, INC., and NEW YORK
STATE ELECTRIC & GAS CORPORATION as SELLERS,
MISSION ENERGY WESTSIDE, INC., as BUYER
Dated as of August 1, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS
1.1 Definitions.......................................................... 1
1.2 Certain Interpretive Matters........................................ 13
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets.................................................. 13
2.2 Excluded Assets .................................................... 15
2.3 Assumed Liabilities................................................. 16
2.4 Excluded Liabilities................................................ 18
2.5 Control of Litigation............................................... 20
ARTICLE III
THE CLOSING
3.1 Closing............................................................... 20
3.2 Payment of Purchase Price............................................. 21
3.3 Adjustment to Purchase Price ......................................... 21
3.4 Allocation of Purchase Price ......................................... 22
3.5 Prorations............................................................ 23
3.6 Deliveries by Sellers................................................. 24
3.7 Deliveries by Buyer................................................... 25
3.8 Ancillary Agreements.................................................. 26
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS
4.1 Incorporation; Qualification.......................................... 26
4.2 Authority Relative to this Agreement ................................. 26
4.3 Consents and Approvals; No Violation ................................. 26
4.4 Insurance............................................................. 27
4.5 Title and Related Matters............................................. 28
4.6 Real Property Leases ................................................. 28
<PAGE>
4.7 Environmental Matters ............................................... 28
4.8 Labor Matters........................................................ 29
4.9 Benefit Plans: ERISA ................................................ 29
4.10 Real Property ....................................................... 30
4.11 Condemnation ........................................................ 30
4.12 Contracts and Leases ................................................ 30
4.13 Legal Proceedings, etc............................................... 31
4.14 Permits ............................................................. 31
4.15 Taxes................................................................ 31
4.16 Intellectual Property ............................................... 32
4.17 Capital Expenditures................................................. 32
4.18 Compliance with Laws................................................. 32
4.19 Disclaimers Regarding Purchased Assets............................... 33
4.20 Transmission ........................................................ 33
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYERS
5.1 Organization......................................................... 34
5.2 Authority Relative to this Agreement ................................ 34
5.3 Consents and Approvals; No Violation ................................ 34
5.4 Availability of Funds................................................ 35
5.5 Financial Representations............................................ 35
5.6 Legal Proceedings ................................................... 35
5.7 No Knowledge of Sellers' Breach...................................... 35
5.8 Qualified Buyer ..................................................... 36
5.9 Inspections ......................................................... 36
5.10 WARN Act............................................................. 36
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets.................. 36
6.2 Access to Information................................................. 38
6.3 Public Statements .................................................... 41
6.4 Expenses ............................................................. 41
6.5 Further Assurances ................................................... 41
6.6 Consents and Approvals ............................................... 43
6.7 Fees and Commissions.................................................. 45
6.8 Tax Matters........................................................... 45
6.9 Advice of Changes..................................................... 46
<PAGE>
6.10 Employees............................................................ 47
6.11 Risk of Loss ........................................................ 51
6.12 Additional Covenants of Buyer ....................................... 52
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer ................................... 52
7.2 Conditions to Obligations of Sellers ................................. 54
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification....................................................... 57
8.2 Defense of Claims..................................................... 59
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Termination........................................................... 61
9.2 Procedure and Effect of No-Default Termination........................ 63
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Several Liability of Each Seller ................................... 63
10.2 Amendment and Modification.......................................... 63
10.3 Waiver of Compliance; Consents ..................................... 63
10.4 No Survival ........................................................ 63
10.5 Notices............................................................. 64
10.6 Assignment.......................................................... 65
10.7 Governing Law....................................................... 66
10.8 Counterparts........................................................ 66
10.9 Interpretation...................................................... 66
10.10 Schedules and Exhibits ............................................. 66
10.11 Entire Agreement ................................................... 66
10.12 Bulk Sales Laws .................................................... 67
10.13 U.S. Dollars........................................................ 67
<PAGE>
10.14 Zoning Classification............................................... 67
10.15 Sewage Facilities................................................... 67
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
------------------------------
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of Easement and Attachment Agreement
Exhibit D Form of FIRPTA Affidavit
Exhibit E Form of Interconnection Agreement
Exhibit F Form of Special Warranty Deed
Exhibit G Form of Transition Power Purchase Agreement
Exhibit H Guaranty
SCHEDULES
1.1(69) Permitted Encumbrances
1.1(97) Transferable Permits (both environmental and non-environmental)
2.1 Schedule of Purchased Assets
2.1(c) Schedule of Tangible Personal Property to be Conveyed
to Buyer
2.1(h) Schedule of Emission Reduction Credits
2.1(1) Intellectual Property
2.2(a) Description of Transmission and other Assets not
included in Conveyance
3.3(a)(i) Schedule of Inventory
4.3(a) Third Party Consents
4.3(b) Sellers' Required Regulatory Approvals
4.4 Insurance Exceptions
4.5 Exceptions to Title
4.6 Real Property Leases
4.7 Schedule of Environmental Matters
4.8 Schedule of Noncompliance with Employment Laws
4.9(a) Schedule of Benefit Plans
4.9(b) Benefit Plan Exceptions
4.10 Description of Real Property
4.11 Notices of Condemnation
4.12(a) List of Contracts
4.12(b) List of Non-assignable Contracts
4.12(c) List of Defaults under the Contracts
4.13 List of Litigation
4.14(a) List of Permit Violations
4.14(b) List of material Permits (other than Transferable
Permits)
4.15 Tax Matters
4.16 Intellectual Property Exceptions
5.3(a) Third Party Consents
5.3(b) Buyer's Required Regulatory Approvals
6.1 Schedule of Permitted Activities prior to Closing
6.10(b) Schedule of Non-Union Employees
6.10(d) IBEW Collective Bargaining Agreement
6.10(h) Schedule of Severance Benefits
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT, dated as of August 1, 1998, by and among
Pennsylvania Electric Company, a Pennsylvania corporation ("Penelec"), New York
State Electric & Gas Corporation, a New York corporation ("NYSEG"), NGE
Generation, Inc., a New York corporation ("NGE"), (Penelec, NGE and
NYSEG, collectively, "Sellers"), and Mission Energy Westside, Inc., a
California corporation ("Buyer"). Sellers and Buyer are referred to
individually as a "Party," and collectively as the "Parties."
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, each of Penelec and NGE owns as tenant-in-common a 50% undivided
interest in the Homer City Electric Generating Station (the "Facility")
located near Indiana, Pennsylvania, and certain facilities and other assets
associated therewith and ancillary thereto; and
WHEREAS, Penelec and NGE have heretofore agreed jointly to divest
themselves of the Facility;
WHEREAS, Buyer, a wholly owned subsidiary of Edison Mission Energy, a
California corporation ("Buyer Parent", and together with Buyer, "Buyer
Entities") desires to purchase and assume, and Penelec and NGE desire to sell
and assign, the Purchased Assets (as defined in Section 2.1 below) and
certain associated liabilities, upon the terms and conditions hereinafter set
forth in this Agreement;
WHEREAS, to induce Sellers to execute this Agreement, Buyer Parent is
executing and delivering a certain Guaranty dated the date hereof ("Guaranty")
in favor of Sellers.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements hereinafter set forth, and intending to be legally
bound hereby, the Parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms
-----------
have the meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General
----------
Rules and Regulations under the Securities Exchange Act of 1934.
(2) "Agreement" means this Asset Purchase Agreement together with
----------
the Schedules and Exhibits hereto, as the same may be from time to time amended.
<PAGE>
(3) "Ancillary Agreements" means the Interconnection Agreement,
----------------------
the Easement and Attachment Agreement and the Transition Power Purchase
Agreements, as the same may be from time to time amended.
(4) "Assignment and Assumption Agreement" means the Assignment
---------------------------------------
and Assumption Agreement between Sellers and Buyer substantially in the
form of Exhibit A hereto, by which Sellers shall subject to the terms and
conditions hereof, assign the Sellers' Agreements, the Real Property Leases,
certain intangible assets and other Purchased Assets to Buyer and
whereby Buyer shall assume the Assumed Liabilities.
(5) "Assumed Liabilities" has the meaning set forth in Section 2.3.
--------------------
(6) "Benefit Plans" has the meaning set forth in Section 4.9.
--------------
(7) "Bill of Sale" means the Bill of Sale, substantially in the form of
-------------
Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible
Personal Property included in the Purchased Assets transferred to Buyer at the
Closing.
(8) "Buyer Material Adverse Effect" has the meaning set forth in
------------------------------
Section 5.3(a).
(9) "Business Day" shall mean any day other than Saturday,
--------------
Sunday and any day on which banking institutions in New York State or the
Commonwealth of Pennsylvania are authorized by law or other governmental action
to close.
(10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f).
--------------------
(11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b).
-----------------
(12) "Buyer Required Regulatory Approvals" has the meaning set forth in
------------------------------------
Section 5.3(b).
(13) "Capital Expenditures" has the meaning set forth in Section 3.3(a).
---------------------
(14) "CERCLA" means the Federal Comprehensive Environmental
-------
Response, Compensation, and Liability Act, as amended.
(15) "Closing" has the meaning set forth in Section 3.1.
--------
(16) "Closing Adjustment" has the meaning set forth in Section 3.3(b).
-------------------
2
<PAGE>
(17) "Closing Date" has the meaning set forth in Section
------------
3.1.
(18) "COBRA" means the Consolidated Omnibus Budget
------
Reconciliation Act of 1985, as amended.
(19) "Code" means the Internal Revenue Code of 1986, as amended.
-----
(20) "Commercially Reasonable Efforts" means efforts which are reasonably
--------------------------------
within the contemplation of the Parties at the time of executing this Agreement
and which do not require the performing Party to expend any funds other
than expenditures which are customary and reasonable in transactions of the
kind and nature contemplated by this Agreement in order for the
performing Party to satisfy its obligations hereunder.
(21) "Confidentiality Agreement" means the Confidentiality Agreement,
--------------------------
dated April 1, 1998, by and among Sellers and Buyer Parent.
(22) "Direct Claim" has the meaning set forth in Section 8.2(c).
-------------
(23) "Easements" means, with respect to the Purchased Assets, the
----------
easements and access rights to be granted by Buyer to Penelec and NYSEG
pursuant to the Easement and Attachment Agreement, including, without
limitation, easements authorizing access, use, maintenance, construction,
repair, replacement and other activities by Penelec and NYSEG, as further
described in the Easement and Attachment Agreement.
(24) "Easement and Attachment Agreement" means the Easement,
----------------------------------------
License and Attachment Agreement between Buyer, Penelec and NYSEG, in the form
of Exhibit C hereto, executed on the date hereof, whereby Buyer will provide
Penelec and NYSEG with Easements with respect to the Real Property
transferred to Buyer and whereby Penelec and NYSEG will provide Buyer with
certain attachment rights with respect to certain real property owned by Penelec
and NYSEG.
(25) "Emission Allowance" means all present and future
--------------------
authorizations to emit specified units of pollutants or Hazardous Substances,
which units are established by the Governmental Authority with
jurisdiction over the Plant under (i) an air pollution control and
emission reduction program designed to mitigate global warming, interstate
or intra-state transport of air pollutants; (ii) a program designed to mitigate
impairment of surface waters, watersheds, or groundwater; or (iii) any
pollution reduction program with a similar purpose. Allowances include
allowances, as described above, regardless as to whether the Governmental
Authority establishing such Allowances designates such allowances by a
name other than "allowances."
3
<PAGE>
(26) "Emission Reduction Credits" means credits, in units that are
---------------------------
established by the Governmental Authority with jurisdiction over the
Plant that has obtained the credits, resulting from reductions in the
emissions of air pollutants from an emitting source or facility (including,
without limitation, and to the extent allowable under applicable law, reductions
from shut-downs or control of emissions beyond that required by
applicable law) that: (i) have been identified by the PaDEP as complying with
applicable Pennsylvania law governing the establishment of such
credits (including, without limitation, that such emissions reductions
are enforceable, permanent, quantifiable and surplus) and listed in the
Emissions Reduction Credit Registry maintained by the PaDEP or with respect to
which such identification and listing are pending; or (ii) have been certified
by any other applicable Governmental Authority as complying with the
law and regulations governing the establishment of such credits
(including, without limitation, certification that such emissions
reductions are enforceable, permanent, quantifiable and surplus). The term
includes Emission Reduction Credits that have been approved by the PaDEP and are
awaiting USEPA approval. The term also includes certified air emissions
reductions, as described above, regardless as to whether the
Governmental Authority certifying such reductions designates such
certified air emissions reductions by a name other than "emission
reduction credits."
(27) "Encumbrances" means any mortgages, pledges, liens, security
-------------
interests, conditional and installment sale agreements, activity and use
limitations, conservation easements, deed restrictions, encumbrances and
charges of any kind.
(28) "Environmental Claim" means any and all pending and/or
---------------------
threatened administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints,
requests for information, proceedings, or other written communication,
whether criminal or civil, pursuant to or relating to any applicable
Environmental Law by any person (including, but not limited to, any
Governmental Authority, private person and citizens' group) based upon,
alleging, asserting, or claiming any actual or potential (a) violation of, or
liability under any Environmental Law, (b) violation of any Environmental
Permit, or (c) liability for investigatory costs, cleanup costs, removal
costs, remedial costs, response costs, natural resource damages, property
damage, personal injury, fines, or penalties arising out of, based on, resulting
from, or related to the presence, Release, or threatened Release into
the environment of any Hazardous Substances at any location related to
the Purchased Assets, including, but not limited to, any off-Site location to
which Hazardous Substances, or materials containing Hazardous
Substances, were sent for handling, storage, treatment, or disposal.
4
<PAGE>
(29) "Environmental Condition" means the presence or Release to the
-------------------------
environment, whether at the Site or at an off-Site location, of Hazardous
Substances, including any migration of those Hazardous Substances through
air, soil or groundwater to or from the Site or any off-Site location regardless
of when such presence or Release occurred or is discovered.
(30) "Environmental Laws" means all Federal, state and local,
--------------------
provincial and foreign, civil and criminal laws, regulations, rules, ordinances,
codes, decrees, judgments, directives, or judicial or administrative orders
relating to pollution or protection of the environment, natural resources or
human health and safety, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances (including, without
limitation, Releases to ambient air, surface water, groundwater, land, surface
and subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport, disposal or handling
of Hazardous Substances. "Environmental Laws" include, without limitation,
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 et
seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. Sections 2601 et seq.), the Oil Pollution Act (33 U.S.C.
Sections 2701 et seq.), the Emergency Planning and Community Right-to-Know Act
(42 U.S.C. Sections 11001 et seq.), the Occupational Safety and Health Act (29
U.S.C. Sections 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35
P.S. g 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S.
Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. Section
691.1 et seq.) and all other state laws analogous to any of the above.
(31) "Environmental Permits" has the meaning set forth in Section
----------------------
4.7(a).
(32) "ERISA" means the Employee Retirement Income Security Act of 1974,
------
as amended.
(33) "ERISA Affiliate" has the meaning set forth in Section 2.4(j).
---------------
(34) "ERISA Affiliate Plans" has the meaning set forth in Section
---------------------
2.4(j).
(35) "Estimated Adjustment" has the meaning set forth in Section 3.3(b).
--------------------
(36) "Estimated Closing Statement" has the meaning set forth in Section
---------------------------
3.3(b).
(37) "Excluded Assets" has the meaning set forth in Section 2.2.
---------------
5
<PAGE>
(38) "Excluded Liabilities" has the meaning set forth in Section 2.4.
---------------------
(39) "Facilities Act" has the meaning set forth in Section 10.15.
---------------
(40) "FERC" means the Federal Energy Regulatory Commission or any
-----
successor agency thereto.
(41) "FIRPTA Affidavit" means the Foreign Investment in Real
------------------
Property Tax Act Certification and Affidavit, substantially in the form of
Exhibit D hereto.
(42) "Genco" means GPU Generation, Inc., a Pennsylvania
------
corporation and wholly-owned subsidiary of GPU.
(43) "Good Utility Practices" mean any of the practices, methods and
-----------------------
acts engaged in or approved by a significant portion of the electric utility
industry during the relevant time period, or any of the practices, methods or
acts which, in the exercise of reasonable judgment in light of the facts known
at the time the decision was made, could have been expected to accomplish the
desired result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practices are not
intended to be limited to the optimum practices, methods or acts to the
exclusion of all others, but rather to be acceptable practices, methods or
acts generally accepted in the industry.
(44) "Governmental Authority" means any federal, state, local or
------------------------
other governmental, regulatory or administrative agency, commission, department,
board, or other governmental subdivision, court, tribunal, arbitrating
body or other governmental authority.
(45) "GPU" means GPU, Inc., a Pennsylvania corporation and parent
----
company of Penelec.
(46) "Hazardous Substances" means (a) any petrochemical or petroleum
---------------------
products, oil or coal ash, radioactive materials, radon gas, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid which may
contain levels of polychlorinated biphenyls; (b) any chemicals, materials
or substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "hazardous
constituents," "restricted hazardous materials," "extremely hazardous
substances," "toxic substances," "contaminants," "pollutants," "toxic
pollutants" or words of similar meaning and regulatory effect under any
applicable Environmental Law; and (c) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
applicable Environmental Law.
6
<PAGE>
(47) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended.
(48) "IBEW" means Local 459 of the International Brotherhood of
----
Electrical Workers.
(49) "IBEW Collective Bargaining Agreement" has the meaning set forth in
------------------------------------
Section 6.10(d).
(50) "Income Tax" means any federal, state, local or foreign Tax
------------
(a) based upon, measured by or calculated with respect to net income,
profits or receipts (including, without limitation, capital gains Taxes and
minimum Taxes) or (b) based upon, measured by or calculated with respect to
multiple bases (including, without limitation, corporate franchise taxes) if one
or more of the bases on which such Tax may be based, measured by or calculated
with respect to, is described in clause (a), in each case together with any
interest, penalties, or additions to such Tax.
(51) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
-------------------
(52) "Indemnifying Party" has the meaning set forth in Section 8.1(e).
-------------------
(53) "Indemnitee" has the meaning set forth in Section 8.1(d).
-----------
(54) "Independent Accounting Firm" means such independent accounting firm
----------------------------
of national reputation as is mutually appointed by Sellers and Buyer.
(55) "Inspection" means all tests, reviews, examinations, inspections,
-----------
investigations, verifications, samplings and similar activities conducted by
Buyer or its agents or Representatives with respect to the Purchased Assets
prior to the Closing.
(56) "Intellectual Property" means all patents and patent rights,
----------------------
trademarks and trademark rights, inventions, copyrights and copyright rights
owned by the Sellers and necessary for the operation and maintenance of the
Purchased Assets, and all pending applications for registrations of
patents, trademarks, and copyrights, as set forth as part of Schedule 2.1(1)
(57) "Interconnection Agreement" means the Interconnection Agreement,
--------------------------
between Penelec, NYSEG and Buyer, in the form of Exhibit E hereto,
executed on the date hereof, under which Penelec and NYSEG will provide
Buyer with interconnection service to certain of their respective
transmission facilities and whereby Buyer will provide Penelec and NYSEG
with continuing access to certain of the Purchased Assets after the Closing
Date.
7
<PAGE>
(58) "Inventories" means coal, fuel oil or alternative fuel
------------
inventories, limestone, materials, spare parts, consumable supplies and
chemical and gas inventories relating to the operation of the Plant
located at, or in transit to, the Plant.
(59) "Knowledge" means the actual knowledge of the corporate
----------
officers or managerial representatives of the specified Person charged with
responsibility for the particular function as of the date of the this
Agreement, or, with respect to any certificate delivered pursuant to this
Agreement, the date of delivery of the certificate.
(60) "Material Adverse Effect" means any change in, or effect on
--------------------------
the Purchased Assets that is materially adverse to the operations or condition
(financial or otherwise) of the Purchased Assets, taken as a whole, other than:
(a) any change affecting the international, national, regional or local electric
industry as a whole and not Sellers specifically and exclusively; (b) any change
or effect resulting from changes in the international, national,
regional or local wholesale or retail markets for electric power; (c) any
change or effect resulting from changes in the international, national, regional
or local markets for any fuel used in connection with the Purchased Assets; (d)
any change or effect resulting from, changes in the North American,
national, regional or local electric transmission systems or operations
thereof; (e) any materially adverse change in or effect on the Purchased
Assets which is cured (including by the payment of money) by the Sellers before
the Termination Date; (f) any order of any court or Governmental Authority or
legislature applicable to providers of generation, transmission or
distribution of electricity generally that imposes restrictions, regulations or
other requirements thereon; and (g) any change or effect resulting from
action or inaction by a Governmental Authority with respect to an
independent system operator or retail access in Pennsylvania or New York.
(61) "Mine Indemnities" means the indemnification agreements
-------------------
included in (x) the Termination Agreement, dated as of February 11, 1993,
among NYSEG, Penelec, The Helen Mining Company, The Valley Camp Coal
Company and Quaker State Corporation and (y) Amendment No. 5 to the Coal
Sales Agreement, dated November 22, 1994, among NYSEG, Penelec, Helvetia
Coal Company and Rochester & Pittsburgh Coal Company.
(62) "Mines" means the Helen and Helvetia coal mines and associated
------
facilities which are located on the Real Property.
(63) "Non-Union Employees" has the meaning as set forth in Section
--------------------
6.10(b).
(64) "NYDEC" means the New York Department of Environmental
------
Conservation and any successor agency thereto.
8
<PAGE>
(65) "NYPSC" means the Public Service Commission of the State of New York
------
and any successor agency thereto.
(66) "PaPUC" means the Pennsylvania Public Utility Commission
------
and any successor agency thereto.
(67) "PaDEP" means the Pennsylvania Department of Environmental
------
Protection and any successor agency thereto.
(68) "Permits" has the meaning set forth in Section 4.14.
--------
(69) "Permitted Encumbrances" means: (i) the Easements; (ii) those
------------------------
exceptions to title to the Purchased Assets listed in Schedule 4.5 and those
Encumbrances set forth in Schedule 1.1(69); (iii) statutory liens for Taxes
or other governmental charges or assessments not yet due or delinquent or the
validity of which is being contested in good faith by appropriate
proceedings provided that the aggregate amount being so contested does not
exceed $500,000; (iv) mechanics', carriers', workers', repairers' and other
similar liens arising or incurred in the ordinary course of business relating
to obligations as to which there is no default on the part of the Sellers or the
validity of which are being contested in good faith, and which do not,
individually or in the aggregate, exceed $500,000; (v) zoning, entitlement,
conservation restriction and other land use and environmental regulations
by Governmental Authorities; and (vi) such other liens, imperfections in or
failure of title, charges, easements, restrictions and Encumbrances which do not
materially, individually or in the aggregate, detract from the value of the
Purchased Assets as currently used or materially interfere with the present
use of the Purchased Assets and neither secure indebtedness, nor
individually or in the aggregate create a Material Adverse Effect.
(70) "Person" means any individual, partnership, limited liability
-------
company, joint venture, corporation, trust, unincorporated
organization, or governmental entity or any department or agency thereof.
(71) "Plant" means the three-unit coal-fired generating station and
------
related assets as more fully identified on Schedule 2.1 attached hereto.
(72) "Post-Closing Adjustment" has the meaning set forth in Section
------------------------
3.3(c).
(73) "Post-Closing Statement" has the meaning set forth in Section
-----------------------
3.3(c).
(74) "Proposed Post-Closing Adjustment" has the meaning set forth in
---------------------------------
Section 3.3(c).
(75) "Proprietary Information" of a Party means all information
-------------------------
about the Party or its Affiliates, including their
9
<PAGE>
respective properties or operations, furnished to the other Party or its
Representatives by the Party or its Representatives, after the date hereof,
regardless of the manner or medium in which it is furnished. Proprietary
Information does not include information that: (a) is or becomes generally
available to the public, other than as a result of a disclosure by the other
Party or its Representatives; (b) was available to the other Party on a
nonconfidential basis prior to its disclosure by the Party or its
Representatives; (c) becomes available to the other Party on a nonconfidential
basis from a person, other than the Party or its Representatives, who is not
otherwise bound by a confidentiality agreement with the Party or its
Representatives, or is not otherwise under any obligation to the Party
or any of its Representatives not to transmit the information to the
other Party or its Representatives; (d) is independently developed by the other
Party; or (e) was disclosed pursuant to the Confidentiality Agreement and
remains subject to the terms and conditions of the Confidentiality Agreement.
(76) "Purchased Assets" has the meaning set forth in Section 2.1.
-----------------
(77) "Purchase Price" has the meaning set forth in Section 3.2.
--------------
(78) "Qualifying Offer" has the meaning set forth in Section 6.10(b).
----------------
(79) "Real Property" has the meaning set forth in Section 2.1(a).
-------------
(80) "Real Property Leases" has the meaning set forth in Section 4.6.
--------------------
(81) "Release" means release, spill, leak, discharge, dispose of, pump,
-------
pour, emit, empty, inject, leach, dump or allow to escape into or through the
environment.
(82) "Remediation" means action of any kind to address a Release or the
------------
presence of Hazardous Substances at the Site or an off-Site location including,
without limitation, any or all of the following activities to the extent they
relate to or arise from the presence of a Hazardous Substance at the Site or an
off-Site location: (a) monitoring, investigation, assessment,
treatment, cleanup, containment, removal, mitigation, response or restoration
work; (b) obtaining any permits, consents, approvals or authorizations of any
Governmental Authority necessary to conduct any such activity; (c)
preparing and implementing any plans or studies for any such activity; (d)
obtaining a written notice from a Governmental Authority with jurisdiction over
the Site or an off-Site location under Environmental Laws that no material
additional work is required by such Governmental Authority; (e) the
use, implementation, application, installation, operation or maintenance
of removal actions on the
10
<PAGE>
Site or an off-Site location, remedial technologies applied to the surface or
subsurface soils, excavation and off-Site treatment or disposal of soils,
systems for long term treatment of surface water or ground water,
engineering controls or institutional controls; and (f) any other activities
reasonably determined by a Party to be necessary or appropriate or required
under Environmental Laws to address the presence or Release of Hazardous
Substances at the Site or an off-Site location.
(83) "Replacement Welfare Plans" has the meaning set forth in Section
--------------------------
6.10(e)
(84) "Representatives" of a Party means the Party's Affiliates and
----------------
their directors, officers, employees, agents, partners, advisors (including,
without limitation, accountants, counsel, environmental consultants, financial
advisors and other authorized representatives) and parents and other
controlling persons.
(85) "SEC" means the Securities and Exchange Commission and any
----
successor agency thereto.
(86) "Sellers' Agreements" means those contracts, agreements,
----------------------
licenses and leases relating to the ownership, operation and maintenance
of the Plant and being assigned to Buyer as part of the Purchased
Assets, including without limitation the IBEW Collective Bargaining Agreement.
(87) "Sellers' Indemnitee" has the meaning set forth in Section 8.1 (a).
--------------------
(88) "Sellers' Required Regulatory Approvals" has the meaning set forth in
---------------------------------------
Section 4.3(b).
(89) "Site" means the Real Property (including improvements)
-----
forming a part of, or used or usable in connection with the operation of, the
Plant, including any disposal sites included in Real Property. Any
reference to the Site shall include, by definition, the surface and
subsurface elements, including the soils and groundwater present at the Site,
and any reference to items "at the Site" shall include all items "at, on, in,
upon, over, across, under and within" the Site.
(90) "Subsidiary" when used in reference to any Person means any
-----------
entity of which outstanding securities having ordinary voting power to elect a
majority of the Board of Directors or other Persons performing similar
functions of such entity are owned directly or indirectly by such Person.
(91) Reserved.
(92) "Tangible Personal Property" has the meaning set forth in Section
---------------------------
2.1(c).
11
<PAGE>
(93) "Taxes" means all taxes, charges, fees, levies, penalties or
------
other assessments imposed by any federal, state or local or foreign taxing
authority, including, but not limited to, income, excise, property, sales,
transfer, franchise, payroll, withholding, social security, gross
receipts, license, stamp, occupation, employment or other taxes, including
any interest, penalties or additions attributable thereto.
(94) "Tax Return" means any return, report, information return,
------------
declaration, claim for refund or other document (including any
schedule or related or supporting information) required to be supplied to
any taxing authority with respect to Taxes including amendments thereto.
(95) "Termination Date" has the meaning set forth in Section
------------------
9.1(b).
(96) "Third Party Claim" has the meaning set forth in Section
--------------------
8.2(a).
(97) "Transferable Permits" means those Permits and Environmental
----------------------
Permits which may be transferred to Buyer without a filing with, notice to,
consent or approval of any Governmental Authority, and are set forth in Schedule
1.1 (97).
(98) "Transferred Employees" means Transferred Non-Union Employees and
-----------------------
Transferred Union Employees.
(99) "Transferred Non-Union Employees" has the meaning set forth in
--------------------------------
Section 6.10(b).
(100) "Transferred Union Employees" has the meaning set forth in
------------------------------
Section 6.10(b).
(101) "Transferring Employee Records" means records related to Sellers'
------------------------------
personnel who will become employees of Buyer only to the extent such files
pertain to: (i) skill and development training and biographies, (ii)
seniority histories, (iii) salary and benefit information, (iv)
Occupational, Safety and Health Administration reports, and (v) active
medical restriction forms.
(102) "Transition Power Purchase Agreements" means the agreements
----------------------------------------
between Penelec and Buyer and NYSEG and Buyer, respectively, in the form
of Exhibit G hereto, executed on the date hereof, relating to the sale of
installed capacity to Penelec and NYSEG, respectively, for a specified period
of time following the Closing Date.
(103) "Transmission Assets" has the meaning set forth in Section 2.2(a).
--------------------
(104) "USEPA" means the United States Environmental Protection
------
Agency and any successor agency thereto.
12
<PAGE>
(105) "Year 2000 Compliant" has the meaning set forth in Section 4.19.
--------------------
"Year 2000 Compliance" has a meaning correlative to the foregoing.
- ---------------------
(106) "WARN Act" means the Federal Worker Adjustment Retraining and
----------
Notification Act of 1988, as amended.
1.2 Certain Interpretive Matters. In this Agreement, unless the
------------------------------
context otherwise required, the singular shall include the plural, the masculine
shall include the feminine and neuter, and vice versa. The term "includes" or
"including" shall mean "including without limitation." References to a
Section, Article, Exhibit or Schedule shall mean a Section, Article,
Exhibit or Schedule of this Agreement, and reference to a given agreement or
instrument shall be a reference to that agreement or instrument as modified,
amended, supplemented and restated through the date as of which such
reference is made.
ARTICLE II
PURCHASE AND SALE
-------- --- ----
2.1 Transfer of Assets. Upon the terms and subject to the satisfaction
-------- -- ------
of the conditions contained in this Agreement, at the Closing each of Penelec
and NGE will sell, assign, convey, transfer and deliver to Buyer, and Buyer will
purchase, assume and acquire from each such Seller, free and clear of
all Encumbrances (except for Permitted Encumbrances), and subject to Section
2.2, all of such Seller's right, title and interest in and to all of the assets
constituting, or used in and necessary for generation purposes to the operation
of, the Plant, including without limitation those assets identified in Schedule
2.1 and those assets described below (but excluding the Excluded Assets), each
as in existence on the Closing Date (collectively, "Purchased Assets"):
-------------------
(a) Those certain parcels of real property (including all buildings,
facilities and other improvements thereon and all appurtenances thereto)
described in Schedule 4.10 (the "Real Property"), but subject to the
----------------
Permitted Encumbrances and those exceptions listed in Schedule 4.5 and
except as otherwise constituting part of the Excluded Assets;
(b) All Inventories and Emission Allowances;
(c) All machinery, mobile or otherwise, equipment (including
communications equipment), vehicles, tools, furniture and furnishings and
other personal property located on the Real Property on the Closing Date,
including, without limitation, the items of personal property included in
Schedule 2.1(c), together with all the personal property of Sellers used
principally in the operation of the Plant and listed in Schedule 2.1(c),
other than
13
<PAGE>
property used or primarily usable as part of the Transmission Assets or
otherwise constituting part of the Excluded Assets (collectively,
"Tangible Personal Property");
- ----------------------------
(d) Subject to the provisions of Section 6.5(c), all Sellers'
Agreements;
(e) Subject to the provisions of Section 6.5(c), all Real Property
Leases;
(f) All Transferable Permits;
(g) All books, operating records, operating, safety and
maintenance manuals, engineering design plans, documents, blueprints and
as built plans, specifications, procedures and similar items of
Sellers relating specifically to the aforementioned assets and
necessary for the operation of the Plant (subject to the right of Sellers
to retain copies of same for their use) other than such items which are
proprietary to third parties and accounting records;
(h) All Emission Reduction Credits associated with the Plant and
identified in Schedule 2.1(h) that have accrued prior to, or that accrue on or
after, the date of this Agreement but prior to the Closing Date;
(i) All unexpired, transferable warranties and guarantees
from third parties with respect to any item of Real Property or personal
property constituting part of the Purchased Assets, as of the Closing Date;
(j) The name of the Plant. It is expressly understood that Sellers
are not assigning or transferring to Buyer any right to use the name
"Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Genco", "New York State Electric & Gas Corporation",
"NYSEG", "NGE" or "NGE Generation" or any related or similar trade names,
trademarks, service marks, corporate names and logos or any part, derivative or
combination thereof;
(k) All drafts, memoranda, reports, information, technology,
and specifications relating to the Sellers' plans for Year 2000 Compliance;
(l) The Intellectual Property described on Schedule 2.1(1); and
(m) The substation equipment set forth in Schedule A to the
Interconnection Agreement and designated therein as being transferred to Buyer.
2.2 Excluded Assets. Notwithstanding anything to the contrary in
----------------
this Agreement, nothing in this Agreement will constitute or be construed
as conferring on Buyer, and Buyer is
14
<PAGE>
not acquiring, any right, title or interest in or to the following
specific assets which are associated with the Purchased Assets, but which are
hereby specifically excluded from the sale and the definition of Purchased
Assets herein (the "Excluded Assets"):
-----------------
(a) Except as expressly identified in Schedule 2.1(c), the
electrical transmission or distribution facilities (as opposed to
generation facilities) of Sellers or any of their Affiliates located at
the Site or forming part of the Plant (whether or not regarded as a
"transmission" or "generation" asset for regulatory or accounting
purposes), including all switchyard facilities, substation facilities
and support equipment, as well as all permits, contracts and warranties, to
the extent they relate to such transmission and distribution assets
(collectively, the "Transmission Assets"), and those certain assets,
----------------------
facilities and agreements all as identified on Schedule 2.2(a) attached hereto;
(b) Certain switches and meters in the Plant, gas facilities,
revenue meters and remote testing units, drainage pipes and systems, as
identified in the Easement and Attachment Agreement;
(c) Certificates of deposit, shares of stock, securities,
bonds, debentures, evidences of indebtedness, and interests in joint
ventures, partnerships, limited liability companies and other entities;
(d) All cash, cash equivalents, bank deposits, accounts
and notes receivable (trade or otherwise), and any income, sales, payroll
or other tax receivables;
(e) The rights of Sellers and their Affiliates to the names
"Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Genco", "New York State Electric & Gas Corporation", "NYSEG",
"NGE" and "NGE Generation" or any related or similar trade names,
trademarks, service marks, corporate names or logos, or any part, derivative
or combination thereof;
(f) All tariffs, agreements and arrangements to which Sellers are a
party for the purchase or sale of electric capacity and/or energy or for the
purchase of transmission or ancillary services;
(g) The rights of Sellers in and to any causes of action against
third parties (including indemnification and contribution) relating to any Real
Property or personal property, Permits, Environmental Permits, Taxes, Real
Property Leases or Sellers' Agreements, if any, including any claims for
refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation
awards, judgments and the like, whether received as payment or credit against
future liabilities, relating
15
<PAGE>
specifically to the Plant or the Site and relating to any period prior to the
Closing Date except that Buyer shall be deemed to be a third party beneficiary
of the Mine Indemnitees to the extent permitted by such agreements;
(h) All personnel records of Sellers or their Affiliates
relating to the Transferred Employees other than Transferring Employee
Records or other records, the disclosure of which is required by law, or
legal or regulatory process or subpoena; and
(i) Any and all of Sellers' rights in any contract representing
an intercompany transaction between Sellers and an Affiliate of Sellers, whether
or not such transaction relates to the provision of goods and services,
payment arrangements, intercompany charges or balances, or the like.
2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to
-------------------
Sellers the Assignment and Assumption Agreement pursuant to which Buyer
shall assume and agree to discharge when due, without recourse to Sellers,
all of the following liabilities and obligations of Sellers, direct or
indirect, known or unknown, absolute or contingent, which relate to the
Purchased Assets, other than Excluded Liabilities, in accordance with the
respective terms and subject to the respective conditions thereof (collectively,
"Assumed Liabilities"):
- --------------------
(a) All liabilities and obligations of Sellers arising on or after
the Closing Date under the Sellers' Agreements, the Real Property Leases, and
the Transferable Permits in accordance with the terms thereof, including,
without limitation, (i) the contracts, licenses, agreements and personal
property leases entered into by Sellers with respect to the Purchased Assets,
whether or not disclosed on Schedule 4.12(a) and (ii) the contracts,
licenses, agreements and personal property leases entered into by
Sellers with respect to the Purchased Assets after the date hereof
consistent with the terms of this Agreement, except in each case to the
extent such liabilities and obligations, but for a breach or default by Sellers,
would have been paid, performed or otherwise discharged on or prior to the
Closing Date or to the extent the same arise out of any such breach or default
or out of any event which after the giving of notice would constitute a default
by Sellers;
(b) All liabilities and obligations associated with the
Purchased Assets in respect of Taxes for which Buyer is liable pursuant
to Sections 3.5 or 6.8(a) hereof;
(c) All liabilities and obligations with respect to the
Transferred Employees on and after the Closing Date for which (i) Buyer is
responsible pursuant to Section 6.10 and (ii) the grievances and arbitration
proceedings arising out of or under the Collective Bargaining Agreement prior to
(as set forth in Schedule 4.8), on or after the Closing Date;
16
<PAGE>
(d) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with (i) any violation or alleged violation of
Environmental Laws, whether prior to, on or after the Closing Date,
with respect to the ownership or operation of any of the Purchased Assets,
including, but not limited to, the Mines (except to the extent Sellers receive
indemnity payments under the Mine Indemnities); (ii) loss of life, injury to
persons or property or damage to natural resources (whether or not such loss,
injury or damage arose or was made manifest before the Closing Date or
arises or becomes manifest on or after the Closing Date) caused (or allegedly
caused) by the presence or Release of Hazardous Substances at, on, in, under,
adjacent to or migrating from the Purchased Assets prior to, on or after
the Closing Date, including, but not limited to, Hazardous Substances
contained in building materials at or adjacent to the Purchased Assets or in the
soil, surface water, sediments, groundwater, landfill cells, or in other
environmental media at or near the Purchased Assets; and (iii) the
Remediation (whether or not such Remediation commenced before the Closing
Date or commences on or after the Closing Date) of Hazardous Substances that are
present or have been Released prior to, on or after the Closing Date at, on, in,
under, adjacent to or migrating from, the Purchased Assets or in the soil,
surface water, sediments, groundwater, landfill cells or in other environmental
media at or adjacent to the Purchased Assets; provided, that nothing set
forth in this subsection 2.3(d) shall require Buyer to assume any
liabilities or obligations that are expressly excluded in Section 2.4 including
without limitation liability for toxic torts as set forth in Section
2.4(i); provided, further, however, that nothing set forth in this
subsection 2.3(d) or otherwise herein shall require Buyer to assume any
obligation for payment of fines, penalties or costs imposed by a
Governmental Authority to the extent such obligations arise out of or
relate to acts or omissions of the Sellers prior to the Closing that constitute
violations of the New Source Performance Standards, Prevention of
Significant Deterioration or New Source Review regulations under the Clean Air
Act.
(e) All liabilities and obligations of Sellers with respect to
the Purchased Assets under the agreements or consent orders set forth on
Schedule 4.7 arising on or after the Closing; and
(f) With respect to the Purchased Assets, any Tax that may be imposed
by any federal, state or local government on the ownership, sale, operation or
use of the Purchased Assets on or after the Closing Date, except for any Income
Taxes attributable to income received by Sellers.
17
<PAGE>
2.4 Excluded Liabilities. Buyer shall not assume or be obligated to
---------------------
pay, perform or otherwise discharge the following liabilities or obligations
(the "Excluded Liabilities"):
-----------------------
(a) Any liabilities or obligations of Sellers in respect of any
Excluded Assets or other assets of Sellers which are not Purchased Assets;
(b) Any liabilities or obligations in respect of Taxes attributable
to the ownership, operation or use of Purchased Assets for taxable
periods, or portions thereof, ending before the Closing Date, except for
Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof;
(c) Any liabilities or obligations of Sellers accruing under any of
the Sellers' Agreements prior to the Closing Date;
(d) Any and all asserted or unasserted liabilities or obligations to
third parties (including employees) for personal injury or tort, or similar
causes of action arising solely out of the ownership or operation of the
Purchased Assets prior to the Closing Date, other than any liabilities or
obligations which have been assumed by Buyer under Section 2.3(d);
(e) Any fines, penalties or costs imposed by a Governmental
Authority resulting from (i) an investigation, proceeding, request for
information or inspection before or by a Governmental Authority pending prior to
the Closing Date but only regarding acts which occurred prior to the Closing
Date, or (ii) illegal acts, willful misconduct or gross negligence of Sellers
prior to the Closing Date, other than, any such fines, penalties or costs which
have been assumed by Buyer under Section 2.3(d);
(f) Any payment obligations of Sellers for goods delivered or
services rendered prior to the Closing Date, including, but not limited
to, rental payments pursuant to the Real Property Leases and Personal Property
Leases;
(g) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with loss of life, injury to persons or property or damage
to natural resources (whether or not such loss, injury or damage arose or was
made manifest before the Closing Date or arises or becomes manifest on or
after the Closing Date) to the extent caused (or allegedly caused) by the
off-Site disposal, storage, transportation, discharge, Release, or recycling
of Hazardous Substances, or the arrangement for such activities, of Hazardous
Substances, prior to the Closing Date, in connection with the ownership or
operation of the Purchased Assets, provided that for purposes of this Section
"off-Site" does not include any location to which Hazardous Substances
disposed of or Released at the Purchased Assets have migrated;
18
<PAGE>
(h) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with the investigation and/or Remediation (whether or not
such investigation or Remediation commenced before the Closing Date or commences
on or after the Closing Date) of Hazardous Substances that are disposed,
stored, transported, discharged, Released, recycled, or the arrangement of
such activities, prior to the Closing Date, in connection with the ownership
or operation of the Purchased Assets, at any off-Site location, provided that
for purposes of this Section "off-Site" does not include any location to which
Hazardous Substances disposed of or Released at the Purchased Assets have
migrated;
(i) Third party liability for toxic torts arising as a result of or
in connection with loss of life or injury to persons (whether or not such loss
or injury arose or was made manifest on or after the Closing Date) caused (or
allegedly caused) by the presence or Release of Hazardous Substances at, on,
in, under, adjacent to or migrating from the Purchased Assets prior to the
Closing Date;
(j) Subject to Section 6.10, any liabilities or obligations
relating to any Benefit Plan maintained by the Sellers or any trade or
business (whether or not incorporated) which is or ever has been under common
control, or which is or ever has been treated as a single employer, with a
Seller under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or
--------------------
to which a Seller and any ERISA Affiliate contributed thereunder (the
"ERISA Affiliate Plans"), including any multi-employer plan, maintained by,
- ------------------------
contributed to, or obligated to contribute to, at any time, by a Seller or
any ERISA Affiliate, including but not limited to any liability (i)
relating to benefits payable under any Benefit Plans (ii) relating to the
Pension Benefit Guaranty Corporation under Title IV of ERISA; (iii) relating to
a multi-employer plan; (iv) with respect to non-compliance with the notice and
benefit continuation requirements of COBRA; (v) with respect to any
noncompliance with ERISA or any other applicable laws; or (vi) with respect to
any suit, proceeding or claim which is brought against Buyer, any Benefit Plan,
ERISA Affiliate Plan, any fiduciary or former fiduciary of any such Benefit Plan
or ERISA Affiliate Plan;
(k) Subject to Section 6.10, any liabilities or obligations
relating to the employment or termination of employment, including
discrimination, wrongful discharge, unfair labor practices, or constructive
termination by a Seller of any individual, attributable to any actions or
inactions by the Sellers prior to the Closing Date other than such
actions or inactions taken at the written direction of Buyer;
19
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(l) Subject to Section 6.10, any obligations for wages,
overtime, employment taxes, severance pay, transition payments in respect
of compensation or similar benefits accruing or arising prior to the Closing
under any term or provision of any contract, plan, instrument or agreement
relating to any of the Purchased Assets; and
(m) Any liability of a Seller arising out of a breach by a Seller or
any of its Affiliates of any of their respective obligations under this
Agreement or the Ancillary Agreements.
2.5 Control of Litigation. The Parties agree and acknowledge
-----------------------
that Sellers shall be entitled exclusively to control, defend and
settle any litigation, administrative or regulatory proceeding, and any
investigation or Remediation activities (including without limitation any
environmental mitigation or Remediation activities), arising out of or related
to any Excluded Liabilities, and Buyer agrees to cooperate fully in connection
therewith.
ARTICLE III
THE CLOSING
-----------
3.1 Closing. Upon the terms and subject to the satisfaction
-------
of the conditions contained in Article VII of this Agreement, the sale,
assignment, conveyance, transfer and delivery of the Purchased Assets to
Buyer, the payment of the Purchase Price to Sellers, and the consummation
of the other respective obligations of the Parties contemplated by this
Agreement shall take place at a closing (the "Closing"), to be held at the
---------
offices of Berlack, Israels & Liberman LLP, 120 West 45th Street, New York, New
York at 10:00 a.m. local time, or another mutually acceptable time and
location, on the date that is fifteen (15) Business Days following the date on
which the last of the conditions precedent to Closing set forth in Article VII
of this Agreement have been either satisfied or waived by the Party for whose
benefit such conditions precedent exist or such other date as the Parties
may mutually agree. The date of Closing is hereinafter called the "Closing
--------
Date." The Closing shall be effective for all purposes as of 12:01
- ----
a.m. on the Closing Date.
3.2 Payment of Purchase Price. Upon the terms and subject to the
-------------------------
satisfaction of the conditions contained in this Agreement, in
consideration of the aforesaid sale, assignment, conveyance, transfer and
delivery of the Purchased Assets, Buyer will pay or cause to be paid to
Sellers at the Closing an aggregate amount of one billion, eight hundred and
one million United States Dollars(U.S. $1,801,000,000.00) (the "Purchase
---------
Price") plus or minus any adjustments pursuant to the provisions
- ------
20
<PAGE>
of this Agreement, by wire transfer of immediately available funds
denominated in U.S. dollars or by such other means as are agreed upon by Sellers
and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the
----------------------------
Closing, the Purchase Price shall be adjusted, without duplication, to account
for the items set forth in this Section 3.3(a):
(i) The Purchase Price shall be increased or decreased, as
applicable, to reflect the difference between the book value of all
Inventories as of the Closing Date and the value of all Inventories as
of December 31, 1997 reflected on Schedule 3.3(a)(i).
(ii) The Purchase Price shall be adjusted to account for
the items prorated as of the Closing Date pursuant to Section 3.5.
(iii) The Purchase Price shall be increased by the amount
expended, or for which liabilities are incurred, by Sellers between the
date hereof and the Closing Date for capital additions to or replacements
of property, plant and equipment included in the Purchased Assets and
other expenditures or repairs on property, plant and equipment
included in the Purchased Assets that would be capitalized by Sellers in
accordance with normal accounting policies of Sellers and their
Affiliates (together, "Capital Expenditures"), which are not described
----------------------
on Schedule 6.1 and which either (A) are mandated after the date of
this Agreement by any Governmental Authority (subject to Buyer's right to
direct Sellers to contest such mandates by appropriate proceedings
at Buyer's expense and provided there is no adverse impact on the
Purchased Assets); or (B) do not fall within category (A) above but do not
exceed in the aggregate $500,000; or (C) are approved in writing by Buyer.
(b) At least ten (10) Business Days prior to the Closing Date,
Sellers shall prepare and deliver to Buyer an estimated closing statement
(the "Estimated Closing Statement") that shall set forth Sellers' best
estimate of all estimated adjustments to the Purchase Price required by
Section 3.3(a) (the "Estimated Adjustment"). Within five (5) Business Days
----------------------
following the delivery of the Estimated Closing Statement by Sellers to Buyer,
Buyer may object in good faith to the Estimated Adjustment in writing. If
Buyer objects to the Estimated Adjustment, the Parties shall attempt to
resolve their differences by negotiation. If the Parties are unable to do
so within three (3) Business Days prior to the Closing Date (or if Buyer does
not object to the Estimated Adjustment), the Purchase Price shall be adjusted
(the "Closing Adjustment") for the Closing by the amount of the Estimated
--------------------
Adjustment not in dispute. The disputed portion
21
<PAGE>
shall be paid as a Post-Closing Adjustment to the extent required by Section
3.3(c).
(c) Within sixty (60) days following the Closing Date, Sellers shall
prepare and deliver to Buyer a final closing statement (the "Post-Closing
-------------
Statement") that shall set forth all adjustments to the Purchase Price required
- ----------
by Section 3.3(a) (the "Proposed Post-Closing Adjustment"). The Post-Closing
----------------------------------
Statement shall be prepared using the same accounting principles, policies and
methods as Sellers have historically used in connection with the calculation
of the items reflected on such Post-Closing Statement. Within thirty (30)
days following the delivery of the Post-Closing Statement by Sellers to Buyer,
Buyer may object to the Proposed Post-Closing Adjustment in writing. Sellers
agree to cooperate with Buyer to provide Buyer and Buyer's Representatives
information used to prepare the Post-Closing Statement and information
relating thereto. If Buyer objects to the Proposed Post-Closing Adjustment,
the Parties shall attempt to resolve such dispute by negotiation. If
the Parties are unable to resolve such dispute within thirty (30) days of
any objection by Buyer, the Parties shall appoint the Independent Accounting
Firm, which shall, at Sellers' and Buyer's joint expense, review the Proposed
Post-Closing Adjustment and determine the appropriate adjustment to the
Purchase Price, if any, within thirty (30) days of such appointment. The
Parties agree to cooperate with the Independent Accounting Firm and provide it
with such information as it reasonably requests to enable it to
make such determination. The finding of such Independent Accounting Firm
shall be binding on the Parties hereto. Upon determination of the appropriate
adjustment (the "Post-Closing Adjustment") by agreement of the Parties or
-------------------------
by binding determination of the Independent Accounting Firm, if the Post-
Closing Adjustment is more or less than the Closing Adjustment, the Party owing
the difference shall deliver such difference to the other Party no later than
two (2) Business Days after such determination, in immediately available funds
or in any other manner as reasonably requested by the payee.
3.4 Allocation of Purchase Price. Buyer and Sellers shall endeavor to
---------- -- -------- -----
agree upon an allocation among the Purchased Assets of the sum of the
Purchase Price and the Assumed Liabilities consistent with Section 1060 of
the Code and the Treasury Regulations thereunder within sixty (60) days of
the date of this Agreement. Each of Buyer and Sellers agree to file
Internal Revenue Service Form 8594, and all federal, state, local and
foreign Tax Returns, in accordance with any such agreed to allocation.
Each of Buyer and Sellers shall report the transactions contemplated by
this Agreement for federal Tax and all other Tax purposes in a manner
consistent with any such agreed to allocation determined pursuant to this
Section 3.4. Each of Buyer and Sellers agree to provide the other promptly with
any information required to complete Form 8594. Buyer and Sellers shall notify
and provide the other with reasonable assistance in the event of an
examination, audit or other
22
<PAGE>
proceeding regarding any allocation of the Purchase Price agreed to pursuant to
this Section 3.4.
3.5 Prorations. (a) Buyer and Sellers agree that all of the items normally
----------
prorated, including those listed below (but not including Income Taxes),
relating to the business and operation of the Purchased Assets shall be prorated
as of the Closing Date, with Sellers liable to the extent such items relate to
any time period prior to the Closing Date, and Buyer liable to the extent such
items relate to periods commencing with the Closing Date (measured in the same
units used to compute the item in question, otherwise measured by calendar
days):
(i) Personal property, real estate and occupancy Taxes,
assessments and other charges, if any, on or with respect to the
business and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including prepaid
services or goods not included in Inventory) payable by or to Sellers under
any of the Sellers' Agreements;
(iii) Any permit, license, registration, compliance
assurance fees or other fees with respect to any Transferable Permit;
(iv) Sewer rents and charges for water, telephone, electricity
and other utilities; and
(v) Rent and Taxes and other items payable by Sellers
under the Real Property Leases assigned to Buyer.
(b) In connection with the prorations referred to in (a) above, in
the event that actual figures are not available at the Closing Date, the
proration shall be based upon the actual Taxes or other amounts accrued through
the Closing Date or paid for the most recent year (or other appropriate period)
for which actual Taxes or other amounts paid are available. Such prorated Taxes
or other amounts shall be re-prorated and paid to the appropriate Party
within sixty (60) days of the date that the previously unavailable actual
figures become available. The prorations shall be based on the number of days
in a year or other appropriate period (i) before the Closing Date and (ii)
including and after the Closing Date. Sellers and Buyer agree to furnish each
other with such documents and other records as may be reasonably requested in
order to confirm all adjustment and proration calculations made pursuant to this
Section 3.5.
Notwithstanding anything to the contrary herein, no proration
shall be made under this Section 3.5 with respect to Taxes payable under the
Pennsylvania Public Utility Realty Tax Act ("PURTA"). Buyer shall be fully
responsible for all Taxes payable under PURTA for the year in which the Closing
occurs.
23
<PAGE>
3.6 Deliveries by Sellers. At the Closing, each of Sellers as to
---------------------
itself will deliver, or cause to be delivered, the following to Buyer:
(a) The Bill of Sale, duly executed by Penelec and NGE;
(b) Copies of any and all governmental and other third party
consents, waiver or approvals obtained by Sellers with respect to the transfer
of the Purchased Assets, or the consummation of the transactions contemplated by
this Agreement;
(c) The opinions of counsel and officer's certificates
contemplated by Section 7.1;
(d) One or more special warranty deeds conveying the Real Property
to Buyer, in substantially the form of Exhibit F hereto, duly executed and
acknowledged by Penelec and NGE and in recordable form;
(e) The Assignment and Assumption Agreement, duly executed by
Penelec and NGE;
(f) A FIRPTA Affidavit, duly executed by Sellers;
(g) Copies, certified by the Secretary or Assistant Secretary of
each Seller, of corporate resolutions authorizing the execution and delivery of
this Agreement and all of the agreements and instruments to be executed and
delivered by Sellers in connection herewith; and the consummation of the
transactions contemplated hereby;
(h) A certificate of the Secretary or Assistant Secretary of each
Seller identifying the name and title and bearing the signatures of the
officers of such Seller authorized to execute and deliver this Agreement and the
other agreements and instruments contemplated hereby;
(i) Certificates of Good Standing with respect to the Sellers,
issued by the Secretary of State of each Sellers' state of incorporation, as
applicable;
(j) To the extent available, originals of all Sellers' Agreements,
Real Property Leases and Transferable Permits and, if not available, true and
correct copies thereof;
(k) All such other instruments of assignment, transfer or
conveyance as shall, in the reasonable opinion of Buyer and its counsel, be
necessary or desirable to transfer to Buyer the Purchased Assets, in accordance
with this Agreement and where necessary or desirable in recordable form; and
24
<PAGE>
(l) Such other agreements, documents, instruments and writings as are
required to be delivered by Sellers at or prior to the Closing Date pursuant
to this Agreement or otherwise reasonably required in connection herewith.
3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or
---------------------
cause to be delivered, the following to Sellers:
(a) The Purchase Price, as adjusted pursuant to Section 3.3, by
wire transfer of immediately available funds in accordance with Sellers'
instructions or by such other means as may be agreed to by Sellers and Buyer;
(b) The opinions of counsel and officer's certificates contemplated
by Section 7.2;
(c) The Assignment and Assumption Agreement, duly executed by
Buyer;
(d) Copies, certified by the Secretary or Assistant Secretary of
Buyer and Buyer Parent, respectively, of resolutions authorizing the execution
and delivery of this Agreement, the Guaranty and all of the agreements and
instruments to be executed and delivered by Buyer in connection herewith,
and the consummation of the transactions contemplated hereby;
(e) A certificate of the Secretary or Assistant Secretary of
Buyer and Buyer Parent, respectively, identifying the name and title and
bearing the signatures of the officers of Buyer authorized to execute and
deliver this Agreement, the Guaranty and the other agreements contemplated
hereby;
(f) All such other instruments of assumption as shall, in the
reasonable opinion of Sellers and their counsel, be necessary for Buyer
to assume the Assumed Liabilities in accordance with this Agreement;
(g) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Buyer with respect to the
transfer of the Purchased Assets, or the consummation of the transactions
contemplated by this Agreement;
(h) Certificates of Insurance relating to the insurance
policies required pursuant to Article 10 of the Interconnection
Agreement; and
(i) Such other agreements, documents, instruments and writings as are
required to be delivered by Buyer at or prior to the Closing Date pursuant
to this Agreement or otherwise reasonably required in connection herewith.
3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary
--------------------
Agreements have been executed on the date hereof.
25
<PAGE>
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS
Each of Sellers severally as to itself, in the case of Sections
4.1, 4.2, 4.3, 4.5 and 4.15, and, subject to Section 10.1, jointly and
severally, as to all other representations and warranties, represents and
warrants to Buyer as follows:
4.1 Incorporation: Qualification. Such Seller is a corporation
------------------------------
duly incorporated, validly existing and in good standing under the laws of
the state of its incorporation and has all requisite corporate power and
authority to own, lease, and operate its material properties and assets and to
carry on its business as is now being conducted. Such Seller is duly qualified
to do business as a foreign corporation and is in good standing under the laws
of each jurisdiction in which its business as now being conducted shall require
it to be so qualified, except where the failure to be so qualified would not
have a Material Adverse Effect. Such Seller has heretofore delivered to
Buyer true, complete and correct copies of its Certificate of Incorporation and
Bylaws as currently in effect.
4.2 Authority Relative to this Agreement. Such Seller has full corporate
------------------------------------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by such Seller and the consummation of the transactions contemplated
by such Seller hereby have been duly and validly authorized by all necessary
corporate action required on the part of such Seller and this Agreement has
been duly and validly executed and delivered by such Seller. Subject to
the receipt of Sellers' Required Regulatory Approvals, this Agreement
constitutes the legal, valid and binding agreement of such Seller, enforceable
against such Seller in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is considered
in a proceeding at law or in equity).
4.3 Consents and Approvals: No Violation. (a) Except as set forth in
------------------------------------
Schedule 4.3(a), and subject to obtaining Sellers' Required Regulatory
Approvals, neither the execution and delivery of this Agreement by such Seller
nor the consummation by such Seller of the transactions contemplated hereby vill
(i) conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of such Seller, (ii) result in a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, material agreement or other instrument or obligation to which such
Seller is a party or
26
<PAGE>
by which it, or any of the Purchased Assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which, would not,
individually or in the aggregate, create a Material Adverse Effect; or (iii)
constitute violations of any law, regulation, order, judgment or decree
applicable to such Seller, which violations, individually or in the aggregate,
would create a Material Adverse Effect.
(b) Except as set forth in Schedule 4.3(b), (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to
as the "Sellers' Required Regulatory Approvals"), no consent or approval of,
-------------------------------------------
filing with, or notice to, any Governmental Authority is necessary for the
execution and delivery of this Agreement by such Seller, or the consummation by
such Seller of the transactions contemplated hereby, other than (i) such
consents, approvals, filings or notices which, if not obtained or made, will not
prevent such Seller from performing its material obligations hereunder and
(ii) such consents, approvals, filings or notices which become applicable
to such Seller or the Purchased Assets as a result of the specific
regulatory status of Buyer (or any of its Affiliates) or as a result of any
other facts that specifically relate to the business or activities in
which Buyer (or any of its Affiliates) is or proposes to be engaged.
4.4 Insurance. Except as set forth in Schedule 4.4, all material
---------
policies of fire, liability, workers' compensation and other forms of
insurance owned or held by, or on behalf of, Sellers with respect to the
business, operations or employees at the Plant or the Purchased Assets are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date hereof has been paid (other than retroactive premiums
which may be payable with respect to comprehensive general liability and
workers' compensation insurance policies), and no notice of cancellation or
termination has been received with respect to any such policy which was
not replaced on substantially similar terms prior to the date of
such cancellation. Except as described in Schedule 4.4, within the 36 months
preceding the date of this Agreement, the Sellers have not been refused any
insurance with respect to the Purchased Assets nor has their coverage been
limited by any insurance carrier to which they have applied for any such
insurance or with which they have carried insurance during the last twelve (12)
months.
4.5 Title and Related Matters. Except as set forth in Schedule
----------------------------
4.5 and subject to Permitted Encumbrances, (i) each of Penelec and NGE is the
owner of record title to a 50% undivided interest in the Real Property and has
good and valid title to the other Purchased Assets which it purports to own,
free and clear of all Encumbrances and (ii) each such Seller shall convey to
Buyer such title with respect to the Real Property as a reputable title company
doing business in the Commonwealth of Pennsylvania would insure.
27
<PAGE>
4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this
---------------------
Agreement, all real property leases under which each Seller is a lessee or
lessor and which relate to the Purchased Assets ("Real Property Leases").
----------------------
Except as set forth in Schedule 4.6, all such leases are valid, binding and
enforceable against Sellers in accordance with their terms; there are no
existing material defaults by Sellers or, to such Sellers' Knowledge, any other
party thereunder; and no event has occurred which (whether with or without
notice, lapse of time or both) would constitute a material default by Sellers
or, to Sellers' Knowledge, any other party thereunder. Sellers have delivered
to Buyer true, correct and complete copies of each of the Real Property Leases.
4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in
---------------------
the "Phase I" and "Phase II" environmental site assessments prepared
by Sellers' outside environmental consultants ("Environmental Reports")
------------------------
and made available for inspection by Buyer:
(a) The Sellers hold, and are in substantial compliance
with, all permits, certificates, certifications, licenses and governmental
authorizations under Environmental Laws ("Environmental Permits") that are
------------------------
required for Sellers to conduct the business and operations of the Purchased
Assets, and Sellers are otherwise in compliance with applicable Environmental
Laws with respect to the business and operations of the Purchased Assets except
for such failures to hold or comply with required Environmental Permits, or such
failures to be in compliance with applicable Environmental Laws, as would not,
individually or in the aggregate, create a Material Adverse Effect;
(b) None of Sellers has received any written request for
information, or been notified that it is a potentially responsible
party, under CERCLA or any similar state law with respect to the Real
Property;
(c) None of the Sellers has entered into or agreed to any consent
decree or order relating to the Purchased Assets, or is subject to any
outstanding judgment, decree, or judicial order relating to compliance with
any Environmental Law or to investigation or cleanup of Hazardous
Substances under any Environmental Law relating to the Purchased Assets.
(d) To Sellers' Knowledge, no Releases of Hazardous Substances
have occurred at, from, in, on, or under the Site, and no Hazardous Substances
are present in, on, about or migrating from the Site that could give rise to
an Environmental Claim related to the Purchased Assets for which Remediation
reasonably could be required, except in any such case to the extent that any
such Releases would not, individually or in the aggregate, create a Material
Adverse Effect.
28
<PAGE>
The representations and warranties made in this Section 4.7 are the
Sellers' exclusive representations and warranties relating to environmental
matters.
4.8 Labor Matters. Sellers have previously delivered to Buyer true
--------------
and correct copies of all collective bargaining agreements to which
Sellers are a party or are subject and which relate to the business and
operations of the Purchased Assets. With respect to the business or
operations of the Purchased Assets, except to the extent set forth in
Schedule 4.8 and except for such matters as will not, individually or in the
aggregate, create a Material Adverse Effect, (a) Sellers are in compliance with
all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours; (b) neither Seller
has received written notice of any unfair labor practice complaint
against such Seller pending before the National Labor Relations Board;
(c) no arbitration proceeding arising out of or under any collective
bargaining agreements is pending against either Seller; and (d) Sellers have not
experienced any work stoppage within the three-year period prior to the date
hereof and to Sellers' Knowledge none is currently threatened.
4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred
----------------------
compensation, profit-sharing, retirement and pension plans, including multi-
employer plans (of which none exist), and all material bonus, fringe benefit
and other employee benefit plans maintained or with respect to which
contributions are made by Penelec or Genco in respect of the current
employees of Penelec or Genco connected with the Purchased Assets ("Benefit
--------
Plans"). True and complete copies of all such Benefit Plans have been made
- ------
available to Buyer.
(b) Except as set forth in Schedule 4.9(b), Sellers and the ERISA
Affiliates have fulfilled their respective obligations under the minimum
funding requirements of Section 302 of ERISA, and Section 412 of the Code, with
respect to each Benefit Plan which is an "employee pension benefit plan" as
defined in Section 3(2) of ERISA and each such plan is in compliance in all
material respects with the presently applicable provisions of ERSA and the
Code. Except as set forth in Schedule 4.9(b), neither the Sellers nor any
ERISA Affiliate has incurred any liability under Section 4062(b) of ERISA to
the Pension Benefit Guaranty Corporation in connection with any Benefit Plan
which is subject to Title IV of ERISA or any withdrawal liability, nor is there
any reportable event (as defined in Section 4043 of ERISA), except as
set forth in Schedule 4.9(b). Except as set forth in Schedule 4.9(b), the
Internal Revenue Service has issued a letter for each Benefit Plan which is
intended to be qualified under Section 401(a) of the Code, which letter
determines that such plan is exempt from United States Federal Income
Tax under Section 401(a) and 501(a) of the Code, and there has been no
occurrence since the date of any such determination letter which has affected
adversely such qualification.
29
<PAGE>
(c) Neither the Sellers nor any ERISA Affiliate has engaged in any
transaction within the meaning of Section 4069(b) or Section 4212(c) of
ERISA. No Benefit Plan is a multi-employer plan.
(d) To the extent the Sellers maintain a "group health plan"
within the meaning of Section 5000(b) (1) of the Code, Sellers have
materially complied in good faith with the notice and continuation
requirements of Section 4980B of the Code, COBRA, Part 6 of Subtitle
B of Title I of ERISA and the regulations thereunder.
4.10 Real Property Schedule 4.10 contains a description of the Real
-------------
Property owned by Penelec and NGE and included in the Purchased Assets. True
and correct copies of any current surveys, abstracts or title opinions in
Sellers' possession and any policies of title insurance currently in force and
in the possession of Sellers with respect to the Real Property have
heretofore been made available to Buyer.
4.11 Condemnation. Except as set forth in Schedule 4.11, Sellers have not
------------
received any written notices of and otherwise have no Knowledge of any pending
or threatened proceedings or governmental actions to condemn or take by
power of eminent domain all or any part of the Purchased Assets.
4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written
--------------------
contract, license, agreement, or personal property lease which is material to
the business or operations of the Purchased Assets, other than any contract,
license, agreement or personal property lease which is listed or described on
another Schedule, or which is expected to expire or terminate prior to the
Closing Date, or which provides for annual payments by the Sellers after the
date hereof of less than $250,000 or payments by the Sellers after the date
hereof of less than $1,000,000 in the aggregate.
(b) Except as disclosed in Schedule 4.12(b), each Sellers'
Agreement (i) constitutes a legal, valid and binding obligation of the
applicable Seller and, to each Seller's Knowledge, constitutes a valid
and binding obligation of the other parties thereto, and (ii) may be
transferred to Buyer pursuant to this Agreement without the consent of
the other parties thereto and will continue in full force and effect
thereafter, unless in any such case the impact of such lack of legality,
validity or binding nature, or inability to transfer, would not, individually or
in the aggregate, create a Material Adverse Effect.
(c) Except as set forth in Schedule 4.12(c), there is not, under the
Sellers' Agreements, any default or event which, with notice or lapse of time or
both, would constitute a default on the part of the Sellers or to each Seller's
Knowledge, any of the other parties thereto, except such events of
default and
30
<PAGE>
other events which would not, individually or in the aggregate, create a
Material Adverse Effect.
4.13 Legal Proceedings etc. Except as set forth in Schedule 4.13, there
---------------------
are no actions or proceedings pending against Sellers before any court,
arbitrator or Governmental Authority, which could, individually or in the
aggregate, reasonably be expected to create a Material Adverse Effect. Except
as set forth in Schedule 4.13, neither Seller is subject to any
outstanding judgments, rules, orders, writs, injunctions or decrees of any
court, arbitrator or Governmental Authority which would, individually
or in the aggregate, create a Material Adverse Effect.
4.14 Permits. (a) The Sellers have all permits, licenses, franchises and
-------
other governmental authorizations, consents and approvals, (other than
Environmental Permits, which are addressed in Section 4.7 hereof) (collectively,
"Permits") necessary to own and operate the Purchased Assets except where the
- ---------
failure to have such Permits would not, individually or in the aggregate, create
a Material Adverse Effect. Except as disclosed on Schedule 4.14(a),
Sellers have not received any notification that any Seller is in
violation of any such Permits, except notifications of violations which would
not, individually or in the aggregate, create a Material Adverse Effect. Sellers
are in compliance with all such Permits except where non-compliance would
not, individually or in the aggregate, create a Material Adverse Effect.
(b) Schedule 4.14(b) sets forth all material Permits and
Environmental Permits, other than Transferable Permits (which are set forth
on Schedule 1.1(96)) related to the Purchased Assets.
4.15 Taxes. Penelec and NGE have filed all returns that are required to be
-----
filed by it with respect to any Tax relating to the Purchased Assets, and
Penelec and NGE have each paid all Taxes that have become due as indicated
thereon, except where such Tax is being contested in good faith by
appropriate proceedings, or where the failure to so file or pay would not
reasonably be expected to create a Material Adverse Effect. Penelec and
NGE have complied in all material respects with all applicable laws, rules and
regulations relating to withholding Taxes relating to Transferred Employees. All
Tax Returns relating to the Purchased Assets are true, correct and complete in
all material respects. Except as set forth in Schedule 4.15, no notice
of deficiency or assessment has been received from any taxing authority with
respect to liabilities for Taxes of such Sellers in respect of the Purchased
Assets, which have not been fully paid or finally settled, and any such
deficiency shown in Schedule 4.15 is being contested in good faith
through appropriate proceedings. Except as set forth in Schedule 4.15, there
are no outstanding agreements or waivers extending the applicable
statutory periods of limitation for Taxes associated
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with the Purchased Assets that will be binding upon Buyer after the Closing.
None of the Purchased Assets is property that is required to be treated as
being owned by any other person pursuant to the so-called safe harbor lease
provisions of former Section 168(f) of the Code, and none of the Purchased
Assets is "tax-exempt use" property within the meaning of Section 168(h) of the
Code. Schedule 4.15 sets forth the taxing jurisdictions in which either Penelec
or NGE own assets or conduct business that require a notification to a taxing
authority of the transactions contemplated by this Agreement, if the
failure to make such notification, or obtain Tax clearance certificates in
connection therewith, would either require Buyer to withhold any portion of the
Purchase Price or subject Buyer to any liability for any Taxes of Penelec
or NGE.
4.16 Intellectual Property. Schedule 2.1(1) sets forth all Intellectual
---------------------
Property used in and, individually or in the aggregate with other
Intellectual Property, is material to the operation or business of the Purchased
Assets, each of which a Seller or its Affiliates either has all right, title and
interest in or valid and binding rights under contract to use. Except as
disclosed in Schedule 4.16, (i) the Sellers are not, nor have they received any
notice that they are, in default (or with the giving of notice or lapse of time
or both, would be in default), under any contract to use such Intellectual
Property, and (ii), to Sellers' Knowledge, such Intellectual Property is not
being infringed by any other Person. Sellers have not received notice that they
are infringing any Intellectual Property of any other Person in connection
with the operation or business of the Purchased Assets, and Sellers,
to their Knowledge, are not infringing any Intellectual Property of any
other Person the effect of which, individually or in the aggregate, would have
a Material Adverse Effect.
4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there are
---------------------
no capital expenditures associated with the Purchased Assets that are
planned by Sellers through December 31, 1999.
4.18 Compliance With Laws. The Sellers are in compliance with all
--------------------
applicable laws, rules and regulations with respect to the ownership or
operation of the Purchased Assets except where the failure to be in compliance
would not, individually or in the aggregate, create a Material Adverse Effect.
4.19 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE
--------------------------------------
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED
ASSETS ARE SOLD "AS IS, WHERE IS", AND EACH SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO
LIABILITIES, OPERATIONS OF THE PLANT, THE TITLE, CONDITION, VALUE OR
QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND
OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS AND EACH SELLER
SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF
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MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE
APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT
LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER EACH SELLER POSSESSES SUFFICIENT
REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER FURTHER
SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE
OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER
ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN, EACH SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR
WARRANTY OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE
SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS A POWER PLANT AND NO
SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION
PROVIDED BY OR COMMUNICATIONS MADE BY EACH SELLER OR THEIR REPRESENTATIVES, OR
BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS
OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED
ASSETS.
The Sellers make no warranties and representations of any kind, whether
direct or implied, that any of the hardware, software, and firmware
product (including embedded microcontrollers in non-computer equipment)
which may be included in the Purchased Assets to be transferred under this
Agreement (the "Computer Systems") is Year 2000 Compliant. For purposes
-------------------
hereof, "Year 2000 Compliant" shall mean that the Computer Systems will
----------------------
correctly differentiate between years, in different centuries, that end in the
same two digits, and will accurately process date/time data (including,
but not limited to, calculating, comparing, and sequencing) from, into,
and between the twentieth and twenty-first centuries, including leap year
calculations.
4.20 Transmission. NYSEG represents and warrants that Buyer shall not be
------------
obligated to pay a NYSEG transmission charge in connection with any NYPP
Economy Energy transaction as defined in the NYPP Agreement as effective and on
file with FERC without waiving NYSEG's right to NYPP Economy Energy
Transaction Transmission Fund payments.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
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5.1 Organization. Buyer is a California corporation, duly organized,
------------
validly existing and in good standing under the laws of the state of its
organization and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as is now being
conducted. Buyer is, or by the Closing will be, qualified to do business
in the Commonwealth of Pennsylvania. Buyer has heretofore delivered to Sellers
complete and correct copies of its Certificate of Incorporation and
Bylaws (or other similar governing documents) as currently in effect.
5.2 Authority Relative to this Agreement. Buyer has full corporate power
------------------------------------
and authority to execute and deliver this Agreement and the Ancillary
Agreements and to consummate the transactions contemplated by it hereby
and thereby. The execution and delivery of this Agreement and the
Ancillary Agreements by Buyer and the consummation of the transactions
contemplated hereby and thereby by Buyer have been duly and validly
authorized by all necessary corporate action required on the part of Buyer.
This Agreement and the Ancillary Agreements have been duly and validly
executed and delivered by Buyer. Subject to the receipt of Buyer Required
Regulatory Approvals, this Agreement and the Ancillary Agreements
constitute legal, valid and binding agreements of Buyer, enforceable against
Buyer in accordance with their terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and general principles of
equity (regardless of whether enforcement is considered in a proceeding at law
or in equity).
5.3 Consents and Approvals: No Violation.
------------------------------------
(a) Except as set forth in Schedule 5.3(a), and subject to
obtaining Buyer Required Regulatory Approvals, neither the execution and
delivery of this Agreement and the Ancillary Agreements by Buyer nor the
consummation by Buyer of the transactions contemplated hereby and thereby
will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws (or other similar governing documents) of
Buyer, or (ii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, material agreement or
other instrument or obligation to which Buyer or any of its Subsidiaries is a
party or by which any of their respective assets may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which would not,
individually or in the aggregate, have a material adverse effects on the
business, assets, operations or condition (financial or otherwise) of Buyer
Entities ("Buyer Material Adverse Effect") or (iii) violate any law,
------------------------------
regulation, order, judgment or decree applicable to Buyer, which violations,
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individually or in the aggregate, would create a Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to in such Schedule are collectively referred to as
the "Buyer Required Regulatory Approvals"), no consent or approval of, filing
----------------------------------------
with, or notice to, any Governmental Authority is necessary for Buyer's
execution and delivery of this Agreement and the Ancillary Agreements, or the
consummation by Buyer of the transactions contemplated hereby and thereby,
other than such consents, approvals, filings or notices, which, if not
obtained or made, will not prevent Buyer from performing its obligations
under this Agreement and the Ancillary Agreements.
5.4 Availability of Funds. Buyer has sufficient funds and lines of credit
---------------------
available to it or has received binding written commitments from creditworthy
financial institutions, copies of which have been provided to Sellers, to
provide sufficient funds on the Closing Date to pay the Purchase Price and to
permit Buyer to timely perform all of its obligations under this Agreement and
the Ancillary Agreements.
5.5 Financial Representations. Buyer Parent has provided Sellers with
-------------------------
its balance sheet, income statement and statement of changes in cash flows
for each of the preceding three fiscal years and most recent interim period.
Such financial statements have been prepared in accordance with generally
accepted accounting principles and fairly reflect the financial posture and
results of operations of Buyer Parent as at and for the periods
therein.
5.6 Legal Proceedings. There are no actions or proceedings pending
-----------------
against Buyer Entities before any court or arbitrator or Governmental Authority,
which, individually or in the aggregate, could reasonably be expected to create
a Buyer Material Adverse Effect. Buyer Entities are not subject to any
outstanding judgments, rules, orders, writs, injunctions or decrees of any
court, arbitrator or Governmental Authority which would, individually
or in the aggregate, create a Buyer Material Adverse Effect.
5.7 No Knowledge of Sellers' Breach. Buyer Entities have no Knowledge of
-------------------------------
any breach by Sellers of any representation or warranty of Sellers, or of any
other condition or circumstance that would excuse Buyer from its timely
performance of its obligations hereunder. Buyer Entities shall notify
Sellers promptly if any such information comes to their attention prior to the
Closing.
5.8 Qualified Buyer. Buyer is qualified to obtain any Permits and
----------------
Environmental Permits necessary for Buyer to own and operate the Purchased
Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of
any reason or circumstance
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that would prevent Buyer from procuring Buyer Required Regulatory Approvals
associated with Exempt Wholesale Generator (as defined in the Public Utility
Holding Company Act of 1935) status and market-based rate authorization
specified in items 3 and 2 of Schedule 5.3(b).
5.9 Inspections. Subject to the restrictions set forth in Section
-----------
6.2(a), Buyer acknowledges and agrees that it has, prior to its execution
of this Agreement, (i) reviewed the Environmental Reports, (ii) had
full opportunity to conduct to its satisfaction Inspections of the Purchased
Assets, including the Site, and (iii) fully completed and approved the results
of all Inspections of the Purchased Assets. Subject to the
restrictions set forth in Section 6.2(a), Buyer acknowledges that it is
satisfied through such review and Inspections that no further investigation and
study on or of the Site is necessary for the purposes of acquiring the Purchased
Assets for Buyer's intended use. Buyer acknowledges and agrees that it
hereby assumes the risk that adverse past, present, and future physical
characteristics and Environmental Conditions may not have been revealed by its
Inspections and the investigations of the Purchased Assets contained in
the Environmental Reports. In making its decision to execute this Agreement,
and to purchase the Purchased Assets, Buyer has relied on and will rely upon,
among other things, the results of its Inspections and the
Environmental Reports.
5.10 WARN Act. Buyer does not intend to engage in a Plant Closing or
--------
Mass Layoff as such terms are defined in the WARN Act within sixty days of the
Closing Date.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets. (a) Except
----------------------------------------------------
as described in Schedule 6.1 or as expressly contemplated by this
Agreement or to the extent Buyer otherwise consents in writing, during the
period from the date of this Agreement to the Closing Date, Sellers (i)
will operate the Purchased Assets in the ordinary course of business
consistent with the past practices of Sellers or their Affiliates or with Good
Utility Practices, (ii) shall use all Commercially Reasonable Efforts to
preserve intact the Purchased Assets, and endeavor to preserve the goodwill
and relationships with customers, suppliers and others having business
dealings with it, (iii) shall maintain the insurance coverage described in
Section 4.4, (iv) shall comply with all applicable laws relating to the
Purchased Assets, including without limitation, all Environmental Laws, except
where the failure to so comply would not result in a Material Adverse Effect,
and (v) shall continue with Sellers' program, or (at Buyer's expense) as
Buyer may direct, to install such equipment or software with respect to Year
2000 Compliance
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in accordance with Sellers' plans referred to in Section 2.1(k). Without
limiting the generality of the foregoing, and, except as contemplated in this
Agreement or as described in Schedule 6.1, or as required under applicable
law or by any Governmental Authority, prior to the Closing Date, without the
prior written consent of Buyer, Sellers shall not with respect to the Purchased
Assets:
(i) Make any material change in the levels of Inventories
customarily maintained by Sellers or their Affiliates with respect to
the Purchased Assets, other than changes which are consistent with Good
Utility Practices;
(ii) Sell, lease (as lessor), encumber, pledge, transfer or
otherwise dispose of, any material Purchased Assets individually or
in the aggregate (except for Purchased Assets used, consumed or
replaced in the ordinary course of business consistent with past practices
of Sellers or their Affiliates or with Good Utility Practices) other than
to encumber Purchased Assets with Permitted Encumbrances;
(iii) Modify, amend or voluntarily terminate prior to the
expiration date any of the Sellers' Agreements or Real Property Leases
or any of the Permits or Environmental Permits in any material
respect, other than (a) in the ordinary course of business, to
the extent consistent with the past practices of Sellers or their
Affiliates or with Good Utility Practices, (b) with cause, to the extent
consistent with past practices of Sellers or their Affiliates or with Good
Utility Practices, or (c) as may be required in connection with
transferring Sellers' rights or obligations thereunder to Buyer pursuant
to this Agreement;
(iv) Except as otherwise provided herein, enter into any
commitment for the purchase, sale, or transportation of fuel
having a term greater than six months and not terminable on or before the
Closing Date either (i) automatically, or (ii) by option of Sellers (or,
after the Closing, by Buyer) in its sole discretion, if the aggregate
payment under such commitment for fuel and all other outstanding
commitments for fuel not previously approved by Buyer would exceed
$1,000,000;
(v) Sell, lease or otherwise dispose of Emission
Allowances, or Emission Reduction Credits identified in Schedule
2.1(h), except to the extent necessary to operate the Purchased Assets
in accordance with this Section 6.1;
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(vi) Except as otherwise provided herein, enter into any
contract, agreement, commitment or arrangement relating to the
Purchased Assets that individually exceeds $250,000 or in the aggregate
exceeds $1,000,000 unless it is terminable by Sellers (or, after the
Closing, by Buyer) without penalty or premium upon no more than sixty
(60) days notice;
(vii) Except as otherwise required by the terms of the IBEW
Collective Bargaining Agreement (as defined in Section 6.10(d)), (a) hire
at, or transfer to the Purchased Assets, any new employees prior to the
Closing, other than to fill vacancies in existing positions in the
reasonable discretion of Sellers, (b) materially increase salaries or wages
of employees employed in connection with the Purchased Assets prior to the
Closing, (c) take any action prior to the Closing to effect a material
change in the Collective Bargaining Agreement, or (d) take any action prior
to the Closing to materially increase the aggregate benefits payable
to the employees employed in connection with the Purchased Assets;
(viii) Make any Capital Expenditures except as permitted by
Section 3.3(a)(iii) or for Sellers' account; and
(ix) Except as otherwise provided herein, enter into any
written or oral contract, agreement, commitment or arrangement with
respect to any of the proscribed transactions set forth in
the foregoing paragraphs (i) through (viii).
6.2 Access to Information.
---------------------
(a) Between the date of this Agreement and the Closing Date, Sellers
will, at reasonable times and upon reasonable notice: (i) give Buyer and
its Representatives reasonable access to its managerial personnel and to all
books, records, plans, equipment, offices and other facilities and
properties constituting the Purchased Assets; (ii) furnish Buyer with such
financial and operating data and other information with respect to the Purchased
Assets as Buyer may from time to time reasonably request, and permit Buyer to
make such reasonable Inspections thereof as Buyer may request; (iii) furnish
Buyer at its request a copy of each material report, schedule or other document
filed by Sellers or any of their Affiliates with respect to the
Purchased Assets with the SEC, FERC, NYPSC, NYDEC, PaPUC, PaDEP or any other
Governmental Authority; and (iv) furnish Buyer with all such other information
as shall be reasonably necessary to enable Buyer to verify the accuracy of the
representations and warranties of Sellers contained in this Agreement;
provided, however, that (A) any such inspections and investigations shall be
conducted in such a manner as not to interfere unreasonably
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with the operation of the Purchased Assets, (B) Sellers shall not be required to
take any action which would constitute a waiver of the attorney-client
privilege, and (C) Sellers need not supply Buyer with any information which
Sellers are under a legal or contractual obligation not to supply.
Notwithstanding anything in this Section 6.2 to the contrary, Sellers will only
furnish or provide such access to Transferring Employee Records and will not
furnish or provide access to other employee personnel records or medical
information unless required by law or specifically authorized by the
affected employee and Buyer shall not have the right to perform or conduct any
environmental sampling or testing at, in, on, or underneath the Purchased
Assets.
(b) Each Party shall, and shall use its best efforts to cause its
Representatives to, (i) keep all Proprietary Information of the other Party
confidential and not to disclose or reveal any such Proprietary Information to
any person other than such Party's Representatives and (ii) not use such
Proprietary Information other than in connection with the consummation of
the transactions contemplated hereby. After the Closing Date, any Proprietary
Information to the extent related to the Purchased Assets shall no longer
be subject to the restrictions set forth herein. The obligations of the
Parties under this Section 6.2(b) shall be in full force and effect for three
(3) years from the date hereof and vill survive the termination of
this Agreement, the discharge of all other obligations owed by the Parties
to each other and the closing of the transactions contemplated by this
Agreement.
(c) For a period of seven (7) years after the Closing Date (or such
longer period as may be required by applicable law), each Party and its
Representatives shall have reasonable access to all of the books and records of
the Purchased Assets, including all Transferring Employee Records in the
possession of the other Party to the extent that such access may reasonably be
required by such Party in connection with the Assumed Liabilities or the
Excluded Liabilities, or other matters relating to or affected by the
operation of the Purchased Assets. Such access shall be afforded by the Party
in possession of any such books and records upon receipt of reasonable advance
written notice and during normal business hours. The Party exercising this
right of access shall be solely responsible for any costs or expenses
incurred by it or the other Party with respect to such access pursuant to this
Section 6.2(c). If the Party in possession of such books and records shall
desire to dispose of any books and records upon or prior to the expiration of
such seven-year period (or any such longer period), such Party shall,
prior to such disposition, give the other Party a reasonable opportunity
at such other Party's reasonable expense, to segregate and remove such books and
records as such other Party may select.
(d) Notwithstanding the terms of Section 6.2(b) above, the Parties
agree that prior to the Closing Buyer may reveal or disclose Proprietary
Information to any other Persons in
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connection with Buyer's financing of its purchase of the Purchased
Assets or any equity participation in Buyer's purchase of the Purchased Assets
(provided that such Persons agree in writing to maintain the
confidentiality of the Proprietary Information in accordance with this
Agreement).
(e) Upon the other Party's prior written approval (which will
not be unreasonably withheld), either Party may provide Proprietary
Information of the other Party to the NYPSC, the PaPUC, the SEC, the FERC or any
other Governmental Authority with jurisdiction or any stock exchange, as may be
necessary to obtain Sellers' Required Regulatory Approvals, or Buyer Required
Regulatory Approvals, respectively, or to comply generally with any relevant law
or regulation. The disclosing Party will seek confidential treatment for the
Proprietary Information provided to any Governmental Authority and the
disclosing Party will notify the other Party as far in advance as is
practicable of its intention to release to any Governmental
Authority any Proprietary Information.
(f) Except as specifically provided herein or in the Confidentiality
Agreement, nothing in this Section shall impair or modify any of the rights
or obligations of Buyer or its Affiliates under the Confidentiality
Agreement, all of which remain in effect until termination of such
agreement in accordance with its terms.
(g) Except as may be permitted in the Confidentiality Agreement,
Buyer agrees that, prior to the Closing Date, it will not contact any
vendors, suppliers, employees, or other contracting parties of Sellers or
their Affiliates with respect to any aspect of the Purchased Assets or
the transactions contemplated hereby, without the prior written consent
of Sellers, which consent shall not be unreasonably withheld.
(h) (i) Buyer shall be entitled to inspect, in accordance with
this Section 6.2(h), all of the Purchased Assets located adjacent to any Point
of Interconnection (as defined in the Interconnection Agreement), as shown in
Schedule A to the Interconnection Agreement, to verify and/or determine
the accuracy of the data, drawings, and records described in such Schedule.
The Parties shall cooperate to schedule Buyer's inspection at the
Facility so that any interference with the operation of the Facility is
minimized, to the extent reasonably feasible, and so that Buyer may complete its
inspections of the Facility within thirty (30) working days of
commencement of inspections and within two (2) months after the execution of
this Agreement.
(ii) Sellers shall provide, or shall cause to be provided, to Buyer, access
to the Facility at the times scheduled for the inspections. Buyer shall provide
qualified engineering,
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operations, and maintenance personnel to escort Buyer's personnel and to assist
Buyer's personnel in conducting the inspections. Sellers and Buyer shall
each bear their own costs of participating in the inspections. At a
mutually convenient time not more than one (1) month after Buyer has
completed its inspections, the Parties shall meet to discuss whether,
as a result of the inspections, it is appropriate to modify Schedule A to the
Interconnection Agreement to portray more accurately the Points of
Interconnection. Any modification to any portion of Schedule A of the
Interconnection Agreement to which the Parties agree shall thereafter be
deemed part of Schedule A of the Interconnection Agreement for all
purposes under the Interconnection Agreement.
6.3 Public Statements. Subject to the requirements imposed by any
-----------------
applicable law or any Governmental Authority or stock exchange, prior to
the Closing Date, no press release or other public announcement or public
statement or comment in response to any inquiry relating to the transactions
contemplated by this Agreement shall be issued or made by any Party without
the prior approval of the other Parties (which approval shall not be
unreasonably withheld). The Parties agree to cooperate in preparing
such announcements.
6.4 Expenses. Except to the extent specifically provided herein, whether
--------
or not the transactions contemplated hereby are consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs
and expenses. Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the obtaining of
any title insurance policy and all endorsements thereto that Buyer elects
to obtain and (b) all filing fees under the HSR Act.
6.5 Further Assurances.
------------------
(a) Subject to the terms and conditions of this Agreement,
each of the Parties hereto shall use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the purchase and sale of the Purchased Assets pursuant to this
Agreement and the assumption of the Assumed Liabilities, including without
limitation using its best efforts to ensure satisfaction of the conditions
precedent to each Party's obligations hereunder, including obtaining all
necessary consents, approvals, and authorizations of third parties and
Governmental Authorities required to be obtained in order to consummate the
transactions hereunder, and to effectuate a transfer of the Transferable Permits
to Buyer. Buyer agrees to perform all conditions required of Buyer in connection
with the Sellers' Required Regulatory Approvals, other than those conditions
which would create a Buyer Material Adverse Effect.
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Neither of the Parties hereto shall, without prior written consent of
the other Party, take or fail to take any action, which might reasonably be
expected to prevent or materially impede, interfere with or delay the
transactions contemplated by this Agreement. Buyer further agrees that prior to
the Closing Date, it will neither enter into any other contract to acquire, nor
acquire, electric generation facilities or uncommitted generation capacity
located in New York State if Buyer's proposed acquisition of such additional
electric generation facilities or uncommitted generation capacity might
reasonably be expected to prevent or materially impede, interfere with or
delay the transactions contemplated by this Agreement. Buyer shall give
Sellers reasonable advance notice (and in any event not less than 10 days)
before Buyer contracts to acquire or acquires any electric generation
facility or uncommitted generation capacity located in New York.
(b) In the event that any Purchased Asset shall not have been
conveyed to Buyer at the Closing, each Seller shall, subject to Section 6.5(c)
and (d), use Commercially Reasonable Efforts to convey such asset to Buyer
as promptly as is practicable after the Closing. In the event that any
Easement shall not have been granted by Buyer to Penelec or NYSEG at the
Closing, Buyer shall use Commercially Reasonable Efforts to grant such Easement
to Penelec or NYSEG as promptly as is practicable after the Closing.
(c) To the extent that Sellers' rights under any Sellers' Agreement
or Real Property Lease may not be assigned without the consent of another Person
which consent has not been obtained by the Closing Date, this Agreement shall
not constitute an agreement to assign the same, if an attempted assignment would
constitute a breach thereof or be unlawful. Sellers and Buyer agree that if any
consent to an assignment of any material Sellers' Agreement or Real Property
Lease shall not be obtained or if any attempted assignment would be ineffective
or would impair Buyer's rights and obligations under the material Sellers'
Agreement or Real Property Lease in question, so that Buyer would not in effect
acquire the benefit of all such rights and obligations, Sellers, at Buyer's
option and to the maximum extent permitted by law and such material Sellers'
Agreement or Real Property Lease, shall, after the Closing Date, appoint Buyer
to be Sellers' agent with respect to such material Sellers' Agreement or Real
Property Lease, or, to the maximum extent permitted by law and such material
Sellers' Agreement or Real Property Lease, enter into such reasonable
arrangements with Buyer or take such other actions as are necessary to provide
Buyer with the same or substantially similar rights and obligations of such
material Sellers' Agreement or Real Property Lease as Buyer may reasonably
request. Sellers and Buyer shall cooperate and shall each use Commercially
Reasonable Efforts prior to and after the Closing Date to obtain an assignment
of such material Sellers' Agreement or Real Property Lease to Buyer.
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For purposes of this Section 6.5(c), all Sellers' Agreements listed on
Schedule 4.12(a) are deemed to be "material."
(d) To the extent that Sellers' rights under any warranty or
guaranty described in Section 2.1(i) may not be assigned without the
consent of another Person, which consent has not been obtained by the Closing
Date, this Agreement shall not constitute an agreement to assign same, if
an attempted assignment would constitute a breach thereof, or be
unlawful. Sellers and Buyer agree that if any consent to an assignment of any
such warranty or guaranty shall not be obtained, or if any attempted assignment
would be ineffective or would impair Buyer's rights and obligations under
the warranty or guaranty in question, so that Buyer would not in effect
acquire the benefit of all such rights and obligations, Sellers, at Buyer's
expense, shall use Commercially Reasonable Efforts, to the extent
permitted by law and such warranty or guaranty, to enforce such warranty or
guaranty for the benefit of Buyer so as to provide Buyer to the maximum
extent possible with the benefits and obligations of such warranty or
guaranty.
6.6 Consents and Approvals.
----------------------
(a) As promptly as possible after the date of this Agreement,
Sellers and Buyer, as applicable, shall each file or cause to be filed with
the Federal Trade Commission and the United States Department of Justice
any notifications required to be filed under the HSR Act and the rules
and regulations promulgated thereunder with respect to the
transactions contemplated hereby. The Parties shall use their respective best
efforts to respond promptly to any requests for additional information
made by either of such agencies, and to cause the waiting periods under the HSR
Act to terminate or expire at the earliest possible date after the date of
filing. Buyer will pay all filing fees under the HSR Act but each Party will
bear its own costs of the preparation of any filing.
(b) As promptly as possible after the date of this Agreement, Buyer
shall file with the FERC an application requesting Exempt Wholesale
Generator status for Buyer, which filing may be made individually by
Buyer or jointly with the Sellers in conjunction with other filings to be
made with the FERC under this Agreement, as reasonably determined by the
Parties. Prior to Buyer's submission of that application with the FERC, Buyer
shall submit such application to the Sellers for review and comment and
Buyer shall incorporate into the application any revisions reasonably
requested by Sellers. Buyer shall be solely responsible for the cost of
preparing and filing this application, any petition(s) for rehearing, or
any reapplication. If Buyer's initial application for Exempt Wholesale
Generator status is rejected by the FERC, Buyer agrees to petition the
FERC for rehearing and/or to re-submit an application with the FERC, as
reasonably required by the Sellers,
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provided that in either case the action directed by the Sellers does not create
a Buyer Material Adverse Effect.
(c) As promptly as possible after the date of this Agreement,
Buyer shall file with the FERC an application requesting authorization
under Section 205 of the Federal Power Act to sell electric generating
capacity and energy, but not other services, including, without
limitation, ancillary services, at wholesale at market-based rates, which
filing may be made individually by Buyer or jointly with Sellers in conjunction
with other filings to be made with the FERC under this Agreement, as reasonably
determined by the Parties. Prior to the filing of that application with the
FERC, Buyer shall submit such application to the Sellers for review and
comment and Buyer shall incorporate into the application any revisions
reasonably requested by the Sellers. Buyer shall be solely responsible for the
cost of preparing and filing this application, any petition(s) for
rehearing, or any reapplication. If Buyer's initial application for
market-based rate authorization results in a FERC request for additional
information or is rejected by the FERC, Buyer shall provide that
information promptly, to petition the FERC for rehearing and/or to re-
submit an application with the FERC, as reasonably required by the Sellers,
provided that the Sellers shall have a reasonable opportunity to make changes to
such a petition or re-submission application and, provided further, that the
action directed by the Seller does not create a Buyer Material Adverse Effect.
(d) As promptly as possible, and in any case within sixty (60) days,
after the date of this Agreement, Sellers and Buyer, as applicable, shall file
with the NYPSC, the PaPUC, the FERC and any other Governmental Authority, and
make any other filings required to be made with respect to the
transactions contemplated hereby. The Parties shall respond promptly to any
requests for additional information made by such agencies, and use their
respective best efforts to cause regulatory approval to be obtained at the
earliest possible date after the date of filing. Each Party will bear its
own costs of the preparation of any such filing.
(e) Sellers and Buyer shall cooperate with each other and promptly
prepare and file notifications with, and request Tax clearances from, state
and local taxing authorities in jurisdictions in which a portion of the
Purchase Price may be required to be withheld or in which Buyer would
otherwise be liable for any Tax liabilities of Sellers pursuant to such state
and local Tax law.
(f) Buyer shall have the primary responsibility for securing the
transfer, reissuance or procurement of the Permits and Environmental Permits
(other than Transferable Permits) effective as of the Closing Date. Sellers
shall cooperate with Buyer's efforts in this regard and assist in any transfer
or reissuance of a Permit or Environmental Permit held by Sellers or
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the procurement of any other Permit or Environmental Permit when so requested by
Buyer.
6.7 Fees and Commissions. Each Seller, on the one hand, and Buyer, on
--------------------
the other hand, represent and warrant to the other that, except for Goldman,
Sachs & Co., which are acting for and at the expense of Sellers, and Lehman
Brothers Inc., which is acting for and at the expense of Buyer, no broker,
finder or other Person is entitled to any brokerage fees, commissions or
finder's fees in connection with the transaction contemplated hereby by
reason of any action taken by the Party making such representation. Each
Seller, on the one hand, and Buyer, on the other hand, will pay to the other or
otherwise discharge, and will indemnify and hold the other harmless from and
against, any and all claims or liabilities for all brokerage fees, commissions
and finder's fees (other than the fees, commissions and finder's fees payable to
the parties listed above) incurred by reason of any action taken by the
indemnifying party.
6.8 Tax Matters.
-----------
(a) All transfer and sales taxes incurred in connection
with this Agreement and the transactions contemplated hereby (including,
without limitation, (a) Pennsylvania sales tax; (b) the Pennsylvania
transfer tax on conveyances of interests in real property; and (c)
Pennsylvania sales tax and transfer tax on deeds) shall be borne by Buyer.
Sellers shall file, to the extent required by, or permissible under, applicable
law, all necessary Tax Returns and other documentation with respect to
all such transfer and sales taxes, and, if required by applicable law, Buyer
shall join in the execution of any such Tax Returns and other documentation.
Prior to the Closing Date, to the extent applicable, Buyer shall provide to
Sellers appropriate certificates of Tax exemption from each applicable
taxing authority.
(b) With respect to Taxes to be prorated in accordance with Section
3.5 of this Agreement, Buyer shall prepare and timely file all Tax
Returns required to be filed after the Closing Date with respect to the
Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to
be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall
be subject to Sellers' approval, which approval shall not be
unreasonably withheld. Buyer shall make such Tax Returns available for
Sellers' review and approval no later than fifteen (15) Business Days prior to
the due date for filing each such Tax Return.
(c) Buyer and Sellers shall provide the other with such
assistance as may reasonably be requested by the other Party in connection with
the preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each shall retain and provide the requesting party with any
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records or information which may be relevant to such return, audit,
examination or proceedings. Any information obtained pursuant to this
Section 6.8(c) or pursuant to any other Section hereof providing for the sharing
of information or review of any Tax Return or other instrument relating to Taxes
shall be kept confidential by the parties hereto.
(d) Disputes. In the event that a dispute arises between
--------
Sellers and Buyer regarding Taxes, or any amount due under this Section
6.8, the Parties shall attempt in good faith to resolve such dispute and any
agreed upon amount shall be paid to the appropriate Party. If such dispute is
not resolved within 30 days, the Parties shall submit the dispute to the
Independent Accounting Firm for resolution, which resolution shall be final,
conclusive and binding on the Parties. Notwithstanding anything in this
Agreement to the contrary, the fees and expenses of the Independent Accounting
Firm in resolving the dispute shall be borne 50% by Sellers and 50% by
Buyer. Any payment required to be made as a result of the resolution of
the dispute by the Independent Accounting Firm shall be made within ten days
after such resolution, together with any interest determined by the
Independent Accounting Firm to be appropriate.
6.9 Advice of Changes. Prior to the Closing, each Party will promptly
-----------------
advise the other in writing with respect to any matter arising after execution
of this Agreement of which that Party obtains Knowledge and which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth in this Agreement, including any of the Schedules hereto. Sellers may at
any time notify Buyer of any development causing a breach of any of its
representations and warranties in Article IV. Unless Buyer has the right
to terminate this Agreement pursuant to Section 9.1(f) below by reason of the
developments and exercises that right within the period of fifteen (15) days
after such right accrues, the written notice pursuant to this Section 6.9 will
be deemed to have amended this Agreement, including the appropriate
Schedule, to have qualified the representations and warranties contained in
Article IV above, and to have cured any misrepresentation or breach of warranty
that otherwise might have existed hereunder by reason of the
development.
6.10 Employees.
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(a) At least 90 days prior to the Closing Date, Buyer is required to
offer employment, effective on the Closing Date, to those employees of Penelec
who are covered by the IBEW Collective Bargaining Agreement as defined in
Section 6.10(d) below, and who are employed in positions relating to the
Purchased Assets ("Union Employees"). At least 90 days prior to the Closing
Date, Buyer shall provide Sellers with notice of its staffing level
requirements, listed by classification and operation, and shall be required to
offer employment only to that number of Union Employees necessary to satisfy
such staffing
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level requirements. In each classification, Union Employees shall be so offered
employment in order of their seniority.
(b) At least 90 days prior to the Closing Date, Buyer is also
required to make reasonable efforts to make a Qualifying Offer of employment,
effective on the Closing Date, to those salaried employees of Penelec or
Genco who are listed in, or are in a function or whose employment
responsibilities are listed in, Schedule 6.10(b) ("Non-Union Employees"). Each
---------------------
person who becomes employed by Buyer pursuant to Section 6.10(a) or (b)
(whether pursuant to a Qualifying Offer or otherwise) shall be referred to
herein as a "Transferred Union Employee" or "Transferred Non-Union
---------------------------- ----------------------
Employee", respectively. As used herein, the term "Qualifying Offer"
- -------- -----------------
means an offer of at least 85% of an employee's current total annual
cash compensation at the time the offer was made (consisting of base salary and
target incentive bonus). Schedule 6.10(b) sets forth, for each of the Non-Union
Employees listed therein, their current base salaries and target incentive
bonuses.
(c) All offers of employment made pursuant to Sections 6.10(a) or (b)
shall be made (i) in accordance with seniority and all applicable laws and
regulations, and (ii) for Union Employees, in accordance with the IBEW
Collective Bargaining Agreement.
(d) Schedule 6.10(d) sets forth the collective bargaining agreement,
and amendments thereto, to which Penelec is a party with the IBEW in connection
with the Purchased Assets ("IBEW Collective Bargaining Agreement"). Transferred
------------------------------------
Union Employees shall retain their seniority and receive full credit for service
with Penelec in connection with entitlement to vacation and all other benefits
and rights under the IBEW Collective Bargaining Agreement and under each
compensation, retirement or other employee benefit plan or program Buyer is
required to maintain for Transferred Union Employees pursuant to the IBEW
Collective Bargaining Agreement. With respect to Transferred Union Employees, on
the Closing Date, Buyer shall assume the IBEW Collective Bargaining Agreement
for the duration of its term as it relates to Transferred Union Employees to be
employed at the Plant in positions covered by the IBEW Collective Bargaining
Agreement and shall comply with all applicable obligations under the IBEW
Collective Bargaining Agreement. Consistent with the obligations under the IBEW
Collective Bargaining Agreement and applicable laws, Buyer shall be required to
establish and maintain a pension plan and other employer benefit programs for
the Transferred Union Employees for the duration of the term of the IBEW
Collective Bargaining Agreement which are substantially equivalent to the
Penelec plans and programs in effect for the Transferred Union Employees
immediately prior to the Closing Date (the "Penelec Plans"), and which provide
at least the same level of benefits or coverage as do the Penelec Plans for the
duration of the IBEW Collective Bargaining Agreement. Buyer further agrees to
recognize the IBEW
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as the collective bargaining agent for the Transferred Union Employees.
(e) As of the Closing Date, all Transferred Non-Union Employees shall
commence participation in welfare benefit plans of Buyer or its Affiliates
(the "Replacement Welfare Plans"). Buyer shall (i) waive all limitations
----------------------------
as to pre-existing condition exclusions and waiting periods with respect
to the Transferred Non-Union Employees under the Replacement Welfare
Plans, other than, but only to the extent of, limitations or waiting
periods that were in effect with respect to such employees under the
welfare plans maintained by Genco, Penelec or their Affiliates and that have
not been satisfied as of the Closing Date, and (ii) provide each
Transferred Non-Union Employee with credit for any copayments and
deductibles paid prior to the Closing Date in satisfying any deductible or out-
of-pocket requirements under the Replacement Welfare Plans (on a pro-rata
basis in the event of a difference in plan years).
(f) Transferred Non-Union Employees shall be given credit for all
service with Genco, Penelec and their Affiliates under all deferred
compensation, profit-sharing, 401(k), retirement and pension plans, incentive
compensation, bonus, fringe benefit and other employee benefit plans, programs
and arrangements of Buyer ("Buyer Benefit Plans") in which they may become
-------------------
participants. The service credit so given shall be for purposes of eligibility
and vesting, but not for level of benefits and benefit accrual.
(g) To the extent allowable by law, Buyer shall take any and all
necessary action to cause the trustee of any defined contribution plan of
Buyer or its Affiliates in which any Transferred Employee becomes a
participant to accept a direct "rollover" of all or a portion of said
employee's "eligible rollover distribution" within the meaning of Section 402
of the Code from the GPU Companies Employee Savings Plan for Non-
Bargaining Employees or the Penelec Employee Savings Plan for Bargaining
Unit Employees (the "Sellers' Savings Plans") if requested to do so by the
Transferred Employee. Buyer agrees that the property so rolled over and the
assets so transferred may include promissory notes evidencing loans from
the Sellers' Savings Plans to Transferred Employees that are outstanding as of
the Closing Date. However, except as otherwise provided in Section
6.10(d), any defined contribution plan of Buyer or its Affiliates accepting such
a rollover or transfer shall not be required to (x) make any further
loans to any Transferred Employee after the Closing Date or (y) permit
any additional investment to be made in GPU common stock on behalf of
any Transferred Employee after the Closing Date.
(h) Buyer shall pay or provide to Transferred Employees the benefits
described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h), and
shall reimburse the Sellers for the benefits they will provide to Union
Employees and Non-
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Union Employees in accordance with subparagraph (iv) of this Section
6.10(h).
(i) Buyer shall make a transition incentive payment in the
amount of $2,500 to each Transferred Union Employee. Payment shall be
made as soon as practicable after, but in any event no later than 60
days following, the Closing Date.
(ii) In the case of each Transferred Non-Union Employee who
is initially assigned by Buyer to a principal place of work that is at
least 50 miles farther from the employee's principal residence than was his
principal place of work immediately prior to the Closing Date and
who relocates his or her principal residence to the vicinity of his or
her new principal place of work within 12 months following the
Closing Date, Buyer shall reimburse the employee for all "moving
expenses" within the meaning of Section 217(b) of the Code incurred
by the employee and other members of his or her household in
connection with such relocation, up to a maximum aggregate amount of
$5,000. Claims for reimbursement for such expenses shall be filed in
accordance with such procedures, and shall be accompanied by such
substantiation of the expenses for which reimbursement is sought, as Buyer
may reasonably request. All claims for reimbursement shall be processed,
and qualifying expenses shall be reimbursed, as soon as practicable
after, but in any event no later than 60 days following, the date on which
the employee's claim for reimbursement is submitted to Buyer.
(iii) Buyer shall provide the severance benefits described in
Section 1 of Schedule 6.10(h) to each Transferred Employee who is
"Involuntarily Terminated" (as defined below) (a) within 12 months after
the Closing Date or (b), in the case of any Transferred Non-Union Employee
who had attained age 50 and had completed at least 10 Years of Service (as
defined in Section 1(c) of Schedule 6.10(h)) prior to the Closing Date, on
or any time prior to June 30, 2004. For purposes of this Section 6.10(h)
and Schedule 6.10(h), a Transferred Employee shall be treated as
"Involuntarily Terminated" if his or her employment with Buyer and all of
its Affiliates is terminated by Buyer or any of its Affiliates for any
reason other than for cause, disability or mandatory retirement. A
Transferred Employee who voluntarily leaves employment with Buyer and all
of its Affiliates as a result of a reduction of more than 15% in the rate
of his or her total annual cash compensation (including both base salary
and target incentive award) shall also be treated as having been
Involuntarily Terminated. Buyer shall require any Transferred Employee who
is Involuntarily Terminated, as a condition to receiving the severance
benefits described in Section 1(b), (c), (d), (e) and (g) of Schedule
6.10(h), to execute a release of claims
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against Penelec or Genco, as applicable, and Buyer, in such form as Buyer
and Sellers shall agree upon.
(iv) At the Closing or as soon thereafter as practicable,
but in any event no later than 60 days following the Closing Date,
Buyer shall pay to Sellers, in addition to all other amounts to be paid by
Buyer to Sellers hereunder, an amount equal to the aggregate estimated cost
that the Sellers will or may incur in providing the severance,
pension, health care and group term life insurance benefits
described in Section 2 of Schedule 6.10(h) to the Union Employees
and Non-Union Employees therein described. The estimated cost of
such benefits shall be calculated by the actuarial firm regularly engaged
to provide actuarial services to the GPU Companies with respect to
their pension, health care and life insurance plans, and shall be
determined using the same assumptions as to mortality, turnover, interest
rate and other actuarial assumption as used by such firm in determining the
cost of benefits under the GPU Companies' pension, health and group term
life insurance plans for purposes of their most recently issued
financial statements prior to the Closing Date.
(i) Sellers shall be responsible for any payments required
under their voluntary early retirement plans offered in connection with the
transfer of the Purchased Assets. Within thirty (30) days following the last
day that any Union Employee or Non-Union Employee may elect to participate in
such plans, Sellers shall provide Buyer with a list of all such employees who
have so elected.
(j) Sellers shall be responsible, with respect to the Purchased
Assets, for performing and discharging all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification
of its employees of any "employment loss" within the meaning of the WARN Act
which occurs prior to the Closing Date.
(k) Sellers are responsible for extending and continuing to
extend COBRA continuation coverage to all employees and former employees, and
qualified beneficiaries of such employees and former employees, who become or
became entitled to such COBRA continuation coverage on or before the Closing
Date, including those for whom the Closing Date occurs during their COBRA
election period.
(l) Sellers shall pay to all Sellers' employees that Buyer offers
employment pursuant to Section 6.10 hereof, all compensation, bonus,
vacation and holiday compensation, workers' compensation or other employment
benefits that are payable in cash which have accrued to such employees through
and including the Closing Date, at such times as provided under the terms of the
applicable compensation or benefit programs.
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6.11 Risk of Loss.
------------
(a) From the date hereof through the Closing Date, all risk of loss
or damage to the property included in the Purchased Assets shall be borne by
Sellers, other than loss or damage caused by the acts or negligence
of Buyer or any Buyer Representative, which loss or damage shall be the
responsibility of Buyer.
(b) If, before the Closing Date, all or any portion of the Purchased
Assets is (i) taken by eminent domain or is the subject of a pending or (to
the Knowledge of Sellers) contemplated taking which has not been
consummated, or (ii) damaged or destroyed by fire or other casualty, Sellers
shall notify Buyer promptly in writing of such fact, and (x) in the case of a
condemnation, Sellers shall assign or pay, as the case may be, any proceeds
thereof to Buyer at the Closing and (y) in the case of a casualty, Sellers shall
either restore the damage or assign the insurance proceeds therefor (and pay the
amount of any deductible and/or self-insured amount in respect of such
casualty) to Buyer at the Closing. Notwithstanding the above, if such casualty
or loss results in a Material Adverse Effect, Buyer and Sellers shall negotiate
to settle the loss resulting from such taking (and such negotiation shall
include, without limitation, the negotiation of a fair and equitable adjustment
to the Purchase Price). If no such settlement is reached within sixty (60)
days after Sellers have notified Buyer of such casualty or loss, then
Buyer or Sellers may terminate this Agreement pursuant to Section 9.1(i).
In the event of damage or destruction which Sellers elect to restore, Sellers
will have the right to postpone the Closing for up to four (4) months. Buyer
will have the right to inspect and observe, or have its
representatives inspect or observe, all repairs necessitated by any such damage
or destruction.
6.12 Additional Covenants of Buyer. Notwithstanding any other
--------------------------------
provision hereof, Buyer covenants and agrees that, after the Closing Date,
Buyer will not make any modifications to the Purchased Assets or take any action
which would result in a loss of the exclusion of interest on the pollution
control bonds issued on behalf of Penelec or NYSEG in connection with
the Purchased Assets from gross income for federal income purposes under
Section 103 of the Code. Buyer further covenants and agrees that, in
the event that Buyer transfers any of the Purchased Assets, Buyer
shall obtain from its transferee a covenant and agreement that is analogous
to Buyer's covenant and agreement pursuant to the immediately preceding
sentence, as well as a covenant and agreement that is analogous to that of this
sentence. This covenant shall survive Closing and shall continue in effect so
long as the pollution control bonds remain outstanding.
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ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer. The obligation of Buyer to effect
----------------------------------
the purchase of the Purchased Assets and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or
prior to the Closing Date (or the waiver by Buyer) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated.
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court or Governmental Authority which prevents
the consummation of the sale of the Purchased Assets contemplated herein
shall have been issued and remain in effect (each Party agreeing to use its
reasonable best efforts to have any such injunction, order or decree lifted) and
no statute, rule or regulation shall have been enacted by any state or federal
government or Governmental Authority which prohibits the consummation of the
sale of the Purchased Assets;
(c) Buyer shall have received all of Buyer's Required Regulatory
Approvals, in form and substance reasonably satisfactory (including no
material adverse conditions) to it;
(d) Sellers shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Sellers on or prior to the Closing
Date;
(e) The representations and warranties of Sellers set forth in this
Agreement shall be true and correct in all material respects as of the Closing
Date as though made at and as of the Closing Date;
(f) Buyer shall have received certificates from an authorized
officer of each Seller, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Section 7.1(d) and (e)
have been satisfied by such Seller;
(g) Buyer shall have received an opinion from each Seller's
counsel reasonably acceptable to Buyer, dated the Closing Date and
reasonably satisfactory in form and substance to Buyer and its counsel,
substantially to the effect that:
(i) Such Seller is a corporation duly incorporated,
validly existing and in good standing under the laws its state of
incorporation and Seller has the corporate power and authority to
own, lease and operate its material assets and properties and to carry
on its business
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as is now conducted, and to execute and deliver the Agreement and
each Ancillary Agreement and to consummate the transactions contemplated by
it thereby; and the execution and delivery of the Agreement by such
Seller and the consummation of the sale of the Purchased
Assets contemplated thereby have been duly and validly authorized by all
necessary corporate action required on the part of such Seller;
(ii) The Agreement and each Ancillary Agreement has been duly and
validly executed and delivered by such Seller and constitutes a legal,
valid and binding agreement of such Seller, enforceable in accordance with
its terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding at
law or in equity);
(iii) The execution, delivery and performance of the Agreement
and each Ancillary Agreement by such Seller does not (A) conflict with the
Certificate of Incorporation or Bylaws of such Seller or (B) to the
knowledge of such counsel, constitute a violation of or default under those
agreements or instruments set forth on a Schedule attached to the opinion
and which have been identified to such counsel as all the
agreements and instruments which are material to the business or
financial condition of such Seller;
(iv) The Bill of Sale, the deeds, the Assignment and Assumption
Agreement and other transfer instruments described in Section 3.6 are
in proper form to transfer to Buyer such title as was held by such Seller
to the Purchased Assets;
(v) No consent or approval of, filing with, or notice to, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by such Seller or the consummation by such Seller of the
transactions contemplated hereby, other than (i) such consents,
approvals, filings or notices set forth in Schedule 4.3(b) or which, if
not obtained or made, will not prevent such Seller from performing its
material obligations hereunder and (ii) such consents, approvals, filings
or notices which become applicable to Sellers or the Purchased Assets as a
result of the specific regulatory status of Buyer (or any of its
Affiliates) or as a result of any other facts that specifically
relate to the business or activities in which Buyer (or any of its
Affiliates) is or proposes to be engaged.
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In rendering the foregoing opinion, each Seller's counsel may rely on
opinions of local law reasonably acceptable to Buyer.
(h) Sellers shall have delivered, or caused to be delivered,
to Buyer at the Closing, Sellers' closing deliveries described in Section 3.6.
(i) Buyer shall have received from a title insurance
company ALTA title owner's insurance policies on the Real Property
insuring title as described in Section 4.5, subject only to Permitted
Encumbrances reasonably acceptable to Buyer and standard printed
exceptions. A Permitted Encumbrance which is not removed prior to Closing
shall be deemed reasonably acceptable to Buyer as aforesaid unless
such Permitted Encumbrance would have a Material Adverse Effect. Buyer shall
provide Sellers with a copy of a preliminary title report and survey for the
Real Property as soon as it is available.
(j) Since the date of this Agreement, no Material Adverse Effect
shall have occurred and be continuing.
7.2 Conditions to Obligations of Sellers. The obligation of Sellers to
------------------------------------
effect the sale of the Purchased Assets and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or
prior to the Closing Date (or the waiver by Sellers) of the following
conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
sale of the Purchased Assets contemplated herein shall have been issued and
remain in effect (each Party agreeing to use its reasonable best efforts to
have any such injunction, order or decree lifted) and no statute, rule
or regulation shall have been enacted by any state or federal
government or Governmental Authority in the United States which prohibits the
consummation of the sale of the Purchased Assets;
(c) NGE and NYSEG shall have received all of Sellers' Required
Regulatory Approvals applicable to NGE or NYSEG, in form and substance
reasonably satisfactory (including no material adverse conditions) to it;
(d) Penelec shall have received all of Sellers' Required
Regulatory Approvals applicable to Penelec, in form and substance reasonably
satisfactory (including no material adverse conditions) to it;
(e) All consents and approvals for the consummation of the sale
of the Purchased Assets contemplated hereby required under the terms of any
note, bond, mortgage, indenture, material
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agreement or other instrument or obligation to which any Seller is party or by
which any Seller, or any of the Purchased Assets, may be bound, shall have been
obtained, other than those which if not obtained, would not, individually
and in the aggregate, create a Material Adverse Effect;
(f) Buyer shall have performed and complied with in all material
respects the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Buyer on or prior to the Closing
Date;
(g) The representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date;
(h) Sellers shall have received a certificate from an authorized
officer of Buyer, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Sections 7.2(f) and (g)
have been satisfied by Buyer;
(i) Effective upon Closing, Buyer shall have assumed, as set forth in
Section 6.10, all of the applicable obligations under the IBEW Collective
Bargaining Agreement as they relate to Transferred Union Employees;
(j) Sellers shall have received an opinion from Buyer's
counsel reasonably acceptable to Sellers, dated the Closing Date and
satisfactory in form and substance to Sellers and their counsel, substantially
to the effect that:
(i) Each Buyer Entity is a California corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization and is qualified to do business in the Commonwealth of
Pennsylvania and has the full corporate power and authority to own, lease
and operate its material assets and properties and to carry on its business
as is now conducted, and to execute and deliver the Agreement and the
Ancillary Agreements by Buyer and the Guaranty by Buyer Parent and to
consummate the transactions contemplated thereby; and the execution and
delivery of the Agreement and the Ancillary Agreements by Buyer and the
Guaranty by Buyer Parent, and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate
action required on the part of Buyer and Buyer Parent;
(ii) The Agreement, the Ancillary Agreements and the Guaranty have
been duly and validly executed and delivered by Buyer and Buyer
Parent, as applicable, and constitute legal, valid and binding
agreements of Buyer and Buyer Parent, as applicable, enforceable against
Buyer and Buyer Parent, as applicable, in accordance with their terms,
except that such enforceability may be limited by applicable
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bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
or other similar laws affecting or relating to enforcement of creditor's
rights generally and general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in equity);
(iii) The execution, delivery and performance of the Agreement and
the Ancillary Agreements by Buyer and the Guaranty by Buyer Parent does not
(A) conflict with the Certificate of Incorporation or Bylaws (or other
organizational documents), as currently in effect, of Buyer and Buyer
Parent or (B) to the knowledge of such counsel, constitute a violation of
or default under those agreements or instruments set forth on a Schedule
attached to the opinion and which have been identified to such counsel as
all the agreements and instruments which are material to the business or
financial condition of Buyer or Buyer Parent;
(iv) The Assignment and Assumption Agreement and other transfer
instruments described in Section 3.7 are in proper form for Buyer to assume
the Assumed Liabilities; and
(v) No consent or approval of, filing with, or notice to, any
Governmental Authority is necessary for Buyer's execution and delivery of
the Agreement and the Ancillary Agreements, Buyer Parent's execution and
delivery of the Guaranty, or the consummation by Buyer and Buyer Parent of
the transactions contemplated hereby and thereby, other than such consents,
approvals, filings or notices, which, if not obtained or made, will not
prevent Buyer or Buyer Parent from performing its respective obligations
under the Agreement, the Ancillary Agreements and Guaranty.
(k) Buyer shall have delivered, or caused to be delivered, to
Sellers at the Closing, Buyer's closing deliveries described in Section 3.7.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
---------------
(a) Buyer shall indemnify, defend and hold harmless Sellers, their
officers, directors, employees, shareholders, Affiliates and agents (each, a
"Sellers' Indemnitee") from and against any and all claims, demands, suits,
- ----------------------
losses, liabilities, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all
actions, suits, proceedings, assessments, judgments, settlements and compromises
relating thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith) (each, an
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"Indemnifiable Loss"), asserted against or suffered by any Sellers'
- ---------------------
Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer
of any covenant or agreement of Buyer contained in this Agreement or the
representations and warranties contained in Sections 5.1, 5.2 and 5.3,
(ii) the Assumed Liabilities, (iii) any loss or damages resulting from or
arising out of any Inspection, or (iv) any Third Party Claims against a Sellers'
Indemnitee arising out of or in connection with Buyer's ownership or operation
of the Plant and other Purchased Assets on or after the Closing Date.
(b) Sellers shall jointly and severally, except as otherwise
specified in Section 10.1, defend and hold harmless Buyer, its
officers, directors, employees, shareholders, Affiliates and agents
(each, a "Buyer Indemnitee") from and against any and all Indemnifiable
-----------------
Losses asserted against or suffered by any Buyer Indemnitee relating to,
resulting from or arising out of (i) any breach by Sellers of any
covenant or agreement of Sellers contained in this Agreement or the
representations and warranties contained in Sections 4.1, 4.2 and 4.3, (ii)
the Excluded Liabilities, (iii) noncompliance by Sellers with any bulk
sales or transfer laws as provided in Section 10.12, or (iv) any Third
Party Claims against a Buyer Indemnitee arising out of or in connection
with Sellers' ownership or operation of the Excluded Assets on or after
the Closing Date.
(c) Buyer, for itself and on behalf of its
Representatives and Affiliates, does hereby release, hold harmless and
forever discharge Sellers, their Representatives and Affiliates, from any and
all Indemnifiable Losses of any kind or character, whether known or unknown,
hidden or concealed, resulting from or arising out of any Environmental
Condition or violation of Environmental Law relating to the Purchased Assets
other than any liabilities or obligations described in Sections 2.4(g), (h) and
(i). Buyer hereby waives any and all rights and benefits with respect to such
Indemnifiable Losses that it now has, or in the future may have conferred upon
it by virtue of any statute or common law principle which provides that a
general release does not extend to claims which a party does not know or suspect
to exist in its favor at the time of executing the release, if
knowledge of such claims would have materially affected such party's
settlement with the obligor. In this connection, Buyer hereby
acknowledges that it is aware that factual matters now unknown to it may
have given or may hereafter give rise to Indemnifiable Losses that are
presently unknown, unanticipated and unsuspected, and it further agrees that
this release has been negotiated and agreed upon in light of that
awareness and they nevertheless hereby intend to release Sellers and their
Representatives and Affiliates from the Indemnifiable Losses described in the
first sentence of this paragraph.
(d) Notwithstanding anything to the contrary contained herein:
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(i) Any Person entitled to receive indemnification under this
Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to
mitigate all losses, damages and the like relating to a claim under these
indemnification provisions, including availing itself of any defenses,
limitations, rights of contribution, claims against third Persons and other
rights at law or equity. The Indemnitee's Commercially Reasonable Efforts
shall include the reasonable expenditure of money to mitigate or otherwise
reduce or eliminate any loss or expenses for which indemnification would
otherwise be due, and the Indemnitor shall reimburse the Indemnitee for the
Indemnitee's reasonable expenditures in undertaking the mitigation.
(ii) Any Indemnifiable Loss shall be net of (i) the dollar
amount of any insurance or other proceeds actually receivable by
the Indemnitee or any of its Affiliates with respect to the
Indemnifiable Loss, and (ii) income tax benefits to the Indemnitee,
to the extent realized by the Indemnitee. Any party seeking
indemnity hereunder shall use Commercially Reasonable Efforts to seek
coverage (including both costs of defense and indemnity) under
applicable insurance policies with respect to any such Indemnifiable Loss.
(e) The expiration or termination of any covenant or agreement shall
not affect the Parties' obligations under this Section 8.1 if the Indemnitee
provided the Person required to provide indemnification under this Agreement
(the "Indemnifying Party") with proper notice of the claim or event for
------------------
which indemnification is sought prior to such expiration, termination or
extinguishment.
(f) Except to the extent otherwise provided in Article IX, the rights
and remedies of Sellers and Buyer under this Article VIII are exclusive
and in lieu of any and all other rights and remedies which Sellers and
Buyer may have under this Agreement or otherwise for monetary relief, with
respect to (i) any breach of or failure to perform any covenant, agreement, or
representation or warranty set forth in this Agreement, after the occurrence of
the Closing, or (ii) the Assumed Liabilities or the Excluded Liabilities, as
the case may be. The indemnification obligations of the Parties set forth in
this Article VIII apply only to matters arising out of this Agreement,
excluding the Ancillary Agreements. Any Indemnifiable Loss arising under or
pursuant to an Ancillary Agreement shall be governed by the
indemnification obligations, if any, contained in the Ancillary Agreement under
which the Indemnifiable Loss arises.
(g) Notwithstanding anything to the contrary herein, no party
(including an Indemnitee) shall be entitled to recover from any other party
(including an Indemnifying Party) for any liabilities, damages, obligations,
payments losses, costs, or
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expenses under this Agreement any amount in excess of the actual compensatory
damages, court costs and reasonable attorney's and other advisor fees suffered
by such party. Buyer and Sellers waive any right to recover punitive,
incidental, special, exemplary and consequential damages arising in connection
with or with respect to this Agreement. The provisions of this Section 8.1(g)
shall not apply to indemnification for a Third Party Claim.
8.2 Defense of Claims.
-----------------
(a) If any Indemnitee receives notice of the assertion of any claim or
of the commencement of any claim, action, or proceeding made or brought by any
Person who is not a party to this Agreement or any Affiliate of a Party to this
Agreement (a "Third Party Claim") with respect to which indemnification is to be
-----------------
sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying
Party reasonably prompt written notice thereof, but in any event such notice
shall not be given later than ten (10) calendar days after the Indemnitee's
receipt of notice of such Third Party Claim. Such notice shall describe the
nature of the Third Party Claim in reasonable detail and shall indicate the
estimated amount, if practicable, of the Indemnifiable Loss that has been or may
be sustained by the Indemnitee. The Indemnifying Party will have the right to
participate in or, by giving written notice to the Indemnitee, to elect to
assume the defense of any Third Party Claim at such Indemnifying Party's expense
and by such Indemnifying Party's own counsel, provided that the counsel for the
Indemnifying Party who shall conduct the defense of such Third Party Claim
shall be reasonably satisfactory to the Indemnitee. The Indemnitee shall
cooperate in good faith in such defense at such Indemnitee's own expense.
If an Indemnifying Party elects not to assume the defense of any Third Party
Claim, the Indemnitee may compromise or settle such Third Party Claim over the
objection of the Indemnifying Party, which settlement or compromise shall
conclusively establish the Indemnifying Party's liability pursuant to this
Agreement.
(b) (i) If, within ten (10) calendar days after an Indemnitee
provides written notice to the Indemnifying Party of any Third Party Claims, the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.2(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnitee in connection with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take reasonable steps necessary to defend diligently such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense and the Indemnifying Party shall be
liable for all reasonable expenses thereof. (ii) Without the prior written
consent of the Indemnitee, the Indemnifying Party shall not enter
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into any settlement of any Third Party Claim which would lead to liability or
create any financial or other obligation on the part of the Indemnitee for which
the Indemnitee is not entitled to indemnification hereunder. If a firm offer is
made to settle a Third Party Claim without leading to liability or the creation
of a financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying Party shall
give written notice to the Indemnitee to that effect. If the Indemnitee fails
to consent to such firm offer within ten (10) calendar days after its receipt of
such notice, the Indemnifying Party shall be relieved of its obligations to
defend such Third Party Claim and the Indemnitee may contest or defend such
Third Party Claim. In such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will be the amount of such
settlement offer plus reasonable costs and expenses paid or incurred by
Indemnitee up to the date of said notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable
Loss which does not result from a Third Party Claim (a "Direct Claim") shall be
------------
asserted by giving the indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and
indicating the estimated amount, if practicable, but in any event such notice
shall not be given later than ten (10) calendar days after the Indemnitee
becomes aware of such Direct Claim, and the Indemnifying Party shall have
a period of thirty (30) calendar days within which to respond to such
Direct Claim. If the Indemnifying Party does not respond within such
thirty (30) calendar day period, the Indemnifying Party shall be deemed to have
accepted such claim. If the Indemnifying Party rejects such claim, the
Indemnitee will be free to seek enforcement of its right to indemnification
under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time subsequent
to the making of an indemnity payment in respect thereof, is reduced by
recovery, settlement or otherwise under or pursuant to any insurance coverage,
or pursuant to any claim, recovery, settlement or payment by, from or against
any other entity, the amount of such reduction, less any costs, expenses or
premiums incurred in connection therewith (together with interest thereon from
the date of payment thereof at the publicly announced prime rate then
in effect of Chase Manhattan Bank) shall promptly be repaid by the
Indemnitee to the Indemnifying Party.
(e) A failure to give timely notice as provided in this Section
8.2 shall not affect the rights or obligations of any Party hereunder except if,
and only to the extent that, as a result of such failure, the Party which was
entitled to receive such notice was actually prejudiced as a result of such
failure.
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ARTICLE IX
TERMINATION
9.1 Termination. (a) This Agreement may be terminated at any time prior
-----------
to the Closing Date by mutual written consent of Sellers and Buyer.
(b) This Agreement may be terminated by Sellers or Buyer if
(i) any Federal or state court of competent jurisdiction shall have issued an
order, judgment or decree permanently restraining, enjoining or otherwise
prohibiting the Closing, and such order, judgment or decree shall have
become final and nonappeallable or (ii) any statute, rule, order or
regulation shall have been enacted or issued by any Governmental Authority
which, directly or indirectly, prohibits the consummation of the Closing; or
(iii) the Closing contemplated hereby shall have not occurred on or before the
day which is 12 months from the date of this Agreement (the "Termination Date");
----------------
provided that the right to terminate this Agreement under this Section 9.1(b)
(iii) shall not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in,
the failure of the Closing to occur on or before such date; and provided,
further, that if on the day which is 12 months from the date of this
Agreement the conditions to the Closing set forth in Section 7.1(b) or
7.2(c) or (d) shall not have been fulfilled but all other conditions to the
Closing shall be fulfilled or shall be capable of being fulfilled, then the
Termination Date shall be the day which is 18 months from the date of this
Agreement.
(c) Except as otherwise provided in this Agreement, this
Agreement may be terminated by Buyer if any of Buyer Required
Regulatory Approvals, the receipt of which is a condition to the
obligation of Buyer to consummate the Closing as set forth in Section
7.1(b), shall have been denied (and a petition for rehearing or refiling
of an application initially denied without prejudice shall also have been
denied) or shall have been granted but are not in form and substance reasonably
satisfactory to Buyer.
(d) This Agreement may be terminated by Sellers, if any of the
Sellers' Required Regulatory Approvals applicable to Penelec, the receipt of
which is a condition to the obligation of Penelec to consummate the Closing as
set forth in Section 7.2(d), shall have been denied (and a petition for
rehearing or refiling of an application initially denied without prejudice shall
also have been denied) or shall have been granted but are not in form and
substance reasonably satisfactory to Penelec.
(e) This Agreement may be terminated by Sellers, if any of Sellers'
Required Regulatory Approvals applicable to NGE or NYSEG, the receipt of which
is a condition to the obligations
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of NGE or NYSEG to consummate the Closing as set forth in Section 7.2(c) have
been denied (and a petition for rehearing or refiling of an application
initially denied without prejudice shall also have been denied), or shall have
been granted but are not in form and substance reasonably satisfactory to NGE
and NYSEG.
(f) This Agreement may be terminated by Buyer if there has been a
violation or breach by Sellers of any covenant, representation or
warranty contained in this Agreement which has resulted in a Material
Adverse Effect and such violation or breach is not cured by the earlier of
the Closing Date or the date thirty (30) days after receipt by Sellers
of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Buyer.
(g) This Agreement may be terminated by Sellers, if there has been a
material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date thirty (30) days after receipt by
Buyer of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Sellers.
(h) This Agreement may be terminated by Sellers if there shall
have occurred any change that is materially adverse to the business,
operations or conditions (financial or otherwise) of Buyer.
(i) This Agreement may be terminated by either of Sellers or
Buyer in accordance with the provisions of Section 6.11(b).
9.2 Procedure and Effect of No-Default Termination. In the event of
----------------------------------------------
termination of this Agreement by either or both of the Parties pursuant to
Section 9, written notice thereof shall forthwith be given by the
terminating Party to the other Party, whereupon, if this Agreement is terminated
pursuant to any of Sections 9.1(a) through (e) and 9.1(h) and (i), the
liabilities of the Parties hereunder will terminate, except as otherwise
expressly provided in this Agreement, and thereafter neither Party shall
have any recourse against the other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Several Liability of each Seller. Notwithstanding anything to
------------------------------------
the contrary contained herein, but subject to Section 10.4, it is expressly
understood and agreed that (i) the obligations and covenants of the Sellers
in Section 3.6 and the representations and warranties of Sellers in Sections
4.1, 4.2, 4.3, 4.5, 4.15 and 6.7 (and any indemnity under Article VIII
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relating thereto) are made severally as to itself in the case of Penelec, and
jointly and severally in the case of NYSEG and NCE as to themselves; and (ii)
all other obligations and covenants of the Sellers and all other representations
and warranties of the Sellers hereunder (except for Section 4.20 which is made
solely by NYSEG) are made severally by Penelec on the one hand, and jointly
and severally by NYSEG and NGE on the other, such that Penelec on the one hand,
and NYSEG and NGE on the other, shall in no event be liable to Buyer hereunder
for more than 50% of any Indemnifiable Loss incurred by Buyer under the
indemnity agreement in Article VIII or otherwise under this Agreement for a
breach of such representation, warranty, obligation or covenant.
10.2 Amendment and Modification. Subject to applicable law, this Agreement
--------------------------
may be amended, modified or supplemented only by written agreement of Sellers
and Buyer.
10.3 Waiver of Compliance; Consents. Except as otherwise provided
-------------------------------------
in this Agreement, any failure of any of the Parties to comply with any
obligation, covenant, agreement or condition herein may be waived by
the Party entitled to the benefits thereof only by a written instrument
signed by the Party granting such waiver, but such waiver of such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent failure to comply therewith
10.4 No Survival. Each and every representation, warranty and covenant
-- --------
contained in this Agreement (other than the covenants contained in
Sections 3.3(c), 3.4, 3.5(b), 6.2, 6.4, 6.5, 6.6(f), 6.7, 6.8, 6.10, 6.12, 9.4,
and in Articles VIII and X, which provisions shall survive the delivery of the
deed(s) and the Closing in accordance with their terms and the
representations and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and
5.3, and claims arising under Sections 6.1 and 6.6(e), which representations
and warranties and such claims shall survive the Closing for eighteen
(18) months from the Closing Date) shall expire with, and be
terminated and extinguished by the consummation of the sale of the Purchased
Assets and shall merge into the deed(s) pursuant hereto and the transfer of the
Assumed Liabilities pursuant to this Agreement and such representations,
warranties and covenants shall not survive the Closing Date; and none
of Sellers, Buyer or any officer, director, trustee or Affiliate of any of
them shall be under any liability whatsoever with respect to any such
representation, warranty or covenant.
10.5 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified
mail (return receipt requested), postage prepaid, to the recipient Party
at its address (or at such other address or facsimile number for a Party as
shall be specified by like notice; provided, however. that
--------
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notices of a change of address shall be effective only upon receipt
thereof):
(a) If to Sellers, to:
(Penelec)
c/o GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Attention: David Brauer
Vice President
(NGE or NYSEG)
4500 Vestal Parkway East
Binghamton, New York 13902
Attention: Daniel W. Farley
Vice President and Secretary
with a copy to:
(if to Penelec)
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Douglas E. Davidson, Esq.
(if to NGE or NYSEG)
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10169
Attention: Nicholas A. Giannasca, Esq.
Taras G. Borkowsky, Esq.
(b) if to Buyer, to:
Mission Energy Westside, Inc.
18101 Von Karman Avenue, Suite 1700
Irvine, California 92612
Attention: James V. Iaco
President
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Richard A. Shortz, Esq.
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10.6 Assignment. This Agreement and all of the provisions hereof shall
----------
be binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned
by any Party hereto, including by operation of law, without the prior written
consent of each other Party, nor is this Agreement intended to confer upon any
other Person except the Parties hereto any rights, interests,
obligations or remedies hereunder. No provision of this Agreement
shall create any third party beneficiary rights in any employee or former
employee of Sellers (including any beneficiary or dependent thereof) in respect
of continued employment or resumed employment, and no provision of this
Agreement shall create any rights in any such Persons in respect of any
benefits that may be provided, directly or indirectly, under any employee
benefit plan or arrangement except as expressly provided for thereunder.
Notwithstanding the foregoing, (i) Buyer may assign all of its rights and
obligations hereunder to any majority owned Subsidiary (direct or indirect) and
upon Sellers' receipt of notice from Buyer of any such assignment,
such assignee will be deemed to have assumed, ratified, agreed to be
bound by and perform all such obligations, and all references herein to "Buyer"
shall thereafter be deemed to be references to such assignee, in each
case without the necessity for further act or evidence by the Parties hereto
or such assignee, and (ii) Buyer or its permitted assignee may assign,
transfer, pledge or otherwise dispose of (absolutely or as security) its rights
and interests hereunder to a trustee, lending institutions or other party for
the purposes of leasing, financing or refinancing the Purchased Assets,
including such an assignment, transfer or other disposition upon or pursuant to
the exercise of remedies with respect to such leasing, financing or refinancing,
or by way of assignments, transfers, pledges, or other dispositions in
lieu thereof; provided, however, that no such assignment in clause (i) or (ii)
shall relieve or discharge Buyer from any of its obligations hereunder. The
Sellers agree, at Buyer's expense, to execute and deliver such documents as may
be reasonably necessary to accomplish any such assignment, transfer,
pledge or other disposition of rights and interests hereunder so long as
the Sellers' rights under this Agreement are not thereby altered, amended,
diminished or otherwise impaired.
10.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the law of the State of New York (without giving effect to
conflict of law principles) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies. THE
PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED
TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL
COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE
JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT
TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR
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PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED
BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS
RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
10.8 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 Interpretation. The articles, section and schedule headings
--------------
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
10.10 Schedules and Exhibits. Except as otherwise provided in this
----------------------
Agreement, all Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
10.11 Entire Agreement. This Agreement, the Confidentiality Agreement, and
----------------
the Ancillary Agreements including the Exhibits, Schedules, documents,
certificates and instruments referred to herein or therein, embody the
entire agreement and understanding of the Parties hereto in respect of the
transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other
than those expressly set forth or referred to herein or therein. It is
expressly acknowledged and agreed that there are no restrictions,
promises, representations, warranties, covenants or undertakings contained in
any material made available to Buyer pursuant to the terms of the
Confidentiality Agreement (including the Offering Memorandum dated April 1998,
previously delivered to Buyer by Sellers and Goldman, Sachs & Co.). This
Agreement supersedes all prior agreements and understandings between the Parties
other than the Confidentiality Agreement with respect to such transactions.
10.12 Bulk Sales Laws. Buyer acknowledges that, notwithstanding
-------------------
anything in this Agreement to the contrary, Sellers will not comply with
the provision of the bulk sales laws of any jurisdiction in connection with
the transactions contemplated by this Agreement. Buyer hereby waives
compliance by Sellers with the provisions of the bulk sales laws of all
applicable jurisdictions.
10.13 U.S. Dollars. Unless otherwise stated, all dollar amounts set
-------------
forth herein are United States (U.S.) dollars.
10.14 Zoning Classification. Buyer acknowledges that the Real Property
---------------------
is not zoned.
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10.15 Sewage Facilities. Buyer acknowledges that there is no community
-----------------
(municipal) sewage system available to serve the Real Property. Accordingly,
any additional sewage disposal planned by Buyer will require an individual (on-
site) sewage system and all necessary permits as required by the
Pennsylvania Sewage Facilities Act (the "Facilities Act"). Buyer
---------------
recognizes that certain of the existing individual sewage systems on the Real
Property may have been installed pursuant to exemptions from the requirements of
the Facilities Act or prior to the enactment of the Facilities Act and that
soils and site testing may not have been performed in connection therewith.
The owner of the property or properties served by such a system, at the time
of any malfunction, may be held liable for any contamination, pollution,
public health hazard or nuisance which occurs as the result of such malfunction.
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IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement to
be signed by their respective duly authorized officers as of the date
first above written.
PENNSYLVANIA ELECTRIC COMPANY NGE GENERATION, INC.
By: By:/s/ Kenneth M. Jasinski
------------------------------ ------------------------------
Name: John G. Graham Name: Kenneth M. Jasinski
Title: Vice President and Title: Executive Vice President
Chief Financial Officer
MISSION ENERGY WESTSIDE, INC. NEW YORK STATE ELECTRIC &
GAS CORPORATION
By: /s/ James V. Iaco By:/s/ Kenneth M. Jasinski
------------------------------ ------------------------------
Name: James V. Iaco Name: Kenneth M. Jasinski
Title: President Title: Executive Vice President
68
<PAGE>
IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement
to be signed by their respective duly authorized officers as of the
date first above written.
PENNSYLVANIA ELECTRIC COMPANY NGE GENERATION, INC.
By: /s/ John G. Graham By:
----------------------------- -----------------------------
Name: Name:
Title: Title:
NEW YORK STATE ELECTRIC & GAS
CORPORATION
By: By:
----------------------------- -----------------------------
Name: Name:
Title: Title:
69
<PAGE>
EXHIBIT 2.5
================================================================================
ASSET SALE AGREEMENT
BY AND BETWEEN
COMMONWEALTH EDISON COMPANY
AND
EDISON MISSION ENERGY
AS TO FOSSIL FUEL GENERATING ASSETS
DATED AS OF MARCH 22, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
DEFINITIONS
1.1 Defined Terms...................................................... 1
1.2 Interpretation..................................................... 15
1.3 Captions........................................................... 15
1.4 No Joint Venture................................................... 16
1.5 Construction of Agreement.......................................... 16
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Transfer of Assets................................................. 16
2.2 Excluded Assets.................................................... 17
2.3 Purchaser's Liabilities............................................ 18
2.4 Excluded Liabilities............................................... 19
2.5 Closing............................................................ 21
2.6 Purchase Price..................................................... 21
2.7 Certain Provisions With Respect to Switchyard Property............. 23
2.8 ComEd Marks........................................................ 25
2.9 Software License................................................... 25
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF COMED
3.1 Transaction Representations........................................ 26
3.2 Disclaimers Regarding Assets....................................... 27
3.3 Compliance with Laws............................................... 28
3.4 Permits, Licenses, Etc............................................. 28
3.5 Litigation......................................................... 28
3.6 Zoning and Condemnation............................................ 28
3.7 Brokers ........................................................... 29
3.8 Contracts.......................................................... 29
3.9 Assets Used in the Operation of the Facilities..................... 29
3.10 Casualty; Operations ............................................. 29
3.11 Taxes............................................................. 29
3.12 Public Utility Holding Company Act ............................... 30
3.13 ERISA; Benefit Plans.............................................. 30
3.14 Title to Tangible Personal Property .............................. 31
3.15 Environmental Matters............................................. 31
3.16 Data Room ........................................................ 32
3.17 Labor Matters .................................................... 32
-i-
<PAGE>
Page
----
3.18 Financial Statements .............................................. 32
3.19 No Other Representations .......................................... 32
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PURCHASER
4.1 Transaction Representations......................................... 33
4.2 Litigation.......................................................... 34
4.3 Brokers............................................................. 34
4.4 Financial Statements................................................ 34
4.5 Financial Ability................................................... 35
4.6 Disclosures......................................................... 35
4.7 Public Utility Holding Company Act.................................. 35
4.8 "AS IS" SALE........................................................ 35
ARTICLE 5
CERTAIN AGREEMENTS
5.1 Due Diligence Inspections and Reviews............................... 35
5.2 Consents and Approvals.............................................. 36
5.3 Confidentiality..................................................... 38
5.4 Labor Matters....................................................... 38
5.5 Employee Benefits Matters........................................... 39
5.6 Cooperation......................................................... 41
5.7 Taxes, Prorations and Closing Costs................................. 42
5.8 1997 Act............................................................ 46
5.9 Environmental Matters............................................... 46
5.10 No Recourse........................................................ 48
5.11 Advice of Changes.................................................. 48
5.12 Maintenance of Assets Pending Closing ............................. 48
5.13 Capital Expenditures Prior to Closing.............................. 49
5.14 Post Closing Information and Records............................... 49
5.15 Liability Only Pursuant to Closing Certificate..................... 51
5.16 Casualty Loss...................................................... 51
5.17 Crawford Dredge Material........................................... 52
5.18 Electric Junction Access........................................... 52
5.19 Illinois Responsible Property Transfer Act......................... 53
ARTICLE 6
INDEMNIFICATION
6.1 Survival of the Parties' Representations and Warranties............ 53
6.2 Indemnification by ComEd........................................... 54
<PAGE>
Page
----
6.3 Indemnification by Purchaser....................................... 54
6.4 Notice of Claim.................................................... 56
6.5 Defense of Third Party Claims ..................................... 57
6.6 Cooperation........................................................ 57
6.7 Mitigation and Limitation on Claims................................ 58
6.8 Survival of Certain Obligations.................................... 58
6.9 Remedies Exclusive................................................. 58
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PURCHASER AT THE CLOSING
7.1 Compliance with Provisions......................................... 59
7.2 ComEd's Receipt of Approvals of Governmental Authorities........... 59
7.3 Purchaser's Receipt of Approvals of Governmental Authorities....... 59
7.4 No Adverse Proceedings............................................. 59
7.5 Deliveries......................................................... 60
7.6 Purchaser Title Policy............................................. 60
7.7 HSR Act............................................................ 60
7.8 No Material Adverse Effect......................................... 60
7.9 Facility Performance............................................... 60
7.10 Year 2000 Status.................................................. 60
7.11 Illinois Legislation.............................................. 61
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
OF COMED AT THE CLOSING
8.1 Compliance with Provisions.......................................... 61
8.2 ComEd's Receipt of Approvals of Governmental Authorities............ 61
8.3 ComEd's Receipt of Approvals........................................ 61
8.4 No Adverse Proceeding............................................... 62
8.5 Deliveries.......................................................... 62
8.6 ComEd Title Policy.................................................. 62
8.7 HSR Act............................................................. 62
8.8 Illinois Legislation................................................ 62
ARTICLE 9
CLOSING DELIVERIES
9.1 Purchaser's Additional Deliveries................................... 62
9.2 ComEd's Additional Deliveries....................................... 63
9.3 Delayed Recordation of Easement Agreements.......................... 64
- iii -
<PAGE>
Page
----
ARTICLE 10
TERMINATION
10.1 Rights To Terminate............................................... 65
10.2 Non-Solicitation.................................................. 66
10.3 Effect of Termination............................................. 66
ARTICLE 11
MISCELLANEOUS AGREEMENTS AND ACKNOWLEDGMENTS
11.1 Expenses.......................................................... 67
11.2 Entire Document................................................... 67
11.3 Schedules......................................................... 67
11.4 Counterparts...................................................... 67
11.5 Severability...................................................... 68
11.6 Successors and Assigns............................................ 68
11.7 Governing Law..................................................... 70
11.8 Dispute Resolution................................................ 70
11.9 Notices........................................................... 72
11.10 Time is of the Essence........................................... 73
11.11 No Third Party Beneficiaries..................................... 73
11.12 Effect of Closing................................................ 73
11.13 Conflicts........................................................ 74
11.14 CONSENT TO JURISDICTION.......................................... 74
11.15 No Public Announcement........................................... 74
11.16 New Generation Capacity.......................................... 74
- iv -
<PAGE>
Exhibits Title
- -------- -----
A Form of Bill of Sale and Instrument of Assignment
B Forms of Easement Agreements
C-1 Form of Facilities, Interconnection and Easement Agreements
(Stations)
C-2 Form of Facilities, Interconnection and Easement Agreements
(Peaking Sites)
C-3 Form of Facilities, Interconnection and Easement Agreement
(Sabrooke Peaking Site)
D Forms of Grant Deeds
E Form of Instrument of Assumption
F-1 Form of Power Purchase Agreement (Coal-Fired Stations)
F-2 Form of Power Purchase Agreement (Peaking Units)
F-3 Form of Power Purchase Agreement (Collins)
G Preliminary Title Reports
H Form of Tax Reproration Agreements
I Form of Opinion of Counsel to Purchaser
J Form of Opinion of Counsel to ComEd
K Form of Agency Agreement
L Form of FIRPTA Affidavit
-v-
<PAGE>
Schedules Title
- --------- -----
1.1 ComEd Officers and Employees
1.2 Purchaser Officers and Employees
2.1(a) Transferred Land
2.1(c) Specific Permits, Licenses and Variances
2.1(d) Personal Property
2.1(e)(1) Assigned Leases and Licenses
2.1(e)(2) Assigned Fuel Contracts
2.1(e)(3) Other Assigned Contracts
2.1(e)(4) Causes of Action
2.1(f) SO\2\ Trading Allowances
2.2(a) Switchyard Property
2.2(b) Transmission Excluded Assets
2.2(c) Other Excluded Assets
2.6(b) Inventory Valuation Methodologies
2.9 Software License
3.1(c) Violations
3.1(d) Consents
3.3 Compliance Exceptions
3.5 ComEd Litigation
3.6 Notice of Government Action
3.8 Contractual Defaults
3.10(a) Casualty Losses
3.10(b) Operations Outside of the Ordinary Course
3.11 Taxes
3.13(a) Benefit Plans
3.14 Tangible Personal Property Encumbrances
3.15 Environmental Matters
3.17 Labor Matters
4.1(d) Purchaser Consents
4.2 Purchaser Litigation
5.13 Pre-Approved Capital Expenditures
7.3(b) Purchaser Consents Required for Closing
7.9 Facility Performance Tests
7.10 Year 2000 Test Procedures
8.2 Required Governmental Approvals
8.3 ComEd Consents for Closing
-vi-
<PAGE>
ASSET SALE AGREEMENT
--------------------
This ASSET SALE AGREEMENT (this "Agreement") is made, as of March 22,
1999, by and between Commonwealth Edison Company, an Illinois corporation
("ComEd"), and Edison Mission Energy, a California corporation ("Purchaser").
BACKGROUND
----------
A. ComEd owns and operates fossil-fired generation facilities known as
Crawford Station, Fisk Station, Waukegan Station, Will County Station, Joliet
Station, Powerton Station and Collins Station, together with certain additional
generating assets known as the Calumet, Bloom, Electric Junction, Lombard and
Sabrooke off-site peaking units.
B. ComEd desires to sell to Purchaser, and Purchaser desires to
purchase from ComEd, said generation facilities and assets on and subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements contained in this Agreement, each of ComEd
and Purchaser agrees as follows:
ARTICLE I
---------
DEFINITIONS
-----------
1.1 Defined Terms. The following capitalized terms when used in this
-------------
Agreement (or in the Schedules and Exhibits to this Agreement) have the
respective meanings set forth below:
"Accountant's Report" means the auditor's report with respect to any
-------------------
Audited Financial Statements.
"Affiliate" means, with respect to any Person, any other Person that
---------
(i) directly or indirectly controls the specified Person or (ii) is controlled
directly or indirectly by or is under direct or indirect common control with the
specified Person.
"Agency Agreement" has the meaning set forth in Section 5.2(c) (Joint
---------------- --------------
Cooperation).
"Agreement" means this Asset Sale Agreement, together with the
---------
Schedules and Exhibits, as the same may be amended from time to time.
"Allocation Schedule" has the meaning set forth in Section 2.6(c)
--------------
(Purchase Price Allocation of Purchase Price).
"Approved Capital Expenditures" means all Capital Expenditures
approved by Purchaser, which approval will not be unreasonably withheld,
conditioned or delayed and will, in all
<PAGE>
events, be deemed given for any individual Capital Expenditure under Two
Hundred and Fifty Thousand Dollars ($250,000).
"Assets" has the meaning set forth in Section 2.1 (Transfer of
------ -----------
Assets).
"Assigned Contracts" means the Assigned Fuel Contracts and the
------------------
Assigned Other Contracts.
"Assigned Fuel Contracts" has the meaning set forth in Section 2.1(e)
----------------------- --------------
(Transfer of Assets--Other Assets).
"Assigned Leases" has the meaning set forth in Section 2.1(e)
--------------- --------------
(Transfer of Assets--Other Assets).
"Assigned Other Contracts" has the meaning set forth in Section
------------------------ -------
2.1(e) (Transfer of Assets--Other Assets).
------
"Audited Financial Statements" means, with respect to any Person, its
----------------------------
audited balance sheet as of the last day of its most recently completed fiscal
year, and the related audited statements of operations, stockholders' equity
and cash flow for the year then ended.
"Benefit Plans" has the meaning set forth in Section 3.13(a) (ERISA;
------------- ---------------
Benefit Plans).
"Bill of Sale and Instrument of Assignment" means the Bill of Sale
-----------------------------------------
and Instrument of Assignment in the form of Exhibit A.
---------
"Business Day" means a day other than (i) Saturday or Sunday or (ii)
------------
a day on which (A) banks are closed for business in the State of Illinois or
(B) ComEd's principal corporate offices are closed for business.
"Capital Expenditure" means (i) any additions to or replacements of
-------------------
property, plant and/or equipment and (ii) any other expenditures that would be
capitalized on ComEd's balance sheet in accordance with ComEd's capitalization
policy.
"Casualty" means any damage to or destruction of all or any portion
--------
of the Facilities as a result of fire (including fire caused by lightning),
wind, hail, ice, snow, hurricane, tornado, freezing, earthquake, earth movement
or flood which, in ComEd's reasonable judgment, exceeds Five Hundred Thousand
Dollars ($500,000) per occurrence.
"Casualty Betterment" means the portion, as reasonably determined by
-------------------
ComEd, of any Capital Expenditure incurred by ComEd pursuant to Section 5.16
------------
(Casualty Loss) that constitutes a betterment or improvement of the condition
of the Facilities from the condition immediately prior to the Casualty,
provided such betterment or improvement was approved by Purchaser, which
approval will not be unreasonably withheld, conditioned or delayed and in any
case will be deemed
- 2 -
<PAGE>
given if the aggregate amount of all betterments or improvements following a
Casualty is less than Two Million and Five Hundred Thousand Dollars
($2,500,000).
"Casualty Estimate" has the meaning set forth in Section 5.16(a)
----------------- ---------------
(Casualty Estimate).
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act (42 U.S.C. Section 9601 et seq.).
"Change of Law" means the adoption, promulgation, repeal, modification
-------------
or reinterpretation of any law, rule, regulation, ordinance or order or any
other Requirement of Law of any federal, state, county or local government,
governmental agency, court, commission, department or other such entity which
occurs subsequent to the Effective Date.
"Child Care Plan" has the meaning set forth in Section 5.5(b)
--------------- --------------
(Employee Benefits Matters Employee Benefit Plans).
"Closing" has the meaning set forth in Section 2.5 (Closing).
------- -----------
"Closing Date" has the meaning set forth in Section 2.5 (Closing).
------------ -----------
"Closing Date Inventory Amount" has the meaning set forth in Section
----------------------------- -------
2.6(b) (Purchase Price--Inventory Adjustment).
- ------
"Code" means the Internal Revenue Code of 1986.
----
"Collective Bargaining Agreement" means: (i) as specifically
-------------------------------
applicable to the relevant transferred assets, the express language contained in
those portions of (A) the Collective Bargaining Agreement between ComEd and
Local 15 of the International Brotherhood of Electrical Workers (August 25, 1997
to March 31, 2001) (the "CBA"), (B) the separately bound 140-page Supplement to
Collective Bargaining Agreement Memorandum and Letters (which contains twenty
memorandums and letters), the Supplemental Agreements governing the provision of
pension, 401(k) and welfare benefit plans (including medical, dental, vision,
flexible spending account, disability and life insurance) and (C) the agreements
expressly referred to in the CBA; and (ii) that portion of the Memorandum of
Understanding dated February 26, 1999, between ComEd and IBEW Local Union 15
relating to the sale of ComEd's fossil generating assets that imposes
obligations on a new owner.
"ComEd" has the meaning set forth in the introductory paragraph of
-----
this Agreement.
"ComEd Claims" has the meaning set forth in Section 6.3(a)
------------ -------------
(Indemnification by Purchaser--ComEd Claims).
"ComEd ESIP" has the meaning set forth in Section 5.5(b) (Employee
---------- -------------
Benefits Matters--Employee Benefit Plans).
- 3 -
<PAGE>
"ComEd Generation Systems" has the meaning set forth in Section 7.10
------------------------ ------------
(Year 2000 Status).
"ComEd Group" has the meaning set forth in Section 6.3(a)
------------ --------------
(Indemnification by Purchaser--ComEd Claims).
"ComEd Marks" has the meaning set forth in Section 2.8 (ComEd Marks).
----------- -----------
"ComEd Pension Plan" has the meaning set forth in Section 5.5(b)
------------------ --------------
(Employee Benefits Matters--Employee Benefit Plans).
"ComEd Reduction" has the meaning set forth in Section 5.7(a) (Taxes,
--------------- --------------
Prorations and Closing Costs--Taxes).
"ComEd Software" has the meaning set forth in Section 2.9 (Software
-------------- -----------
License).
"Commercially Reasonable Efforts" means efforts by a Party to perform
-------------------------------
the particular obligation under this Agreement that do not require such Party to
expend any funds other than expenditures which are customary and reasonable in
transactions of the kind and nature contemplated by this Agreement in order for
such Party to satisfy such obligation under this Agreement.
"Confidentiality Agreement" means that certain letter agreement dated
-------------------------
October 1, 1998 between ComEd and Purchaser.
"Crawford Dredge Material" has the meaning set forth in Section 5.17
------------------------ ------------
(Crawford Dredge Material).
"Data Room" means the data room(s) maintained by ComEd in connection
---------
with the transactions contemplated herein.
"Delayed Recording" has the meaning set forth in Section 9 3 (Delayed
----------------- -----------
Recordation of Easement Agreements).
"Determination Date" has the meaning set forth in Section 2.6(b)
------------------ --------------
(Purchase Price-Inventory Adjustment).
"Divisible Tax Bill" has the meaning set forth in Section 5.7(a)
------------------ --------------
(Taxes, Prorations and Closing Costs-Taxes).
"Easement Agreements" means, collectively, the following: (i) for each
-------------------
of the Sites, a Transmission Facilities Basement in the form of Exhibit B-1,
-----------
(ii) for each of the Sites other than the Powerton Site and the Bloom Site, a
Distribution Facilities Easement in the form of Exhibit B-2, (iii) for each of
-----------
the Sites other than the Sabrooke Site, a Seller Ingress-Egress and Utility
Facilities Easement in the form of Exhibit B-3, (iv) for the Calumet, Crawford,
-----------
Fisk, Joliet #9, Joliet #29,
- 4 -
<PAGE>
Powerton, Collins and Electric Junction Sites only, an Air Rights Easement in
the form of Exhibit B-4, (v) for each of the Sites other than the Will County
-----------
Site, the Crawford Site, the Joliet #29 Site, the Electric Junction Site, the
Collins Site and the Lombard Site, a Purchaser Ingress-Egress Easement in the
form of Exhibit B-5, (vi) for the Will County Site only, a Frontage Easement in
-----------
the form of Exhibit B-6, (vii) for the Calumet Site only, a Microwave Facilities
-----------
Easement in the form of Exhibit B-7, (viii) for the Electric Junction Site only,
-----------
a Purchaser Drainage Easement in the form of Exhibit B-8, (ix) for the Collins
-----------
Site only, an Emergency Response Training Facility Facilities Easement in the
form of Exhibit B-9, (x) for the Sabrooke Site only, a Seller Ingress-Egress,
-----------
Parking and Utility Facilities Easement in the form of Exhibit B-10, (xi) for
------------
the Fisk/Sampsons Canal Site only, a Purchaser Foundation Facilities Easement in
the form of Exhibit B-11, and (xii) for the Will County Site only, a Purchaser
------------
Rail Track Right of Way in the form of Exhibit B-12.
------------
"Effective Date" means the date on which this Agreement has been
--------------
executed and delivered by the Parties.
"Employment Laws" means any applicable Requirements of Laws, permits,
---------------
orders or published decisions relating to: (i) any aspect of employment or (ii)
employee benefits, including those matters governed by the Age Discrimination in
Employment Act of 1967 (29 U.S.C. Section 621 et seq.), the Americans with
Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.), the Civil Rights Act
of 1964 (42 U.S.C. Section 2000e, including Title VII thereunder, and as amended
by the Civil Rights Act of 1991), ERISA, the Equal Employment Act of 1972 (42
U.S.C. Section 2000e et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section
206), the Fair Labor Standards Act of 1938 (29 U.S.C. Section 201 et seq.), the
Family and Medical Leave Act of 1993 (29 U.S.C. Section 260 et seq.), the
Immigration Reform and Control Act of 1986 (8 U.S.C. Section 1324a et seq.), the
Labor Management Relations Act (29 U.S.C. Section 141 et seq.), the National
Labor Relations Act (29 U.S.C. Section 151 et seq.), the Occupational Safety and
Health Act of 1970 (29 U.S.C. Section 651 et seq.), the Older Workers Benefit
Protection Act (29 U.S.C. Section 621 et seq.), the Pregnancy Discrimination Act
(423 U.S.C. Section 2000e(k), the Privacy Act of 1974 (5 U.S.C. Section 552a),
the Social Security Act (42 U.S.C. Section 301 et seq.) and the WARN Act, and
all state counterpart statutes.
"Environmental Conditions" means the presence of Hazardous Substances
------------------------
on, over, under or about the Transferred Real Property or any portion thereof or
other real property subject to an Assigned Lease, or in soil, sediment, surface
water or groundwater at the Transferred Real Property or any portion thereof or
other real property subject to an Assigned Lease, whether occurring before or
after the Closing (other than Transmission Environmental Conditions), and
including any migration of such Hazardous Substances either before or after the
Closing, including migration to a location off the Transferred Real Property or
other real property subject to an Assigned Lease. Environmental Conditions
include any Hazardous Substances present in, on, or incorporated into any drums,
equipment or debris that are or were discarded or abandoned or buried at the
Transferred Real Property or any portion thereof or other real property subject
to an Assigned Lease prior to or after the Closing.
"Environmental Laws" means any applicable Requirements of Laws,
------------------
permits, orders or published decisions of Government Authorities relating to:
(i) air emissions, hazardous materials, storage, use and release to the
environment of Hazardous Substances, generation, treatment, storage,
- 5 -
<PAGE>
and disposal of hazardous wastes, wastewater discharges and similar
environmental matters or (ii) the impact of the matters described in the
preceding clause upon human health or the environment, including those matters
governed by CERCLA, the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution
Act (33 U.S.C. Section 2701 et seq.), the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), the Emergency Planning and Community Right-to-Know
Act (42 U.S.C. Section 11001 et seq.), and the Atomic Energy Act (42 U.S.C.
Section 2011 et seq.), and all state counterpart statutes.
"Environmental Liabilities" has the meaning set forth in Section
------------------------- -------
2.3(a) (Purchaser's Liabilities-Environmental Liabilities).
- ------
"Environmental Permits" has the meaning set forth in Section 3.15(a)
--------------------- ---------------
(Environmental Matters).
"ERISA" means the Employee Retirement Income Security Act of 1974 (29
-----
U.S.C. (S) 1001 et seq.).
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) which would be considered a single employer with ComEd pursuant to
Section 414(b), (c), (m) or (o) of the Code and the regulations promulgated
under those sections or pursuant to Section 4001(b) of ERISA and the regulations
promulgated thereunder.
"Event of Loss" has the meaning set forth in Section 5.16(a) (Casualty
------------- ---------------
Estimate).
"Excluded Assets" has the meaning set forth in Section 2.2 (Excluded
-------------- -----------
Assets).
"Excluded Liabilities" has the meaning set forth in Section 2.4
-------------------- -----------
(Excluded Liabilities).
"Facilities" means, collectively, the land described on Schedule
---------- --------
2.1(a) (Transferred Land), the Transferred Improvements and the tangible
- ------
personal property described in Section 2.1(d) (Transfer of Assets--Personal
--------------
Property), but, for the avoidance of doubt, excluding the Excluded Assets.
"Facilities Agreements" means, for each Site (with Joliet #9 and
---------------------
Joliet #29, for this purpose, being treated as separate Sites), a Facilities,
Interconnection and Easement Agreement (Stations), a Facilities, Interconnection
and Easement Agreements (Peaking Sites) or the Facilities, Interconnection and
Easement Agreement (Sabrooke Peaking Site), as applicable, in the forms of
Exhibit C- 1, C-2 and C-3, respectively, together with the Exhibits relating to
- ------------ --- ---
the applicable Site.
"FERC" means the Federal Energy Regulatory Commission.
----
"Fuels Inventory" has the meaning set forth in Section 2.6(b)
--------------- --------------
(Purchase Price--Inventory Adjustment).
- 6 -
<PAGE>
"Governmental Authority" means any foreign, federal, state, local or
-----------------------
other governmental authority or regulatory agency, commission, department, or
other governmental subdivision, court, tribunal or body, but excluding
Purchaser and any subsequent owner of the Facilities (if otherwise a
Governmental Authority under this definition).
"Grant Deeds" means the quitclaim deeds in the forms attached to
-----------
Exhibit D, except that, with respect to the portion of the Transferred Real
---------
Property located at the Collins Station Site which is owned by a land trust,
the term "Grant Deed" shall mean the standard form of trustee's deed of the
trustee of such land trust.
"Hazardous Substances" means any chemical, material or substance that
--------------------
is listed or regulated under applicable Environmental Laws as a "hazardous" or
"toxic" substance or waste, or as a "contaminant," or is otherwise listed or
regulated, or for which liability or standards of care are imposed under
applicable Environmental Laws, including, for purposes of this Agreement, coal
combustion byproducts, petroleum products, asbestos, polychlorinated biphenyls
and similar substances and materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976.
"IBEW" means the International Brotherhood of Electrical Workers.
----
"ICC" means the Illinois Commerce Commission.
---
"Illinois Authority" means (i) a final, non-appealable order of the
------------------
ICC, approving on terms and conditions acceptable to ComEd in its reasonable
discretion, or (ii) fulfillment of applicable notice requirements which would
permit, absent a decision and order of the ICC, the consummation by ComEd of
the transactions contemplated hereby and ComEd's proposed accounting treatment
of the sale; provided, however, that ComEd shall not be required to accept an
order which would cause a material adverse effect on the economic benefit that
ComEd derives from the transaction or materially restricts ComEd's use of the
proceeds from the transaction.
"Indemnifiable Claim" has the meaning set forth in Section 6.7
------------------ -----------
(Mitigation and Limitation on Claims).
"Indemnitee" has the meaning set forth in Section 6.4 (Notice of
---------- -----------
Claim).
"Indemnitor" has the meaning set forth in Section 6.4 (Notice of
---------- -----------
Claim).
"Instrument of Assumption" means the Instrument of Assumption in the
------------------------
form of Exhibit E.
---------
"Investment Banker" means Merrill Lynch & Co.
-----------------
"Key Choices Program" has the meaning set forth in Section 5.5(b)
------------------- --------------
(Employee Benefits Matters Employee Benefit Plans).
- 7 -
<PAGE>
"Knowledge" or similar phrases in this Agreement means: (i) in the
----------
case of ComEd, the actual knowledge of the ComEd officers and employees listed
in Schedule 1.1 (ComEd Officers and Employees) at the date to which the
------------
representation, warranty or covenant refers, and (ii) in the case of Purchaser,
the actual knowledge of the Purchaser's officers and employees listed in
Schedule 1.2 (Purchaser Officers and Employees) at the date to which the
- ------------
representation, warranty or covenant refers.
"Land Trust" has the meaning set forth in Section 2.7 (Certain
---------- -----------
Provisions With Respect to Switchyard Property).
"Land Trust Property" has the meaning set forth in Section 2.7
---------- -------- -----------
(Certain Provisions With Respect to Switchyard Property).
"Land Trustee" has the meaning set forth in Section 2.7 (Certain
------------ -----------
Provisions With Respect to Switchyard Property).
"Material Adverse Effect" means any change or effect that is
-----------------------
materially adverse to the operation or condition of the Assets, taken as a
whole, other than (i) any change or effect resulting from changes in the
international, national, regional or local wholesale or retail markets for
electric power, (ii) any change or effect resulting from changes in the
international, national, regional or local markets for any fuel used at the
Facilities, (iii) any change or effect resulting from changes in the North
American, national, regional or local electric transmission systems, (iv) any
Change of Law and (v) any materially adverse change in or effect on the Assets
which is cured (including by the payment of money) before the Termination Date.
"Mortgage" means the Mortgage dated July 1, 1923, as amended and
--------
supplemented, between ComEd and the Trustee named therein.
"Necessary Capital Expenditure" means any Capital Expenditure that, in
-----------------------------
the exercise of Prudent Utility Practices, is reasonably necessary for the
continued operation or maintenance of the Facilities or any of the other Assets
or is required by applicable law (except for any Remediation required by
applicable Environmental Laws), in each case as determined by ComEd in its
reasonable discretion. "Necessary Capital Expenditure" does not include any
Capital Expenditure undertaken primarily to increase the efficiency of, expand
or repower the Facilities.
"1997 Act" means Illinois Public Act 90-561.
--------
"Notice of Claim" has the meaning set forth in Section 6.4 (Notice of
--------------- -----------
Claim).
"Off-Site Disposal Location" means any third party off-site disposal
---------------------------
location utilized by ComEd in the normal course of business prior to the Closing
for the treatment, disposal, storage, discharge or recycling of Hazardous
Substances or other materials generated by the Facilities; but, for the
avoidance of doubt, shall not include any disposal site located on or beneath
the Transferred Real Property or on or beneath other real property subject to an
Assigned Lease.
- 8 -
<PAGE>
"Options Program" has the meaning set forth in Section 5.5(b)
---------------- --------------
(Employee Benefits Matters--Employee Benefit Plans).
"Other Inventories" has the meaning set forth in Section 2.6(b)
----------------- --------------
(Purchase Price--Inventory Adjustment).
"Party" means either ComEd or Purchaser, as the context requires;
-----
"Parties" means, collectively, ComEd and Purchaser.
"Patent Rights" means all patents (including "Method of Gas Blanketing
-------------
a Boiler" (Patent No. 5,050,540), "Apparatus and Method of Removing Microfouling
from the Waterside of a Heat Exchanger" (Patent No. 5,558,157), "Refractory
Block Slag Dam" (Patent No. 5,800,775) and "Replacement of Cam-Operated Control
Board Switches" (Patent No. 4,916,628)) owned by ComEd or in which ComEd holds
any right, license or interest.
"PBGC" has the meaning set forth in Section 3.13(b) (ERISA; Benefit
---- ---------------
Plans).
"Permitted Encumbrances" means, collectively: (i) liens, charges,
----------------------
encumbrances and exceptions for taxes and other governmental charges and
assessments (including special assessments) that are not yet due and payable;
(ii) other liens, charges, encumbrances or title exceptions or imperfections
with respect to any of the Assets that do not materially detract from the value
of or materially impair the existing use of the Assets affected by such lien,
charge, encumbrance or title exception or imperfection, expressly excluding any
monetary liens or encumbrances (other than income tax liens, judgments, fines or
penalties (other than mortgages), which ComEd shall remove at or before
Closing); (iii) all leases, licenses and occupancy and/or use agreements
affecting the Assets (or any portion thereof) (including those leases, licenses
and occupancy and/or use agreements that constitute an Assigned Lease or an
Assigned Contract) whether or not recorded against the Transferred Real
Property; (iv) all matters and exceptions set forth in the Preliminary Title
Reports; (v) liens, charges, encumbrances or title exceptions or imperfections
with respect to the Assets created by or resulting from the acts or omissions of
Purchaser or any of its Affiliates, employees, officers, directors, agents,
representatives, contractors, invitees or licenses; (vi) liens, charges,
encumbrances and/or title exceptions or imperfections created by any of the
documents to be executed in connection with the Closing or this Agreement
(including any reservations, easements, restrictions, covenants and other
matters set forth in the Grant Deeds) whether prior to, at or after the Closing;
(vii) all matters shown on or referenced in the Surveys; (viii) encumbrances,
liens, charges or title exceptions or imperfections created or arising out of
any subdivision, reparcelization, lot line adjustment or other action
contemplated by Section 2.7 (Certain Provisions With Respect to Switchyard
-----------
Property); (ix) local, county, state and federal laws, ordinances or
governmental regulations, including building and zoning laws, ordinances and
regulations now or hereafter in effect relating to the Assets; (x) any and all
service contracts and agreements affecting the Assets as of the date hereof
(including the Assigned Contracts and the Assigned Leases), and any and all
service contracts and agreements entered into after the Effective Date in
accordance with the provisions of this Agreement, in each case, to the extent in
effect as of the Closing; (xi) violations of laws, regulations, ordinances,
orders or requirements, if any, arising out of any Change of Law; and (xii) all
matters disclosed in or ascertainable from the materials, documents and reports
included in the
- 9 -
<PAGE>
Data Room. Notwithstanding the foregoing, for purposes of this Agreement, the
lien of the Mortgage shall not be a Permitted Encumbrance.
"Person" means an individual, partnership, joint venture, corporation,
------
limited liability company, trust, association or unincorporated organization, or
any Governmental Authority.
"Power Purchase Agreements" means the Power Purchase Agreement
-------------------------
(Stations), the Power Purchase Agreement (Peaking Units) and the Power Purchase
Agreement (Collins) in the forms of Exhibit F-l, F-2 and F-3, respectively.
----------- --- ---
"Pre-Approved Capital Expenditure" has the meaning set forth in
--------------------------------
Section 5.13 (Capital Expenditures Prior to Closing).
- ------------
"Pre-Closing Remediation Expenditure" shall mean expenditures by ComEd
after the Effective Date and prior to the Closing Date relating to Remediation
of an Environmental Condition to the extent required by a Governmental Authority
or pursuant to the Environmental Laws to be incurred by ComEd prior to the
Closing Date.
"Preliminary Title Reports" means the preliminary title reports issued
-------------------------
by the Title Company as attached to Exhibit G.
---------
"Proprietary Information" has the meaning set forth in the
-----------------------
Confidentiality Agreement.
"Prudent Utility Practices" means any of the practices, methods and
-------------------------
acts engaged in or approved by a significant portion of the electric utility
industry in the United States of America during the relevant time period, or any
of the practices, methods or acts which, in the exercise of reasonable judgment
in light of the facts known at the time the decision was made, could have been
expected to accomplish the desired result at a reasonable cost consistent with
good business practices, reliability, safety and expedition. "Prudent Utility
Practices" is not intended to be limited to the optimum practice, method or act
to the exclusion of all others, but rather to be acceptable practices, methods
or acts generally accepted in the electric utility industry in the United Stated
of America.
"Purchase Price" means the sum of (i) Four Billion Eight Hundred
--------------
Thirteen Million One Hundred Twenty-One Thousand Dollars ($4,813,121,000) for
the Assets at Crawford Generating Station, Fisk Generating Station, Waukegan
Generating Station, Will County Generating Station, Joliet Generating Station,
Powerton Generating Station and Collins Generating Station, together with.the
Assets at the Off-Site Calumet, Bloom, Electric Junction, Lombard and Sabrooke
Peaking Sites and (ii) the amounts called for by Section 5.13 (Capital
------------
Expenditures Prior to Closing), as such sum is adjusted pursuant to Section
-------
2.6(b) (Purchase Price Inventory Adjustment). The Parties acknowledge that
- ------
Purchaser has satisfied its Competitive Transition Charge (as defined in the
1997 Act) obligations with respect to the Facilities by prepayment, which is
included in the Purchase Price.
- 10 -
<PAGE>
"Purchaser" has the meaning set forth in the introductory paragraph of
---------
this Agreement.
"Purchaser Claims" has the meaning set forth in Section 6.2(a)
---------------- --------------
(Indemnification by ComEd--Purchaser Claims).
"Purchaser Group" has the meaning set forth in Section 6.2(a)
--------------- --------------
(Indemnification by ComEd--Purchaser Claims).
"Purchaser Title Policy" has the meaning set forth in Section 7.6
---------------------- -----------
(Purchaser Title Policy).
"Purchaser's 401(k) Plan" has the meaning set forth in Section 5.5(b)
----------------------- --------------
(Employee Benefits Matters--Employee Benefit Plans).
"Purchaser's Liabilities" has the meaning set forth in Section 2.3
----------------------- -----------
(Purchaser's Liabilities).
"Related Agreements" means the Agency Agreement, Bill of Sale and
------------------
Instrument of Assignment, the Confidentiality Agreement, the Easement
Agreements, the Facilities Agreements, the Grant Deeds, the Instrument of
Assumption, the Power Purchase Agreements and the Reproration Agreements.
"Remediation" means any or all of the following activities to the
-----------
extent they relate to or arise from the presence of an Environmental Condition
and are required to be addressed either as a requirement of Environmental Laws
or as a result of a claim or demand of a Third Party or Governmental Authority:
(i) monitoring, investigation, cleanup, containment, remediation, removal,
mitigation, response or restoration work required by Environmental Laws, (ii)
obtaining any permits, consents, approvals or authorizations of any Governmental
Authority necessary to conduct any such work, (iii) preparing and implementing
any plans or studies for such work, (iv) where required or desired, obtaining a
written notice from a Governmental Authority with jurisdiction over the Assets
or any portion thereof under Environmental Laws that no material additional work
is required by such Governmental Authority and (v) any other activities
reasonably necessary or appropriate or required under Environmental Laws to
address or mitigate such Environmental Condition. In the case of ComEd,
Remediation shall mean all of the foregoing to the extent related to a
Transmission Environmental Condition. Remediation shall be understood to
encompass cost effective, risk-based remedies, to the extent permitted under
applicable Environmental Laws, including the use of engineering and
institutional controls, such as deed restrictions, reflecting the industrial
nature of the Assets and the Transmission Excluded Assets.
"Reproration Agreement" has the meaning set forth in Section 5.7(a)(i)
--------------------- -----------------
(Taxes, Prorations and Closing Costs--Taxes).
"Required Consents" means all authorizations, consents, licenses,
------------------
permits, notices and approvals necessary or appropriate to consummate the
transactions contemplated hereby.
- 11 -
<PAGE>
"Requirements of Laws" means any foreign, federal, state, county or
--------------------
local laws. statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Authority.
"Section 125 Plans" has the meaning set forth in Section 5.5(b)
----------------- --------------
(Employee Benefits Matters--Employee Benefit Plans).
"Sites" means the generating facilities known as Crawford Station,
-----
Fisk Station, Waukegan Station, Will County Station, Joliet Station, Powerton
Station and Collins Station and the off-site combustion turbine generating units
known as the Calumet, Bloom, Electric Junction, Lombard and Sabrooke Peaking
Units, and all associated improvements, equipment, personal property, fixtures
and real property and including both the Assets and the Excluded Assets.
"Spare Parts" means the spare parts and supplies identified on
-----------
Schedule 2.1(d) (Personal Property) and all other spare parts and supplies, if
- ---------------
any, on the Transferred Real Property or at ComEd's central warehouse location
on the Closing Date to the extent such have ordinarily been allocated to the
operation or maintenance of the generation business at the Transferred Real
Property (all of which will be included in the calculation set forth in Section
-------
2.6(b) (Purchase Price--Inventory Adjustment)), but, for the avoidance of doubt,
- ------
excluding any of the foregoing which constitute Excluded Assets.
"Surveys" means, collectively, the following plats of survey:
-------
(i) for the Crawford Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 7 sheets;
(ii) for the Fisk Station Site, (x) a Plat of Survey of a portion of
said Site identifying a portion of the Transferred Real Property and the
Switchyard Property thereat, last revised February 19, 1999, prepared by SDI
Consultants Ltd., consisting of 6 sheets, and (y) a Plat of Survey of
Sampsons Canal identifying the remainder of the Transferred Real Property
thereat, last revised February 19, 1999, prepared by Chicago Guarantee
Survey Company, consisting of 1 sheet;
(iii) for the Waukegan Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 6 sheets;
(iv) for the Will County Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 6 sheets;
(v) for the Calumet Off-Site Peaking Site, a Plat of Survey identifying
the Transferred Real Property and a portion of the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 1 sheet;
- 12 -
<PAGE>
(vi) for the Joliet Station #9 Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 11 sheets,
(vii) for the Joliet Station #29 Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 12 sheets;
(viii) for the Powerton Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 15, 1999, prepared by Maurer Stutz, Inc.
consisting of 12 sheets;
(ix) for the Collins Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 21 sheets;
(x) for the Bloom Off-Site Peaking Site, a Plat of Survey
identifying the Transferred Real Property and a portion of the Switchyard
Property thereat, last revised February 19, 1999, prepared by SDI
Consultants Ltd., consisting of 2 sheets;
(xi) for the Sabrooke Off-Site Peaking Site, a Plat of Survey
identifying the Transferred Real Property and a portion of the Switchyard
Property thereat, last revised February 19, 1999, prepared by SDI
Consultants Ltd., consisting of 4 sheets;
(xii) for the Lombard Off-Site Peaking Site, a Plat of Survey
identifying the Transferred Real Property and a portion of the Switchyard
Property thereat, last revised February 19, 1999, prepared by SDI
Consultants Ltd., consisting of 1 sheet; and
(xiii) for the Electric Junction Off-Site Peaking Units Site, a Plat
of Survey identifying the Transferred Real Property and a portion of the
Switchyard Property thereat, last revised February 19, 1999, prepared by
SDI Consultants Ltd., consisting of 3 sheets.
"Switchyard Property" has the meaning set forth in Section 2.7
-------------------- -----------
(Certain Provisions With Respect to Switchyard Property).
"Tannery Site" has the meaning set forth in Section 2.4(k) (Excluded
------------ --------------
Liabilities).
"Tax" means any federal, state, local or foreign income, gross
---
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
utilities, fixtures or improvements (including assessments, fees or other
charges based on the use, occupancy or ownership of real property), personal
property, sales, use, transfer, registration, value added,
- 13 -
<PAGE>
alternative or add-on minimum, estimated tax, retirement, railroad or other tax
of any kind whatsoever, including any interest, penalty or addition thereto,
whether disputed or not, including any item for which liability arises as a
transferee or successor-in-interest.
"Tax Claim" has the meaning set forth in Section 5.7(a) (Taxes,
--------- --------------
Prorations and Closing Costs-Taxes).
"Tax Return" means any return, report or similar statement required to
----------
be filed with respect to any Taxes (including any attached schedules), including
any information return, claim for refund, amended return and declaration of
estimated Tax.
"Termination Date" has the meaning set forth in Section 10.1(e)
---------------- ---------------
(Rights to Terminate).
"Third Party Claim" means a claim by a Person that is not a member of
-----------------
the ComEd Group or the Purchaser Group, as the case may be.
"Title Company" means Chicago Title Insurance Company.
-------------
"Transferred Employees" has the meaning set forth in Section 5.5(a)
--------------------- --------------
(Employee Benefits Matters--ComEd Transferred Employees).
"Transferred Improvements" has the meaning set forth in Section 2.1(b)
------------------------ --------------
(Transfer of Assets--Improvements, Buildings, Structures and Fixtures).
"Transferred Land" has the meaning set forth in Section 2.1(a)
---------------- --------------
(Transfer of Assets--Real Property Rights).
"Transferred Non-Supervisory Employees" has the meaning set forth in
--------------------------------------
Section 5.5(a) (Employee Benefits Matter--ComEd Transferred Employees).
- --------------
"Transferred Real Property" has the meaning set forth in Section
------------------------- -------
2.1(b) (Transfer of Assets--Improvements, Buildings, Structures and Fixtures).
- ------
"Transmission Environmental Conditions" means Hazardous Substances in
-------------------------------------
the soil, sediment, surface water or groundwater at the Transferred Real
Property caused by or arising from ComEd's use or operation of the Transmission
Excluded Assets after the Closing.
"Transmission Excluded Assets" has the meaning set forth in Section
---------------------------- -------
2.2 (Excluded Assets).
- ---
"WARN ACT" means the Worker Adjustment and Retraining Notification Act
--------
(29 U.S.C. (S) 2101 et. seq.).
"Year 2000 Ready" has the meaning set forth in Section 7.10 (Year 2000 Status).
--------------- ------------
- 14 -
<PAGE>
1.2 Interpretation. In this Agreement, unless a clear contrary
--------------
intention appears
(a) the singular includes the plural and vice versa;
(b) reference to any Person includes such Person's successors and
assigns but, in the case of a Party, only if such successors and assigns
are permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity;
(c) reference to any gender includes each other gender;
(d) reference to any agreement (including this Agreement), document or
instrument means such agreement, document or instrument as amended or
modified and in effect from time to time in accordance with the terms
thereof and, to the extent applicable, the terms hereof;
(e) reference to any Article, Section, Schedule or Exhibit means such
Article, Section, Schedule or Exhibit to this Agreement, and references in
any Article, Section, Schedule, Exhibit or definition to any clause means
such clause of such Article, Section, Schedule, Exhibit or definition;
(f) "hereunder," "hereof," "hereto," "herein" and words of similar
import are references to this Agreement as a whole and not to any
particular Section or other provision hereof;
(g) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term;
(h) relative to the determination of any period of time, "from" means
"from and including," "to" means "to but excluding" and "through" means
"through and including;"
(i) reference to any law (including statutes and ordinances) means
such law as amended, modified, codified or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder; and
(j) the capitalized terms in Section 7.9 (Facility Performance) not
-----------
otherwise defined herein have the meanings set forth in the Power Purchase
Agreements.
1.3 Captions. The captions of the various Articles, Sections, Exhibits
--------
and Schedules of this Agreement have been inserted only for convenience of
reference and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
- 15 -
<PAGE>
1.4 No Joint Venture. Nothing contained in this Agreement creates or
----------------
is intended to create an association, trust, partnership or joint venture or
impose a trust or partnership duty, obligation or liability on or with regard to
either Party. Neither Party shall be empowered, except as expressly stated
herein, to act as the other Party's agent or to represent to any third party
that it has the ability to bind the other Party, without the express permission
of the Party to be bound.
1.5 Construction of Agreement. This Agreement was negotiated by the
-------------------------
Parties with the benefit of legal representation and any rule of construction or
interpretation otherwise requiring this Agreement to be construed or interpreted
against any Party shall not apply to any construction or interpretation hereof.
ARTICLE 2
---------
PURCHASE AND SALE OF ASSETS
---------------------------
2.1 Transfer of Assets. Subject to the Permitted Encumbrances and the
------------------
terms and conditions of this Agreement, including Section 2.2 (Excluded Assets),
-----------
the Facilities Agreements, the Easement Agreements and reservations in the Grant
Deeds, ComEd will sell, convey, assign, transfer and deliver to Purchaser and
Purchaser will purchase, assume and acquire from ComEd, all of ComEd's right,
title and interest in and to the following assets (collectively, "Assets") on
the Closing Date:
(a) Real Property Rights. Each parcel of real property (identified as
--------------------
the "Sale Tract") described or depicted in Schedule 2.1(a) (Transferred Land)
--------------
(the "Transferred Land").
(b) Improvements, Buildings, Structures and Fixtures. The
------------------------------------------------
improvements, buildings, structures and fixtures that are located on the
Transferred Land or any portion thereof, including the cooling towers being
built for the Joliet Station to the extent completed on the Closing Date
(collectively, the "Transferred Improvements" and, together with the
Transferred Land, the "Transferred Real Property").
(c) Permits, Licenses, Etc. The governmental authorizations, consents,
----------------------
approvals, permits, licenses, orders, exceptions, exemptions or allowances,
including applications for any of the foregoing, described in Schedule
--------
2.1(c) (Specific Permits, Licenses and Variances), to the extent
------
transferable.
(d) Personal Property. The machinery, equipment, vehicles, tools,
-----------------
furniture and other tangible personal property of ComEd which is located on
or in transit to the Transferred Real Property on the Closing Date and used
primarily in connection with the Transferred Real Property or otherwise
described in Schedule 2.1(d) (Personal Property), including (1) the
---------------
equipment, facilities and other items identified on such Schedule as being
located at the Switchyard Property and (2) all inventories of fuel and
Spare Parts to the extent such are located on the
- 16 -
<PAGE>
Transferred Real Property or have ordinarily been allocated to the
operation or maintenance of the Transferred Real Property (all of which
fuels and Spare Parts will be included in the calculation set forth in
Section 2.6(b) (Purchase Price Inventory Adjustment)).
--------------
(e) Other Assets (1) The leases and licenses of personal property or
------------
real property listed on Schedule 2.1(e)(1) (Assigned Leases and Licenses)
------------------
(collectively, "Assigned Leases"); (2) the fuel supply and transportation
contracts and agreements listed on Schedule 2.1(e)(2) (Assigned Fuel
------------------
Contracts) (collectively, "Assigned Fuel Contracts"); (3) the other
contracts and agreements listed on Schedule 2.1(e)(3) (collectively,
------------------
"Assigned Other Contracts"); and (4) the causes of action of ComEd listed
on Schedule 2.1(e)(4) (Causes of Action) (collectively, "Causes of
------------------
Action").
(f) S0\2\ Trading Allowances. Future SO\2\, trading allowances, to the
------------------------
extent owned by ComEd as of the date hereof and transferrable, in the
quantities set forth in Schedule 2.1(f) (SO\2\, Trading Allowances)
--------------
relating to the Facilities.
(g) NOx Trading Allowances. Future NOx trading allowances, to the
----------------------
extent owned by ComEd as of the date hereof and transferable, in the
quantities allocable to the Facilities upon finalization of the
Environmental Laws authorizing allocations, purchases and sales of NOx
allowances.
(h) VOM Trading Allowances. Future VOM trading allowances, to the
----------------------
extent owned by ComEd as of the date hereof and transferable, in the
quantities allocable to the Facilities upon implementation of any
Environmental Laws authorizing allocation, purchases and sales of VOM
allowances.
(i) Records. The books, records, documents, drawings, reports,
-------
operating data and similar items of ComEd relating directly and
specifically to the aforementioned assets.
2.2 Excluded Assets. Notwithstanding anything to the contrary
---------------
contained herein, nothing in this Agreement will constitute or be construed as
conferring on Purchaser, and Purchaser is not acquiring, any right, title or
interest in or to the following, all of the following being specifically
excluded from the sale of assets contemplated by this Agreement (collectively,
the "Excluded Assets"): (a) the land (including any land identified as the
"Retained Tract" in Schedule 2.1(a) (Transferred Land)) owned by ComEd which is
---------------
shown on the Surveys as being located outside of the "Sale Tract," together with
all real and personal property and improvements thereon (including those
constituting the switchyard and associated relays, cabling and batteries) and
the equipment and facilities described in Schedule 2.2(a) (Switchyard Property),
--------------
(b) the transmission, distribution and communication towers, poles, lines,
cables, conduit, facilities and related support equipment and other items
described in Schedule 2.2(b)(Transmission Excluded Assets) (collectively with
--------------
the Switchyard Property, the "Transmission Excluded Assets"), including any and
all related operating, instruction and/or maintenance manuals, leaflets, records
or other documents related to the foregoing, (c) the assets (including
contracts) listed or described on Schedule 2.2(c) (Other Excluded Assets), (d)
--------------
the
- 17 -
<PAGE>
ComEd Marks, the Patent Rights, the ComEd Software and any other software used
at the Facilities, (e) any assets of the ComEd Pension Plan, the Commonwealth
Edison Employees' Benefit Trust, the Commonwealth Edison Employees' Benefit
Trust for Management Employees or the Commonwealth Edison Employees' Benefit
Trust for Union Employees, (f) any causes of action against a third Person
relating to the period prior to the Closing Date, (g) any properties, assets,
business, operation, subsidiary or division of ComEd or any Affiliate of ComEd,
whether tangible or intangible, real, personal or mixed, not set forth in
Section 2.1 (Transfer of Assets), including any cash or working capital of
- -----------
ComEd, even if the working capital or cash relates to the Facilities, and all
accounting or general ledger records of ComEd, (h) all records and files
relating to ComEd employees, (i) any communications between ComEd and its
counsel, including attorney-client privileged or work product material and (j)
any abatement or refund of any Tax for which ComEd is liable pursuant to Section
-------
5.7 (Taxes, Prorations and Closing Costs).
- ---
2.3 Purchaser's Liabilities. On the Closing Date, Purchaser will
-----------------------
assume and be responsible and liable for (i) all obligations and liabilities
related to, arising from or associated with ownership, occupancy, use or
operation of the Assets from and after the Closing (other than Excluded
Liabilities) and (ii) the following obligations and liabilities (collectively,
"Purchaser's Liabilities"):
(a) Environmental Liabilities. Subject to and except for ComEd's
-------------------------
obligations pursuant to Section 2.4(d), Section 2.4(e) and Section 5.9(b)
-------------- -------------- --------------
(Environmental Matters--ComEd's Responsibilities): (i) responsibility for
compliance and liability for any non-compliance by the Assets with
Environmental Laws (including fines, penalties and costs to correct); (ii)
all Environmental Conditions and Remediation thereof; (iii) responsibility
and liability for all Hazardous Substances, and Remediation thereof, present
in, on or incorporated into the improvements, buildings, structures,
fixtures or equipment which constitute the Assets or which are otherwise
located on or have migrated from the Transferred Real Property, including
responsibility and liability for: (1) bodily injury to any Person or damages
to any property or natural resources to the extent arising from exposure to
or release of such Hazardous Substances and Remediation thereof and (2) any
Hazardous Substances present in, on, under or about, or incorporated into
any drums, equipment or debris that were discarded or abandoned and buried
in the ground at the Transferred Real Property or any portion thereof; (iv)
liability arising from the ownership, possession, use or operation of
equipment, fixtures, structures, surface impoundments or any other
improvement at the Transferred Real Property, or at owned or leased adjacent
properties, used for the treatment, storage, handling or disposal of
Hazardous Substances; and (v) any obligation to decommission, deactivate,
dismantle, demolish or close the Facilities or any portion thereof, or any
surface impoundments or other waste or effluent handling or storage units on
owned or leased adjacent properties used in connection with the operation of
the Facilities and, in the case of any of subsections (i) through (v) above,
whether occurring, existing or arising on, before or after the Closing
(collectively, "Environmental Liabilities").
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<PAGE>
(b) Compliance Liabilities. Obligations to comply with, and all
----------------------
liabilities connected with or arising out of, the permits, licenses,
exemptions, allowances, approvals and other items (including applications)
listed in Schedule 2.1(c) (Specific Permits, Licenses and Variances) and
---------------
other permits, licenses, exemptions, allowances and approvals obtained or
required in connection with the Assets, including the obligations and
liabilities arising from or related to emission and discharge allowances,
any zoning, land use, building, construction, demolition, setback and
subdivision permits, licenses, approvals and authorizations, and the
obligation to cure any violation or default under any of the foregoing and
pay any resultant penalties, irrespective of whether such violation or
default arose or occurred prior to the Closing Date.
(c) Permit Renewals. Obligations and liabilities under any amendments,
---------------
modifications, extensions or renewals of any existing permits, variances,
certificates, licenses, consents, authorizations and approvals relating to
the Assets.
(d) Assigned Liabilities. Obligations and liabilities under the
--------------------
Assigned Leases and the Assigned Contracts relating to the period from and
after the Closing Date.
(e) Employment Laws. Obligations and liabilities under the Employment
---------------
Laws to Transferred Employees arising or relating to the period from and
after the Closing Date.
(f) Other Specified Liabilities. All other obligations and liabilities
---------------------------
allocated to Purchaser in this Agreement.
2.4 Excluded Liabilities. Purchaser shall not assume or be obligated
--------------------
to pay, perform or otherwise discharge the following excluded obligations and
liabilities (collectively, the "Excluded Liabilities"):
(a) Obligations and liabilities of ComEd in respect of any Excluded
Assets or other assets of ComEd which are not Assets (other than
obligations or liabilities relating to Environmental Liabilities or
described in any subsection below);
(b) Obligations and liabilities of ComEd under any of the Assigned
Leases or Assigned Contracts relating to the period prior to the Closing
Date (other than obligations or liabilities relating to Environmental
Liabilities);
(c) Obligations and liabilities for personal injury or property loss
or damages (but only to the extent the alleged personal injury or property
loss or damage occurred before the Closing Date) resulting from or arising
out of the ownership or operation of the Assets by ComEd prior to the
Closing Date (other than obligations or liabilities relating to
Environmental Liabilities or described in subsection (d) below);
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<PAGE>
(d) Obligations and liabilities resulting from or arising out of any
Transmission Environmental Conditions, except to the extent that the obligation
or liability is for or based upon personal injury or property damage that
resulted from any Person (other than any member of the ComEd Group) taking an
action on or after the Closing Date (including any disruption of the soil or
groundwater or changes in the use of the Sites or any portion thereof that could
enhance the risks of human exposure to Hazardous Substances) that increased the
risk that such liability or obligation would arise, unless such action was
required by Environmental Laws;
(e) Obligations and liabilities resulting from or arising out of any
arrangement by ComEd for the treatment or disposal of any Hazardous Substance
generated by the operation of the Facilities at any Off-Site Disposal Location,
to the extent such treatment or disposal occurred prior to the Closing Date;
provided that, for any obligation or liability related to an Off-Site Disposal
Location that was used by ComEd prior to Closing and by Purchaser on and after
the Closing, this Excluded Liability shall include only that portion of any
resulting liability that is attributable to ComEd's pre-Closing use of such Off-
Site Disposal Location;
(f) Any fines or penalties imposed by a Governmental Authority to the
extent resulting from acts or omissions of ComEd prior to the Closing Date
(other than relating to Environmental Liabilities);
(g) Except as provided in Section 5.7 (Taxes, Prorations and Closing Costs)
-----------
and Section 5.13 (Capital Expenditures Prior to Closing), any payment
------------
obligations of ComEd for goods delivered or services rendered prior to the
Closing Date, including rental payments pursuant to the Assigned Leases;
(h) Except as provided in Section 5.5 (Employee Benefits Matters), any
-----------
obligations and liabilities relating to any Benefit Plan, including any
liability (i) under Title IV of ERISA, (ii) relating to a multi-employer plan,
(iii) with respect to the continuation coverage requirements of COBRA, (iv) with
respect to any noncompliance with ERISA, the Code or any other applicable laws,
or (v) with respect to any suit, proceeding or claim which is brought regarding
any Benefit Plan or any fiduciary or former fiduciary of any such Benefit Plan;
(i) Obligations and liabilities relating to the employment or termination
of employment of ComEd employees, including discrimination, wrongful discharge
or unfair labor practices by ComEd of any individual, in each case arising or
accruing prior to the Closing Date regardless of when asserted;
(j) Obligations and liabilities, whether known or unknown, resulting from
or arising out of any release of Hazardous Substances associated with or
migrating from any former manufactured gas plant of ComEd located on property
other than Transferred Land; and
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<PAGE>
(k) Obligations and liabilities resulting from or arising out of the
release of Hazardous Substances at the former Greiss-Pfleger Tannery
located on property adjacent to the Waukegan Station Site ("Tannery Site"),
including the migration of such Hazardous Substances on or beneath any
Transferred Land, except to the extent such obligation or liability results
from the action of any Person (other than a member of the ComEd Group) on
or after the Closing Date (including any disruption of the soil or
groundwater or changes in use of the Waukegan Station Site or any portion
thereof that could enhance the risk of human exposure to the Hazardous
Substances) that increases the risk that such obligations or liability
would arise, unless such action was required by Environmental Laws.
2.5 Closing. The closing of the sale of the Assets to, and the
-------
acceptance of the Purchaser's Liabilities by, Purchaser (the "Closing") shall
take place at the offices of Sidley & Austin, One First National Plaza, Chicago,
Illinois at 9:00 a.m. local time no later than ten (10) Business Days following
the date on which the last of the conditions set forth in Article 7 (Conditions
---------
Precedent to Obligations of Purchaser at the Closing) and Article 8 (Conditions
---------
Precedent to Obligations of ComEd at the Closing) have been either satisfied or
waived by the Party for whose benefit such conditions precedent exist, provided
that such date does not occur prior to September 30, 1999, or on such other date
and at such other place as the Parties may mutually agree. Each Party will use
Commercially Reasonable Efforts to cause the Closing to occur as soon as
reasonably possible, but not before September 30, 1999 (unless the Parties
otherwise mutually agree). The date of Closing is referred to herein as the
"Closing Date" and shall be deemed to be effective for all purposes at 12:01
a.m. on the Closing Date. Purchaser will take physical possession of the Assets
at the Closing.
2.6 Purchase Price. (a) Purchase Price and Payment. The consideration
-------------- --------------------------
for the purchase of the Assets is the Purchase Price (which shall be paid by
Purchaser to ComEd at the Closing in U.S. Dollars by wire transfer of
immediately available funds) and the assumption by Purchaser of the Purchaser's
Liabilities. ComEd will designate the account or accounts of ComEd to which the
Purchase Price will be wire transferred. Notwithstanding the foregoing, any
portion of the Purchase Price may, at ComEd's sole election, be separately used
to satisfy any lien, charge, exception or encumbrance affecting the Assets, or
for such other purpose as ComEd may determine, in which event the amount of the
Purchase Price paid to ComEd shall be reduced by any amount so used in the
manner determined by ComEd. Any such separate payments designated by ComEd
shall, at the election of ComEd, be made either via wire transfer of immediately
available funds or by unendorsed certified checks(s) or bank check(s) drawn
directly to the order of the requested payee(s) or accounts designated by ComEd.
(b) Inventor Adjustment. (i) On or promptly following the Closing Date
-------------------
(unless otherwise agreed to by the parties), ComEd shall cause a physical
inventory to be made of the quantities of fuels and Spare Parts located at the
Transferred Real Property or at locations off-site to the extent such fuels and
Spare Parts have ordinarily been allocated to the operation or maintenance of
the generation business at the Transferred Real Property. Purchaser may have its
representatives observe the taking of such physical inventory. Purchaser hereby
agrees that ComEd and its employees, agents, representatives and contractors
shall have the right and license to enter the Facilities after the Closing, from
time to time upon reasonable advance notice, for the purpose of
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<PAGE>
conducting such physical inventory and other purposes incidental thereto. The
right and license granted by Purchaser to ComEd pursuant to the immediately
preceding sentence shall be irrevocable, but shall automatically expire on the
Determination Date. Promptly after the Closing Date, and in any event within
sixty days thereof, ComEd shall prepare and forward to Purchaser, (1) a
valuation of such physical inventory of such fuels located at the Transferred
Real Property, together with the natural gas inventory allocated to the
Facilities, any coal in transit and the handling expenses associated with the
foregoing (collectively, the "Fuels inventory"), using the principles and
---------------
methods set forth in Schedule 2.6(b) (Inventory Valuation Methodologies) and
--------------
(2)a valuation of such physical inventory of the Spare Parts located at the
Transferred Real Property or at ComEd's central warehouse location to the extent
such have ordinarily been allocated to the operation or maintenance of the
generation business at the Transferred Real Property, together with any handling
expenses associated with the foregoing (the "Other Inventories"), using the
-----------------
principles and methods set forth in Schedule 2.6(b) (Inventory Valuation
---------------
Methodologies).
(ii) Purchaser shall have thirty days from its receipt of such
valuation to raise in writing by notice to ComEd any objections it has to the
inclusion or exclusion of items in or from such valuations or that such
valuations were not prepared in accordance with the requirements of this
Section. Any objection so raised shall be referred to, and resolved by,
representatives of Purchaser and ComEd or, if a Party fails to appoint a
representative for such purpose within ten days or such representatives fail to
agree on a resolution within ten days after the expiration of the thirty day
period referenced in the immediately preceding sentence, an independent
accountant selected by the Parties (who shall be provided with the Parties'
respective positions and access to relevant records and instructed to issue a
decision within thirty days of his or her selection). The resolution by the
independent accountant shall be final, conclusive and binding upon the Parties.
The fees and expenses of the independent accountant shall be borne one-half by
Purchaser and one-half by ComEd.
(iii) The term "Closing Date Inventory Amount" means (1) if Purchaser
-----------------------------
has no objections as aforesaid or fails to object to the valuation in writing to
ComEd within the required thirty-day period, the aggregate valuation of the
Fuels Inventory and the Other Inventories as determined by ComEd, or (2) if
Purchaser objects as and when provided in subparagraph (ii) above, such
aggregate valuation as adjusted to reflect the resolution of any such objections
as provided in subparagraph (ii) above and the term "Determination Date" means
------------------
the date on which such Closing Date Inventory Amount is so determined.
(iv) In the event that:
(1) the Closing Date Inventory Amount exceeds Eighty-Three Million
Eight Hundred Eighty-Three Thousand One Hundred Thirty-Six Dollars
($83,883,136), then promptly following the Determination Date, Purchaser
shall pay to ComEd, by wire transfer of funds to an account designated by
ComEd, an amount equal to such excess; or
(2) the Closing Date Inventory Amount is less than Eighty-Three
Million Eight Hundred Eighty-Three Thousand One Hundred Thirty-Six Dollars
($83,883,136), then promptly following the Determination Date, ComEd shall
pay to
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<PAGE>
Purchaser, by wire transfer of funds to an account designated by Purchaser,
an amount equal to such deficiency.
(c) Allocation of Purchase Price. ComEd and Purchaser shall endeavor
----------------------------
to agree upon an allocation of the Purchase Price (including, for purposes of
this Section 2.6(c) (Purchase Price--Allocation of Purchase Price), the
--------------
assumption of the Purchaser's Liabilities) solely among the Assets consistent
with the provisions of 1060 of the Code and the regulations thereunder. Any such
agreed-upon allocation shall be adjusted after the Closing to the extent
necessary to reflect the inventory adjustment contemplated by Section 2.6(b)
--------------
(Purchase Price--Inventory Adjustment). ComEd and Purchaser each agrees to file
Internal Revenue Service Form 8594 and all Tax Returns in accordance with any
such agreed-upon allocation, but if no agreement is reached each shall file its
separate Form 8594 in accordance with its best judgment. ComEd and Purchaser
each agrees to provide the other promptly with any other information required to
complete Form 8594. ComEd and Purchaser shall notify each other and provide each
other reasonable assistance in the event of an examination audit or other
proceeding regarding the allocation agreed to pursuant to this Section 2.6(c)
--------------
(Purchase Price--Allocation of Purchase Price).
2.7 Certain Provisions With Respect to Switchyard Property. (a)
------------------------------------------------------
Purchaser acknowledges and agrees that ComEd intends to retain all of its right,
title and interest in and to the real property portion of the Excluded Assets
(the "Switchyard Property"). If and to the extent deemed necessary by ComEd (in
its reasonable judgment) prior to Closing (and, to the extent necessary, at and
after the Closing), ComEd and, to the extent ComEd requests, Purchaser, will use
Commercially Reasonably Efforts to obtain and/or effectuate all federal, state,
county and local approvals, including subdivision approvals, required such that
the conveyance of the Transferred Real Property and the retention of the
Switchyard Property by ComEd results in the creation, as of the Closing (or such
later date, as applicable), of legally subdivided parcels which comply with all
applicable local, county, state and federal land use, zoning, subdivision,
setback and similar Requirements of Law (including the Illinois Plat Act (765
ILCS 205/1, et. seq.)).
-- ---
(b) Purchaser and ComEd acknowledge and agree that, notwithstanding
anything in this Agreement to the contrary, in the event that the condition set
forth in Schedule 8.2 (Required Governmental Approvals) which relates to the
------------
acquisition of state, county and local zoning, land use and subdivision
approvals with respect to the transfer of the Transferred Real Property and
retention of the Switchyard Property is not satisfied prior to Closing, then
ComEd shall have the right (in addition to, and not in lieu of, ComEd's other
rights under this Agreement with respect to such condition) to possess, use and
occupy the Switchyard Property (or any portion thereof) by means (including by
lease or easement) other than by retention of ownership of fee title to the
Switchyard Property (or any portion thereof) in such a manner as ComEd deems
acceptable to satisfy such condition (an "Alterative Structure"); provided, that
--------
such Alternative Structure shall not materially adversely affect Purchaser or
the economic benefit of the transactions contemplated by this Agreement or the
Related Agreements. In the event that ComEd employs an Alternative Structure,
then (i) ComEd and Purchaser shall reasonably cooperate in making any amendments
required to the Related Agreements necessary to reflect such Alternative
Structure, and (ii) ComEd and Purchaser shall execute and deliver such other
documents and instruments, and take such other action as may be reasonably
required, to effectuate such Alternative Structure. If and when ComEd requests,
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<PAGE>
Purchaser agrees to execute and deliver such documents and instruments, and take
such other action as may be reasonably required, to terminate the Alternative
Structure and to cause ComEd to own in fee simple the Switchyard Property,
subject only to liens and encumbrances (other than the Related, Agreements) that
the Switchyard Property was subject to immediately prior to the Closing, and to
cooperate in making any amendments required to the Related Agreements necessary
to reflect the termination of the Alternative Structure.
(c) Purchaser hereby acknowledges and confirms that:
(i) ComEd may at any time prior to Closing convey all of its right,
title and interest in and to a portion of the Transferred Land applicable to
the Will County Generating Station (any such portion being referred to
herein as the "Land Trust Property") designated on Schedule 2.1(a)
---------------
(Transferred Land) to an Illinois land trust (the "Land Trust") with Chicago
Title Insurance Company, as land trustee (in such capacity, the "Land
Trustee"), with respect to which Land Trust ComEd shall be the owner of both
100% of the beneficial interest and 100% of the power of direction;
(ii) ComEd may at any time prior to Closing obtain an easement from the
Land Trustee (in the form of the Seller Ingress-Egress & Utility Facilities
Agreement attached to Exhibit B or other form reasonably satisfactory to
---------
Purchaser) for the benefit of the Switchyard Property with respect to a
portion of the Land Trust Property for purposes of gaining vehicular and
pedestrian ingress and egress on and over such portion of the Land Trust
Property;
(iii) the easement for ingress and egress described in clause (ii)
above shall constitute a Permitted Encumbrance under this Agreement; and
(iv) the transfer of the Land Trust Property to Purchaser at Closing
may not be effectuated pursuant to the Grant Deed, but rather may be
effectuated (upon and subject to the terms and conditions set forth in this
Agreement) either (at ComEd's sole election):
(A) by transfer of all of the Land Trustee's right, title and
interest in and to the Land Trust Property to Purchaser pursuant to the
Land Trustee's standard form of trustee's deed, or
(B) by assignment by ComEd to Purchaser of 100% of the beneficial
interest and power of direction in the Land Trust pursuant to the Land
Trustee's standard form of assignment of beneficial interest and power
of direction in a land trust;
provided, that, in either case, such transfer shall be subject to terms,
--------
provisions, conditions and reservations substantially similar to those set
forth in the Grant Deed.
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<PAGE>
2.8 ComEd Marks. The names "Commonwealth Edison Company," "Unicom
-----------
Corporation," "ComEd" or "Unicom," the names of predecessor entities to ComEd,
or related or similar trade names, trademarks, service marks or logos
(collectively, the "ComEd Marks") may appear on some of the Assets, including
supplies, materials, stationery and similar consumable items located at the
Transferred Real Property on the Closing Date. The Parties agree that the ComEd
Marks and all rights related thereto are part of the Excluded Assets. Purchaser
shall, within a reasonable time after the written request of ComEd, remove the
ComEd Marks from any Assets; provided, however, that Purchaser need not remove
--------
the ComEd Marks from consumable Assets which will be consumed by Purchaser
within 90 days of the Closing Date. Purchaser agrees never to challenge ComEd's
ownership of the ComEd Marks or any application for registration thereof or any
registration thereof or any rights of ComEd therein. Purchaser will not do any
business or offer any goods or services under the ComEd Marks. Purchaser will
not send, or cause to be sent, any correspondence or other materials to any
Person on any stationery that contains any ComEd Marks or otherwise use the
Assets in any manner which would or might confuse any Person into believing
that Purchaser has any right, title, interest or license to use the ComEd Marks.
2.9 Software License. Purchaser acknowledges and agrees that all computer
----------------
software is part of the Excluded Assets. From and after the Closing Date, ComEd
hereby grants, without representation, warranty, promise or covenant of any kind
or nature, to Purchaser, for consideration in the amount of $1,000 (regardless
of the number of workstations), a fully paid-up, royalty-free, non-exclusive,
perpetual right and license to use (solely in connection with the operation of
the Facilities) the computer software set forth in Schedule 2.9 (Software
------------
License) as it exists on the Closing Date (the "ComEd Software"). Purchaser
acknowledges and agrees that (a) it has no right under such license to, and
agrees that it will not, access ComEd's own computer networks or those of any of
ComEd's Affiliates or use any computer software that is designed to be part of a
networked computer system providing data processing capabilities or services
beyond the Facilities, (b) it will not challenge ComEd's ownership of the ComEd
Software or any application for registration thereof or any registration thereof
or any rights of ComEd therein, (c) it will not cause or permit reverse
compilation or reverse assembly of all or any portion of the ComEd Software and
will not modify or enhance the ComEd Software without the prior written consent
of ComEd (any of such modifications or enhancements being the sole property of
ComEd), (d) Purchaser is not entitled to receive any modifications,
enhancements, updates or revisions to the ComEd Software created by or on behalf
of ComEd, and (e) the ComEd Software constitutes confidential information and is
the valuable, copyrighted and trade secret property of ComEd. Notwithstanding
the foregoing, Purchaser and any successor in interest of Purchaser may sell,
assign or sublicense the Purchaser's license to use the ComEd Software granted
hereby, on the terms of and subject to the license granted hereunder, to any
subsequent owner, lessee or operator of the Facilities, for use solely in
connection with the operation of the Facilities, provided that (i) such
subsequent owner, lessee or operator agrees in writing to be bound by the terms
of this Section 2.9 (Software License), (ii) written notice of the identity and
-----------
address for notices of such subsequent owner, lessee or operator is delivered to
ComEd prior to such sale, assignment or sublicense and (iii) Purchaser remains
primarily liable and responsible for all of its duties, responsibilities and
liabilities set forth in this Section 2.9 (Software License). THE COMED SOFTWARE
-----------
IS PROVIDED ON AN "AS IS, WHERE IS" BASIS WITHOUT WARRANTY OF ANY KIND. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING AND OF SECTION 3.2 (DISCLAIMERS
REGARDING ASSETS), COMED
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<PAGE>
HEREBY DISCLAIMS ANY EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES,
INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE OR FITNESS FOR A
PARTICULAR PURPOSE, AND COMED WILL HAVE NO LIABILITY WITH RESPECT TO ANY
INFRINGEMENT, OR CLAIM OF INFRINGEMENT, OF INTELLECTUAL PROPERTY RIGHTS OF ANY
PERSON AS A RESULT OF THE LICENSE OR USE OF THE COMED SOFTWARE. COMED FURTHER
DISCLAIMS THAT THE OPERATION OF THE SOFTWARE WILL BE ERROR OR BUG-FREE,
OR UNINTERRUPTED.
ARTICLE 3
---------
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF COMED
----------------------------------------------------
Subject to Section 4.6 (Disclosures), ComEd represents, warrants and,
-----------
where specified, disclaims to Purchaser as follows, which representations and
warranties will survive the Closing until the first anniversary of the Closing
Date as provided in Section 6.1 (Survival of the Parties' Representations and
-----------
Warranties):
3.1 Transaction Representations.
---------------------------
(a) Organization and Existence. ComEd is a duly organized and validly
--------------------------
existing corporation in good standing under the laws of the State of Illinois.
ComEd has all requisite corporate power and authority to own and lease its
properties and operate its business as it is now being operated.
(b) Execution, Delivery and Enforceability. ComEd has full corporate
--------------------------------------
power to enter into, and carry out its obligations under, this Agreement and the
Related Agreements to which ComEd is a party. The execution and delivery of this
Agreement and the Related Agreements to which ComEd is a party, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action required on the part of ComEd.
Assuming Purchaser's due authorization, execution and delivery of this Agreement
and the Related Agreements to which Purchaser is a party, and assuming the
receipt of all Required Consents, this Agreement constitutes and, upon execution
and delivery by ComEd, the Related Agreements will constitute, the valid and
legally binding obligations of ComEd, enforceable against ComEd in accordance
with its and their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general application relating to or affecting the enforcement of creditors'
rights and by general equitable principles.
(c) No Violation. Subject to the Parties obtaining or processing (as
------------
applicable) the consents, approvals, permits, licenses, filings and notices
described in Section 3.1(d) (No Consents) and Schedule 3.1(d) (Consents), except
-------------- ---------------
as set forth in Schedule 3.1(c) (Violations), neither the execution and delivery
---------------
of this Agreement or any of the Related Agreements to which ComEd is a party,
nor compliance with any provision hereof or thereof, nor consummation of the
transactions contemplated hereby or thereby will result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give to
others a right of termination, cancellation or acceleration of
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<PAGE>
any obligation or result in the loss of a material benefit under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the Assets under, any provision of (i) the Restated Articles of Incorporation or
Bylaws of ComEd, each as amended, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement (including the Assigned Contracts
and the Assigned Leases), instrument, permit, concession, franchise or license
applicable to ComEd or any of the Assets or (iii) any Requirements of Laws or
any judgment, order or decree applicable to ComEd or the Assets, other than, in
the case of clauses (ii) or (iii), any such violations, defaults, rights, liens,
security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect, materially impair the
ability of ComEd to perform its obligations hereunder or under the Related
Agreements or prevent the consummation by ComEd of any of the transactions
contemplated hereby or thereby.
(d) No Consents. Except as set forth in Schedule 3.1(d) (Consents), no
----------- ---------------
consent or approval of, filing with or notice to any Person is required to be
obtained or made by ComEd in connection with ComEd's execution, delivery and
performance of this Agreement and the Related Agreements to which ComEd is a
party, or the consummation of the transactions contemplated hereby or thereby,
except (i) in connection, or in compliance, with the provisions of the HSR Act,
(ii) in connection, or in compliance, with the provisions of the Illinois Public
Utilities Act and the Federal Power Act, (iii) such consents, approvals, filings
and notices as may be required under any Environmental Laws pertaining to any
notification, disclosure or required approval triggered by ComEd's performance
of its obligations under this Agreement and the Related Agreements to which
ComEd is a party, (iv) such consents, approvals, filings and notices as may be
required in connection with the real property matters contemplated by this
Agreement, (v) such filings as may be required in connection with the Taxes
described in Section 5.7 (Taxes, Prorations and Closing Costs) and (vi) such
-----------
other consents, approvals, filings and notices the failure of which to be
obtained or made would not, individually or in the aggregate, have a Material
Adverse Effect or prevent the consummation by ComEd of any of the transactions
contemplated under this Agreement or the Related Agreements.
3.2 Disclaimers Regarding Assets. Except as otherwise expressly
----------------------------
provided herein, ComEd expressly disclaims any representations or warranties of
any kind or nature, express or implied, as to the condition, value or quality of
the Assets or the prospects (financial and otherwise), risks and other incidents
of the Assets and ComEd specifically disclaims any representation or warranty of
merchantability, usage, suitability or fitness for any particular purpose with
respect to the Assets, or any part thereof, or as to the workmanship thereof, or
the absence of any defects therein, whether latent or patent, or as to
compliance with Environmental Laws or requirements thereof, or as to the
condition of, or ComEd's rights in, or its title to, the Assets, or any part
thereof, or whether ComEd possesses sufficient real property or personal
property interests to own or operate the Assets or to convey the Assets. Without
limiting the generality of the foregoing, except as otherwise expressly provided
herein, ComEd expressly disclaims any representation or warranty of any kind
regarding the suitability of the Facilities for operation as power generation
facilities and no schedule or exhibit to this Agreement, nor any other material
or information provided by or communications made by ComEd (including the
Information Memorandum dated October 1998, the Supplement to Information
Memorandum dated November 1998, the
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<PAGE>
responses to bidders' questions dated November 13, 1998, and the Request for
Proposals dated December 1998), will cause or create any warranty, express or
implied, as to the condition, value or quality of the Assets, or otherwise as
to any matter or thing.
3.3 Compliance with Laws. Except as set forth on Schedule 3.3
-------------------- ------------
(Compliance Exceptions), ComEd's current use and operation of the Facilities
complies in all material respects with material Requirements of Laws in
existence as of the Effective Date and any court orders applicable to ComEd
with respect to the Assets. ComEd has no Knowledge of any decommissioning work
that is currently required with respect to any of the Assets.
3.4 Permits, Licenses, Etc. Schedule 2.1(c) (Specific Permits,
----------------------- ---------------
Licenses and Variances) lists all material permits, licenses and variances that
directly and specifically relate to the current use and operation of the
Facilities by ComEd and have been obtained by ComEd from Governmental
Authorities or any third Person. ComEd is in compliance in all material
respects with such permits, licenses and variances, and ComEd has no Knowledge
of any other material permit, license or variance that must be obtained from
Governmental Authorities or any third Person for ComEd's current use and
operation of the Assets (in each case under this Section 3.4 (Permits,
-----------
Licenses, Etc.) excluding Environmental Permits, which are the subject of
Section 3.15 (Environmental Matters)).
------------
3.5 Litigation. Except for (i) any matters set forth on Schedule 3.5
---------- ------------
(ComEd Litigation) and (ii) actions, investigations and requests for
information relating to the consents, approvals, permits, filings and notices
described in Section 5.2 (Consents and Approvals), there is no pending or, to
-----------
ComEd's Knowledge, threatened action, investigation or request for information
by any Governmental Authority or third Person related to the transactions
contemplated by this Agreement that would reasonably be expected to result, or
has resulted, in (a) the institution of legal proceedings to prohibit or
restrain the performance of this Agreement or any of the Related Agreements, or
the consummation of the transactions contemplated hereby or thereby, (b) a
claim against Purchaser or its Affiliates for damages as a result of ComEd
entering into this Agreement or any of the Related Agreements with Purchaser,
or the consummation by ComEd of the transactions contemplated hereby or
thereby, or (c) a material impairment of ComEd's ability to perform its
obligations under this Agreement or any of the Related Agreements. Except as
set forth on Schedule 3.5 (ComEd Litigation) and as to any employee-related or
------------
personal injury claims, (i) there is no material pending or, to ComEd's
Knowledge, threatened litigation, claim, investigation or proceeding, private
or governmental, and (ii) ComEd has not been served with any legal process
pertaining to a material claim, that, in the case of clause (i) or (ii),
directly and specifically relates to the Assets or ComEd's ownership,
management, operation, use or maintenance of the Facilities or the Assigned
Leases and Assigned Contracts.
3.6 Zoning and Condemnation. Except as set forth on Schedule 3.6
----------------------- ------------
(Notice of Government Action), (i) ComEd has not received any written notice
from a Governmental Authority of any pending or threatened proceeding or
governmental action, and (ii) ComEd has not been served with any legal process,
that, in the case of clause (i) or (ii), seeks to modify the zoning
classification of, or to condemn or take by power of eminent domain or to
classify as a landmark, all or any part of the Assets, that, if decided
adversely to ComEd, would have a Material Adverse Effect.
- 28 -
<PAGE>
Notwithstanding anything in this Agreement to the contrary, Purchaser hereby
acknowledges and agrees that ComEd has not made any representation, warranty,
covenant, certification, promise or agreement of any kind or nature that the
Transferred Real Property, the Switchyard Property or any structures, buildings,
improvements or fixtures (whether principal or accessory) will, as of the
Closing (or at any time before or after the Closing), comply or conform with any
local, county, state or federal land use, zoning, subdivision, setback or
similar Requirements of Law (including the Illinois Plat Act).
3.7 Brokers. Except for the Investment Banker, whose fees will be paid
-------
by ComEd pursuant to Section 5.7(f) (Taxes, Prorations and Closing Costs--
--------------
ComEd's Closing Costs), all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on by ComEd in such a manner
as not to give rise to any claim against Purchaser (by reason of ComEd's
actions) for a brokerage commission, finder's fee or other like payment to any
Person.
3.8 Contracts. Except as set forth on Schedule 3.8 (Contractual
--------- ------------
Defaults), (a) ComEd has received no written notice from a third Person that it
intends to cancel or terminate any Assigned Contract or Assigned Lease or that
ComEd is in default in any material respect under any of the material terms,
conditions or provisions of any Assigned Contract or Assigned Lease, (b) to
ComEd's Knowledge, the other party to any Assigned Contract or Assigned Lease is
not in default under any of the material terms, conditions or provisions of such
Assigned Contract or Assigned Lease and (c) each Assigned Contract and each
Assigned Lease constitutes a valid and binding obligation of ComEd and, to
ComEd's Knowledge, the other parties thereto and is in full force and effect. To
ComEd's Knowledge, ComEd has fulfilled and performed in all material respects
its obligations under each of the Assigned Contracts and Assigned Leases.
3.9 Assets Used in the Operation of the Facilities. The assets being
----------------------------------------------
conveyed pursuant to Section 2.1 (Transfer of Assets) and the assets described
-----------
in clauses (a) through (d) of Section 2.2 (Excluded Assets) constitute all of
-----------
the material assets and properties (excluding cash) currently used by ComEd for
the operation of the Facilities.
3.10 Casualty; Operations. (a) Except as set forth in Schedule 3.10(a)
-------------------- ----------------
(Casualty Losses), since January 1, 1999, there has been no Casualty which has
had or would reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.10(b) (Operations Outside of the
----------------
Ordinary Course), since January 1, 1999 through the Effective Date, ComEd has
operated the Facilities in the ordinary course and in conformity with past
practice.
3.11 Taxes. Except as set forth in Schedule 3.11 (Taxes), (i) ComEd
----- -------------
has, in respect of the Assets, filed all material Tax Returns which are required
to be filed and has paid all Taxes which have become due pursuant to such Tax
Returns or pursuant to any assessment which has become payable; (ii) all such
Tax Returns are complete and accurate in all material respects and disclose all
material Taxes required to be paid in respect of the Assets; (iii) there is no
action, suit, investigation, audit, claim or assessment pending or, to ComEd's
Knowledge, threatened with respect to Taxes relating to the Assets and, to
ComEd's Knowledge, no basis exists therefor; (iv) ComEd has received no written
notice of any special assessment, adopted or proposed, with respect to the
Assets;
- 29 -
<PAGE>
(v) ComEd has not waived or been requested to waive any statute of limitations
in respect of Taxes associated with the Assets; and (vi) no transaction
contemplated by this Agreement is subject to withholding under Section 1445 of
the Code. There are no liens with respect to Taxes (other than liens for current
Taxes not yet due and payable) upon the Assets.
3.12 Public Utility Holding Company Act. ComEd is a "holding company"
----------------------------------
within the meaning of the Public Utility Holding Company Act of 1935, but ComEd
is exempt from the provisions of that Act, except Section 9(a)(2) thereof, by
---------------
virtue of an order issued by the Securities and Exchange Commission on June 30,
1948. Such exemption is in full force and effect and, to ComEd's Knowledge,
there are no existing or proposed proceedings contemplating the revocation or
modification of such exemption.
3.13 ERISA: Benefit Plans. (a) Other than transition plans established
--------------------
by ComEd in connection with ComEd's sale of the Assets, whether as provided in
the February 26, 1999 Memorandum of Understanding between ComEd and Local 15 of
the IBEW or otherwise, Schedule 3.13(a) (Benefit Plans) lists all deferred
----------------
compensation, profit-sharing, welfare, retirement and pension plans, and all
material bonus and other employee benefit or fringe benefit plans maintained or
with respect to which contributions are made by ComEd in respect of current or
former nonsupervisory employees employed at the Facilities (collectively,
"Benefit Plans"). Accurate and complete copies of all such Benefit Plans and any
related summary plan descriptions, trust agreements and annual reports on Form
5500 have been made available to Purchaser.
(b) ComEd and the ERISA Affiliates have fulfilled their respective
obligations under the minimum funding requirements of section 302 of ERISA, and
section 412 of the Code, with respect to each Benefit Plan which is an "employee
pension benefit plan" as defined in section 3(2) of ERISA and which is subject
to section 302 of ERISA or section 412 of the Code. Each Benefit Plan is, and
has been administered, in compliance in all material respects with its terms,
the presently applicable provisions of ERISA and the Code, and the regulations
thereunder. Except for premiums due in the ordinary course, which have been
timely paid, neither ComEd nor any ERISA Affiliate has incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA. There
has not been a "reportable event" (as defined in section 4043 of ERISA) with
respect to any Benefit Plan (other than a reportable event with respect to which
the notice requirement has been waived by the PBGC). No person has engaged in
any non-exempt prohibited transaction within the meaning of section 4975 of the
Code or section 406 of ERISA that would subject ComEd to a material liability.
The Internal Revenue Service has issued a current letter for each Benefit Plan
which is intended to be qualified under section 401(a) of the Code determining
that such plan is so qualified and, to ComEd's Knowledge, nothing has occurred
since the date of such letter that would adversely affect such determination.
(c) Neither ComEd nor any ERISA Affiliate is required (or has, within
the preceding six years, been required) to contribute to a "multiemployer plan"
as defined in Section 3(37) of ERISA.
(d) ComEd has operated each Benefit Plan that is a "group health plan"
as defined in section 607(1) of ERISA in material compliance with the notice and
continuation requirements of
- 30 -
<PAGE>
section 4980B of the Code, the Consolidated Omnibus Budget Reconciliation Act of
1985, Part 6 of Subtitle B of Title 1 of ERISA and the respective regulations
thereunder.
(e) Neither ComEd nor any ERISA Affiliate has taken or failed to take
any action with respect to any "plan" (within the meaning of section 3(3) of
ERISA) which has resulted or would reasonably be expected to result in the
imposition of any lien on the assets of the Facilities.
(f) There are no pending or, to ComEd's Knowledge, threatened claims
(other than claims for benefits in the ordinary course), lawsuits, audits,
investigations or arbitrations which have been asserted or instituted against
the Benefits Plans, any fiduciaries with respect to their duties to the Benefit
Plans or the assets of any of the respective trusts which would reasonably be
expected to result in any material liability.
3.14 Title to Tangible Personal Property. Except for the Mortgage and
-----------------------------------
as set forth on Schedule 3.14 (Tangible Personal Property Encumbrances), ComEd
-------------
has good and marketable title (free and clear of any monetary liens or
encumbrances) to the tangible personal property constituting part of the Assets
located at the Transferred Real Property purported to be owned by it and has
full right to sell, convey, transfer and assign such tangible personal property
to Purchaser.
3.15 Environmental Matters. Except as disclosed in Schedule 3.15
--------------------- -------------
(Environmental Matters):
(a) ComEd holds, and is in substantial compliance with, all material
permits, licenses and governmental authorizations ("Environmental Permits")
required for ComEd to own, use and operate the Facilities under applicable
Environmental Laws, which Environmental Permits are listed in Schedule
--------
2.1(c) (Specific Permits, Licenses and Variances), and ComEd is otherwise
-------
in compliance with applicable Environmental Laws with respect to the
ownership, use and operation of the Facilities, except for such failures to
hold or comply with required Environmental Permits, or such failures to be
in compliance with applicable Environmental Laws, which would not,
individually or in the aggregate, have a Material Adverse Effect;
(b) Since January 1, 1996, ComEd has not received any written request
for information, or been notified that it is a potentially responsible
party, under CERCLA or any similar state law with respect to Environmental
Conditions on any of the Facilities, except where any resulting liability
would not, individually or in the aggregate, have a Material Adverse
Effect;
(c) Since January 1, 1996, ComEd has not received any notice of
violation of any applicable Environmental Law, has not entered into or
agreed to any consent decree or order, and is not subject to any
outstanding judgment, decree or judicial order relating to compliance with
any Environmental Law or to investigation or cleanup of Hazardous
Substances under any Environmental Law with respect to the
- 31 -
<PAGE>
Facilities where its obligations have not been fully and finally resolved,
and is not a party to any such administrative or judicial proceedings,
except for any such consent decree or order, judgment, decree, judicial
order or administrative or judicial proceeding that would not, individually
or in the aggregate, have a Material Adverse Effect.
The representations and warranties made in this Section 3.15
------------
(Environmental Matters) are ComEd's exclusive representations and warranties
relating to Environmental Conditions, Environmental Laws, Environmental Permits
or any other environmental matter; and no representation or warranty as to such
Environmental Conditions, Environmental Laws, Environmental Permits or other
matters is intended, or shall be implied, from any of the other provisions of
this Agreement.
3.16 Data Room. To ComEd's Knowledge, the copies of the Assigned
---------
Leases, Assigned Contracts and the items listed in Schedule 2.1(c) (Specific
---------------
Permits, Licenses and Variances) which are in the Data Room are true, correct
and complete in all material respects.
3.17 Labor Matters. ComEd has made available to Purchaser a true and
-------------
correct copy of the Collective Bargaining Agreement. There are no strikes or
work stoppages pending or, to ComEd's Knowledge, threatened against ComEd which
relate to the Facilities, and there have been no such strikes or work stoppages
during the past five years. Except for the Collective Bargaining Agreement, the
agreements specifically referred to therein and as set forth in Schedule 3.17
-------------
(Labor Matters), ComEd is not a party to any collective bargaining or other
union agreement covering ComEd's employees at the Facilities. Except as set
forth on Schedule 3.17 (Labor Matters), there is no unfair labor practice,
-------------
charge or complaint pending that relates to the Facilities. ComEd has not
received notice of any pending representation petition with the National Labor
Relations Board regarding ComEd employees.
3.18 Financial Statements. ComEd has delivered to Purchaser true and
--------------------
complete copies of its Audited Financial Statements together with the related
Accountant's Report. Except as may otherwise be indicated in the Accountant's
Report, the Audited Financial Statements have been prepared in conformity with
generally accepted accounting principles, consistently applied, and present
fairly with respect to ComEd the financial position and results of ComEd's
operations and its cash flows at the dates and for the periods stated.
3.19 No Other Representations. Except for the representations and
------------------------
warranties contained in this Article 3 (Representations, Warranties and
---------
Disclaimers of ComEd), ComEd makes no representation or warranty, express or
implied, written or oral, with respect to the matters contemplated in this
Agreement.
- 32 -
<PAGE>
ARTICLE 4
---------
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PURCHASER
-------------------------------------------------------
Purchaser represents and warrants to ComEd as follows, which
representations and warranties will survive the Closing until the first
anniversary of the Closing Date as provided in Section 6.1 (Survival of the
-----------
Parties' Representations and Warranties):
4.1 Transaction Representations.
---------------------------
(a) Organization and Existence. Purchaser is a duly organized and
--------------------------
validly existing corporation in good standing under the laws of the State of
California. Prior to Closing, Purchaser will be qualified to do business in the
State of Illinois.
(b) Execution, Delivery and Enforceability. Purchaser has full
--------------------------------------
corporate power and authority to execute and deliver, and consummate the
transactions under, this Agreement and the Related Agreements to which Purchaser
is a party. The execution and delivery of this Agreement and the Related
Agreements to which Purchaser is a party, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action required on the part of Purchaser. Assuming ComEd's
due authorization, execution and delivery of this Agreement and the Related
Agreements to which ComEd is a party, and assuming the receipt of all Required
Consents, this Agreement constitutes, and upon execution and delivery by
Purchaser, the Related Agreements will constitute, the valid and legally binding
obligations of Purchaser, enforceable against Purchaser in accordance with its
and their terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application relating to or affecting the enforcement of creditors' rights and by
general equitable principles.
(c) No Violation. Subject to the Parties satisfying their respective
------------
obligations to obtain or process (as applicable) the consents, approvals,
permits, licenses, filings and notices described in Section 5.2 (Consents and
-----------
Approvals), neither the execution and delivery of this Agreement or any of the
Related Agreements to which Purchaser is a party, nor compliance with any
provision hereof or thereof, nor consummation of the transactions contemplated
hereby or thereby will result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or result in the
loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Purchaser under, any provision of (i) the organizational documents of Purchaser,
each as amended to date, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit concession,
franchise or license applicable to Purchaser or (iii) any Requirements of Laws
or any judgment, order or decree applicable to Purchaser or any of its
properties or assets, other than, in the case of clauses (ii) or (iii), any such
violations, defaults, rights, liens, security interests, charges or encumbrances
that, individually or in the aggregate, would not have a material adverse effect
on Purchaser, materially impair the ability of Purchaser to perform its
obligations hereunder or under the Related Agreements or prevent the
consummation by Purchaser of any of the transactions contemplated hereby or
thereby.
- 33 -
<PAGE>
(d) No Consents. Except as set forth in Schedule 4.1(d) (Purchaser
----------- ---------------
Consents), no consent or approval of, filing with or notice to any Person is
required to be obtained or made by Purchaser in connection with Purchaser's
execution, delivery and performance of this Agreement and the Related Agreements
to which Purchaser is a party, or the consummation of the transactions
contemplated hereby or thereby, except for (i) in connection, or in compliance,
with the provisions of the HSR Act, (ii) in connection, or in compliance, with
the provisions of the Illinois Public Utilities Act and the Federal Power Act,
(iii) such consents, approvals, filings and notices as may be required under any
Environmental Laws pertaining to any notification, disclosure or required
approval triggered by Purchaser's performance of its obligations under this
Agreement and the Related Agreements to which Purchaser is a party, (iv) such
consents, approvals, filings and notices as may be required in connection with
the real property matters contemplated by this Agreement, (v) such filings as
may be required in connection with the Taxes described in Section 5.7 (Taxes,
-----------
Prorations and Closing Costs) and (vi) such other consents, approvals, filings
and notices the failure of which to be obtained or made would not, individually
or in the aggregate, materially impair Purchaser's ability to perform its
obligations under this Agreement or prevent the consummation by Purchaser of any
of the transactions contemplated under this Agreement or the Related Agreements.
4.2 Litigation. Except for (i) any matters set forth on Schedule 4.2
---------- ------------
(Purchaser Litigation) and (ii) actions, investigations and requests for
information relating to the consents, approvals, permits and notices described
in Section 5.2 (Consents and Approvals), there is no pending or, to Purchaser's
-----------
Knowledge, threatened action, investigation or request for information by any
Governmental Authority or third Person related to the transactions contemplated
by this Agreement that would reasonably be expected to result, or has resulted,
in (a) the institution of legal proceedings to prohibit or restrain the
performance of this Agreement or any of the Related Agreements, or the
consummation by Purchaser of the transactions contemplated hereby or thereby,
(b) a claim for damages against ComEd or any of its Affiliates as a result of
Purchaser entering into this Agreement or any of the Related Agreements, or the
consummation by Purchaser of the transactions contemplated hereby or thereby, or
(c) a material impairment of Purchaser's ability to perform its obligations
under this Agreement or any of the Related Agreements. Except as set forth on
Schedule 4.2 (Purchaser Litigation), there is no material pending or, to
- ------------
Purchaser's Knowledge, threatened litigation, claim, investigation or
proceeding, private or governmental, that directly and specifically relates to
Purchaser's contemplated ownership, management, operation, use or maintenance of
the Facilities.
4.3 Brokers. Except for any advisors to Purchaser, whose fees will be
-------
paid by Purchaser pursuant to Section 5.7(e) (Taxes, Prorations and Closing
--------------
Costs--Purchaser's Closing Costs), all negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on by Purchaser in
such a manner as not to give rise to any claim against ComEd (by reason of
Purchaser's actions) for a brokerage commission, finder's fee or other like
payment to any Person.
4.4 Financial Statements. Purchaser has delivered to ComEd true and
--------------------
complete copies of its Audited Financial Statements together with the related
Accountant's Report, and Purchaser's quarterly financial statements for each of
the fiscal quarters ended after the date of its most recent Audited Financial
Statements. Except as may otherwise be indicated in the Accountant's
- 34 -
<PAGE>
Report, the Audited Financial Statements have been prepared in conformity with
generally accepted accounting principles, consistently applied, and present
fairly with respect to Purchaser the financial position and results of
Purchaser's operations and its cash flows at the dates and for the periods
stated; and since the end of the period covered by the Audited Financial
Statements, there has been no material adverse change in the business, condition
(financial or otherwise) or results of operations of Purchaser and its
subsidiaries, taken as a whole.
4.5 Financial Ability. Purchaser has the financial ability to
-----------------
consummate the transactions contemplated by this Agreement to be performed by
Purchaser and has furnished ComEd with evidence thereof.
4.6 Disclosures. Purchaser understands and agrees that (a) the
-----------
materials, documents and reports in the Data Room qualify and limit the
representations and warranties set forth in Article 3 (Representations,
---------
Warranties and Disclaimers of ComEd) (other than Section 3.16 (Data Room)) and
------------
(b) except as expressly set forth in this Agreement, ComEd shall have no
liability, obligation or responsibility in connection with, or arising out of,
any matters disclosed in, or ascertainable from, the materials, documents and
reports included in the Data Room. Purchaser also acknowledges that any written
disclosures made by ComEd prior to the Closing shall constitute notice to
Purchaser of the matter disclosed, and ComEd shall have no liability to
Purchaser on account of the matter disclosed if Purchaser thereafter consummates
the transaction contemplated hereby; provided, however, that this sentence shall
not limit the provisions of Article 7 (Conditions Precedent to Obligations of
---------
Purchaser at Closing).
4.7 Public Utility Holding Company Act. Purchaser is not a "holding
----------------------------------
company" within the meaning of the Public Utility Holding Company Act of 1935.
Purchaser's ultimate parent company is a "holding company" within the meaning of
that Act, but is exempt pursuant to Section 3(a)(1) thereof.
4.8 "AS IS" SALE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN,
-----------
PURCHASER UNDERSTANDS AND AGREES THAT THE ASSETS ARE BEING ACQUIRED "AS IS,
WHERE IS" ON THE CLOSING DATE, AND IN THEIR CONDITION ON THE CLOSING DATE, AND
THAT PURCHASER IS RELYING SOLELY ON ITS OWN EXAMINATION OF THE ASSETS.
ARTICLE 5
---------
CERTAIN AGREEMENTS
------------------
5.1 Due Diligence Inspections and Reviews. Purchaser acknowledges and
-------------------------------------
agrees that it has, prior to its execution of this Agreement, fully completed
and approved the results of all of its due diligence inspections and reviews of
the Assets. Purchaser will bear all of its own costs, expenses and charges
incurred in connection with its due diligence inspections and reviews.
- 35 -
<PAGE>
5.2 Consents and Approvals.
----------------------
(a) ComEd Responsibility. ComEd will use Commercially Reasonable
--------------------
Efforts to obtain the Illinois Authority, any approval required to be obtained
by it from FERC under applicable law and any other authorization, consent,
license, permit and approval that ComEd deems necessary or appropriate for its
use and operation of the Excluded Assets after the Closing.
(b) Purchaser Responsibility. (i) Except as set forth in Section
------------------------ -------
5.2(a) (Consents and Approvals--ComEd Responsibility) and except to the extent
- ------
set forth in Section 2.7 (Certain Provisions With Respect to Switchyard
-----------
Property), Purchaser will use Commercially Reasonable Efforts to obtain all
authorizations, consents, licenses, permits, notices and approvals of
Governmental Authorities required by applicable law or required by the terms of
the applicable authorization, consent, license, permit or approval of or
agreement with such Governmental Authorities in connection with the consummation
of the transactions contemplated by this Agreement and the Related Agreements,
including the specific consents to the assignment or transfer from ComEd to
Purchaser of (or, as applicable, the reissuance of) the permits, licenses,
approvals, exceptions, exemptions and allowances, including applications for any
of the foregoing, listed in Schedule 2.1(c) (Specific Permits, Licenses and
---------------
Variances); provided that Purchaser shall not have any obligation to offer or
pay any consideration (other than filing fees and related costs payable to
Government Authorities) in order to obtain any such authorizations, consents,
licenses, permits, notices or approvals.
(ii) In connection with obtaining any Required Consents from third
Persons, Purchaser will use Commercially Reasonable Efforts to obtain a release
of ComEd from any and all liabilities and obligations arising from the use or
ownership of the Assets being assigned or transferred arising after the Closing
Date; provided that Purchaser shall not have any obligation to offer or pay any
consideration (other than filing fees payable to Government Authorities) in
order to obtain any such release. Purchaser will not reject any transfer (or, as
applicable, reissuance) of any permit, license or approval held by ComEd with
respect to the Facilities with terms and conditions substantially similar to
those in effect on the Effective Date. After the Closing, Purchaser will notify
promptly all relevant Governmental Authorities and all third Persons of the
change in ownership of the Assets resulting from the transactions contemplated
herein, to the extent required by applicable law or the specific underlying
agreements.
(c) Joint Responsibility. Each of ComEd and Purchaser will use
--------------------
Commercially Reasonable Efforts to obtain all consents from third Persons listed
in Schedule 3.1(d) (Consents), including all consents to the assignment from
---------------
ComEd to Purchaser of ComEd's rights and obligations under the Assigned Leases
and Assigned Contracts required by the terms of the Assigned Leases and Assigned
Contracts (including those specified on Schedule 3.1(d) (Consents)); provided
---------------
that neither Party shall have any obligation to offer or pay any consideration
in order to obtain any such consents. In the event consents are not received
from the parties to any of the Assigned Contracts which are referenced in the
form of Agency Agreement which is attached hereto as Exhibit K, the Parties
---------
agree to enter into the Agency Agreement in such form (the "Agency Agreement")
at Closing.
- 36 -
<PAGE>
(d) Antitrust Law Compliance. As promptly as practicable after the
------------------------
date hereof, Purchaser and Unicom Corporation shall file with the Federal Trade
Commission and the Antitrust Division of the Department of Justice the
notifications and other information required to be filed under the HSR Act, or
any rules and regulations promulgated thereunder, with respect to the
transactions contemplated hereby. Purchaser warrants with respect to itself, and
ComEd warrants with respect to Unicom Corporation, that all such filings by or
on behalf of it will be, as of the date filed, true and accurate and in
accordance with the requirements of the HSR Act and any such rules and
regulations. Each of Purchaser and ComEd agrees to make available to the other
such information as each of them may reasonably request relative to its
business, assets and property as may be required of each of them to file any
additional information requested by such agencies under the HSR Act and any such
rules and regulations. If any Governmental Authority having jurisdiction under
the HSR Act requires the filing of any additional information with respect to
the transactions contemplated hereunder, each Party will provide such
information in a prompt and diligent manner. Purchaser will pay all filing fees
under the HSR Act, but each Party will bear its own costs of the preparation of
any filing.
(e) Cooperation. Each Party will assist the other Party's efforts to
-----------
obtain the consents, authorizations, approvals, permits and licenses required
pursuant to this Section 5.2 (Consents and Approvals) and will cooperate with
-----------
the other Party in executing such applications and other documents as are
reasonably required. Each of ComEd and Purchaser will use Commercially
Reasonable Efforts to avoid an action or proceeding by any Governmental
Authority (including those in connection with the HSR Act) and to defend any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Authority vacated or reversed. Each
Party will bear its own costs for these applications and proceedings, except as
otherwise provided in Section 5.7 (Taxes, Prorations and Closing Costs.)
-----------
(f) No Transfer if Consent or Approval Not Obtained. Notwithstanding
-----------------------------------------------
anything in this Agreement to the contrary, this Agreement shall not constitute
an agreement by ComEd to assign or transfer any Asset or any claim, right or
benefit arising under or resulting from such Asset if an assignment or transfer
or an attempt to make such an assignment or transfer of such Asset would, in
ComEd's reasonable judgment, constitute a breach thereof or a violation of any
law, decree, order or regulation of any Governmental Authority. Nothing
contained in this Section 5.2(f) (Consents and Approvals--No Transfer if Consent
---------------
or Approval Not Obtained) shall limit or modify the Parties' respective
obligations under the other provisions of this Section 5.2 (Consents and
-----------
Approvals) or the rights of the respective Parties under Section 7.3(b)
--------------
(Purchaser's Receipt of Approvals of Governmental Authorities Other Approvals)
and 8.3 (ComEd's Receipt of Approvals). Notwithstanding the foregoing, ComEd and
Purchaser shall cooperate, to the maximum extent permitted by law and the Asset
(but excluding any obligation of ComEd or Purchaser to offer or pay any
consideration therefor), with each other in any legal and reasonable arrangement
(including the Agency Agreement) designed to provide any claim, right or benefit
arising under or resulting from the Assets to Purchaser and to relieve ComEd
from any obligation, liability or burden associated therewith.
- 37 -
<PAGE>
5.3 Confidentiality. All information obtained by Purchaser from ComEd
---------------
(or its officers, employees, counsels, representatives or agents) shall be kept
confidential in accordance with the terms of the Confidentiality Agreement until
the Closing, at which time the Confidentiality Agreement shall terminate.
Without limiting the foregoing, each Party agrees that it will treat in
confidence all documents, materials and other information which it shall have
obtained regarding the other Party during the course of the negotiations leading
to the consummation of the transactions contemplated hereby (whether obtained
before or after the Effective Date) or which are referred to herein as
"confidential information." Such documents, materials and information shall not
be communicated to any third Person (other than each Party's counsel,
accountants, financial advisors or lenders, which in each case shall agree to be
bound by the confidentiality obligations set forth herein, and other than any
other third Person which reasonably requires such information in order to
facilitate the consummation of the transactions contemplated hereby, provided
that prior to any disclosure, the disclosing Party shall seek to obtain a
customary confidentiality agreement from any such other third Person (excluding
any rating agency or Governmental Authority). No other party shall use any
confidential information in any manner whatsoever except solely for the purpose
of evaluating the proposed purchase and sale of the Assets; provided, however,
-------- -------
that after the Closing, purchaser may use or disclose any confidential
information included in the Assets. The obligation of each Party to treat such
documents, materials and other information in confidence shall not apply to any
information which (i) is or becomes available to such Party from a source other
than the other Party or its agents, (ii) is or becomes available to the public
other than as a result of disclosure by such Party or its agents, (iii) is
required to be disclosed under applicable law or judicial process or by a
regulatory body, but, in each case, only to the extent it must be disclosed, or
(iv) such Party reasonably deems necessary to disclose to obtain any of the
consents or approvals contemplated hereby.
5.4 Labor Matters.
-------------
(a) Purchaser will, at the Closing Date and in accordance with the
requirements of applicable federal labor laws, recognize Local 15 of the IBEW as
the exclusive representative of those employees accepting continued employment
by Purchaser at the Facilities who are represented by the IBEW for the purpose
of collective bargaining. Purchaser will assume the Collective Bargaining
Agreement that is in effect on the Closing Date.
(b) Purchaser will hire a sufficient number of non-supervisory
employees to operate and maintain the Assets by initially making offers of
employment to ComEd's non-supervisory workforce in the fossil division at no
less than the wage rates and substantially equivalent fringe benefits and terms
and conditions of employment that are in effect at the Closing Date, and
Purchaser agrees that said wage rates and substantially equivalent fringe
benefits and terms and conditions of employment shall continue for at least 30
months from the Closing Date (unless the covered employees or their
representative agree to different terms and conditions of employment with the
Purchaser within such 30-month period). Purchaser shall use Commercially
Reasonable Efforts to make such offers not less than sixty (60) days prior to
the Closing Date, and each offer of employment pursuant to this Section 5.4(b)
--------------
(Labor Matters) will be acceptable by the offeree for a period of thirty (30)
days, irrespective of the Closing Date.
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<PAGE>
(c) Purchaser agrees to consult with ComEd regarding a transition plan
for the workforce at the Facilities and agrees that it will not solicit or make
offers of employment to any ComEd employee (supervisory or non-supervisory)
without the prior written approval of ComEd, which approval shall not be
unreasonably withheld; provided, however, that ComEd may (in its sole
-------- -------
discretion) withhold such approval in order to structure the solicitation and
hiring process in a manner that does not interfere unreasonably with the
operation of the Facilities.
(d) Purchaser shall notify ComEd in writing of the names of those
ComEd employees who (i) received offers of employment, (ii) accepted such offers
and (iii) rejected such offers, in each case no later than thirty (30) days
prior to the Closing Date.
(e) ComEd shall be responsible for the severance pay, if any, to be
paid to ComEd employees who are not offered employment with Purchaser. Purchaser
shall be responsible for the severance pay, if any, to be paid to any ComEd
employees who are employed by Purchaser or its Affiliates and thereafter
terminated by Purchaser or its Affiliates on or after the Closing Date. In
addition, Purchaser shall be responsible for reimbursing ComEd for any severance
pay that is paid by ComEd to any ComEd employee who accepts an offer of
employment by and becomes an employee of Purchaser or any of its Affiliates on,
or within one hundred eighty (180) days after, the Closing Date; provided,
however, that Purchaser shall not be required to reimburse ComEd under this
Section 5.4(e) for any amounts related to severance pay in excess of 30% of the
- --------------
total severance payments made by ComEd to its employees as a result of the sale
of the Assets. Purchaser acknowledges that it has not informed ComEd of any
planned or contemplated decisions or actions by Purchaser that would require the
service of notice under the WARN Act. Purchaser agrees that it shall not take
any action which causes the notice provisions of the WARN Act to be applicable
to the transactions contemplated by this Agreement.
(f) For purposes of this Section 5.4 (Labor Matters), a ComEd employee
-----------
includes any employee who is actually working and any employee who would be
working but is absent from employment due to illness, injury, military service,
family-medical leave, short-term disability, workers' compensation leave and any
other approved leave of absence of twelve months or less.
(g) Purchaser shall recognize length of service with ComEd for
purposes of determining matters pertaining to the timing and eligibility for
vacation days under the Collective Bargaining Agreement for those employees who
accept offers of employment with Purchaser or its Affiliates on or after the
Closing Date.
5.5 Employee Benefits Matters.
-------------------------
(a) ComEd Transferred Employees. As of the Closing Date, Purchaser
---------------------------
will continue to employ those employees accepting continued employment pursuant
to the offers made by Purchaser in accordance with Section 5.4(b) (Labor
--------------
Matters) ("Transferred Non-Supervisory Employees") at the compensation levels
and with fringe benefits and terms and conditions of employment required by
Section 5.4(a) and Section 5.4(b) (Labor Matters). In addition, Purchaser will
- -------------- --------------
credit each Transferred Non-Supervisory Employee with all service recognized by
ComEd under the applicable Benefit Plan for purposes of determining eligibility
for and vesting of benefits provided
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<PAGE>
by Purchaser. Purchaser shall be responsible for (i) all liabilities,
obligations and commitments relating to all wages, salaries, bonuses and other
forms of compensation (including vacation pay) and related expenses incurred or
accrued on or after the Closing Date with respect to Transferred Non-Supervisory
Employees and other ComEd employees hired by Purchaser on the Closing Date (such
employees and the Transferred Non-Supervisory Employees being referred to herein
collectively as the "Transferred Employees") and (ii) all employee benefits
accrued after the Closing Date under any and all plans, programs or arrangements
maintained or contributed to by Purchaser for the benefit of Transferred
Employees.
(b) Employee Benefit Plans.
----------------------
(i) At least fifteen days prior to the Closing Date, ComEd shall take
any and all actions necessary to cease benefit accruals and fully vest all
Transferred Employees in their pension benefits under the Commonwealth
Edison Company Service Annuity System (the "ComEd Pension Plan") as of the
earlier of the Closing Date and the Transferred Employee's termination
date.
(ii) As soon as practicable after the Closing Date, there shall be a
transfer from the Commonwealth Edison Employee Savings and Investment Plan
(the "ComEd ESIP") to a replacement plan maintained or established by
Purchaser (the "Purchaser's 401(k) Plan") of (i) the obligation for benefit
payments to Transferred Employees under the ComEd ESIP and (ii) an amount of
assets, in cash or kind, as agreed to by ComEd and Purchaser, and
participant loan promissory notes, equal to the aggregate account balances
of the Transferred Employees under the ComEd ESIP, determined as of a
valuation date agreed to by ComEd and Purchaser. Purchaser's 401(k) Plan
shall, both at the time of its adoption and when the transfers described
herein are made, (i) be tax-qualified under Section 401(a) of the Code, (ii)
preserve all optional forms of benefits and other rights within the scope of
Section 411(d)(6) of the Code as provided in applicable regulations
thereunder and (iii) meet all the requirements of Section 401(k) of the Code
with respect to amounts being transferred hereunder which originally were
contributed pursuant to a qualified cash or deferred arrangement under
Section 401(k) of the Code. Notwithstanding anything contained herein, no
transfer of assets from the ComEd ESIP shall occur until Purchaser delivers
to ComEd a copy of a favorable determination letter issued by the Internal
Revenue Service with respect to Purchaser's 401(k) Plan or a letter from
counsel to Purchaser, satisfactory to ComEd, that Purchaser's 401(k) Plan
and related trust satisfies all of the qualification requirements of
Sections 401(a) and 501(a) of the Code and Purchaser will timely request a
favorable determination letter from the IRS and make any and all amendments
as may be required by the IRS to receive such determination letter.
(iii) Purchaser shall cause Purchaser's medical, dental and other
health plans to (A) waive for Transferred Employees any waiting period and
any restrictions and limitations for pre-existing conditions and (B) take
into account expenses incurred by Transferred Employees under ComEd's
medical, dental and vision and hearing care
- 40 -
<PAGE>
plans during the plan year in which the Closing Date occurs, for purposes
of determining for Transferred Employees deductibles and out-of-pocket
limits under Purchaser's medical, dental and other health plans for the
remainder of the plan year under such plans of Purchaser.
(iv) On the Closing Date, ComEd shall cause the credits and debits of
the accounts of the Transferred Employees as of the close of business on
the day immediately preceding the Closing Date under the Commonwealth
Edison Company Key Choices Program ("Key Choices Program"), the
Commonwealth Edison Benefit Contributions Options (the "Options Program")
and the Commonwealth Edison Child Care Flexible Spending Account (the
"Child Care Plan") to be segregated into identical separate plans ("Section
125 Plans") to be maintained and continued by Purchaser. Transferred
Employees shall cease participation in the Key Choices Program, the Options
Program and the Child Care Plan as of the Closing Date. The Section 125
Plans to be maintained by Purchaser shall give full effect to, and continue
in effect, salary reduction elections made under the Key Choices Program,
the Options Program and the Child Care Program.
(v) Prior to the Closing Date, ComEd and Purchaser shall provide each
other with IRS determination letters relating to the tax-qualified status
of their respective qualified plans and their related trusts. In the
absence of such determination letters, Purchaser or ComEd (as the case may
be) shall, within the applicable remedial amendment period, apply for a
favorable determination letter regarding the plan's qualification and take
all actions necessary to obtain such letter.
(vi) Except as specifically set forth in clauses (ii) and (iv) of this
Section 5.5 (Employee Benefits Matters), no assets or liabilities of ComEd
-----------
with respect to any Benefit Plan and no assets of any Benefit Plan or
related trust maintained by ComEd shall be transferred or assigned to
Purchaser.
5.6 Cooperation. Upon reasonable advance written notice by Purchaser
-----------
to ComEd, (i) ComEd shall afford Purchaser and its representatives access during
normal business hours to the Assets and books and records of ComEd related
specifically thereto and (ii) ComEd shall reasonably cooperate with Purchaser
regarding the transition of ownership and operation of the Assets to Purchaser,
including access to facilitate Purchaser's integration of accounting, insurance
and management information systems at the Facilities and other operations with
Purchaser's programs and systems. In addition, Purchaser shall be entitled to
conduct a reasonable inspection of the Assets, the Excluded Assets and the
Switchyard Property as close to the Closing as practicable in order to verify
the accuracy of the Schedules relating thereto. After the Closing, each Party
will, upon the reasonable request of the other Party, execute and deliver any
further instruments or documents, including instruments granting ComEd rights of
ingress and egress to the Excluded Assets on terms and conditions reasonably
satisfactory to the Parties, and take such further actions using Commercially
Reasonable Efforts as may reasonably be required to fulfill and implement the
terms of this Agreement and the Related Agreements or realize the benefits
intended to be afforded hereby.
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<PAGE>
If any Excluded Assets are inadvertently delivered to Purchaser, Purchaser will
promptly return the same to ComEd to the extent Purchaser obtains Knowledge of
the existence of such Excluded Assets
5.7 Taxes, Prorations and Closing Costs.
-----------------------------------
(a) Taxes.
-----
(i) Purchaser shall pay all Taxes, including sales, use, transfer and
documentary transfer Taxes, arising in connection with the sale and
transfer of the Assets (other than all local, county and state real estate
transfer taxes); provided, however, that ComEd shall bear the sole
-------- -------
responsibility for ComEd's income Taxes and all local, county and state
real estate transfer taxes arising in connection with the sale and transfer
of the Assets. State and local real and personal property (if any) Taxes
relating to the Assets for the tax year which includes the Closing Date
shall be prorated between Purchaser and ComEd on the following basis: ComEd
shall be responsible for all such Taxes for the period up to the Closing
Date; and Purchaser shall be responsible for all such Taxes for the period
on and after the Closing Date. With respect to any Taxes applicable to the
Assets not described in the preceding two sentences, ComEd shall be liable
for and shall pay all such Taxes (whether assessed or unassessed)
attributable to taxable years or periods (or portions thereof) ending on or
prior to the Closing Date and Purchaser shall be liable for and shall pay
all such Taxes (whether assessed or unassessed) attributable to taxable
years or periods (or portions thereof) beginning after the Closing Date.
All Taxes assessed on a periodic basis (such as property taxes) shall be
prorated on the assumption that an equal amount of Taxes applies to each
day of the applicable period, regardless of how any installment payments
are billed or made. Any other Taxes attributable to taxable years or
periods beginning before and ending after the Closing Date shall be
allocated on a "closing of the books" basis as two partial periods, one
ending at the Closing Date and the other beginning immediately after the
Closing Date. In the event that the amount of any real estate or personal
property (if any) Taxes affecting the Assets and allocable to the tax year
within which the Closing Date occurs is not known or ascertainable as of
the Closing Date, then ComEd and Purchaser shall, at Closing, prorate the
amount of such Taxes on the basis of the last ascertainable tax bill or
bills, and shall reprorate such Taxes upon the terms, provisions and
conditions set forth in the Tax Reproration Agreements, which, for each
Site, shall be in the form of Exhibit H (the "Reproration Agreement"). For
---------
purposes of prorating real estate Taxes which are payable under any real
property Tax bill (a "Divisible Tax Bill") which affects both the
Transferred Real Property and other real property owned by ComEd (including
the Switchyard Property), (A) the amount of property Taxes set forth in
each Divisible Tax Bill shall be separated into a land component and an
improvements component based on the applicable tax assessor's records, and
(B) the following amount of each Divisible Tax Bill shall be allocated to
the Transferred Real Property and prorated as provided above: (x) the
entire amount of the improvements component for such Divisible Tax Bill,
plus (y) an amount equal to (1) the land component for such Divisible Tax
----
Bill, multiplied by (2) a quotient, the denominator
-------------
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<PAGE>
of which shall be the total acreage of the tax parcel which is the subject of
such Divisible Tax Bill and the numerator of which shall be the acreage of the
portion of the Transferred Real Property which comprises part of the tax parcel
which is the subject of such Divisible Tax Bill. For purposes of this Agreement,
references to Taxes "for" a period or which are "allocable" to a period shall
mean the Taxes which accrue during the applicable period, and not necessarily
the Taxes which are due and payable within such period.
(ii) Notwithstanding anything to the contrary contained herein. ComEd and
Purchaser acknowledge and agree that each intends that any credit, reduction or
abatement of real and/or personal property Taxes (or, if applicable, any other
Taxes) applicable to the Assets and allocable to the period (or portion thereof)
prior to the Closing Date (a "ComEd Reduction") shall run to the benefit and/or
(as applicable) be the property of ComEd. Without limiting the generality of the
foregoing, ComEd and Purchaser acknowledge and agree that any credit, reduction
or abatement of the real and/or personal property Taxes applicable to the Assets
and allocable to the period (or portion thereof) prior to the Closing Date which
result from or arise out of either (or both) (i) any overcharging or
overassessment of real and/or personal property Taxes applicable to the Assets
and the Excluded Assets by the municipalit(ies), count(ies) and state in which
the Assets and the Excluded Assets are located with respect to any period (or
portion thereof) prior to the Closing Date and/or (ii) any challenge or contest
of the amount of real and/or personal property Taxes applicable to the Assets
and the Excluded Assets undertaken by or on behalf of ComEd with respect to any
period (or portion thereof) prior to the Closing Date, shall constitute "ComEd
Reductions." In the event that any ComEd Reduction takes the form of a sum which
is paid to Purchaser, then Purchaser shall, no later than thirty (30) days after
its receipt of such amount, pay the same to ComEd. In the event that any ComEd
Reduction takes the form of a reduction, abatement or credit against one or more
installments of real or personal property Taxes applicable to the Sites and
levied after the date hereof, then Purchaser shall, no later than thirty (30)
days after its receipt of notice of the amount of such credit, abatement or
reduction, pay the amount of such credit, abatement or reduction to ComEd,
notwithstanding the fact that any one or more of the installments of Taxes
against which such abatement, credit or reduction is to be applied may not be
due or payable within said thirty (30) day period. Purchaser hereby assigns,
conveys, transfers and sets over all of its right, title and interest in and to
any ComEd Reduction to ComEd, and agrees to execute any and all documents
reasonably necessary to effectuate such assignment, conveyance and transfer
(including financing statements) and to notify third parties (including
Governmental Authorities) thereof. All credits, reductions or abatements of real
and personal property Taxes applicable to the Assets and allocable to the period
(or portion thereof) after the Closing Date shall be the property of Purchaser.
(iii) Purchaser and ComEd agree to reasonably cooperate in effectuating the
division of the real estate tax parcels affecting the Transferred Real Property
and the Switchyard Property, such that no portion of any real estate tax parcels
affecting
- 43 -
<PAGE>
the Switchyard Property affect the Transferred Real Property (and vice versa),
and Purchaser acknowledges and agrees that ComEd shall have the right (but not
the obligation) to take any and all actions, execute and deliver all documents,
instruments and agreements, and make any and all necessary contacts,
negotiations and discussions with Governmental Authorities as ComEd shall deem
necessary or desirable, to effectuate such division. The Parties acknowledge
that their respective post-Closing rights and responsibilities with respect to
the division of the real estate tax parcels affecting the Transferred Real
Property and the Switchyard Property are set forth in the Reproration Agreement.
(iv) After the Closing Date, Purchaser shall notify ComEd in writing,
within thirty (30) days after its receipt of any correspondence, notice or other
communication from a taxing authority or any representative thereof, of any
pending or threatened tax audit, or any pending or threatened judicial or
administrative proceeding that involves Taxes relating to the Assets allocable
to the period (or any portion thereof) ending on or prior to the Closing Date,
and furnish ComEd with copies of all correspondence received from any taxing
authority in connection with any audit or information request with respect to
any such Taxes. After the Closing Date, ComEd shall notify Purchaser in writing,
within thirty (30) days after its receipt of any correspondence, notice or other
communication from a taxing authority or any representative thereof, of any
pending or threatened Tax audit, or any pending or threatened judicial or
administrative proceeding that involves Taxes relating to the Assets allocable
to periods (or any portion thereof) beginning after the Closing Date (or portion
thereof), and furnish Purchaser with copies of all correspondence received from
any taxing authority in connection with any audit or information request with
respect to any such Taxes.
(v) Notwithstanding any provision of this Agreement to the contrary, with
respect to any claim for refund, audit, examination, notice of deficiency or
assessment or any judicial or administrative proceeding that involves Taxes
relating to the Assets (collectively, "Tax Claim"), each Party shall reasonably
cooperate with the other Party in prosecuting and/or contesting any Tax Claim,
including making available original books, records, documents and information
for inspection, copying and, if necessary, introduction as evidence at any such
Tax Claim contest or proceeding and making employees available on a mutually
convenient basis to provide additional information or explanation of any
material provided hereunder with respect to such Tax Claim or to testify at
proceedings relating to such Tax Claim. ComEd shall control (and be responsible
for the costs of) all proceedings taken in connection with any Tax Claim that
pertains entirely to any period ending on or prior to the Closing Date or
pertains to the period in which the Closing occurs if the primary portion of
such period (based on actual days during such period) is prior to the Closing
Date. Purchaser shall control (and be responsible for the costs of) all
proceedings taken in connection with any Tax Claim that pertains entirely to any
period beginning after the Closing Date or pertains to the period in which the
Closing occurs if the primary portion of such period (based on actual days
during such period) is after the Closing
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<PAGE>
Date; provide that, to the extent that any action with respect to any such
-------
Tax Claim is required to be taken prior to the Closing in order to preserve
such Tax Claim. ComEd shall have the right to take such action. Purchaser
has no right to settle or otherwise compromise any Tax Claim that pertains
entirely to any period ending on or prior to the Closing Date or pertains
to the period in which the Closing occurs if the primary portion of such
period (based on actual days during such period) is prior to the Closing
Date; and, except as provided above, ComEd has no right to settle or
otherwise compromise any Tax Claim that pertains to the period in which the
Closing occurs if the primary portion of such period (based on actual days
during such period) is after the Closing Date.
(b) Income and Expenses. Except as set forth in this Section 5.7
------------------- -----------
(Taxes, Prorations and Closing Costs), all items of income and expense related
to the Assets, including rents and other charges under the Assigned Leases and
Assigned Contracts, in each case, for the period prior to the Closing Date will
be for the account of ComEd and all items of income and expense, including rents
and other charges under the Assigned Leases and Assigned Contracts, for the
period on and after the Closing Date will be for the account of Purchaser, all
as determined by the accrual method of accounting. If either Party actually
receives any rents or other charges under the Assigned Leases and Assigned
Contracts that are, in whole or in part, designated as payments for the period
credited to the other Party under this Section 5.7(b) (Taxes, Prorations and
--------------
Closing Costs--Income and Expenses), the recipient will, within a reasonable
period of time, remit such amounts to the other Party.
(c) Proration Method. For purposes of calculating prorations,
----------------
Purchaser will be deemed to own the Assets, and, therefore, entitled to the
income therefrom and responsible for the expenses thereof, as of 11:59 p.m.
local time on the day prior to Closing. All prorations will be made on the basis
of the actual number of days of the month that will have elapsed as of the
Closing Date and based upon a 365 or 366 day year (as applicable). The amount of
the prorations will be subject to adjustment in cash after the Closing, as and
when complete and accurate information becomes available, and the Parties agree
to cooperate and use their good faith efforts to make such adjustments.
(d) Governmental Fees. Any fees imposed by any Governmental Authority
-----------------
related to or arising from operations of the Assets (including fees relating to
air emissions pursuant to any permit to operate) will be prorated between
Purchaser and ComEd on the following basis: ComEd is responsible for the portion
of such fees relating to the period up to the Closing Date; and Purchaser is
responsible for the portion of such fees relating to the period on and after the
Closing Date. All fees will be prorated on the assumption that an equal amount
of fees applies to each day of the year, regardless of how or when any
installment payments are billed or made. Notwithstanding the foregoing,
Purchaser will bear all fees that arise out of a change in ownership of the
Assets, including the transfer of the governmental permits, licenses and
approvals described in Schedule 2.1(c) (Specific Permits, Licenses and
---------------
Variances), and all fees and expenses (including expenses related to or arising
from the preparation of a renewal application, such as environmental
consultants' fees) associated with a renewal of a license or permit where the
expiration date occurs after the Closing.
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<PAGE>
(e) Purchaser's Closing Costs. In addition to (and not in lieu of)
-------------------------
each of the other costs and expenses for which Purchaser is responsible under
this Agreement (including elsewhere in this Section 5.7 (Taxes, Prorations and
-----------
Closing Costs)), Purchaser will pay: (i) all costs of (1) any changes,
alterations, updates and/or modifications to the Surveys or Preliminary, Title
Reports, (2) the Purchaser Title Policies and any other title policies and all
coverages and endorsements thereto that Purchaser elects to obtain pursuant to
Section 7.6 (Purchaser Title Policy) (but not including costs and expenses
- -----------
necessary to clear ComEd's title of matters other than the Permitted
Encumbrances), (3) all filing fees required under the HSR Act, (4) Purchaser's
due diligence inspections and reviews, and (5) obtaining the Required Consents
(other than the approvals described in Section 5.2(a) (Consents and Approvals--
--------------
ComEd Responsibility) and the costs and expenses incurred by ComEd in assisting
Purchaser in obtaining such consents); (ii) all fees of any Person, other than
the Investment Banker, that is entitled to a brokerage commission, finder's fee
or other like payment by reason of Purchaser's actions; (iii) document
recordation costs (excluding releases, satisfactions and similar documents
necessary to clear ComEd's title of matters other than the Permitted
Encumbrances); and (iv) all fees and expenses of Purchaser's counsel.
(f) ComEd's Closing Costs. In addition to (and not in lieu of) each of
---------------------
the other costs and expenses for which ComEd is responsible under this Agreement
(including elsewhere in this Section 5.7 (Taxes, Proration and Closing Costs),
-----------
ComEd will pay: (i) all fees payable to the Investment Banker in connection with
this transaction or any other Person that is entitled to a brokerage commission,
finder's fee or other like payment by reason of ComEd's actions, (ii) all costs
of obtaining the approvals described in Section 5.2(a) (ComEd Responsibility)
--------------
and all costs incurred by ComEd in assisting Purchaser in obtaining the Required
Consents, (iii) all costs of the Preliminary Title Reports and Surveys (but not
any costs of any changes, alterations, updates or modifications to either), and
(iv) all fees and expenses of ComEd's counsel.
5.8 1997 Act. From and after the Effective Date, Purchaser covenants
--------
and agrees that neither it nor any of its Affiliates will initiate any
proceeding, or take any other action that may reasonably be expected to lead to
a proceeding, to contest or challenge the provisions of section 16-128(c) of the
1997 Act.
5.9 Environmental Matters.
---------------------
(a) Purchaser's Responsibilities.
----------------------------
(i) Purchaser's Acknowledgment. Purchaser acknowledges that (A)
--------------------------
Environmental Conditions or other Environmental Liabilities exist or may
exist with respect to the Sites or in connection with the Assets, (B)
Purchaser has received ComEd's environmental reports and has had the
opportunity to perform such other due diligence and investigations as it
deems reasonable and necessary, (C) the economic and legal consequences
of Environmental Liabilities associated with the Assets and the Sites,
including Environmental Conditions, have been the subject of negotiation
between the parties, and the Purchase Price reflects any actual or
potential environmental impairment whether known or unknown, fixed or
contingent, and (D) except as set forth in Section 3.15 (Environmental
------------
Matters), ComEd has not
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<PAGE>
made any representation or warranty, whether express or implied, with respect to
any environmental, health or safety matter, including natural resources, related
in any way to the Sites, the Assets or to this Agreement or its subject matter.
Purchaser acknowledges and agrees that the representations and warranties
contained in Section 3.15 (Environmental Matters) shall expire with, and be
------------
terminated and extinguished by, the consummation of the sale of the Assets
pursuant to this Agreement, and ComEd shall have no liability whatsoever with
respect to such representations and warranties before or after the Closing Date.
(ii) Existing Environmental Liabilities. From and after the Closing Date,
----------------------------------
Purchaser shall assume all responsibility and liability for, and ComEd shall
have no responsibility or liability for, any matter within the scope of Section
-------
2.3(a) (Purchaser's Liabilities--Environmental Liabilities).
- ------
(iii) Cooperation, Access and Use of Property for Remediation. So long as
-------------------------------------------------------
ComEd is in substantial compliance with its obligations under Section 5.9(b)
--------------
(Environmental Matters-ComEd's Responsibilities), Purchaser agrees to: (A)
cooperate with ComEd's Remediation of any Transmission Environmental Condition
or the Tannery Site, (B) give ComEd and its agents and contractors reasonable
access to the Facilities, as necessary, to conduct or investigate the need for
such Remediation, (C) use Commercially Reasonable Efforts to obtain access to
leased or other offsite property for ComEd if necessary for the implementation
of such Remediation work, and (D) support ComEd in its negotiations with any
Governmental Authority with respect to such Remediation to the extent consistent
with Environmental Laws and the protection of human health.
(b) ComEd's Responsibilities.
------------------------
(i) Remediation. Subject to the terms and conditions described in this
-----------
Section 5.9 (Environmental Matters), ComEd agrees: (A) to undertake any
- -----------
Remediation relating to any Transmission Environmental Condition that is, and to
the extent, required by any Governmental Authority with jurisdiction over the
Transmission Excluded Assets or any portion thereof under Environmental Laws in
a written order, notice or directive that identifies the Transmission
Environmental Condition with respect to the Transmission Excluded Assets or any
portion thereof for which Remediation is required, and (B) to make Commercially
Reasonable Efforts to proceed with such Remediation in a reasonably diligent
manner and in conformance with instructions and requirements of such
Governmental Authority.
(ii) Exclusive Right to Negotiate. ComEd reserves the exclusive right to
----------------------------
negotiate and enter into agreements with any Person regarding the nature,
technical remediation approach, scope, cleanup objectives or any other aspect of
any Remediation undertaken by ComEd pursuant to clause (b) (i) above. Purchaser
may retain technical consultants, at Purchaser's sole cost and expense, to
advise Purchaser on such Remediation.
- 46 -
<PAGE>
(iii) NOx Allowances. Prior to the Closing Date, ComEd agrees to
--------------
negotiate in good faith with the Illinois Environmental Protection Agency
("IEPA") and the United States Environmental Protection Agency ("EPA") (if
applicable) with respect to maximizing the number of NOx trading allowances
that will be allocated to the ComEd coal-fired generating stations.
Purchaser shall be permitted to participate with ComEd in any further
negotiations, including (A) attending any further meetings with the IEPA
and/or the EPA regarding the allocation of Nox trading allowances; (B)
being provided with copies of all further correspondence from and to the
IEPA and/or the EPA relating to the allocation of NOx trading allowances,
and (C) being provided with a reasonable and fair opportunity to comment on
ComEd's further submissions to the IEPA and/or the EPA regarding NOx
trading allowances. Nothing herein shall limit Purchaser's right to
independently discuss any proposed NOx trading allowance allocation
directly with the IEPA or the EPA.
5.10 No Recourse. To the extent the transfer, conveyance, assignment
-----------
and delivery of Assets to Purchaser as provided in this Agreement is
accomplished by deeds, assignments, sublicenses, subleases, subcontracts or
other instruments of transfer and conveyance, whether executed at the Closing or
thereafter, these instruments are made without representation or warranty by, or
recourse against, ComEd, except as expressly provided in this Agreement or any
deed, assignment or other instrument of transfer and conveyance.
5.11 Advice of Changes. Prior to the Closing, each Party will advise
-----------------
the other in writing with respect to any matter arising after execution of this
Agreement of which that Party obtains Knowledge and which, if existing or
occurring at the Effective Date, would have been required to be set forth in any
of the Schedules.
5.12 Maintenance of Assets Pending Closing. From the Effective Date
-------------------------------------
through the Closing, except as expressly contemplated by this Agreement or to
the extent Purchaser otherwise consents in writing, which consent will not be
unreasonably withheld, delayed or conditioned, ComEd will not:
(a) Capital Expenditures. Except as allowed pursuant to Section 5.13
-------------------- ------------
(Capital Expenditures Prior to Closing), make any Capital Expenditure with
respect to the Facilities or enter into any contract or commitment therefor;
(b) Transfers. Sell, lease (as lessor), transfer or otherwise dispose
---------
of any of the Assets, other than Assets used, consumed or replaced in the
ordinary course of business and the sale of materials and supplies in the
ordinary course of business.
(c) Modification, Amendment and Termination. Modify, amend or
---------------------------------------
voluntarily terminate, or fail to use Commercially Reasonable Efforts
(excluding any obligation to offer or pay any consideration therefor) to
prevent any other party from voluntarily terminating, any of the Assigned
Leases or Assigned Contracts or any of the permits, licenses or approvals
listed on Schedule 2.1(c), (Specific Permits, Licenses and Variances),
---------------
other than (i) in the ordinary course of business and
- 47 -
<PAGE>
provided such change does not cause any of the Assigned Leases or Assigned
Contracts, permits, licenses or approvals to have materially more onerous
terms or conditions to Purchaser, (ii) in connection with an amendment of
the Collective Bargaining Agreement that is otherwise prohibited by this
subsection (c), provided that ComEd reimburses Purchaser for any amendments
to the Collective Bargaining Agreement related to a material net increase
in hourly wage rates and benefits provided to fossil division bargaining
unit employees who are hired by Purchaser in an amount equal to the present
value of such net increase, as of the Closing Date, over the 30-month
period following the Closing Date, using a discount rate of 10%, (iii) as
may be required in connection with transferring ComEd's rights or
obligations thereunder to Purchaser in connection with the transactions
contemplated by this Agreement or with ComEd and Purchaser obtaining the
Required Consents or (iv) as may be required by a Governmental Authority.
(d) Operation and Maintenance. Operate or maintain the Facilities in a
-------------------------
manner inconsistent with Prudent Utility Practices.
(e) Additional Title Encumbrances and Title Imperfections. Grant or
-----------------------------------------------------
create any lien, easement, encumbrance or title imperfection on any of the
Assets, other than (i) in the ordinary course of business to the extent
consistent with Prudent Utility Practices, (ii) those liens, easements,
encumbrances or title imperfections that, if in existence prior to the
Effective Date, would have been Permitted Encumbrances, (iii) the lien of
the Mortgage or (iv) as may be required in connection with transferring
ComEd's rights or obligations with respect to the Assets to Purchaser in
connection with the transactions contemplated by this Agreement or with
Purchaser obtaining the Required Consents.
5.13 Capital Expenditures Prior to Closing. Notwithstanding anything
-------------------------------------
to the contrary contained herein, ComEd may (without Purchaser's consent) make
(and undertake any work contemplated by): (i) Capital Expenditures described on
Schedule 5.13 (Pre-Approved Capital Expenditures) (collectively, the "Pre-
- -------------
Approved Capital Expenditures"), (ii) Necessary Capital Expenditures, (iii)
Approved Capital Expenditures and (iv) Pre-Closing Remediation Expenditures.
Purchaser will at Closing pay to ComEd the amount expended by ComEd on account
of all Pre-Approved Capital Expenditures, Necessary Capital Expenditures,
Approved Capital Expenditures and Pre-Closing Remediation Expenditures made or
completed by the Closing, and Purchaser will assume responsibility for and
release ComEd from liability for all such expenditures.
5.14 Post Closing - Information and Records
--------------------------------------
(a) Information and Administrative Support. Each Party agrees that,
--------------------------------------
from and after the Closing Date, it will, promptly following the written request
of the other Party, provide such information (other than privileged and/or
attorney work product documents or information) and administrative support as
will be reasonably requested by the other Party to enable the requesting Party
to comply with its obligations to Governmental Authorities or its obligations
with respect to the issuance of Forms W-2, 1099 and other tax reports, reports
and notices relating to pension, profit
- 48 -
<PAGE>
sharing, health and other plans, income tax returns, preparation of financial
statements and completion of the requesting Party's audit for the two fiscal
years ending December 31 following the Closing Date, and other similar matters.
(b) Books and Records.
-----------------
(i) For a period of seven (7) years after the Closing (or, if
requested in writing by ComEd within seven (7) years after the Closing,
until the closing of the applicable statute of limitations of ComEd's
federal income tax returns for all periods prior to and including the
Closing, if later), Purchaser will not dispose of any books, records,
documents or information relating to any of the Assets without first giving
notice to ComEd thereof and permitting ComEd to retain or copy such books
and records as it may select (other than privileged and/or attorney work
product documents and information). During such period, Purchaser will
permit ComEd to examine and make copies, at ComEd's expense, of such books,
records, documents and information for any reasonable purpose, including
any litigation pending on the Effective Date, or commenced thereafter, by
or against ComEd, or the preparation of income or other tax returns. ComEd
will provide reasonable notice to Purchaser of its need to access such
books, records, documents or other information, and such books, records,
documents or other information shall be deemed to constitute confidential
information.
(ii) If privileged and/or attorney work product documents or
information, including communications between ComEd and its counsel, are
disclosed to Purchaser in the books, records, documents or other
information located at the Sites, or if any other document or information
constituting Excluded Assets remains on the Sites after the Closing,
Purchaser agrees that (1) such disclosure is inadvertent, (2) such
disclosure will not constitute a waiver, in whole or in part, of any
privilege or work product, (3) such information will constitute
confidential information, and (4) it will promptly return to ComEd all
copies of such information in the possession of Purchaser to the extent
Purchaser obtains actual knowledge of the existence of such information.
(iii) Nothing contained in this Section 5.14(b) (Post Closing-
---------------
Information and Records-Books and Records) shall require Purchaser to
provide to ComEd any books and records and other information relating to
the Assets prepared by Purchaser, either before or after the Closing,
except upon a valid order of a court of law or Governmental Authority
having jurisdiction over Purchaser in the context of a proceeding before
such body.
(c) Employees. Each Party will make available to the other Party on a
---------
reasonable basis and as requested from time to time by the other Party after
Closing, those employees of such Party with knowledge of or relevant to the
matters described in this Section 5.14 (Post Closing-Information and Records)
------------
for the purpose of consultation, investigation and/or testimony in connection
therewith by any Person (other than such other Party).
- 49 -
<PAGE>
5.15 Liability Only Pursuant to Closing Certificate. Notwithstanding
----------------------------------------------
anything to the contrary contained in this Agreement, if the Closing occurs,
ComEd shall have no liability under Section 5.11 (Advice of Changes) or Section
------------ -------
5.12 (Maintenance of Assets Pending Closing) other than pursuant to the
- ----
certificate delivered by ComEd pursuant to Section 7.1 (Compliance With
-----------
Provisions) as to which a Notice of Claim is received by ComEd prior to the
first anniversary of the Closing Date.
5.16 Casualty Loss.
-------------
(a) Casualty Estimate. If, at any time after the Effective Date and
-----------------
prior to Closing, any Facility suffers a total or partial Casualty ("Event of
Loss"), ComEd will promptly inform Purchaser of the Event of Loss. As soon as
practicable following any Casualty, ComEd will provide to Purchaser a detailed
written estimate from an independent third party appraiser mutually acceptable
to ComEd and Purchaser ("Casualty Estimate") setting forth the estimated amount
required to repair or replace the damaged Asset and the estimated time period
for completion of such repair or replacement.
(b) ComEd's Election. Concurrently with the delivery of a Casualty
----------------
Estimate indicating that an Event of Loss has occurred, ComEd will notify
Purchaser whether it elects (i) to repair or replace the damaged Asset or (ii)
to accept a reduction in the Purchase Price by an amount equal to the Casualty
Estimate (less any Casualty Betterments), in which case ComEd will have no
obligation to repair the damaged Asset as a result of such Event of Loss. If
ComEd elects to repair or replace the damaged Asset, ComEd shall promptly
commence and diligently proceed to complete the repair or replacement of the
damaged Asset in a good and workmanlike manner at ComEd's sole cost, provided
--------
that Purchaser shall reimburse ComEd for the full cost of any Casualty
Betterments. The damaged Asset shall be restored in a manner consistent with the
condition of the Asset immediately prior to the occurrence of the Event of Loss,
except for any Casualty Betterments.
(c) Closing Matters. Notwithstanding anything contained herein to the
---------------
contrary, in the event that one or more generating units being sold to Purchaser
pursuant to this Agreement suffers an Event of Loss (each such unit being
referred to herein as an "Affected Unit") prior to Closing such that such
Affected Unit(s) cannot, or the parties agree that such Affected Unit(s) will
not, satisfy the requirements of Section 7.9 (Facility Performance) at a time
-----------
when all other conditions to the respective obligations of the Parties to
consummate the transaction contemplated under this Agreement have been or are
reasonably expected to be met, the Parties shall discuss mechanisms by which the
transactions may be completed with or without the Affected Unit(s). In the event
that the Parties reach agreement with respect to such mechanism so that the
Closing proceeds with or without the Affected Unit(s), it is understood that the
requirements of the related Power Purchase Agreement(s) may need to be adjusted
in a mutually satisfactory manner to reflect the expected period of repair or
replacement of the Affected Unit(s). In the event that the Closing proceeds
without the Affected Unit(s), it is understood that, in addition to the
foregoing, the Parties may need to make amendments to various other Related
Agreements in order to reflect the retention by ComEd of the Affected Unit(s)
and related assets, may need to make changes to reflect a partial transfer of
assets and liabilities in connection with such a Closing, and may need to make
provision for the eventual transfer of the Affected Unit(s) and related assets
and liabilities from ComEd to Purchaser.
- 50 -
<PAGE>
5.17 Crawford Dredge Material. Notwithstanding the foregoing or
------------------------
anything to the contrary contained in this Agreement, ComEd and Purchaser agree
that ComEd shall have the right (but not the obligation), prior to Closing, to:
(a) construct a bermed area (which bermed area may consist of approximately 2
acres) at an unimproved location at the Transferred Real Property at the
Crawford Station Site designated by ComEd, (b) dredge the intake and discharge
channel which serves the Crawford Station Site, (c) store any and all dredge
spoils, sludge, dredge materials and other by-products of such dredging
(collectively, "Crawford Dredge Material") at the bermed area described above
until such time as such Crawford Dredge Material is sufficiently dry, as
determined by ComEd, and (d) amend any existing (or apply for and obtain any
new) permits, licenses, consents and/or approvals which ComEd determines are
necessary and/or appropriate to conduct the activities described above. ComEd
and Purchaser further acknowledge and agree that, on the Closing Date, all of
such Crawford Dredge Material may not yet be sufficiently dry, and that, in such
event, Purchaser shall assume any and all post-Closing obligations to complete
dewatering and off-site disposal of such material, together with any related
liabilities.
5.18 Electric Junction Access. With respect to the Electric Junction
------------------------
Site, prior to Closing, ComEd shall be obligated to take one (at ComEd's sole
election), but not more than one, of the following actions:
(i) Obtain the consent of the DuPage County Highway Authority (or other
appropriate entity) as required to give effect to the Purchaser Ingress-
Egress Right of Way in the form of Exhibit B-13 hereto (including the
------------
"Option (i) Provisions" thereof, as defined in the Notes to said Ingress-
Egress Right of Way) and an access endorsement issued by the Title Company
in favor of Purchaser with respect to the rights of ingress and egress
described therein. In the event that ComEd exercises its rights set forth
in this Subparagraph (i), then ComEd and Purchaser shall, at the Closing,
execute, deliver and record the Purchaser Ingress-Egress Right of Way (and
such Purchaser Ingress-Egress Right of Way shall contain the Option (i)
Provisions);
(ii) Construct (at ComEd's cost and expense) an access drive providing
an alternative means of ingress and egress to and from the peaking units
located on the Transferred Real Property and Eola Road. In the event that
ComEd elects to construct such alternative means of access, ComEd shall have
the right to construct such alternative access drive as follows:
(a) ComEd may locate the driveway over (x) such portions of the
Transferred Real Property as ComEd determines are feasible for such
construction (in which event Purchaser and ComEd shall not execute,
deliver or record the Purchaser Ingress-Egress Right of Way), and/or
(y) ComEd's adjacent property (in which event Purchaser and ComEd shall
execute, deliver and record the Purchaser Ingress-Egress Right of Way
(but such Purchaser Ingress-Egress Right of Way shall not contain the
Option (i) Provisions);
- 51 -
<PAGE>
(b) ComEd may utilize the existing curb cut on Eola Road or
obtain approval for a new curb cut; and
(c) ComEd may utilize such materials and design as ComEd deems
appropriate (which design and materials may involve construction of a
paved or unpaved (gravel) drive).
or
(iii) Provide such other assurances and/or documentation as Purchaser
shall find reasonably acceptable (which may include affirmative title
insurance coverage issued by the Title Company in favor of the Purchaser)
conferring upon Purchaser the right to gain access to the peakers at the
Transferred Real Property from Eola Road. In the event that ComEd exercises
its rights under this Subparagraph (iii), then Purchaser and ComEd shall
execute, deliver and record the Purchaser Ingress-Egress Right of Way, with
such modifications as are reasonably acceptable to the parties, and as are
warranted by the facts and circumstances.
Purchaser agrees that it shall execute and deliver such documents and
take such actions as may be reasonably requested by ComEd in order to effectuate
the intention of the terms of this Section 5.18.
------------
5.19 Illinois Responsible Property Transfer Act. ComEd and Purchaser
------------------------------------------
acknowledge that: (a) they are fully aware of the purpose and intent of the
Illinois Responsible Property Transfer Act (765 ILCS 90/1 et seq.) (the "Act")
-- ---
and the disclosure document called for by the Act; (b) they knowingly and
voluntarily waive the requirement that the disclosure document be delivered at
least 30 days before the transfer and agree that the disclosure document may be
delivered at Closing; and (c) Purchaser further waives any and all rights it may
have under the Act and agrees that the rights and remedies pursuant to this
Agreement shall be the sole rights and remedies available to it relating to
environmental matters or the presence of any Environmental Condition on the
Transferred Real Property.
ARTICLE 6
---------
INDEMNIFICATION
---------------
6.1 Survival of the Parties' Representations and Warranties. The
-------------------------------------------------------
representations and warranties of the Parties contained in this Agreement or any
breach of the certificate delivered by a Party pursuant to Section 7.1
-----------
(Compliance With Provisions) or Section 8.1 (Compliance With Provisions) will
-----------
survive the Closing until the first anniversary of the Closing Date, at which
time these representations and warranties and any liability under such
certificates will terminate. Any Purchaser Claim or ComEd Claim with respect to
the foregoing must be made by written notice writing to the other Party prior to
the first anniversary of the Closing Date. Notwithstanding anything contained in
this Agreement to the contrary, the representation and warranties contained in
Section 3.15 (Environmental Matters) shall expire with, and be terminated
- ------------
- 52 -
<PAGE>
and extinguished by, the consummation of the sale of the Assets pursuant to
this Agreement, and ComEd shall have no liability whatsoever with respect to
such representations and warranties before or after the Closing Date, including
pursuant to the certificate delivered by ComEd pursuant to Section 7.1.
-----------
(Compliance With Provisions).
6.2 Indemnification by ComEd.
------------------------
(a) Purchaser Claims. ComEd will indemnify and hold harmless
----------------
Purchaser and its Affiliates, and each of their officers, directors, employees,
partners, attorneys, agents and successors and assigns (collectively, the
"Purchaser Group"), from and against all damages, claims, losses, fines,
penalties, liabilities and expenses, including reasonable legal, accounting and
other expenses, which arise out of or relate to the following (collectively,
"Purchaser Claims"):
(1) any breach by ComEd of any of its covenants in this Agreement or
any failure of ComEd to perform any of its obligations in this Agreement;
(2) any breach of any warranty or the inaccuracy of any representation
of ComEd contained in this Agreement (excluding Section 3.15 (Environmental
------------
Matters)) or any breach of the certificate delivered by ComEd pursuant to
Section 7.1 (Compliance With Provisions) as to which a Notice of Claim is
-----------
received by ComEd prior to the first anniversary of the Closing Date; and
(3) any Excluded Liabilities;
provided, however, that ComEd shall be required to indemnify and hold harmless
under clause (2) of this Section 6.2(a) (Indemnification by ComEd--Purchaser
--------------
Claims) with respect to Purchaser Claims incurred by the Purchaser Group only to
the extent that the aggregate amount of such Purchaser Claims exceeds Twenty
Million Dollars ($20,000,000) (but only in the amount of such excess); and
provided further, that the aggregate liability of ComEd under clause (2) of this
Section 6.2(a) (Indemnification by ComEd--Purchaser Claims) shall not exceed
- --------------
twenty percent (20%) of the Purchase Price. For purposes of computing the amount
of any indemnification payment under this Section 6.2 (Indemnification by
-----------
ComEd), any such indemnification payment shall be treated as an adjustment to
the Purchase Price for all Tax purposes.
(b) ComEd Limitations. The Purchaser Group will not in any event be
-----------------
entitled to any punitive, incidental, indirect, special or consequential damages
resulting from or arising out of any Purchaser Claims, including damages for
lost revenues, income, profits or tax benefits, diminution in value of the Sites
or any portion thereof or any other damage or loss resulting from any disruption
to or loss of operation of the Assets.
6.3 Indemnification by Purchaser.
----------------------------
(a) ComEd Claims. Purchaser will indemnify and hold harmless ComEd and
------------
its Affiliates, and each of their officers, directors, employees, partners,
attorneys, agents and successors and assigns (collectively, the "ComEd Group"),
from and against all damages, claims, losses, fines,
- 53 -
<PAGE>
penalties, liabilities and expenses, including reasonable legal, accounting and
other expenses, which arise out of or relate to the following (collectively,
"ComEd Claims"):
(1) any breach by Purchaser of any of its covenants in this Agreement
or any failure of Purchaser to perform any of its obligations under this
Agreement,
(2) any breach of any warranty or the inaccuracy of any representation
of Purchaser contained in this Agreement or any breach of the certificate
delivered by Purchaser pursuant to Section 8.1 (Compliance With Provisions)
-----------
as to which a Notice of Claim is received by Purchaser prior to the first
anniversary of the Closing Date;
(3) any Third Party Claims against any member of the ComEd Group
(other than the Third Party Claims described in subsections (4) and (6)
below) for personal injury or property loss or damages resulting from or
arising out of the ownership or operation of the Assets from and after the
Closing, but only to the extent the alleged personal injury or property
damage occurred on or after the Closing Date;
(4) any Third Party Claims against any member of the ComEd Group
resulting from or arising out of any Environmental Liability within the
scope of Section 2.3(a) (Purchaser's Liabilities--Environmental
--------------
Liabilities) or otherwise assumed by Purchaser pursuant to this Agreement;
(5) Purchaser's Liabilities; or
(6) any personal injury or property damage resulting from or arising
out of Purchaser's due diligence inspections and reviews or the presence of
Purchaser or any member of the Purchaser Group at or on any of the Sites
prior to Closing;
provided, however, that Purchaser shall be required to indemnify and hold
harmless under clause (2) of this Section 6.3(a) (Indemnification by ComEd--
--------------
Purchaser Claims) with respect to ComEd Claims incurred by the ComEd Group only
to the extent that the aggregate amount of such ComEd Claims exceeds Twenty
Million Dollars ($20,000,000) (but only in the amount of such excess). For
purposes of computing the amount of any indemnification payment under this
Section 6.3 (Indemnification by Purchaser), any such indemnification payment
- -----------
shall be treated as an adjustment to the Purchase Price for all Tax purposes.
(b) Purchaser Limitations. Except as provided in the Power Purchase
---------------------
Agreements, the ComEd Group will not in any event be entitled to any punitive,
incidental, indirect, special or consequential damages resulting from or arising
out of any ComEd Claim, including damages for lost revenues, income, profits or
tax benefits, diminution in the value of the Sites or any portion thereof or any
other damage or loss resulting from any disruption to or loss of operation of
the Assets.
- 54 -
<PAGE>
(c) Purchaser's Release of ComEd. Purchaser, for itself and on behalf
----------------------------
of the Purchaser Group, does hereby release, hold harmless and forever discharge
each member of the ComEd Group from any and all claims, demands, liabilities
(including fines and civil penalties) or causes of action at law or in equity
(including any actions arising under Environmental Laws), destruction, loss or
damage of any kind or character, whether known or unknown, hidden or concealed,
to the person or property of any member of the Purchaser Group resulting from or
arising out of (i) the condition (physical or otherwise) of the Assets or (ii)
any Environmental Liability (as such term is defined in Section 2.3(a)
(Purchaser's Liabilities--Environmental Liabilities)) except, in the case of
clause (ii), as to ComEd's obligations under Section 5.9(b) (Environmental
--------------
Matters--ComEd's Responsibilities) and Section 6.2 (Indemnification by ComEd).
-----------
Purchaser hereby waives any and all rights and benefits that it now has, or in
the future may have conferred upon it, by virtue of the provisions of any law or
regulation that does or may provide in whole or in part as follows:
A general release may not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor. In this connection, Purchaser hereby agrees, represents and warrants
that it realizes and acknowledges that factual matters now unknown to it may
have given or may hereafter give rise to claims that are presently unknown,
unanticipated and unsuspected, and it further agrees, represents and warrants
that this release has been negotiated and agreed upon in light of that
realization and it nevertheless hereby intends to release each member of the
ComEd Group from the claims, demands and liabilities described in the first
sentence of this Section 6.3(c) (Indemnification by Purchaser--Purchaser's
--------------
Release of ComEd).
6.4 Notice of Claim. (a) Subject to the terms of this Agreement and
---------------
upon obtaining knowledge of a claim for which it is entitled to indemnity under
this Article 6 (Indemnification), the Party seeking indemnification hereunder
---------
(the "Indemnitee") will promptly provide written notice (a "Notice of Claim") to
the Party against whom indemnification is sought (the "Indemnitor") of any
damage, claim, loss, fine, penalty, liability or expense that the Indemnitee has
determined has given or could give rise to a claim under Section 6.2
-----------
(Indemnification by ComEd) or Section 6.3 (Indemnification by Purchaser). A
-----------
Notice of Claim will specify, in reasonable detail, the facts known to the
Indemnitee regarding the claim. Subject to the terms of this Agreement, the
failure to provide (or timely provide) a Notice of Claim will not affect the
Indemnitee's rights to indemnification; provided, however, the Indemnitor is not
obligated to indemnify the Indemnitee to the extent that the Indemnitor is
materially prejudiced by the failure to deliver timely a Notice of Claim.
(b) After the giving of any Notice of Claim pursuant hereto, the
amount of indemnification to which an Indemnitee shall be entitled under this
Article 6 (Indemnification) shall be determined: (i) by the written agreement
- ---------
between the Indemnitee and the Indemnitor; (ii) by a final determination of the
arbitrator(s) (in accordance with the provisions of Section 11.8 (Dispute
------------
Resolution)) or a final judgment or decree of any court of competent
jurisdiction; or (iii) by any other means to which the Indemnitee and the
Indemnitor shall agree. The judgment or decree of a court shall be deemed final
when the time for appeal, if any, shall have expired and no appeal shall have
- 55 -
<PAGE>
been taken or when all appeals taken shall have been finally determined. The
Indemnitee shall have the burden of proof in establishing the amount of actual
damages suffered by it.
6.5 Defense of Third party Claims. The Indemnitor will defend, in good
-----------------------------
faith and at its expense, with counsel selected by the Indemnitor after
reasonable consultation with the Indemnitee, any claim or demand set forth in a
Notice of Claim relating to a Third Party Claim and the Indemnitee, at its
expense, may participate in the defense. The Indemnitee cannot settle or
compromise any Third Party Claim so long as the Indemnitor is defending it in
good faith, except that the Indemnitee may settle or compromise any claim with
respect to which it releases the Indemnitor from its obligations under this
Article 6 (Indemnification). If the Indemnitor elects not to contest a Third
- ---------
Party Claim or if and to the extent that, in the opinion of the Indemnitee and
its counsel, such Third Party Claim involves the potential imposition of
criminal liability on the Indemnitee, the Indemnitee may assume and control the
defense of such claim; provided, however, that the Indemnitee may not settle any
such claim which settlement requires the Indemnitor to pay money, perform
obligations or admit liability without the consent of the Indemnitor, such
consent not to be unreasonably withheld. The Indemnitor may at any time request
the Indemnitee to agree to the abandonment of the contest of the Third Party
Claim or to the payment or compromise by the Indemnitor of the asserted claim or
demand. If the Indemnitee does not object in writing within fifteen (15) days of
the Indemnitor's request, the Indemnitor may proceed with the action stated in
the request. If within that fifteen (15) day period the Indemnitee notifies the
Indemnitor in writing that it has determined that the contest should be
continued, the Indemnitor will be liable under this Article 6 (Indemnification)
---------
only for an amount up to the amount that the third party to the contested Third
Party Claim had agreed to accept in payment or compromise as of the time the
Indemnitor made its request. This Section 6.5 (Defense of Third Party Claims) is
-----------
subject to the rights of any Indemnitee's insurance carrier that is defending
the Third Party Claim. If there shall be any conflict between the provisions of
this Section 6.5 (Defense of Third Party Claims) and Section 5.7(a)(v) (Taxes,
----------- -----------------
Prorations and Closing Costs-Taxes), the provisions of Section 5.7(a)(v) shall
-----------------
control with respect to Tax Claims.
6.6 Cooperation. The Party defending the Third Party Claim will (a)
-----------
consult with the other Party throughout the pendency of the Third Party Claim
regarding the investigation, defense, settlement, trial, appeal or other
resolution of the Third Party Claim and (b) afford the other Party the
opportunity to be associated in the defense of the Third Party Claim. The
Parties will cooperate in the defense of the Third Party Claim. The Indemnitee
will make available to the Indemnitor or its representatives all records and
other materials reasonably required by them for use in contesting any Third
Party Claim (subject to obtaining a joint defense agreement to maintain the
confidentiality of confidential or proprietary materials in a form reasonably
acceptable to the Indemnitor and the Indemnitee). If requested by the
Indemnitor, the Indemnitee will cooperate with the Indemnitor and its counsel in
contesting any Third Party Claim that the Indemnitor elects to contest or, if
appropriate, in making any counterclaim against the Person asserting the claim
or demand, or any cross-complaint against any Person. The Indemnitor will
reimburse the Indemnitee for any expenses incurred by Indemnitee in cooperating
with or acting at the request of the Indemnitor.
- 56 -
<PAGE>
6.7 Mitigation and Limitation on Claims. As used in this Agreement,
-----------------------------------
the term "Indemnifiable Claim" means any Purchaser Claims or ComEd Claims.
Notwithstanding anything to the contrary contained herein:
(a) Reasonable Steps to Mitigate. The Indemnitee will take all
----------------------------
reasonable steps to mitigate all losses, damages and the like relating to
an Indemnifiable Claim, including availing itself of any defenses,
limitations, rights of contribution, claims against third Persons and other
rights at law or equity, and will provide such evidence and documentation
of the nature and extent of the Indemnifiable Claim as may be reasonably
requested by the Indemnitor. The Indemnitee's reasonable steps include the
reasonable expenditure of money to mitigate or otherwise reduce or
eliminate any loss or expense for which indemnification would otherwise be
due under this Article 6 (Indemnification), and the Indemnitor will
---------
reimburse the Indemnitee for the Indemnitee's reasonable expenditures in
undertaking the mitigation.
(b) Net of Benefits. Any Indemnifiable Claim is limited to the amount
---------------
of actual damages sustained by the Indemnitee by reason of such breach or
nonperformance, net of the dollar amount of (i) any insurance proceeds
receivable by the Indemnitee or any of its Affiliates from any third party
insurer with respect to the Indemnifiable Claim, and (ii) any federal,
state or local tax benefits realizable by the Indemnitee or any of its
Affiliates as the result of the loss related to such breach or
nonperformance.
(c) Coordination with Section 5.9 (Environmental Matters) and
---------------------------------------------------------
Facilities Agreements. With respect to any Third Party Claim for
---------------------
Remediation, the Parties' obligations under Section 6.5 (Defense of Third
-----------
Party Claims), Section 6.6 (Cooperation) and this Section 6.7 (Mitigation
------------ -----------
and Limitation on Claims), on the one hand, are subject to the Parties'
rights and obligations under Section 5.9 (Environmental Matters) and the
------------
Facilities Agreements, on the other hand, and in the event of any
inconsistency between the Parties' rights and obligations under Sections
--------
6.5, 6.6 and 6.7, on the one hand, and Section 5.9 or the Facilities
--- --- --- -----------
Agreements on the other hand, the provisions of Section 5.9 and the
-----------
Facilities Agreements shall control.
6.8 Survival of Certain Obligations. The obligations of the Parties
-------------------------------
set forth in Section 5.8 (1997 Act), Section 5.9 (Environmental Matters) and in
----------- -----------
this Article 6 (Indemnification) shall survive without limitation in time
---------
(except as otherwise provided herein) regardless of whether Purchaser continues
to own all or any portion of the Assets or the Facilities.
6.9 Remedies Exclusive. Except for intentional fraud and for
------------------
injunctive relief to enforce a Party's rights under this Agreement, if the
Closing occurs, the remedies set forth in this Article 6 (Indemnification)
---------
constitute the sole and exclusive remedy for breaches of this Agreement
(including any covenant, obligation, representation or warranty contained in
this Agreement or in any certificate delivered pursuant to this Agreement) or
otherwise in respect of the sale of the Assets
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<PAGE>
contemplated hereby. Each Party waives any provision of law to the extent that
it would limit or restrict the agreements contained in this Article 6
---------
(Indemnification).
ARTICLE 7
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF
--------------------------------------
PURCHASER AT THE CLOSING
------------------------
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction or waiver (to
the extent permitted by law), on or prior to the Closing, of each of the
following conditions precedent:
7.1 Compliance with Provisions. ComEd has performed or complied in
--------------------------
all material respects with all of its covenants and agreements contained in
this Agreement required to be performed or complied with at or prior to the
Closing; the representations and warranties of ComEd contained in this
Agreement (disregarding for this purpose any qualifications with respect to
materiality or Material Adverse Effect) shall be true and correct on the
Closing Date as though made on the Closing Date (other than representations and
warranties that address matters only as of a certain date which shall be true
and correct as of such certain date), except for any failures to be true and
correct which, individually or in the aggregate, would not have a Material
Adverse Effect and except for changes specifically permitted by this Agreement
or resulting from any transaction expressly consented to in writing by
Purchaser or any transaction permitted by Section 5.12 (Maintenance of Assets
------------
Pending Closing) and Section 5.13 (Capital Expenditures Prior to Closing), and
------------
there Shall have been delivered to Purchaser a certificate to such effect,
dated the Closing Date, signed on behalf of ComEd by the President or any
Executive Vice President, Senior Vice President or Vice President of ComEd.
7.2 ComEd's Receipt of Approvals of Governmental Authorities. The
--------------------------------------------------------
condition set forth in Section 8.2 (ComEd's Receipt of Approvals of
-----------
Governmental Authorities) has been satisfied or waived by ComEd.
7.3 Purchaser's Receipt of Approvals of Governmental Authorities.
------------------------------------------------------------
(a) Illinois Authority The Illinois Authority shall have been
------------------
received.
(b) Other Approvals. Purchaser has received all Required Consents
---------------
which are specified in Schedule 7.3(b) (Purchaser Consents Required for Closing)
---------------
or are otherwise necessary to prevent a Material Adverse Effect.
7.4 No Adverse Proceedings. No order or injunction by any court of
----------------------
competent jurisdiction which restrains or prohibits any material transaction
contemplated hereby shall have been issued and remain in effect (each Party
agreeing to use Commercially Reasonable Efforts to have any such order or
injunction lifted).
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<PAGE>
7.5 Deliveries. ComEd has delivered, or caused to be delivered, to
----------
Purchaser at the Closing the documents referenced in Section 9.2 (ComEd's
-----------
Additional Deliveries).
7.6 Purchaser Title Policy. The Title Company shall be committed
----------------------
(subject to Purchaser's obligation to pay all costs and fees associated
therewith and subject to ComEd's receipt of the Purchase Price (adjusted by
prorations as set forth herein)) to issue to Purchaser a policy of title
insurance, as evidenced by a title insurance binder that has been marked by an
authorized representative of the Title Company or other evidence reasonably
satisfactory to the Purchaser, naming purchaser as insured, covering the state
of title to the Transferred Real Property, subject only to Permitted
Encumbrances and otherwise in the form of the Preliminary Title Report
("Purchaser Title Policy").
7.7 HSR Act. The waiting period under the HSR Act applicable to the
-------
sale of the Assets shall have expired or been terminated.
7.8 No Material Adverse Effect. Between the Effective Date and the
--------------------------
Closing Date, there shall have been no Material Adverse Effect which remains in
effect.
7.9 Facility Performance. The test of Facility performance described
--------------------
in the next sentence shall have verified that the requirements set forth therein
have been satisfied. Within thirty (30) days prior to the Closing, Purchaser and
ComEd shall jointly conduct a test at each Facility in accordance with the
procedures set forth in Schedule 7.9 (Facility Performance Tests) to verify that
------------
the Net Dependable Capacity of each unit at each Site, the Regulating
Performance Value (RPV) for such unit (other than any peaking unit) and the
minimum operating level for each such unit satisfy the applicable requirements
of Appendix B of the Power Purchase Agreements (and, in the case of peaking
units, Appendix A of the Power Purchase Agreement (Peaking Units)); provided,
--------
however, that if a Site is in an Outage during such thirty (30)-day period, then
- -------
this condition shall be deemed satisfied with respect to the units at such Site
if Purchaser has observed such units operating at the levels required by this
Section 7.9 (Facility Performance) within ninety (90) days prior to the Closing;
- -----------
and provided, further, that if any unit at a Site cannot satisfy the RPV
-------- -------
requirement set forth in this Section 7.9 (Facility Performance), such RPV
-----------
requirement shall nevertheless be deemed satisfied with respect to such unit to
the extent ComEd adjusts the RPV requirement in Appendix B of the Power Purchase
Agreement to reflect the RPV actually demonstrated; and provided, further, that
--------- -------
the failure of one or more peaking units to meet the Net Dependable Capacity
and/or minimum operating level for such unit or units shall not be deemed a
failure to satisfy this Section 7.9 (Facility Performance) unless such failures
-----------
in the aggregate constitute a Material Adverse Effect.
7.10 Year 2000 Status. ComEd shall have reasonably demonstrated that
----------------
the software, equipment and systems owned by ComEd which are material to the
generation of electric energy at the Facilities (the "ComEd Generation Systems")
are Year 2000 Ready (as defined below). "Year 2000 Ready" means that individual
ComEd Generation Systems, when used in accordance with their associated
documentation, will be either compliant or their characteristics which are non-
compliant have been evaluated and determined to be suitable for use into the
year 2000. For purposes of the preceding sentence, "compliant" means that the
individual ComEd Generation Systems will be capable of accurately processing,
providing and/or receiving date data
- 59 -
<PAGE>
from, into and between the twentieth and twenty first centuries, including the
years 1999 and 2000, provided that all third party products used in combination
with the ComEd Generation Systems properly exchange date data with the ComEd
Generation Systems. ComEd's reasonably satisfactory completion of the material
test procedures set forth in Schedule 7.10 (Year 2000 Test Procedures) with
-------------
respect to the ComEd Generation Systems shall be conclusive evidence that such
ComEd Generation Systems are Year 2000 Ready.
7.11 Illinois Legislation. Between the Effective Date and the Closing
--------------------
Date, no law, shall have been enacted by the Illinois General Assembly which,
as a condition to the sale of the Facilities, requires Purchaser to reduce
emissions of sulfur dioxides at the Facilities to a level which would
reasonably be expected to result in a material adverse effect on the operation
of the Assets, taken as a whole.
ARTICLE 8
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF
--------------------------------------
COMED AT THE CLOSING
--------------------
The obligations of ComEd to consummate the transactions contemplated
by this Agreement are subject to the satisfaction or waiver (to the extent
permitted by law), on or prior to the Closing, of each of the following
conditions precedent:
8.1 Compliance with Provisions. Purchaser has performed or complied
--------------------------
in all material respects with all of its covenants and agreements contained in
this Agreement required to be performed or complied with at or prior to the
Closing; the representations and warranties of Purchaser contained in this
Agreement and the Related Agreements shall be true and correct in all material
respects on the Closing Date as though made on the Closing Date (other than
representations and warranties which address matters only as of a certain date
which shall be true and correct in all material respects as of such certain
date), except for changes therein specifically permitted by this Agreement or
resulting from any transaction expressly consented to in writing by ComEd; and
there shall have been delivered to ComEd a certificate to such effect, dated
the Closing Date, signed on behalf of Purchaser by the President or any Vice
President of Purchaser.
8.2 ComEd's Receipt of Approvals of Governmental Authorities. ComEd
--------------------------------------------------------
has received and approved (in its reasonable discretion) the Illinois
Authority, any approval required to be obtained from FERC and all other
approvals from the other Governmental Authorities listed on Schedule 8.2
------------
(Required Governmental Approvals), as such Schedule may be amended prior to
Closing by mutual agreement of the Parties prior to the Closing, and which
approvals are in full force and effect on the Closing.
8.3 ComEd's Receipt of Approvals. ComEd has received all Required
----------------------------
Consents which are specified in Schedule 8.3 (ComEd Consents Required for
------------
Closing) or, with respect to the Coal Contracts and Transportation Contracts
(as such terms are defined in the Agency Agreement), Purchaser shall have
entered into the Agency Agreement.
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<PAGE>
8.4 No Adverse Proceeding. No order or injunction by a court of
---------------------
competent jurisdiction which restrains or prohibits any material transaction
contemplated hereby shall have been issued and remain in effect (each Party
agreeing to use Commercially Reasonable Efforts to have am such order or
injunction lifted).
8.5 Deliveries. Purchaser has delivered, or caused to be delivered, to
----------
ComEd at the Closing the documents referenced in Section 9.1 (Purchaser's
-----------
Additional Deliveries).
8.6 ComEd Title Policy. The Title Company shall be committed (subject
------------------
to ComEd's obligation to pay all costs and fees associated therewith) to issue
to ComEd a policy of title insurance, as evidenced by a title insurance binder
that has been marked by an authorized representative of the Title Company or
other evidence reasonably satisfactory to ComEd, naming ComEd as insured,
covering the state of title to the Switchyard Property (and insuring as
appurtenances thereto the Easement Agreements and easements in the Facilities
Agreement which benefit ComEd).
8.7 HSR Act. The waiting period under the HSR Act applicable to the
-------
sale of the Assets shall have expired or been terminated.
8.8 Illinois Legislation. Between the Effective Date and the Closing
--------------------
Date, no law (other than a law relating to income taxes) shall have been enacted
by the Illinois General Assembly which, as a condition to the sale of the
Facilities, materially restricts ComEd's ability to use all or any portion of
the proceeds or requires ComEd to ensure the performance by Purchaser of any
material aspect of the operation of the Assets following the Closing.
ARTICLE 9
---------
CLOSING DELIVERIES
------------------
9.1 Purchaser's Additional Deliveries. Subject to fulfillment or
---------------------------------
waiver of the conditions set forth in Article 7 (Conditions Precedent to
---------
Obligations of Purchaser at the Closing), at Closing Purchaser shall deliver to
ComEd all the following:
(a) Copies of the Articles of Incorporation of Purchaser certified as
of a recent date by the Secretary of State of the State of California;
(b) Certificate of good standing of Purchaser issued as of a recent
date by the Secretary of State of California and of Illinois;
(c) Certificate of the secretary or an assistant secretary of Purchaser
dated the Closing Date, in form and substance reasonably satisfactory to
ComEd, as to (i) no amendments to the Articles of Incorporation of
Purchaser since a specified date; (ii) the by-laws of Purchaser; (iii) the
resolutions of the Board of Directors of Purchaser authorizing the
execution and performance of this Agreement and the
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<PAGE>
transactions contemplated hereby; and (iv) incumbency and signatures of the
officers of Purchaser executing this Agreement and any Related Agreement;
(d) Opinion of counsel(s) to Purchaser containing the opinions
substantially as set forth in Exhibit I;
---------
(e) The Instrument of Assumption duly executed by Purchaser;
(f) The certificate contemplated by Section 8.1 (Compliance With
-----------
Provisions), duly executed by an officer of Purchaser;
(g) The Power Purchase Agreements, the Easement Agreements, the
Facilities Agreements, the Reproration Agreements and the Agency Agreement
(if necessary), in each case duly executed by Purchaser;
(h) Any documents and/or instruments of subordination required under
Section 9.3 (Delayed Recordation of Easement Agreements), in form and
-----------
substance reasonably satisfactory to ComEd, duly executed by all
appropriate Persons;
(i) Any real estate transfer Tax declarations required to be executed
or filed in connection with the transfer of the Assets; and
(j) Any documents or instruments required by the Title Company for the
issuance of the Purchaser Title Policy.
9.2 ComEd's Additional Deliveries. Subject to fulfillment or waiver of
-----------------------------
the conditions set forth in Article 8 (Conditions Precedent to Obligations of
---------
ComEd at the Closing), at Closing ComEd shall deliver to Purchaser all the
following:
(a) Copies of the Restated Articles of Incorporation of ComEd certified
as of a recent date by the Secretary of State of the State of Illinois;
(b) Certificate of good standing of ComEd issued as of a recent date by
the Secretary of State of Illinois;
(c) Certificate of the secretary or an assistant secretary of ComEd,
dated the Closing Date, in form and substance reasonably satisfactory to
Purchaser, as to (i) no amendments to the Restated Articles of Incorporation
of ComEd since a specified date; (ii) the by-laws of ComEd; (iii) the
resolutions of the Board of Directors of ComEd authorizing the execution and
performance of this Agreement and the transactions contemplated hereby; and
(iv) incumbency and signatures of the officers of ComEd executing this
Agreement and any Related Agreement;
(d) Opinion of counsel to ComEd substantially in the form contained in
Exhibit J;
- 62 -
<PAGE>
(e) The Bill of Sale and Instrument of Assignment duly executed by
ComEd;
(f) Certificates of title or origin (or like documents) with respect
to any vehicles or other equipment included in the Assets for which a
certificate of title or origin is required in order to transfer title;
(g) The Power Purchase Agreements, the Easement Agreements to which
ComEd is a party, the Facilities Agreements, the Reproration Agreements and
the Agency Agreement (if necessary), in each case duly executed by ComEd;
(h) The certificate contemplated by Section 7.1 (Compliance With
-----------
Provisions), duly executed by an officer of ComEd;
(i) Grant Deeds with respect to the Transferred Real Property, duly
executed by ComEd and/or such other instrument of transfer as provided in
the last sentence of Section 2.7 (Certain Provisions With Respect to
-----------
Switchyard Property);
(j) Any real estate transfer Tax declarations required to be executed
or filed in connection with the transfer of the Assets; and
(k) An affidavit, as shown in Exhibit L, made under penalty of perjury
---------
and duly executed by ComEd that provides ComEd's United States taxpayer
identification number and states that ComEd is not a foreign person for
purposes of Section 1445 of the Code.
9.3 Delayed Recordation of Easement Agreements. Notwithstanding
------------------------------------------
anything to the contrary contained in this Agreement, ComEd may (but shall not
be required to) elect (in ComEd's sole and absolute discretion) to cause any or
all of the Easement Agreements executed at or in connection with the Closing to
be recorded against the Transferred Real Property (or applicable portion
thereof) or Switchyard Property (or applicable portion thereof) at any time
designated by ComEd within the forty-eight (48) hour period immediately after
the recordation of the Grant Deeds which convey the Transferred Real Property
(or applicable portion thereof) which such Easement Agreement(s) benefits or
burdens (a "Delayed Recording"). In the event ComEd elects as set forth in the
immediately preceding sentence, then Purchaser shall ensure that (other than
other Easement Agreements, the Facilities Agreements and the Grant Deeds) no
lien, charge, encumbrance or title exception of any kind or nature (including
any mortgage or other document or instrument which secures any indebtedness of
Purchaser) is recorded, placed or created on or with respect to any Transferred
Real Property or Switchyard Property which is benefited or burdened by any
Easement Agreement(s) which is the subject of a Delayed Recording between the
Closing and the Delayed Recording of such Easement Agreement(s), unless the
holder(s) of, and/or Person benefited by, any such lien, charge, encumbrance or
title exception expressly subordinates (in form and substance reasonably
satisfactory to ComEd) such lien, charge, encumbrance or title exception to the
Easement Agreement(s) which is the subject of the Delayed Recording, and to all
rights, privileges, duties and obligations resulting from or arising under such
Easement Agreement(s). In addition to (and not in
- 63 -
<PAGE>
lieu of) its other duties and obligations set forth in this Section 9.3 (Delayed
-----------
Recordation of Easement Agreements), Purchaser agrees that it will, if ComEd
elects as provided in the first sentence of this Section 9.3 (Delayed
-----------
Recordation of Easement Agreements), (i) cooperate with ComEd in causing the
Delayed Recording of any Easement Agreement(s) which ComEd designates to be the
subject of a Delayed Recording, and in ensuring that no lien, charge,
encumbrance or title exception of any kind (other than other Easement
Agreements, the Facilities Agreements and the Grant Deeds) is recorded between
the Closing and the recordation of such Easement Agreement(s), and (ii) execute
and deliver any and all documents, instruments and agreements necessary to
effectuate the intent and the terms and provisions of this Section 9.3 (Delayed
-----------
Recordation of Easement Agreements).
ARTICLE 10 TERMINATION
----------------------
10.1 Rights To Terminate. This Agreement may, by written notice given
-------------------
on or prior to the Closing Date, in the manner provided in Section 11.9
------------
(Notices), be terminated at any time prior to the Closing Date:
(a) by ComEd if there has been a material breach by Purchaser with
respect to any of Purchaser's agreements, representations and warranties in
this Agreement or in the Confidentiality Agreement and such breach is not
cured within sixty (60) days after receipt by Purchaser of written notice
specifying particularly such breach; provided, however, that if such breach
cannot reasonably be cured within sixty (60) days and Purchaser has
promptly commenced and is diligently proceeding to cure such breach, this
Agreement may not be terminated pursuant to this subsection (a);
(b) by Purchaser if there has been a material breach by ComEd with
respect to ComEd's agreements, representations and warranties in this
Agreement and such breach is not cured within sixty (60) days after receipt
by ComEd of written notice specifying particularly such breach; provided,
however, that if such breach cannot reasonably be cured within sixty (60)
days and ComEd has promptly commenced and is diligently proceeding to cure
such breach, this Agreement may not be terminated pursuant to this
subsection (b);
(c) by ComEd or Purchaser if (i) any Governmental Authority, the
consent or approval of which is a condition to the obligations of the
Parties to consummate the Closing, shall have determined not to grant its
consent or approval and all rehearings and appeals of such determination
shall have been taken and have been unsuccssful or (ii) a court of competent
jurisdiction shall have issued an order or injunction permanently
restraining or otherwise prohibiting the Closing, and such order or
injunction shall have become final and nonappealable;
(d) by ComEd on thirty (30) days' written notice given within thirty
(30) days after the Illinois Authority, if ComEd in its reasonable
discretion does not accept one or more of the terms and conditions of such
Illinois Authority;
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<PAGE>
(e) by ComEd or Purchaser if the Closing contemplated hereby shall
have not occurred on or before the first anniversary of the date of this
Agreement (the "Termination Date"); provided that the right to terminate
this Agreement under this Section 10.1(e) (Rights to Terminate) shall not
---------------
be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in. the failure of the
Closing to occur on or before such date; and provided, further, that if on
-------- -------
the first anniversary of the date of this Agreement the conditions to the
Closing set forth in Section 7.3 (Purchaser's Receipt of Approvals of
-----------
Governmental Authorities), Section 7.7 (HSR Act), Section 8.2 (ComEd's
-----------
Receipt of Approvals of Governmental Authorities) or Section 8.6 (HSR Act)
-----------
shall not have been fulfilled but all other conditions to the Closing shall
be fulfilled or shall be capable of being fulfilled, then the Termination
Date shall be the day which is eighteen months from the date of this
Agreement; and provided, further, that notwithstanding anything contained
-------- -------
herein to the contrary, in the event of an Event of Loss which ComEd elects
to repair or replace pursuant to Section 5.16 (Casualty Loss), ComEd may
------------
extend the Termination Date for a period of up to twelve months from the
date of the Event of Loss in order to repair or replace the damaged Asset
in accordance with Section 5.16 (Casualty Loss); or
------------
(f) by mutual written agreement of ComEd and Purchaser.
10.2 Non-Solicitation. If this Agreement is terminated, neither
----------------
Purchaser nor any of its Affiliates will, for a period of three years
thereafter, without the prior written approval of ComEd, directly or indirectly
solicit, induce or attempt to persuade any person who is an employee of ComEd on
the date hereof or at any time hereafter that precedes such termination, to
terminate his or her employment with ComEd; provided, however, that Purchaser
shall not be prohibited from conducting generalized solicitations for employees
(which solicitations were not specifically targeted at employees of ComEd)
through the use of media advertisements, professional search firms or otherwise.
Without limiting the rights of ComEd to pursue all other legal and equitable
rights available for a violation of this Section 10.2 (Non-Solicitation) by
------------
Purchaser or its Affiliates, it is agreed that other remedies cannot fully
compensate ComEd for such a violation and that ComEd shall be entitled to
injunctive relief to prevent a violation or continuing violation hereof. It is
the intent and understanding of each Party that if, in any action before any
arbitrator or any court or agency legally empowered to enforce this Section 10.2
------------
(Non-Solicitation), any term, restriction, covenant or promise in this Section
-------
10.2 (Non-Solicitation) is found to be unreasonable and for that reason
- ----
unenforceable, then such term, restriction, covenant or promise shall be deemed
modified to the extent necessary to make it enforceable by such court or agency.
10.3 Effect of Termination. If this Agreement is terminated pursuant
---------------------
to Section 10.1 (Rights To Terminate), all further obligations of the Parties
------------
hereunder (other than (i) the obligations set forth in Section 5.3
-----------
(Confidentiality), Section 6.3(a)(6) (Indemnification by Purchaser), Section
----------------- -------
10.2 (Non-Solicitation), Section 11.1 (Expenses), Section 11.7 (Governing Law)
- ---- ------------ ------------
and Section 11.8 (Dispute Resolution), Section 11.14 (Consent to Jurisdiction)
------------ -------------
and Section 11.15 (No Public Announcement) and (ii) the obligations of the
-------------
Parties set forth in the Confidentiality Agreement) shall be terminated without
further liability of any Party to the other, provided that
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<PAGE>
nothing herein shall relieve any Party from liability for its willful breach of
this Agreement. Upon termination, the originals of any items, documents or
written materials provided by one Party to the other Party will be returned by
the receiving Party to the providing Party, and any Propriety Information
retained by the receiving Party will be kept confidential.
ARTICLE 11
----------
MISCELLANEOUS AGREEMENTS AND ACKNOWLEDGMENTS
--------------------------------------------
11.1 Expenses. Except as otherwise provided herein, each Party is
--------
responsible for its own costs and expenses (including attorneys' and
consultants' fees, costs and expenses) incurred in connection with this
Agreement and the consummation of the transactions contemplated by this
Agreement.
11.2 Entire Document. This Agreement (including the Exhibits and
---------------
Schedules to this Agreement) and the Related Agreements contain the entire
agreement between the Parties with respect to the transactions contemplated
hereby, and supersede all negotiations, representations, warranties,
commitments, offers, contracts and writings (except as contemplated by Section
-------
4.6 (Disclosures) with respect to ComEd's disclosures referred to therein) prior
- ---
to the execution date of this Agreement, written or oral. No waiver and no
modification or amendment of any provision of this Agreement is effective unless
made in writing and duly signed by the Parties referring specifically to this
Agreement, and then only to the specific purpose and extent so provided.
11.3 Schedules. The inclusion of any item in any Schedule to this
---------
Agreement shall not constitute an admission that any such item is or is not
material or otherwise required to be included on such Schedule. All documents or
information disclosed in any Schedule are intended to be disclosed for all
purposes and will be deemed incorporated by reference in each other Schedule to
which they may be relevant. ComEd may, from time to time prior to or at the
Closing, by notice in accordance with the terms of this Agreement, supplement,
amend or create any Schedule, in order to add information or correct previously
supplied information. No such amendment shall be evidence, in and of itself,
that the representations and warranties in the corresponding section are no
longer true and correct. It is specifically agreed that such Schedules may be
amended to add immaterial, as well as material, items thereto. No such
supplemental, amended or additional Schedule shall be deemed to cure any breach
for purposes of Section 7.1 (Compliance with Provisions). If, however, the
-----------
Closing occurs, any such supplement, amendment or addition will be effective to
cure and correct for all other purposes any breach of any representation,
warranty or covenant which would have existed if ComEd had not made such
supplement, amendment or addition, and all references to any Schedule hereto
which is supplemented or amended as provided in this Section 11.3 (Schedules)
------------
shall for all purposes after the Closing be deemed to be a reference to such
Schedule as so supplemented or amended.
11.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.
- 66 -
<PAGE>
11.5 Severability. If any provision hereof is held invalid or
------------
unenforceable by any arbitrator, court or as a result of future legislative
action, this holding or action will be strictly construed and will not affect
the validity or effect of any other provision hereof. To the extent permitted
by law, the Parties waive, to the maximum extent permissible, any provision of
law that renders any provision hereof prohibited or unenforceable in any
respect.
11.6 Successors and Assigns. (a) The rights of either Party under
----------------------
this Agreement shall not be assignable by such Party prior to the Closing
without the written consent of the other Party, except that prior to Closing,
(i) without the consent of Purchaser, ComEd may assign the Assets in whole or
in part, together with its related rights, to a corporation, partnership or
limited liability company all of the outstanding equity interests of which are
owned or controlled by Unicom Corporation and (ii) without the consent of
ComEd, Purchaser may assign its rights hereunder and its right to enter into
any Related Agreements to a corporation, partnership or limited liability
company all of the outstanding-equity interests of which are owned or
controlled by Purchaser. In connection with any such assignment by ComEd, such
assignee shall assume in writing all of ComEd's obligations hereunder with
respect to the Assets and rights so assigned and, at the Closing, shall convey
such Assets to Purchaser pursuant to documents in the forms of the Grant Deed
and the Bill of Sale and Instrument of Assignment. In connection with any such
assignment by Purchaser, such assignee shall assume in writing all of
purchaser's obligations hereunder or to perform any applicable Related
Agreement with respect to the rights so assigned. Following the Closing,
neither Party may assign any of its rights hereunder to any third Person
without the written consent of the other Party, except that either Party may
assign its rights hereunder to an Affiliate. Any assignment hereunder (whether
before or after the Closing) shall not relieve the assigning Party of its
obligations hereunder. This Agreement shall be binding upon and inure to the
benefit of the Parties and their successors and permitted assigns. The
successors and permitted assigns hereunder shall include, in the case of
Purchaser, any permitted assignee as well as the successors in interest to such
permitted assignee (whether by merger, liquidation (including successive
mergers or liquidations) or otherwise).
(b) In the event that Purchaser assigns its rights and obligations
under any of the Related Agreements pursuant to the terms hereof, Purchaser does
hereby unconditionally and irrevocably guarantee (the "Guarantee") to ComEd, and
all of its successors and assigns, the due and punctual performance by any
assignee of all covenants, agreements, terms, conditions, undertakings,
indemnities and other obligations to be performed and observed by such assignee
under the Related Agreements. Purchaser hereby waives promptness, diligence and
notice of acceptance of the Guarantee, of any action taken or omitted in
reliance hereon or of any default in the payment of any such sums or in the
performance of any covenants, agreements, terms, conditions, and any
presentment, demand, protest or other notice of any kind. Purchaser expressly
waives the right to require ComEd to exhaust any right or take any action
against such assignee or any other Person. Purchaser further agrees that the
execution and delivery of this Agreement by Purchaser shall be conclusive
evidence against Purchaser that its obligations under the Guarantee are
unconditional and absolute.
(c) The obligations of Purchaser under the Guarantee constitute a present
and continuing guarantee of payment and not of collectibility, shall be absolute
and unconditional, shall not be subject to any counterclaim, set-off, deduction
or defense based upon any claim Purchaser,
- 67 -
<PAGE>
ComEd, any assignee or any of their respective Affiliates may have against each
other or any other Person and shall remain in full force and effect without
regard to and shall not be released, discharged or in any way affected or
impaired by, any of the following (whether or not Purchaser shall have any
knowledge or notice thereof or consent thereto): (i) any amendment or
modification of or supplement to this Agreement or any of the Related Agreements
or in connection herewith agreed to by the requisite parties specified therein,
or any assignment or transfer of any interest of Purchaser or ComEd therein,
including any renewal or extension of the terms of payment of any sums due or
contingently due hereunder or in any of the Related Agreements or the granting
of time in respect of any payment; (ii) any waiver, consent, extension, granting
of time, forbearance, indulgence or other action or inaction under or in respect
of this Agreement or any of the Related Agreements or any exercise or
nonexercise of any right, remedy or power in respect thereof; (iii) any
bankruptcy, insolvency, reorganization, arrangement, readjustment, composition,
liquidation or similar proceedings with respect to any assignee or any other
Person, or the properties or creditors of any of them and the disallowance of
any claim of ComEd in any such bankruptcy; (iv) any transfer or purported
transfer, any consolidation or merger of either ComEd, Purchaser or any assignee
with or into any other corporation or entity, or any change whatsoever in the
objects, capital structure, constitution or business of either ComEd, Purchaser
or any assignee; (v) any failure on the part of any assignee to perform or
comply with any terms of this Agreement or any Related Agreement or any other
document to be delivered in connection therewith; or (vi) any other event,
happening, matter, circumstance or condition which might otherwise constitute a
legal or equitable discharge or defense of a guarantor under applicable law.
(d) The obligations of Purchaser in respect of the Guarantee shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment of any obligations guaranteed hereunder is rescinded or must
otherwise be returned by ComEd upon the insolvency, bankruptcy or reorganization
of any assignee or any other Person, all as though such payment had not been
made.
(e) If Purchaser shall make any payment due in respect of this
Agreement or any of the Related Agreements pursuant to this Guarantee, it shall,
to the extent permitted by applicable law, be subrogated to the rights of ComEd
in respect of which such payment was made; provided, however, that such rights
-------- -------
of subrogation and all indebtedness and claims arising therefrom shall be, and
Purchaser hereby declares that they are, and shall at all times be, in all
respects subordinate and junior to all sums due or contingently due under this
Agreement or any of the Related Agreements in respect of which payment was not
made. Purchaser hereby agrees that the foregoing right of subrogation shall not
be effective until, and that it shall not be entitled to receive any payment,
under any condition, in respect of any such subrogated claim unless and until
assignee (or Purchaser on its behalf) has fully performed all obligations
hereunder to be performed by either such party and all sums which may become
due, or are stated in this Agreement or the Related Agreements to become due,
shall have become due and shall have been paid in full or funds for their
payment shall have been duly and sufficiently provided.
Notwithstanding the above, ComEd hereby consents to the assignment by
Purchaser of a security interest in this Agreement to any lenders; provided that
Purchaser shall have provided notice of any such assignment to ComEd. ComEd
further agrees to evidence such consent by
- 68 -
<PAGE>
executing documents reasonably acceptable to ComEd, provided that ComEd shall
have no obligation to waive any of its rights under this Agreement.
11.7 Governing Law. The validity, interpretation and effect of this
-------------
Agreement are governed by and will be construed in accordance with the laws of
the State of Illinois applicable to contracts made and performed in such State
and without regard to conflicts of law doctrines, except as otherwise provided
in Section 11.8(b) (Dispute Resolution-Arbitration) or to the extent that
---------------
certain matters are preempted by Federal law.
11.8 Dispute Resolution. (a) Administrative Committee Procedure If any
------------------ ----------------------------------
disagreement arises on matters concerning this Agreement, the disagreement shall
be referred to representatives of each Party, who shall attempt to timely
resolve the disagreement If such representatives can resolve the disagreement,
such resolution shall be reported in writing to and shall be binding upon the
Parties. If such representatives cannot resolve the disagreement within a
reasonable time, or a Party fails to appoint a representative within ten days of
written notice of the existence of a disagreement, then the matter shall proceed
to arbitration as provided in Section 11.8(b) (Arbitration).
---------------
(b) Arbitration. If pursuant to Section 11.8(a) (Administrative
----------- --------------
Committee Procedure) the Parties are unable to resolve a disagreement arising on
a matter pertaining to this Agreement, such disagreement shall be settled by
arbitration in Chicago, Illinois. The arbitration shall be governed by the
United States Arbitration Act (9 U.S.C. Section 1 et seq.), and any award issued
pursuant to such arbitration may be enforced in any court of competent
jurisdiction. This agreement to arbitrate and any other agreement or consent to
arbitrate entered into in accordance herewith will be specifically enforceable
under the prevailing arbitration law of any court having jurisdiction. Notice
of demand for arbitration must be filed in writing with the other Party to this
Agreement. Arbitration shall be conducted as follows:
(i) Either Party may give the other Party written notice in sufficient
detail of the disagreement and the specific provision of this Agreement
under which the disagreement arose. The demand for arbitration must be made
within a reasonable time after the disagreement has arisen. In no event may
the demand for arbitration be made if the institution of legal or equitable
proceedings based on such disagreement is barred by the applicable statute
of limitations. Any arbitration may be consolidated with any other
arbitration proceedings relating to this Agreement.
(ii) The Parties shall attempt to agree on a person with special
knowledge and expertise with respect to the matter at issue to serve as
arbitrator. If the Parties cannot agree on an arbitrator within ten days,
each shall then appoint one person to serve as an arbitrator and the two
thus appointed shall select a third arbitrator with such special knowledge
and expertise to serve as Chairman of the panel of arbitrators; and such
three arbitrators shall determine all matters by majority vote; provided
however, if the two arbitrators appointed by the Parties are unable to
agree upon the appointment of the third arbitrator with five days after
their appointment, both shall give written notice of such failure to agree
to the Parties, and, if the Parties fail to
- 69 -
<PAGE>
agree upon the selection of such third arbitrator within five days
thereafter, then either of the Parties upon written notice to the other may
require appointment from, and pursuant to the rules of, the Chicago office
of the American Arbitration Association for commercial arbitration. Prior
to appointment, each arbitrator shall agree to conduct such arbitration in
accordance with the terms of this Agreement.
(iii) The Parties shall have sixty days from the appointment of the
arbitrator(s) to perform discovery and present evidence and argument to the
arbitrator(s). During that period, the arbitrator(s) shall be available to
receive and consider all such evidence as is relevant and, within
reasonable limits due to the restricted time period, to hear as much
argument as is feasible, giving a fair allocation of time to each Party to
the arbitration. The arbitrator(s) shall use all reasonable means to
expedite discovery and to sanction noncompliance with reasonable discovery
requests or any discovery order. The arbitrator(s) shall not consider any
evidence or argument not presented during such period and shall not extend
such period except by the written consent of both Parties. At the
conclusion of such period, the arbitrator(s) shall have forty-five calendar
days to reach a determination. To the extent not in conflict with the
procedures set forth herein, which shall govern, such arbitration shall be
held in accordance with the prevailing rules of the Chicago office of the
American Arbitration Association for commercial arbitration.
(iv) The arbitrator(s) shall have the right only to interpret and
apply the terms and conditions of this Agreement and to order any remedy
allowed by this Agreement, but may not change any term or condition of this
Agreement, deprive either Party of any right or remedy expressly provided
hereunder, or provide any right or remedy that has been excluded hereunder.
(v) The arbitrator(s) shall give a written decision to the Parties
stating their findings of fact, conclusions of law and order, and shall
furnish to each Party a copy thereof signed by them within five calendar
days from the date of their determination.
(vi) Each Party shall pay the cost of the arbitrator(s) with respect
to those issues as to which they do not prevail, as determined by the
arbitrator or arbitrators.
(c) Preliminary Injunctive Relief. Nothing in this Section 11.8
----------------------------- ------------
(Dispute Resolution) shall preclude, or be construed to preclude, the resort by
either Party to a court of competent jurisdiction solely for the purposes of
securing a temporary or preliminary injunction to preserve the status quo or
avoid irreparable harm pending arbitration pursuant to this Section 11.8
------------
(Dispute Resolution).
(d) Settlement Discussions. The Parties agree that no written
-----------------------
statements of position or offers of settlement made in the course of the dispute
process described in this Section 11.8 (Dispute Resolution) will be offered into
------------
evidence for any purpose in any litigation or arbitration between the Parties,
nor will any such written statements or offers of settlement be used
- 70 -
<PAGE>
in any manner against either Party in any such litigation or arbitration.
Further, no such written statements or offers of settlement shall constitute an
admission or waiver of rights by either Party in connection with any such
litigation or arbitration. At the request of either Party, any such written
statements and offers of settlement, and all copies thereof, shall be promptly
returned to the Party providing the same.
(e) Exceptions. Notwithstanding the provisions of this Section 11.8
---------- ------------
(Dispute Resolution), a disagreement as to the valuation of inventories under
Section 2.6(b) (Purchase Price-Inventory Adjustment) shall be resolved as
- --------------
provided in such Section.
11.9 Notices. All notices, requests, demands and other communications
-------
under this Agreement must be in writing and must be delivered in person or sent
by certified mail, postage prepaid, or by overnight delivery, and properly
addressed as follows:
If to ComEd (prior to Closing):
Commonwealth Edison Company
One First National Plaza - 34th Floor
10 South Dearborn Street
Chicago, Illinois 60603
Attn: Vice President - Fossil Divestiture
or, after Closing, to:
Commonwealth Edison Company
One First National Plaza - 37th Floor
10 South Dearborn Street
Chicago, Illinois 60603
Attn: Executive Vice President - Fossil
With a copy to:
Commonwealth Edison Company
Law Department
Room 1535
125 South Clark Street
Chicago, Illinois 60603
Attn: Associate General Counsel and Corporate Secretary
- 71 -
<PAGE>
If to Purchaser:
Edison Mission Energy
18101 Von Karman Avenue
Suite 1700
Irvine, California 92612
Attn: President-Americas Division
With a copy to:
Edison Mission Energy
18101 Von Karman Avenue
Suite 1700
Irvine, California 92612
Attn: General Counsel
Any Party may from time to time change its address for the purpose of notices to
that Party by a similar notice specifying a new address, but no such change
shall be effective until it is actually received by the Party sought to be
charged with its contents.
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 11.9 (Notices) are effective upon
------------
delivery, if delivered personally or by overnight mail, and are effective five
(5) days following deposit in the United States mail, postage prepaid, if
delivered by mail.
11.10 Time is of the Essence. Time is of the essence to each term of
----------------------
this Agreement. Without limiting the generality of the foregoing, all times
provided for in this Agreement for the performance of any act will be strictly
construed.
11.11 No Third Party Beneficiaries. Except as may be specifically set
----------------------------
forth in this Agreement, nothing in this Agreement, whether express or implied,
is intended to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the Parties and their respective permitted
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third Persons to either Party, nor
to give any third Persons any right of subrogation or action against either
Party.
11.12 Effect of Closing. If ComEd or Purchaser elects to proceed with
-----------------
the Closing with Knowledge of any failure to be satisfied of any condition in
its favor or the breach of any representation, warranty or covenant by the other
Party, the condition that is unsatisfied or the representation, warranty or
covenant that is breached at the Closing Date will be deemed waived by such
Party, and such Party will be deemed to release fully and forever discharge the
other Party on account of any and all claims, demands or charges with respect to
the same.
- 72 -
<PAGE>
11.13 Conflicts. In the event of any conflicts or inconsistencies
---------
between the terms of this Agreement and the terms of any of the Related
Agreements, the terms of the Related Agreement will govern and prevail.
11.14 CONSENT TO JURISDICTION. EACH OF COMED AND PURCHASER CONSENTS TO
-----------------------
THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
STATE OF ILLINOIS FOR ADJUDICATION OF A PRELIMINARY INJUNCTION OR OTHER
PROVISIONAL JUDICIAL REMEDY AS PROVIDED IN SECTION 11.8 (DISPUTE RESOLUTION).
------------
EACH OF COMED AND PURCHASER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. IF NOT A
RESIDENT OF THE STATE OF ILLINOIS, PURCHASER SHALL APPOINT AND MAINTAIN AN AGENT
FOR SERVICE OF PROCESS IN THE STATE OF ILLINOIS. NOTHING IN THIS SECTION 11.14
-------------
(CONSENT TO JURISDICTION) IS INTENDED TO MODIFY OR EXPAND THE TERMS AND
PROVISIONS OF SECTION 11.8 (DISPUTE RESOLUTION).
------------
11.15 No Public Announcement. Neither Purchaser nor ComEd shall,
-----------------------
without the approval of the other, make any press release or other public
announcement concerning the transactions contemplated by this Agreement, except
as and to the extent that any such Party shall be so obligated by law, in which
case the other Party shall be advised and the Parties shall use their
Commercially Reasonable Efforts to cause a mutually agreeable release or
announcement to be issued; provided that the foregoing shall not preclude
communications or disclosures necessary to implement the provisions of this
Agreement or to comply with accounting and Securities and Exchange Commission
disclosure obligations.
11.16 New Generation Capacity. (a)(i) No later than the fourth
-----------------------
anniversary of the Closing Date, Purchaser shall have completed the installation
of one or more gas-fired electric generating units having an additional gross
dependable capacity of 500MW at Crawford Station, Fisk Station, the Off-Site
Calumet Peaking Site or at property in Illinois which is adjacent to such Sites
and shall have made such unit(s) operational in accordance with Prudent Utility
Practices. Purchaser agrees to notify ComEd in writing within eighteen months of
the Closing Date as to the precise location it has selected for such
installation. In connection with the addition of such generating capacity,
Purchaser agrees to cause such unit(s) to comply in all material respects with
applicable Requirements of Laws. ComEd will cooperate with Purchaser with
respect to siting and permitting of the new unit(s).
(ii) From and after the Closing, upon any request from ComEd,
Purchaser shall provide ComEd with reasonable evidence of its efforts to comply
with this Section 11.16(a) (New Generation Capacity). Such evidence shall
----------------
include, among other things, a demonstration of sufficient lead-time to obtain
necessary combustion turbines and environmental permits and to complete the
required construction no later than the fourth anniversary of the Closing Date.
- 73 -
<PAGE>
(iii) In the event Purchaser violates its obligations under this
Section 11.16(a) (New Generation Capacity), ComEd may proceed against it in law
- ----------------
or in equity for such damages or other relief as a court may deem appropriate.
Purchaser acknowledges that a violation of this Section 11.16a) (New Generation
---------------
Capacity) may cause ComEd irreparable harm which may not be adequately
compensated for by money damages. Purchaser therefore agrees that in the event
of any actual or threatened violation of this Section 11.16(a) (New Generation
----------------
Capacity). ComEd shall be entitled, in addition to other remedies that it may
have, to preliminary and final injunctive relief against Purchaser to prevent
any violations of this Section 11.16(a) (New Generation Capacity), without the
----------------
necessity of posting a bond.
(b) In the event that Purchaser shall propose to offer the capacity
contemplated by Section 11.16(a) (New Generation Capacity) and associated
----------------
electric energy on a firm, committed basis, Purchaser shall offer such capacity
and associated electric energy to ComEd prior to offering, it to any other
Person. If ComEd shall refuse such offer in whole or in part, Purchaser may
market and sell such capacity and/or electric energy to any other Person on
terms no more favorable than the terms offered to ComEd. Notwithstanding the
foregoing, if ComEd shall have refused any such offer and shall subsequently
determine to accept the portion so refused, it may do so provided (i) Purchaser
has not entered into a binding commitment with another Person with respect
thereto and (ii) the offer has not expired by its terms.
- 74 -
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
COMMONWEALTH EDISON COMPANY
/s/ John W. Rowe
By: _________________________________
John W. Rowe
Chairman, President and
Chief Executive Officer
EDISON MISSION ENERGY
/s/ Georgia R. Nelson
By: _________________________________
Georgie R. Nelson
Senior Vice President
75
<PAGE>
EXHIBIT 10.49
EXECUTION COPY
EQUITY SUPPORT GUARANTEE
Dated as of December 23, 1998
among
EDISON MISSION ENERGY
ABN AMRO BANK N.V.
as Administrative Agent
THE CHASE MANHATTAN BANK
as Collateral Agent
and
THE CHASE MANHATTAN BANK
as Depositary Agent
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
EQUITY SUPPORT GUARANTEE (this "Equity Support Guarantee") dated as of
-------------------------
December 23, 1998 among EDISON MISSION ENERGY, a corporation duly organized and
validly existing under the laws of the State of California (the "Sponsor"); ABN
-------
AMRO BANK N.V., as Administrative Agent under the Credit Agreement (in such
capacity, together with its successors in such capacity, the "Administrative
--------------
Agent"); THE CHASE MANHATTAN BANK, as Collateral Agent under the Intercreditor
- ------
Agreement (in such capacity, together with its successors in such capacity, the
"Collateral Agent"); and THE CHASE MANHATTAN BANK, a New York State banking
-----------------
institution, as Depositary Agent under the Depositary Agreement (in such
capacity, together with its successors in such capacity, the "Depositary
----------
Agent").
- -----
ECOELECTRICA, L.P., an exempted limited partnership duly formed and
validly existing under the laws of Bermuda (the "Company"), the lenders and
-------
issuing banks under the Credit Agreement referred to below, the co-agents under
the Credit Agreement referred to below and the Administrative Agent are parties
to a Credit Agreement dated as of October 31, 1997 (as amended, modified and
supplemented and in effect from time to time, the "Credit Agreement"),
----------------
providing, subject to the terms and conditions thereof, for extensions of credit
(by making of loans and issuing letters of credit) to be made by said lenders
and issuing banks to the Company in an aggregate principal or face amount not
exceeding the amount of Commitments of said lenders and issuing banks as the
same may be adjusted from time to time. In addition, the Company may from time
to time be obligated to certain of said lenders in respect of certain Permitted
Interest Rate Protection Agreements.
The Company, the Administrative Agent, the Collateral Agent, the
Depositary Agent and certain other Secured Parties have entered into that
certain Collateral Agency and Intercreditor Agreement (as amended, modified and
supplemented and in effect from time to time, the "Intercreditor Agreement")
------------------------
dated as of October 31, 1997. This is the Equity Support Guarantee referred to
in the Intercreditor Agreement and the Depositary Agreement.
ECOELECTRICA, LTD., a company limited by shares duly formed and
validly existing under the laws of the Cayman Islands and ECOELECTRICA HOLDINGS,
LTD., a company limited by shares duly formed and validly existing under the
laws of the Cayman Islands (the "Subject Affiliate Partners") are each party to
---------------------------
an Equity Funding Agreement dated as of October 31, 1997 (the "Subject Equity
--------------
Funding Agreements") among the Company, such Subject Affiliate Partner, the
- -------------------
Administrative Agent, the Collateral Agent and the Depositary Agent pursuant to
which such Subject Affiliate Partner has agreed to make an Equity Funding
Payment to the Company.
To induce the Lenders (including, without limitation, the Sponsor
Construction Lenders) and the Issuing Banks to enter into the Credit Agreement
and to extend credit thereunder and to induce certain of the Lenders to extend
credit to the Company as contemplated by the Permitted Interest Rate Protection
Agreements, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-2-
Section 1. Definitions. Terms defined in Appendix A to the
-----------
Intercreditor Agreement are used herein (including in the preamble and recitals
of this Equity Support Agreement) as defined therein (and the principles of
interpretation set forth in Appendix A to the Intercreditor Agreement shall
apply to such definitions). Unless the context otherwise requires, any reference
in this Equity Support Guarantee to any agreement shall mean such agreement and
all schedules, exhibits and attachments thereto as amended, supplemented or
modified. Unless otherwise stated, any reference in this Equity Support
Guarantee to any Person shall include its permitted successors and assigns and,
in the case of any Government Authority, any Person succeeding to its functions
and capacities. In addition, the following terms shall have the following
meaning:
"Applicable Equity Percentage" shall mean fifty per cent (50%).
As used in the Credit Agreement as the same relates to this Equity
Support Guarantee and the Depositary Agreement as the same relates to this
Equity Support Guarantee, the term "ESG Replacement Event" shall mean:
---------------------
(a) Any representation or warranty made or deemed made by the Sponsor
(or any of its officers) herein or under or in connection with any other
Project Document to which the Sponsor is a party shall prove to have been
false or misleading in any material respect as of the time made or deemed
made, confirmed or furnished and shall have (or the facts or circumstances
underlying such false or misleading representation or warranty shall have)
resulted in a Material Adverse Effect on the Company, any Partner or the
Sponsor; or
(b) The Sponsor shall default in the performance of any of its
obligations under any of Section 2.01 of this Equity Support Guarantee; or
the Sponsor shall default in the performance of any of its other
obligations in this Equity Support Guarantee or any other Recourse Document
to which it is a party and such default shall continue unremedied for a
period of 30 days after the occurrence of such default; or
(c) A Bankruptcy Event shall occur and be continuing with respect to
the Sponsor; or
(d) The Sponsor shall fail to have outstanding long-term unsecured
indebtedness rated BBB+ or better by S&P and Baal or better by Moody's (or
an equivalent rating by another nationally recognized statistical rating
organization of similar standing if neither such corporation is in the
business of rating such long-term unsecured indebtedness; or
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-3-
(e) The Sponsor shall default in the payment when due of any
principal of or interest on any of its Indebtedness which is outstanding in
a principal amount of at least $50,000,000 in the aggregate (other than its
Indebtedness hereunder); or any event specified in any note, agreement,
indenture or other document evidencing or relating to any such Indebtedness
shall occur if the effect of such event is to cause, or (with the giving of
notice or the lapse of time or both) to permit the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity or to have the interest rate thereon reset to
a level so that securities evidencing such Indebtedness trade at a level
specified in relation to the par value thereof.
Section 2. The Guarantee.
-------------
2.01 The Guarantee. The Sponsor hereby guarantees to each Sponsor
-------------
Construction Lender, each Issuing Bank with respect to Sponsor Construction
Letters of Credit, the Administrative Agent, the Collateral Agent and the
Depositary Agent and their respective successors and assigns the prompt payment
in full when due by each Subject Affiliate Partner of the Equity Funding Payment
payable by such Subject Affiliate Partner to the Depositary Agent on behalf of
the Company under the terms and conditions of the relevant Subject Equity
Funding Agreement as and when the same shall become due and payable in
accordance with the terms and conditions of such Equity Funding Agreement (such
obligations being herein called the "Guaranteed Obligations"), subject to the
----------------------
last sentence of this paragraph. The Sponsor hereby further agrees that if
either Subject Affiliate Partner shall fail to pay in full when due any
Guaranteed Obligation, (i) the Sponsor will promptly pay the same within five
Business Days following the Sponsor's receipt of written notice of demand for
payment therefor from the Administrative Agent or the Depositary Agent,
furnished in accordance with the terms of the Depositary Agreement, and (ii) in
the case of any extension of time of payment or renewal of any Guaranteed
Obligation, the same will be promptly paid in full when due in accordance with
the terms of such extension or renewal within five Business Days following the
Sponsor's receipt of written notice of demand for payment therefor from the
Administrative Agent or the Depositary Agent, furnished in accordance with the
terms of the Depositary Agreement, in each case subject to the last sentence of
this paragraph. Anything in the foregoing to the contrary notwithstanding, in no
event shall the obligation of the Sponsor under this Section 2 with respect to
any Guaranteed Obligation arising in respect of any Equity Funding Payment
exceed an amount equal to the product of (a) the Applicable Equity Percentage
times (b) the amount of such Equity Funding Payment (together with accrued
- -----
interest and fees thereon).
Any such payments pursuant to this Section 2.01 shall be made to the
Depositary Agent in immediately available funds in accordance with Payment
Instructions for account number C23922B (the Equity Sub-Account) at The Chase
Manhattan Bank, 450 West 33rd
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-4-
Street, 15th Floor, New York, New York 10001, pending transfer in accordance
with the Depositary Agreement.
2.02 Obligations Unconditional, Waiver of Defenses. The obligation of
---------------------------------------------
the Sponsor under Section 2.01 hereof is irrevocable, absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Equity Funding Agreements, the other Equity Support
Arrangements, the Credit Agreement, any other Basic Document, any other
Financing Document, any Project Document or any other agreement or instrument
referred to herein or therein, or any substitution, release or exchange of any
other guarantee of or security for any Guaranteed Obligation or any Secured
Obligation, and, to the fullest extent permitted by applicable Government Rule,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 2.02 that the obligation of the Sponsor
hereunder shall be absolute and unconditional under any and all circumstances.
To the fullest extent permitted by applicable Government Rule, the obligation of
the Sponsor under Section 2.01 hereof shall not be subject to any abatement,
reduction, limitation, impairment, termination, setoff, defense, counterclaim or
recoupment whatsoever or any right to any thereof, and shall not be released or
discharged. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by applicable Government Rule, the occurrence of
any one or more of the following (without notice to the Sponsor) shall not alter
or impair the liability of the Sponsor hereunder which shall remain absolute and
unconditional as described above:
(a) at any time or from time to time, the time for any performance of
or compliance with any Guaranteed Obligation or any Secured
Obligation shall be extended, or such performance or compliance
shall be waived;
(b) any of the acts mentioned in any of the provisions of any of the
Equity Funding Agreements, the other Equity Support Arrangements,
the Credit Agreement, any other Basic Document, any other
Financing Document, any Project Document or any other agreement
or instrument referred to herein or therein shall be done or
omitted;
(c) the maturity of any Guaranteed Obligation or any Secured
Obligation shall be accelerated, or any Guaranteed Obligation or
any Secured Obligation shall be modified, supplemented or amended
in any respect, or any right under any of the Equity Funding
Agreements, the other Equity Support Arrangements, the Credit
Agreement, any other Basic Document, any other Financing
Document, any Project Document or any other agreement or
instrument referred to herein or therein shall be waived or any
other guarantee of any Guaranteed Obligation or any Secured
Obligation or any
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-5-
security therefor shall be released or exchanged in whole or in
part or otherwise dealt with;
(d) any lien or security interest granted to, or in favor of, the
Collateral Agent, the Depositary Agent or any other Secured Party
as security for any Guaranteed Obligation or any Secured
Obligation shall fail to be perfected;
(e) the bankruptcy or insolvency of the Company, the Sponsor, any
Partner or any other Recourse Party or any reorganization,
arrangement, compromise, composition or plan affecting the
Company, the Sponsor, any Partner or any other Recourse Party
shall occur; or
(f) this Equity Support Guarantee or any other Project Document
referred to herein or therein shall be rejected in any
bankruptcy, insolvency or similar proceeding (nothing herein
being a concession that any obligation hereunder or thereunder is
properly classifiable as an executory obligation).
To the fullest extent permitted by applicable Government Rule, the Sponsor
hereby expressly waives, except as specifically provided in Section 2.01 hereof,
diligence, presentment, demand of payment, protest and all notices whatsoever,
and any requirement that the Administrative Agent, the Collateral Agent, the
Depositary Agent, any Sponsor Construction Lender or any Issuing Bank with
respect to any Sponsor Construction Letter of Credit exhaust any right, power or
remedy or proceed against either Subject Affiliate Partner under the relevant
Subject Equity Funding Agreement or any Recourse Party or the Company or any
other Person under the Credit Agreement, any other Basic Document, any other
Financing Document, any Project Document or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any Guaranteed Obligation or any Secured
Obligation.
2.03 Reinstatement. The obligation of the Sponsor under this Section 2
-------------
shall be automatically reinstated if, and to the extent that, for any reason any
payment by or on behalf of the Sponsor in respect of any Guaranteed Obligation
is rescinded or must be otherwise restored by the Administrative Agent, the
Collateral Agent, the Depositary Agent, any Sponsor Construction Lender or any
Issuing Bank with respect to any Sponsor Construction Letter of Credit or the
Company, whether as a result of any proceedings under bankruptcy, insolvency or
similar laws, reorganization or otherwise, and the Sponsor shall indemnify the
Administrative Agent, the Collateral Agent, the Depositary Agent, each Sponsor
Construction Lender and each Issuing Bank with respect to Sponsor Construction
Letters of Credit on demand for all reasonable out-of-pocket costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
incurred by the Administrative Agent, the Collateral Agent, the Depositary
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-6-
Agent or such Sponsor Construction Lender and such Issuing Bank with respect to
Sponsor Construction Letters of Credit in connection with such rescission or
restoration.
2.04 Subrogation. Until the satisfaction and payment in full of each
-----------
Guaranteed Obligation, the Sponsor shall not exercise, and hereby irrevocably
waives, to the fullest extent permitted by applicable Government Rule, any
claim, right or remedy that it may now have or may hereafter acquire against
either Subject Affiliate Partner or the Company arising under or in connection
with this Equity Support Guarantee, including, without limitation, any claim,
right or remedy of subrogation, contribution, reimbursement, exoneration,
indemnification or participation arising under contract, by Government Rule or
otherwise in any claim, right or remedy of the Administrative Agent, the
Collateral Agent, the Depositary Agent, any Sponsor Construction Lender or any
Issuing Bank with respect to any Sponsor Construction Letter of Credit against
the Company or either Subject Affiliate Partner or any other Person or any
Collateral which the Administrative Agent, the Collateral Agent, the Depositary
Agent, any Sponsor Construction Lender or any Issuing Bank with respect to any
Sponsor Construction Letter of Credit may now have or may hereafter acquire. If,
notwithstanding the preceding sentence, any amount shall be paid to the Sponsor
at any time when any Guaranteed Obligation shall not have been paid in full,
such amount shall be held by the Sponsor in trust for the Depositary Agent,
segregated from other funds of the Sponsor and be turned over to the Depositary
Agent (duly endorsed by the Sponsor to the Depositary Agent, if required), to be
applied against such Guaranteed Obligation, whether matured or unmatured, in
accordance with the Depositary Agreement.
2.05 Remedies. The Sponsor agrees that, as between the Sponsor, the
--------
Administrative Agent, the Collateral Agent, the Depositary Agent, each Sponsor
Construction Lender and each Issuing Bank with respect to any Sponsor
Construction Letter of Credit the obligations of each Subject Affiliate Partner
under its Subject Equity Funding Agreement may become, or may be declared to be,
forthwith due and payable as provided in its Subject Equity Funding Agreement
for purposes of Section 2.01 hereof notwithstanding any stay, injunction or
other prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against such Subject Affiliate Partner and
that, in the event of such declaration (or such obligations becoming
automatically due and payable), such obligations (whether or not due and payable
by the Subject Affiliate Partner) shall forthwith become due and payable by such
Subject Affiliate Partner for purposes of said Section 2.01. The Sponsor further
agrees that, in accordance with the Depositary Agreement, upon the occurrence of
an ESG Replacement Event amounts payable under this Equity Support Guarantee
may, notwithstanding that the obligations of any Subject Affiliate Partner are
not then due and payable, become payable in the amounts and at the times set
forth in the Depositary Agreement.
2.06 Continuing Guarantee. The guarantee in this Section 2 is a
--------------------
continuing guarantee and shall apply to any Guaranteed Obligation whenever
arising.
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-7-
2.07 Pro Tanto Discharge. Any payment made directly to the Depositary
-------------------
Agent under this Equity Support Guarantee shall be deemed to be payment of the
Guaranteed Obligation of the relevant Subject Affiliate Partner and shall
satisfy the obligation of such Subject Affiliate Partner to the Company and the
Depositary Agent under the relevant Subject Equity Funding Agreement pro tanto
--- -----
(subject to Section 2.03 hereof).
Section 3. Representations and Warranties. The Sponsor represents and
------------------------------
warrants to the Sponsor Construction Lenders, the Issuing Banks with respect to
Sponsor Construction Letters of Credit, the Administrative Agent, the Collateral
Agent and the Depositary Agent that:
3.01 Corporate Existence. The Sponsor is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of California
and is duly qualified to do business and is in good standing in its jurisdiction
of incorporation and all other places where necessary in light of the business
it conducts and the Property it owns and intends to conduct and own and in light
of the transactions contemplated by this Equity Support Guarantee and each other
Project Document to which it is a party.
3.02 Financial Condition. The audited balance sheet of the Sponsor as
-------------------
at December 31, 1997 and the related statements of income, shareholders' equity
and cash flows for the fiscal year of the Sponsor ended on such date, and the
unaudited balance sheet of the Sponsor as at September 30, 1998 and the related
statements of income, shareholders' equity and cash flows of the Sponsor for the
9-month period ended on such date, heretofore furnished to each of the Secured
Parties, are complete and correct and fairly present the financial condition of
the Sponsor as at said dates and the results of its operations for the fiscal
year and 9-month period ended on said dates (subject, in the case of such
unaudited financial statements as at March 31, 1998, June 30, 1998 and September
30, 1998, to normal year-end audit adjustments), all in accordance with
generally accepted accounting principles and practices applied on a consistent
basis. Since September 30, 1998 there has been no material adverse change in the
financial condition, operations, business or prospects of the Sponsor from that
set forth in said financial statements as at said date.
3.03 Litigation. Except as disclosed in Sponsor's Form 10-K for the
----------
year ended December 31, 1997 or Sponsor's Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998, as filed with the U.S.
Securities and Exchange Commission, which were delivered to each of the
Administrative Agent, the Collateral Agent, each Sponsor Construction Lender and
each Issuing Bank with respect to Sponsor Construction Letters of Credit prior
to the date hereof, there is no action, suit or proceeding at law or in equity
or by or before any Government Authority, arbitral tribunal or other body now
pending or, to the best knowledge of the Sponsor, threatened against or
affecting the Sponsor or any of its Property,
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-8-
which has had or could reasonably be expected to have a Material Adverse Effect
on the Sponsor.
3.04 No Breach. The execution, delivery and performance by the Sponsor
---------
of this Equity Support Guarantee and each other Project Document to which it is
or is intended to be a party and the consummation of the transactions
contemplated hereby and thereby do not and will not: (a) require any consent or
approval of the board of directors or any shareholder of the Sponsor or any
other Person that has not been duly obtained and each such consent or approval
that has been obtained is in full force and effect, (b) violate any provision of
the certificate of incorporation or the by-laws of the Sponsor or any Government
Rule or Government Approval applicable to the Sponsor, (c) conflict with, result
in a breach of or constitute a default under any provision of the certificate of
incorporation, by-laws or any resolution of the board of directors of the
Sponsor or any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which the Sponsor is a party or by which it or
its Properties may be bound or (d) result in, or require, the creation or
imposition of any Lien, upon or with respect to any of the properties now owned
or hereafter acquired by the Sponsor, which, in any of the circumstances
described in the foregoing clauses (a) through (d), could reasonably be expected
to have a Material Adverse Effect on the Company or the Sponsor. The Sponsor is
not in violation of any Government Rule or Government Approval which violation
could reasonably be expected to have a Material Adverse Effect on the Company or
the Sponsor.
3.05 Action. The Sponsor has the full corporate power, authority and
------
legal right to execute, deliver and perform its obligations under this Equity
Support Guarantee and any other Project Document to which it is or is intended
to be a party. The execution, delivery and performance by the Sponsor of this
Equity Support Guarantee and any other Project Document to which it is or is
intended to be a party, and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate and shareholder
action on the part of the Sponsor. This Equity Support Guarantee and any other
Project Document to which the Sponsor is or is intended to be a party has been
duly executed and delivered by the Sponsor, has not been amended or otherwise
modified, except as permitted pursuant to Section 8.23 of the Credit Agreement,
is in full force and effect and is the legal, valid and binding obligation of
the Sponsor, enforceable against the Sponsor in accordance with its terms,
except as the enforceability thereof may be limited by (a) applicable
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (b) the application of general
principles of equity regardless of whether such enforceability is considered in
a proceeding at law or in equity).
3.06 Approvals. No Government Approval by, and no filing with, any
---------
Government Authority is required for the execution, delivery or performance by
the Sponsor of this Equity Support Guarantee or any other Project Document to
which it is or is intended to be a party or for the validity or enforceability
hereof or thereof, or for the exercise by the
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-9-
Administrative Agent, the Depositary Agent, the Collateral Agent or any other
Secured Party of their respective rights and remedies hereunder.
3.07 Taxes. The Sponsor has filed or caused to be filed all tax
-----
returns that are required to be filed, and has paid all taxes shown to be due
and payable on said returns or on any assessments made against the Sponsor or
any of its Property and all other Taxes, imposed on the Sponsor by any
Government Authority (other than Taxes the payment of which are not yet due or
which are being Contested), and no tax Liens (other than Permitted Liens) have
been filed and no claims are being asserted with respect to such Taxes.
3.08 Regulatory Status. The Sponsor is not an "investment company"
-----------------
within the meaning of the Investment Company Act of 1940, as amended.
Section 4. Covenants. The Sponsor agrees that, until the payment and
---------
satisfaction in full of each Guaranteed Obligation:
4.01 Financial Statements. The Sponsor shall deliver to the
--------------------
Administrative Agent and the Collateral Agent to the extent not otherwise
delivered pursuant to the Financing Documents:
(a) as soon as available and in any event within 45 days after the
end of each quarterly fiscal period of the Sponsor, unaudited financial
statements of the Sponsor for such period and for the period from the
beginning of the respective fiscal year to the end of such period in the
form that the Sponsor releases to the public;
(b) as soon as available and in any event within 120 days after the
end of each fiscal year of the Sponsor, audited financial statements of the
Sponsor for such year in the form that the Sponsor releases to the public;
(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which the
Sponsor shall have filed with the Securities and Exchange Commission or any
national securities exchange;
(d) promptly upon the mailing thereof to the shareholders of the
Sponsor generally, copies of all financial statements, reports and proxy
statements so mailed;
(e) promptly after the Sponsor knows or has reason to believe that
any ESG Replacement Event has occurred, a notice of such ESG Replacement
Event describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a description of the action that
the Sponsor has taken or proposes to take with respect thereto; and
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-10-
(f) from time to time such other information regarding the financial
condition, operations, business or prospects of the Sponsor as the
Administrative Agent (or any Sponsor Construction Lender or Issuing Bank
with respect to Sponsor Construction Letters of Credit through the
Administrative Agent) may reasonably request.
4.02 Litigation. The Sponsor shall promptly upon obtaining knowledge
----------
of (a) any action, suit or proceeding at law or in equity by or before any
Government Authority, arbitral tribunal or other body pending or threatened
against the Sponsor which could reasonably be expected to result in a Material
Adverse Effect on the Sponsor or (b) any other circumstance, act or condition
(including, without limitation, the adoption, amendment or repeal of any
Government Rule applicable to the Sponsor or the Impairment of any Government
Approval relating to the Sponsor or notice (whether formal or informal, written
or oral) of the failure to comply with the terms and conditions of any such
Government Approval) which could reasonably be expected to result in a Material
Adverse Effect on the Sponsor, furnish to the Administrative Agent and the
Collateral Agent a notice of such event describing the same in reasonable detail
and, together with such notice or as soon thereafter as possible, a description
of the action that the Sponsor has taken and proposes to take with respect
thereto.
4.03 Corporate Existence, Etc. The Sponsor shall preserve and
------------------------
maintain (a) its corporate existence and (b) all of its licenses, rights,
privileges and franchises necessary or desirable for (i) the maintenance of its
existence and (ii) the fulfillment of its material obligations and the exercise
of all its material rights under this Equity Support Guarantee and each other
Project Document to which it is or is intended to be a party; provided, however,
-------- -------
that this Section 4.03 shall not apply to or be breached by any merger or
consolidation of Sponsor with or into any other Person if (a) Sponsor is the
survivor or (b) the surviving Person, if not Sponsor, is organized under the
laws of the United States or a state thereof and assumes all obligations of
Sponsor under this Equity Support Guarantee (provided in each case that
immediately after giving effect to such proposed transaction, no ESG Replacement
Event or event which, with giving of notice or lapse of time or both, would
constitute an ESG Replacement Event, would exist or result).
4.04 Compliance with Government Rules, Etc. The Sponsor shall comply
-------------------------------------
with all applicable Government Rules and shall from time to time obtain and
renew, and shall comply with, all Government Approvals as shall now or hereafter
be necessary under applicable Government Rules in connection with this Equity
Support Guarantee and each other Project Document to which the Sponsor is or is
intended to be a party and the transactions contemplated hereby or thereby
(except any thereof the non-compliance with which could not reasonably be
expected to result in a Material Adverse Effect on the Sponsor) and shall
promptly furnish certified copies of each such Government Approval to the
Administrative Agent and the Collateral Agent (together with the application for
and the and associated correspondence
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-11-
regarding such Government Approvals, if requested by the Administrative Agent)
to the extent not theretofore furnished in accordance with the terms of the
Credit Agreement.
4.05 Taxes. The Sponsor shall pay and discharge, or effectively
-----
provide for, all Taxes now or hereafter imposed on it or on its income or
profits or on any of its Property prior to the date on which penalties attach
thereto (provided that the Sponsor shall have the right to Contest the validity
--------
or amount of any such Tax, in which event, the Sponsor shall promptly pay any
valid, final judgment enforcing any such Tax and cause the same to be satisfied
of record) unless such failure to pay could not, either individually or together
with all other failures by the Sponsor to pay, reasonably be expected to result
in a Material Adverse Effect on the Sponsor.
4.07 Maintenance of Properties. The Sponsor shall (a) maintain and
-------------------------
preserve all of its material Properties necessary or useful in the proper
conduct its business in good working order and condition, ordinary wear and tear
excepted and (b) keep insured by financially sound and reputable insurers all
Property of a character usually insured by entities engaged in the same or
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such entities and carry such other
insurance as is usually carried by such entities.
Section 5. Miscellaneous.
-------------
5.01 No Waiver. No failure on the part of the Administrative Agent,
---------
the Collateral Agent, the Depositary Agent, any Sponsor Construction Lender or
any Issuing Bank with respect to Sponsor Construction Letters of Credit or the
Company to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege hereunder shall operate as a waiver
thereof, and no single or partial exercise by the Administrative Agent, the
Collateral Agent, the Depositary Agent, any Sponsor Construction Lender or any
Issuing Bank with respect to Sponsor Construction Letters of Credit or the
Company of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
5.02 Notices. All notices, requests and other communications
-------
provided for herein (including, without limitation, any modifications of, or
waivers or consents under, this Equity Support Guarantee) shall be given or made
in writing (including, without limitation, by telecopy) delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or, as to any party, at such other address as shall be
designated by such party in a notice to each other party. Except as otherwise
provided in this Equity Support Guarantee, all such communications shall be
deemed to have been duly given when transmitted by telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid.
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-12-
5.03 Expenses. The Sponsor agrees to pay to the Administrative
--------
Agent, the Collateral Agent and the Depositary Agent all reasonable out-of-
pocket expenses actually incurred (including reasonable expenses for legal
services of every kind) of, or incident to, the enforcement of any of the
provisions of this Equity Support Guarantee, and for the defending or asserting
of rights and claims of the Administrative Agent, the Collateral Agent or the
Depositary Agent in respect thereof, by litigation or otherwise.
5.04 Waivers, Etc. This Equity Support Guarantee may be amended or
------------
modified only by an instrument in writing signed by the Sponsor and the
Administrative Agent acting with the consent of the Majority Sponsor
Construction Lenders or the Majority Lenders as provided in Section 10.09 of the
Credit Agreement and Section 23 of the Intercreditor Agreement, and any
provision of this Equity Support Guarantee may be waived by the Administrative
Agent acting with consent of the Majority Sponsor Construction Lenders and the
Majority Lenders as provided in Section 10.09 of the Credit Agreement and
Section 23 of the Intercreditor Agreement; provided that (a) no amendment,
modification or waiver shall, unless by an instrument in writing signed by all
of the Sponsor Construction Lenders and all of the Issuing banks with respect to
Sponsor Construction Letters of Credit or by the Administrative Agent acting
with the consent of all of the Lenders, alter the terms of this Section 5.04 and
(b) no amendment, modification or waiver shall, unless by an instrument in
writing signed by the Collateral Agent and the Depositary Agent, affect the
rights or obligations of the Collateral Agent or the Depositary Agent. Any
waiver shall be effective only in the specific instance and for the specified
purpose for which it was given.
5.05 Successors and Assigns. This Equity Support Guarantee shall be
----------------------
binding upon and inure to the benefit of the respective successors and assigns
of each of the Sponsor, the Administrative Agent, the Depositary Agent, the
Collateral Agent, each Sponsor Construction Letter and each Issuing Bank with
respect to Sponsor Construction Letters of Credit and any holder of any
Guaranteed Obligation (provided, however, that the Sponsor shall not assign or
transfer its rights hereunder (other than pursuant to a merger or consolidation
of the Sponsor with or into any other Person if (a) the Sponsor is the survivor
or (b) the surviving Person, if not Sponsor, is organized under the laws of the
United States or a state thereof and assumes all obligations of the Sponsor
under the Equity Support Agreement (provided in each case that immediately after
giving effect to such proposed transaction, no ESG Replacement Event or event
which, with the giving of notice or lapse of time or both, would constitute an
ESG Replacement Event, would exist or result) without the prior written consent
of the Administrative Agent (acting with the consent of the Majority Lenders and
Majority Sponsor Construction Lenders).
5.06 Counterparts; Integration; Effectiveness. This Equity Support
----------------------------------------
Guarantee may be executed in any number of counterparts, all of which when taken
together shall constitute
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-13-
one and the same instrument and any of the parties hereto may execute this
Equity Support Guarantee by signing any such counterpart. This Equity Support
Guarantee, the other Equity Documents and the other Recourse Documents to which
the Sponsor is a party constitute the entire agreement and understanding among
the parties hereto and supersede any and all prior agreements and
understandings, written or oral, relating to the subject matter hereof. This
Equity Support Guarantee shall become effective at such time as the
Administrative Agent shall have received counterparts hereof signed by all of
the intended parties hereto.
5.07 Severability. If any provision hereof is invalid or
------------
unenforceable in any jurisdiction, then, to the fullest extent permitted by
applicable Government Rule, (a) the other provisions hereof shall remain in full
force and effect in such jurisdiction and shall be liberally construed in order
to carry out the intentions of the parties hereto as nearly as may be possible
and (b) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
5.08 The Administrative Agent, the Collateral Agent and the
------------------------------------------------------
Depositary Agent. As provided in Section 10 of the Credit Agreement, each Lender
- ----------------
and each Issuing Bank has appointed ABN AMRO BANK N.V. as its Administrative
Agent for purposes of this Equity Support Guarantee and as provided in the
Intercreditor Agreement and the Depositary Agreement, the Secured Parties have
appointed (or have approved of the appointment of) the Collateral Agent and the
Depositary Agent for the purposes of this Equity Support Guarantee.
5.09 Headings. Headings appearing herein are used solely for
--------
convenience of reference and are not intended to affect the interpretation of
any provision of this Equity Support Guarantee.
5.10 SPECIAL EXCULPATION. NO CLAIM MAY BE MADE BY THE SPONSOR OR ANY
-------------------
OTHER PERSON AGAINST THE COLLATERAL AGENT, THE DEPOSITARY AGENT, THE
ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY OR THE AFFILIATES, DIRECTORS,
OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OF ANY OF THEM FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH
OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATING TO THIS
EQUITY SUPPORT GUARANTEE OR ANY OTHER PROJECT DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH AND THE SPONSOR HEREBY WAIVES, RELEASES AND AGREES NOT TO
SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR
NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
-14-
5.11 SUBMISSION TO JURISDICTION. THE SPONSOR HEREBY SUBMITS TO THE
--------------------------
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
EQUITY SUPPORT GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE SPONSOR
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
5.12 NO THIRD PARTY BENEFICIARIES. THE AGREEMENTS OF THE PARTIES
----------------------------
HERETO ARE SOLELY FOR THE BENEFIT OF THE SPONSOR, THE COMPANY, THE
ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE DEPOSITARY AGENT, THE SPONSOR
CONSTRUCTION LENDERS AND THE ISSUING BANKS WITH RESPECT TO SPONSOR CONSTRUCTION
LETTERS OF CREDIT, AND NO PERSON (OTHER THAN THE PARTIES HERETO, THE SPONSOR
CONSTRUCTION LENDERS AND THE ISSUING BANKS WITH RESPECT TO SPONSOR CONSTRUCTION
LETTERS OF CREDIT AND THEIR SUCCESSORS AND ASSIGNS PERMITTED HEREUNDER) SHALL
HAVE ANY RIGHTS HEREUNDER.
5.13 GOVERNING LAW. THIS EQUITY SUPPORT GUARANTEE SHALL BE GOVERNED
-------------
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
5.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY
--------------------
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS EQUITY SUPPORT
GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Equity Support
Guarantee to be duly executed and delivered as of the day and year first above
written.
EDISON MISSION ENERGY
By /s/ Michael P. Childers
-------------------------------
Michael P. Childers
Vice President
Address for Notices:
Edison Mission Energy
18101 Von Karman Avenue
Irvine, California 92612-1046
Telecopier No.: 949-833-9274
Telephone No.: 949-798-7852
Attention: Michael P. Childers
Vice President
With copies to:
Edison Mission Energy
18101 Von Karman Avenue
Irvine, California 92612-1046
Telecopier No.: 949-752-1420
Telephone No.: 949-798-7887
Attention: Reggie Rice, Esq.
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
ABN AMRO BANK N.V.
as Administrative Agent
By /s/ William R. Hale
-----------------------------------
Name: William R. Hale
Title: Senior Vice President
By /s/ Miguel A. Pachicano
-----------------------------------
Name: Miguel A. Pachicano
Title: Vice President
Address for Notices:
ABN AMRO Bank N.V.
New York Branch
1325 Avenue of the Americas
New York, New York 10019
Telecopier No.: 212-3l4-1712
Telephone No.: 212-314-1276
Attention: Syndications & Placements;
Administrative Services
With copies to:
ABN AMRO Bank N.V.
135 South LaSalle Street
Suite 2805
Chicago, Illinois 60603
Telecopier No.: 312-904-8840
Telephone No.: 312-904-8835
Attention: Credit Administration
Department
and
ABN AMRO North America, Inc.
135 South LaSalle Street
Suite 711
Chicago, Illinois 60603
Telecopier No.: 312-904-6387
Telephone No.: 312-904-6165
Attention: Project Finance
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
THE CHASE MANHATTAN BANK,
as Collateral Agent
By /s/ David G. Safer
----------------------
Name: DAVID G. SAFER
Title: VICE PRESIDENT
Address for Notices:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: International
Corporate Trust
Telephone: 212-946-3013
Telecopy: 212-946-8177/8
With copies to:
The Chase Manhattan Bank
Hato Rey Headquarters
254 Munoz Rivera Avenue
San Juan, Puerto Rico 00936
Attention:
Telephone: 787-753-3400
Telecopy: 787-753-3218
EQUITY SUPPORT GUARANTEE
------------------------
<PAGE>
EXHIBIT 10.50
EXECUTION COPY
MASTER GUARANTEE AND SUPPORT INSTRUMENT
Dated as of December 23, 1998
among
EDISON MISSION ENERGY
ABN AMRO BANK N.V.
as Administrative Agent
THE CHASE MANHATTAN BANK
as Collateral Agent
and
THE CHASE MANHATTAN BANK
as Depositary Agent
<PAGE>
MASTER GUARANTEE AND SUPPORT INSTRUMENT (this "Master Guarantee")
----------------
dated as of December 23, 1998 among EDISON MISSION ENERGY, a corporation duly
organized and validly existing under the laws of the State of California (the
"Guarantor"); ABN AMRO BANK N.V., as Administrative Agent under the Credit
---------
Agreement (in such capacity, together with its successors in such capacity, the
"Administrative Agent"); THE CHASE MANHATTAN BANK, as Collateral Agent under the
--------------------
Intercreditor Agreement (in such capacity, together with its successors in such
capacity, the "Collateral Agent"); and THE CHASE MANHATTAN BANK, as Depositary
----------------
Agent under the Depositary Agreement (in such capacity, together with its
successors in such capacity, the "Depositary Agent").
----------------
ECOELECTRICA, L.P., an exempted limited partnership duly formed and
validly existing under the laws of Bermuda (the "Company"), the lenders and
-------
issuing banks under the Credit Agreement referred to below, the co-agents under
the Credit Agreement referred to below and the Administrative Agent are parties
to a Credit Agreement dated as of October 31, 1997 (as amended, modified and
supplemented and in effect from time to time, the "Credit Agreement"),
----------------
providing, subject to the terms and conditions thereof, for extensions of credit
(by making of loans and issuing letters of credit) to be made by said lenders
and issuing banks to the Company in an aggregate principal or face amount not
exceeding the amount of Commitments of said lenders and issuing banks as the
same may be adjusted from time to time. In addition, the Company may from time
to time be obligated to certain of said lenders in respect of certain Permitted
Interest Rate Protection Agreements.
The Company, the Administrative Agent, the Collateral Agent, the
Depositary Agent and certain other Secured Parties have entered into that
certain Collateral Agency and Intercreditor Agreement (as amended, modified and
supplemented and in effect from time to time, the "Intercreditor Agreement")
-----------------------
dated as of October 31, 1997.
To induce the Collateral Agent and the Depositary Agent to release
funds held in certain Accounts under the Depositary Agreement and to permit
certain obligations to qualify as Committed Amounts under and in accordance with
the Credit Agreement and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Definitions. Terms defined in Appendix A to the
-----------
Intercreditor Agreement are used herein and in each Master Guarantee Supplement
(including in the preamble and recitals of this Master Guarantee and each Master
Guarantee Supplement) as defined therein (and the principles of interpretation
set forth in Appendix A to the Intercreditor Agreement shall apply to such
definitions). Unless the context otherwise requires, any reference in this
Master Guarantee or any Master Guarantee Supplement to any agreement shall mean
such agreement and all schedules, exhibits and attachments thereto as amended,
supplemented or modified. Unless otherwise stated, any reference in this Master
Guarantee or any Master Guarantee Supplement to any Person shall include its
permitted successors and assigns and, in the case of any Government Authority,
any Person succeeding to its functions and capacities. In addition, the
following terms shall have the following respective meanings:
"Guaranteed Obligor" shall mean the Company, a Partner or another
------------------
Person specified on a Master Guarantee Supplement as a "Guaranteed Obligor".
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-2-
"Master Guaranteed Obligations" shall mean each of the obligations of
-----------------------------
a Guaranteed Obligor specified on a Master Guarantee Supplement as a "Master
Guaranteed Obligation".
"Master Guarantee Supplement" shall mean a Master Guarantee Supplement
---------------------------
in substantially the form of Exhibit A hereto that establishes a Guaranteed
Obligor and a Master Guaranteed Obligation for purposes of this Master
Guarantee.
"Master Guarantee Termination Date" shall mean the earlier to occur of
---------------------------------
(i) the payment and satisfaction in full of each Master Guaranteed Obligation
and the occurrence of the Debt Termination Date and (ii) the date on which the
Guarantor elects, pursuant to Section 2.08(b) hereof, to terminate this Master
Guarantee.
As used in the Credit Agreement as the same relates to this Master
Guarantee and the relevant Master Guarantee Supplement and the Depositary
Agreement as the same relates to this Master Guarantee and the relevant Master
Guarantee Supplement, the term "ASP Replacement Event" shall mean:
---------------------
(a) Any representation or warranty made or deemed made by the
Guarantor (or any of its officers) herein or under or in connection with
any other Project Document to which the Guarantor is a party shall prove to
have been false or misleading in any material respect as of the time made
or deemed made, confirmed or furnished and shall have (or the facts or
circumstances underlying such false or misleading representation or
warranty shall have) resulted in a Material Adverse Effect on the Company,
any Partner or the Guarantor; or
(b) The Guarantor shall default in the performance of any of its
obligations under any of Section 2.01 of this Master Guarantee; or the
Guarantor shall default in the performance of any of its other obligations
in this Master Guarantee or any other Recourse Document to which it is a
party and such default shall continue unremedied for a period of 30 days
after the occurrence of such default; or
(c) A Bankruptcy Event shall occur and be continuing with respect to
the Guarantor; or
(d) (i) In the case of Master Guarantee Supplements that, together
with this Master Guarantee, constitute a Fuel Hedge Interruption Reserve
Support Instrument, the Guarantor shall fail to have outstanding long-term
unsecured indebtedness rated BBB+ or better by S&P and Baal or better by
Moody's (or an equivalent rating by another nationally recognized
statistical rating organization or similar standing if neither such
corporation is in the business of rating such long-term unsecured
indebtedness or (ii) in the case of any other Master Guarantee Supplement,
the Guarantor shall fail to have outstanding long-term unsecured
indebtedness rated A or better by S&P and A2 or better by Moody's (or an
equivalent rating by another nationally recognized statistical rating
organization of similar standing if neither such corporation is in the
business of rating
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-3-
such long-term unsecured indebtedness or in the case of any other Master
Guarantee Supplement; or
(e) The Guarantor shall default in the payment when due of any
principal of or interest on any of its Indebtedness which is outstanding in
a principal amount of at least $50,000,000 in the aggregate (other than its
Indebtedness hereunder); or any event specified in any note, agreement,
indenture or other document evidencing or relating to any such Indebtedness
shall occur if the effect of such event is to cause, or (with the giving of
notice or the lapse of time or both) to permit the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity or to have the interest rate thereon reset to
a level so that securities evidencing such Indebtedness trade at a level
specified in relation to the par value thereof.
Section 2. The Guarantee.
-------------
2.01 The Guarantee. The Guarantor hereby guarantees to the
-------------
Administrative Agent, the Collateral Agent, the Depositary Agent and each other
Secured Party (or certain of them as set forth in the Depositary Agreement) and
their respective successors and assigns the prompt payment in full when due of
each Master Guaranteed Obligation by the related Guaranteed Obligor. The
Guarantor hereby further agrees that the Guarantor will promptly pay each
Guaranteed Obligation within five Business Days following the Guarantor's
receipt of written notice of demand for payment therefor from the Administrative
Agent, the Collateral Agent or the Depositary Agent, furnished in accordance
with the terms of the Depositary Agreement and that in the case of any extension
of time of payment or renewal of any Master Guaranteed Obligation, the same will
be promptly paid in full when due in accordance with the terms of such extension
or renewal within five Business Days following the Guarantor's receipt of
written notice of demand for payment therefor from the Administrative Agent, the
Collateral Agent or the Depositary Agent, furnished in accordance with the terms
of the Depositary Agreement. Any such payments pursuant to this Section 2.01
shall be made in immediately available funds to the Account (or sub-account
thereof) established in the name of the Company and maintained by the Depositary
Agent at The Chase Manhattan Bank, 450 West 33rd Street, 15th Floor, New York,
New York 10001, identified in the related Master Guarantee Supplement with
respect to such Master Guaranteed Obligation, pending transfer in accordance
with the Depositary Agreement (provided, that in the event that no account is
--------
specified in such Master Guarantee Supplement or in a demand for payment
delivered with respect to any Master Guaranteed Obligation, payments shall be
made in accordance with Payment Instructions to the Project Revenue Account
(account number C23916) and segregated therein pending transfer in accordance
with the terms of the Depositary Agreement). Each payment made in respect of any
Master Guaranteed Obligation shall be accompanied by a written statement from an
Authorized Officer of the Guarantor identifying the Master Guaranteed Obligation
to which such payment relates.
2.02 Obligations Unconditional; Waiver of Defenses. The obligation of
---------------------------------------------
the Guarantor under Section 2.01 hereof is irrevocable, absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Credit Agreement, any
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-4-
other Basic Document, any other Financing Document, any Project Document or any
other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
Master Guaranteed Obligation or any Secured Obligation, and, to the fullest
extent permitted by applicable Government Rule, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, it being the intent of this
Section 2.02 that the obligation of the Guarantor hereunder shall be absolute
and unconditional under any and all circumstances. To the fullest extent
permitted by applicable Government Rule, the obligation of the Guarantor under
Section 2.01 hereof shall not be subject to any abatement, reduction,
limitation, impairment, termination, setoff, defense, counterclaim or recoupment
whatsoever or any right to any thereof, and shall not be released or discharged.
Without limiting the generality of the foregoing, it is agreed that, to the
fullest extent permitted by applicable Government Rule, the occurrence of any
one or more of the following (without notice to the Guarantor) shall not alter
or impair the liability of the Guarantor hereunder which shall remain absolute
and unconditional as described above:
(a) at any time or from time to time, the time for any performance of
or compliance with any Master Guaranteed Obligation or any
Secured Obligation shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of any of the
Credit Agreement, any other Basic Document, any other Financing
Document, any Project Document or any other agreement or
instrument referred to herein or therein shall be done or
omitted;
(c) the maturity of any Master Guaranteed Obligation or any Secured
Obligation shall be accelerated, or any Master Guaranteed
Obligation or any Secured Obligation shall be modified,
supplemented or amended in any respect, or any right under any of
the Credit Agreement, any other Basic Document, any other
Financing Document, any Project Document or any other agreement
or instrument referred to herein or therein shall be waived or
any other guarantee of any Master Guaranteed Obligation or any
Secured Obligation or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with;
(d) any lien or security interest granted to, or in favor of, the
Collateral Agent, the Depositary Agent or any Secured Party as
security for any Master Guaranteed Obligation or any Secured
Obligation shall fail to be perfected;
(e) the bankruptcy or insolvency of the Company, the Guarantor, any
Partner or any other Recourse Party or any reorganization,
arrangement, compromise, composition or plan affecting the
Company, the Guarantor, any Partner or any other Recourse Party
shall occur; or
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-5-
(f) this Master Guarantee, any Master Guarantee Supplement or any
other Project Document referred to herein or therein shall be
rejected in any bankruptcy, insolvency or similar proceeding
(nothing herein being a concession that any obligation hereunder
or thereunder is properly classifiable as an executory
obligation).
To the fullest extent permitted by applicable Government Rule, the Guarantor
hereby expressly waives, except as specifically provided in Section 2.01 hereof,
diligence, presentment, demand of payment, protest and all notices whatsoever,
and any requirement that the Administrative Agent, the Collateral Agent, the
Depositary Agent or any other Secured Party exhaust any right, power or remedy
or proceed against any Guaranteed Obligor or any other Person under the Credit
Agreement, any other Basic Document, any other Financing Document, any Project
Document or any other agreement or instrument referred to herein or therein, or
against any other Person under any other guarantee of, or security for, any
Master Guaranteed Obligation or any Secured Obligation.
2.03 Reinstatement. The obligation of the Guarantor under this Section
-------------
2 shall be automatically reinstated if, and to the extent that, for any reason
any payment by or on behalf of the Guarantor in respect of any Master Guaranteed
Obligation is rescinded or must be otherwise restored by the Administrative
Agent, the Collateral Agent, the Depositary Agent or any other Secured Party,
whether as a result of any proceedings under bankruptcy, insolvency or similar
laws, reorganization or otherwise, and the Guarantor shall indemnify the
Administrative Agent, the Collateral Agent, the Depositary Agent and each other
Secured Party on demand for all reasonable out-of-pocket costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses of
counsel) incurred by the Administrative Agent, the Collateral Agent, the
Depositary Agent or such other Secured Party in connection with such rescission
or restoration.
2.04 Subrogation. Until the Master Guarantee Termination Date, the
-----------
Guarantor shall not exercise, and hereby irrevocably waives, to the fullest
extent permitted by applicable Government Rule, any claim, right or remedy that
it may now have or may hereafter acquire against any Guaranteed Obligor arising
under or in connection with this Master Guarantee or any Master Guarantee
Supplement, including, without limitation, any claim, right or remedy of
subrogation, contribution, reimbursement, exoneration, indemnification or
participation arising under contract, by Government Rule or otherwise in any
claim, right or remedy of the Administrative Agent, the Collateral Agent, the
Depositary Agent or the other Secured Parties against any Guaranteed Obligor or
any other Person or any Collateral which the Administrative Agent, the
Collateral Agent, the Depositary Agent or any other Secured Party may now have
or may hereafter acquire. If, notwithstanding the preceding sentence, any amount
shall be paid to the Guarantor at any time when any Master Guaranteed Obligation
shall not have been paid in full, such amount shall be held by the Guarantor in
trust for the Collateral Agent and the other Secured Parties, segregated from
other funds of the Guarantor and be turned over to the Collateral Agent (duly
endorsed by the Guarantor to the Collateral Agent, if required), to be applied
against such Master Guaranteed Obligation, whether matured or unmatured, in
accordance with the Depositary Agreement.
2.05 Remedies. The Guarantor agrees that, as between the Guarantor,
--------
the Administrative Agent, the Collateral Agent, the Depositary Agent and the
other Secured Parties,
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-6-
the obligations of each Guaranteed Obligor under the documentation governing its
related Master Guaranteed Obligation may become, or may be declared to be,
forthwith due and payable as provided therein for purposes of Section 2.01
hereof notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such obligations from becoming automatically due and payable) as
against the Company and that, in the event of such declaration (or such
obligations becoming automatically due and payable), such obligations (whether
or not due and payable by the Company) shall forthwith become due and payable by
the Company for purposes of said Section 2.01. The Guarantor further agrees
that, in accordance with the Depositary Agreement, upon the occurrence of a
Master Guarantee ASP Replacement Event amounts payable under this Master
Guarantee and any Master Guarantee Supplement may, notwithstanding that the
obligations of any Guaranteed Obligor are not then due and payable, become
payable in the amounts and at the times set forth in the Depositary Agreement.
2.06 Continuing Guarantee. The guarantee in this Section 2 is a
--------------------
continuing guarantee and shall apply to any Master Guaranteed Obligation
whenever arising.
2.07 Pro Tanto Discharge. Any payment made directly to the Depositary
-------------------
Agent under this Master Guarantee shall be deemed to be payment by the
Guaranteed Obligor of the related Master Guaranteed Obligation pro tanto
--- -----
(subject to Section 2.03 hereof).
2.08 Termination.
-----------
(a) Master Guarantee Supplements. Upon written notice to the
----------------------------
Administrative Agent, the Collateral Agent and the Depositary Agent, the
Guarantor may, with respect to any Master Guaranteed Supplement, on any date on
which (a) the Master Guaranteed Obligation guaranteed under such Master
Guarantee Supplement is no longer required to be guaranteed under and in
accordance with any of the Basic Documents (including, without limitation, by
reason of such Master Guaranteed Obligation being guaranteed under the
Acceptable Guarantee of an Acceptable Support Party), (b) no Master Guaranteed
Obligation relating to such Master Guaranteed Supplement is outstanding and (c)
no amounts are payable under or in accordance with Section 5.03 hereof with
respect to the Master Guaranteed Obligation relating to such Master Guarantee
Supplement, terminate such Master Guarantee Supplement effective on and as of
such date.
(b) Master Guarantee. Upon written notice to the Administrative Agent,
----------------
the Collateral Agent and the Depositary Agent, the Guarantor may, on any date on
which (a) no Master Guarantee or Master Guarantee Supplement is at such time
required to be in full force and effect under and in accordance with any of the
Basic Documents, (b) no Master Guaranteed Obligation is outstanding and (c) no
amounts are payable under or in accordance with Section 5.03 hereof, terminate
this Master Guarantee effective on and as of such date.
Section 3. Representations and Warranties. The Guarantor represents
------------------------------
and warrants to the Administrative Agent, the Collateral Agent, the Depositary
Agent and the other Secured Parties that:
3.01 Corporate Existence. The Guarantor is a corporation duly
-------------------
organized, validly existing and in good standing under the laws of the State of
California and is duly qualified to do
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-7-
business and is in good standing in its jurisdiction of incorporation and all
other places where necessary in light of the business it conducts and the
Property it owns and intends to conduct and own and in light of the transactions
contemplated by this Master Guarantee and each other Project Document to which
it is a party.
3.02 Financial Condition. The audited balance sheet of the Guarantor
-------------------
as at December 31, 1997 and the related statements of income, shareholders'
equity and cash flows for the fiscal year of the Guarantor for the fiscal year
of the Guarantor ended on such date, and the unaudited balance sheet of the
Guarantor as at September 30, 1998 and the related statements of income,
shareholders' equity and cash flows of the Guarantor for the nine (9)-month
period ended on such date, heretofore furnished to each of the Secured Parties,
are complete and correct and fairly present the financial condition of the
Guarantor as at said dates and the results of its operations for the fiscal year
and nine (9)-month period ended on said dates (subject, in the case of such
unaudited financial statements as at March 31, 1998, June 30, 1998 and September
30, 1998, to normal year-end audit adjustments), all in accordance with
generally accepted accounting principles and practices applied on a consistent
basis. Since September 30, 1998 there has been no material adverse change in the
financial condition, operations, business or prospects of the Guarantor from
that set forth in said financial statements as at said date.
3.03 Litigation. Except as disclosed in Guarantor's Form 10-K for the
----------
year ended December 31, 1997 or Guarantor's Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998, as filed with the U.S.
Securities and Exchange Commission, which were delivered to each of the
Administrative Agent, the Collateral Agent, each Lender and each issuing Bank
prior to the date hereof, there is no action, suit or proceeding at law or in
equity or by or before any Government Authority, arbitral tribunal or other body
now pending or, to the best knowledge of the Guarantor, threatened against or
affecting the Guarantor or any of its Property, which has had or could
reasonably be expected to have a Material Adverse Effect on the Guarantor.
3.04 No Breach. The execution, delivery and performance by the
---------
Guarantor of this Master Guarantee and each other Project Document to which it
is or is intended to be a party and the consummation of the transactions
contemplated hereby and thereby do not and will not: (a) require any consent or
approval of the board of directors or any shareholder of the Guarantor or any
other Person that has not been duly obtained and each such consent or approval
that has been obtained is in full force and effect, (b) violate any provision of
the certificate of incorporation or the by-laws of the Guarantor or any
Government Rule or Government Approval applicable to the Guarantor, (c) conflict
with, result in a breach of or constitute a default under any provision of the
certificate of incorporation, by-laws or any resolution of the board of
directors of the Guarantor or any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Guarantor is a party
or by which it or its Properties may be bound or (d) result in, or require, the
creation or imposition of any Lien, upon or with respect to any of the
properties now owned or hereafter acquired by the Guarantor, which, in any of
the circumstances described in the foregoing clauses (a) through (d), could
reasonably be expected to have a Material Adverse Effect on the Company or the
Guarantor. The Guarantor is not in violation of any Government Rule or
Government Approval which violation could reasonably be expected to have a
Material Adverse Effect on the Company or the Guarantor.
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-8-
3.05 Action. The Guarantor has the full corporate power, authority and
------
legal right to execute, deliver and perform its obligations under this Master
Guarantee and any other Project Document to which it is or is intended to be a
party. The execution, delivery and performance by the Guarantor of this Master
Guarantee and any other Project Document to which it is or is intended to be a
party, and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate and shareholder action on the part of
the Guarantor. This Master Guarantee and any other Project Document to which the
Guarantor is or is intended to be a party has been duly executed and delivered
by the Guarantor, has not been amended or otherwise modified, except as
permitted pursuant to Section 8.23 of the Credit Agreement, is in full force and
effect and is the legal, valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with its terms, except as the
enforceability thereof may be limited by (a) applicable bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and (b) the application of general principles of equity regardless of
whether such enforceability is considered in a proceeding at law or in equity).
3.06 Approvals. No Government Approval by, and no filing with, any
---------
Government Authority is required for the execution, delivery or performance by
the Guarantor of this Master Guarantee or any other Project Document to which it
is or is intended to be a party or for the validity or enforceability hereof or
thereof, or for the exercise by the Administrative Agent, the Depositary Agent,
the Collateral Agent or any other Secured Party of their respective rights and
remedies hereunder.
3.07 Taxes. The Guarantor has filed or caused to be filed all tax
-----
returns that are required to be filed, and has paid all taxes shown to be due
and payable on said returns or on any assessments made against the Guarantor or
any of its Property and all other Taxes, imposed on the Guarantor by any
Government Authority (other than Taxes the payment of which are not yet due or
which are being Contested), and no tax Liens (other than Permitted Liens) have
been filed and no claims are being asserted with respect to such Taxes.
3.08 Regulatory Status. The Guarantor is not an "investment company"
-----------------
within the meaning of the Investment Company Act of 1940, as amended.
Section 4. Covenants. The Guarantor agrees that, until the payment and
---------
satisfaction in full of each Guaranteed Obligation and the occurrence of the
Debt Termination Date:
4.01 Financial Statements. The Guarantor shall deliver to the
--------------------
Administrative Agent and the Collateral Agent to the extent not otherwise
delivered pursuant to the Financing Documents:
(a) as soon as available and in any event within 45 days after the
end of each quarterly fiscal period of the Guarantor, unaudited financial
statements of the Guarantor for such period and for the period from the
beginning of the respective fiscal year to the end of such period in the
form that the Guarantor releases to the public;
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-9-
(b) as soon as available and in any event within 120 days after the
end of each fiscal year of the Guarantor, audited financial statements of
the Guarantor for such year in the form that the Guarantor releases to the
public;
(c) promptly upon their becoming available, copies of all registration
statements and regular periodic reports, if any, which the Guarantor shall
have filed with the Securities and Exchange Commission or any national
securities exchange;
(d) promptly upon the mailing thereof to the shareholders of the
Guarantor generally, copies of all financial statements, reports and proxy
statements so mailed;
(e) promptly after the Guarantor knows or has reason to believe that
any ASP Replacement Event has occurred, a notice of such ASP Replacement
Event describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a description of the action that
the Guarantor has taken or proposes to take with respect thereto; and
(f) from time to time such other information regarding the financial
condition, operations, business or prospects of the Guarantor as the
Collateral Agent or the Administrative Agent (or any Lender through the
Administrative Agent) may reasonably request.
4.02 Litigation. The Guarantor shall promptly upon obtaining knowledge
----------
of (a) any action, suit or proceeding at law or in equity by or before any
Government Authority, arbitral tribunal or other body pending or threatened
against the Guarantor which could reasonably be expected to result in a Material
Adverse Effect on the Guarantor or (b) any other circumstance, act or condition
(including, without limitation, the adoption, amendment or repeal of any
Government Rule applicable to the Guarantor or the Impairment of any Government
Approval relating to the Guarantor or notice (whether formal or informal,
written or oral) of the failure to comply with the terms and conditions of any
such Government Approval) which could reasonably be expected to result in a
Material Adverse Effect on the Guarantor, furnish to the Administrative Agent
and the Collateral Agent a notice of such event describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that the Guarantor has taken and proposes
to take with respect thereto.
4.03 Corporate Existence, Etc. The Guarantor shall preserve and
------------------------
maintain (a) its corporate existence and (b) all of its licenses, rights,
privileges and franchises necessary or desirable for (i) the maintenance of its
existence and (ii) the fulfillment of its material obligations and the exercise
of all its material rights under this Master Guarantee and each other Project
Document to which it is or is intended to be a party; provided, however, that
--------- -------
this Section 4.03 shall not apply to or be breached by any merger or
consolidation of Guarantor with or into any other Person if (a) Guarantor is the
survivor or (b) the surviving Person, if not Guarantor, is organized under the
laws of the United States or a state thereof and assumes all obligations of
Guarantor under this Master Guarantee (provided in each case that immediately
after giving effect to such proposed transaction, no ASP Replacement Event or
event which, with giving of notice or lapse of time or both, would constitute an
ASP Replacement Event, would exist or result).
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-10-
4.04 Compliance with Government Rules. Etc. The Guarantor shall comply
-------------------------------------
with all applicable Government Rules and shall from time to time obtain and
renew, and shall comply with, all Government Approvals as shall now or hereafter
be necessary under applicable Government Rules in connection with this Master
Guarantee and each other Project Document to which the Guarantor is or is
intended to be a party and the transactions contemplated hereby or thereby
(except any thereof the non-compliance with which could not reasonably be
expected to result in a Material Adverse Effect on the Guarantor) and shall
promptly furnish certified copies of each such Government Approval to the
Administrative Agent and the Collateral Agent (together with the application for
and the and associated correspondence regarding such Government Approvals, if
requested by the Administrative Agent) to the extent not theretofore furnished
in accordance with the terms of the Credit Agreement.
4.05 Taxes. The Guarantor shall pay and discharge, or effectively
-----
provide for, all Taxes now or hereafter imposed on it or on its income or
profits or on any of its Property prior to the date on which penalties attach
thereto (provided that the Guarantor shall have the right to Contest the
--------
validity or amount of any such Tax, in which event, the Guarantor shall promptly
pay any valid, final judgment enforcing any such Tax and cause the same to be
satisfied of record) unless such failure to pay could not, either individually
or together with all other failures by the Guarantor to pay, reasonably be
expected to result in a Material Adverse Effect on the Guarantor.
4.07 Maintenance of Properties. The Guarantor shall maintain and
-------------------------
preserve all of its material Properties necessary or useful in the proper
conduct its business in good working order and condition, ordinary wear and tear
excepted and (b) keep insured by financially sound and reputable insurers all
Property of a character usually insured by entities engaged in the same or
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such entities and carry such other
insurance as is usually carried by such entities.
Section 5. Miscellaneous.
-------------
5.01 No Waiver. No failure on the part of the Administrative Agent,
---------
the Collateral Agent, the Depositary Agent, any other Secured Party, or the
Company to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege hereunder or under any Master
Guarantee Supplement shall operate as a waiver thereof, and no single or partial
exercise by the Administrative Agent, the Collateral Agent, the Depositary
Agent, any other Secured Party, or the Company of any right, power or privilege
hereunder or thereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein and in any Master Guarantee Supplement are cumulative and not exclusive
of any remedies provided by law.
5.02 Notices. All notices, requests and other communications provided
-------
for herein or in any Master Guarantee Supplement (including, without limitation,
any modifications of, or waivers or consents under, this Master Guarantee or any
Master Guarantee Supplement) shall be given or made in writing (including,
without limitation, by telecopy) delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof or,
as to any party, at such other address as shall be designated by such party in a
notice to each
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-11-
other party. Except as otherwise provided in this Master Guarantee or any Master
Guarantee Supplement, all such communications shall be deemed to have been duly
given when received by telex or telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
5.03 Expenses. The Guarantor agrees to pay to the Administrative
--------
Agent, the Collateral Agent and the Depositary Agent all reasonable out-of-
pocket expenses (including reasonable expenses for legal services of every kind)
of, or incident to, the enforcement of any of the provisions of this Master
Guarantee or any Master Guarantee Supplement, and for the defending or asserting
of rights and claims of the Administrative Agent, the Collateral Agent or the
Depositary Agent under such provisions, by litigation or otherwise.
5.04 Waivers. Etc. This Master Guarantee or any Master Guarantee
------------
Supplement may be amended or modified only by an instrument in writing signed by
the Guarantor, the Administrative Agent acting with the consent of the Majority
Lenders as provided in Section 10.09 of the Credit Agreement and Section 23 of
the Intercreditor Agreement and the Collateral Agent acting with the consent of
the Required Creditors as provided in Section 23 of the Intercreditor Agreement,
and any provision of this Master Guarantee or any Master Guarantee Supplement
may be waived by the Administrative Agent acting with consent of the Majority
Lenders as provided in Section 10.09 of the Credit Agreement and Section 23 of
the Intercreditor Agreement and the Collateral Agent acting on the instruction
of the Required Creditors; provided that (a) no amendment, modification or
waiver shall, unless by an instrument in writing signed by all of the Secured
Parties or by the Collateral Agent acting on the instruction of all of the
Secured Parties, alter the terms of this Section 5.04 and (b) no amendment,
modification or waiver shall, unless by an instrument in writing signed by the
Depositary Agent, affect the rights or obligations of the Depositary Agent. Any
waiver shall be effective only in the specific instance and for the specified
purpose for which it was given.
5.05 Successors and Assigns. This Master Guarantee and each Master
----------------------
Guarantee Supplement shall be binding upon and inure to the benefit of the
respective successors and assigns of each of the Guarantor, the Administrative
Agent, the Depositary Agent, the Collateral Agent, the other Secured Parties and
the holder of any Master Guaranteed Obligation (provided, however, that the
--------
Guarantor shall not assign or transfer its rights hereunder (other than pursuant
to a merger or consolidation of the Guarantor with or into any other Person if
(a) the Guarantor is the survivor or (b) the surviving Person, if not Guarantor,
is organized under the laws of the United States or a state thereof and assumes
all obligations of the Guarantor under the Master Guarantee (provided in each
case that immediately after giving effect to such proposed transaction, no ASP
Replacement Event or event which, with the giving of notice or lapse of time or
both, would constitute an ASP Replacement Event, would exist or result)) without
the prior written consent of the Collateral Agent (acting with the consent of
the Required Creditors).
5.06 Counterparts; Integration; Effectiveness. This Master Guarantee
----------------------------------------
and any Master Guarantee Supplement may be executed in any number of
counterparts, all of which when taken together shall constitute one and the same
instrument and any of the parties hereto or to any Master Guarantee Supplement
may execute this Master Guarantee or any Master Guarantee Supplement by signing
any such counterpart. This Master Guarantee, each Master Guarantee Supplement
and the other Project Documents to which the Guarantor is a party
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-12-
constitute the entire agreement and understanding among the parties hereto and
supersede any and all prior agreements and understandings, written or oral,
relating to the subject matter hereof. This Master Guarantee and each Master
Guarantee Supplement shall become effective at such time as the Collateral Agent
shall have received counterparts hereof signed by all of the intended parties
hereto.
5.07 Severability. If any provision hereof or of any Master Guarantee
------------
Supplement is invalid or unenforceable in any jurisdiction, then, to the fullest
extent permitted by applicable Government Rule, (a) the other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties hereto
as nearly as may be possible and (b) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
5.08 The Administrative Agent, the Collateral Agent and the
------------------------------------------------------
Depositary Agent. As provided in Section 10 of the Credit Agreement, each
- ----------------
Lender has appointed ABN AMRO BANK N.V. as its Administrative Agent for purposes
of this Master Guarantee and each Master Guarantee Supplement and as provided in
the Intercreditor Agreement and the Depositary Agreement, the Secured Parties
have appointed (or approved of the appointment of) the Collateral Agent and the
Depositary Agent for the purposes of this Master Guarantee and each Master
Guarantee Supplement.
5.09 Headings. Headings appearing herein or in any Master Guarantee
--------
Supplement are used solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Master Guarantee or any
Master Guarantee Supplement.
5.10 SPECIAL EXCULPATION. NO CLAIM MAY BE MADE BY THE GUARANTOR OR
-------------------
ANY OTHER PERSON AGAINST THE COLLATERAL AGENT, THE DEPOSITARY AGENT, THE
ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY OR THE AFFILIATES, DIRECTORS,
OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OF ANY OF THEM FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH
OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATING TO THIS
MASTER GUARANTEE OR ANY OTHER PROJECT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH AND THE GUARANTOR HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON
ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN
OR SUSPECTED TO EXIST IN ITS FAVOR.
5.11 SUBMISSION TO JURISDICTION. THE GUARANTOR HEREBY SUBMITS TO THE
--------------------------
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
MASTER GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
-13-
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
5.12 NO THIRD PARTY BENEFICIARIES. THE AGREEMENTS OF THE PARTIES
----------------------------
HERETO ARE SOLELY FOR THE BENEFIT OF THE GUARANTOR, THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE OTHER SECURED PARTIES, AND NO PERSON (OTHER THAN
THE PARTIES HERETO, THE SECURED PARTIES AND THEIR SUCCESSORS AND ASSIGNS
PERMITTED HEREUNDER) SHALL HAVE ANY RIGHTS HEREUNDER.
5.13 GOVERNING LAW. THIS MASTER GUARANTEE SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
5.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY
--------------------
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS MASTER GUARANTEE
OR THE TRANSACTIONS CONTEMPLATED HEREBY.
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Master
Guarantee to be duly executed and delivered as of the day and year first above
written.
EDISON MISSION ENERGY
By /s/ Michael P. Childers
-------------------------
Michael P. Childers
Vice President
Address for Notices:
18101 Von Karman Avenue
Suite 1700
Irvine, California 92612-1046
Telecopier No.: 949-833-9274
Telephone No.: 949-798-7852
Attention: Michael P. Childers
Vice President
With copies to:
Edison Mission Energy
18101 Von Karman Avenue
Irvine, California 92612-1046
Telecopier No.: 949-752-1420
Telephone No.: 949-798-7887
Attention: Reggie Rice, Esq.
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
ABN AMRO BANK N.V.,
as Administrative Agent
By /s/ William R. Hale
---------------------------
Name: WILLIAM R. HALE
Title: SENIOR VICE PRESIDENT
By /s/ Miguel A. Pachicano
---------------------------
Name: Miguel A. Pachicano
Title: Vice President
Address for Notices:
ABN AMRO Bank N.V.
New York Branch
1325 Avenue of the Americas
9th Floor
New York, New York 10019
Telecopier No.: 212-314-1712
Telephone No.: 212-314-1276
Attention: Syndications & Placements;
Administrative Services
With copies to:
ABN AMRO Bank N.V.
135 South LaSalle Street
Suite 2805
Chicago, Illinois 60603
Telecopier No.: 312-904-8840
Telephone No.: 312-904-8835
Attention: Credit Administration
Department
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
and
ABN AMRO North America, Inc.
135 South LaSalle Street
Suite 711
Chicago, Illinois 60603
Telecopier No.: 312-904-6387
Telephone No.: 312-904-6165
Attention: Project Finance
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
THE CHASE MANHATTAN BANK,
as Collateral Agent
By /s/ David G. Safer
------------------------
Name: DAVID G. SAFER
Title: VICE PRESIDENT
Address for Notices:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: International Corporate Trust
Telephone: 212-946-3013
Telecopy: 212-946-8177/8
With copies to:
The Chase Manhattan Bank
Hato Rey Headquarters
254 Munoz Rivera Avenue
San Juan, Puerto Rico 00936
Attention:
Telephone: 787-753-3400
Telecopy: 787-753-3218
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
THE CHASE MANHATTAN BANK
as Depositary Agent
By /s/ David G. Safer
--------------------
Name: DAVID G. SAFER
Title: VICE PRESIDENT
Address for Notices:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: International Corporate Trust
Telephone: 212-946-3013
Telecopy: 212-946-8177/8
ACCEPTABLE GUARANTEE
--------------------
<PAGE>
EXHIBIT 10.51
GUARANTEE ASSUMPTION AGREEMENT
------------------------------
dated as of December 23, 1998
This unconditional assumption agreement relates to that certain Guaranty
dated November 25, 1997, a copy of which is attached hereto (the "UCCI
GUARANTY").
For Value Received, and in compliance with its obligations as "Transferee"
as defined in Section 8.1 of the Shareholders Agreement dated as of December 8,
1997, by and among EcoElectrica Holdings, Ltd., and the shareholders thereof,
the undersigned Edison Mission Energy ("SUCCESSOR") hereby agrees as follows:
1. ASSUMPTION. Successor unconditionally and irrevocably assumes and
agrees to perform all obligations of KENETECH Energy Systems, Inc. under the
UCCI Guaranty, to the same extent and in the same manner as is required of
"Guarantor" under such UCCI Guaranty.
2. NET WORTH COVENANT. On the date hereof and, in addition, within 120
days of the end of each calendar year during the term of the UCCI Guaranty,
Successor will deliver an officer's certificate certifying that its net worth is
at least the "Minimum Amount" (as defined below) or, if less, the amount of such
net worth. At any time that the net worth of Successor falls below the Minimum
Amount, Edison International shall cause another wholly owned subsidiary of
Edison International with a net worth of over the Minimum Amount to execute a
counterpart of this Guaranty Assumption Agreement as Successor; provided,
however, that such execution shall not release Successor from any pending claims
under the UCCI Guaranty. The "Minimum Amount" shall be, at Successor's option,
$200,000,000, or $100,000,000 exclusive of the value of the interest in
EcoElectrica owned by Successor and its Affiliates.
3. INDEMNITY. Successor agrees to indemnify and hold harmless KENETECH
Energy Systems, Inc. and its successors and assigns for any liability under the
UCCI Guaranty.
4. REPRESENTATIVES AND WARRANTIES. Successor represents and warrants that
as of the date of this Guaranty, it is a duly organized, validly existing,
corporation organized and in good standing under the laws of the State of
California, has all requisite power and authority to conduct its business and to
own its property as now conducted or owned, and is qualified
<PAGE>
-2-
to do business in all jurisdictions where the nature and extent of its business
is such that such qualification is required by law.
5. PARTIES BOUND. This Agreement shall be binding upon Successor and
Successor's respective successors and assigns and shall be for the benefit of
UCCI, Enron Power Corp. and EcoElectrica, L.P.
EDISON MISSION ENERGY
By: /s/ Michael P. Childers
-----------------------------
Its Vice President
-----------------------------
<PAGE>
GUARANTY
--------
This unconditional guaranty ("Guaranty") is given pursuant to the terms and
conditions a certain Option to Purchase Agreement dated September 24, 1996, (the
"Option Agreement") by and between Union Carbide Caribe Inc. having an address
at Tallaboa Ward -- Firm Delivery, Penuelas, Puerto Rico 00624 ("UCCI") and
EcoElectrica, L.P., having an address at Plaza Scotiabank, 273 Ponce de Leon
Avenue, Suite 902, Hato Rey, Puerto Rico 00917 ("EcoElectrica"). Capitalized
terms used herein and not otherwise specifically defined shall have the same
meaning herein as in the Option Agreement.
FOR VALUE RECEIVED, and to induce UCCI to enter into the Option Agreement,
KENETECH Energy Systems, Inc., a Delaware corporation having offices at 355
Research Parkway, Meriden, Connecticut 06450, and Enron Power Corp., a Delaware
corporation having offices at 333 Clay Street, Houston, Texas 77002, hereinafter
called jointly, severally and collectively "Guarantor," hereby unconditionally
agree as follows:
1. Guaranty. Guarantor, as a primary party and not merely as a surety,
--------
unconditionally, irrevocably and for the term of this Guaranty (as specified in
Section 2, below) guarantees the prompt and full payment (and not merely the
collectibility), performance, and observance of the obligations incurred by
EcoElectrica pursuant to Sections 5(a) and 6 of the Option Agreement, but (i)
only such obligations as arise from events or circumstances that occur prior to
the "Commercial Operations Commencement Date" defined below and (ii) in no
event will Guarantor be subject to consequential, exemplary, equitable, loss of
profits, tort or any other damages costs or attorney's fees.
Upon any failure of EcoElectrica to meet its obligations under Sections
5(a) and 6 of the Option Agreement, and during the term of this Guaranty, UCCI
may at its option proceed directly and at once, without further notice, against
Guarantor, without proceeding against EcoElectrica. Any sums payable by
Guarantor hereunder shall bear interest at the statutory rate for judgments in
Puerto Rico from the date of UCCI's demand until the date paid.
2. Term of Guaranty. Guarantor's obligations hereunder shall commence on the
----------------
date hereof and terminate on the fifth anniversary of commencement of commercial
operation of the Facilities, which shall be the date (the "Commercial Operations
Commencement Date") on which UCCI is delivered a certificate (the "Commercial
Operations Certificate") executed by EcoElectrica and the independent engineer
of EcoElectrica's lenders certifying that the "Commercial Operation Date" (as
defined in EcoElectrica's Power
<PAGE>
-2-
Sale Agreement entered into with the Puerto Rico Electric Power Authority) has
occurred, which certification is a condition precedent to conversion of
EcoElectrica's construction loan to a term loan.
Within 120 days of the end of each calendar year during the term of this
Guaranty, Enron Power Corp. will deliver an officer's certificate certifying
that its net worth is at least two hundred million dollars ($200,000,000) or, if
less, the amount of such net worth. At any time that the net worth of Enron
Power Corp. falls below two hundred million dollars ($200,000,000), EcoElectrica
shall substitute for this Guaranty a guaranty having the same form and substance
issued by another Enron Corp. subsidiary with a net worth of two hundred million
dollars ($200,000,000) or more; provided, however, that such substitution shall
not release Enron Power Corp. from any pending claims under this Guaranty.
3. Waiver. Guarantor hereby waives and relinquishes to the fullest extent now
------
or hereafter not prohibited by applicable law:
(i) all suretyship defenses and defenses in the nature thereof; and
(ii) all rights and remedies against UCCI, its parent any their
respective subsidiaries and affiliates, and their respective parent corporations
(including, but not limited to, any rights of subrogation, contribution,
reimbursement, exoneration or indemnification pursuant to any agreement),
express or implied, that are now or hereafter accorded by applicable law to
parties in the capacity of indemnitors, guarantors, sureties or accommodation
parties.
4. Cumulative Rights. UCCI's rights under this Agreement shall be in addition
-----------------
to and not in limitation of all of the rights and remedies of the Option
Agreement. All rights and remedies of UCCI shall be cumulative and may be
exercised in such manner and combination as UCCI may determine.
5. Representaions and Warranties. Each of KENETECH Energy Systems, Inc. and
-----------------------------
Enron Power Corp. individually and respectively represents and warrants to UCCI
for the express purpose of inducing UCCI to enter into the Option Agreement and
to accept this Guaranty, that as of the date of this guaranty, each is a duly
organized, validly existing corporation organized and in good standing under the
laws of Delaware, has all requisite power and authority to conduct its business
and to own its property as now conducted or owned, and is qualified to do
business in all jurisdictions where the nature and extent of its business is
such that such qualification is required by law.
<PAGE>
-3-
6. Notices. Any notice or other communication in connection with this Guaranty
-------
shall be in writing and (i) deposited in the United States mail, postage prepaid
by registered or certified mail, or (ii) hand delivered by any commercially
recognized courier service or overnight delivery service such as Federal Express
addressed as follows:
If to Guarantor:
KENETECH Energy Systems, Inc.
355 Research Parkway
Meriden, Connecticut 06450
Attention: Aaron Samson
Enron Power Corp.
333 Clay Street
Suite 1700
Houston, Texas 77002
Attention: General Counsel
If to UCCI:
Union Carbide Caribe Inc.
Tallaboa Ward - Firm Delivery
Penuelas, Puerto Rico 00624
Attention: President
and
Union Carbide Corporation
33 Old Ridgebury Road
Danbury, Connecticut 06817-0001
Attention: Manager, Real Estate Department
and
McConnell Valdes
PO Box 364225
San Juan, Puerto Rico 00936-4225
Attention: Salvador Casellas Toro, Esq.
7. Parties Bound. This Agreement shall be binding upon Guarantor and
-------------
Guarantor's respective successors and permitted assigns and shall be for the
benefit of UCCI.
8. Joint and Several. The obligations of each Guarantor and such Guarantor's
-----------------
respective successors, assigns, heirs and personal representatives shall be and
remain joint and several. Each reference to Guarantor shall include each
Guarantor separately as well as both Guarantors collectively.
<PAGE>
-4-
9. Governing Law. This Agreement shall be governed and interpreted under the
-------------
law of the State of New York, without reference to conflicts of law principles.
Witness the execution and delivery hereof as of this 25/th/ day of November,
1997.
KENETECH Energy Systems, Inc.
By: /s/ Scott J. Taylor
------------------------------
Name: Scott J. Taylor
Title: Vice President
Enron Power Corp.
By: /s/ Lawrence E. Reynolds
------------------------------
Name: Lawrence E. Reynolds
Title: Vice President Development Engineering
<PAGE>
EXHIBIT 10.52
TRANSITION POWER PURCHASE AGREEMENT
By and Between
NEW YORK STATE ELECTRIC & GAS CORPORATION
and
MISSION ENERGY WESTSIDE, INC.
Dated: as of August 1, 1998
[THIS TRANSITION POWER PURCHASE AGREEMENT SETS FORTH THE TERMS ON WHICH MISSION
ENERGY WESTSIDE, INC. OR NYSEG MAY EXERCISE AN OPTION PURSUANT TO WHICH MISSION
ENERGY WESTSIDE, INC. WOULD PROVIDE AND SELL, AND NYSEG WOULD ACCEPT AND
PURCHASE, INSTALLED ELECTRIC GENERATING CAPACITY.]
<PAGE>
This Transition Power Purchase Agreement ("Agreement") is made and entered
into as of August 1, 1998, by and between Mission Energy Westside, Inc.
("Generator"), a California corporation and New York State Electric & Gas
Corporation ("NYSEG"), a New York corporation (each of Generator and NYSEG being
referred to herein, individually, as a "Party", and collectively, as the
"Parties"),
WITNESSETH:
WHEREAS, NGE Generation, Inc. ("NGEGen"), an affiliate of NYSEG, and
Pennsylvania Electric Company ("Penelec"), have offered to jointly sell by
auction their respective interests in the Homer City Generating Station (the "HC
Station"), a coal-fired generating plant located in Indiana County,
Pennsylvania;
WHEREAS, Generator, Penelec, and NGEGen have entered into the Asset
Purchase Agreement dated as of August 1, 1998 pursuant to which Generator shall
purchase the HC Station;
WHEREAS, the rights and obligations of buyers and suppliers of electric
generating capacity, energy, transmission and ancillary services may be modified
by the proposal pending before the Federal Energy Regulatory Commission ("FERC")
to restructure the New York Power Pool, which contemplates the formation of the
New York Independent System Operator ("ISO") and the implementation of the ISO
Tariff filed on December 19, 1997 in FERC Docket Nos. ER97-1523-000, OA97-470-
000 and ER97-4234-000 and the order dated June 30, 1998 as such filings and
orders may be amended from time to time. FERC may approve, accept, modify, or
reject the proposal, and its actions may affect the rights and obligations under
this Agreement;
WHEREAS, NYSEG desires to enter into an option agreement for the purchase
and sale of electric generating capacity and not ancillary services or energy;
and
WHEREAS, in partial consideration for NYSEG's interest in the HC Station,
Generator and NYSEG have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, Generator and NYSEG agree as follows:
<PAGE>
SECTION 1 - DEFINITIONS
AND FORMAT
1.1 Format
------
(a) References to Sections herein are cross-references to Sections in this
Agreement, unless otherwise stated.
(b) All Schedules that are attached to this Agreement are incorporated by
reference as if fully set forth herein.
1.2 Definitions
-----------
In addition to the terms defined elsewhere in this Agreement, when used
with initial capitalization, whether singular or plural, the following terms
shall have the meanings set forth below. Any term used in this Agreement that is
not defined herein shall have the meaning customarily attributed to such term by
the electric utility industry in New York.
(a) "APA" means the Asset Purchase Agreement by and among NGEGen,
NYSEG, Pennsylvania Electric Company and Generator dated as of August
1, 1998.
(b) "Contract Period" means each of the following four periods:
(i) from the Transfer Date to May 31, 1999 (the "First Contract
Period");
(ii) June 1, 1999 through the end of the 1999 Summer Capability
Period (currently October 31, 1999) (the "Second Contract
Period");
(iii) from the start of the 1999/2000 Winter Capability Period
(currently November 1, 1999) to the end of the 2000 Summer
Capability Period (currently October 31, 2000); and
(iv) the 2000/2001 Winter Capability Period (currently November 1,
2000 through April 30, 2001).
If, for any reason, the Transfer Date is after May 31, 1999, the
commencement of the subsequent Contract Period during which the Transfer Date
occurs shall be on the Transfer Date, and the subsequent Contract Period shall
end as described above.
(c) Force Majeure has the meaning set forth in Section 8.
(d) "Installed Capacity" means electric generating capacity that satisfies
the Installed Capacity requirements established by the ISO or NYPP, as they
apply to NYSEG or
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by PJM to the extent NYSEG exercises its rights under Section 3.5(c) to
designate Installed Capacity to satisfy PJM requirements.
(e) "ISO" shall mean the New York independent system operator, as described
in the Supplemental Filing, or its successor.
(f) "ISO Tariff" shall mean the tariff described in the Supplemental
Filing, as it may be amended from time to time.
(g) "NYPP" shall mean the New York Power Pool or its successor.
(h) "NYSEG" shall mean New York State Electric & Gas Corporation or its
successor.
(i) "Option" means a Put Option or Call Option.
(j) "Penelec" shall mean Pennsylvania Electric Company.
(k) "PJM" means PJM Interconnection L.L.C., the Delaware Limited Liability
Company continued by that certain Amended and Restated Operating Agreement of
PJM Interconnection, L.L.C., dated as of June 2, 1997, as amended from time to
time, or its successor.
(l) "Purchased Capacity" means Installed Capacity with respect to which a
Put Option or Call Option has been exercised.
(m) "Replacement Capacity" shall mean Installed Capacity under this
Agreement from a source different from the source identified by Generator and
subsequently identified to the NYPP or ISO in NYSEG's periodic reports required
under applicable procedures or directly or indirectly to PJM to the extent such
Installed Capacity satisfies NYPP or ISO Installed Capacity requirements
applicable to NYSEG, or, if required by Section 4, satisfies PJM Installed
Capacity requirements.
(n) "Replacement Capacity Costs" shall mean the incremental cost of
Replacement Capacity to the extent it exceeds the cost of the applicable
Option Price(s) in accordance with Section 5.1 and Appendix C.
(o) "Summer Capability Period" shall have the meaning provided by the NYPP,
the ISO or their successor(s) as may be modified from time to time. Summer
Capability Period is currently each May 1 through October 31 of each year.
(p) "Supplemental Filing" shall mean the December 19, 1997 Supplemental
Filing to the Comprehensive Proposal to Restructure the New York Wholesale
Electric Market in FERC Docket Nos. ER97-1523-000, OA97-470-000, and ER97-4234-
000.
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(q) "Transfer Date" means the date on which NGE Generation, Inc. transfers
title to its interest in the HC Station to the Generator.
(r) "Winter Capability Period" shall have the meaning provided for by the
NYPP, the ISO or their successor(s) as may be modified from time to time. Winter
Capability Period is currently each November 1 through April 30 of the following
calendar year.
SECTION 2 - TERM
Subject to required regulatory authorizations, if any, this Agreement shall
become effective when signed by the Parties, except that the rights to exercise
Options and the obligations to purchase and sell Installed Capacity shall become
effective on the Transfer Date. Unless terminated earlier in accordance with the
terms hereof, this Agreement shall terminate on April 30, 2001, or on the last
day of the 2000/2001 Winter Capability Period ending in the year 2001, if
different, or earlier pursuant to the terms of this Agreement. If the APA is
validly terminated pursuant to its terms prior to the Transfer Date, then this
Agreement shall also terminate.
SECTION 3 - OPTIONS
3.1 Put Option
----------
To the extent required by Generator in accordance with this Agreement,
NYSEG shall accept and purchase Installed Capacity from Generator for any
designated Contract Period in amounts up to the Maximum Put Capacity for the
respective Contract Period. Generator's right to require NYSEG to accept and
purchase such Installed Capacity from Generator is referred to herein as
Generator's "Put Option."
3.2 Call Option
-----------
To the extent required by NYSEG in accordance with this Agreement,
Generator shall provide and sell Installed Capacity to NYSEG for any designated
Contract Period in amounts up to the Maximum Call Capacity for the respective
Contract Period. NYSEG's right to require Generator to provide and sell such
Installed Capacity to NYSEG is referred to herein as NYSEG's "Call Option."
3.3 Maximum Put Capacity and Maximum Call Capacity
----------------------------------------------
(a) The Maximum Put Capacity for each Contract Period shall be equal to the
SICR for the respective Contract Period.
(b) The Maximum Call Capacity for each Contract Period shall be equal to
the SICR for the respective Contract Period, minus the amount of Installed
Capacity for which Generator exercises its Put Option with respect to such
Contract Period, but not less than zero.
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<PAGE>
3.4 SICR (Supplemental Installed Capacity Requirement)
----
SICR shall be equal to:
(a) 942 MW for the First Contract Period;
(b) for each subsequent Contract Period, the lesser of (i) 942 MW or (ii)
one half the difference of (ICR plus WPS) minus IC, for the respective Contract
Period, [(ICR + WPS IC)/2] where:
ICR = NYSEG's forecast of its annual Installed Capacity
requirement to satisfy the NYPP or ISO requirements including
applicable reserve margins, net of NYSEG's estimate of Installed
Capacity associated with NYSEG's customers that have converted or
will convert to retail access service.
WPS = NYSEG's wholesale capacity sales requirements and any
applicable reserves on these sales, to the Town of Massena, the
Burlington Electric Department, and the Vermont Public Power
Supply Authority (estimated in Appendix A).
IC = The Installed Capacity of the NYSEG resources as identified
in Appendix B to the extent NYSEG receives or will receive
Installed Capacity credit from the NYPP or the ISO for these
resources.
NYSEG's forecasts and estimates shall be applicable to the
forthcoming Contract Period.
3.5 Exercise of Options
-------------------
(a) Not later than 45 days prior to the anticipated Transfer Date, NYSEG
shall notify Generator in writing of the Maximum Put Capacity for the Second
Contract Period.
(b) Not later than 30 days prior to the anticipated Transfer Date,
Generator shall notify NYSEG in writing whether it is exercising its Put Option
for the First and Second Contract Period(s), and if so, the quantity of
Installed Capacity for which Generator is exercising its Put Option.
(c) By the first business day following the deadline in Section (b), NYSEG
shall notify Generator in writing whether it is exercising its Call Option for
the First and Second Contract Periods, and if so, the quantity of Installed
Capacity for which NYSEG is exercising its Call Option, and for the First
Contract Period, if either Party has exercised its Option, the amount of
Installed Capacity that must satisfy the PJM requirements specified in
Section 4.
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<PAGE>
(d) If either or both Parties exercise their Options for the First Contract
Period, the obligations to provide and sell, and to accept and purchase,
Installed Capacity pursuant to such exercised Option(s) shall become effective
as of the Transfer Date.
(e) By June 15, 1999 and June 15, 2000, NYSEG shall notify Generator in
writing of the Maximum Put Capacity for the forthcoming Contract Period.
(f) By July 15, 1999 and July 14, 2000, Generator shall notify NYSEG in
writing whether it is exercising its Put Option for the forthcoming Contract
Period, and if so, the quantity of Installed Capacity for which Generator is
exercising its Put Option.
(g) By July 16, 1999 and July 17, 2000, NYSEG shall notify Generator in
writing whether it is exercising its Call Option for the forthcoming Contract
Period, and if so, the quantity of Installed Capacity for which NYSEG is
exercising its Call Option.
(h) By 25 days prior to the anticipated Transfer Date for the first two
Contract Periods and September 15 of each year for subsequent Contract Periods,
Generator shall, if either Party exercises its Option, inform NYSEG in writing
of the location and name of and amount from each generating unit that Generator
will use to supply the Installed Capacity required pursuant to this Agreement.
(i) By October 1 of each year, NYSEG is required to report all sources to
be used to supply NYSEG's Installed Capacity requirement to the NYPP or ISO.
(j) November 1 is the start date for the Winter Capability Period.
(k) If NYPP or the ISO modifies current notification schedules or the
definition of Winter Capability Period or Summer Capability Period such that the
schedule dates contained in this Section 3.5 are inconsistent with the modified
schedule or definition, then NYSEG shall provide reasonable notice thereof to
Generator and shall thereafter have the right to revise the dates in this
Section 3.5 to be consistent with said modification.
(l) Subject to Section 4.1(a)(ii) and 4.2, and to the extent permitted by
ISO or NYPP procedures, and consistent with Generator's obligations under
Sections 3 and 4, Generator may use generating resources other than those
identified in Section (h) above and shall notify NYSEG of any changes in the
name and location of, and the amount of Installed Capacity from, any generating
unit to be used by Generator to supply the Installed Capacity required pursuant
to this Agreement at least thirty (30) days before the date NYSEG is required to
report such change to the NYPP or ISO.
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<PAGE>
SECTION 4 - GENERATOR'S OBLIGATION TO PROVIDE PURCHASED CAPACITY
4.1 If either Party exercises its Option, for the First Contract Period,
NYSEG may designate up to the lesser of the aggregate amount of the Option(s)
that have been exercised for the First Contract Period or 505 MW of Installed
Capacity to satisfy PJM Installed Capacity requirements in accordance with this
Section 4. Any amount not so designated up to the aggregate amount of the
Option(s) that have been exercised shall satisfy the NYPP or ISO requirements
described below. In no event may either or both Parties exercise Options in
excess of the SICR. If either or both Parties exercise their Option(s), then,
unless excused by Force Majeure, Generator shall:
(a) satisfy all requirements applicable to suppliers of Installed
Capacity established by
(i) NYPP or the ISO (including locational and performance
requirements and compliance with and satisfaction of all
applicable tariffs, rules and practices) so that NYSEG will
receive Installed Capacity credit in the amount elected by NYSEG
and/or Generator hereunder, and/or
(ii) PJM for up to 505 MW of Installed Capacity, only during the
First Contract Period and only to the extent NYSEG designates
Installed Capacity to satisfy such PJM requirements in accordance
with Section 3.5(c); and
(b) reasonably cooperate with NYSEG in arranging any necessary
interfaces or protocols to satisfy NYPP, ISO, or PJM requirements
associated with any services provided under this Agreement.
4.2 If NYSEG exercises its option as described in Section 4.1(a)(ii), then
that amount of Installed Capacity shall be supplied from the HC Station unless
the Parties mutually agree otherwise.
SECTION 5 - PAYMENT FOR PURCHASED CAPACITY AND BILLING
5.1 Monthly Payments and Billing
----------------------------
If an Option or Options are exercised, subject to Section 5.2, NYSEG shall
make monthly payments to Generator for each month during the Contract Period for
which such Option or Options have been exercised. Subject to Section 5.2, such
monthly payments, each referred to herein as a "Monthly Payment" or MP, shall be
calculated as follows:
MP = the sum of
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<PAGE>
(A) the product of (i) the applicable Put Price from Appendix C
hereto, (ii) the amount of Installed Capacity for which a
Put Option has been exercised and which is provided by
Generator to the extent (a) NYSEG receives Installed
Capacity credit to satisfy NYPP or ISO requirements
applicable to NYSEG to the extent NYSEG has designated NYPP
or the ISO, or (b) the Installed Capacity satisfies
requirements specified in Section 4.1(a)(ii) to the extent
NYSEG has designated PJM Installed Capacity in accordance
with Sections 3.5(c) and 4, and (iii) the number of to the
extent NYSEG has designated NYPP or the ISO days in the
month or part thereof
and
(B) the product of (i) the applicable Call Price from Appendix C
hereto, (ii) the Installed Capacity for which a Call Option
has been exercised and which is provided by Generator to the
extent (a) NYSEG receives Installed Capacity credit to
satisfy NYPP or ISO requirements applicable to NYSEG to the
extent NYSEG has designated NYPP or the ISO, or (b) the
Installed Capacity satisfies requirements specified in
Section 4.1(a)(ii) to the extent NYSEG has designated PJM
Installed Capacity in accordance with Sections 3.5(c) and 4,
and (iii) the number of days in the month or part thereof.
NYSEG shall make no other payment to Generator for Installed Capacity actually
provided under this Agreement.
5.2 Capacity Deficiency
-------------------
(a) Whenever the amount of Installed Capacity credit that NYSEG receives
(i) from NYPP or the ISO, or (ii) to the extent NYSEG has designated PJM
Installed Capacity in accordance with Sections 3.5(c) and 4, from PJM for
capacity supplied by Generator, is less than the amount of Installed Capacity
for which an Option has been exercised, then unless excused by Force Majeure,
Generator shall pay NYSEG monthly for any costs incurred by NYSEG associated
with Generator's failure to supply Installed Capacity under this Agreement as
follows:
The sum of (a) all charges imposed by the NYPP, ISO or PJM, including
penalties and fines to the extent they exceed charges that would have
been due under Section 5.1 had Generator performed with respect to the
amount of Installed Capacity by which the Generator was deficient and
on which NYSEG incurred NYPP or ISO charges or directly or indirectly
incurred PJM charges; (b) if Generator fails to provide Replacement
Capacity, and NYSEG obtains Replacement Capacity, then NYSEG's
Replacement Capacity Cost, to the extent
8
<PAGE>
not included in (a); and (c) all related transaction costs to the
extent not included in (a) and (b), that are reasonably incurred,
associated with Generator's failure to provide Installed Capacity.
(b) If NYSEG incurs any costs over a period greater than one calendar month
or at one time associated with Generator deficiencies described above in this
Section at a different time, or if NYSEG purchases more Installed Capacity than
the amount by which Generator was deficient, then NYSEG shall, in its reasonable
discretion, allocate these costs on a monthly basis and determine the portion
associated with the deficiency.
(c) NYSEG shall set off any payments Generator owes under this Section 5.2
against any payments NYSEG owes Generator under Section 5.1. If payments due
NYSEG under Section 5.2 exceed payments due Generator under Section 5.1.,
Generator shall pay NYSEG the difference.
5.3 Statements
----------
NYSEG shall provide to the Generator a monthly statement not later than 15
days after the end of each calendar month during a Contract Period with respect
to which an Option or Options have been exercised. Such statement shall set
forth (i) the amount due for Purchased Capacity for which such Option or Options
have been exercised, calculated in accordance with Sections 5.1 and 5.2; (ii)
Generator's reimbursement obligation, if any, under Section 5.2, and (iii) the
computation of the amount due and determination of the Party obligated to pay
such amount, including each quantity used in such computation and determination.
5.4 Billing and Payment
-------------------
If the statement provided pursuant to Section 5.3 shows that a payment is
due from NYSEG to Generator, NYSEG shall pay the amount due within 15 days of
the issuance of the statement. If the statement shows that payment is due from
Generator to NYSEG, NYSEG shall render a bill to the Generator for the amount
due simultaneously with the issuance of the statement, and the Generator shall
pay such bill within 15 days of the issuance thereof by NYSEG.
5.5 Adjustments and Corrections
---------------------------
(a) If adjustments or corrections to bills or statements are required as a
result of errors in computation or billing, the Parties shall recompute amounts
due hereunder and otherwise correct any errors in such bills or statements. If
the total amount, as recomputed, due from a Party for the period of inaccuracy
varies from the total amount due as previously computed, and payment of the
previously computed amount has been made, the difference shall be paid to the
Party entitled to receive it within thirty (30) days after the recomputation.
(b) Interest on unpaid amounts or payments received after the due date shall
accrue at a rate equal to the prime commercial lending rate established from
time to time by Chase
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<PAGE>
Manhattan Bank, N.A., New York, New York, or its successor, from the due date
until the date upon which payment is made.
(c) All billings to NYSEG shall be sent to:
John Kobuskie
Manager of Electric Supply Planning and Procurement
New York State Electric & Gas Corporation
4500 Parkway East
P.O. Box 3607
Binghamton, New York 13902-3607
(d) All billings to Generator shall be sent to:
Mission Energy Westside, Inc.
18101 Von Karman Avenue
Suite 1700
Irvine, California 92612
Attention: James V. Iaco, President
(e) Any payments owed directly by Generator to the ISO, NYPP, or PJM
pursuant to the procedures established in the ISO Tariff, by the ISO or in the
NYPP procedures, or in the PJM procedures, shall not be NYSEG's responsibility.
(f) If a Party contests the billed amount, the contesting Party shall pay
the undisputed billed amount and provide written notice to the other Party
identifying the reason for the dispute. Interest at the rate specified in
Section 5.5(b) shall accrue on the portion, if any, that is refunded or credited
when the contested amount is resolved.
(g) Each Party may set off any amounts owed to the other Party against any
amount owed pursuant to this Agreement or other arrangements agreed to between
the Parties, including, without limitation, amounts owed NYSEG under Section
5.2.
5.6 Records
-------
The Parties shall each keep and maintain accurate and detailed records
relating to the sales of Installed Capacity under this Agreement for a period of
not less than six (6) years. Such records shall be made available for inspection
by either Party or any governmental agency having jurisdiction with respect
thereto during normal business hours upon reasonable notice.
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<PAGE>
5.7 Survival
--------
The Provisions of this Section 5 shall survive termination, expiration,
cancellation, suspension, or completion of this Agreement to the extent
necessary to allow for final billing and payment.
SECTION 6- INDEMNIFICATION
6.1 Generator's Indemnification
---------------------------
The Generator shall indemnify, hold harmless and defend NYSEG, its parent,
affiliates, and successors, and their officers, directors, employees, agents,
subcontractors, and successors, from and against any and all claims, demands,
liabilities, costs (including, without limitation, those identified in Section
5.5(e)), losses, judgments, damages and expenses (including, without limitation,
reasonable attorney and expert fees, and disbursements incurred by NYSEG in any
actions or proceedings between NYSEG and a third party, the Generator, or any
other party) for damage to property, injury to or death of any person, including
NYSEG's employees, Generator's employees and their affiliates' employees, or any
third parties, to the extent caused wholly or in part by any act or omission,
negligent or otherwise, by the Generator and/or its officers, directors,
employees, agents, and subcontractors arising out of or connected with this
Agreement.
6.2 NYSEG's Indemnification
-----------------------
NYSEG shall indemnify, hold harmless and defend Generator, its parent,
affiliates and successors, and their officers, directors, employees, agents,
subcontractors, and successors, from and against any and all claims, demands,
liabilities, costs, losses, judgments, damages, and expenses (including, without
limitation, reasonable attorney and expert fees, and disbursements incurred by
Generator in any actions or proceedings between Generator and a third party,
NYSEG, or any other party) for damage to property, injury to or death of any
person, including Generator's employees, NYSEG's employees and their affiliates'
employees, or any third parties, to the extent caused wholly or in part by any
act or omission, negligent or otherwise, by NYSEG and/or its officers,
directors, employees, agents, and subcontractors arising out of or connected
with this Agreement.
6.3 Indemnification Procedures
--------------------------
If either Party intends to seek indemnification under this Section 6 from
the other Party, the Party seeking indemnification shall give the other Party
notice of such claim within ninety (90) days of the commencement of, or the
Party's actual knowledge of, such claim or action. Such notice shall describe
the claim in reasonable detail, and shall indicate the amount (estimated if
necessary) of the claim that has been, or may be sustained by, said Party. To
the extent that the other Party will have been actually and materially
prejudiced as a result of the failure to provide such notice, such notice will
be a condition precedent to any liability of the
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<PAGE>
other Party under the provisions for indemnification contained in this
Agreement. Neither Party may settle or compromise any claim without the prior
consent of the other Party; provided, however, said consent shall not be
unreasonably withheld or delayed.
6.4. Survival
--------
The indemnification obligations of each Party under this Section 6 shall
not be limited in any way by any limitation on insurance, by the amount or types
of damages, or by any compensation or benefits payable by the Parties under
Worker's Compensation Acts, disability benefit acts or other employee acts, or
otherwise. The provisions of this Section 6 shall survive termination,
cancellation, suspension, completion or expiration of this Agreement.
SECTION 7- LIMITATION OF LIABILITY
7.1 Limitation on Damages
---------------------
Except for indemnity obligations set forth in Section 6, neither NYSEG nor
the Generator, nor their respective officers, directors, agents, employees,
parents, affiliates, successors, assigns, or subcontractors shall be liable to
the other Party or its parent, subsidiaries, affiliates, officers, directors,
agents, employees, successors, assigns, or subcontractors for claims, suits,
actions, causes of action or otherwise for incidental, punitive, special,
indirect, multiple or consequential damages (including attorneys' fees or
litigation costs) connected with, or resulting from, performance or non-
performance of this Agreement, or any actions undertaken in connection with, or
related to this Agreement, including, without limitation, any such damages which
are based upon causes of action for breach of contract, tort (including
negligence and misrepresentation), breach of warranty or strict liability.
7.2 Subject to indemnity obligations set forth in Section 6, upon an Event
of Default by NYSEG under this Agreement, which Event of Default is not
excusable due to an event of Force Majeure or due to an Event of Default by
Generator under this Agreement, NYSEG's liability to the Generator shall be
limited to the Generator's direct damages incurred by the Generator as a result
of such default by NYSEG, which shall be payments under Section 5.1 for services
rendered.
7.3 Subject to indemnity obligations set forth in Section 6, upon an Event
of Default by Generator under this Agreement, which Event of Default is not
excusable due to an event of Force Majeure or due to an Event of Default by
NYSEG under this Agreement, Generator's liability to NYSEG shall be limited to
NYSEG's direct damages incurred by NYSEG as a result of such default by
Generator, which shall be payments due under Section 5.2.
7.4 The provisions of this Section 7 shall apply regardless of fault and
shall survive termination, cancellation, suspension, completion or expiration of
this Agreement.
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SECTION 8 - FORCE MAJEURE
8.1 Force Majeure
Subject to due diligence obligations under Section 8.3, a Party shall not
be considered to be in default or breach of this Agreement, and shall be excused
from performance, or liability for damages to the other Party, if and to the
extent it shall be delayed in or prevented from performing or carrying out any
of the obligations or responsibilities of this Agreement, arising out of or from
any act, omission or circumstances occasioned by or in consequence of any act of
God, labor disputes, act of the public enemy, war, invasion, riot, fire, storm,
flood, ice, explosion, or by any other cause or causes beyond the reasonable
control of the Party invoking Force Majeure to avoid liability, including any
order, regulation or restriction imposed by governmental, military or lawfully
established civilian authorities.
8.2 Obligation to Make Payment
Nothing contained in this Section 8 shall relieve any Party of the
obligation to make payments when due pursuant to this Agreement.
8.3 Due Diligence
Any Party claiming Force Majeure shall (1) provide prompt written notice of
such Force Majeure event to the other Party giving a detailed written
explanation of the event and estimate of its expected duration and probable
effect on the performance of that Party's obligations hereunder; and (2) use due
diligence in accordance with Good Utility Practice (as defined in the
Supplemental Filing) to continue to perform its obligations under this Agreement
and to remove the condition that prevents performance, including the provision
of Replacement Capacity, if available, irrespective of cost; except that
settlement of any labor dispute shall be in the sole judgment of the affected
Party. If Generator fails to provide Replacement Capacity and NYSEG obtains
Replacement Capacity, then this Section 8 shall not relieve Generator of its
obligations under Section 5.2.a.
8.4 Survival
The provisions in this Section 8 shall survive termination, cancellation,
suspension, completion or expiration of this Agreement.
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SECTION 9 - DEFAULT AND TERMINATION
9.1 Default Defined
---------------
Each of the following events shall be deemed to be an Event of Default
hereunder.
a. Failure of either Party to pay any amounts due to the other Party
and such failure is not cured or rectified within 15 days after
notice thereof from the non-defaulting Party.
b. Failure of Generator, in a material respect, to comply with,
observe, or perform any other covenant, warranty or obligation
under this Agreement, and such failure is not cured or rectified
within 30 days after notice thereof from NYSEG.
c. Failure of NYSEG, in a material respect, to comply with, observe,
or perform any other covenant, warranty or obligation under this
Agreement, and such failure is not cured or rectified within 30
days after notice thereof from Generator.
9.2 Occurrence of Event of Default
------------------------------
Subject to Section 6, upon occurrence of an Event of Default by either
Party, the defaulting Party shall be liable to the non-defaulting Party for
only direct damages as defined in Sections 7.2 and 7.3 resulting from the
Event of Default.
In addition, the non-defaulting Party may pursue any remedies or other
damages provided for under law and NYSEG may terminate this Agreement by
giving at least 25 days advance written notice to Generator, such
termination to be effective as of the date specified in such notice.
9.3 The provisions of this Section 9 shall survive termination,
cancellation, suspension, completion or expiration of this Agreement.
SECTION 10 - ADDITIONAL REMEDIES
The Parties shall be entitled to injunctive relief to prevent breaches by a
Party, and specific performance to enforce the terms of this Agreement, in
addition to any other remedy to which a Party is entitled under this Agreement,
at law, or in equity.
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SECTION 11 - DISPUTES
Any disagreement between NYSEG and Generator as to their rights and
obligations under this Agreement shall first be addressed by the Parties. If
representatives of the Parties are unable in good faith to satisfactorily
resolve their disagreement, the Parties shall refer the matter to their
respective senior management. If after using their best efforts to try to
resolve the dispute, senior management cannot resolve the dispute in 30 days,
either Party may exercise any right or remedy available pursuant to this
Agreement.
SECTION 12 - REPRESENTATIONS
12.1 Representations of NYSEG.
------------------------
NYSEG represents and warrants to Generator as follows:
a. Organization. NYSEG is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of New
York and NYSEG has the requisite corporate power and authority to
carry on its business as now being conducted.
b. Authority Relative to this Agreement. NYSEG has the requisite power
------------------------------------
and authority to execute and deliver this Agreement and, subject to
the procurement of applicable regulatory approvals, to carry out
the actions required of it by this Agreement. The execution and
delivery of this Agreement and the actions it contemplates have
been duly and validly authorized by all required corporate action.
The Agreement has been duly and validly executed and delivered by
NYSEG and constitutes a valid and binding Agreement of NYSEG.
c. Regulatory Approval. NYSEG has obtained or will obtain by the
-------------------
Transfer Date any and all approvals of, and given any notice to,
any public authority that are required for NYSEG to execute and
deliver this Agreement.
d. Compliance With Law.
-------------------
(1) NYSEG represents and warrants that it is not in violation of
any applicable law, statute, order, rule, or regulation
promulgated or judgment entered by any Federal, state, or
local governmental authority, which violation would affect
NYSEG's performance of its obligations under this Agreement.
(2) NYSEG represents and warrants that it will comply with all
applicable laws, rules, regulations, codes, and standards of
all
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<PAGE>
Federal, state, and local governmental agencies having
jurisdiction over NYSEG or the transactions under this
Agreement.
12.2 Representations of Generator
----------------------------
Generator represents and warrants to NYSEG as follows:
a. Generator is a corporation duly organized, validly existing and in
good standing under the laws of California and Generator has the
requisite corporate power and authority to carry on its business as
now being conducted.
b. Authority Relative to this Agreement. Generator has the requisite
------------------------------------
power and authority to execute and deliver this Agreement and,
subject to the procurement of applicable regulatory approvals, to
carry out the actions required of it by this Agreement. The
execution and delivery of this Agreement and the actions it
contemplates have been duly and validly authorized by all required
corporate action. This Agreement has been duly and validly executed
and delivered by Generator and constitutes a valid and binding
Agreement of Generator.
c. Regulatory Approval. Generator has obtained or will obtain by the
-------------------
Transfer Date any and all approvals of, and given any notice to,
any public authority that are required for Generator to execute and
deliver this Agreement.
d. Compliance With Law.
-------------------
(1) Generator represents and warrants that it is not in
violation of any applicable, law, statute, order, rule, or
regulation promulgated or judgment entered by any federal,
state, or local governmental authority, which violation
would affect Generator's performance of its obligations
under this Agreement.
(2) Generator represents and warrants that it will comply with
all applicable laws, rules, regulations, codes, and
standards of all Federal, state, and local governmental
agencies having, jurisdiction over the Generator or the
transactions under this Agreement.
12.3 Representations of Both Parties
-------------------------------
The representations in Sections 12.1 and 12.2 shall continue in full force
and effect for the term of this Agreement.
16
<PAGE>
SECTION 13 - ASSIGNMENT OR OTHER CHANGE IN CORPORATE IDENTITY
This Agreement and all of the provisions hereof shall be binding upon, and
inure to the benefit of the Parties and their respective successors and
permitted assigns, but assignment of any right, interest or obligation under
this Agreement may not be made without the other Party's written consent, which
may not be unreasonably withheld. Assignments that are not consented to may be
voided by the non-assigning Party. Notwithstanding the foregoing, (a) NYSEG may
assign this Agreement to an affiliate of NYSEG that has a contractual or
statutory obligation to supply Installed Capacity to NYSEG's retail customers;
and (b) Generator may assign, transfer, pledge or otherwise dispose of its
rights and interests hereunder to a trustee or lending institution(s) for the
purposes of financing or refinancing the acquisition of the HC Station,
including upon or pursuant to the exercise of remedies under such financing or
refinancing, or by way of assignments, transfers, pledges, conveyances or
dispositions in lieu thereof; provided, however, that no such assignment,
transfer, pledge, conveyance, or disposition shall relieve or in any way
discharge Generator from the performance of its duties and obligations under
this Agreement. NYSEG agrees to execute and deliver, at Generator's expense,
such documents as may be reasonable and necessary to accomplish any such
assignment, transfer, pledge, conveyance, or disposition of rights hereunder for
purposes of the financing or refinancing of the acquisition of the HC Station,
so long as NYSEG's rights under this Agreement are not thereby altered, amended,
diminished or otherwise impaired.
SECTION 14 - HEADINGS
The descriptive headings of the Sections of this Agreement are inserted for
convenience only and do not affect the meaning or interpretation of this
Agreement.
SECTION 15 - WAIVER
Except as otherwise provided in this Agreement, any failure of a Party to
comply with any obligation, covenant, agreement, or condition herein may be
waived by the Party entitled to the benefit thereof only by a written instrument
signed by the Party granting such waiver, but such waiver shall not operate as a
waiver of, or estoppel with respect to any subsequent failure of the first Party
to comply with such obligation, covenant, agreement, or condition.
SECTION 16 - COUNTERPARTS
This Agreement may be executed in two or more counterparts, all of which
will be considered one and the same Agreement and each of which will be deemed
an original.
17
<PAGE>
SECTION 17 - GOVERNING LAW
This Agreement and all rights, obligations, and performances of the Parties
hereunder, are subject to all applicable Federal and state laws, and to all
duly-promulgated orders and other duly-authorized action of governmental
authorities having jurisdiction.
When not in conflict with or preempted by Federal law, this Agreement will
be governed by and construed in accordance with the law of the State of New
York, without giving effect to the conflict of law principles thereof. Except
for those matters covered in this Agreement that are jurisdictional to the FERC
and the appellate courts to the extent of any appeals from FERC proceedings, any
action arising out of or concerning this Agreement must be brought in the
federal and state courts of the State of New York. Both Parties hereby consent
to the exclusive jurisdiction of the State of New York for the purpose of
hearing and determining any action not preempted by Federal law or not within
the jurisdiction of the FERC.
SECTION 18 - SEVERABILITY
If any of the provisions of this Agreement are held to be unenforceable or
invalid by any court or regulatory authority of competent jurisdiction, the
Parties shall, to the extent possible, negotiate an equitable adjustment to the
provisions of this Agreement with a view toward effecting the purpose of this
Agreement, and the validity and enforceability of the remaining provisions
hereof shall not be affected thereby.
SECTION 19 - AMENDMENT
a. If any provisions of the ISO Tariff, or any other PJM, ISO or NYPP rules
or practices concerning Installed Capacity are changed, then, at the
written request of either Party, the Parties shall use their best efforts
to amend, modify or supplement this Agreement to preserve and maintain the
economic benefits accruing to each Party hereunder. If after 30 days from
said request the Parties fail to reach such agreement, then both Parties
reserve all rights under the Federal Power Act.
b. Except as provided in the last sentence of Section 19.a, (i) this
Agreement may be amended, modified or supplemented only by the written
agreement of both Parties, and (ii) to the maximum extent of the law, the
rates, terms and conditions in this Agreement shall not be subject to
change, regardless of whether such change is sought (a) by the FERC acting
sua sponte on behalf of a Party or third party, (b) by a Party, (c) by a
--- ------
third party, or (d) in any other manner.
18
<PAGE>
SECTION 20 - ENTIRE AGREEMENT
This Agreement constitutes the entire understanding between the Parties,
and supersedes any and all previous understandings, oral or written, which
pertain to the subject matter contained herein or therein.
SECTION 21 - FURTHER ASSURANCES
The Parties hereto agree to promptly execute and deliver, at the expense of
the Party requesting such action, any and all other and further instruments and
documents which may be reasonably requested in order to effectuate the
transactions contemplated hereby.
SECTION 22 - NO THIRD PARTY BENEFICIARIES
Subject to the requirements of Section 4, nothing in this Agreement,
express or implied, is intended to confer on any person, other than the Parties,
any rights or remedies under or by reason of this Agreement.
SECTION 23 - CONFIDENTIALITY
Each Party shall hold in confidence all confidential documents and
information furnished by the other Party in connection with this Agreement
unless disclosure is compelled by judicial or administrative process or other
provision of law. If disclosure is so compelled, the Party shall use best
efforts to obtain trade secret protection for such information and documentation
and shall promptly notify the other Party if it receives notice, or otherwise
concludes, that the production of any information subject to this Section 23 is
being sought under any provision of law. Either Party may utilize information
subject to this Section 23 in any proceeding under Section 11, subject to
appropriate confidentiality arrangements. The Parties agree that monetary
damages would be inadequate to compensate for breach of obligations under
Section 23. Each Party agrees, subject to Section 10, that the other Party shall
be entitled to equitable relief, by way of injunction or otherwise, if it
breaches or threatens to breach its obligations under Section 23.
19
<PAGE>
In Witness Whereof, the Parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
New York State Electric & Gas Corporation
By: /s/ Kenneth M. Jasinski
------------------------
Kenneth M. Jasinski
Executive Vice President
Mission Energy Westside, Inc.
By: /s/ James V. Iaco
------------------------
James V. Iaco
President
20
<PAGE>
Appendix A
Pre-existing Wholesale Power Supply Capacity Requirements
Customer Contract Capacity Estimated Capacity (MW)
(MW) Requirement
Massena up to 30 15
Burlington Vt. (BED) up to 10 7
VPPSA (Vermont Public Power ) 7 (winter) 7
5 (summer)
21
<PAGE>
APPENDIX B
Illustration of NYSEG Resources
The capacity values listed in this Appendix A are illustrative only and do not
accurately represent the Plant's capacity in future years. These values will be
updated when SICR is forecasted as described in Section 3.
RESOURCE CAPACITY OTHER CAPACITY
Hydro Plants: Other:
- ------------ -----
Keuka 1.5 Nine Mile 2 207.0
High Falls 16.0 Harris Lake Diesel 1.8
Kents Falls 11.0 Other purchase (starts 25.0
Rainbow Falls 3.0 -----
9/99) 233.8
Cadyville 6.0
Mi11 "C" 5.0 Grand Totals 1419.1
Mechanicville 19.0
----
Total: 61.8
NUGs:
- ----
Alice Falls 2.1
Allegheny Hydro No. 8/No. 9 35.7
Saranac Power 240.0
Indeck-Silver Springs 60.0
KES Chateaugay 17.8
LFG Energy 5.0
Lockport Energy Assoc. 179.0
Lower Saranac Hydro 9.0
Waste Mgmt.-High Acres 2.4
-----
Total NUGs: 551.0
NYPA Contracts:
- --------------
Niagara Firm 110
Niagara Peaking 150
St. Lawrence 93
Gilboa 99
Expansion Load Credit 45
EDP Credit 4
Reserve Credit 72
-----
Total NYPA: 573
22
<PAGE>
APPENDIX C
Put Prices and Call Prices ($/MW-Day)
Contract Periods Call Price Put Price
- ---------------- ---------- ---------
First Contract Period 63.3 49.9
Second Contract Period 63.3 49.9
From the start of the 1999/2000 91.7 72.3
Winter Capability Period
(currently November 1, 1999) to
the end of the 2000 Summer
Capability Period (currently
October 31, 2000)
The 2000/2001 Winter Capability 103.0 77.2
Period (currently November 1,
2000 Through April 30, 2001)
23
<PAGE>
EXHIBIT 10.53
(Execution Copy)
TRANSITION POWER PURCHASE AGREEMENT
By and Between
MISSION ENERGY WESTSIDE, INC.
and
PENNSYLVANIA ELECTRIC COMPANY
Dated as of August 1, 1998
THIS TRANSITION POWER PURCHASE AGREEMENT SETS FORTH THE PROPOSED TERMS OF
OPTIONS UPON THE EXERCISE OF WHICH GENERATOR WOULD BE REQUIRED TO PROVIDE AND
SELL, AND PENELEC WOULD BE REQUIRED TO ACCEPT AND PURCHASE, CAPACITY FROM THE
HOMER CITY GENERATING STATION.
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS ................................................. 1
1.01 Format .................................................... 1
1.02 Definitions ............................................... 1
ARTICLE II - TERM ....................................................... 3
2.01 Effective Date ............................................ 3
2.02 Termination Date .......................................... 3
ARTICLE III - OPTIONS
3.01 Put Option ................................................ 4
3.02 Call Option ............................................... 4
3.03 Maximum Put Capacity and Maximum Call Capacity ............ 4
3.04 Supplemental Installed Capacity Requirements ("SICR") ..... 4
3.05 Exercise of Options ....................................... 5
ARTICLE IV - GENERATOR'S OBLIGATION TO PROVIDE
PURCHASED CAPACITY ......................................... 6
4.01 Requirements for Purchased Capacity ....................... 6
ARTICLE V - PAYMENT FOR PURCHASED CAPACITY .............................. 7
5.01 Monthly Payments .......................................... 7
5.02 Failure to Provide Purchased Capacity and Unforced Capacity 8
ARTICLE VI - BILLING AND PAYMENT ........................................ 9
6.01 Statements ................................................ 9
6.02 Billing and Payment ....................................... 9
6.03 Adjustments and Corrections ............................... 10
6.04 Interest .................................................. 10
6.05 Billing and Payment Addresses ............................. 10
6.06 Disputes .................................................. 11
6.07 Set-Off Rights ............................................ 11
6.08 Records ................................................... 11
6.09 Survival .................................................. 11
ARTICLE VII - INDEMNIFICATION ........................................... 11
7.01 Generator's Indemnification ............................... 11
7.02 Penelec's Indemnification ................................. 11
7.03 Indemnification Procedures ................................ 12
7.04 Survival .................................................. 12
i
<PAGE>
ARTICLE VIII - LIMITATION OF LIABILITY .................................. 12
8.01 Limitation of Liability ................................... 12
8.02 Generator's Direct Damages ................................ 13
8.03 Penelec's Direct Damages .................................. 13
8.04 Survival .................................................. 13
ARTICLE IX - FORCE MAJEURE .............................................. 13
9.01 Force Majeure ............................................. 13
9.02 Obligation to Make Payment ................................ 13
9.03 Due Diligence ............................................. 14
9.04 Survival .................................................. 14
ARTICLE X - CONFIDENTIALITY ............................................. 14
10.01 Confidentiality .......................................... 14
10.02 Confidential Information ................................. 14
10.03 Authorized Party ......................................... 14
ARTICLE IX - EVENTS OF DEFAULT .......................................... 15
11.01 Events of Default ........................................ 15
11.02 Notice of Default; Cure .................................. 15
11.03 Remedies ................................................. 16
ARTICLE XII - REPRESENTATIONS ........................................... 16
12.01 Generator's Representations .............................. 16
12.02 Penelec's Representations ................................ 16
12.03 Generator's Covenants .................................... 17
ARTICLE XIII - ASSIGNMENT ............................................... 18
ARTICLE XIV - MISCELLANEOUS ............................................. 18
14.01 Headings ................................................. 18
14.02 Waiver ................................................... 18
14.03 No Third Party Beneficiaries ............................. 18
14.04 Severability ............................................. 18
14.05 Entire Agreement ......................................... 19
14.06 Further Assurances ....................................... 19
14.07 Notices .................................................. 19
14.08 Amendments ............................................... 19
14.09 Governing Law ............................................ 20
14.10 Counterparts ............................................. 20
ii
<PAGE>
This Transition Power Purchase Agreement ("Agreement"), dated as of August
1, 1998, by and between Mission Energy Westside, Inc. ("Generator"), a
California corporation, and Pennsylvania Electric Company, d/b/a GPU Energy
("Penelec"), a Pennsylvania corporation, (each of Generator and Penelec being
referred to herein, individually, as a "Party", and collectively, as the
"Parties"),
WITNESSETH:
WHEREAS, NGE Generation, Inc., an affiliate of New York State Electric &
Gas Corporation ("NYSEG"), and Penelec have offered to jointly sell by auction
their respective interests in the Homer City Generating Station (the "HC
Station"); a coal-fired generating plant located in Indiana County,
Pennsylvania;
WHEREAS, the Generator, Penelec and NGE Generation, Inc. have entered into
an Asset Purchase Agreement ("Asset Purchase Agreement") dated as of August 1,
1998, pursuant to which Generator will purchase the HC Station;
WHEREAS, Penelec and Generator desire to enter into an option agreement for
the purchase and sale of electric generating capacity, but not for electric
energy or ancillary services; and
WHEREAS, in partial consideration for Penelec's interest in the HC Station,
Generator and Penelec have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, Generator and Penelec agree as follows:
ARTICLE I - DEFINITIONS
1.01 Format
------
(a) References to Articles and Sections herein are cross-references to
Articles and Sections, respectively, in this Agreement, unless otherwise stated.
(b) All Schedules that are attached to this Agreement are incorporated
by reference as if fully set forth herein.
1.02 Definitions
-----------
In addition to the terms defined elsewhere in this Agreement, when used
with initial capitalization, whether singular or plural, the following terms
shall have the meanings set forth below. Any term used in this Agreement that is
not defined herein shall have the meaning customarily attributed to such term by
the electric utility industry in Pennsylvania.
<PAGE>
(a) "Capacity" means the capability of generating and delivering
electric energy.
(b) "Capacity Credits" means credits for capacity which meet the
requirements set forth in the Reliability Assurance Agreement and the PJM Rules
as defined therein.
(c) "Contract Year" means the First Contract Year and each succeeding
12 month period beginning on June 1 and ending on the following May 31, except
that the Contract Year shall be changed to conform to the PJM Planning Year, as
defined in the Reliability Assurance Agreement, at such time, if any, as the PJM
Planning Year is changed.
(d) "First Contract Year" means the period of time from the Transfer
Date to May 31, 1999.
(e) "Forced Outage Rate" means the Forced Outage Rate of the HC
Station as defined and calculated in accordance with the PJM Rules, provided
however, that for purposes of this Agreement the Forced Outage Rate of the HC
Station for all periods prior to the Transfer Date shall be deemed to have been
9%.
(f) "Force Majeure" has the meaning set forth in Article IX.
(g) "GPU Energy" means Penelec, together with its affiliates,
Metropolitan Edison Company and Jersey Central Power & Light Company.
(h) "GPU Energy's Installed Capacity Obligation" means GPU Energy's
obligation to provide Installed Capacity to PJM under the Reliability Assurance
Agreement (i) as an LSE, or (ii) for and on behalf of GPU Energy`s full
requirements or partial requirements wholesale customers who are also LSEs.
(i) "Installed Capacity" means Capacity which meets the requirements
set forth in the Reliability Assurance Agreement and the PJM Rules for Installed
Capacity, as defined therein.
(j) "LSE" means a Load Serving Entity, as defined in the Reliability
Assurance Agreement.
(k) "Option" means a Put Option or Call Option.
(l) "PJM" means PJM Interconnection L.L.C., the Delaware Limited
Liability Company continued by that certain Amended and Restated Operating
Agreement of PJM Interconnection, L.L.C., dated as of June 2, 1997, as amended
from time to time, or its successor.
2
<PAGE>
(m) "PJM Control Area" means the control area recognized by the North
American Electric Reliability Council as the PJM Control Area.
(n) "PJM Rules" means the rules, regulations and agreements under
which PJM determines whether and to what extent an LSE has satisfied or failed
to satisfy its obligations under the Reliability Assurance Agreement to provide
Installed Capacity to PJM.
(o) "Purchased Capacity" means Installed Capacity with respect to
which a Put Option or Call Option has been exercised.
(p) "Reliability Assurance Agreement" means that certain agreement,
dated June 2, 1997, as amended from time to time, which establishes obligations,
standards and procedures for maintaining the reliable operation of the PJM
Control Area.
(q) "Transfer Date" means the date on which Penelec transfers title to
its interest in the HC Station to the Generator.
(r) "Unforced Capacity" means Unforced Capacity, as defined and
calculated in accordance with the PJM Rules, provided however, that for purposes
of this Agreement, the Forced Outage Rate of the HC Station for all periods
prior to the Transfer Date shall be deemed to have been 9%.
ARTICLE II - TERM
2.01 Effective Date
--------------
Subject to required regulatory authorizations, if any, this Agreement shall
become effective when signed by the Parties, except that the rights to exercise
Options and the obligations to purchase and sell Installed Capacity shall become
effective on the Transfer Date.
2.02 Termination Date
----------------
Unless terminated earlier in accordance with the terms hereof, this
Agreement shall terminate on May 31, 2001, or on the last day of the Contract
Year which ends in 2001, if different. If the Asset Purchase Agreement is
validly terminated prior to the Transfer Date, then this Agreement shall also
terminate.
ARTICLE III - OPTIONS
3.01 Put Option
----------
To the extent required by Generator in accordance with this Agreement,
Penelec shall accept and purchase Installed Capacity from Generator for the
First Contract Year and for each subsequent Contract Year in amounts up to the
Maximum Put Capacity for the respective
3
<PAGE>
Contract Year. Generator's right to require Penelec to accept and purchase such
Installed Capacity from Generator is referred to herein as Generator's "Put
Option".
3.02 Call Option
-----------
To the extent required by Penelec in accordance with this Agreement,
Generator shall provide and sell Installed Capacity to Penelec for the First
Contract Year and for each subsequent Contract Year in amounts up to the Maximum
Call Capacity for the respective Contract Year. Penelec's right to require
Generator to provide and sell such Installed Capacity to Penelec is referred to
herein as Penelec's "Call Option".
3.03 Maximum Put Capacity and Maximum Call Capacity
----------------------------------------------
(a) The Maximum Put Capacity for each Contract Year shall be equal to
the SICR for the respective Contract Year.
(b) The Maximum Call Capacity for each Contract Year shall be equal to
the SICR for the respective Contract Year, minus the amount of Installed
Capacity for which Generator exercises its Put Option with respect to such
Contract Year, but not less than zero.
3.04 Supplemental Installed Capacity Requirements ("SICR")
-----------------------------------------------------
SICR shall be equal to:
(a) 942 MW for the First Contract Year;
(b) for each Contract Year subsequent to the First Contract Year, the
lesser of (i) 942 MW, and (ii) the difference of ICR minus IC, for the
respective Contract Year, where:
ICR = Penelec's forecast of the maximum amount of Installed Capacity
that will be needed by GPU Energy to satisfy GPU Energy's Installed
Capacity Obligation during such Contract Year, taking into account GPU
Energy's estimate of the amount of Installed Capacity allocable to
load that will elect during such Contract Year to be served by an LSE
other than GPU Energy; and
IC = Installed Capacity for which GPU Energy will receive credit from
PJM for such Contract Year as an LSE which is provided by or pursuant
to:
(i) generating facilities owned by GPU Energy, excluding for
any Contract Year those generating facilities that GPU Energy
expects will be sold during such Contract Year;
(ii) contracts between GPU Energy and QFs;
4
<PAGE>
(iii) contracts with purchasers of any nuclear generating
facilities sold by GPU Energy; and
(iv) the contracts listed on Schedule A hereto, as in effect on
June 30, 1998.
3.05 Exercise of Options
-------------------
(a) Not later than 30 days prior to the anticipated Transfer Date,
Generator shall either notify Penelec of the exercise by Generator of its Put
Option for the First Contract Year, including notification of the quantity of
Installed Capacity for which Generator is exercising its Put Option, or shall
notify Penelec that Generator will not exercise its Put Option for the First
Contract Year.
(b) On the first business day after the day on which Generator is
required to exercise, or notify Penelec that it will not exercise, its Put
Option for the First Contract Year, Penelec shall either notify Generator of the
exercise by Penelec of its Call Option, including notification of the quantity
of Installed Capacity for which Penelec is exercising its Call Option, or shall
notify Generator that Penelec will not exercise its Call Option for the First
Contract Year.
(c) If either Party exercises its Option for the First Contract Year,
the obligations to provide and sell, and to accept and purchase, Capacity
pursuant to such exercised Options shall become effective as of the Transfer
Date.
(d) By January 15th, Penelec shall notify Generator of the Maximum Put
Capacity for the Contract Year (other than the First Contract Year) beginning on
the following June 1st.
(e) By January 30th, Generator shall either notify Purchaser of the
exercise by Generator of its Put Option for the Contract Year (other than the
First Contract Year) beginning on the following June 1st, including notification
of the quantity of Installed Capacity for which Generator is exercising its Put
Option, or shall notify Penelec that it will not exercise its Put Option for
such Contract Year.
(f) On the first business day after the day on which Generator is
required to exercise, or notify Penelec that it will not exercise, its Put
Option for the Contract Year (other than the First Contract Year) beginning on
the following June 1st, Penelec shall either notify Generator of the exercise by
Penelec of its Call Option for such Contract Year, including notification of the
quantity of Installed Capacity for which Penelec is exercising its Call Option,
or shall notify Generator that Penelec will not exercise its Call Option for
such Contract Year.
5
<PAGE>
(g) The foregoing schedule is based on the assumption that the PJM
Planning Year starts on June 1st and ends on May 31st and on the assumption that
the date (the "Capacity Notification Date") by which GPU Energy is required to
designate for PJM the sources from which Installed Capacity will be provided to
meet GPU Energy's Installed Capacity Obligation is not earlier than 90 days
prior to the first day of the respective PJM Planning Year. If the PJM Planning
Year start date and/or end date is changed, or the Capacity Notification Date is
changed, by PJM, then Penelec may, by providing reasonable notice thereof to
Generator, unilaterally change the foregoing notification schedule to provide
the same notice periods between the exercise of the Put Option and Call Option
and the first day of the PJM Planning Year and the Capacity Notification Date as
are provided by the foregoing schedule with respect to a PJM Planning Year
beginning on June 1st and a Capacity Notification Date 90 days prior thereto.
(h) Each notice required or contemplated by this Section 3.05 shall be
in writing and shall be given in accordance with Section 14.07, Notices.
-------
ARTICLE IV - GENERATOR'S OBLIGATION TO PROVIDE PURCHASED CAPACITY
4.01 Requirements for Purchased Capacity
-----------------------------------
(a) Generator shall provide all Installed Capacity required to be
provided to Penelec under this Agreement from the HC Station, except that,
subject to Penelec's written consent, which shall not be unreasonably withheld
or delayed, Generator may provide Installed Capacity ("Replacement Capacity") to
Penelec from sources other than the HC Station to meet the Generator's
obligation to provide Installed Capacity to Penelec, provided that such
Replacement Capacity:
(i) meets all of the requirements of the PJM Rules for Installed
Capacity and is available to GPU Energy to be credited against GPU
Energy's Installed Capacity Obligation; and
(ii) GPU Energy incurs no costs, charges or expenses, directly or
indirectly, which exceed the costs, charges and expenses that GPU
Energy would have incurred had such Installed Capacity been
provided from the HC Station, or if any such excess costs, charges
or expenses are incurred by GPU Energy, Generator reimburses
Penelec for such excess costs, charges and expenses within 10 days
of Generator's receipt of a bill therefor, provided that
generator shall not be obligated to reimburse Penelec for such
excess costs, charges and expenses to the extent that they are
incurred as a result of GPU Energy's failure to use reasonable
efforts to avoid or mitigate them.
(b) Generator shall provide a written request to Penelec for its
consent to Generator's use of Replacement Capacity not later than 30 days prior
to (i) the date on which
6
<PAGE>
GPU Energy is required to identify for PJM the sources from which GPU Energy
will provide Installed Capacity for the period during which Generator will
provide such Replacement Capacity, or (ii) where the use of Replacement Capacity
represents a change in the source from which Generator is providing Installed
Capacity under this Agreement, the date on which GPU Energy is required to
notify PJM of such change. Such written request shall identify the sources from
which Generator will provide Replacement Capacity and shall include all
information reasonably required by Penelec to determine whether to grant or
withhold its consent and for GPU Energy to obtain credit from PJM for such
Replacement Capacity as Installed Capacity.
(c) Generator shall take all action required or necessary to cause the
Purchased Capacity to meet PJM's requirements for Installed Capacity and to
cause the Purchased Capacity to be available to GPU Energy to satisfy GPU
Energy's Installed Capacity Obligation.
(d) During the First Contract Year (i) not more than one generating
unit comprised by the HC Station shall be on planned outage at any one time (ii)
not more than 8 unit-weeks of planned outage of the HC Station shall be taken,
and (iii) the Forced Outage Rate of the HC Station shall not exceed 9%.
(e) During each Contract Year beginning on or after June 1, 1999,
Generator shall provide Unforced Capacity associated with Purchased Capacity
equal to not less than 91% of the Purchased Capacity.
(f) No planned outage of the HC Station shall be taken during any Peak
Season, as defined in the PJM Rules.
ARTICLE V - PAYMENT FOR PURCHASED CAPACITY
5.01 Monthly Payments
----------------
If an Option or Options are exercised, Penelec shall make monthly payments
to Generator for each month during the Contract Year for which such Option or
Options have been exercised. Such monthly payments, each referred to herein as a
"Monthly Payment" or MP, shall be calculated as follows:
MP = (Payment Amount) x (Days) x (Forced Outage Adjustment);
where:
MP = Monthly Payment;
Payment Amount = The sum of (i) the product of the applicable Put
Price from Schedule B hereto and the amount of Installed Capacity for
which a Put Option
7
<PAGE>
has been exercised and which is provided to Penelec by Generator, and
(ii) the product of the applicable Call Price from Schedule B hereto
and the Installed Capacity for which a Call Option has been exercised
and which is provided to Penelec by Generator;
Days = The number of calendar days in the respective month;
Forced Outage Adjustment = for the First Contract Year, a fraction not
greater than 1.0, the numerator of which shall be 1.0 minus the Forced
Outage Rate of the HC Station for the month and the denominator of
which shall be .91, and after the First Contract Year, a fraction not
greater than 1.0, the numerator of which is the Unforced Capacity
provided by Generator which is attributable to the Installed Capacity
provided by Generator and the denominator of which is 91% of such
Installed Capacity.
5.02 Failure to Provide Purchased Capacity and Unforced Capacity
-----------------------------------------------------------
(a) If (i) the amount of Installed Capacity provided by Generator is
less than the Purchased Capacity (ii) during the First Contract Year more than
one generating unit comprised by the HC Station is on planned outage at any one
time, Generator takes more than 8 weeks of planned outage for the HC Station or
the Forced Outage Rate exceeds 9%, (iii) the Unforced Capacity provided by
Generator during any Contract Year beginning on or after June 1, 1999 is less
than 91% of the Purchased Capacity, or (iv) a planned outage of the HC Station
is taken during a Peak Season (collectively, "Generator Shortfall"), then
Generator shall reimburse Penelec for all Deficiency Charges and Replacement
Costs incurred and paid by Penelec or GPU Energy as a result thereof, but only
to the extent that such Deficiency Charges and Replacement Costs exceed the
amount by which the Monthly Payment is reduced as a result of the Generator
Shortfall, provided that Generator shall not be obligated to reimburse Penelec
for Deficiency Charges or Replacement Costs to the extent that they are incurred
as a result of Penelec's or GPU Energy's failure to use reasonable efforts to
avoid or mitigate them.
(b) For purposes hereof, "Deficiency Charges" means all deficiency
charges and costs, including any and all costs, charges and penalties under the
Reliability Assurance Agreement, payable as a result of any failure by GPU
Energy to meet GPU Energy's Installed Capacity Obligation.
(c) For purposes hereof, "Replacement Costs" means the sum of all
costs or expenses incurred directly or indirectly by GPU Energy to purchase
Capacity, provide Capacity to PJM, or purchase Capacity Credits, in order to
meet GPU Energy's Installed Capacity Obligation.
(d) If GPU Energy incurs Deficiency Charges or Replacement Costs as a
result of a Generator Shortfall which occurs in a particular month, and such
costs are incurred over a period of more than one month or are incurred in a
month or months other than the
8
<PAGE>
month in which the Generator Shortfall occurs, then Penelec, in its reasonable
discretion, shall allocate such costs on a monthly basis.
(e) If GPU Energy or Penelec incur Deficiency Charges or Replacement
Costs attributable to a capacity deficiency to PJM which in the aggregate
exceeds the aggregate Generator Shortfall, then Penelec, in its reasonable
discretion, shall allocate a reasonable portion of such Deficiency Charges and
Replacement Costs to such Generator Shortfall.
(f) Penelec shall set-off any payments Generator owes under this
Section 5.02 against any payments Penelec owes Generator under Section 5.01. If
payments due Penelec under Section 5.02 exceed payments due Generator under
Section 5.01, Generator shall pay the difference to Penelec promptly upon
receipt of a bill therefor.
ARTICLE VI - BILLING AND PAYMENT
6.01 Statements
----------
Penelec shall provide to the Generator a monthly statement not later than
15 days after the end of each calendar month during a Contract Year with respect
to which an Option or Options have been exercised. Such statement shall set
forth (i) the amount due for Purchased Capacity for which such Option or Options
have been exercised, calculated in accordance with Section 5.01 (ii) Generator's
reimbursement obligation, if any, under Section 5.02, and (iii) the computation
of the amount due and determination of the Party obligated to pay such amount,
including each quantity used in such computation and determination.
6.02 Billing and Payment
-------------------
If the statement provided pursuant to Section 6.01 shows that a payment is
due from Penelec to Generator, Penelec shall pay the amount due within 15 days
of the issuance of the statement. If the statement shows that payment is due
from Generator to Penelec, Penelec shall render a bill to the Generator for the
amount due simultaneously with the issuance of the statement, and the Generator
shall pay such bill within 15 days of the issuance thereof by Penelec.
6.03 Adjustments and Corrections
---------------------------
If adjustments or corrections to bills or statements are required as a
result of errors in computation or billing, the Parties shall recompute amounts
due hereunder and otherwise correct any errors in such bills or statements. If
the total amount, as recomputed, due from a Party for the period of inaccuracy
varies from the total amount due as previously computed, and payment of the
previously computed amount has been made, the difference shall be paid to the
Party entitled to receive it within thirty (30) days after the recomputation.
9
<PAGE>
6.04 Interest
--------
Interest on unpaid amounts or payments received after the due date shall
accrue at a rate equal to the prime lending rate established from time to time
by Citibank, N.A., New York, New York, or its successor, from the due date until
the date on which the amount due is paid.
6.05 Billing and Payment Addresses
-----------------------------
Bills rendered to Generator shall be sent to:
Mission Energy Westside, Inc.
18101 Von Karman Avenue, Suite 1700
Irvine, California 92612
Payments made to Generator by check shall be sent to:
Mission Energy Westside, Inc.
18101 Van Karman Avenue, Suite 1700
Irvine, California 92612
or by wire transfer of funds to:
Bills rendered to Penelec shall be made by check to:
Pennsylvania Electric Company
c/o GPU Energy
2800 Pottsville Pike
Reading, Pennsylvania 19602
Payments made to Penelec shall be made by check to:
Pennsylvania Electric Company
c/o GPU Energy
2800 Pottsville Pike
Reading, Pennsylvania 19602
or by wire transfer of funds to:
6.06 Disputes
--------
10
<PAGE>
If a Party contests a billed amount, the contesting Party shall pay the
undisputed billed amount and provide written notice to the other Party
identifying the reason for the dispute. Interest at the rate specified in
Section 6.04 shall accrue on any payment, or any portion of any payment, that is
refunded or credited when the contested amount is resolved.
6.07 Set-Off Rights
--------------
Each Party may set off any amounts owed to the other Party against any
amount owed pursuant to this Agreement or other arrangements agreed to between
the Parties, including without limitation, amounts owed Penelec under Section
5.02.
6.08 Records
-------
The Parties shall each keep and maintain accurate and detailed records
relating to the sales of Installed Capacity under this Agreement for a period of
not less than seven (7) years. Such records shall be made available for
inspection by either Party or any governmental agency having jurisdiction with
respect thereto during normal business hours upon reasonable notice.
6.09 Survival
--------
The provisions of this Article 6 shall survive termination, expiration,
cancellation, suspension, or completion of this Agreement to the extent
necessary to allow for final billing and payment.
ARTICLE VII - INDEMNIFICATION
7.01 Generator's Indemnification
---------------------------
The Generator shall indemnify, defend and hold harmless Penelec and its
Affiliates and their officers, directors, employees and agents from and against
any and all claims, demands, suits, losses, damages, liabilities, costs and
expenses (including reasonable attorney's fees and costs of investigation) for
damage to property and injury to or death of persons, including Penelec's
employees, Generator's employees and the employees of any third party, to the
extent caused by, arising out of or related to the negligence or willful
misconduct of Generator.
7.02 Penelec's Indemnification
-------------------------
Penelec shall indemnify, defend and hold harmless Generator and its
Affiliates and their officers, directors, employees and agents from and against
any and all claims, demands, suits, losses, damages, liabilities, costs and
expenses (including reasonable attorney's fees and costs of investigation) for
damage to property and injury to or death of persons, including
11
<PAGE>
Generator's employees, Penelec's employees and the employees of any Third Party,
to the extent caused by, arising out of or related to the negligence or willful
misconduct of Penelec.
7.03 Indemnification Procedures
--------------------------
(a) A party which becomes entitled to indemnification under this
Agreement (the "Indemnified Party") shall give written notice to the other party
(the "Indemnifying Party") of the occurrence of the events which give rise to
such right of indemnification within 30 days of the later of the occurrence
thereof or the Indemnified Party becoming aware of the occurrence thereof. Such
notice shall describe the claim, the basis thereof and shall indicate an
estimate of the amount of the claim. To the extent that the Indemnifying Party
is prejudiced by any failure of the Indemnified Party to provide such notice,
such notice shall be a condition precedent to the liability of the Indemnifying
Party under this Article VII.
(b) At the Indemnified Party's request, the Indemnifying Party shall,
at its cost and expense, defend (with counsel reasonably acceptable to the
Indemnified Party) any suit asserting a claim against the Indemnified Party with
respect to which the Indemnified Party is entitled to indemnification hereunder,
and shall pay all costs and expenses incurred by the Indemnified Party to
enforce its right to indemnification. The Indemnified Party may, at its own
expense, retain separate counsel and participate in the defense of any such
suit. Neither party may settle or compromise a claim or suit against the other
Party without the consent of such other party, which consent shall not be
unreasonably withheld or delayed.
7.04 Survival
--------
The indemnification obligations of each Party under this Article VII shall
not be limited in any way by any limitation on insurance, by the amount or types
of damages, or by any compensation or benefits payable by the Parties under
Worker's Compensation Acts, disability benefit acts or other employee acts, or
otherwise. The provisions of this Article VII shall survive termination,
cancellation, suspension, completion or expiration of this Agreement.
ARTICLE VIII - LIMITATION OF LIABILITY
8.01 Limitation on Damages
---------------------
Except to the extent arising out of the obligations of Penelec and the
Generator to indemnify the other Party under Article VII, neither Penelec nor
the Generator, nor their respective officers, directors, partners, agents,
employees, or affiliates, shall be liable to the other party or its affiliates,
officers, directors, partners, agents, employees, successors or assigns, for
claims for incidental, special, indirect or consequential damages of any nature
connected with or resulting from performance or breach of this Agreement,
including without limitation, claims in the nature of lost revenues, income or
profits (other than payments specifically provided for and properly due under
this Agreement) or losses, damages or liabilities under any financing, lending
or construction contracts, agreements or other
12
<PAGE>
arrangements to which the Generator may be party, irrespective of whether such
claims are based upon warranty, negligence, strict liability, contract,
operation of law or otherwise.
8.02 Generator's Direct Damages
--------------------------
Subject to the indemnity provisions set forth in Article VII, upon an
Event of Default by Penelec which is not excusable due to an event of Force
Majeure or an Event of Default by Generator, Penelec's liability to Generator
shall be limited to Generator's exclusive direct damages incurred by Generator
as a result of such Event of Default by Penelec, which shall be payment under
Section 5.01 for services rendered.
8.03 Penelec's Direct Damages
------------------------
Subject to the indemnity provisions set forth in Article VII, upon an
Event of Default by Generator which is not excusable due to an event of Force
Majeure or an Event of Default by Penelec, Generator's liability shall be
limited to Penelec's direct damages incurred by Penelec as a result of such
Event of Default by Generator, which shall be payment under Section 5.02 of
Deficiency Charges and Replacement Costs.
8.04 Survival
--------
The provisions of this Article VIII shall apply regardless of fault
and shall survive termination, cancellation, suspension, completion or
expiration of this Agreement.
ARTICLE IX - FORCE MAJEURE
9.01 Force Majeure
-------------
Subject to due diligence obligations under Section 9.03, a Party shall
not be considered to be in default or breach of this Agreement, and shall be
excused from performance, or liability for damages to the other Party, if and to
the extent it shall be delayed in or prevented from performing or carrying out
any of the obligations or responsibilities of this Agreement, arising out of or
from any act, omission or circumstances occasioned by or in consequence of any
act of God, labor disputes, act of the public enemy, war, invasion, riot, fire,
storm, flood, ice, explosion, or by any other cause or causes beyond the
reasonable control of the Party invoking Force Majeure to avoid liability,
including any order, regulation or restriction imposed by governmental, military
or lawfully established civilian authorities.
9.02 Obligation to Make Payment
--------------------------
Nothing contained in this Article IX shall relieve any Party of the
obligation to make payments when due pursuant to this Agreement.
13
<PAGE>
9.03 Due Diligence
-------------
Any Party claiming Force Majeure shall (i) provide prompt written
notice of such Force Majeure event to the other Party giving a detailed written
explanation of the event and estimate of its expected duration and probable
effect on the performance of that Party's obligations hereunder; and (ii) use
due diligence in accordance with good utility practice to continue to perform
its obligations under this Agreement and to remove the condition that prevents
performance, including the provision of Replacement Capacity, if available,
irrespective of cost; except that settlement of any labor dispute shall be in
the sole judgment of the affected Party.
9.04 Survival
--------
The provisions in this Article IX shall survive termination,
cancellation, suspension, completion or expiration of this Agreement.
ARTICLE X - CONFIDENTIALITY
10.01 Confidentiality
---------------
Upon the written request of a Party (in such capacity, the "Disclosing
Party"), the other Party (in such capacity, the "Receiving Party") shall keep
confidential and not disclose, except to Authorized Parties, as defined below,
or except as required by law, Confidential Information, as defined below, which
is disclosed to the Receiving Party by the Disclosing Party.
10.02 Confidential Information
------------------------
For purposes hereof, "Confidential Information" means information in
written or other tangible form which is so marked when it is disclosed to the
Receiving Company, except that Confidential Information shall not include
information which (i) is available to the public, (ii) becomes available to the
public other than as a result of a breach by the Receiving Party of its
obligations hereunder, (iii) was known to the Receiving Party prior to its
disclosure by the Disclosing Party, or (iv) becomes known to the Receiving Party
thereafter other than by disclosure by the Disclosing Party.
10.03 Authorized Party
----------------
For purposes hereof, Authorized Party means any officer, employee,
representative, agent or attorney of the Receiving Party, or any officer,
employee, representative, agent or attorney of any affiliate of the Receiving
Party who needs to know the Confidential Information in order to perform his
duties.
ARTICLE XI - EVENTS OF DEFAULT
14
<PAGE>
11.01 Events of Default
-----------------
The following shall constitute events of default under this
Agreement:
(a) A material breach of any material term or condition of
this Agreement, including but not limited to (i) any material breach of
a representation, warranty or covenant made in this Agreement, and (ii)
failure of either Party to make a required payment to the other Party
of amounts due hereunder. Failure by a Party to provide any required
report or notice hereunder shall constitute a material breach hereof if
such failure is not cured within ten (10) days after notice to the
defaulting party.
(b) A receiver or liquidator or trustee of either Party or of
any of its property shall be appointed by a court of competent
jurisdiction, and such receiver, liquidator or trustee shall not have
been discharged within sixty (60) days; or by decree of such a court, a
Party shall be adjudicated bankrupt or insolvent or any substantial
part of its property shall have been sequestered, and such decree shall
have continued undischarged and unstayed for a period of sixty (60)
days after the entry thereof; or a petition to declare bankruptcy or to
reorganize a party pursuant to any of the provisions of the Federal
Bankruptcy Code, as now in effect or as it may hereafter be amended, or
pursuant to any other similar state statute as now or hereafter in
effect, shall be filed against a party and shall not be dismissed
within sixty (60) days after such filing, or
(c) A Party shall file a voluntary petition in bankruptcy
under any provision of any federal or state bankruptcy law or shall
consent to the filing of any bankruptcy or reorganization petition
against it under any similar law; or, without limiting of the
generality of the foregoing, a Party shall file a petition or answer or
consent seeking relief or assisting in seeking relief in a bankruptcy
under any provision of any federal or state bankruptcy law or shall
consent to the filing of any bankruptcy or reorganization petition
against it under any similar law; or, without limiting of the
generality of the foregoing, a Party shall file a petition or answer or
consent seeking relief or assisting in seeking relief in a proceeding
under any of the provisions of the Federal Bankruptcy Code, as now in
effect or as it may hereafter be amended, or pursuant to any other
similar state statute as now or hereafter in effect, or an answer
admitting the material allegations of a petition filed against it in
such a proceeding; or a Party shall make an assignment for the benefit
of its creditors; or a Party shall admit in writing its inability to
pay its debts generally as they become due; or a Party shall consent to
the appointment of a receiver, trustee, or liquidator of it or of all
or part of its property.
11.02 Notice of Default: Cure.
-----------------------
Upon the occurrence of any such event of default, the Party not in
default may give written notice of the default to the defaulting Party.
Such notice shall set forth, in reasonable detail, the nature of the
default and, where known and applicable, the steps necessary to cure
such default. The defaulting Party shall have thirty (30) days
following receipt of such notice either to (i) cure such default or
(ii) commence in good faith all such steps as the non-defaulting Party
may, in its reasonable judgment, determine to be necessary and
appropriate to
15
<PAGE>
cure such default in the event such default cannot, in the reasonable judgment
of such non-defaulting Party, be completely cured within such thirty (30) day
period.
11.03 Remedies.
--------
(a) Except with respect to liability arising out of a Party's
indemnification obligations under Article VIII, upon the occurrence of an Event
of Default, the defaulting Party shall be liable to the non-defaulting Party
only for the non-defaulting Party's direct damages as defined in Section 8.02 or
Section 8.03, as the case may be.
(b) Notwithstanding the foregoing, upon the occurrence of any such
event of default, the non-defaulting Party shall be entitled (i) to commence an
action to require the defaulting Party to remedy such default and specifically
perform its duties and obligations hereunder in accordance with the terms and
conditions hereof and (ii) to exercise such other rights and remedies as it may
have at equity or at law, subject however to the provisions of Article VIII
hereof.
ARTICLE XII - REPRESENTATIONS
12.01 Generator's Representations.
---------------------------
The Generator hereby represents and warrants as follows:
(a) The Generator is a corporation duly organized validly existing and
in good standing under the laws of California and is duly qualified to do
business and in good standing in the Commonwealth of Pennsylvania;
(b) The Generator has all requisite power and authority to carry on
the business to be conducted by it and to enter into this Agreement and the
transactions contemplated hereby, and perform and carry out all covenants and
obligations on its part to be performed under and pursuant to this Agreement;
(c) The execution and delivery of this Agreement and the performance
of the Generator's obligations hereunder have been duly authorized by all
necessary action on the part of the Generator and do not and will not conflict
with or result in a breach of the Generator's charter documents or by-laws or
any indenture, mortgage, other agreement or instrument, or any statute or rule,
regulation, order, judgment or decree of any judicial or administrative body to
which the Generator is a party or by which the Generator or any of its
properties is bound or subject.
12.02 Penelec's Representations.
-------------------------
Penelec hereby represents and warrants as follows:
16
<PAGE>
(a) Penelec is a corporation duly incorporated, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania.
(b) Penelec has the corporate power and authority to own its
properties, carry on its electric utility business as now being conducted, enter
into this Agreement and the transactions contemplated hereby, and perform and
carry out all covenants and obligations on its part to be performed under and
pursuant to this Agreement.
(c) The execution and delivery of this Agreement by Penelec and the
performance of its obligations hereunder have been duly authorized by all
necessary corporate action on the part of Penelec.
12.03 Generator's Covenants.
---------------------
(a) The Generator hereby covenants and agrees that Generator shall at
its own cost and expense obtain all permits, licenses and other authorizations
from governmental authorities as may be required to perform its obligations
hereunder.
(b) The Generator shall comply with the requirements of the clauses
set forth in the following provisions of the Federal Acquisition Regulations
("FAR"), 48 Code of Federal Regulations, Chapter 1, as the same may be in effect
from time to time:
(i) Clean Air and Water: (S)52.223-2;
-------------------
(ii) Contract Work Hours and Safety Standards Act -Overtime
------------------- ------------------------------
Compensation: (S)52.222-4;
------------
(iii) Equal Opportunity: (S)52.222-26;
-----------------
(iv) Affirmative Action for and Employment Reports on Special
-------------------------- ------------------
Disabled and Vietnam Era Veterans: (S)52.222-35 and
----------------------------------
(S)52.222-37;
(v) Affirmative Action for Handicapped Workers: (S)52.222-36;
------------------------------------------
(vi) Utilization of Small Business Concerns and Small
------------------------------------------------
Disadvantaged
-------------
Business Concerns and Small Business and Small
----------------------------------------------
Disadvantaged
-------------
Business Subcontracting Plan: (S)52.219-8 and (S)52.219-9
----------------------------
The Generator shall include the terms or substance of each of the foregoing
clauses in its subcontracts as and to the extent required by the FAR. In the
event of a conflict between the provisions of this Section 12.03(b) and any
other provision of this Agreement, this Section 12.03(b) shall govern.
17
<PAGE>
ARTICLE XIII - ASSIGNMENT
Neither this Agreement nor any right, interest or obligation hereunder may
be assigned by either Party without the other Party's written consent, which may
not be unreasonably withheld or delayed. Assignments made without the required
consent may be voided by the non-assigning Party. Notwithstanding the foregoing,
(a) Penelec may assign this Agreement, in whole or in part, to any affiliate of
Penelec that has a contractual or statutory obligation as an LSE to supply
Installed Capacity to PJM, and (b) Generator may assign, transfer, pledge or
otherwise dispose of its rights and interests hereunder to a trustee or lending
institution(s) for the purposes of financing or refinancing the acquisition of
the Homer City Station, including upon or pursuant to the exercise of remedies
under such financing or refinancing, or by way of assignments, transfers,
pledges, conveyances or dispositions in lieu thereof; provided, however, that no
such assignment, transfer, pledge, conveyance, or disposition shall relieve or
in any way discharge Generator from the performance of its duties and
obligations under this Agreement. Penelec agrees to execute and deliver, at
Generator's expense, such documents as may be reasonable and necessary to
accomplish any such assignment, transfer, pledge, conveyance, or disposition of
rights hereunder for purposes of the financing or refinancing of the acquisition
of the HC Station, so long as Penelec's rights under this Agreement are not
thereby altered, amended, diminished or otherwise impaired.
ARTICLE XIV - MISCELLANEOUS
14.01 Headings
--------
The descriptive headings of the Articles and Sections of this Agreement are
inserted for convenience only and are not intended to affect the meaning,
interpretation or construction of this Agreement.
14.02 Waiver
------
Except as otherwise provided in this Agreement, any failure of a Party to
comply with any obligation, covenant, agreement, or condition herein may be
waived by the Party entitled to the benefits thereof only by a written
instrument signed by the Party granting such waiver, but such waiver shall not
operate as a waiver of, or estoppel with respect to any subsequent failure of
the first Party to comply with such obligation, covenant, agreement, or
condition.
14.03 No Third Party Beneficiaries
----------------------------
The Parties do not intend that this Agreement confer any rights or remedies
on any person or party other than the Parties, their successors and permitted
assigns.
14.04 Severability
------------
If any of the provisions of this Agreement are held to be unenforceable or
invalid by any court or regulatory authority of competent jurisdiction, the
Parties shall, to the extent
18
<PAGE>
possible, negotiate an equitable adjustment to the provisions of this Agreement,
with a view toward effecting the purpose of this Agreement, and the validity
and enforceability of the remaining provisions hereof shall not be affected
thereby.
14.05 Entire Agreement
----------------
This Agreement constitutes the entire understanding between the Parties,
and supersedes any and all previous understandings, oral or written, with
respect to the subject matter hereof.
14.06 Further Assurances
------------------
The Parties hereto agree to promptly execute and deliver, at the expense of
the Party requesting such action, any and all other and further instruments and
documents which may be reasonably requested in order to effectuate the
transactions contemplated hereby.
14.07 Notices
-------
Notices required or permitted to be given hereunder shall be in
writing, shall be deemed given when received if sent by facsimile transmission
(provided receipt thereof is confirmed in writing) recognized overnight courier
or first class mail to the appropriate telephone number or address set forth
below. Parties' notice addresses are as follows:
If to Generator:
Mission Energy Westside, Inc.
18101 Von Karman Avenue, Suite 1700
Irvine, California 92612
Attention: James V. Iaco
President
Facsimile: 949-757-4774
If to Penelec:
Pennsylvania Electric Company
c/o GPU Energy
2800 Pottsville Pike
Reading, Pennsylvania 19602
Attention: C.A. Mascari
Facsimile: 610-375-6557
19
<PAGE>
The foregoing notice addresses and telephone numbers may be changed by
written notice given in accordance with this Section 14.07
14.08 Amendments
----------
(a) If the provisions of the PJM Rules concerning Installed Capacity are
materially changed from such provisions of the PJM Rules in effect as of August
1, 1998, then, at the written request of either Party, the Parties shall use
their best efforts to amend, modify or supplement this Agreement to preserve and
maintain the economic benefits accruing to each Party hereunder. If after 30
days from said request the parties fail to reach such agreement, then both
Parties reserve all rights under the Federal power Act.
(b) Except as provided in Section 14.08(a), this Agreement may be amended,
modified or supplemented only by the written agreement of both Parties, and (ii)
to the maximum extent of the law, the rates, terms and conditions in this
Agreement shall not be subject to change, regardless of whether such change is
sought (a) by the FERC action sua sponte on behalf of a Party or third party,
(b) by a Party, (c) by a third party, or (d) in any other manner.
14.09 Governing Law
-------------
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts made and to be performed in Pennsylvania, without regard to the
conflict of laws provisions thereof.
(b) The Parties agree that all disputes between them which arise under
this Agreement and which are not settled, other than disputes which are
exclusively within the jurisdiction of FERC, shall be decided by a court of
competent jurisdiction in the Commonwealth of Pennsylvania and the parties
submit to the jurisdiction of the courts of the Commonwealth of Pennsylvania and
the Federal District Courts in the Commonwealth of Pennsylvania.
14.10 Counterparts
------------
This Agreement may be executed in counterparts, all of which shall
constitute one and the same Agreement and each of which shall be deemed to be an
original.
20
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement by their
authorized representatives as of the day and year first set forth above.
PENNSYLVANIA ELECTRIC COMPANY
By: /s/ John G. Graham
--------------------------------
Name: John G. Graham
Title:
By:
--------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement by their
authorized representatives as of the day and year first set forth above.
PENNSYLVANIA ELECTRIC COMPANY
By:
--------------------------------
Name:
Title:
MISSION ENERGY WESTSIDE, INC.
By: /s/ James V. Iaco, Jr.
--------------------------------
Name:
Title:
21
<PAGE>
SCHEDULE A
(Capacity)
Long-Term Power Purchase Contracts
6/01/99 - 5/31/01 AEC/Susquehanna 1&2 and Raystown Hydro 224 MW
6/01/99 - 12/31/99 JC Purchase of PP&L Capacity 184 MW
6/01/99 - 5/31/01 JC Bid Package/PP&L 300 MW
6/01/99 - 5/31/01 JC Bid Package/Niagara Mohawk 45 MW
6/01/99 - 5/31/01 JC Bid Package/PECO Base 50 MW
6/01/99 - 5/31/01 JC Bid Package/PECO Option 1A 50 MW
NUGs* - Existing 1666 MW
NUGs* - Projected
6/01/99 - 5/31/01 Monmouth 7 MW
6/01/99 - 5/31/01 Modern Landfill 8 MW
6/01/00 - 5/31/01 AES 655 MW
6/01/00 - 5/31/01 Homer City Modular 17 MW
- -------------------------
* The Installed Capacity and Dates listed are illustrative only. These values
will be updated when SICR is forecasted.
22
<PAGE>
SCHEDULE B
Put Prices and Call Prices ($/MW-Day)
Call Price Put Price
---------- ---------
To 5/31/99 $ 63.30 $49.90
6/1/99 to 5/31/00 $ 77.50 $59.90
6/1/00 to 5/31/01 $100.90 $77.40
23
<PAGE>
EXHIBIT 10.54
EXECUTION COPY
--------- ----
GUARANTY
--------
GUARANTY dated as of August 1, 1998, by Edison Mission Energy, a
California corporation ("Guarantor"), in favor of Pennsylvania
Electric Company, a Pennsylvania corporation, NGE Generation,
Inc., a New York corporation, and New York State Electric & Gas
Corporation, a New York corporation (collectively, "Sellers").
WHEREAS, Mission Energy Westside, Inc., a California
corporation and a direct wholly-owned subsidiary of Guarantor
("Buyer"), has entered into an Asset Purchase Agreement dated as of
August 1, 1998 (the "Agreement"), pursuant to which Buyer has agreed to
purchase and Sellers have agreed to sell Sellers' interests in
certain electric generating assets, as more particularly set forth
in the Agreement; and
WHEREAS, in order to induce the Sellers to enter into the
Agreement, the Guarantor has agreed to execute and deliver this
Guaranty; and
WHEREAS, the Guarantor will benefit from the transactions
contemplated by the Agreement.
NOW, THEREFORE, the Guarantor agrees as follows:
Section 1. Definitions. Capitalized terms used herein shall
------------
have the meanings assigned to them herein or, if not defined
herein, then such terms shall have the meanings assigned to them in the
Agreement.
Section 2. Guaranty. Guarantor hereby absolutely,
---------
unconditionally and irrevocably guarantees the full and prompt
performance and payment when due of all covenants, promises,
agreements, obligations, indemnifications, undertakings,
representations and warranties of Buyer in the Agreement (all of such
covenants, promises, agreements, undertakings, obligations,
indemnifications, representations and warranties, as they may be limited
by Section 10.4 of the Agreement, collectively, the "Guaranteed
Obligations") when the same become due, whether at maturity, by
declaration, demand, or otherwise, and agrees to reimburse
Sellers for all expenses, including reasonable attorneys'
fees, of enforcing their rights under this Guaranty. The liability of
Guarantor under this Guaranty is a guaranty of performance and payment
and not of collection.
<PAGE>
Section 3. Guaranty Absolute. Guarantor guarantees that the Guaranteed
-----------------
Obligations will be paid or performed strictly in accordance with the terms of
the Agreement, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Sellers with respect thereto. The obligations of the Guarantor
under this Guaranty are independent of the Guaranteed Obligations,
and a separate action or actions may be brought and prosecuted against the
Guarantor to enforce this Guaranty, irrespective of whether any actions are
brought against Buyer. The liability of Guarantor under this Guaranty
shall to the fullest extent permitted by law be absolute, unconditional and
irrevocable, and unaffected by:
(a) the occurrence or continuance of any event of bankruptcy,
reorganization or insolvency with respect to Buyer;
(b) any amendment, supplement, reformation or other modification
of the Agreement;
(c) the exercise, non-exercise or delay in exercising, by Sellers or
any other Person, of any of their rights under this Guaranty or the
Agreement;
(d) any change in time, manner or place of payment of, or in any
other terms of, all or any of the Guaranteed Obligations or any
other amendment or waiver of, or any consent to departure from, the
Agreement or any other agreement, document or instrument relating thereto;
(e) any permitted assignment or other transfer of the Agreement in
whole or in part;
(f) any change in ownership or control of Sellers, Guarantor or
Buyer;
(g) any sale, transfer or other disposition by Guarantor of any direct
or indirect interest it may have in Buyer; or
(h) the absence of any notice to, or knowledge by, Guarantor
of the existence or occurrence of any of the matters or events set forth in
the foregoing clauses.
Section 4. Waivers.
-------
(a) Guarantor hereby irrevocably, unconditionally and expressly
waives, and agrees that it shall not at any time insist upon, plead or in any
manner whatsoever claim or take the benefit or advantage of, any appraisal,
valuation, stay, extension, marshalling of assets or redemption laws, or
exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by Guarantor of its
-2-
<PAGE>
obligations under, or the enforcement by Sellers of, this Guaranty;
(b) Guarantor hereby irrevocably, unconditionally and expressly
waives all notices, diligence, presentment and demand of every kind and any
requirement that Sellers protect, secure or perfect any security interest or
exhaust any right or first proceed against the Buyer or any other person or
entity;
(c) Until payment and satisfaction in full of all Guaranteed
Obligations, to the extent permitted by applicable law, Guarantor
irrevocably, unconditionally and expressly waives any right it may have to bring
a case or proceeding against Buyer by reason of its performance under this
Guaranty or with respect to any other obligation of Buyer to Guarantor, under
any state or federal bankruptcy, insolvency, reorganization, moratorium or
similar laws for the relief of debtors. Guarantor irrevocably waives, to the
fullest extent permitted by law and for the benefit of, and as a separate
undertaking with the Seller, any defense to the performance of this Guaranty
that may be available to Guarantor as a consequence of this Guaranty's being
rejected or otherwise not assumed by Buyer or any trustee or similar
official for Buyer or for any substantial part of the property of Buyer, or as a
consequence of this Guaranty's being otherwise terminated or modified, in
any bankruptcy or insolvency proceeding, whether such rejection, non-
assumption, termination or modification shall have been by reason of
this Guaranty's being held to be an executory contract or by reason of any
other circumstance. If, notwithstanding the foregoing, this Guaranty shall be
rejected or otherwise not assumed, or terminated or modified, Guarantor
agrees, to the fullest extent permitted by law, for the benefit of, and as a
separate undertaking with the Sellers, that Guarantor will be unconditionally
liable to pay to Sellers an amount equal to each payment that would otherwise be
payable by Guarantor under or in connection with this Guaranty if this Guaranty
were not so rejected or otherwise not assumed or terminated or modified. In
addition, if in any such proceeding any amount previously paid to Sellers is
returned to the court or Buyer, Guarantor's liability hereunder shall be
reinstated to such amount.
Section 5. Subrogation. Guarantor will not exercise any rights which
------------
it may acquire by way of subrogation under this Guaranty, by any payment
made hereunder or otherwise, until all the Guaranteed Obligations and all other
amounts payable under this Guaranty shall have been paid and performed in full.
If any amount shall be paid to Guarantor on account of such subrogation rights
at any time prior to the payment and performance in full of the Guaranteed
Obligations and all other amounts payable under this Guaranty, such amount shall
be held in trust for the benefit of the Sellers and shall forthwith be paid to
the Sellers to be credited and applied upon the Guaranteed Obligations,
whether matured or unmatured, in accordance with the terms of the
Agreement.
-3-
<PAGE>
Section 6. Representations and Warranties. Guarantor hereby
--------------------------------
represents and warrants as follows:
(a) Due Organization. Guarantor is a corporation duly incorporated
------------------
and validly existing under the laws of the State of California.
(b) Power and Authority. Guarantor has full corporate power,
----------------------
authority and legal right to execute and deliver this Guaranty and to
perform its obligations hereunder.
(c) Due Authorization. This Guaranty has been duly authorized,
-------------------
executed and delivered by Guarantor.
(d) Enforceability. This Guaranty constitutes the legal, valid and
---------------
binding obligation of Guarantor enforceable against Guarantor in accordance
with its terms.
(e) No Conflicts. The execution and delivery by Guarantor of this
------------
Guaranty and the performance by Guarantor of its obligations hereunder
will not (i) conflict with or result in any breach of any provisions of
Guarantor's certificate of incorporation or bylaws; (ii) conflict with
or result in any reach of any provision of any law applicable to Guarantor or
the transactions contemplated hereby; (iii) result in a breach of or constitute
a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, agreement or other instrument or obligation
to which Guarantor is a party or by which it or its assets or property are bound
or (iv) require any consent, approval, permit or authorization of, or filing
with or notification to, any governmental or regulatory authority.
(f) No Proceedings. No action, suit or proceeding at law or in equity
---------------
or by or before any governmental authority or arbitral tribunal is now
pending or, to the knowledge of Guarantor, threatened against Guarantor
that reasonably could be expected to have a material adverse effect on
Guarantor's ability to perform its obligations under this Guaranty.
(g) No Claims. Guarantor's obligations under this Guaranty are not
----------
subject to any offsets or claims of any kind against Buyer, Sellers or any
other Person.
Section 7. Continuing Guarantee. Subject to Section 14 hereof, this
---------------------
Guaranty is a continuing guaranty and shall remain in full force and effect
until all Guaranteed Obligations have been performed or paid in full.
Section 8. Amendments; Waivers; Etc. Neither this instrument nor
---------------------------
any terms hereof may be changed, waived, discharged or terminated orally,
but only by an instrument in
-4-
<PAGE>
writing signed by each Seller and Guarantor. No delay or failure by Sellers to
exercise any remedy against Buyer or Guarantor will be construed as a waiver of
that right or remedy. No failure on the part of Sellers to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided
by any applicable law.
Section 9. Severability. In the event that the provisions of this
-------------
Guaranty are claimed or held to be inconsistent with any other instrument
evidencing or securing the Guaranteed Obligations, the terms of this
Guaranty shall remain fully valid and effective. If any one or more of the
provisions of this Guaranty should be determined to be illegal or
unenforceable, all other provisions shall remain effective.
Section 10. Assignment.
----------
(a) Assignability. Guarantor shall not have the right to assign any of
--------------
Guarantor's rights or obligations or delegate any of its duties under this
Guaranty without the prior written consent of Sellers. Guarantor shall
remain liable under the Guaranty, notwithstanding assumption of this
Guaranty by a successor or assign, unless and until released in writing from
its obligations hereunder by Sellers. Each Seller may, at any time and from
time to time, assign, in whole or in part, the rights of such Seller hereunder
to any Affiliate of such Seller, or to any Person to whom Seller has the
right to assign its rights or obligations under and, pursuant to the terms of
the Agreement, whereupon such assignee shall succeed to all rights of such
Seller hereunder.
(b) Successors and Assigns. Subject to Section 10(a) hereof, all
------------------------
of the terms of this Guaranty shall be binding upon and inure to the benefit
of the parties hereof and their respective permitted successors and
assigns.
Section 11. Address for All Notices. All notices and other communications
-----------------------
provided for hereunder shall be given and effective in accordance with
the notice requirements of the Agreement and if to Guarantor, at the
following address:
Edison Mission Energy
18101 Von Karman Avenue
Suite 1700
Irvine, California 92612
Attention: James V. Iaco
Telephone: 949-798-7826
Facsimile: 949-757-4774
Section 12. Jurisdiction. This Guaranty shall be governed by and
-------------
construed in accordance with the law of the State of New
-5-
<PAGE>
York, without regard to its principles of conflict of laws. Guarantor
irrevocably agrees that any legal action or proceeding arising under, or
relating to, this Guaranty shall be brought in any state or federal court
located in the State of New York, New York City, Borough of Manhattan.
The Guarantor irrevocably waives any objection that it may now have or in the
future have to such jurisdiction as the proper forum and venue for any action
or proceeding arising under, or relating to, this Guaranty.
Section 13. Entire Agreement. This writing is the complete and
-----------------
exclusive statement of the terms of this Guaranty and supersedes all
prior oral or written representations, understandings, and agreements
between Sellers and Guarantor with respect to the subject matter hereof.
Sellers and Guarantor agree that there are no conditions to the full
effectiveness of this Guaranty.
Section 14. Termination. This Guaranty shall terminate and be of no
------------
further force or effect on the later to occur of the following: (1) the
occurrence under the Agreement of the Closing and (2) the date on which Buyer's
Debt Ratings by each of Moody's and S&P shall be rated at least
investment grade. As used herein, "Debt Ratings" means the ratings
assigned by S&P and Moody's to Buyer's senior unsecured non-credit enhanced
long term debt, "S&P" means Standard & Poor's Rating Group, a division of
McGraw Hill, or any successor thereto, and "Moody's" means Moody's
Investors Service, Inc., or any successor thereto.
-6-
<PAGE>
IN WITNESS WHEREOF, Guarantor has duly caused this Guaranty to be executed
and delivered as of the date first written above.
EDISON MISSION ENERGY
By: /s/ James V. Iaco , Jr.
-------------------------------
Name:
-----------------------------
Title:
----------------------------
-7-
<PAGE>
EXHIBIT 21
EDISON MISSION ENERGY
SUBSIDIARIES AND PARTNERSHIPS
-----------------------------
As of March 10, 1999
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 (Inactive)
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 (general 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 (GP)
Delaware Clean Energy Project (Delaware general partnership)
Chester Energy Company (no partners)
Clayville Energy Company
Oconee Energy, L.P. (Delaware limited partnership)
Colonial Energy Company (Inactive)
Coronado Energy Company
Oconee Energy, L.P. (Delaware limited 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 Alabama Generating Company (formerly Mission Energy Northside, Inc. and
Lake Grove Energy Company)
Edison Mission Energy Fuel
Edison Mission Energy Oil and Gas
Four Star Oil & Gas Company (Partnership)
Edison Mission Energy Petroleum
Pocono Fuels Company (Inactive)
Southern Sierra Gas Company
TM Star Fuel Company (California general partnership)
Edison Mission Energy Fuels Services, Inc.
Edison Mission Energy Funding Corp. (Delaware corporation)
1
<PAGE>
Edison Mission Energy Interface Ltd. (Canadian company)
The Mission Interface Partnership
Edison Mission Holdings Co.
Chestnut Ridge Energy Company
EME Homer City Generation L.P. (Pennsylvania limited partnership)
Edison Mission Finance Co.
Mission Energy Westside, Inc.
EME Homer City Generation L.P. (Pennsylvania limited partnership)
Edison Mission Financial Marketing & Trading, Inc. (Delaware corporation)
Edison Mission Marketing & Trading, Inc.
Edison Mission Operation & Maintenance, Inc. (no partnership)
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) - Inactive
Four Counties Gas Company (Inactive)
Global Power Investors, Inc. (Delaware corporation)
Hanover Energy Company
Chickahominy River Energy Corp. (Virginia corporation) (GP & LP)
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)
Lakeview Energy Company
Georgia Peakers, L.P. (Delaware partnership)
Lehigh River Energy Company (GP) - Inactive
Longview Cogeneration Company
Madera Energy Company (GP)
Brookhaven Cogeneration, L.P. (Delaware partnership)
Madison Energy Company (LP)
Gordonsville Energy L. P. (Delaware partnership)
Mission Capital, L.P. (Delaware limited partnership) 3%
Mission/Eagle Energy Company (Inactive)
Mission Energy Construction Services, Inc.
Mission Energy Generation, Inc.
Mission Energy Holdings, Inc.
Mission Capital, L.P. (Delaware limited partnership) 97%
Mission Energy Holdings International, Inc. (Owns 100% of MEC International
B.V.)
Mission Energy Indonesia (Inactive)
Mission Energy Mexico (Inactive)
Mission Energy New York, Inc. (GP & LP)
Brooklyn Navy Yard Cogeneration Partners, L.P. (Delaware partnership)
Mission Energy Wales Company
Mission Hydro Limited Partnership (UK limited partnership)
Mission Triple Cycle Systems Company (GP)
Triple Cycle Partnership (Texas general partnership)
Northern Sierra Energy Company (GP)
2
<PAGE>
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 (Inactive)
Pleasant Valley Energy Company (GP)
American Bituminous Power Partners, L.P. (Delaware Partnership)
Prince George Energy Company (LP)
Hopewell Cogeneration Limited Partnership (Delaware limited partnership)
Hopewell Cogeneration Inc. (Delaware corporation)
Hopewell Cogeneration Limited Partnership (Delaware limited
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 (Inactive)
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 (Inactive)
Viejo Energy Company (GP)
Sargent Canyon Cogeneration Company (Partnership)
Vista Energy Company (New Jersey Corporation) - Inactive
Western Sierra Energy Company (GP)
Sycamore Cogeneration Company (California general partnership)
3
<PAGE>
International
- -------------
Beheer-en Beleggingsmaatschappij Botara B.V. (Netherlands)
EcoElectrica s.a.r.l. (Luxembourg company)
Edison Mission Energy Asia Pte. Ltd. (Singapore private company)
Edison Mission Energy Asia Pacific Pte. Ltd. (Singapore corporation)
Edison Mission Energy Fuel Company Pte. Ltd. (Singapore corporation)
Edison Mission Operation and Maintenance Services Pte. Ltd.
P.T. Edison Mission Operation and Maintenance Indonesia (Indonesia company)
Edison Mission Energy International B.V. (Netherlands company)
Edison Mission Energy Services B.V.
Edison Mission Operation & Maintenance Services B.V.
EME Tri Gen B.V.
Tri Energy Company Limited
EME Victoria B.V. (Netherlands) (Inactive)
Global Generation B.V. (Netherlands) (Inactive)
Iberian Hy-Power Amsterdam, B.V. (Netherlands limited liability company)
Aprohiso S.A. (Spain corporation)
Hydro Energy B.V. (Netherlands limited liability company)
Iberica de Energias, S.A. (Spain corporation)
Electrometalurgica del Ebro, S.A. (Spain corporation)
Loy Yang Holdings Pty Ltd (Australia corporation)
Edison Mission Energy Holdings Pty Ltd (Australia corporation)
Edison Mission Energy Australia Ltd.
Edison Mission Energy Australia Pilbara Power Pty Ltd
Edison Mission Energy Taupo Ltd.
Edison Mission Operation & Maintenance Kwinana Pty. Ltd.
Edison Mission Operation & Maintenance Loy Yang Pty. Ltd.
Mission Energy Holdings Superannuation Fund Pty Ltd.
Mission Energy (Kwinana) Pty. Ltd.
Kwinana Power Partnership (Australian G.P.)
Mission Energy Ventures Australia Pty. Ltd. (Australian company)
Latrobe Power Pty (Australian corporation)
Mission Victoria Partnership (Australian partnership)
Latrobe Power Partnership (Australian partnership)
Loy Yang B Joint Venture (Australian joint venture)
MEC Esenyurt B.V. (Netherlands)
Doga Enerji Uretim Sanayi ve Ticaret L.S. (Turkish corporation)
Doga Isi Satis Hizmetleri ve Ticaret L.S. (Turkish corporation)
Doga Isletme ve Bakim Ticaret L.S. (Turkish corporation)
MEC IES B.V. (Netherlands company)
ISAB Energy Services s.r.l.
MEC India B.V. (Netherlands company)
Edison Mission Energy Power (Mauritius corporation)
MEC Indo Coal B.V. (Netherlands company)
P.T. Adaro Indonesia (Indonesia)
MEC Indonesia B.V. (Netherlands company)
P.T. Paiton Energy Company (Indonesia company)
MEC International B.V. (Netherlands) (direct or indirect ownership interest in
all international companies/partnerships)
MEC International Holdings B.V.(Netherlands)
MEC Laguna Power B.V. (Netherlands company)
Gulf Power Generation Co. Ltd. (Bangkok corporation)
4
<PAGE>
MEC Perth B.V. (Netherlands company)
Kwinana Power Partnership (Australian GP)
MEC Priolo B.V. (Netherlands company)
ISAB Energy s.r.l.
MEC San Pascual B.V. (Netherlands company)
Morningstar Holdings B.V. (Netherlands)
San Pascual Cogeneration Company International B.V.
San Pascual Cogeneration Company (Philippines) Ltd (Philippines limited
partnership)
MEC Sidi Krir (Netherlands company)
MEC Sumatra B.V. (Netherlands company)
MEC Wales B.V. (Netherlands company)
Mission Hydro Limited Partnership (UK)
EME Generation Holdings Limited (UK company)
Loyvic Pty Ltd. (Australia company)
EME Victoria Generation Limited (UK company)
Mission Energy Development Australia Pty Ltd
Gippsland Power Pty Ltd
Energy Capital Partnership (Australian partnership)
Enerloy Pty Ltd (Australian company)
Mission Energy Company (UK) Limited (UK private limited company)
Derwent Cogeneration Limited (UK private limited company)
Edison Mission Energy Limited (UK private limited company)
Edison Mission Operation & Maintenance Limited (UK corporation)
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)
Mission Hydro (UK) Limited
Mission Hydro Limited Partnership (UK)
First Hydro Holdings Company
First Hydro Finance plc
First Hydro Company
Mission Energy Italia s.r.l. (Rep. office in Italy)
Rillington Holdings Limited (Gibraltar)
EME del Caribe Holding GmbH (Austria)
EME del Caribe (Cayman)
EcoElectrica Holdings. Ltd. (Cayman)
EcoElectrica Ltd. (Cayman Island company)
EcoElectrica L.P. (Bermuda)
Southwestern Generation B.V. (Netherlands) (Inactive)
Traralgon Power Pty. Ltd. (Australian corporation)
5
<TABLE> <S> <C>
<PAGE>
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 459,178
<SECURITIES> 0
<RECEIVABLES> 74,403
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 607,316
<PP&E> 3,125,747
<DEPRECIATION> 250,934
<TOTAL-ASSETS> 5,158,116
<CURRENT-LIABILITIES> 501,227
<BONDS> 2,366,430
150,000
0
<COMMON> 64,130
<OTHER-SE> 893,430
<TOTAL-LIABILITY-AND-EQUITY> 5,158,116
<SALES> 0
<TOTAL-REVENUES> 704,348
<CGS> 0
<TOTAL-COSTS> 333,051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,050
<INCOME-PRETAX> 202,579
<INCOME-TAX> 70,445
<INCOME-CONTINUING> 132,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,134
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
