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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________to_______________
Commission File Number: 33-87902
33-87902-01
33-87902-02
ESI Tractebel Funding Corp.
North Jersey Energy Associates, A Limited Partnership
Northeast Energy Associates, A Limited Partnership
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(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3255377
New Jersey 04-2955646
Massachusetts 04-2955642
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
c/o FPL Energy, Inc.
11760 US Highway 1, Suite 600
North Palm Beach, Florida 33408
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(Address of Principal Executive Offices) (Zip Code)
(561) 691-3500
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
8.43% Senior Secured Notes due 2000, Series A
9.16% Senior Secured Notes due 2002, Series A
9.32% Senior Secured Bonds due 2007, Series A
9.77% Senior Secured Bonds due 2010, Series A
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
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ESI TRACTEBEL FUNDING CORP.
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
INDEX
PART I Page Number
Items 1, 2 and 3. Business, Properties and Legal Proceedings............. 2
Item 4. Submission of Matters to Vote of Security Holders...... 60
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters..................................... 60
Item 6. Selected Financial Data................................. 60
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 62
Item 8 Financial Statements and Supplementary Data............. 67
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 68
PART III
Item 10. Directors and Executive Officers of the Registrants..... 68
Item 11. Executive Compensation.................................. 71
Item 12. Security Ownership of Certain Beneficial Owners and
Management.............................................. 72
Item 13 Certain Relationships and Related Transactions.......... 73
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..................................... 74
Signatures.............................................. 85
Defined Terms........................................... A-1
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This Annual Report on Form 10-K is filed in respect of three Registrants:
ESI Tractebel Funding Corp. ("ESI Tractebel Funding"), Northeast Energy
Associates, A Limited Partnership ("NEA") and North Jersey Energy Associates, A
Limited Partnership ("NJEA"). NEA and NJEA are from time to time referred to
herein as the "Partnerships." Other capitalized terms used herein shall have the
meaning provided in Appendix A unless the context requires otherwise.
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), ESI Tractebel Funding and the
Partnerships are hereby filing cautionary statements identifying important
factors that could cause the Partnerships' actual results to differ materially
from those projected in forward-looking statements (as such term is defined in
the Reform Act) of the Partnerships made by or on behalf of the Partnerships
which are made in this Form 10-K, in presentations, in response to questions or
otherwise. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
will likely result, are expected to, will continue, is anticipated, estimated,
projection, outlook) are not statements of historical facts and may be
forward-looking. Forward-looking statements involve estimates, assumptions, and
uncertainties that could cause actual results to differ materially from those
expressed in the forward-looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
following important factors that could cause the Partnerships' actual results to
differ materially from those contained in forward-looking statements of the
Partnerships made by or on behalf of the Partnerships.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Partnerships undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements include
prevailing governmental policies and regulatory actions, with respect to allowed
rates of return, industry and rate structure, acquisition and disposal of assets
and facilities, operation and construction of plant facilities, and present or
prospective competition.
The business and profitability of the Partnerships are also influenced by
economic and geographic factors including political and economic risks, changes
in and compliance with environmental and safety laws and policies, weather
conditions, population growth rates and demographic patterns, competition for
retail and wholesale customers, pricing and transportation of commodities,
market demand for energy from plants or facilities, changes in tax rates or
policies or in rates of inflation, unanticipated development project delays or
changes in project costs, unanticipated changes in operating expenses and
capital expenditures, capital market conditions, competition for new energy
development opportunities, and legal and administrative proceedings (whether
civil, such as environmental, or criminal) and settlements.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results, and are beyond the control of the
Partnerships.
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PART I
ITEMS 1, 2 AND 3. BUSINESS, PROPERTIES AND LEGAL PROCEEDINGS
Business
The Partnerships
Northeast Energy, LP ("NE LP"), a limited partnership jointly owned by
subsidiaries of ESI Energy, Inc. ("ESI Energy") and Tractebel Power, Inc.
("Tractebel Power"), owns a one percent (1%) general partner interest and a
ninety-eight percent (98%) limited partner interest in each of NEA and NJEA.
Northeast Energy, LLC ("NE LLC" and together with NE LP, the "Partners"), a
limited liability company directly and wholly-owned by NE LP, owns a one percent
(1%) limited partner interest in each of the Partnerships. The Partners
purchased their interests in the Partnerships on January 14, 1998 from
Intercontinental Energy Corporation ("IEC") and from certain individuals
(collectively, with IEC, the "Sellers").
Each of the Partnerships was formed in 1986 to develop, construct, own,
operate and manage a nominal 300 MW gas-fired combined-cycle cogeneration
facility. NEA's facility is located in Bellingham, Massachusetts (the "NEA
Project") and NJEA's facility is located in Sayreville, New Jersey (the "NJEA
Project" and, together with the NEA Project, the "Projects"). The NEA Project
commenced commercial operation in September 1991, and the NJEA Project commenced
commercial operation in August 1991. NE LP is the sole general partner of each
of the Partnerships and NE LP and its wholly-owned subsidiary NE LLC are the
only limited partners of each of the Partnerships. NE LP is dedicated solely to
the ownership, operation and management of the Projects. NE LLC is dedicated
solely to the ownership of its limited partner interest in each of the
Partnerships.
All of the interests in the Partnerships are held by NE LP and NE LLC,
which in turn are owned by ESI GP and ESI LP (as defined herein), wholly-owned
subsidiaries of ESI Energy; and by Tractebel GP and Tractebel LP, wholly-owned
subsidiaries of Tractebel Power.
Each of ESI GP and Tractebel GP owns a one percent (1%) general partner
interest in NE LP, and each of ESI LP and Tractebel LP owns a forty-nine percent
(49%) limited partner interest in NE LP. ESI GP and ESI LP are wholly-owned,
direct subsidiaries of ESI Energy, and Tractebel GP and Tractebel LP are
wholly-owned subsidiaries of Tractebel Power.
On January 15, 1998, FPL Energy, Inc., ("FPL Energy"), an indirect,
wholly-owned subsidiary of FPL Group, Inc. ("FPL Group"), received as capital
contribution from FPL Group Capital Inc. ("FPL Group Capital") all of the
outstanding shares of stock of ESI Energy and of FPL Group International. FPL
Group is a holding company whose stock is traded on the New York Stock Exchange.
FPL Group is also the parent company of Florida Power & Light Company ("FPL"),
one of the largest investor-owned utilities in the United States.
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FPL Group Capital, a wholly-owned subsidiary of FPL Group, holds the
capital stock of FPL Energy and provides most of the funding for the operating
subsidiaries of FPL Group other than FPL. The business activities of these
companies primarily consist of investments in non-utility energy projects and
agricultural operations.
Tractebel Power is a direct, wholly-owned subsidiary of Tractebel Inc.
("Tractebel"), which in turn is a direct, wholly-owned subsidiary of Tractebel,
S.A. ("Tractebel Belgium"), a global energy and environmental services business
founded in 1895 and based in Brussels, Belgium. Services include engineering,
installations and communications. Tractebel Belgium's two primary U.S. operating
subsidiaries are Tractebel Power and Tractebel Energy Marketing, Inc.
ESI Tractebel Funding Corp.
ESI Tractebel Funding is a Delaware corporation formerly known as IEC
Funding Corp. that was established in 1994 solely for the purpose of issuing
debt securities in connection with the financing of the Partnerships. It is a
pass-through entity and does not have any operations. ESI Tractebel Funding
issued the Project Securities, the proceeds of which were originally used by ESI
Tractebel Funding to acquire certain outstanding bank debt of the Partnerships
and to lend additional funds to the Partnerships. The Project Securities are
guaranteed by the Partnerships. The terms of the Partnerships' obligations to
ESI Tractebel Funding (the "Loans") are identical to the terms of the Project
Securities. The Loans and the related collateral rights are the only assets of
ESI Tractebel Funding.
The Projects
Each of the Projects is a nominal 300 MW combined-cycle cogeneration
facility. The Projects use natural gas to produce electrical energy and thermal
energy in the form of steam. The Projects were constructed by Westinghouse
Electric Corporation ("Westinghouse Electric") and pursuant to contracts with
Westinghouse Electric that expire in 2001 (collectively, the "O&M Agreements"),
are operated and maintained by Westinghouse Operating Services Company
("Westinghouse Services" or the "Operator"), a subsidiary of Westinghouse
Electric. On November 15, 1997, Westinghouse Electric announced that it intended
to sell all of its industrial businesses, including the business of Westinghouse
Services, to Siemens AG. Each of the Partnerships is also party to an operation
and maintenance agreement (collectively, the "New O&M Agreements") with ESI
Operating Services, Inc. (the "New Operator"), a direct and wholly-owned
subsidiary of ESI Energy, pursuant to which the New Operator has agreed to
operate and maintain the Projects following the expiration or early termination
of the O&M Agreements and, prior to such date, to provide certain other
services.
NEA currently sells 100% of the net electrical energy produced by the NEA
Project to three regulated utilities, Boston Edison Company ("Boston Edison"),
Commonwealth Electric Company ("Commonwealth") and Montaup Electric Company
("Montaup"). Boston Edison purchases approximately 75% of such energy under two
contracts, Commonwealth purchases approximately 16% under two contracts and
Montaup purchases approximately 9%. NJEA currently sells the electricity
produced at the NJEA Project to one regulated utility, Jersey Central Power &
Light Company ("JCP&L"). Such sales are made pursuant to power purchase
agreements, all of which provide substantially for the continuous delivery of
base load power (collectively, the "Power Purchase Agreements"). Two of the six
Power Purchase Agreements are scheduled to expire in September 2011 and August
2011, three are scheduled to expire in September 2016 and the sixth is scheduled
to expire in September 2021.
3
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The Projects were developed and are operated as Qualifying Facilities
("QFs") under the Public Utility Regulatory Policies Act of 1978 and the
regulations promulgated thereunder ("PURPA") by the Federal Energy Regulatory
Commission ("FERC"). The Projects must satisfy certain annual operating and
efficiency standards, as well as ownership requirements, to maintain QF status,
which exempts the Projects from certain federal and state regulations. To date,
both Projects have satisfied these standards, and NE LP expects that they will
continue to do so.
Steam generated by the NEA Project is sold to NECO-Bellingham, Inc.
("NECO"), a special-purpose subsidiary of a privately held company based in
Texas, for use by a carbon dioxide plant located adjacent to the NEA Project
(the "Carbon Dioxide Plant"). The Carbon Dioxide Plant is owned by NEA and
leased to NECO. The steam generated by the NJEA Project is sold to Hercules,
Incorporated ("Hercules") for use by Hercules' Parlin, New Jersey plant.
Approximately 80% of the natural gas that fuels the Projects is supplied to
the Projects pursuant to long-term gas supply agreements with ProGas Limited of
Alberta, Canada ("ProGas") and, in the case of the NJEA Project, also pursuant
to a long-term gas supply agreement with Public Service Electric and Gas of
Newark, New Jersey ("PSE&G"). The gas supply agreements with ProGas and the gas
supply agreement with PSE&G are referred to collectively as the "Long-term Gas
Supply Agreements." Gas is transported to, or stored for later use by, the
Projects pursuant to long-term gas transportation agreements (the "Long-term Gas
Transportation Agreements") and long-term gas storage agreements (the "Long-term
Gas Storage Agreements"). The Long-term Gas Supply Agreements between NEA and
ProGas (the "NEA ProGas Agreement") and between NJEA and ProGas (the "NJEA
ProGas Agreement" and, together with the NEA ProGas Agreement, the "ProGas
Agreements"), expire in November 2013. The Long-term Gas Supply Agreement
between NJEA and PSE&G (the "PSE&G Contract") for the supply, delivery and
transportation of natural gas expires in August 2011. There are several
Long-term Gas Transportation Agreements for transportation on a firm basis by
various transporters of gas purchased under the gas supply and storage
contracts, which expire in March 1999, October 2006, November 2011, March 2012
and November 2016. The Long-term Gas Storage Agreements expire in March 2012.
The remainder of the daily fuel requirements of the Projects are met by
open-market purchases delivered on an interruptible basis both into storage and
directly to the Projects. The price escalators under the Long-term Gas
Agreements are intended to substantially correlate to the price escalators under
the Power Purchase Agreements. The NEA Project may also be run on Number 2 fuel
oil in certain limited circumstances.
Each of the Partnerships is party to a fuel management agreement
(collectively, the "Fuel Management Agreements") with ESI Northeast Fuel
Management, Inc. (the "Fuel Manager"), an indirect wholly-owned subsidiary of
FPL Energy, pursuant to which the Fuel Manager has agreed to provide certain
fuel management and administrative services.
For more detailed information regarding the Projects, including the various
contracts referred to above and regulatory matters affecting the Projects, see
"-Regulation" and "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS."
4
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The Acquisitions
The Partners acquired all of the partnership interests in each of the
Partnerships on January 14, 1998, pursuant to a Purchase Agreement, dated as of
November 21, 1997, by and among the Partners, the Sellers, ESI Northeast Energy
Funding, Inc. ("ESI Funding") and Tractebel Power. In connection with the
acquisition of all of the partnership interests in the Partnerships, ESI Funding
and Tractebel Power each acquired a thirty-seven and one-half percent (37.5%)
interest in ESI Tractebel Funding. The Partners paid the purchase price for all
of the partnership interests in the Partnerships and for seventy-five percent
(75%) of the outstanding shares of capital stock in ESI Tractebel Funding
(collectively, the "Acquisitions") from contributions made by each of ESI GP,
Tractebel GP, ESI LP and Tractebel LP, the partners of NE LP. The remaining 25%
belongs to Broad Street Contract Services, Inc. for the purposes of providing an
independent director. On January 14, 1998 in connection with the Acquisitions
and with the consent of the holders of a majority in aggregate principal amount
of the Project Securities then outstanding, the Original Project Indenture was
amended by the Second Supplemental Indenture. The amendments contained in the
Second Supplemental Indenture permit (i) the Acquisitions, (ii) substitution of
a guaranty (the "FPL Group Capital Guaranty") to be issued by FPL Group Capital
for the cash collateral (the "Cash Collateral Proceeds") that secured the
Partnerships' reimbursement obligations related to the Sanwa Letters of Credit,
(iii) at the time of substitution of the FPL Group Capital Guaranty, the release
of such Cash Collateral Proceeds directly to the Partners without first
depositing such amounts to the Revenue Fund and (iv) upon the substitution of
Substitute Letters of Credit, the release directly to the Partners of amounts
held in the Debt Service Reserve Fund for the Project Securities, without first
depositing such amounts to the Reserve Fund.
The Independent Power Market
Utilities in the United States have been the predominant producers of
electric power intended primarily for sale to third parties since the early
1900s. In 1978, however, PURPA removed regulatory constraints relating to the
production and sale of electric energy by certain non-utility power producers
and required electric utilities to buy electricity from certain types of
non-utility power producers under certain conditions, thereby encouraging
companies other than electric utilities to enter the electric power production
market. Utilities are required to comply with state law guidelines and, in
general, are required to buy electricity from non-utility generators if there is
a need for such electricity and if it is priced at or below the utility's
avoided cost at the time of the agreements.
According to the Edison Electric Institute, as of December 31, 1996
non-utility generators represent approximately 8.4% of the United States'
installed capacity, accounting for approximately 12% of the total electric
generation in 1996. Between December 31, 1993 and December 31, 1996, non-utility
generators represented 52.3% of the new capacity added in the United States.
Competition in the non-utility power production market is not a material factor
in the Partnerships' operations, except as described in "--Competition" and as
described below.
Electric utility systems that purchase a substantial portion of their
energy supply from non-utility generators under contracts that require purchases
of fixed or minimum quantities of energy have recently expressed an interest in
lowering consumer rates by extending their dispatch flexibility to include the
generating plants of their non-utility generators. Under this approach lower
fuel cost sources of energy would be drawn on before higher fuel cost sources.
General Public Utility's system, of which JCP&L is a part, has publicly
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announced and is pursuing its Natural Gas Private Pooling Point Program in which
it would draw on its lower fuel cost sources of energy before drawing on higher
fuel cost sources. JCP&L has contacted NJEA regarding this program and has made
a presentation to NJEA regarding JCP&L's proposal to transform NJEA's must-run
contract into a dispatchable contract on terms that are to cover all fixed costs
(debt service and fixed operating expenses) and preserve current net profits
while allowing JCP&L to reduce its purchased power costs. JCP&L has reported to
New Jersey regulators that its above-market costs for power associated with the
NJEA Power Purchase Agreement will total $837.67 million during the remaining
life of the NJEA Power Purchase Agreement (present value of such amount recently
estimated by JCP&L to be approximately $509.44 million) and that it intends to
pursue its efforts to mitigate these costs.
In November 1997, legislation was enacted in Massachusetts requiring
electric companies and sellers under purchased-power contracts to make
good-faith efforts to renegotiate contracts that contain a price for electricity
that is above-market as of March 1, 1998. A good-faith effort under the Act does
not require accepting all proposals or making unlimited concessions but does
require the parties to show that they have actively participated in negotiations
and have shown a willingness to make reasonable concessions. See "-Regulation --
Utility Industry Restructuring -- Massachusetts."
It is not possible to predict the outcomes of various regulatory
initiatives in connection with utility restructuring or changes that may be
requested by JCP&L or the NEA Power Purchasers. Except as provided in the
Project Indenture and the Indenture, any requested changes to the Power Purchase
Agreements would require the consents of NEA or NJEA, as applicable, and of a
majority of the holders of the Project Securities.
Cogeneration
Cogeneration is a power production technology that provides for the
sequential generation of two or more useful forms of energy from a single
primary fuel source. The Projects use natural gas to produce electricity and
useful thermal energy in the form of steam. Cogeneration has an inherent
economic advantage over the conventional production of electricity alone because
cogeneration facilities more efficiently convert the energy contained in the
input fuel source to a useful energy output.
Power Purchase Agreements
NEA's primary sources of revenue are five Power Purchase Agreements with
Boston Edison, Commonwealth and Montaup. NJEA's primary source of revenue is a
Power Purchase Agreement with JCP&L. All six Power Purchase Agreements provide
for the substantially continuous provision of base-load power.
The following table sets forth the applicable Power Purchaser's nominal
entitlement (its share of capacity and associated energy contracted by the
facilities) and the date of scheduled expiration with respect to each of the
Power Purchase Agreements.
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Purchaser's
Nominal Expiration
Entitlement Of Contract
------------- --------------
NEA Project:
Boston Edison I Power
Purchase Agreement........ 135MW 46% September 15, 2016
Boston Edison II
Power Purchase Agreement.. 84 39 September 15, 2011
Commonwealth I Power
Purchase Agreement........ 25 9 September 15, 2016
Commonwealth II Power
Purchase Agreement........ 21 7 September 15, 2016
Montaup Power
Purchase Agreement........ 25 9 September 15, 2021
--- ---
NEA Total........ 290MW 100%
NJEA Project:
JCP&L Power Purchase
Agreement................. 252MW 100% August 13, 2011
Energy Banks
The Power Purchase Agreements (other than the Commonwealth Power Purchase
Agreements) provide for tracking accounts, or Energy Banks, to be calculated
during the terms of such Power Purchase Agreements. The Energy Banks represent
the cumulative differences from time to time between (i) the amount originally
estimated to be paid or actually paid, depending on the Power Purchaser
Agreement, by the applicable Power Purchaser for electric power delivered under
the applicable Power Purchase Agreement and (ii) the amounts originally
estimated as such Power Purchaser's Avoided Cost ("PPA Avoided Cost") of
electric power, adjusted in certain cases for peak and off-peak deliveries of
electric power from the Projects. Depending upon the Power Purchase Agreement,
PPA Avoided Cost is either set at a scheduled amount per kWh of power, or
determined by reference to the Power Purchaser's actual Avoided Cost over time.
If the price paid under a Power Purchase Agreement exceeds the applicable Power
Purchaser's PPA Avoided Cost, a positive balance will build up in the applicable
Energy Bank, which depending upon the terms of the particular Power Purchase
Agreement, must be either fully or partially secured by Energy Bank Letters of
Credit and, in the case of the Power Purchase Agreements for the NEA Project, by
the NEA Second Mortgage. A positive balance in an Energy Bank represents a
liability of the applicable Partnership to the applicable Power Purchaser that
will be reduced by subsequent sales of electric power to such Power Purchaser to
the extent that, in later periods, PPA Avoided Costs are above the contract
rate. Under certain circumstances (in particular, following an early termination
of a Power Purchase Agreement resulting (i) in the case of the Boston Edison I
Power Purchase Agreement, from an Event of Default by NEA (which includes the
failure to deliver a minimum quantity of electricity equal to approximately 50%
of historical levels for two consecutive years) and (ii) in the case of the
Montaup Power Purchase Agreement, from NEA's insolvency or bankruptcy or NEA's
failure to generate electricity at an annual capacity factor of 60% or higher
for two successive years) such liability, if any, must be repaid in cash. The
Energy Bank balances under the JCP&L Power Purchase Agreement and the Boston
Edison II Power Purchase Agreement have been reduced to zero and, consequently,
the Energy Bank provisions set forth in such Power Purchase Agreements have
terminated. As of December 31, 1997, the Energy Bank liability under the Montaup
Power Purchase Agreement was approximately $27,055,000. The Energy Bank Balance
under the Boston Edison I Power Purchase Agreement was approximately
$144,526,000 as of December 31, 1997 and is projected to decrease to zero by
2007. The Energy Bank balance under the Montaup Power Purchase Agreement is
expected to increase throughout the term of the Agreement and to be
approximately $69,677,000 on December 31, 2013.
In February 1998, NE LP terminated the Sanwa Credit Agreement, the Sanwa
Letters of Credit and the Sanwa Working Capital Facility and arranged for the
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delivery of new project letters of credit to satisfy requirements in certain of
the Power Purchase Agreements (the "Energy Bank Letters of Credit"). The new
Energy Bank Letters of Credit were issued in face amounts of $12,656,000 and
$54,000,000 by BankBoston, N.A. ("BankBoston") and NationsBank of Texas
("NationsBank"), respectively. Following the issuance of the Energy Bank Letters
of Credit ;and the FPL Group Capital Guaranty to BankBoston and NationsBank,
cash in the amount of approximately $69,156,000, constituting the Cash
Collateral Proceeds, was released and distributed to the Partners. In January
1998 NE LP arranged for the issuance to the Project Trustee by BankBoston and
Bank Brussels Lambert of two letters of credit (the "Substitute Letters of
Credit") in substitution for the cash on deposit in the Debt Service Reserve
Fund under the Project Indenture. Following the issuance of the Substitute
Letters of Credit, cash in the amount of approximately $33,270,000 was released
from the Debt Service Reserve Fund and distributed to the Partners.
Second Mortgage
The performance of NEA's obligations under the NEA Power Purchase
Agreements is secured by the NEA Second Mortgage, which is expressly subordinate
to the NEA Project Mortgage that secures the Project Indebtedness. Under the
subordination provisions set forth in the NEA Second Mortgage, such remedies
cannot be exercised so long as the Project Securities are outstanding.
For a more detailed summary of the Power Purchase Agreements, see "SUMMARY
OF PRINCIPAL PROJECT AGREEMENTS -- Power Purchase Agreements."
Gas Supply Arrangements
The fuel supply arrangements for the Projects are designed to create
flexibility with respect to the Projects' major fuel supplier, ProGas. The
Long-term Gas Supply Agreements are designed to manage the risk of precipitous
increases in the price of natural gas (i) by indexing the prices paid by the
Partnerships to ProGas for a portion of the natural gas to the energy prices
paid by NEA's customers, (ii) by indexing the prices paid to ProGas for
additional natural gas to the cost of natural gas purchased by New Jersey
electrical utilities (including NJEA's customer, JCP&L), as reported in FERC
Form 423 and (iii) by allowing the Partnerships the flexibility to shift gas
purchased from ProGas between the Projects. Such fuel supply and management
arrangement, however, cannot eliminate entirely the risks associated with gas
price volatility.
Approximately 80% of the Projects' combined fuel requirements of natural
gas are supplied under the Long-term Gas Arrangements on a "firm" basis, that
is, without interruption except for events of force majeure and in other limited
circumstances. The remaining natural gas supplies are purchased on the open
market and are transported by various means to the Projects. The Long-term Gas
Arrangements consist of two long-term contracts with ProGas for supply and
delivery of gas into the United States, one long-term contract with PSE&G for
supply and delivery of gas, several contracts for the transportation on a firm
basis by various transporters of gas purchased under the gas supply and storage
contracts and contracts for the storage of gas. For a more detailed summary of
the contracts comprising the Long-term Gas Arrangements, see "SUMMARY OF
PRINCIPAL PROJECT AGREEMENTS -- Gas Purchase Agreements; -- Gas Transportation
and Storage Agreements."
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Although it is expected that the Projects will use natural gas almost
exclusively, the NEA Project's air quality permit allows the NEA Project to burn
Number 2 fuel oil for up to 1,440 turbine generating hours per year (equivalent
to approximately 60 days per year, assuming one turbine is burning oil and
operating at base load) in the event of certain curtailments in the gas supplies
for the NEA Project, and the NEA Project has a 2.3 million gallon fuel tank for
storage of approximately a nine-day supply (assuming only one turbine is burning
oil) of Number 2 fuel oil as a back-up fuel. There is no fixed-price fuel
purchase agreement for the purchase or delivery of Number 2 fuel oil. To date,
the NEA Project has not been operated using Number 2 fuel oil (except for
testing purposes). Use of Number 2 fuel oil would result in the suspension of
NEA's sales of steam to NECO. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS--
Steam Sales Agreements -- NEA."
The air quality permits for the NJEA Project do not allow fuel oil to be
burned.
The table below illustrates natural gas supply consumed by the Projects
during 1997, expressed as a percentage of the total gas requirement for each
Project and for the combined total gas requirement for both Projects.
Natural Gas Consumption for the Projects
For the year ended December 31, 1997
Sources of
Gas Consumed
by the NEA NJEA Total Contract
Projects (Bef) (Bef) (Bef) Expiration
- ----------- ------------- ----------------- ------------- -----------
ProGas(1) 14.3 65% 9.2 50% 23.5 59% 2013
PSE&G - 0% 7.9 44% 7.9 20% 2011
Market
Purchases 6.2 28% - 0% 6.2 15% N/A
From
Storage(2) 1.4 7% 1.1 6% 2.5 6% 2012
---- ---- ---- ---- ---- ---- ----
TOTAL 21.9 100% 18.2 100% 40.1 100%
==== ==== ==== ==== ==== ====
- ----------
(1) ProGas volumes are adjusted to reflect exchanges between the Projects.
(2) Gas from storage includes both volumes purchased as market purchases and
volumes purchased under the Long-term Gas Supply Agreement from ProGas.
Steam Sales Arrangements
NEA
FERC regulations require that at least 5% of a QF's total energy output be
useful thermal energy. To meet this requirement, the NEA Project sells 60,000 to
70,000 pounds per hour of steam (equal to approximately 6 to 7% of the Project's
total energy output) to NECO for use by NECO in the operation of the Carbon
Dioxide Plant, pursuant to the NEA Steam Sales Agreement.
Steam Sales. NEA has leased the Carbon Dioxide Plant to NECO for an initial
term that expires on June 1, 2007, renewable at NECO's option for up to four
renewal periods of five years each and subject to termination by NEA for the
convenience of NEA or following an event of default by NECO. The NEA Steam Sales
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Agreement, which also expires on June 1, 2007, provides for NEA to sell to NECO
at least 60,000 pounds per hour of steam during each hour that the NEA Project
is being fueled by 100% pipeline quality natural gas. NECO is required to buy
all its steam from the NEA Project whenever the NEA Project is operating and to
return all condensate. In any hour in which the NEA Project is being fueled by
100% pipeline quality natural gas, NECO has contracted to accept steam
quantities at least equal to 5% of the NEA Project's total energy output. The
price of steam is adjusted annually according to an index that takes into
account the blended base prices of gas supplied to NEA under the NEA ProGas
Agreement and to NJEA under the NJEA ProGas Agreement, subject to a floor price
of $3.50 per 1,000 pounds. The average price of steam under the NEA Steam Sales
Agreement during 1997 was $3.52 per 1,000 pounds. NE LP expects to renew the
NECO Lease and the NEA Steam Sales Agreement with NECO following its scheduled
expiration in 2007. In the event that such renewal is not obtained, NE LP
expects that NEA, as owner of the Carbon Dioxide Plant, will be successful in
replacing NECO with another steam purchaser.
NECO's ability to pay for steam depends upon its successful operation of
the Carbon Dioxide Plant and the performance by NECO's two carbon dioxide
customers described below. The NEA Steam Sales Agreement permits NECO to defer
payment for all or a portion of the steam it takes if, after deferring its
payments under the NECO Lease, NECO's monthly expenses still exceed its monthly
revenues. In addition, NEA has agreed with NECO's two carbon dioxide customers
that if NECO fails to satisfy its obligations under the Carbon Dioxide Sales
Agreements described below, NEA will, within 45 days after receipt of notice
from such customer, terminate the NECO Lease, also terminating the NEA Steam
Sales Agreement, and will replace NECO as lessee. For more detailed summaries of
the NEA Steam Sales Agreement and the NECO Lease, See "SUMMARY OF PRINCIPAL
PROJECT AGREEMENTS -- Steam Sales Agreements -- NEA."
In addition to steam, the NEA Project provides exhaust gas from the
combustion turbines to the Carbon Dioxide Plant for use as a feedstock. Only the
exhaust from burning natural gas (and not Number 2 fuel oil) can be used for
carbon dioxide production. The Carbon Dioxide Plant can be run at full
operational output provided that at least one combustion turbine is run on gas
only. Under the Long-term Gas Arrangements, it is expected that there will be
sufficient natural gas to run at least one turbine year-round in this manner.
NEA will be obligated to pay liquidated damages to NECO if the NEA Project fails
to provide exhaust gas from at least one turbine running only on natural gas for
at least approximately 80% of the available hours per year.
Carbon Dioxide Sales Agreements. As required by the NECO Lease, NECO has
entered into carbon dioxide sales agreements with BOC Gases and Praxair
(collectively, the "Carbon Dioxide Sales Agreements"), whereby NECO agrees to
dedicate 55% of the Carbon Dioxide Plant's output to Praxair and 45% of the
Carbon Dioxide Plant's output to BOC Gases. BOC Gases and Praxair are two of the
largest suppliers and distributors of carbon dioxide in the United States. Under
the Carbon Dioxide Sales Agreements, 88% of Praxair's allocation and 65% of BOC
Gases' allocation are subject to a mandatory take-and-pay clause, up to a
maximum of 55,660 tons per year for Praxair and 35,000 tons per year for BOC
Gases. The price to be paid to NECO by BOC Gases is subject to adjustment based
upon the New England carbon dioxide market price and is protected by a floor
price of $38.00 per ton, unless and until a competitive plant is constructed and
becomes operational. Upon construction of such a plant, the floor price will be
reduced to $33.00 per ton and BOC Gases has a one-time option, exercisable
within six months after construction of the competitive plant, to lower the
floor price to $30.00 per ton. The price to be paid to NECO by Praxair is
subject to quarterly adjustment with the wholesale carbon dioxide market price.
The price to be paid by Praxair may not be reduced below $38.00 per ton, unless
and until a competitive plant is built in New England or in parts of New York or
New Jersey. After construction of such a plant, the floor price may be reduced
to $30.00 per ton. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Steam Sales
Agreements -- NEA."
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Operation and Maintenance. The Carbon Dioxide Plant is operated for NECO by
Westinghouse Services pursuant to an agreement between NECO and Westinghouse
Services. On November 15, 1997, Westinghouse Electric announced that it intended
to sell all of its industrial businesses, including the business of Westinghouse
Services, to Siemens AG.
NJEA
NJEA has entered into the NJEA Steam Sales Agreement with Hercules to sell
steam to Hercules' Parlin, New Jersey facility. The Hercules plant is located
approximately 1.5 miles from the NJEA Project and is connected by a steam
pipeline over land owned by Hercules. NJEA's sales of steam to Hercules enable
NJEA to satisfy FERC's rules with respect to useful thermal output necessary to
maintain the NJEA Project's QF status. To meet this requirement, the NJEA
Project sells approximately 125,000 pounds per hour of steam (equal to
approximately 15% of the NJEA Project's total energy output) to Hercules.
Steam Sales. The NJEA Steam Sales Agreement has an initial term that
expires on August 13, 2011, subject to renewal for two five-year terms. Under
the NJEA Steam Sales Agreement, Hercules must, for any hour in which it takes
steam, take a minimum of 30,000 pounds of steam. Although Hercules may require a
maximum of 205,000 pounds of steam per hour, Hercules' actual requirements have
averaged approximately 125,000 pounds of steam per hour. NJEA is required to pay
liquidated damages to Hercules in the event that (i) it fails to make delivery
on an average annual basis of at least 85% of the steam used by Hercules up to a
maximum of 205,000 pounds per hour or (ii) there are more than five total forced
outages annually or more than 15 partial forced outages annually. Hercules is
obligated under the contract to take sufficient process steam to maintain the
NJEA Project's QF status. The NJEA Steam Sales Agreement is terminable upon
Hercules' closing its Parlin plant, although in such case Hercules has agreed to
lease to NJEA sufficient land to construct an alternative steam host. The NJEA
Steam Sales Agreement's scheduled expiration date (2011) is the same as the
scheduled expiration date for the JCP&L Power Purchase Agreement. Following the
expiration of the JCP&L Power Purchase Agreement, the maintenance of the NJEA
Project's QF status may not be required. In such case, NE LP expects that a
replacement for or a renewal of the NJEA Steam Sales Agreement may not be
obtained. For a more detailed summary of the NJEA Steam Sales Agreement, see
"SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Steam Sales Agreements -- NJEA Steam
Sales Agreement."
Seasonal Factors
The performance of the Projects is dependent on ambient conditions
(principally air temperature, air pressure and humidity), which affect the
efficiency and capacity of the combustion turbines. Ambient conditions also
affect the steam turbine cycle efficiency by affecting the operation of the air
cooled condenser, and, therefore, the steam turbine exhaust back pressure.
Payments due to NJEA under the JCP&L Power Purchase Agreement during winter and
summer peak hour periods are substantially higher than those in spring and fall.
Otherwise, the business of the Partnerships is not materially subject to
seasonal factors.
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<PAGE>
Competition
Recent regulatory change has created additional competition in the form of
wholesale "power marketers" that engage in purchase and resale transactions
between power producers and power distributors. The resultant increased
competition has reduced the price utilities are willing to pay to independent
power producers for electrical capacity and energy. Although the output of the
Projects is substantially all committed under the Power Purchase Agreements,
these factors may adversely affect the price payable under certain Power
Purchase Agreements tied to actual Avoided Cost of the purchasing utility, as
well as the price, if any, NJEA could obtain for merchant sales of power output
in excess of the output under contract to JCP&L. (250 MW of a theoretical yearly
average potential output of 290 MW is under contract.)
Employees
None of the Partnerships, ESI Tractebel Funding or the Partners have any
employees. Pursuant to the Administrative Services Agreement, ESI Northeast
Energy GP, Inc. ("ESI GP") has agreed to provide administrative services to NE
LP. The Operator, the Fuel Manager and the New Operator are to provide certain
operation and maintenance, oversight and fuel management services for the
Projects. See "MANAGEMENT" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Legal Proceedings
Neither Partnership nor ESI Tractebel Funding is involved in any material
legal proceedings.
Properties
The Partnerships' principal properties are as follows:
Approximate Building
Location Principal Use Square Footage
-------- ------------- ---------------------
NEA
Bellingham, MA
NEA Project(1)....... Power Production 70,000
Carbon Dioxide
Plant(2)............. Carbon Dioxide Production 9,000
Certain Residences
properties(3)........ Residences 27,000
NJEA
Sayreville, NJ
NJEA Project(4)...... Power Production 60,000
- ----------
(1) NEA owns the NEA Project and the land upon which it is located, with the
exception of an approximately 15.25-acre parcel that is leased from The
Prestwich Corporation, pursuant to a 26 year operating lease that expires on
May 31, 2012. Subject to certain conditions, NEA has the option under such
operating lease to extend the term of such lease for an additional 25 years.
(2) NEA owns the Carbon Dioxide Plant, which has been leased to NECO pursuant to
the NECO Lease. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Steam Sales
Agreements -- NEA."
(3) NEA owns 12 single-family dwellings located on land immediately adjacent to
the NEA Site.
(4) NJEA owns the NJEA Project and the land upon which it is located. The NJEA
Site is leased to IECURC (a direct, wholly-owned subsidiary of NJEA) and
leased back to NJEA.
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<PAGE>
The NEA Site, the NEA Project, the Carbon Dioxide Plant and all other
related improvements and fixtures on the NEA Site owned by NEA are subject to
the NEA Project Mortgage. The NEA Site and the NEA Project are also subject to
the NEA Second Mortgage. The NJEA Site, the NJEA Project and all other related
improvements and fixtures on the NJEA Site owned by NJEA are subject to the NJEA
Project Mortgage. The residential properties referred to in the chart above are
subject to the NEA Additional Properties Mortgage.
Regulation
Energy Regulation
PURPA
PURPA provides an electric generating project with rate and regulatory
incentives if the project is a QF. Under PURPA, a cogeneration facility is a QF
if (i) the facility sequentially produces both electricity and a useful thermal
energy output during any calendar year which constitutes at least 5% of its
total energy output and which is used for industrial, commercial, heating or
cooling purposes, (ii) during any calendar year the sum of the useful power
output of the facility plus one-half of its useful thermal energy output equals
or exceeds 42.5% of the total energy input of natural gas and oil, or, in the
event that the facility's useful thermal energy output is less than 15% of the
facility's total energy output, such sum equals or exceeds 45% of such total
energy input and (iii) the facility is not more than 50% owned, directly or
indirectly, by an electric utility, electric utility holding company or any
combination of the above.
Under PURPA, QFs receive two primary benefits. First, PURPA exempts QFs
from the Public Utility Holding Company Act of 1935 ("PUHCA"), most provisions
of the Federal Power Act (the "FPA") and certain state laws relating to
financial, organization and rate regulation. Second, FERC's regulations
promulgated under PURPA require (i) that electric utilities purchase electricity
generated by QFs, construction of which commenced on or after November 9, 1978,
at a price based on the purchasing utility's full Avoided Costs, and (ii) that
the utilities sell supplementary, back-up, maintenance and interruptible power
to QFs on a just and reasonable and nondiscriminatory basis. PURPA defines
"Avoided Costs" as the "incremental costs 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." Utilities may also purchase power at prices other
than Avoided Costs pursuant to negotiations as provided by FERC regulations.
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<PAGE>
NE LP expects the Projects to continue to meet all of the criteria required
for certification as QFs under PURPA. If either Project were to fail to meet
such criteria, the related Partnership and, by virtue of the Partnerships'
common Partners, the other Partnership may become subject to regulation as a
public utility company or its equivalent under PUHCA, the FPA and state utility
laws. Certain of the Power Purchase Agreements require that the applicable
Partnership use its best efforts to maintain QF status, and others may be
terminated or be subject to price renegotiation if QF status is lost. In
addition, each of the O&M Agreements may be suspended by the Operator if the
applicable Project is operated in a manner likely to result in the loss of QF
status, and if such potential loss is certified by an independent engineer. See
"SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Operations and Maintenance
Agreements."
PUHCA
PUHCA provides that any corporation, partnership or other entity or
organized group that owns, controls or holds 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 SEC and to regulation under PUHCA, unless exempted by Commission rule,
regulation or order. An entity may also be deemed to be a holding company if the
Commission determines, after providing notice and an opportunity for hearing
that such entity exercises a controlling influence over the management or
policies of any public utility or holding company as to make it necessary or
appropriate in the public interest or for the protection of investors or
consumers that such entity be regulated as a holding company. Unless an
exemption is obtained, PUHCA requires registration for a holding company of a
public utility company, and requires a public utility holding company to limit
its utility operations to a single integrated utility system and to divest any
other operations not functionally related to the operation of the utility
system. In addition, a public utility company that is a subsidiary of a
registered holding company under PUHCA is subject to financial and
organizational regulation, including approval by the Commission of its financing
transactions.
The Energy Policy Act of 1992 (the "Policy Act") contains amendments to
PUHCA that may allow the Partnerships to operate their businesses without
becoming subject to PUHCA in the event that either Project loses its status as a
QF. Under the Policy Act, a company engaged exclusively in the business of
owning and/or operating one or more facilities used for the generation of
electric energy exclusively for sale at wholesale may be exempted from PUHCA. To
qualify for such an exemption, a company must apply to FERC for a determination
of eligibility, pursuant to implementing rules promulgated by FERC. Obtaining
this exemption may require amendments to or replacements of certain of the Power
Purchase Agreements. Moreover, although the Policy Act and its implementing
rules provide certain exemptions from PUHCA, the Policy Act may also encourage
greater competition in wholesale electricity markets, which could result in a
decline in long-term rates to be paid by electric utilities, including those
party to the Power Purchase Agreements. Even if a Partnership obtained an
exemption from PUHCA pursuant to the Policy Act and implementing rules, in the
event that QF status is revoked, the applicable Partnership would be subject to
regulation under the FPA, as described below.
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<PAGE>
FPA
Under the FPA, FERC has exclusive rate-making jurisdiction over wholesale
sales of electricity and transmission in interstate commerce. These rates may be
based on a cost of service approach or may be determined through competitive
bidding or negotiation. If a Project were to lose its QF status, the rates set
forth in each of the Power Purchase Agreements would have to be filed with FERC
and would be subject to review by FERC under the FPA. Under FERC policy, the
rates under those circumstances could be no higher than the price such Power
Purchasers would have paid for energy had they not been required to purchase
from such Project under PURPA's mandatory purchase requirements, i.e. such Power
Purchaser's economy energy (incremental) cost during the period of
non-compliance, unless the applicable power purchase agreement otherwise
provides for alternative rates to apply in the event of such loss of QF status.
Certain of the Power Purchase Agreements contain provisions for a renegotiation
of the rates to be paid for electric energy in the event of loss of QF status,
and loss of QF status constitutes an event of default under the JCP&L Power
Purchase Agreement.
The FPA and FERC's authority under the FPA subject public utilities to
various other requirements, including accounting and record-keeping
requirements; FERC approval requirements applicable to activities such as
selling, leasing or otherwise disposing of facilities; FERC approval
requirements for mergers, consolidations, acquisitions and the issuance of
securities; and certain restrictions regarding affiliations of officers and
directors.
State Regulation
The Projects, by virtue of being QFs, are exempt from New Jersey and
Massachusetts rate, financial and organizational regulations that are applicable
to public utilities. QFs, however, are not exempt from the state regulatory
commissions' general supervisory powers relating to environmental and safety
matters. In addition, the NEA Project is required to file reports used by the
Massachusetts Department of Public Utilities to forecast long-term electrical
power needs.
In the event that the NEA Project loses its QF status, in addition to FPA
and PUHCA regulation, NEA and the NEA Project would be subject to a wide range
of state regulations applicable to Massachusetts "electric companies," including
requirements for the filing of annual reports and approval by the Massachusetts
Department of Telecommunications and Energy of any issuance of securities.
Similarly, in the event that the NJEA Project loses its QF status, in addition
to FPA and PUHCA regulation, NJEA and the NJEA Project could, depending upon the
character and extent of the business activities of NJEA with respect to sales of
electricity from the NJEA Project, and whether NJEA engages in retail sales of
electricity (such retail sales subject to the implementation of retail
competition in New Jersey pursuant to deregulation imposed by the New Jersey
Board of Public Utilities ("NJBPU")), be subject to a wide range of state
statutes and regulations applicable to New Jersey public utilities, which
includes the ability of the NJBPU to fix the rates charged by NJEA for the sale
of the electric energy generated by the NJEA Project, the approval by the NJBPU
of the issuance of securities by NJEA and the requirements for periodically
furnishing to the NJBPU detailed reports of NJEA's finances and operations.
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Wheeling and Interconnection
Under the FPA, FERC is authorized to regulate the rates, terms and
conditions for the transmission of electric energy in interstate commerce. This
has been interpreted to mean that FERC has jurisdiction to prescribe the terms
of and to set the rates contained in agreements for the transmission of electric
energy when the applicable transmission system is interconnected and capable of
transmitting energy across a state boundary, even if the utility has no direct
connection with another utility outside its state but is interconnected with
another utility that in turn has interstate connections with other utilities.
Accordingly, the rates to be paid by NEA to Boston Edison under the Boston
Edison Interconnection Agreement are subject to the jurisdiction of FERC under
the FPA. Boston Edison submitted the Boston Edison Interconnection Agreement to
FERC on October 13, 1993. FERC accepted such filing; however, the terms thereof
and the rates thereunder remain subject to review and potential modification
pursuant to the jurisdiction of FERC. See "SUMMARY OF PRINCIPAL PROJECT
AGREEMENTS -- Boston Edison Interconnection Agreement."
FERC's authority under the FPA to require electric utilities to provide
transmission service to QFs and other wholesale electricity producers has been
significantly expanded by the Policy Act. Pursuant to the Policy Act, the
Partnerships may apply to FERC for an order requiring a utility to provide
transmission services in order to transmit power to a wholesale purchaser. FERC
may issue such an order if FERC determines that such order would promote the
economically efficient transmission and generation of electricity, would be just
and reasonable and not unduly discriminatory or preferential and otherwise would
be in the public interest, provided that the reliability of the affected
electric systems would not be unreasonably impaired. The Policy Act may enhance
the Partnerships' ability to obtain transmission access necessary to sell
electric energy or capacity to purchasers other than those with which the
Partnerships presently have Power Purchase Agreements and NEA's ability to
obtain transmission line access for electrical sales to Commonwealth and Montaup
following the scheduled expiration in 2001 of Commonwealth's and Montaup's
access rights to Boston Edison's Medway Substation, which interconnects the NEA
Project with Montaup and Commonwealth's respective grids. There can be no
assurance however, that FERC would issue any such order or that the rates for
such transmission service would be economical for the Partnerships. The Policy
Act may also result in greater competition among wholesale electric energy
producers.
Utility Industry Restructuring
State and federal regulators are in the process of a major examination of
the organization of the electric utility industry, which is dominated by
vertically integrated investor-owned utilities.
Federal
In the Spring of 1996, FERC promulgated its Order No. 888, an order
containing significant policy initiatives designed to open the market for
generation of electricity to competition. In its order, FERC promulgated rules
requiring utilities owning transmission facilities to file uniform, non-
discriminatory open access tariffs. These filings were made during the summer of
1996. The utilities themselves must use these tariffs for their wholesale sales.
The order permits the utilities an opportunity to recover stranded costs
(described below) associated with wholesale transmission. Additionally, FERC
directed the regional power pools that control the major electric transmission
networks to file uniform, non-discriminatory open access tariffs. Among the
power pools that are subject to this mandate are the New England Power Pool
("NEPOOL") and the Pennsylvania-New Jersey-Maryland Interconnection ("PJM"), the
two power pools that control transmission of electricity within the areas in
which the Projects are located. Both NEPOOL and PJM filed proposals for open
access tariffs prior to the FERC's deadline, December 3, 1996. FERC granted
conditional approval of both of the proposed tariffs in the Fall of 1997. The
Partners do not expect Order No. 888 to have a material impact on Partnerships'
ability to obtain access to transmission lines for electrical sales to those
utilities with whom they have power purchase agreements.
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<PAGE>
In the Spring of 1996, FERC also issued its Order No. 889. This order
requires utilities owning transmission facilities to adopt procedures for an
open-access same-time information system ("OASIS") that will make available, on
a real-time basis, pertinent information concerning each transmission utility's
services. The order also promulgated standards of conduct to ensure that the
utilities functionally separate their transmission and wholesale power merchant
functions to prevent self-dealing.
In the Spring of 1997, FERC issued its orders on rehearing of Order Nos.
888 and 889. In these orders FERC upheld the bulk of its rulings in Order Nos.
888 and 889, while making changes to a few of its rules to implement its
open-access policies. Transmitting utilities were required to submit revised
tariffs to FERC during the summer of 1997 to reflect FERC's orders on rehearing.
In November 1997, FERC issued further orders on rehearing affirming, with
certain clarifications, its previous orders. Certain aspects of Order Nos. 888
and 889 have been appealed to the U.S. Court of Appeals.
Congress is considering legislation to modify federal laws affecting the
electric industry. Bills have been introduced in the current Congress to provide
retail electric customers with the right to choose their power suppliers.
Modifications of PUHCA and PURPA have also been proposed.
NEPOOL
NEPOOL was initially organized in 1971 and presently has over 130 members
representing more than ninety-nine percent (99%) of the electric business in New
England. NEPOOL is a voluntary association which operates to assure that the
bulk electric power supply of the New England region is provided through central
dispatch of virtually all of the generation and transmission facilities in New
England as a single control area.
On December 31, 1996, as supplemented February 14, April 18, May 1 and June
5, 1997, NEPOOL filed with FERC a comprehensive restructuring proposal. The
restructuring proposal was intended to: (1) comply with the requirements of
Order No. 888; (2) transfer control of the NEPOOL transmission grid to an
independent system operator; and (3) provide a more open, competitive market for
wholesale sales and purchases of electric energy in the New England region
through a bilateral market and a regional power exchange.
On June 25, 1997, FERC unconditionally authorized the establishment of the
independent system operator and authorized the transfer of control of pool
transmission facilities ("PTFs") owned by the public utility members of NEPOOL
to the independent system operator. FERC concluded that this was both consistent
with the public interest and would serve to maximize the potential for reliable,
competitive bulk power operations in the region. The independent system operator
is responsible for, among other things, monitoring the regional power market
which includes maintaining system reliability, operating the NEPOOL control area
and control center, administering the 7 spot markets, administering the NEPOOL
tariff, and promoting efficient and competitive functioning within the market.
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PJM
The PJM power pool is a voluntary association of eight member electric
utility companies in the mid-Atlantic region, originally formed in 1927, with a
pooled generating capacity of over 56,000 megawatts. Under the historic PJM
power pool structure, the member companies jointly own and control the bulk
power transmission systems in the region and jointly plan transmission systems
upgrades. On December 31, 1996, the PJM filed with FERC a proposal to
restructure PJM to introduce open access transmission and otherwise to implement
FERC Order 888. On February 28, 1997, FERC approved PJM's filing subject to
further orders. FERC, on an interim basis, approved the PJM open access
transmission tariffs effective April 1, 1997, and incorporated such proposal
with respect to all issues except for congestion pricing. With implementation of
a pool-wide open-access transmission tariff on April 1, 1997, PJM began
operating a regional bid-based energy market. Participants buy and sell spot
energy, schedule bilateral transactions, and reserve transmission service using
the PJM OASIS.
On November 25, 1997, FERC approved a restructuring plan for the PJM
interconnection. The comprehensive plan included the approval of the PJM
Operating Agreement, the PJM Open-Access Transmission Tariff, the Transmission
Owners Agreement, and the Reliability Assurance Agreement. FERC modifications to
the Agreement will be made in subsequent compliance filings by PJM. PJM has
requested an April 1, 1998 implementation date for the approved PJM Open-Access
Transmission Tariff.
Massachusetts
On November 25, 1997 the Massachusetts legislature passed a comprehensive
electric deregulation bill entitled "AN ACT RELATIVE TO RESTRUCTURING THE
ELECTRIC UTILITY INDUSTRY IN THE COMMONWEALTH, REGULATING THE PROVISIONS OF
ELECTRICITY AND OTHER SERVICES, AND PROMOTING ENHANCED CONSUMER PROTECTIONS
THEREIN" (the "Act"). The purpose of the Act is to establish a comprehensive
framework for the restructuring of the electric utility industry. In furtherance
of this, the Act eliminates the existing Department of Public Utilities,
replacing it with a five-member Department of Telecommunications and Energy
("DTE").
Divestiture
The Act provides that each electric company may, in its sole discretion,
divest itself of its existing generation facilities. An electric company that
chooses not to divest all of its non-nuclear generation facilities, is required
to subject its nuclear and non-nuclear generation facilities and purchased power
contracts to a valuation under which the DTE determines the market value of such
generation facilities and contracts. The DTE is to require a reconciliation of
projected transition costs to actual transition costs by March 1, 2000, and for
every 18 months thereafter through March 1, 2008, or the termination date of any
transition charge allowed to be assessed.
If an electric company chooses to divest itself of its existing non-nuclear
generation facilities, such company shall transfer or separate ownership of
generation, transmission, and distribution facilities into independent
affiliates on or before March 1, 1998.
Commonwealth, Montaup and Boston Edison are all in various stages of
divestiture.
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Stranded Costs
The Act also requires the DTE to identify and determine stranded costs that
may be allowed to be recovered through a non-bypassable transition charge. The
DTE is required to approve any plan for recovery of such costs and to issue a
finding that the company has taken all reasonable steps to mitigate the total
amount of such costs that will be recovered and minimize the impact of such
costs on ratepayers.
Above-Market Power Purchase Contracts
The Act further provides that to mitigate the projected market value of
power associated with purchased power contracts ("PPCs") approved by the DTE or
by its predecessor, the Department of Public Utilities Commission, by December
31, 1995, except with respect to trash to energy facilities, electric companies
and sellers under such contracts are required to make good-faith efforts to
renegotiate those contracts that contain a price for electricity that is
above-market as of March 1, 1998. In order to meet this standard, the parties
must show that they have actively participated in negotiations and have shown a
willingness to make reasonable concessions to mitigate equitably stranded costs.
A good-faith effort under the Act does not require accepting all proposals and
making unlimited concessions. Beginning July 1, 1998, and at least annually
thereafter, the DTE is required to continue to review such PPCs to determine if
the contracts are above-market as of the date of review. If such contract is
above-market, the electric company and the seller under the contract must
attempt to make a good-faith effort to renegotiate such contract to achieve
further reductions in the transition charge. If an electric company has assigned
such contract to a buyer having adequate financial resources under a
DTE-approved divestiture plan, the electric company is deemed to have met its
obligations. If the seller under such contract has consented to the assignment
and has agreed to release the electric company from all obligations under such
contract, the seller is deemed to have met its obligations.
If the DTE finds that a negotiated contract buyout or other modification is
likely to achieve savings to the ratepayers and is otherwise in the public
interest, the remaining amounts in excess of market value associated with such
contract shall be included in the transition charges. If the DTE finds that a
seller has made a bona fide offer for such a contract buyout or modification
that has been refused by the purchasing electric company, only those amounts in
excess of market value associated with such contract that would not have been
mitigated by such offer shall be included in the transition charges, and the
seller is deemed to have met its obligation to negotiate in good faith.
New Jersey
Industry restructuring efforts are also underway in New Jersey. On April
30, 1997, the New Jersey Board of Public Utilities ("NJBPU" or "Board") issued
its Final Report in the Energy Master Planning Process entitled "Restructuring
the Electric Power Industry in New Jersey: Findings and Recommendations." The
principal announced goal of the NJBPU in its restructuring initiative is to open
the electric generation market to increased competition. On July 15, 1997, each
of New Jersey's four electric utility companies filed: (1) a Restructuring Plan,
(2) an Unbundled Rate Filing, and (3) a Stranded Costs Filing with the NJBPU
pursuant to the NJBPU's Final Report.
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Stranded Costs
The stranded costs filing of each utility will determine the specific
initial level of non-mitigatable stranded costs to be recovered by the local
electric distribution company. The stranded cost filing for each utility has
been transmitted to the Office of Administrative Law for evidentiary hearings.
The JCP&L hearing commenced on December 2, 1997; the Initial Decision from the
Administrative Law Judge is due on May 15, 1998, with a Final Decision by the
NJBPU due thereafter.
Stranded costs are defined by the NJBPU as the potential shortfall in
revenues, or "loss," which would be experienced by the electric utilities as
competition is introduced and their traditional monopolies are opened up to
competitors. The Board seeks to address the stranded costs that may be created
as a result of its recommendation to open the power generation and supply market
up to competition. The Board has determined to limit the eligibility for
stranded cost surcharge recovery to costs related directly to power supply
including utility generation plant, long- and short-term power purchase
contracts with other utilities and long-term power purchase contracts with
non-utility generators.
The NJBPU concluded in its April 30, 1997 report that electric utilities
should be given an opportunity to recover from customers the costs associated
with past financial commitments made by the utility for the purpose of procuring
generating supplies to serve the retail electric customers in their service
territory, notwithstanding the emergence of competition in the generation
market. Such pronouncement is not binding at the present, and is subject to
future regulatory proceedings and actions by the New Jersey Legislature.
Additionally, federal legislation has been proposed that may alter a state's
ability to regulate the emerging competitive market and the recovery of stranded
costs.
Above Market Power Purchase Contracts
The NJBPU stated in its final report that utilities should make a
reasonable good faith effort to mitigate stranded costs, including the buy-out
or renegotiation of existing purchased power contracts with non-utility
generators. The Board has acknowledged that it appears to lack jurisdiction to
order modification of non-utility generators' contracts, and has determined that
the "non-mitigatable costs associated with all such contracts which have
previously been reviewed and approved by the Board, notwithstanding the specific
date, must be eligible for stranded cost recovery."
The NJBPU based its determination that it lacks jurisdiction to order
modification of non-utility generators' contracts on the decision of the Third
Circuit Court of Appeals in Freehold Cogeneration Associates, L.P. v. Board of
Regulatory Commissioners of New Jersey, 44 F.3d. 1178 (3rd Cir. 1995), cert.
den., 116 S. Ct. 68, which held that
Once the [NJBPU] approved the power purchase agreement between Freehold and
JCP&L, on the grounds that the rates were consistent with avoided cost, any
action or order by the [NJBPU] to reconsider its approval or to deny the passage
of those rates to JCP&L consumers under purported state authority was preempted
by federal law. (Id., Freehold, 44 F.3d at 1194).
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The NJBPU has interpreted the Freehold decision to mean that "without
legislative action at the federal or State level, a State regulator has minimal
ability to subsequently adjust the pricing in such non-utility generators
contracts once approved."
Notwithstanding the NJBPU's acknowledgment that it appears to lack
jurisdiction to order modification of non-utility generators' contracts under
current law it has "strongly encouraged all stakeholders to renew their efforts
to explore all reasonable means to mitigate IPP contracts." The Board further
stated that the appropriate legislative bodies may wish to review this issue to
"provide an added impetus for parties to these [non-utility generators']
contracts to seriously consider mitigation." JCP&L has reported to the NJBPU
that it intends to pursue efforts to mitigate its above-market costs for
non-utility generator purchase power agreements. JCP&L has contacted NJEA and
made a presentation to NJEA regarding a preliminary proposal by JCP&L to
transform NJEA's must-run contract into a dispatchable contract on terms that
are to cover all fixed costs (debt service and fixed operating expenses) and
preserve current net profits while allowing JCP&L to reduce its purchase power
costs.
While NE LP does not expect utility industry restructuring to result in any
material adverse change to the Partnerships' Power Purchase Agreements, the
impact of electrical industry restructuring on the companies that purchase power
from Partnerships is uncertain.
Permit Status
NE LP believes that as of the date of this report all material permits
required for the operation of the Projects have been obtained.
The 1990 Amendments to the Clean Air Act require states and the federal
government to implement certain measures that may affect the operation of the
Projects. The State of New Jersey and the Commonwealth of Massachusetts are
required to incorporate new, more stringent requirements into their plans for
bringing the air quality in the areas in which the Projects are located into
compliance with national air quality standards. In addition, thirteen
northeastern states, including Massachusetts and New Jersey, have entered into a
Memorandum of Understanding to address problems associated with the
cross-boundary transport of ozone (the "MOU"). Under the MOU, the states have
agreed to reduce emissions of nitrogen oxides ("NOx"), which is a precursor to
ozone, in two phases. In 1999, utility sources in Massachusetts and New Jersey
generally will be expected to meet a 0.20 lbs/mmBtu effective NOx emissions
rate. In 2003 and thereafter, such sources will be expected to meet a 0.15
lbs/mmBtu effective NOx emissions rate. The Projects currently meet an effective
NOx emissions rate of .09 lbs/mmBtu, and thus it appears that the Projects are
favorably positioned to meet the NOx emissions limits contemplated under the MOU
without the need for additional capital expenditures. In the event that the
Projects are unable to meet the NOx emissions limitations contemplated under the
MOU or other regulations, it is possible that each Project could be required to
install a selective catalytic reduction (SCR) system in order to meet any such
limitations, at a cost of approximately $1.2 to $1.5 million per system.
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The 1990 Amendments also require each state to implement an operating
permit program that incorporates all of a facility's Clean Air Act requirements
into a single permit and that includes sufficient monitoring requirements to
ensure compliance. In addition, states are authorized to impose fees of at least
$25 per ton of air pollutants emitted by a facility, even if such emissions are
within permitted limits. The Departments of Environmental Protection for each of
New Jersey and Massachusetts are currently reviewing the operating permit
applications for the NJEA Project, the NEA Project and the Carbon Dioxide Plant,
respectively.
SUMMARY OF PRINCIPAL PROJECT AGREEMENTS
The following is a summary of selected provisions of certain principal
agreements related to the Projects and is not considered to be a full statement
of the terms of such agreements. Accordingly, the following summaries are
qualified by reference to each agreement and are subject to the terms of the
full text of each agreement. Unless otherwise stated, any reference in this
summary to any agreement shall mean such agreement and all schedules, exhibits
and attachments thereto as amended, supplemented or otherwise modified and in
effect as of the date hereof.
Power Purchase Agreements
NEA Power Purchase Agreements
Boston Edison I Power Purchase Agreement
The Power Purchase Agreement entered into by NEA and Boston Edison as of
April 1, 1986 (the "Boston Edison I Power Purchase Agreement"), provides for the
sale to Boston Edison of 46% of the net power actually generated by the NEA
Project.
Term. The Boston Edison I Power Purchase Agreement extends for an initial
term of 25 years expiring September 15, 2016, subject to earlier termination in
accordance with its terms. Following the initial term, Boston Edison has the
right to extend the Boston Edison I Power Purchase Agreement for an additional
five years upon six months written notice. Following any such renewal, the
Boston Edison I Power Purchase Agreement will remain in effect until terminated
by either party by giving the other party six month's written notice of such
termination.
Purchase and Delivery. Pursuant to the Boston Edison I Power Purchase
Agreement, NEA is obligated to deliver to Boston Edison, and Boston Edison is
obligated to accept, a portion of the available capacity and hourly generation
of the NEA Project equal to the ratio of 135 MW to the Net Electrical Capability
(as defined herein) of 290 MW of the NEA Project multiplied by 100% of the
available capacity and hourly generation of the NEA Project, or 46% of the net
power actually generated. Plant output is dependent, among other things, on
ambient temperatures, and is therefore subject to some variation. Whenever the
NEA Project is operating above or below its Net Electrical Capability of 290 MW,
the output sold to Boston Edison and other NEA Power Purchasers will be
increased or reduced proportionately. NEA is obligated, however, to make
available and dedicate to Boston Edison capacity and electric energy in the
amount of 135 MW. Boston Edison has a right of first refusal, on terms to be
agreed, to purchase a proportionate share based on its then current entitlement
of any increased capacity resulting from an expansion of or addition to the NEA
Project or from any other electricity generating facility on the NEA Site. All
power is to be delivered to the nearest Boston Edison interconnection point,
which is presently Boston Edison's Medway Station.
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Curtailment. Boston Edison has the right under the Boston Edison I Power
Purchase Agreement to refuse power from the NEA Project for up to 200 hours per
year (in addition to its other curtailment rights described below). Boston
Edison also has the right to interrupt, reduce or refuse to purchase electric
energy and NEA has the right to interrupt, reduce or refuse to deliver electric
energy in order to install equipment, make inspections or perform maintenance
and repairs. In addition, Boston Edison has the right to curtail or interrupt
the taking of electric energy for as long as reasonably necessary in the event
of an emergency.
Interconnection. NEA has agreed to secure and pay all expenses of
interconnection for the delivery of electrical energy at the delivery point.
While Boston Edison may, at its option (subject to certain conditions), enter
into transmission and interconnection agreements if necessary to ensure
continued transmission and delivery of electrical energy, the expense and the
risk of loss of such transmission are to be borne by NEA. All necessary
interconnection agreements have been entered into. See "-Boston Edison
Interconnection Agreement" below.
Pricing. The Boston Edison I Power Purchase Agreement provides for a fixed
capacity payment of 1.04 cents per kWh for all power delivered to Boston Edison
plus an energy payment per kWh delivered equal to a percentage of the
"Qualifying Facility Power Purchase Rate," which is a rate determined under
Massachusetts law. It has been agreed that this percentage shall be 80% in each
contract year through 2003, 75% from 2004 through 2007, 80% from 2008 through
2010, 85% in 2011 and 90% thereafter. If Boston Edison elects to exercise its
right to extend the Boston Edison I Power Purchase Agreement, the energy payment
for the period of any such extension will be 100% of the Qualifying Facility
Power Purchase Rate. The Boston Edison I Power Purchase Agreement further
provides that the minimum total payment for both energy and capacity to be
received by NEA (in all cases whether or not such minimum amount is greater than
the applicable percentage of the "Qualifying Facility Power Purchase Rate")
shall not be less than 7.50 cents per kWh through 1997, after which the minimum
payment becomes 6.50 cents per kWh until the end of the initial term. There is
no minimum for any extension period. In 1997 the price per kWh was 7.50 cents.
If, due to transmission constraints, Boston Edison must purchase power from NEA
rather than a lower priced source, the purchase price for such power will be the
lower price Boston Edison was forced to forego. However, such substitute rate is
only available for up to 100 hours in any contract year.
Energy Bank. The Boston Edison I Power Purchase Agreement provides for a
special account referred to as the Energy Bank or Balance Account, and the
Energy Bank balances therein are to be increased or decreased based upon a
formula that prices power delivered to Boston Edison at its projected avoided
cost, which is determined by reference to a fixed schedule specifying dollar
amounts per kWh sold for each year of the Boston Edison I Power Purchase
Agreement. As of December 31, 1997, the Energy Bank balance under the Boston
Edison I Power Purchase Agreement was approximately $144,526,000 and is
projected to decrease to zero by 2007. The Boston Edison I Power Purchase
Agreement requires that approximately 50% of all positive Energy Bank balances
be supported by an irrevocable letter of credit, subject to a maximum letter of
credit requirement of $54 million. See "Business -- Power Purchase Agreements."
Contract Security. To secure its performance under the Boston Edison I
Power Purchase Agreement (as well as the other NEA Power Purchase Agreements),
NEA has granted Boston Edison, Commonwealth and Montaup the NEA Second Mortgage
on the NEA Site and the NEA Project, subordinated only to the rights of the
holders of the Project Securities ("the Project Secured Parties") pursuant to
the NEA Project Mortgage and certain replacements thereof. In addition, NEA has
granted Boston Edison an unsubordinated declaration of easements, encumbering
the NEA Project for the term of the Boston Edison I Power Purchase Agreement.
This declaration provides Boston Edison with limited access to the NEA Project
under certain specified conditions and obligates any subsequent owner of the NEA
Project to sell to Boston Edison its entitlement under the Boston Edison I Power
Purchase Agreement. See "--Accommodation Agreement."
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Sale of Power to Other Purchasers. The Boston Edison I Power Purchase
Agreement contains a "most-favored nation" clause specifying that if any of the
Commonwealth Power Purchase Agreements and the Montaup Power Purchase Agreement
are amended or if NEA enters into any additional power purchase agreements, and
Boston Edison believes the terms of such amendment or such power purchase
agreement are more favorable to the applicable third party than the terms of the
Boston Edison I Power Purchase Agreement are to Boston Edison, NEA shall make
such terms available to Boston Edison for the remaining term of the Boston
Edison I Power Purchase Agreement, provided Boston Edison accepts the other
substantive terms of such amendment or power purchase agreement. Pursuant to a
Consent and Agreement, dated as of June 28, 1989, and confirmed in a
Confirmation Agreement, dated September 16, 1994, subject to conditions
contained therein, Boston Edison has irrevocably waived its rights to invoke the
"most-favored nation" clause. NEA may not enter into any contract for the sale
of electricity from any addition to or expansion of the NEA Project or from any
other electricity generation facilities located at the NEA Site unless it first
offers Boston Edison an amount of electricity proportionate to its then current
entitlement on substantially the same business terms specified in any proposal
or letter of intent with the applicable third party and Boston Edison does not
accept such terms.
Right of First Offer. Other than in connection with the financing or
refinancing of the NEA Project, or with the sale of equity participations in the
form of partnership interests or otherwise, NEA has agreed under the Boston
Edison I Power Purchase Agreement that if it desires to sell all or any portion
of the NEA Project, it will first offer the terms of such sale to Boston Edison,
which will have 60 days to respond to such offer. If Boston Edison declines the
offer, NEA, will be free to offer the same terms to any third party, but in the
event that an agreement is reached with such third party on terms more favorable
than those proposed to Boston Edison, NEA is obligated to offer such terms to
Boston Edison. The right of first offer is subject to adjustments proportionate
to increases in entitlements of Commonwealth and Montaup.
Qualifying Facility Status. The Boston Edison I Power Purchase Agreement
does not require that the NEA Project's QF status be maintained. However, NEA
has warranted to Boston Edison that NEA will use its best efforts to maintain
the NEA Project's QF status.
Events of Default and Remedies; Termination. The occurrence of any one or
more of the following events constitutes an event of default under the Boston
Edison I Power Purchase Agreement and may result in termination of the Boston
Edison I Power Purchase Agreement and the exercise of other remedies by the
non-defaulting party: (i) the dissolution or liquidation of either party; (ii)
failure by either party to perform or observe any of the material terms of the
Boston Edison I Power Purchase Agreement, where such failure has not been cured
within 45 days of notice thereof by the non-defaulting party or, where cure is
not practicable within 45 days, cure has not been undertaken within 45 days and
completed within a reasonable period not to exceed two years; (iii) certain
events of bankruptcy or insolvency; (iv) the failure of NEA to deliver at least
591.3 million kWh of electricity per year (equivalent to 135 MW at 50% capacity
factor annually) to Boston Edison in each of two consecutive contract years,
whether or not such failure is due to force majeure; and (v) either party
contests the enforceability of the Boston Edison I Power Purchase Agreement. In
addition, Boston Edison may terminate the Boston Edison I Power Purchase
Agreement in the event of NEA's failure to pay costs and expenses, if any,
associated with transmission services, filing fees, administrative costs and any
interest accrued thereon in accordance with such contract.
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Boston Edison II Power Purchase Agreement
The Power Purchase Agreement entered into by NEA and Boston Edison as of
January 28, 1988 (the "Boston Edison II Power Purchase Agreement"), provides for
the sale to Boston Edison of 29% of the net power actually generated by the NEA
Project, subject to certain limitations described below.
Term. The Boston Edison II Power Purchase Agreement extends for a term of
20 years expiring September 15, 2011, subject to earlier termination in
accordance with its terms. The Boston Edison II Power Purchase Agreement does
not include any right to extend its term.
Purchase and Delivery. Pursuant to the Boston Edison II Power Purchase
Agreement, NEA is obligated to deliver to Boston Edison, and Boston Edison is
obligated to accept, a portion of the available capacity and hourly generation
of the NEA Project equal to the ratio of 84 MW to the Net Electrical Capability
of 290 MW of the NEA Project multiplied by 100% of the available capacity and
hourly generation of the NEA Project, or 29% of the net power actually
generated, not to exceed 68 MW during the Summer Period (June through September)
or 92 MW during the Winter Period (October through May). The maximum delivery
amount under the Boston Edison II Power Purchase Agreement during any contract
year is 735.84 million kWh (equivalent to 84 MW at 100% capacity factor
annually). Boston Edison is not obligated to accept energy in excess of the
amounts stated. Project output is dependent, among other things, on ambient
temperatures, and is therefore subject to some variation. Whenever the NEA
Project is operating above or below its Net Electric Capability of 290 MW, the
output sold to Boston Edison and other NEA Power Purchasers will be increased or
reduced proportionately subject to Boston Edison's maximum purchase obligations
described above. All power is to be delivered to an interconnection point
mutually agreed to by Boston Edison and NEA, which is presently Boston Edison's
Medway Station.
Curtailment. Boston Edison has the right under the Boston Edison II Power
Purchase Agreement to interrupt, reduce or refuse to purchase electric energy,
and NEA has the right to interrupt, reduce or refuse to deliver electric energy
in order to install equipment, make inspections or perform maintenance and
repair. Boston Edison also has the right to curtail or interrupt the taking of
electric energy for as long as reasonably necessary in the event of an
emergency.
Interconnection. NEA has agreed to pay all expenses of interconnection for
the delivery of electrical energy at the delivery point. All necessary
interconnection agreements have been entered into. See "--Boston Edison
Interconnection Agreement."
Pricing. The Boston Edison II Power Purchase Agreement provides for fixed
payments for all power delivered to Boston Edison averaging 4.50 cents per kWh
in 1992, 4.84 cents per kWh in 1993, and rising thereafter at a fixed escalation
rate of 7.5% per year. In 1997, this rate was 6.46 cents per kWh.
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Escrow Account. NEA is required by the Boston Edison II Power Purchase
Agreement to maintain an escrow account for plant maintenance of $1.275 million.
Pursuant to Boston Edison's consent to the issuance of the Project Securities,
amounts on deposit in the Project Debt Service Reserve Fund will be deemed to
fulfill this obligation.
Energy Bank Liability and Support. Although the Boston Edison II Power
Purchase Agreement provides for an Energy Bank, there is no liability remaining
for the Energy Bank under the Boston Edison II Power Purchase Agreement.
Contract Security. To secure its performance under the Boston Edison II
Power Purchase Agreement (as well as the other NEA Power Purchase Agreements),
NEA has granted Boston Edison, Commonwealth and Montaup the NEA Second Mortgage
on the NEA Site and the NEA Project, subordinated only to the rights of the
Project Secured Parties pursuant to the NEA Project Mortgage and certain
replacements thereof. In addition, NEA has granted Boston Edison an
unsubordinated declaration of easements, encumbering the NEA Project for the
term of the Boston Edison II Power Purchase Agreement. This declaration provides
Boston Edison with limited access to the NEA Project under certain specified
conditions and obligates any subsequent owner of the NEA Project to sell to
Boston Edison its entitlement under the Boston Edison II Power Purchase
Agreement. See "--Accommodation Agreement" below.
Sale of Power to Other Purchasers. The Boston Edison II Power Purchase
Agreement provides that NEA may not enter into any contract for the sale of
electricity from the NEA Project or any additions to the NEA Project unless it
first offers Boston Edison an amount of electricity proportionate to its then
current entitlement on substantially the same business terms specified in any
letters or notice of intent with the applicable third party and Boston Edison
does not accept such terms.
Qualifying Facility Status. The Boston Edison II Power Purchase Agreement
does not require that the NEA Project's QF status be maintained. However, NEA
has warranted to Boston Edison that NEA will use its best efforts to maintain
the NEA Project's QF status.
Events of Default and Remedies; Termination. The occurrence of any one or
more of the following events constitutes an Event of Default under the Boston
Edison II Power Purchase Agreement and may result in termination of the Boston
Edison II Power Purchase Agreement and the exercise of other remedies by the
non-defaulting party: (i) the dissolution or liquidation of either party; (ii)
the failure by either party to perform or observe any of the material terms of
the Boston Edison II Power Purchase Agreement, where such failure has not been
cured within 45 days of notice thereof by the non-defaulting party, or, where
cure is not practicable within 45 days, cure has not been undertaken within 45
days and completed within a reasonable period not to exceed two years (subject
to force majeure); (iii) certain events of bankruptcy and insolvency; (iv) the
failure of NEA (other than due to the acts or omissions of Boston Edison) to
deliver at least 367.92 million kWh of electricity per year (equivalent to 84 MW
at 50% capacity factor annually) to Boston Edison in each of three consecutive
contract years, whether or not such failure is due to force majeure, except that
such failure shall not be an event of default if (x) on or before the final day
of such three year period, NEA delivers to Boston Edison the report of an
independent engineer stating that the NEA Project is expected to be generating
electricity at or near its 290 MW Net Electrical Capability within 90 days, and
(y) the NEA Project begins generating at such level within 90 days; and (v)
either party contests the enforceability of the Boston Edison I Power Purchase
Agreement.
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Commonwealth I Power Purchase Agreement
The Power Purchase Agreement entered into by NEA and Commonwealth as of
November 26, 1986 (the "Commonwealth I Power Purchase Agreement"), provides for
the sale to Commonwealth of approximately 9% of the net power actually generated
by the NEA Project.
Term. The Commonwealth I Power Purchase Agreement extends for a term of 25
years expiring September 15, 2016. The Commonwealth I Power Purchase Agreement
does not have any provision for extension of its term.
Purchase and Delivery. Pursuant to the Commonwealth I Power Purchase
Agreement, NEA is obligated to sell and deliver to Commonwealth, and
Commonwealth is obligated to accept, a portion of the available capacity and
hourly generation of the NEA Project equal to the ratio of 25 MW to the Net
Electrical Capability of 290 MW of the NEA Project multiplied by 100% of the
available capacity and hourly generation of the NEA Project, or approximately 9%
of the net power actually generated. Project output is dependent, among other
things, on ambient temperatures, and is therefore subject to some variation.
Whenever the NEA Project is operating above or below its Net Electrical
Capability of 290 MW, the output sold to Commonwealth and other NEA Power
Purchasers will be increased or reduced proportionately. NEA has the right to
withdraw the NEA Project from service and to cease to supply electricity to
Commonwealth as necessary to perform any maintenance or repair of the NEA
Project.
Curtailment. Commonwealth has the right under the Commonwealth I Power
Purchase Agreement to curtail or interrupt the taking of electricity when, in
its reasonable judgment, such curtailment or interruption is needed or desirable
in order to restore service on Commonwealth's system or those systems with which
it is directly or indirectly connected or whenever any of such systems
experience a system emergency.
Pricing. The Commonwealth I Power Purchase Agreement provides for a payment
per kWh for all power delivered to Commonwealth consisting of (i) a fixed
capacity payment of 2.00 cents per kWh, (ii) an energy payment of 3.375 cents
per kWh through December 31, 1998, and 2.70 cents per kWh thereafter, multiplied
by the ratio of (x) the actual price per barrel of Number 6 fuel oil to (y) a
base price of $16.69 per barrel, and (iii) a production factor not to exceed
plus or minus 0.4 cents, depending on the extent to which availability in the
preceding year has exceeded or been less than 85%. The energy payment component
of the foregoing price is subject to the floor price of at least 4.50 cents per
kWh through December 31, 2000. The foregoing price is required to be paid for
99% of the kWh delivered to Commonwealth minus non-pool transmission facility
losses. As a result of the foregoing formula, the price paid by Commonwealth
will be influenced significantly by changes in the price of Number 6 fuel oil.
During 1997, the average price per kWh under this contract was 6.76 cents.
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Contract Security. To secure its performance under the Commonwealth I Power
Purchase Agreement (as well as the other NEA Power Purchase Agreements), NEA has
granted Commonwealth, Boston Edison and Montaup the NEA Second Mortgage on the
NEA Site and the NEA Project, subordinated only to the rights of the Project
Secured Parties pursuant to the NEA Project Mortgage and certain replacements
thereof. In addition, NEA has granted Commonwealth an unsubordinated declaration
of easements, encumbering the NEA Project for the term of the Commonwealth I
Power Purchase Agreement. This declaration provides Commonwealth with limited
access to the NEA Project under certain specified conditions and obligates any
subsequent owner of the NEA Project to sell to Commonwealth its entitlement
under the Commonwealth I Power Purchase Agreement. See "--Accommodation
Agreement" below.
Sale of Power to Other Purchasers. The Commonwealth I Power Purchase
Agreement has a "most favored nation" clause specifying that Commonwealth will
be given the benefit of any more favorable terms established in future NEA power
sales contracts or any amendment to any other NEA Power Purchase Agreement
provided that it agrees to be bound by the other substantive provisions thereof.
Pursuant to a Consent and Agreement, dated as of June 28, 1989, and confirmed in
a Confirmation Agreement, dated October 13, 1994, subject to conditions
contained therein, Commonwealth has irrevocably waived its rights to invoke the
"most-favored nation" clause. The Commonwealth I Power Purchase Agreement also
specifies that NEA shall not enter into any contract for the sale of electricity
from any additions to the NEA Project unless it first offers a contract to
Commonwealth for the sale of a proportionate amount of such electricity
according to Commonwealth's then current entitlement under the Commonwealth I
Power Purchase Agreement on the same terms as those specified in any proposal to
another party.
Transmission. Under the Commonwealth I Power Purchase Agreement, NEA bears
all risk and expenses with respect to the provision of transmission services to
Commonwealth for the term of the contract.
Qualifying Facility Status. Commonwealth's obligations under the
Commonwealth I Power Purchase Agreement were conditioned upon the NEA Project's
being certified as a QF on the in-service date, which condition was satisfied.
NEA has agreed to use its best efforts to maintain such status, and in the event
that the QF status of the NEA Project is revoked, NEA has agreed to use its best
efforts to regain the certification and both parties have agreed to continue to
purchase and sell electrical power on the terms set forth in the Commonwealth I
Power Purchase Agreement (including those relating to price).
Commonwealth II Power Purchase Agreement
The Power Sale Agreement entered into by NEA and Commonwealth as of August
15, 1988 (the "Commonwealth II Power Purchase Agreement") provides for the sale
to Commonwealth of approximately 7% of the net power actually generated by the
NEA Project.
Term. The Commonwealth II Power Purchase Agreement extends for a term of 25
years expiring September 15, 2016. The Commonwealth II Power Purchase Agreement
does not have any provision for extension of its term.
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Purchase and Delivery. Pursuant to the Commonwealth II Power Purchase
Agreement, NEA is obligated to sell and deliver and Commonwealth is obligated to
accept a portion of the available capacity and hourly generation of the NEA
Project equal to the ratio of 21 MW to the Net Electrical Capability of 290 MW
of the NEA Project multiplied by 100% of the available capacity and hourly
generation of the NEA Project, or approximately 7% of the net power actually
generated. Project output is dependent, among other things, on ambient
temperatures, and is therefore subject to some variation. Whenever the NEA
Project is operating above or below its Net Electrical Capability of 290 MW, the
output sold to Commonwealth and other NEA Power Purchasers will be increased or
reduced proportionately. NEA has the right to withdraw the NEA Project from
service and to cease to supply electricity to Commonwealth as necessary to
perform any maintenance or repair to the NEA Project.
Curtailment. Commonwealth has the right under the Commonwealth II Power
Purchase Agreement to curtail or interrupt the taking of electricity when, in
its reasonable judgment, such curtailment or interruption is needed or desirable
in order to restore service on Commonwealth's system or those systems with which
it is directly or indirectly connected or whenever any of such systems
experience a system emergency.
Pricing. The Commonwealth II Power Purchase Agreement provides for fixed
payments of 4.5 cents per kWh for all power delivered to Commonwealth in 1992
and 4.84 cents per kWh in 1993, rising thereafter at a fixed escalation rate of
7.5% per year, which are payable with respect to 99% of the kWh delivered to
Commonwealth minus non-pool transmission facility losses. The rate per kWh in
1997 was 6.46 cents.
Contract Security. To secure its performance under the Commonwealth I Power
Purchase Agreement (as well as the other NEA Power Purchase Agreements), NEA has
granted Commonwealth, Boston Edison and Montaup the NEA Second Mortgage on the
NEA Site and the NEA Project, subordinated only to the rights of the Project
Secured Parties pursuant to the NEA Project Mortgage and certain replacements
thereof. In addition, NEA has granted Commonwealth an unsubordinated declaration
of easements, encumbering the NEA Project for the term of the Commonwealth II
Power Purchase Agreement. This declaration provides Commonwealth with limited
access to the NEA Project under certain specified conditions and obligates any
subsequent owner of the NEA Project to sell to Commonwealth its entitlement
under the Commonwealth II Power Purchase Agreement. See "--Accommodation
Agreement" below. Finally, The Commonwealth II Power Purchase Agreement requires
that NEA's obligations be secured by a letter of credit in the amount of $1
million until September 15, 1998.
Sale of Power to Other Purchasers. The Commonwealth II Power Purchase
Agreement has a "most favored nation" clause specifying that Commonwealth will
be given the benefit of any more favorable terms established in future NEA power
sales contracts or any amendment to any other NEA Power Purchase Agreement
provided that it agrees to be bound by the other substantive provisions thereof.
Pursuant to a Consent and Agreement, dated as of June 28, 1989, and confirmed in
a Confirmation Agreement, dated October 13, 1994, subject to conditions
contained therein, Commonwealth has irrevocably waived its rights to invoke the
"most-favored nation" clause. The Commonwealth II Power Purchase Agreement also
specifies that NEA shall not enter into any contract for the sale of electricity
from any additions to the NEA Project unless it first offers a contract to
Commonwealth for the sale of a proportionate amount of such electricity
according to Commonwealth's then current entitlement under the Commonwealth II
Power Purchase Agreement on the same terms as those specified in any proposal to
another party.
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Transmission. Under the Commonwealth I Power Purchase Agreement, NEA bears
all risk and expenses with respect to the provision of transmission services to
Commonwealth for the term of the contract.
Qualifying Facility Status. Commonwealth's obligations under the
Commonwealth II Power Purchase Agreement were initially conditioned upon the NEA
Project's being certified as a QF on the in-service date, which condition was
satisfied. NEA has agreed to use its best efforts to maintain such status, and
in the event that the NEA Project's QF status is revoked, NEA has agreed to use
its best efforts to regain the certification and both parties have agreed to
continue to purchase and sell power on the terms set forth in the Commonwealth
II Power Purchase Agreement (including those relating to price).
Montaup Power Purchase Agreement
The Power Purchase Agreement entered into by NEA and Montaup as of October
17, 1986 (the "Montaup Power Purchase Agreement") provides for the sale to
Montaup of approximately 9% of the net power actually generated by the NEA
Project.
Term. The Montaup Power Purchase Agreement extends for an initial term of
30 years expiring September 15, 2021, subject to earlier termination in
accordance with its terms. The Montaup Power Purchase Agreement will remain in
effect thereafter until either party terminates the contract by giving the other
party six months' written notice of such termination.
Purchase and Delivery. Pursuant to the Montaup Power Purchase Agreement,
NEA is obligated to deliver to Montaup, and Montaup is obligated to accept, a
portion of the available capacity and hourly generation of the NEA Project equal
to the ratio of 25 MW to the Net Electrical Capability of 290 MW of the NEA
Project multiplied by 100% of the available capacity and hourly generation of
the NEA Project, or approximately 9% of the net power actually generated.
Project output is dependent, among other things, on ambient temperatures, and is
therefore subject to some variation. Whenever the NEA Project is operating below
its Net Electrical Capacity of 290 MW, the output sold to Montaup and other NEA
Power Purchasers will be reduced proportionately. Whenever the NEA Project is
operating above its Net Electrical Capacity of 290 MW, NEA may sell the
increased output to Montaup or another power purchaser subject to Montaup's
right of first refusal.
Curtailment. Montaup has the right under the Montaup Power Purchase
Agreement to refuse power for up to 200 hours per year, at its reasonable
discretion, in addition to its other curtailment rights described below. Montaup
has the right to interrupt, reduce or refuse to purchase electric energy, and
NEA has the right to interrupt, reduce or refuse to deliver electric energy, in
order to install equipment, make inspections or perform maintenance and repairs.
In addition, Montaup has the right to curtail or interrupt the taking of
electric energy for as long as reasonably necessary in the event of an
emergency.
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Pricing. The Montaup Power Purchase Agreement provides for an energy
payment per kWh for all power delivered to Montaup equal to 75% of Montaup's
Qualifying Facility Power Purchase Rate (described below) in each year through
2000 and at least 75% but no more than 95% of such rate thereafter, dependent
upon the balance in the Energy Bank in such year, together with an average fixed
capacity payment of 1.04 cents per kWh, which is not subject to adjustment
provided that peak-hour availability remains in excess of 80%. The Montaup Power
Purchase Agreement further provides that the minimum rate to be received by NEA
is 6.50 cents per kWh through 2000, after which no minimum rate applies. The
foregoing rates are payable in respect of 99% of the kilowatt hours delivered by
NEA for sale to Montaup under the Montaup Power Purchase Agreement. Montaup's
Qualifying Facility Power Purchase Rate is a rate determined under state law
based on Montaup's Avoided Cost of power production. If, due to transmission
constraints, Montaup must purchase power from NEA rather than a lower priced
source, then the purchase price for such power will be the lower price Montaup
was forced to forego. However, this substitute rate is only available for up to
100 hours annually. During 1997, the payment per kWh under the Montaup Power
Purchase Agreement was 6.5 cents.
Energy Bank Liability and Support. The Montaup Power Purchase Agreement
provides for an Energy Bank, and the Energy Bank balance under the Montaup Power
Purchase Agreement will be increased to the extent that the price paid by
Montaup exceeds the greater of (i) Montaup's Qualifying Facility Power Purchase
Rate and (ii) an Energy Bank floor rate. The Energy Bank floor rate is specified
pursuant to a fixed schedule. Positive Energy Bank balances are reduced to the
extent payments to NEA are less than the foregoing Energy Bank rates. Positive
balances are subject to interest each month at the prime rate as established
from time to time by the First National Bank of Boston. As of December 31, 1997
the Energy Bank balance under the contract was approximately $27,055,000. The
Montaup Power Purchase Agreement requires NEA to deliver a letter of credit to
Montaup securing the payment of positive Energy Bank balances. However, the face
amount of the letter of credit is not required to exceed $12.656 million or (if
less) the remaining Energy Bank balance.
Contract Security. To secure its performance under the Montaup Power
Purchase Agreement, NEA has granted Montaup (as well as other NEA Power
Purchasers), the NEA Second Mortgage, subordinated only to the rights of the
Project Secured Parties pursuant to the NEA Project Mortgage and certain
replacements thereof. In addition, NEA has granted Montaup an unsubordinated
Declaration of Easements, encumbering the NEA Project for the life of the
Montaup Power Purchase Agreement. This declaration provides Montaup with limited
access to the NEA Project and obligates any subsequent owner of the NEA Project
to sell Montaup in contract entitlement. See "-Accommodation Agreement" below.
Right of First Refusal. Montaup has a right of first refusal for the
purchase of any additional capacity generated by the NEA Project and not covered
by the Power Purchase Agreements with Boston Edison and Commonwealth,
proportionate to its then current entitlement. Any capacity currently covered by
Boston Edison's or Commonwealth's entitlement which becomes available in the
future is also subject to Montaup's proportionate right of first refusal.
Transmission. Under the Montaup Power Purchase Agreement, NEA is
responsible for, bears all risk with respect to and is required to pay all
expenses in connection with the provision of transmission services to Montaup
for the term of the contract.
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Qualifying Facility Status. NEA has warranted to Montaup that as of the
date the NEA Project commenced operations, it would be a QF, and that should the
NEA Project lose its QF status thereafter, NEA would use its best efforts to
regain such status. Montaup is entitled to renegotiate the pricing provisions of
the Montaup Power Purchase Agreement in the event that the NEA Project's QF
status is revoked.
NJEA Power Purchase Agreement
The Power Purchase Agreement entered into by JCP&L and NJEA as of October
22, 1987 (the "JCP&L Power Purchase Agreement"), provides for the sale of 250 MW
of power from the NJEA Project's baseload power.
Term. The JCP&L Power Purchase Agreement extends for an initial term of 20
years expiring August 13, 2011, and may be extended for an additional five year
period upon written notice by JCP&L to NJEA, subject to the renegotiation of the
price terms for any such extension.
Purchase and Delivery. Pursuant to the JCP&L Power Purchase Agreement, NJEA
is obligated to deliver to JCP&L, and JCP&L is obligated to accept, the contract
capacity of not less than 250 MW and up to 2.2 million MwH per year of
associated energy (250 MW at 100% capacity factor annually) from the NJEA
Project throughout the term of the JCP&L Power Purchase Agreement. JCP&L has
certain rights, but not the obligation, to purchase certain energy produced by
the NJEA Project in excess of 250 MW per hour at a discounted price.
Curtailment. Pursuant to the JCP&L Power Purchase Agreement, JCP&L has the
right, for up to 200 hours annually during the period expiring August 13, 2001,
and for 400 hours annually thereafter, to refuse electric power from the NJEA
Project, in any event on no more than 20 separate occasions annually, if
conditions on the PJM Interconnected Power Pool system are such that generators
of all PJM member utilities are required to reduce generation to minimum levels
during periods of low load in accordance with applicable procedures. In
addition, without affecting the number of hours during which JCP&L may refuse
power under the circumstances described above, JCP&L may refuse power: (i) for
up to 200 hours annually during off peak periods (provided that each such
curtailment shall be for a minimum of six hours); (ii) when JCP&L deems such
refusal to be in keeping with prudent utility practices or necessary to
facilitate construction, installation, maintenance, repair or inspection of any
of JCP&L's or NJEA's facilities or equipment, to maintain JCP&L's system
integrity, or due to emergency, forced outages, potential overloading or force
majeure and (iii) if NJEA's operation of the NJEA Project endangers JCP&L
personnel, until such dangerous condition is corrected.
Interconnection. NJEA has agreed to design, construct and provide during
the term of the JCP&L Power Purchase Agreement all interconnection facilities
and protective apparatus necessary to effect delivery of power to JCP&L's system
pursuant to the JCP&L Power Purchase Agreement, subject to JCP&L's approval and
in accordance with its standards.
Pricing. The JCP&L Power Purchase Agreement provides for payment to NJEA
of: (i) a variable energy payment referencing JCP&L's 1989 cost of gas, indexed
to the cost of gas purchased by New Jersey utilities; (ii) a capacity payment
that is made for power purchased during peak hours in peak season (approximately
1,800 hours per year); and (iii) a fixed energy payment.
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For the elapsed portion of the operating year commencing in August, 1994
(through July 1995), the average variable energy payment has been 2.296 cents
per kWh, the capacity payment has been 6.41 cents per kWh and the average fixed
energy payment has been 2.2 cents per kWh, for a total average payment of 5.85
cents per kWh. Commencing in July, 1994, and for each year thereafter, if
average annual on-peak electricity generation is less than 85% of the average
annual on-peak generation during the three preceding years, a penalty payment of
3.6 cents for each kWh of shortfall in average on-peak generation for such year
will be due to JCP&L from NJEA.
Energy Bank. Although the JCP&L Power Purchase Agreement provides for an
Energy Bank, there is no liability remaining for the Energy Bank under the JCP&L
Power Purchase Agreement.
Right of First Offer. Other than in connection with the financing or
refinancing of the NJEA Project, NJEA has agreed under the JCP&L Power Purchase
Agreement that it will not sell or transfer all or any portion of the NJEA
Project without the prior written consent of JCP&L. The JCP&L Power Purchase
Agreement also grants a right of first offer to JCP&L for any such sale or
transfer.
Right of First Refusal. If as a result of improvements or the construction
of additional generating units the capacity of the NJEA Projects increased, then
JCP&L has a right of first refusal on such excess capacity produced by the NJEA
Project on terms no less favorable than those offered to any third party in an
arm's length transaction for such excess capacity.
Qualifying Facility Status. NJEA is required under the JCP&L Power Purchase
Agreement to maintain the NJEA Project's QF status for so long as PURPA or
legislation of similar import is in effect. Failure to maintain such status
constitutes an event of default under the JCP&L Power Purchase Agreement.
Remedies; Events of Default; Termination. The occurrence of any one or more
of the following events constitutes an event of default and may result in
termination of the JCP&L Power Purchase Agreement by the non-defaulting party:
(i) a material breach of any material term or condition of the JCP&L Power
Purchase Agreement, including but not limited to failure to maintain the
collateral security, breach of any representation, warranty or covenant and
failure of either party to make a required payment to the other party of amounts
due under the contract, or failure by a party to provide any required schedule,
report or notice if such failure is not cured within 30 days after notice to the
defaulting party; (ii) failure by NJEA to deliver electricity for a period of
365 consecutive days for any reason except as may be excused by force majeure;
(iii) sale or supply of electricity by NJEA from the NJEA Project, or agreement
by NJEA to sell or supply electricity, to anyone other than JCP&L at times when
JCP&L can accept delivery of such electricity; (iv) failure by JCP&L to accept
deliveries of electricity from NJEA Project for a period of 90 consecutive days
for any reason other than force majeure or as otherwise permitted by the
contract; (v) certain events of insolvency or bankruptcy; or (vi) revocation by
FERC at any time during the term of the JCP&L Power Purchase Agreement of the
NJEA Project's certification as a Qualifying Facility. Upon the occurrence of
any event of default, the non-defaulting party may furnish the other party with
a written of default. If the defaulting party does not cure or make a good faith
attempt to cure such event of default within 30 days of such notice, the
non-defaulting party may terminate the JCP&L Power Purchase Agreement and may
exercise all other remedies.
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Either party may terminate the JCP&L Power Purchase Agreement upon 10 days'
written notice if (i) the NJEA Project is either substantially damaged or
destroyed and NJEA advise JCP&L that it does not intend to reconstruct or repair
the NJEA Project promptly or (ii) an event of force majeure prevents either
party from making substantial performance of its respective obligations for a
period of 24 consecutive months. In addition, JCP&L, at its sole election and
without any obligation to do so, may assume management control of and otherwise
operate the NJEA Project as necessary to generate and deliver electric power
from the NJEA Project to JCP&L's system (i) upon the occurrence of an event of
default, other than an event of default due to force majeure, or (ii) in the
event that NJEA fails to operate and maintain the NJEA Project in accordance
with the terms and conditions of the JCP&L Power Purchase Agreement for a period
of 60 days after receiving written notice from JCP&L regarding the need for
repairs or replacement of equipment during which NJEA does not make such
necessary repairs or replacements. JCP&L's right to assume control of and
operate the NJEA Project will be limited in time until such date when NJEA
demonstrates to JCP&L's reasonable satisfaction its ability to resume
performance of its obligations under the JCP&L Power Purchase Agreement. The
assumption of control and operation of the NJEA Project by JCP&L will not,
however, create any duty or responsibility on JCP&L to continue operation of the
NJEA Project. NJEA has agreed to indemnify JCP&L from and against claims (other
than those due to JCP&L's gross negligence) stemming from JCP&L's control and
operation of the NJEA Project, and NJEA has waived all claims it may have
against JCP&L in the future (other than for damages arising from JCP&L's gross
negligence) as a result of any injury or damages to any property during the time
of JCP&L's control or operation of the NJEA Project pursuant to the terms of the
JCP&L Power Purchase Agreement. NJEA is required to reimburse JCP&L for any
expenses reasonably incurred by JCP&L in operating the NJEA Project or JCP&L may
set off such expenses against amounts due to NJEA under the JCP&L Power Purchase
Agreement.
Steam Sales Agreements
NEA
The NEA Project is adjacent to the Carbon Dioxide Plant, which is presently
being leased by NEA to NECO pursuant to the NECO Lease. NEA sells steam to NECO
for use in the Carbon Dioxide Plant pursuant to the NEA Steam Sales Agreement.
The principal terms of the NEA Steam Sales Agreement and the NECO Lease are
summarized below.
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NEA Steam Sales Agreement
The Amended and Restated NEA Steam Sales Agreement dated as of December 21,
1990 between NEA and NECO (the "NEA Steam Sales Agreement") provides for the
exclusive sale by NEA to NECO of a minimum of 60,000 pounds and a maximum of
120,000 pounds of steam per hour when the NEA Project is being fueled by 100%
pipeline quality natural gas, subject to certain limited exceptions. NECO will
at all times have immediate first call on steam up to such maximum amount,
provided, however, that if NEA is unable to satisfy NECO's steam needs for any
period more than ten days, NECO may seek alternative sources of steam.
Term. The NEA Steam Sales Agreement extends for the same term as that of
the NECO Lease described below, with automatic extension for any renewal period
elected under the NECO Lease.
Price. The monthly base price payable by NECO to NEA for steam delivered
under the NEA Steam Sales Agreement is $3.50 per thousand pounds of steam,
subject to periodic adjustments based on the blended base prices for natural gas
in the ProGas Agreements. The minimum base price also is subject to adjustment
for, among other things, liquidated damages as described below under "Minimum
Output."
Minimum Output. Under the NEA Steam Sales Agreement, NEA has agreed to
deliver a minimum output of 60,000 pounds of steam per hour when the NEA Project
is being fueled by 100% pipeline quality natural gas. All such steam deliveries
are required to take place for at least 80% of the hours in each year, adjusted
for excused downtime and subject to the force majeure provisions described
below. In every fourth year of the NEA Steam Sales Agreement, the hourly
percentage drops to 75% to allow for routine maintenance. In any operating year
in which the minimum outputs are not met, NEA is obligated to pay liquidated
damages for each hour of shortfall equal to the sum of the hourly cost of NECO's
operating and maintenance expenses, property taxes and basic rent under the NECO
Lease, each calculated as the annual charge for such expenses divided by 8,760
hours per year.
NECO has contracted to purchase (during each hour that the NEA Project is
in commercial operation using 100% pipeline quality natural gas) a minimum of 5%
of the total energy output of the NEA Project so as to meet requirements set by
PURPA in order to maintain the NEA Project's QF Status. NECO is obligated to buy
all of its steam from the NEA Project, subject to limited exceptions, and also
is obligated to return all condensate to the NEA Project.
NECO may defer payment for all or a portion of the steam it takes if after
deferring its payments under the NECO Lease, NECO's monthly expenses still
exceed its monthly revenues. If the amounts due to NEA are reduced to zero and
NECO continues to incur losses, NEA may reimburse NECO for such losses or
alternatively, NEA may terminate the NECO Lease and the NEA Steam Sales
Agreement.
Liability. The NEA Steam Sales Agreement provides that the total cumulative
liability of NEA and any of its contractors, subcontractors and suppliers
arising from, or in any way connected with, its obligations under such agreement
shall not in the aggregate exceed $500,000 in any calendar year prorated for any
portion of such year where such agreement is in effect. Notwithstanding such
maximum aggregate liability provision, neither NEA nor any of its contractors,
subcontractors and suppliers will be liable to NECO or any of its affiliates for
any special, incidental, consequential or indirect losses or for damage to or
loss of property or equipment not furnished under the NEA Steam Sales Agreement,
or for loss of use of the facilities, cost of capital, lost profits or revenues,
costs of replacement power or steam or claims of customers of NECO.
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Assignment. The NEA Steam Sales Agreement and the NECO Lease may be
assigned by either party with the written consent of the other party, or by NEA
without any such consent (i) to any NEA affiliate, (ii) to a lender as security
for financing for NEA or its affiliates, (iii) as a security assignment or (iv)
to any successor or entity to NEA. NECO has granted its consent to the
assignment of NEA's rights under the NEA Steam Sales Agreement as collateral
security pursuant to the Project Security Documents.
Breach/Remedies. NEA may temporarily suspend sales of steam under the NEA
Steam Sales Agreement for (i) fraudulent or unauthorized use of NEA's meters or
(ii) an assignment of the NEA Steam Sales Agreement by NECO not made in
accordance with the requirements for assignment under the NEA Steam Sales
Agreement. In addition, NEA may suspend sales of steam in the event of the
occurrence of any life-threatening conditions at the Carbon Dioxide Plant until
such conditions are remedied. Upon the occurrence of any of the above events, if
NECO shall fail to remedy such event within 20 days of notice thereof (unless
such event cannot be remedied within such period to avoid exercise of the
following remedies) NEA may terminate the NEA Steam Sales Agreement. NEA may
also terminate the NEA Steam Sales Agreement if (i) NECO shall fail to pay any
bill for steam within 15 days of such bill's due date, (ii) NECO shall fail to
satisfy its minimum purchase requirement of 5% of the NEA Project's total energy
output, (iii) NECO terminates the NECO Lease at its option or (iv) an event of
default under the NECO Lease shall have occurred and be continuing.
Interconnection Obligations. The NEA Steam Sales Agreement provides that
NEA is responsible for all auxiliary equipment and systems required to supply
steam to the point of interconnection with the Carbon Dioxide Plant.
Lease of Carbon Dioxide Facility
The NECO Lease, dated as of December 31, 1990, provides for the lease of
the Carbon Dioxide Plant and certain related utilities by NEA to NECO.
Term. The NECO Lease has an initial term of 15 years expiring June 1, 2007.
The NECO Lease may be renewed at NECO's option for up to four subsequent five
year periods, with such option to be exercised at the end of the initial term or
any five year renewal period, as applicable. The NECO Lease may be terminated by
NEA upon 30 days' written notice to NECO, subject to payment by NEA of any
amounts that may be due to NECO as a result of certain rent adjustment
provisions of the NECO Lease. The NECO Lease may also be terminated by NEA for
its convenience upon the occurrence of an event of default, as defined in the
NECO Lease. NEA has agreed with Praxair and BOC Gases that if NECO fails to
satisfy its obligations to Praxair or BOC Gases, NEA will terminate the NECO
Lease within 45 days after notice of such failure.
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Operation. The Carbon Dioxide Plant is operated by Westinghouse Services
pursuant to a separate operating agreement between Westinghouse Services and
NECO.
Rent. The basic rent payable by NECO to NEA pursuant to the NECO Lease is
$100,000 per month and is subject to adjustment based upon the monthly profits
or losses realized by NECO in connection with the operation of the Carbon
Dioxide Plant.
Right of First Refusal. Absent an event of default under the NECO Lease,
NECO has a right of first refusal with respect to any sale of the Carbon Dioxide
Plant.
Event of Loss. Under the NECO Lease, NECO is required to pay to NEA, as
promptly as practicable and in any event within five days following the receipt
of insurance proceeds with respect to the occurrence of an event of loss (as
defined in the NECO Lease) with respect to the Carbon Dioxide Plant, an amount
equal to the sum of (a) any insurance proceeds so received plus (b) any rent
accrued but unpaid plus (c) any amount payable under the NEA Steam Sales
Agreement accrued but unpaid.
NJEA Steam Sales Agreement
The NJEA Project sells steam to Hercules pursuant to the Industrial Steam
Sales Contract dated as of June 5, 1990 between NJEA and Hercules (the "NJEA
Steam Sales Agreement"). The NJEA Steam Sales Agreement provides for the sale by
NJEA to Hercules of up to an annualized maximum of 205,000 pounds of steam per
hour when both gas turbines at the NJEA Project are fully operational and up to
a maximum of 100,000 pounds of steam per hour when only one gas turbine is fully
operational.
Term. The NJEA Steam Sales Agreement extends for a term of 20 years
expiring August 13, 2011, subject to automatic renewal for two consecutive
five-year terms unless either party to the agreement gives written notice of its
intent not to renew at least two years before the expiration of the then-current
term.
Price. The monthly floor price payable by Hercules to NJEA for steam
delivered under the NJEA Steam Sales Agreement is $2.50 per thousand pounds of
steam, subject to monthly escalation (which began in September, 1991) based on a
national coal price index. After Hercules has purchased steam amounting to
205,000 pounds per hour on an annualized basis or purchased more than 230,000
pounds of steam per hour in any given hour, Hercules also is required to pay the
fuel costs associated with the production of additional steam, payable within 20
days of receipt of NJEA's invoice.
Minimum Purchase Obligation. Hercules is required, for any hour in which it
purchases steam, to purchase an hourly minimum of 30,000 pounds of steam, and a
minimum of 415.8 million pounds of steam annually. Hercules is required to apply
378 million pounds of such steam to thermal uses annually, which will satisfy
the minimum thermal use requirement for maintaining the NJEA Project's QF status
under PURPA. However, Hercules has no obligation to continue purchasing steam in
the event that it closes or abandons its Parlin plant. NJEA is entitled to a
minimum of 90 days advance notice of any such closure. NJEA has an option under
the NJEA Steam Sales Agreement to lease the Parlin plant site from Hercules in
the event of any such closure. Pursuant to the NJEA Steam Sales Agreement, the
terms and conditions of any lease entered into pursuant to such option are
subject to negotiation, except that the term of any such lease shall not be for
a period that is less than the unexpired term of the NJEA Steam Sales Agreement
when the parties enter into such lease.
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Events of Default and Remedies. Events of default by Hercules under the
NJEA Steam Sales Agreement include (i) failure to pay bills for steam when due
within 30 days of notice of such failure, (ii) fraudulent use of meters which
continues for 90 days after notice thereof and (iii) breach of any other
material obligation under the NJEA Steam Sales Agreement which continues
unremedied for 90 days after notice thereof. NJEA may terminate the NJEA Steam
Sales Agreement in the event of any such event of default. Events of default by
NJEA under the NJEA Steam Sales Agreement include (i) fraudulent use of meters
and failure to cure within 90 days following notice thereof, (ii) failure to
deliver on an annual average basis a minimum of 85% of the total steam used by
Hercules in its Parlin plant, (iii) more than five total forced outages
resulting in total loss of steam production for more than 15 minutes in any full
calendar year and (iv) more than 15 partial forced outages resulting in a loss
of 10% of steam production of more than 15 minutes in any full calendar year. In
the event NJEA fails to deliver at least 85% of Hercules' steam requirement,
NJEA is required to reimburse Hercules for up to $800,000 of Hercules' cost of
making replacement steam. In the event that there are more than five total
outages or more than 15 partial outages in a year, including those due to force
majeure, NJEA is required to pay Hercules $40,000 per total forced outage and
$5,000 per partial forced outage up to a maximum of $200,000 annually.
Gas Purchase Agreements
NEA ProGas Agreement
Quantities. The Gas Purchase Contract dated as of May 12, 1988 and amended
as of April 17, 1989, June 23, 1989, November 1, 1991 and June 30, 1993 between
NEA and ProGas (the "NEA ProGas Agreement") provides for the sale by ProGas to
NEA of 49,560 Mcf of natural gas per day, with an equivalent heating value of at
least 48,817 Dth (the "Daily NEA Quantity"). If NEA fails to take 75% of the
annualized Daily NEA Quantity in any contract year, then NEA is required to
purchase additional gas in the following contract year to make up any such
deficiency. If NEA fails to purchase such required quantities in any year,
ProGas has the right to bill NEA monthly for interest at the rate of the
then-current Canadian Imperial Bank of Commerce prime rate plus 2% on the
contract price that would have been payable in respect of the shortfall amount.
Further, following any such year in which NEA fails to take such percentage of
the annualized Daily NEA Quantity, ProGas has the right to renegotiate the Daily
NEA Quantity unless NEA was unable to take the required amount due to the
temporary inability of the NEA Project to utilize the gas supplies. If NEA
requests volumes in excess of the Daily NEA Quantity, ProGas may accommodate
such requests on a best efforts basis. If ProGas fails to deliver the required
quantities on a sustained basis, ProGas will, contingent on receipt of any
necessary regulatory approvals extend deliveries beyond the primary term in
order to permit NEA to recover such deficiencies. If ProGas fails to deliver the
required quantities in any contract year by an amount greater than ten percent,
NEA has the right to renegotiate the Daily NEA Quantity. If the NEA Facility
experiences certain outages and NEA does not require natural gas for any other
purpose, NEA may notify ProGas that such gas supplies are available to ProGas
for resale. ProGas will use all reasonable efforts to remarket such gas supplies
in order to relieve NEA of its purchase obligations.
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Term. The term of the NEA ProGas Agreement is 22 years expiring November 1,
2013. The final seven years of this term constitutes an extension of the
original 15 year term which has been agreed to by the parties and approved by
the producers and Canadian regulatory authorities.
Delivery Point. Gas delivered by ProGas under the NEA ProGas Agreement is
delivered to the Import Point at Niagara Falls, Ontario/Niagara Falls, New York.
For a description of transportation arrangements for such gas from the Import
Point to the NEA Project, see "-Gas Transportation and Storage Agreements"
below.
Price. The actual billings to NEA by ProGas are developed through the use
of a two-part rate structure, consisting of a monthly demand charge which is
subject to a commodity charge. The monthly demand charge is the product of the
average Daily NEA Quantity and the monthly demand rate where the monthly demand
rate is the sum of (i) the monthly demand toll per Mcf, as determined by
Canada's National Energy Board, charged to ProGas by TransCanada PipeLines
Limited, a Canadian Transporter ("TransCanada"), (ii) the monthly demand toll
per Mcf charged by NOVA Corporation of Alberta, also a Canadian Transporter, to
ProGas and (iii) the monthly demand toll per Mcf charged by ProGas as approved
by the Alberta Petroleum Marketing Commission. Payments pursuant to this monthly
demand charge are based on the anticipated Daily NEA Quantities under the NEA
ProGas Agreement. The monthly demand charge is payable regardless of the actual
volume of gas delivered.
The commodity charge is applied to volumes of gas actually delivered under
the NEA ProGas Agreement and is the difference between the unitized monthly
heating demand rate and the then applicable "base price" escalated from U.S.
$2.7665 per Dth as of January 1, 1990. The "base price," as theretofore
escalated, was further increased by $.038 per Mcf, effective December 1, 1994.
Escalation of the "base price" is determined by reference to the escalation
rates in the Power Purchase Agreements for both Projects. The "base price" for
approximately 70% of the contract quantities is escalated using the weighted
average of (I) the fixed escalators applicable to NEA's fixed price power sales
and (ii) the changes in fuel prices that determine escalation of price under
NEA's Avoided Cost contracts. No more than 150 MW of Avoided Cost sales are
included in this weighing at a price no lower than a floor price of 6.5 cents
per kWh. The remaining contract quantities, approximately 30%, have a "base
price" adjusted annually by the change in the cost of natural gas purchased by
New Jersey electric utilities as reported in FERC Form 423.
The price of gas sold pursuant to the NEA ProGas Agreement will be adjusted
in the event that (i) the NJEA Project has ceased to operate for a period of six
consecutive months and (ii) ProGas is not selling gas under the NJEA ProGas
Agreement on a monthly basis at least equal to 65% of the Daily NJEA Quantity
(as defined below). The price adjustment will be subject to an escalator based
on natural gas costs as determined by FERC and the pricing provisions contained
in the NJEA ProGas Agreement. In any contract year commencing on or after
November 1, 2001, the contract pricing also is subject to renegotiation or
arbitration if the contract prices do not track comparable long-term service
contracts then prevailing. Arbitration conducted between November 1, 2001 and
October 31, 2006 may result in an increase in the escalation of the "base
price," while arbitration conducted between November 1, 2006 and the end of the
term may result in an increase or decrease in the rate of escalation of the
"base price." In either time period, the change is not to impair the ability of
NEA to cover operating costs of the NJEA project or to service the debt on the
project, nor is it to cause a materially adverse affect on NEA's net cash flow
from the NJEA project. The actual price of the natural gas service, however, is
not subject to arbitration in either time period.
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NEA's Right to Pay Gas Transporters and Gas Producers Directly. In the
event of ProGas' bankruptcy, insolvency or failure to pay any transporter of
gas, or to pay gas producers with reserves dedicated in whole or in part to the
NEA ProGas Agreement any amounts due them for transportation services or sale of
gas relating to transportation of gas for ultimate redelivery to NEA or sale of
gas for resale to NEA, NEA shall have the right to the extent permitted by
ProGas' contractual arrangements with transporters or gas producers and subject
to any limitation imposed by law or regulation, to withhold payments due ProGas,
in whole or in necessary part, and from such withheld amounts to pay directly to
any transporter or gas producer the amount due to it from ProGas.
Termination. In the event NEA is 60 or more days in arrears on undisputed
amounts payable, ProGas may terminate the NEA ProGas Agreement provided it has
given NEA 15 days' written notice of its intent to exercise such right in the
event the arrears is not cured within that period. In addition, ProGas may
terminate the NEA ProGas Agreement in the event that each of the following
conditions has occurred and is continuing: (i) NEA has filed a petition of
bankruptcy, (ii) NEA has failed to take an average of 50% of the Daily NEA
Quantity for six consecutive months or has failed to resume acceptance at an
average of 65% of the Daily NEA Quantity during the last month of the six-month
period and (iii) NEA's failure to take such Daily NEA Quantity for such period
is not the result of a force majeure event. NEA may terminate the NEA ProGas
Agreement in the event that each of the following conditions has occurred and is
continuing: (i) ProGas has filed a petition of bankruptcy, (ii) ProGas has
failed to deliver 50% of the volumes designated for six consecutive months or
has failed to resume delivery at a rate of 65% of the volumes scheduled for
daily delivery during the last month of the six month period and (iii) ProGas'
failure to deliver such volumes for such period is not the result of a force
majeure event. In the event that any change in applicable law has a materially
adverse effect on the terms of performance under the NEA ProGas Agreement, the
party adversely affected may terminate such agreement.
NJEA Gas Purchase Agreements
NJEA ProGas Agreement
Quantities. The Gas Purchase Contract dated as of May 12, 1988 and amended
as of April 17, 1989, June 23,1989, November 1, 1991, and July 30, 1993 between
NJEA and ProGas (the "NJEA ProGas Agreement") provides for the sale by ProGas to
NJEA of 22,354 Mcf of natural gas per day, with an equivalent heating value of
at least 22,019 Dth (the "Daily NJEA Quantity"). If NJEA fails to take 75% of
the annualized Daily NJEA Quantity in any contract year, then NJEA is required
to purchase additional gas in the following contract year to make up any such
deficiency. If NJEA fails to purchase such required quantities in any year,
ProGas has the right to bill NJEA monthly for interest at the rate of the
then-current Canadian Imperial Bank of Commerce prime rate plus 2% on the
contract price that would have been payable in respect of the shortfall amount.
Further, following any such year in which NJEA fails to take such percentage of
the annualized Daily NJEA Quantity, ProGas has the right to renegotiate the
Daily NJEA Quantity unless NJEA was unable to take the required amount due to
the temporary inability of the NJEA Project to utilize the gas supplies, if NJEA
requests volumes in excess of the Daily NJEA Quantity, ProGas may accommodate
such requests on a best efforts basis. If ProGas fails to deliver the required
quantities on a sustained basis, ProGas will, contingent on receipt of any
required regulatory approvals, extend deliveries beyond the primary term in
order to permit NJEA to recover such deficiencies. If ProGas fails to deliver
the required quantities in any contract year by an amount greater than ten
percent, NJEA has the right to renegotiate the Daily NJEA Quantity. If the NJEA
Facility experiences certain outages and NJEA does not require natural gas for
any other purpose, NJEA may notify ProGas that such gas supplies are available
to ProGas for resale. ProGas will use all reasonable efforts to remarket such
gas supplies in order to relieve NJEA of its purchase obligations.
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<PAGE>
Term. The term of the NJEA ProGas Agreement is 22 years expiring November
1, 2013. The final seven years of this term constitutes an extension of the
original 15 year term, which has been agreed to by the parties and approved by
the producers and Canadian regulatory authorities.
Delivery Point. Gas delivered by ProGas under the NJEA ProGas Agreement is
delivered to the Import Point at Niagara Falls, Ontario/ Niagara Falls, New
York. For a description of transportation arrangements for such gas from the
Import Point to the NJEA Project see "-Gas Transportation and Storage
Agreements" below.
Price. The actual billings to NJEA by ProGas are developed through the use
of a two-part rate structure, consisting of a monthly demand charge which is
subject to a commodity charge. The monthly demand charge is the product of the
average Daily NJEA Quantity and the monthly demand rate where the monthly demand
rate is the sum of (i) the monthly demand toll per Mcf, as determined by
Canada's National Energy Board, charged to ProGas by TransCanada, (ii) the
monthly demand toll per Mcf charged by NOVA Corporation of Alberta, also a
Canadian Transporter, to ProGas and (iii) the monthly demand toll per Mcf
charged by ProGas as approved by the Alberta Petroleum Marketing Commission.
Payments pursuant to this monthly demand charge are based on the anticipated
Daily NJEA Quantities under the NJEA ProGas Agreement. The monthly demand charge
is payable regardless of the actual volume of gas delivered.
The commodity charge is applied to volumes of gas actually delivered under
the NEA ProGas Agreement and is the difference between the unitized monthly
heating demand rate and the then applicable "base price" escalated from U.S.
$2.7665 per Dth as of January 1, 1990. The "base price" as theretofore
escalated, was further increased by $.038 per Mcf, effective December 1, 1994
Such escalation rate is adjusted annually by the change in the cost of natural
gas purchased by New Jersey electric utilities as reported in FERC Form 423.
The price of gas, sold pursuant to the NJEA ProGas Agreement will be
adjusted in the event that (i) the NEA Project has ceased to operate for a
period of six consecutive months and (ii) ProGas is not selling gas under the
NEA ProGas Agreement on a monthly basis at least equal to 65% of the Daily NEA
Quantity (as defined below). The price adjustment will be subject to an
escalator based on natural gas costs as determined by FERC and the pricing
provisions contained in the NEA ProGas Agreement. In any contract year
commencing on or after November 1, 2001, the contract pricing also is subject to
renegotiation or arbitration if the contract prices do not track comparable long
term service contracts then prevailing. Arbitration conducted between November
1, 2001 and October 31, 2006 may result in an increase in the escalation of the
"base price," while arbitration conducted between November 1, 2006 and the end
of the term may result in an increase or decrease in the rate of escalation of
the "base price." In either time period, the change is not to impair the ability
of NJEA to cover operating costs of the NEA project or to. service the debt on
the project, nor is it to cause a materially adverse effect on NJEA's net cash
flow from the NEA project. The actual price of the natural gas service, however,
is not subject to arbitration in either.
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<PAGE>
NJEA's Right to Pay Gas Transporters and Gas Producers Directly. In the
event of ProGas' bankruptcy, insolvency or failure to pay any transporter of
gas, or to pay gas producers with reserves dedicated in whole or in part to the
NJEA ProGas Agreement any amounts due them for transportation services or sale
of gas relating to transportation of gas for ultimate redelivery to NJEA or sale
of gas for resale to NJEA, NJEA shall have the right to the extent permitted by
ProGas' contractual arrangements with transporters or gas producers and subject
to any limitation imposed by law or regulation, to withhold payments due ProGas,
in whole or in necessary part, and from such withheld amounts to pay directly to
any transporter or gas producer the amount due to it from ProGas.
Termination. In the event NJEA is 60 or more days in arrears on undisputed
amounts payable, ProGas may terminate the NJEA ProGas Agreement provided it has
given NJEA 15 days' written notice of its intent to exercise such right in the
event the arrears is not cured within that period. In addition, ProGas may
terminate the NJEA ProGas Agreement in the event that each of the following
conditions has occurred and is continuing: (i) NJEA has filed a petition of
bankruptcy, (ii) NJEA has failed to take an average of 50% of the Daily NJEA
Quantity for six consecutive months or has failed to resume acceptance at an
average of 65% of the Daily NJEA Quantity during the last month of the six-month
period and (iii) NJEA's failure to take such Daily NJEA Quantity for such period
is not the result of a force majeure event. NJEA may terminate the NJEA ProGas
Agreement in the event that each of the following conditions has occurred and is
continuing: (I) ProGas has filed a petition of bankruptcy, (ii) ProGas has
failed to deliver 50% of the volumes designated for six consecutive months or
has failed to resume delivery at a rate of 65% of the volumes scheduled for
daily delivery during the last month of the six-month period and (iii) ProGas'
failure to deliver such volumes for such period is not the result of a force
majeure event. In the event that any change in applicable law has a materially
adverse effect on the terms of performance under the NJEA ProGas Agreement, the
party adversely affected may terminate such agreement.
PSE&G Contract
The Gas Purchase and Sales Agreement dated as of May 4, 1989 between NJEA
and PSE&G (the "PSE&G Contract"), provides for the sale by PSE&G to NJEA of gas,
and for certain gas transportation services.
Sale of Gas. PSE&G sells to NJEA up to 25,000 dekatherms of gas per day
subject to "Service Interruptions" by PSE&G discussed below. NJEA has the option
to purchase additional gas (i) at NJEA's request on a daily basis subject to
PSE&G's ability to provide such amounts, (ii) under an Extended Gas Service (as
defined herein) option if PSE&G retains gas on certain "peak days" and (iii)
commencing November 1 and ending March 31 for "winter-seasonal service" up to a
specified amount with appropriate notice.
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Transportation Service. PSE&G transports for NJEA all of the fuel required
to operate the NJEA Project (from points originating in PSE&G's service
territory to the delivery point at the NJEA Project), including all gas
purchased by NJEA from ProGas, gas purchased on the open market and gas
delivered from storage. NJEA may deliver to PSE&G for transport to the NJEA
Project up to 32,500 dekatherms of gas per day purchased from sources other than
PSE&G, and PSE&G is required to redeliver an equal quantity to the NJEA Project
except in certain limited circumstances on "peak days." In the event that NJEA
has delivered to PSE&G for transport in any calendar month an amount less than
the amount redelivered by PSE&G to the NJEA Project in such calendar month and
NJEA falls to correct the resulting imbalance in the immediately following
month, then PSE&G will sell to NJEA at NJEA's request a quantity of gas equal to
up to 10% of the gas used by NJEA in the month of the imbalance at a price equal
to the commodity charge under the PSE&G Contract plus a penalty fee of three
times the "service charge" discussed below.
Term. The term of the PSE&G Contract is 20 years expiring August 12, 2011.
The PSE&G Contract does not include any renewal provision.
Price. The monthly price payable by NJEA to PSE&G for gas sold under the
PSE&G Contract equals the sum of (i) a "customer charge" (indexed to the
Implicit Price Deflator of GNP as published by the United States Department of
Commerce, Bureau of Economic Analysis in its "Survey of Current Business")
initially set in 1990 at $86 per month and adjusted annually as of the first
calendar day of each succeeding year, (ii) a "commodity charge" per dekatherm
sold by PSE&G to NJEA based upon the average costs incurred by PSE&G in
acquiring gas during such month, (iii) a "service charge" (indexed to the
weighted average change in PSE&G's natural gas rates as approved by the New
Jersey Board of Public Utilities) initially set in 1990 at $0.30 per dekatherm
delivered and (iv) a "loss and shrinkage charge" equal to 1.5% of the monthly
"commodity charge." The price for additional amounts purchased under the
Extended Gas Service option includes a "service charge" and an "extended gas
service charge." The price for additional amounts purchased under the
winter-seasonal service is equal to the "extended gas service charge" plus a
delivery charge. If PSE&G retains gas on certain "peak days" PSE&G will pay to
NJEA a "Peak Gas Service Credit" described below under "Service Interruption."
The monthly price payable by NJEA to PSE&G under the PSE&G Contract for the
transportation of gas purchased by NJEA from gas suppliers other than PSE&G is
the product of the number of dekatherms of gas transported multiplied by the
monthly "service charge" described in clause (iii) above. NJEA may elect to
renegotiate the sales price under the PSE&G Contract if the actual price charged
thereunder to NJEA in any one-year period ending on October 31 exceeds the
comparable average gas cost incurred by New Jersey electric utilities by 15%.
Conversely, if such price is less than 85% of the comparable average gas cost
incurred by New Jersey electric utilities, then PSE&G may elect to renegotiate
the sales price. To date, actual prices have not fallen above or below this
range. If NJEA and PSE&G are unable to renegotiate the sales price, the parties
may elect to terminate the sales provisions contained in the PSE&G Contract
without terminating the transportation provisions contained therein. During
1997, the "customer charge" was approximately $97 per month, the "commodity
charge" was approximately $.32928 per dekatherm, and the "service charge" was
approximately $.32928 per dekatherm.
Quantity Adjustments. All quantities specified in the PSE&G Contract, upon
30 days' written notice to PSE&G, may be adjusted by NJEA to reflect changes in
the percentage of gas that is retained by Canadian or U.S. pipelines
transporting gas for NJEA in order to provide the NJEA Project with the same
delivered quantity as existed prior to such changes.
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<PAGE>
Service Interruption. PSE&G may interrupt sales and transportation service
to the NJEA Project on "peak days" when the mean daily temperature forecast for
Newark, New Jersey is 22 (degree) F or below. On such days, PSE&G may retain the
gas supplies tendered to it by NJEA. This occurred on 4 days during 1997. At
NJEA's election, PSE&G will offer Extended Gas Service on such days, unless the
mean daily temperature forecast is 14(degree) F or below. In the latter case
PSE&G may curtail all service to NJEA and the NJEA Project may not be able to
operate. This occurred on 2 days during 1997. The price of Extended Gas Service
is based upon the cost to PSE&G of propane supplies delivered to its processing
facilities plus a mark-up. During 1997, NJEA purchased 908,290 dekatherms of
Extended Gas Service supplies at an average price of $8.813 per dekatherm.
In exchange for the right to retain NJEA's gas supplies on those certain
peak days described above, PSE&G pays a demand charge to NJEA (the "Peak Gas
Service Credit") which is indexed to demand charges paid by NJEA for the
transportation and storage of its supplies in the U.S. The Peak Gas Service
Credit is subject to a floor of 37% of the PSE&G "service charge" and a cap of
68% of the "service charge." During 1997, PSE&G paid NJEA over $2 million in
Peak Gas Service Credits. In addition, PSE&G pays NJEA for gas retained
according to a formula which prices these supplies at the greater of (i) the
weighted average commodity cost of PSE&G for natural gas supplies purchased from
all sources, or (ii) an amount which is the lesser of the market price of fuel
oil per dekatherm or PSE&G's propane cost per dekatherm. During 1997, PSE&G
retained 120,288 dekatherms at an average price of $5.199916 per dekatherm.
Termination. In the event either party is in arrears on undisputed amounts
payable, the party to whom payment is owed may provide the other party with a
written protest of failure to pay and suspend performance 15 days later if the
failure continues, and, in addition, may terminate the contract upon written
notice to the other party. In the event regulatory authorities having
jurisdiction take any action that requires an increase in the "service charge"
described above under "Price," or materially alters the method for the
calculation of the sales price, NJEA may terminate the PSE&G Contract on 90
days' notice in writing to PSE&G.
Gas Transportation and Storage Agreements
The following table identifies the Long-term Gas Transportation Agreements
and Long-term Gas Storage Agreements and sets forth certain information with
respect thereto. The Long-term Gas Storage Agreements provide contractual
arrangements for the storage of limited volumes of gas with third parties for
future delivery to the Projects.
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NEA -- Transportation Agreements
Maximum Daily Contract
Gas Transporter and Agreements Quantity Expiration Date
- ------------------------------ -------- ---------------
CNG Transmission Corporation 48,817 Dth November 1, 2011
Firm Transportation Service
Agreement
Rate Schedule X-71
CNG Transmission Corporation 1,654 Dth Winter March 31, 1999
Service Agreement Applicable to 828 Dth Summer
Transportation of Natural Gas
Rate Schedule FT:
Transcontinental Gas Pipe Line 48,800 Mcf October 31 2006
Corporation
Firm Gas Transportation Agreement
Rate Schedule X-320
Algonquin Gas Transmission Company 62,000 Dth November 30, 2016
Service Agreement
Rate Schedule AFT-1
CNG Transmission Corporation 14,000 Dth March 31, 2012
Service Agreement Applicable to
the Storage of Natural Gas (1)
Rate Schedule FT-GSS-11
Texas Eastern Transmission 14,000 Dth March 31, 2012
Corporation
Service Agreement
Rate Schedule FTS-5
- -------------
(1) Includes an agreement for the transportation of natural gas held in storage.
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<PAGE>
NEA -- Transportation Agreements
Maximum Daily Contract
Gas Transporter and Agreements Quantity Expiration Date
- ------------------------------ -------- ---------------
CNG Transmission Corporation Firm 22,019 Dth November 1, 2011
Transportation Service Agreement
Rate Schedule X-70
CNG Transmission Corporation 746 Dth Winter March 31, 1999
Service Agreement Applicable to 372 Dth Summer
Transportation of Natural Gas,
Rate Schedule FT
Transcontinental Gas Pipe Line 22,019 Mcf October 31, 2006
Corporation
Firm Gas Transportation Agreement
Rate Schedule X-319
Public Service Electric & Gas 32,500 Dth August 12, 2011
Company
Gas Purchase and Sales Agreement
CNG Transmission Corporation 10,508 Dth March 31, 2012
Service Agreement Applicable to
the Storage of Natural Gas (1)
Rate Schedule FT-GSS-11
Texas Eastern Transmission 10,508 Dth March 31, 2012
Corporation
Service Agreement
Rate Schedule FTS-5
- -------------
(1) Includes an agreement for the transportation of natural gas held in
storage.
NEA -- Storage Agreements
Maximum Daily Contract
Gas Transporter and Agreements Quantity Expiration Date
- ------------------------------ -------- ---------------
CNG Transmission Corporation Withdrawal: 14,000 Dth March 31, 2012
Service Agreement Applicable Injection: 10,000 Dth
to the Storage of Natural Gas Capacity: 1,400,000 Dth
Rate Schedule GSS-11
- ----------------------------
NJEA - Storage Agreements
Maximum Daily Contract
Gas Transporter and Agreements Quantity Expiration Date
- ------------------------------ -------- ---------------
CNG Transmission Corporation Withdrawal: 10,508 Dth March 31, 2012
Service Agreement Applicable Injection: 7,506 Dth
to the Storage of Natural Gas Capacity: 1,050,800 Dth
Rate Schedule GSS-11
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Operations and Maintenance Agreements
NEA Operations and Maintenance Agreement
The Second Amended and Restated Operation and Maintenance Agreement for the
NEA Project dated as of June 28, 1989, as amended, between NEA and Westinghouse
Electric (the "NEA O&M Agreement"), provides for the operation and maintenance
by Westinghouse Services (the "Operator") of the NEA Project.
Term. The term of the NEA O&M Agreement extends for an initial term of 10
years expiring September 15, 2001. The Operator has agreed, pursuant to a letter
agreement with NEA dated as of June 23, 1993, to enter into a successor
agreement for a term of ten years at NEA's option, with payments to be made to
the Operator for certain services on either a firm-price basis, subject to
successful negotiation of terms by the parties, or a cost-plus basis. In the
event that the agreement is not extended on either basis, the Operator is to
provide assistance to effect a transition to a new service provider. Pursuant to
the New NEA O&M Agreement, the New Operator is providing certain services for
the NEA Project, and has agreed to replace Westinghouse Services as the operator
of the NEA Project upon the expiration or early termination of the NEA O&M
Agreement.
Basic Obligations. The Operator has agreed to provide all operations and
maintenance services, including scheduled all major maintenance and has agreed
to provide all personnel, spare parts and consumables necessary in order to
operate and maintain the NEA Project. Such services include all services
necessary or advisable to use, operate and maintain the NEA Project in good
operating condition and in compliance with (i) the NEA Project Documents, (ii)
all insurance policies relating to the NEA Project, (iii) the procedures
established in the operation and maintenance manuals provided pursuant to the
construction contract for the NEA Project, or applicable industry guidelines,
(iv) all applicable prudent industry practices and standards, (v) vendor and
manufacturer requirements or conditions, as applicable, (vi) the standards set
forth in the NEPOOL Agreement, (vii) the operating and maintenance procedures
established by the Operator in accordance with the NEA O&M Agreement and (viii)
any and all governmental approvals, licenses or permits associated with the NEA
Project. Substantive changes to the obligations of the Operator require consent
of NEA and of an independent engineer to a written "change order" request of the
Operator.
Compensation. For the initial term, NEA has agreed to pay the Operator a
monthly fee (the "NEA O&M Fee") of $435,417 (in 1990 dollars), subject to a
biannual adjustment each January and July calculated on the basis of certain
national indices for the cost of labor, materials and producer prices. The NEA
O&M Fee incurred during 1997 was $6,550,447 (excluding heat rate and performance
bonuses).
Performance Guarantees. The NEA O&M Agreement specifies certain guaranteed
performance levels for the NEA Project, including but not limited to (i)
guaranteed electrical output of approximately 290 MW of capacity, adjusted for
variations from standard operating conditions and excused downtime and by 3% per
annum for plant degradation, at 90% average availability, when the NEA Project
is being fueled by 100% pipeline quality natural gas, (ii) guaranteed electrical
output of approximately 290 MW of capacity, adjusted for variations from
standard operating conditions and excused downtime, at 83% for purposes of
liquidated damages calculations or 85% for purposes of bonus payments average
availability, when the NEA Project is burning a combination of natural gas and
fuel oil, (iii) guaranteed steam output of not less than 5% of the total energy
output of the NEA Project, with an affirmative obligation for the Operator to
correct any deficiency as NEA's sole remedy, (iv) guaranteed fuel consumption,
as adjusted to reflect variations from standard conditions, not in excess of
certain agreed upon levels with an affirmative obligation to correct
inefficiencies and, in certain circumstances, to reimburse excess fuel costs and
(v) a guarantee that emissions will not exceed certain agreed upon levels, with
remediations the sole liability in the event of failure to maintain such levels.
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Catastrophic Loss of Viability. Subject to the provisions regarding
liquidated damages and the limitations on the Operator's liability contained in
the NEA O&M Agreement, the Operator has agreed to pay off the outstanding
balance of NEA's senior debt financing for the NEA Project (which would include
the Project Notes (as defined herein)) upon the occurrence of certain specified
events, including the following: (i) the destruction of the NEA Project; (ii)
the unavailability of insurance proceeds or the lapse of insurance policies in
respect of such destruction, in either case, as a result of the Operator's acts
or omissions; (iii) the inability of NEA to service its senior debt as a result
of a catastrophic loss of viability; (iv) the failure of attempts to cure; and
(v) the acceleration of the entire principal balance of NEA's senior debt
financing for the NEA Project.
Liquidated Damages. The Operator has agreed to pay liquidated damages to
NEA in the following amounts for shortfalls in the annual (adjusted) number of
MWH produced below the guaranteed performance levels described above: (i) $15
per MWH for the first 100,000 MWH of shortfall, (ii) $33 per MWH for the second
100,000 MWH of shortfall and (iii) $50 per MWH for all additional MWH of
shortfall. Aggregate liquidated damages are subject to a maximum cumulative
liability of the Operator (excluding certain indemnities) of $9 million in any
operating year, and $60 million over the initial term of the NEA O&M Agreement.
During any extension period, the maximum liability of the Operator under the NEA
O&M Agreement is reduced to $3 million (in 1993 dollars) in any operating year.
Bonus Payment. In the event that the amount of energy generated by the NEA
Project exceeds the guaranteed electrical output, as adjusted for certain
specified excused outages and seasonal variations from standard operating
conditions, NEA has agreed to pay to the Operator the following amounts as a
bonus for each MWH of energy generated in excess of the guaranteed levels: (i)
$5 per MWH for the first 25,000 MWH of excess, (ii) $10 per MWH for the second
25,000 MWH of excess, and (iii) $15 per MWH for all additional MWH of excess. By
a letter agreement dated as of June 23, 1993, NEA and the Operator agreed that
NEA would pay the Operator the aggregate sum of $3.289 million as the heat rate
bonus for the initial term of the NEA O&M Agreement, payable in installments
(without interest) as follows: (i) an initial payment of $572,000 on December
30, 1992; and (ii) the remaining $2.717 million to be paid in equal annual
installments of $543,400 each on September 30 of each of the succeeding five
years except that in the event of a refinancing of the Original Project Credit
Agreement, a portion of the remaining balance of the heat rate bonus may be
payable at the time of the refinancing based on the amount of net proceeds. No
payment was due to the Operator pursuant to this provision in respect of the
refinancing effected by the issuance of the Project Securities. During any
extension period beyond the initial term of the NEA O&M Agreement, heat rate
bonuses will be payable based upon actual heat rates in each year, subject to a
maximum annual bonus of $1 million (in 1993 dollars). During 1997, NEA incurred
an aggregate heat bonus of $310,514.
Energy Bank. In the event that any Power Purchaser draws against any letter
of credit supporting the Energy Bank balances under its Power Purchase Agreement
solely as a result of the Operator's acts or omissions, the Operator is
obligated to refund the amount of such drawing to NEA.
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Termination. With the concurrence of an independent engineer, NEA has the
right to terminate the NEA O&M Agreement if (i) the Operator is in material
breach of any material provision of the NEA O&M Agreement (however, breach of
performance guarantees for which liquidated damages have been paid or
remediation has been undertaken by the Operator does not constitute material
breach for this purpose), and such breach has not been cured within 45 days of
written notice thereof, or as soon as practicable thereafter (ii) the actual
output of the NEA Project for four consecutive quarters is less than 67% of the
adjusted guaranteed MWH or (iii) the Operator is required in any given year to
pay the entire $9 million maximum liquidated damages allowed by the NEA O&M
Agreement. The Operator has the right to terminate the NEA O&M Agreement if NEA
fails to make any monthly payment, insurance reimbursement or payment in respect
of fuel off-loading services when due, if NEA fails to cure such failure within
30 days of written notice thereof. Either party may terminate the NEA O&M
Agreement (but only with the concurrence of an independent engineer in the case
of a termination by NEA) if the other party is insolvent, commences bankruptcy,
insolvency or reorganization proceedings or makes a general assignment for the
benefit of its creditors. The NEA O&M Agreement will terminate automatically in
the event that the NEA Project is subject to a catastrophic loss of viability
and the Operator makes the required payment with respect thereto as described
above under "-Catastrophic Loss of Viability."
After termination of the NEA O&M Agreement by written notice from NEA to
the Operator, NEA is entitled, in addition to its other remedies, to take
possession of the NEA Project and any spare parts located on the NEA Site. If
NEA takes possession of the NEA Project in this manner, the Operator will remain
liable for (i) all liquidated damages accrued but unpaid at the time of such
termination and (ii) for each remaining operating year following termination up
to September 15, 2001, the difference between (x) the amount that would have
been payable to the Operator pursuant to the NEA O&M Agreement as NEA O&M Fees
for such year and (y) the amount payable to a replacement operator for each such
operating year, provided, however, that the Operator's aggregate liability shall
not exceed the lesser of (a) 30% of the aggregate amounts payable to the
Operator in the year of termination or (b) $12.5 million. The Operator is to
have no other liability to NEA.
Right to Suspend Performance for Loss of Qualifying Facility Status. In the
event that the NEA Project is operated in a manner during any three-month period
in any calendar year that would result in the loss of its QF status if such
operation were to be continued for the remainder of such calendar year, and such
projected loss is confirmed by an independent engineer, NEA has agreed to take
reasonable steps to ensure that operating practices will maintain such QF
status. Under certain circumstances relating to a potential or actual loss of QF
status, the Operator may suspend performance under the NEA O&M Agreement and
find a replacement operator. See "Business -- Regulation -- Energy Regulation."
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NJEA Operations and Maintenance Agreement
The Amended and Restated Operations and Maintenance Agreement for the NJEA
Project dated as of June 28, 1989, as amended, between NJEA and Westinghouse
Electric (the "NJEA O&M Agreement") provides for the operation and maintenance
by Westinghouse Services (the "Operator") of the NJEA Project.
Term. The term of the NJEA O&M Agreement extends for an initial term of ten
years expiring September 15, 2001. The Operator has agreed, pursuant to a letter
agreement with NJEA dated June 23, 1993, to enter into a successor agreement for
a term of ten years at NJEA's option, with payments to be made to the Operator
for certain services on a fixed price basis, with major maintenance and certain
other items on a firm price basis, subject to negotiation of terms by the
parties, or on a cost-plus basis. Pursuant to the New NJEA O&M Agreement, the
New Operator is providing certain services for the NJEA Project, and has agreed
to replace Westinghouse Services as the operator of the NJEA Project upon the
expiration or early termination of the NJEA O&M Agreement.
Basic Obligations. The Operator has agreed to provide all operations and
maintenance services, including all scheduled major maintenance, and has agreed
to provide all personnel, spare parts and consumables necessary in order to
efficiently operate and maintain the NJEA Project. Such services include all
services necessary or advisable to use, operate and maintain the NJEA Project in
good operating condition and in compliance with (i) the NJEA Project Documents,
(ii) all insurance policies relating to the NJEA Project, (iii) the procedures
established in the operation and maintenance manuals provided pursuant to the
construction contract for the NJEA Project, or applicable industry guidelines,
(iv) all applicable prudent industry practices and standards, (v) vendor and
manufacturer requirements or conditions, as applicable, (vi) all applicable
requirements and guidelines adopted by PJM Interconnected Power Pool, including
the PJM Agreement, (vii) the operating and maintenance procedures established by
the Operator in accordance with the NJEA O&M Agreement and (viii) any and all
governmental approvals, licenses or permits associated with the NJEA Project.
Substantive changes to the obligations of the Operator require consent of NJEA
and of an independent engineer to a written "change order" request of the
Operator.
Compensation. For the initial term, NJEA has agreed to pay the Operator a
monthly fee (the "NJEA O&M Fee") of $493,750 (in 1990 dollars), subject to
adjustment in January and in July of each year, calculated on the basis of
certain national indices for the cost of labor, materials and producer prices.
The aggregate NJEA O&M Fee incurred during 1997 was $7,337,011 (excluding heat
rate and performance bonus payments).
Performance Guarantees. The NJEA O&M Agreement specifies certain guaranteed
performance levels for the NJEA Project, including but not limited to (i)
guaranteed electrical output of 90% of the approximately 275 MW of capacity,
adjusted for variations from standard operating conditions and excused downtime
and by 3% per annum for plant degradation, during on-peak hours (8:00 a.m. to
8:00 p.m. Monday through Friday, December through February and June through
September excluding holidays), (ii) guaranteed electrical output of 85% of the
approximately 275 MW of capacity, adjusted for variations from standard
operating conditions, during off-peak hours, (iii) guaranteed steam output of
not less than 5% of the total energy output of the NJEA Project, with an
affirmative obligation for the Operator to correct any deficiency as NJEA's sole
remedy, (iv) guaranteed fuel consumption, as adjusted to reflect variations from
standard conditions, not in excess of certain agreed upon levels with an
affirmative obligation to correct inefficiencies and, in certain circumstances,
to reimburse excess fuel costs as NJEA's sole remedy and (v) a guarantee that
emissions will not exceed certain agreed upon levels, with restriction of the
level of power output or cessation of operation of the NJEA Project until such
emissions guarantee is satisfied being the sole remedy in the event of failure
to maintain such levels.
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Catastrophic Loss of Viability. Subject to the provision regarding
liquidated damages and the limitations on the Operator's liability contained in
the NJEA O&M Agreement, the Operator has agreed to pay off the outstanding
balance of NJEA's senior debt financing for the NJEA Project (which would
include the Project Notes) upon the occurrence of certain specified events,
including the following: (i) the destruction of the NJEA Project, (ii) the
unavailability of insurance proceeds or the lapse of insurance policies in
respect of such destruction, in either case, as a result of the Operator's acts
or omissions, (iii) the inability of NJEA to service its senior debt as a result
of a catastrophic loss of viability, (iv) the failure of attempts to cure and
(v) the acceleration of the entire principal balance of NJEA's senior debt
financing for the NJEA Project.
Liquidated Damages. The Operator has agreed to pay liquidated damages to
NJEA in the following amounts for shortfalls in the annual (adjusted) number of
kWh produced below the guaranteed performance levels: (i) 1.5 cents per kWh of
off-peak shortfall, (ii) 2 cents per kWh of on-peak shortfall and (iii) if
actual on-peak output is less than 85% of average actual on-peak output during
the immediately preceding 3 operating years and NJEA is obligated to pay
liquidated damages in respect of such shortfall under the JCP&L Power Purchase
Agreement 3.6 cents per kWh of shortfall below 85% to the extent of NJEA's
liquidated damages obligation to JCP&L (or a total of 5.6 cents per kWh if a
part of the on-peak shortfall is below the requisite level). Aggregate
liquidated damages are subject to a maximum cumulative liability of the Operator
(excluding certain indemnities) of $9 million in any operating year, and $60
million over the initial term of the NJEA O&M Agreement. During any extension
period, the maximum liability of the Operator under the NJEA O&M Agreement is
reduced to $3 million (in 1993 dollars) in any operating year. Liquidated
damages payments will be made only if the cumulative downtime in any quarter
exceeds 180 hours during on-peak hours or exceeds 1044 hours during off-peak
hours.
Bonus Payments. In the event that the amount of energy generated by the
NJEA Project during on-peak hours exceeds the guaranteed electrical output, as
adjusted for certain specified excused outages and seasonal variations from
standard operating conditions, NJEA has agreed to pay to the Operator a bonus
for energy generated during such hours in excess of the guaranteed levels of 3.0
cents per kWh. In the event that the amount of energy generated by the NJEA
Project during off-peak hours exceeds the guaranteed electrical output, as
adjusted for certain specified excused outages and seasonal variations from
standard operating conditions, NJEA has agreed to pay to the Operator a bonus
for energy generated during such hours in excess of the guaranteed levels of 0.3
cents per kWh. By a letter agreement dated as of June 23, 1993, NJEA and the
Operator agreed that NJEA would pay the Operator the aggregate sum of $7.711
million as the heat rate bonus for the initial term of the NJEA O&M Agreement,
payable in installments (without interest) as follows: (i) an initial payment of
$1.156 million on December 30, 1992; and (ii) the remaining $6.555 million to be
paid in equal annual installments of $1.311 million each on September 30 of each
of the succeeding five years, except that in the event of a refinancing of the
Original Project Credit Agreement, a portion of the remaining balance of the
heat rate bonus may be payable at the time of the refinancing based on the
amount of the net proceeds. No payment was due to the Operator pursuant to this
provision in respect of the refinancing effected by the issuance of the Project
Securities. During any extension period beyond the initial term of the NJEA O&M
Agreement, heat rate bonuses will be payable based upon actual heat rates in
each year, subject to a maximum annual bonus of $1 million (in 1993 dollars).
Bonus payments will be made if the cumulative downtime in any quarter is less
than 150 hours during on-peak hours or is less than 1,044 hours during off-peak
hours. During 1997 NJEA incurred an aggregate heat rate bonus of $749,142.
Energy Bank. In the event that JCP&L draws against any letter of credit
supporting the Energy Bank obligations under its Power Purchase Agreement solely
as a result of the Operator's actions or omissions, the Operator is obligated to
refund the amount of such drawing to NJEA.
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Termination. With the concurrence of an independent engineer, NJEA has the
right to terminate the NJEA O&M Agreement if: (i) the Operator is in material
breach of any material provision of the NJEA O&M Agreement (however, breach of
performance guarantees for which liquidated damages have been paid or
remediation has been undertaken by the Operator does not constitute material
breach for this purpose), and such breach has not been cured within 45 days of
written notice thereof, or as soon as practicable in the event that such a cure
cannot be effected within 45 days, (ii) the actual output of the NJEA Project
for four consecutive quarters is less than 67% of the adjusted guaranteed output
or (iii) the Operator is required in any given year to pay the $9 million
maximum liquidated damages allowed by the NJEA O&M Agreement. The Operator has
the right to terminate the NJEA O&M Agreement if NJEA fails to make any monthly
payment, insurance reimbursement or payment in respect of refuel off-loading
services when due if NJEA fails to cure such failure within 30 days of written
notice thereof. Either party may terminate the NJEA O&M Agreement (but only with
the concurrence of an independent engineer in the case of a termination by NJEA)
if the other party is insolvent, commences bankruptcy, insolvency or
reorganization proceedings or makes a general assignment for the benefit of its
creditors. The NJEA O&M Agreement will terminate automatically in the event that
the NJEA Project is subject to catastrophic loss of viability and the Operator
makes the required payment with respect thereto as described above under
"-Catastrophic Loss of Viability."
After termination of the NJEA O&M Agreement by written notice from NJEA to
the Operator, NJEA is entitled, in addition to its other remedies, to take
possession of the NJEA Project and any spare parts located on the NJEA Site. If
NJEA takes possession of the NJEA Project in this manner, the Operator will
remain liable for (i) all liquidated damages accrued but unpaid at the time of
such termination and (ii) for each remaining operating year following
termination up to September 15, 2001, the difference between (x) the amount that
would have been payable to the Operator pursuant to the NJEA O&M Agreement as
NJEA O&M Fees for such year and (y) the amount payable to a replacement operator
for each such operating year, provided, however, that the Operator's aggregate
liability shall not exceed the lesser of (a) 30% of the aggregate amounts
payable to the Operator in the year of termination or (b) $12.5 million. The
Operator is to have no other liability to NJEA.
Right to Suspend Performance for Loss of Qualifying Facility Status. In the
event that the NJEA project is operated in a manner during any three-month
period in any calendar year that would result in the loss of its QF status if
such operation were to be continued for the remainder of such calendar year, and
such projected loss is confirmed by an independent engineer, NJEA has agreed to
take reasonable steps to ensure that operating practices will maintain such QF
status. Under certain circumstances relating to a potential or actual loss of
C)F status, the Operator may suspend its performance under the NJEA O&M
Agreement and find a replacement operator. See "Business -- Regulation -- Energy
Regulation."
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<PAGE>
New NEA and NJEA Operation and Maintenance Agreements
Each of The Operation and Maintenance Agreements, dated as of November 21,
1997 (the "New NEA O&M Agreement" and the "New NJEA O&M Agreement"), by and
between NE LP and ESI Operating Services, Inc. (the "New Operator"), provides
for the operation and maintenance by the New Operator of the NEA and NJEA
Projects respectively on the day following the expiration or early termination
of the NEA and NJEA O&M Agreements (each, an "Operating Period Commencement
Date"). Under the New NEA and NJEA O&M Agreements, the New Operator has agreed
to provide currently Oversight Services (defined below) and has agreed to
provide Transition Services (defined below), commencing ninety (90) days prior
to the applicable Operating Period Commencement Date (each, a "Transition
Services Commencement Date").
Term. The term of the New NEA and NJEA O&M Agreements extends for an
initial term of eighteen (18) years until January 14, 2016, subject to extension
by mutual agreement of the parties before six months preceding such expiration.
Oversight Services. The New Operator has agreed to provide certain
oversight services (the "Oversight Services") prior to the Operating Period
Commencement Date, including (i) reviewing certain Operator reports, proposed
changes in procedures, facility performance data, operating logs and records of
unplanned outages and annual generation forecasts, (ii) assessing NEA and NJEA
Site conditions on a quarterly basis, (iii) assessing the Operator's personnel,
policies, and procedures, (iv) analyzing all proposed capital expenditures for
the NEA and NJEA Project, (v) providing such technical support as reasonably
requested by NE LP and (vi) monitoring the Operator's activities during major
scheduled outages and major equipment overhauls.
Transition Services. On the Transition Period Commencement Date and until
the Operating Period Commencement Date, the New Operator has agreed to provide
certain transition services consisting of the review of existing maintenance and
operation records and the performance of all activities necessary to mobilize
its personnel (the "Transition Services"), including without limitation (i)
providing the necessary staff to operate and maintain the NEA and NJEA Projects
on the Operating Period Commencement Date, including relocation of such
personnel, review of personnel qualifications, recruiting and training, (ii)
preparing and submitting to NE LP (a) a transition plan and budget for the
orderly transition of operation and maintenance responsibilities for the NEA and
NJEA Projects, (b) an initial operation and maintenance plan for the upcoming
year, (c) an initial proposed budget for operating and maintaining the NEA and
NJEA Projects pursuant to such plan and (d) a proposed format for monthly
reports to be delivered by the New Operator following the Operating Period
Commencement Date, (iii) developing the necessary programs and procedures to
perform the operation and maintenance of the NEA and NJEA Projects and (iv)
identifying and procuring as NE LP's agent necessary tools, equipment, goods,
and other items and materials necessary to operate and maintain the NEA and NJEA
Projects.
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<PAGE>
Operation and Maintenance Services. On and following the Operating Period
Commencement Date, the New Operator has agreed to perform all activities
necessary to operate and maintain the NEA and NJEA Projects (the "O&M
Services"), provided that the O&M Services are not to include, and the New
Operator is not to be responsible for, supplying water, natural gas, appropriate
distillate fuel oil or start up electrical power for the NEA Project, securing
or maintaining certain permits to be obtained by NE LP or arranging for the sale
of steam or electricity, maintaining insurance other than the insurance
described below, and services to be provided by NE LP, as described below. The
O&M Services include without limitation, the following: (i) making available
qualified labor and professional, supervisory and managerial personnel,
including appointing the plant manager, (ii) maintaining the NEA and NJEA
Projects in compliance with all applicable laws and permits, including the
efficiency requirements set forth in 18 C.F.R. 292.205, and in accordance with
Prudent Utility Practices (as defined in the New NEA O&M Agreement), with the
approved annual plan, with the approved plant manual and with the Project
Documents, (iii) seeking appropriate warranties, (iv) performing certain audits
under the NEA and NJEA Power Purchase Agreement(s), (iv) disposing of waste
products from the NEA and NJEA Projects, (v) responding to emergencies in
accordance with certain requirements, (vi) performing all necessary services in
connection with Unscheduled Maintenance (as defined in the New NEA and NJEA O&M
Agreements) and establishing maintenance programs, (vii) performing accounting
activities, (viii) preparing various reports and coordinating with NE LP and the
NEA and NJEA Power Purchasers regarding operations, (ix) maintaining various
records of operation and maintenance, finances, accidents and other related
data, (x) procuring necessary inventory and (xi) providing certain technical
support services.
Owner Services. NE LP has agreed to provide certain services at its sole
cost and expense during certain periods, including without limitation, the
following: (i) providing the New Operator with copies of certain permits,
licenses, authorizations, as-built drawings of the NEA and NJEA Projects,
quarterly reports and Project Documents, (ii) providing access to the NEA and
NJEA Sites and NEA and NJEA Projects, (iii) securing and maintaining all permits
required for NE LP to operate the NEA and NJEA Projects, (iv) providing an
operating account to pay for costs incurred by the New Operator, (v) paying all
taxes relating to the NEA and NJEA Projects (except income taxes of the New
Operator) and (v) taking reasonable steps to allow the NEA and NJEA Projects to
meet QF standards.
Compensation. NE LP has agreed to pay to the New Operator a minimum fee of
$750,000 per annum for each Project, commencing on January 14, 1998, payable in
monthly installments and adjusted on January 1 of each year based on the
Producer Price Index for all Commodities, published by the Department of Labor,
Bureau of Labor Statistics. In addition, NE LP has agreed to pay to the New
Operator all properly incurred costs and expenses of performing the Transition
Services and the O&M Services.
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Termination. NE LP, may, by written notice to the New Operator, terminate
the New NEA and NJEA O&M Agreements if, prior to the Operating Period
Commencement Date, an independent engineer has not certified that the New
Operator is capable of operating the NEA and NJEA Projects in accordance with
Prudent Utility Practices. The New Operator may, by written notice to NE LP,
terminate the New NEA and NJEA O&M Agreements, if NE LP fails to make a payment
thereunder within 5 days after the same shall have become due. Either party may
terminate the New NEA and NJEA O&M Agreements by written notice if (i) the other
party defaults in the performance of any material term, covenant or obligation
contained in the New NEA and NJEA O&M Agreements and does not remedy such
default within 30 days after such party's receipt of the non-defaulting party's
written notice thereof to such party (or as soon as possible thereafter but in
any event within 180 days, if it cannot be reasonably accomplished in such 30
day period and the defaulting party has commenced all actions required to remedy
such default within such 30 day period and diligently thereafter pursues the
same to completion), (ii) certain bankruptcy or insolvency events as to the
other party occur, (iii) the NEA or the NJEA Project is destroyed or suffers
damage in excess of $100,000,000 and is not rebuilt and in commercial operation
within 24 months after such damage or destruction, (iv) the NEA or the NJEA
Project cannot be operated for a period of at least 18 consecutive months as a
result of a force majeure event, (v) the NEA or the NJEA Project loses its QF
status or (vi) NE LP determines to permanently shut down the NEA or NJEA
Project.
Assignment
Neither party may assign or otherwise convey its rights under the New NEA
and NJEA O&M Agreements, without the prior written consent of the other party
(such consent not unreasonably withheld), except that NE LP has agreed to assign
its rights and obligations under the New NEA O&M Agreement to NEA upon the later
to occur of (i) the applicable Operating Period Commencement Date and (ii) the
execution and delivery by NEA of a counterpart of the New NEA O&M Agreement to
NE LP and the New Operator and except that NE LP has agreed to assign its rights
and obligations under the New NJEA O&M Agreement to NJEA upon the later to occur
of the (i) applicable Operating Period Commencement Date and (ii) the execution
and delivery by NJEA of a counterpart of the New NJEA O&M Agreement to NE LP and
the New Operator.
Accommodation Agreement
NEA, Chase, as agent for the Original Banks, and the NEA Power Purchasers
have entered into an Accommodation Agreement dated as of June 28, 1989 (the
"Accommodation Agreement") confirming the NEA Power Purchase Agreements and the
declaration of easements, covenants, and restrictions giving the NEA Power
Purchasers certain rights in the event that possession of the NEA Project is
obtained by or transferred to a third party pursuant to an exercise of remedies
under the Project Security Documents, and subordinating the rights of the NEA
Power Purchasers under the NEA Second Mortgage on the NEA Project to those of
the financial institutions party to the Original Project Credit Agreement (as
defined herein) under the NEA Project Mortgage. In connection with the issuance
of the Original Project Securities, each of the NEA Power Purchasers affirmed
the Accommodation Agreement and agreed that the NEA Second Mortgage will be
subordinated to the NEA Project Mortgage.
In addition, the Collateral Agent has confirmed to the NEA Power Purchasers
that the rights granted to the NEA Power Purchasers under the Accommodation
Agreement described above, are in full force and effect with respect to the
Collateral Agent, including the rights granted to the NEA Power Purchasers under
the Declaration. As a result (i) if the Collateral Agent or any Project Secured
Party acquires possession of the NEA Project or the NEA Site, or NEA's interest
therein, pursuant to the exercise of rights or remedies under the Project
Security Documents, or otherwise, then it will be required, among other things,
to use reasonable efforts to perform or cause to be performed the obligations of
NEA under the NEA Power Purchase Agreements subject to certain conditions, and
to honor the Declaration, (ii) if the Collateral Agent or a Project Secured
Party transfers the NEA Project or the NEA Site pursuant to a foreclosure sale
or otherwise, it must require any prospective transferee to honor the NEA Power
Purchase agreement and the declaration of easements, covenants, and restrictions
and (iii) in the event of a casualty to the NEA Project, the Collateral Agent
and the Project Secured Parties will allow the application of Loss Proceeds (as
defined herein) to the repair or restoration of the NEA Project in accordance
with certain provisions specified in the Accommodation Agreement.
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Boston Edison Interconnection Agreement
The Amended and Restated Interconnection Agreement between Boston Edison
and NEA, dated September 24, 1993 (the "Boston Edison Interconnection
Agreement") provides for the electrical interconnection between the NEA Project
and Boston Edison's high voltage transmission line on its Right-of-Way No. 13.
This interconnection is used for the delivery of electricity to Boston Edison,
Montaup and Commonwealth pursuant to the NEA Power Purchase Agreements.
Term. The Boston Edison Interconnection Agreement will remain in effect
until the termination date of the latest to terminate of the NEA Power Purchase
Agreements. Boston Edison and NEA have agreed to remain interconnected during
the term of the Boston Edison Interconnection Agreement, so long as they can do
so without significant service disruptions and imminent danger to life or
property. An interruption of the interconnection for any of these reasons shall
continue only for so long as is reasonably necessary.
Operation and Maintenance. Each of NEA and Boston Edison owns and maintains
the respective facilities that it has constructed pursuant to the terms of the
Boston Edison Interconnection Agreement. Boston Edison and NEA have agreed to
operate the interconnection in accordance with NEPOOL's rules and requirements.
If NEPOOL ceases to establish such rules and requirements, the parties have
agreed to operate interconnection in compliance with requirements of Boston
Edison, provided that such requirements are reasonable and consistent with the
NEPOOL rules and requirements previously in effect. Boston Edison has the sole
right to schedule maintenance (routine or emergency) for its transmission lines
and other interconnection facilities used for the NEA Project. Boston Edison has
agreed to perform such maintenance and NEA has agreed to pay Boston Edison the
cost thereof. NEA has sole responsibility for operating and maintaining its
transmission lines and interconnection facilities at its own expense.
Payment. NEA has agreed to (i) pay or reimburse Boston Edison for all
engineering, design and construction costs incurred by Boston Edison in
providing the electrical interconnection, including a percentage of costs
attributable to indirect engineering and corporate overhead and (ii) reimburse
Boston Edison for all operation and maintenance expenses and all taxes
associated with Boston Edison's interconnection facilities used by the NEA
Project. If at any time FERC approves a tariff of Boston Edison applicable to
the interconnection services provided under the Boston Edison Interconnection
Agreement, such tariff shall be used to determine payments and compensation in
lieu of the payment terms contained in the agreement.
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Fuel Management Agreements
NEA and NJEA Fuel Management Agreements
Each of the Fuel Management Agreements, dated as of January 20, 1998 (the
"NEA Fuel Management Agreement"), by and between NE LP and ESI Northeast Fuel
Management, Inc., an affiliate of ESI Energy (the "Fuel Manager"), assigned by
NE LP to NEA on January 20, 1998, and the Fuel Management Agreement, dated as of
January 20, 1998, effective retroactive to January 14, 1998 (the "NJEA Fuel
Management Agreement" and together with the NEA Fuel Management Agreement, the
"Fuel Management Agreements"), by and between NE LP and the Fuel Manager,
assigned by NE LP to NJEA on January 20, 1998, provides for the management of
all natural gas (and in the case of the NEA Fuel Management Agreement, fuel oil
supply), transportation and storage agreements and the location and purchase of
any additional required natural gas (and in the case of the NEA Fuel Management
Agreement, fuel oil), by the Fuel Manager for each of the Projects.
Term. The term of the NEA Fuel Management Agreement extends for twenty-five
(25) years, expiring on January 14, 2023, and the term of the NJEA Fuel
Management Agreement extends for twenty-five (25) years, expiring on January 14,
2023.
Fuel Management Services. The Fuel Manager has agreed to provide fuel
management services for the NEA Project (the "NEA Fuel Management Services") and
for the NJEA Project (the "NEA Fuel Management Services"), including without
limitation: (i) preparation and modification of fuel transportation, storage and
supply plans, (ii) transportation scheduling, transportation balancing,
transportation imbalance reconciliation, proposals and possible utilization of
excess transportation capacity through scheduling and relinquishment or possible
sales to third parties, compliance with pipeline operational orders, general
operational and planning advice, (iii) monitoring of pipeline tariff filings and
possible intervention in FERC hearings, (iv) analysis of the NEA and NJEA
Projects' fuel requirements, (v) analysis of regional supply and demand,
sources, transportation, delivery, supply mechanisms and the regulatory
structure for natural gas (and, in the case of NEA, fuel oil), (vi) screening of
proposals by natural gas and fuel oil suppliers, and if approved by NEA or NJEA,
as the case may be, negotiation and obtainment of additional supply agreements
with such suppliers, (vii) evaluation of price risk management proposals, and if
agreed to by NEA or NJEA, as the case may be, negotiation and obtainment of such
risk management arrangements, (viii) review of existing and potential
transportation and storage arrangements for natural gas and fuel oil advisement
to NEA and NJEA concerning such arrangements, and if approved by NEA or NJEA, as
the case may be, negotiation and obtainment of such additional arrangements,
(ix) advisement concerning changes in cost, reliability, interruption or other
factors affecting supply of natural gas and fuel oil, advisement on alternative
supply arrangements, and if agreed to by NEA or NJEA, as the case may be, the
negotiation and obtainment of such alternative arrangements and (x) location and
purchase of replacement gas and fuel oil or transportation services in emergency
situations.
Compensation. NEA has agreed to pay to the Fuel Manager a minimum
management fee of $450,000 per annum for the services provided under the NEA
Fuel Management Agreement (the "NEA Fuel Management Fee"), and NJEA has agreed
to pay to the Fuel Manager a minimum management fee of $450,000 per annum for
the services provided under the NJEA Fuel Management Agreement (the "NJEA Fuel
Management Fee"), each payable in monthly installments and adjusted annually in
accordance with the Producer Price Index for All Commodities, published by the
Department of Labor, Bureau of Labor Statistics. In addition to the NEA and NJEA
Fuel Management Fees, NEA and NJEA have agreed to pay to the Fuel Manager all
properly incurred. costs and expenses of performing the NEA Fuel Management
Services and NJEA Fuel Management Services, respectively.
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Termination. NEA may, by written notice to the Fuel Manager, terminate the
NEA Fuel Management Agreement, and NJEA may, by written notice to the Fuel
Manager, terminate the NJEA Fuel Management Agreement, if the Fuel Manager acts,
in a material way, outside the authority granted to it by NEA pursuant to the
NEA Fuel Management Agreement or by NJEA pursuant to the NJEA Fuel Management
Agreement. The Fuel Manager may, by written notice to NEA or NJEA, as the case
may be, terminate their respective Fuel Management Agreements, if the offending
party fails to make a payment thereunder within 10 days after the same shall
have become due. Either party may terminate the NEA Fuel Management Agreement or
the NJEA Fuel Management Agreement by written notice if (i) the other party
fails, for reasons other than force majeure, to perform any of the material
covenants or obligations imposed upon it under and by virtue of the NEA Fuel
Management Agreement or the NJEA Fuel Management Agreement, as the case may be,
and does not remedy or cure such default (and the effects thereof) within 30
days after such party's receipt of the non-defaulting party's written notice
thereof (or within 90 days after receipt of such notice, in the case of defaults
not susceptible of cure within 30 days, provided, however, that the defaulting
party commences and diligently seeks to cure such default within such 30 day
period), (ii) the applicable Project is destroyed or suffers damage in excess of
$100,000,000 and is not rebuilt and in commercial operation within 24 months
after such damage or destruction, (iii) the applicable Project cannot be
operated for a period of at least 18 consecutive months as a result of a force
majeure event, (iv) the applicable Project loses its QF status or (v) NEA or
NJEA, as the case may be, determines to permanently shut down the applicable
Project.
Administrative Services Agreement
The Administrative Services Agreement dated as of November 21, 1997 between
NE LP and ESI GP (the "Administrative Services Agreement") provides for the
performance by ESI GP of certain services, as summarized below, to assist the
management committee of NE LP with the management and administration of NE LP
and the Partnerships.
Term
The Administrative Services Agreement extends for a term of 20 years
expiring January 14, 2018.
Services
ESI GP's general obligations under the Administrative Services Agreement
consist of (i) leading the negotiation and administration of all contracts to
which NE LP or either of the Partnerships is a party (subject to certain
contracts with Affiliates of ESI GP) (ii) implementing the annual budgets of
each of the Partnerships, NE LP and NE LLC, and other policies and directions
provided by the Management Committee, (iii) managing the affairs of NE LP and
each of the Partnerships and (iv) administering and coordinating any financing
to which NE LP is a party. In the event emergency actions are required and if
ESI GP is unable to consult with the Management Committee, ESI GP may make any
expenditures it deems advisable to protect and safeguard life and property with
respect to the Projects.
58
<PAGE>
ESI GP is also obligated to (i) administer the Fuel Management Agreements
on behalf of NE LP and the Partnerships, and monitor and supervise the Fuel
Manager's compliance therewith, (ii) administer the O&M Agreements and the New
O&M Agreements on behalf of NE LP and the Partnerships, and monitor and
supervise the Operator's and the New Operator's compliance therewith, (iii)
prepare the initial annual budgets of NE LP, NE LLC and the Partnerships for
review and approval by the Management Committee, (iv) report on the receipts and
expenditures of the NE LP, NE LLC and the Partnerships at each meeting of the
Management Committee as of a date reasonably close to the date of the meeting
and will recommend to the Management Committee any changes in the annual budgets
which it considers necessary or appropriate, (v) keep or cause to be kept
complete and accurate books, records and financial statements of NE LP and
supporting documentation of transactions with respect to the conduct of NE LP's
business and (vi) provide specified financial statements and reports to ESI GP,
Tractebel GP, ESI LP and Tractebel LP.
Administrative Services Fee
NE LP is obligated under the contract to pay to ESI GP a fee, payable
monthly, equal to $600,000 per annum (the "Administrative Services Fee"), as
adjusted upwards or downwards by multiplying the Administrative Services Fee for
the prior year by a fraction the numerator of which will be a producer price
index reported by the Department of Labor Bureau of Labor Statistics for the
immediately preceding December and the denominator of which will be such
producer price index for the month of December one year earlier; provided that
in no event shall the Administrative Services Fee be decreased below $600,000.
Neither of the Partnerships is liable for the payment of the Administration
Services Fee.
Administrative Expenses
NE LP is obligated under the contract to pay to ESI GP all out-of-pocket
costs and expenses of performing the services under the contract.
Termination
NE LP may terminate the Administrative Services Agreement (i) upon thirty
days' notice to ESI GP if ESI GP transfers its general partner interest in NE LP
(other than to an Affiliate) or (ii) upon written notice to ESI GP if ESI GP
materially defaults in the performance of any material term, covenant or
obligation contained in the Administrative Services Agreement and does not
remedy such default within thirty days after ESI GP's receipt of NE LP's written
notice thereof to ESI GP (or within 180 days, if it cannot be reasonably
accomplished in such thirty day period and ESI GP shall diligently take all
appropriate actions to remedy such default as soon as commercially practicable
within such thirty day period), in such case NE LP shall pay to ESI GP all
amounts due and not previously paid to ESI GP for services performed in
accordance with the Administrative Services Agreement through the effective date
of such termination. ESI GP may, by written notice
59
<PAGE>
to NE LP, terminate the Administrative Services Agreement if NE LP (i) fails to
make any payment under the Administrative Services Agreement within 5 days after
the same shall have become due or (ii) materially defaults in the performance of
any material term, covenant or agreement contained therein and does not remedy
such default within thirty days after NE LP's receipt of ESI GP's written notice
thereof to the Partnership (or within 180 days, if it cannot be reasonably
accomplished in such thirty day period and the Partnership shall have commenced
all actions required to remedy such default within such thirty day period).
Either party may terminate the Administrative Services Agreement by written
notice to the other party (but only with the concurrence of ESI GP in the case
of termination by NE LP) if (i) the other party is in bankruptcy or makes a
general assignment for the benefit of creditors; (ii) proceedings are commenced
or steps taken for the appointment of a receiver, custodian, liquidator, trustee
or similar person with respect to all or a substantial portion of the other
party's property; or (iii) any proceedings are commenced or steps taken by any
creditor, regulatory agency or other person relating to the reorganization,
arrangement, adjustment composition, liquidation, dissolution, winding up,
custodianship or other similar relief with respect to such other party.
PART II
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
This item is not applicable to ESI Tractebel Funding or the Partnerships.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
This item is not applicable to ESI Tractebel Funding or the Partnerships.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected combined financial data for
Northeast Energy Associates, A Limited Partnership and North Jersey Energy
Associates, A Limited Partnership for each of the five years in the period ended
December 31, 1997. The selected combined financial data for these years have
been derived from the Partnerships' audited combined financial statements. This
data should be read in conjunction with "FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
60
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Power sales to utilities(1) $234,142 $234,933 $276,022 $267,789 $307,530
Steam sales 4,684 3,779 4,527 4,473 4,624
-------- -------- -------- -------- --------
Total revenues $238,826 $238,712 $280,549 $272,262 $312,154
-------- -------- -------- -------- --------
Costs and expenses:
Costs of power and steam 132,580 128,402 132,839 138,727 151,476
Operation and maintenance 20,283 20,808 24,699 22,854 25,689
Depreciation 24,919 24,314 24,904 24,978 24,992
General and administrative 14,162 11,012 12,010 14,424 15,984
-------- -------- -------- -------- --------
Total operating costs
and expenses 191,944 184,536 194,452 200,983 218,141
-------- -------- -------- -------- --------
Operating income 46,882 54,176 86,097 71,279 94,013
Other (income) expense:
Amortization of financing
costs 2,599 2,333 2,305 2,373 2,163
Interest expense 38,992 38,068 50,930 49,841 47,673
Interest expense on energy
bank balance(1) 7,252 11,676 16,657 19,675 17,435
Interest income (700) (1,656) (10,652) (10,534) (9,931)
Expense related to future
obligations under interest
rate swap agreements -- 6,734 -- -- --
-------- -------- -------- -------- --------
Total other expense 48,143 57,155 59,240 61,355 57,340
-------- -------- -------- -------- --------
(Loss) income before
extraordinary item (1,261) (2,979) 26,857 9,924 36,673
Extraordinary item
Loss on extinguishment
of debt(3) -- 13,937 -- -- --
-------- -------- -------- -------- --------
Net (loss) income $ (1,261) $(16,916) $ 26,857 $ 9,924 $ 36,673
======== ======== ======== ======== ========
December 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 19,754 $ 74,145 $ 71,975 $ 58,846 $ 63,715
Total assets 546,484 650,027 617,034 566,392 541,431
Total loans payable(2)(5) 465,458 560,000 539,566 514,362 490,287
Energy Bank balances(4) 111,398 155,496 188,053 220,922 230,565
Partners' deficit (48,540) (92,928) (130,577) (187,479) (197,186)
</TABLE>
- -------------------------
(1) Power sales to utilities are net of change in Energy Bank principal
balance. Energy Bank principal balances represent cumulative payments made
to the Partnerships by Power Purchasers under certain Power Purchase
Agreements in excess of rates scheduled or specified in such agreements.
Under the terms of these agreements, such excess constitutes a liability
of the applicable Partnership to the applicable Power Purchaser, which
will be reduced by subsequent sales of electric power to such Power
Purchaser to the extent in later periods that the scheduled or specified
rate has risen above the contract rate, and must be repaid under certain
circumstances in cash.
(2) On December 1, 1994, the Partnerships refinanced their existing borrowings
by means of a placement of securities to institutional investors as
defined in Rule 144A of the Securities Act of 1933, as described in Note 5
of Notes to Combined Financial Statements.
(3) In connection with the refinancing, total unamortized financing costs
related to the Project Loan and Credit Agreement were written off during
1994, as described in Note 5 of Notes to Combined Financial Statements.
(4) Energy Bank principal balances plus accrued interest thereon.
(5) Loans payable balances at December 31, 1994, 1995, 1996 and 1997 represent
loans payable to ESI Tractebel Funding Corp. ESI Tractebel Funding Corp.,
formerly known as IEC Funding Corp., is a Delaware corporation established
in 1994 for the purpose of issuing debt securities for the financing of
the Partnerships.
61
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Combined Financial Statements of the Partnerships and the notes thereto
included elsewhere herein.
General
The Partnerships commenced commercial operations in the second half of
1991. The Partnerships' consolidated revenues are derived from, and costs are
incurred in connection with, the generation and sale of electricity and, to a
much lesser extent, the production and sale of thermal energy (steam).
Revenue from sales of electricity is recognized based on electricity
delivered at rates stipulated in the Power Purchase Agreements, except that
revenue recognition is deferred to the extent that such rates are in excess of
rates scheduled or specified in such agreements above which payment is subject
to recovery by certain of the Power Purchasers under certain circumstances. The
portion subject to deferred revenue recognition, which is referred to as the
"Energy Bank," is recorded as a liability of the applicable Partnership for
financial statement purposes. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS --
Power Purchase Agreements."
The capitalized costs of the Projects include initial acquisition costs,
increased by subsequent development and construction costs, including test
period operations, construction management fees and interest during
construction. The capitalization period ceased when construction of each Project
was complete and satisfactorily tested. Capitalized costs are depreciated over
the estimated useful life of each Project. Costs incurred during the development
and construction period that were not directly related and incremental to
project development and construction were expensed in the period incurred.
The Acquisitions
The Partners acquired all of the partnership interests in each of the
Partnerships on January 14, 1998, pursuant to the Purchase Agreement. In
connection with the acquisition of all of the partnership interests in the
Partnerships, ESI Funding and Tractebel Power each acquired a thirty-seven and
one-half percent (37.5%) interest in ESI Tractebel Funding. The Partners paid
the purchase price for all of the partnership interests in the Partnerships and
for seventy-five percent (75%) of the outstanding shares of capital stock in ESI
Tractebel Funding from contributions made by each of ESI GP, Tractebel GP, ESI
LP and Tractebel LP, the partners of NE LP. The Acquisitions will be accounted
for under the purchase method; accordingly, the carrying value of the assets
acquired and liabilities assumed of the Partnerships will be adjusted based upon
the final purchase price allocation, including an allocation to above-market
power purchase contracts.
Results of Operations
The following table sets forth the combined results of the Partnerships'
operations and the percentage of gross operating revenues and receipts
represented by certain components of operating costs and income for the three
years ended December 31, 1997.
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<PAGE>
Years Ended December 31,
-----------------------------------------------------
1995 1996 1997
---- ---- ----
Gross operating
revenues and
receipts(1)........... $296,449 100% $285,456 100% $304,363 100%
Operating costs......... 157,538 53% 161,581 57% 177,165 58%
Depreciation............ 24,904 8% 24,978 9% 24,992 8%
General and
administrative........ 12,010 4% 14,424 5% 15,984 5%
-------- -------- --------
Operating income
plus Energy Bank
accruals(1)........... 101,997 34% 84,473 30% 86,222 29%
-------- -------- --------
Amortization of
financing costs...... 2,305 1% 2,373 1% 2,163 1%
Interest expense(2).... 50,930 17% 49,841 17% 47,673 16%
Interest income........ (10,652) (4%) (10,534) (4%) (9,931) (3%)
-------- ------- --------
Net income (loss)
plus Energy Bank
accruals and
interest thereon..... $ 59,414 $42,793 $46,317
======== ======= =======
- ----------
(1) Gross operating revenue and receipts represents total revenues plus (less),
as applicable, annual change in Energy Bank principal balances.
(2) Interest expense excludes interest on Energy Bank principal balances.
Calendar Year 1997 Compared to Calendar Year 1996
Gross Operating Revenue and Receipts. Gross operating revenue and receipts
for the year ended December 31, 1997 of $304.4 million increased by $18.9
million (6.6%) as compared to the year ended December 31, 1996. This increase
was primarily due to higher generation and increased prices. The increase in
generation was primarily a result of no scheduled major maintenance outages at
the NEA Project (during the second quarter of 1996 a major inspection and
maintenance program, scheduled at five year intervals, was conducted at the NEA
Project) and fewer curtailment hours requested by JCP&L.
Operating Costs. Cost of power and steam sales was $151.5 million, or 49.8%
of gross operating revenue and receipts for the year ended December 31, 1997 as
compared to $138.7 million, or 48.6% of gross operating revenues and receipts
for the year ended December 31, 1996. The increased cost is primarily due to
price increases under a fuel supply contract that services both facilities.
Partially offsetting the increase in natural gas prices was a reduction in
extended gas services rights exercised by a NJEA fuel supplier during the first
quarter of 1997 as compared to 1996.
Operation and maintenance (O&M) costs increased $2.8 million (12.4%) as
compared to the same period in 1996. The primary cause of the increased cost was
the performance bonus (which is directly related to higher generation) payable
to the Operator under the NEA O&M Agreement. Escalation of the O&M Agreement of
approximately 4% also contributed to the increased costs.
General and Administrative Expenses. General and administrative expenses
for the year ended December 31, 1997 increased $1.6 million or 11% as compared
to the year ended December 31, 1996. The primary cause for this increase was the
write-off of approximately $1.5 million in accounts receivable. Other increases
included annual escalation of management fees as well as increased consulting
and overhead costs.
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<PAGE>
Interest Expenses and Interest Income. Interest expense for the year ended
December 31, 1997 decreased $2.1 million, or 4.3% as compared to the year ended
December 31, 1996. Interest on debt decreased as a result of declining principal
balances. During 1997, the Partnerships' average amount of debt outstanding was
$508.3 million at an average rate of 9.31%. During 1996, the Partnerships'
average amount of debt outstanding was $533.3 million at an average rate of
9.26%. These decreases were a result of changes in the underlying amounts
accrued for Energy Bank balances. Interest income during 1997 totaled
approximately $9.9 million as compared to approximately $10.5 million in 1996,
decreasing $.6 million. As discussed below, interest income is expected to
decrease materially beginning in 1998.
Calendar Year 1996 Compared to Calendar Year 1995
Gross Operating Revenues and Receipts. Gross operating revenues and
receipts for the year ended December 31, 1996 of $285.5 million decreased by
$11.0 million (3.7%) as compared to the year ended December 31, 1995. This
decrease was primarily due to lower availability as a result of scheduled
maintenance outages. Availability was approximately 91% in 1996 versus
approximately 95% in 1995. During the second quarter of 1996 a major inspection
and maintenance program (scheduled at five-year intervals) took place at the NEA
Project. During the fourth quarter of 1996 a scheduled overhaul and inspection
took place at the NJEA Project. Power purchase rates, on a combined basis,
increased slightly over the prior year.
Operating Costs. Cost of power and steam sales was $138.7 million, or 48.6%
of gross operating revenues and receipts for the year ended December 31, 1996 as
compared to $132.8 million, or 44.8% of gross operating revenues and receipts in
the prior year. The increased costs were primarily attributable to increases in
fuel costs, including higher market prices of Spot Gas and additional charges
applicable under NJEA's extended gas service arrangement with a fuel supplier.
Extended gas service occurs when temperatures are below 22 degrees F. There were
sixteen such days during the first quarter of 1996 compared with four days in
the first quarter of 1995. A portion of these increases was offset by gains on
natural gas swap agreements (which were entered into in an attempt to limit
exposure to market price fluctuations).
Operation and maintenance expenses in 1996 decreased by $1.8 million (7.5%)
as compared to 1995. This decrease was a result of a lower performance bonus
payable to the Operator in 1996 as a result of scheduled maintenance outages and
a 1995 water franchise fee. Offsetting these cost decreases were normal and
expected escalations under the O&M Agreements.
General and Administrative Expenses. General and administrative expenses in
1996 increased by $2.4 million (20.1%) as compared to 1995. The increase was
primarily due to increased management costs, insurance premiums and legal and
consulting costs related to potential industry restructuring.
Interest Expense and Interest Income. Interest expense for the year ended
December 31, 1996 decreased by $1.1 million (2.1%) as compared to the year ended
December 31, 1995. During 1995, the Partnerships' average amount of debt
outstanding was $554.9 million at an average rate of 9.23%. During 1996, the
Partnerships' average amount of debt outstanding was $533.3 million at an
average rate of 9.26%. Interest income in 1996 totaled $10.5 million as compared
to $10.7 million in 1995. This decrease was primarily a result of reduced cash
collateral being held in support of letters of credit.
64
<PAGE>
Year 2000
The Partnerships are working to resolve the potential impact of the year
2000 on the processing of information by its computer systems. An assessment of
identified software, including vendor-supplied software, has been completed and
work has begun to make the necessary modifications. The estimated cost of
addressing year 2000 issues in software applications is not expected to have a
material adverse effect on the Partnership's financial statements. The
Partnerships continue to assess the potential financial and operational impacts
of computerized processes embedded in operating equipment.
Liquidity and Capital Resources
To date, the Partnerships have obtained cash from their operations and from
proceeds of nonrecourse project financing. The Partnerships have utilized this
cash to develop and construct the Projects and the Carbon Dioxide Plant, service
debt obligations, fund operations and fund distributions to partners.
As of December 31, 1997, the Partnerships' cash and cash equivalents
totaled approximately $61.2 million, as compared to $49.9 million at December
31, 1996. The increase in cash and cash equivalents was the net effect of $82.2
million provided by operations, offset by investing and financing activities
including debt principal payments of $24.1 million and $46.4 million in
distributions to partners.
As of December 31, 1997, there were no outstanding loans under the Sanwa
Working Capital Facility. NE LP terminated the Sanwa Working Capital Facility
and the Sanwa Credit Agreement in February 1998. NE LP does not anticipate the
need to arrange for a new Working Capital Facility. Debt Service Reserve
Requirements were fully funded as of December 31, 1997.
Non-operating income for periods prior to the Acquisitions included
investment income received from the Cash Collateral Proceeds that secured the
Partnerships' obligations to Sanwa Bank under the Sanwa Credit Agreement and
investment income received from investments in the Debt Service Reserve Fund
held by the Project Trustee. As permitted under the Project Indenture, NE LP in
January 1998, arranged for the release of, and distributed to the Partners, cash
in the amount of $33,270,000 from the Debt Service Reserve Fund following the
issuance of Substitute Letters of Credit by BankBoston and Bank Brussels
Lambert. In February 1998, NE LP also arranged for the release of cash in the
amount of $69,156,000, constituting the Cash Collateral Proceeds, following the
issuance of the FPL Group Capital Guaranty. Such cash was distributed to the
Partners upon its release. As a result, NE LP expects that the Partnerships'
investment income will be materially reduced in future years.
65
<PAGE>
Working Capital Facility. The Project Indenture permits the Partnerships to
enter into revolving credit arrangements from time to time with financial
institutions with maximum available borrowings of up to $20 million to provide
for the working capital requirements of the Partnerships (the "Working Capital
Facility"). Pursuant to the Sanwa Credit Agreement, the Partnerships entered
into the Sanwa Working Capital Facility, which provided for maximum available
borrowings of up to $15 million subject to a borrowing base calculated based on
outstanding receivables and fuel. The Sellers have advised NE LP that the
Working Capital Facility has never been utilized. In February 1998, NE LP
terminated the Working Capital Facility and the Sanwa Credit Agreement and does
not anticipate the need to arrange for a new Working Capital Facility.
Project Letter of Credit Facility. The Partnerships are required by the
terms of certain of the Power Purchase Agreements to provide the letters of
credit to the Power Purchasers thereunder to support the Partnerships' Energy
Bank Obligations. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Power Purchase
Agreements." Under the Project Indenture, the Partnerships have agreed to
provide such Energy Bank Letters of Credit and to secure the Partnerships'
obligations to reimburse the Project Letter of Credit Banks with cash
collateral, one or more back-up letters of credit (each a "Back-up Letter of
Credit") and/or a FPL Group Capital Guaranty. In addition, the Partnerships may
require letters of credit for certain other purposes in the ordinary course of
business.
Pursuant to the Sanwa Credit Agreement, Sanwa Bank delivered the Project
Letters of Credit in an aggregate amount up to $82,000,000 for the purpose of
supporting the Partnerships' Energy Bank Obligations and for certain other
purposes. The aggregate amount of Energy Bank Letters of Credit issued and
outstanding as of December 31, 1997 was $67,656,000. In February 1998, NE LP
arranged for the delivery of letters of credit of BankBoston and NationsBank in
face amounts of $12.656 million and $54.0 million, respectively, in substitution
for the letters of credit of Sanwa Bank and terminated the Sanwa Credit
Agreement and the Sanwa Letters of Credit.
Swaps. In connection with the initial variable-rate financing of the
Projects under the Original Project Credit Agreement, the Partnerships entered
into certain interest rate swap agreements (the "Swaps") with certain financial
institutions (the "Swap Banks"), providing for payments thereunder on a notional
principal amount of indebtedness to be made by the Partnerships at fixed
interest rates in exchange for payments to be made by the Swap Banks at floating
interest rates.
Such Swaps remained in effect after the issuance of the fixed-rate Project
Securities. In connection with the issuance of the Project Securities, the
Partnerships entered into counter swap agreements to hedge the obligations of
the Partnerships under such existing Swaps. As a result of the foregoing
arrangements, after giving effect to the net payments to be made and received by
the Partnerships pursuant to all of the Swaps (including the counter swaps), the
Partnerships' net payments are equivalent to a fixed net interest rate of
approximately 1.5% on the specified notional principal amount, which is
scheduled to decline periodically until the scheduled expiration of the Swaps in
1999. After giving effect to the counter swaps, the Partnerships' net payments
under the Swaps will total approximately $718,275 in 1998 and approximately
$195,535 in 1999 (the scheduled year of termination of the Swaps).
The following table sets forth the notional principal amount and related
fair value of the Swaps as of the dates shown together with the additional
interest incurred for the years ended December 31, 1995, 1996 and 1997.
66
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Notional Amount............ $27,596,000 $20,335,000 $12,940,000
Fair value (liability)(1).. $(3,654,000) $(2,022,000) $ (889,000)
Net Effect of Swaps on
Interest Expense(2)...... $ (486,000) $ 137,000 $ 103,000
</TABLE>
- ----------
(1) The estimated fair value of each existing Swap is the estimated amount that
the applicable Swap Bank would receive to terminate such Swap at the
respective dates, taking into account current interest rates and the
current creditworthiness of the Swap counter-parties.
(2) Represents the net effect of the Swaps on the interest expenses in the
statement of operations. The interest expense on the Swaps is reduced by
the change in the fair value of the Swaps.
Natural Gas Hedging Instruments
Approximately 20% of the fuel supply for the Projects must be provided from
sources other than the Long-term Gas Arrangements. To mitigate the price risk
associated with spot purchases of natural gas, the Partnerships may, from time
to time, enter into certain hedging transactions either through public exchanges
such as the NYMEX, or by means of over-the-counter transactions with specific
counterparties pursuant to the Fuel Management Agreements or otherwise. These
hedging transactions include (a) natural gas call options that give the
Partnerships the right, but not the obligation, to purchase specified quantities
of natural gas at a predetermined price, (b) gas purchase swap agreements that
require the Partnerships to pay a fixed price in return for a variable price on
a notional specified quantity of natural gas, and (c) forward purchases of
natural gas.
The effect of these transactions is to fix the price of natural gas
purchases made on the open market and, as such, these transactions have not had
a material effect on total fuel costs.
Industry Deregulation
On November 25, 1997, the Massachusetts legislature passed a comprehensive
electric deregulation bill, the purpose of which is to establish a comprehensive
framework for the restructuring of the electric utility industry. Additionally,
industry restructuring efforts are also underway in New Jersey. While the
Partnerships do not expect electric utility industry restructuring to result in
material adverse changes to the Partnerships' Power Purchase Agreements, the
impact of electric utility industry restructuring on the companies that purchase
power from the Partnerships is uncertain. See "Business - Regulation - Utility
Industry Restructuring."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The combined financial statements of the Partnerships and the financial
statements of ESI Tractebel Funding are filed as part of this Form 10-K and are
set forth on pages F-1 to F-28.
67
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Directors and Executive Officers Until January 14, 1998
Directors and Executive Officers of IEC
All management functions of the Partnerships are the responsibility of IEC.
The following table sets forth the names, ages and positions of the directors
and executive officers of IEC and their positions with IEC.
NAME AGE POSITION
---- --- --------
Stephen B. Roy 51 President and Director
Peter A. Roy 47 Executive Vice President and Director
Jane L. Roy 42 Executive Vice President,
Treasurer, Chief Financial Officer and
Director
Ellen S. Roy 38 Senior Vice President, Clerk and Director
Luciano Lauretti 35 Senior Vice President
Maureen P. Herbert 39 Vice President
George Briden 45 Vice President
Bruce A. Herzfelder 38 Senior Vice President
Leah Taylor Roy 37 Vice President
James Blakey 45 Vice President and General Counsel
Stephen R. Pritchard 40 Vice President
Stephen B. Roy has been President of IEC since it was formed in March,
1986. From 1973 to 1986, he held construction and management positions in
various predecessor companies and, among other things, was responsible for work
on the Doha West Power Station in Kuwait. He holds a B.A. degree from Harvard
University and an M.B.A. degree from Harvard Business School.
Peter A. Roy has been an Executive Vice President of IEC since it was
formed in March, 1986. From 1974 to 1986, he held several positions in various
predecessor companies, where he was responsible for marketing and daily
operations. He attended Harvard University from 1971 to 1974.
Jane L. Roy has been Vice President, Chief Financial Officer and Treasurer
of IEC since it was formed in March, 1986. In 1992 she became an Executive Vice
President. From 1984 to 1986, Ms. Roy worked for The Chase Manhattan Bank, N.A.
where she was an Assistant Treasurer. She holds a B.A. degree from Harvard
University and an M.P.A. degree from Harvard University's John F. Kennedy School
of Government.
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<PAGE>
Ellen S. Roy has been a Vice President of IEC since it was formed in March,
1986 and is responsible for managing government relations. In 1996 she became a
Senior Vice President. Prior to joining IEC, Ms. Roy worked at Prudential
Venture Capital, Inc. She holds a B.A. degree from Harvard University, an M.P.P.
degree from Harvard University's John F. Kennedy School of Government and an
M.B.A. degree from Massachusetts Institute of Technology.
Luciano Lauretti has been a Vice President of IEC since 1990. In 1996 he
became a Senior Vice President. From 1989 to 1990, Mr. Lauretti was an officer
in Corporate Finance at Manufacturers Hanover Trust Company. Prior to 1988 he
was an associate in corporate lending for The Chase Manhattan Bank, N.A. He
holds a B.A. degree in Economics from Universidade de Sao Paulo and an M.B.A.
degree from Columbia University.
Maureen P. Herbert joined IEC in 1987 and served as Controller until 1991,
at which time she became Vice President of Finance. Prior to joining IEC, Ms.
Herbert was a senior consultant at Price Waterhouse. Ms. Herbert is a Certified
Public Accountant and holds a B.S. degree in accounting and finance from
Northeastern University.
George Briden joined IEC in 1990 and served as Fuel Supply Manager until
1991, at which time he became a Vice President of Fuel Supply. From 1989 to
1990, Mr. Briden was employed by Equitrans, Inc., where he directed gas supply
acquisitions. He holds a B.A. degree in economics from Michigan State University
and a Ph.D. degree in economics from Brown University.
Bruce A. Herzfelder has been a Vice President of IEC since 1991. In 1996 he
became a Senior Vice President. From 1988 to 1991, he was an associate at the
New York law firm of Davis, Polk & Wardwell. Prior to that, he clerked for a
judge on the U.S. Court of Appeals. He holds a B.A. degree from Harvard
University and a J.D. and an M.B.S. degree from the University of Chicago. He is
a member of the bar in Massachusetts and New York.
Leah Taylor Roy has been a Vice President of IEC since 1992. From 1986 to
1992, Ms. Roy was a consultant at McKinsey & Company. Ms. Roy holds a B.C.
degree from the University of Toronto and an M.P.P. degree from Harvard
University's John F. Kennedy School of Government.
James Blakey joined IEC in 1992 and served as Corporate Counsel until 1995,
at which time he became Vice President and General Counsel. From 1976 to 1992,
Mr. Blakey was associated with the New York law firm of Kronish, Lieb, Weiner &
Hellman, becoming a partner in 1987. Mr. Blakey holds an A.B. degree from
Dartmouth College and a J.D. degree from Boston University. He is a member of
the bar in Massachusetts, New York and Connecticut.
Stephen R. Pritchard joined IEC in 1994 and served as Operations Manager
until 1995, at which time he became Vice President of Operations. From 1981 to
1994, Mr. Pritchard held several responsible positions for the design,
operations and maintenance of fossil power plants at Baltimore Gas and Electric
Company. Mr. Pritchard holds a B.S. - Mechanical Engineering degree from
Northeastern University and an M.B.A. degree from Loyola College. He is a
registered Professional Engineer in the State of Maryland.
69
<PAGE>
Directors are elected annually and each elected director holds office until
a successor is elected. The Board of Directors consists of three persons:
Stephen B. Roy, Peter A. Roy and Ellen S. Roy. Officers are chosen from time to
time by vote of the Board of Directors.
Certain Relationships. Stephen, Peter, Jane and Ellen Roy are siblings.
Peter, Jane and Ellen Roy are married, respectively, to Leah Taylor Roy, Luciano
Lauretti and Bruce Herzfelder.
Directors and Executive Officers of IEC Funding Corp.
The following table sets forth the names, ages and positions of the
directors and executive officers of IEC Funding Corp. and their positions with
IEC Funding Corp. Directors are elected annually and each elected director holds
office until a successor is elected. Officers are chosen from time to time by
vote of the Board of Directors.
NAME AGE POSITION
---- --- --------
Stephen B. Roy 51 President, Assistant Treasurer, Assistant
Secretary and Director
Ellen S. Roy 38 Vice President, Secretary, Assistant
Treasurer and Director
Jane L. Roy 42 Vice President, Treasurer, Assistant
Secretary and Director
Peter A. Roy 47 Vice President, Assistant Secretary
and Assistant Treasurer
Maureen P. Herbert 39 Vice President
James Blakey 45 Vice President and General Counsel
For biographical information on each of the above listed persons, see
"Management -- Directors and Executive Officers of IEC.
Directors and Executive Officers Since January 14, 1998
All management functions of ESI Tractebel Funding and the Partnerships are
the responsibility of NE LP. Pursuant to the NE LP Partnership Agreement, such
functions are performed by the Management Committee of NE LP.
The following table lists the names and ages of the members of the
Management Committee of NE LP.
Name Age Affiliation
---- --- -----------
Glenn E. Smith 40 FPL Energy
Kenneth P. Hoffman 46 FPL Energy
Timothy R. Dunne 46 Tractebel Power
Paul J. Cavicchi 45 Tractebel Power
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<PAGE>
Glenn E. Smith was appointed to the NE LP Management Committee by ESI GP in
November, 1997. Mr. Smith joined ESI Energy in June 1997 as its Vice President
of Project Development and is currently a Vice President of FPL Energy. From May
1995 until joining ESI Energy, Mr. Smith was the Director of Business
Development of Nations Energy Corporation where he directed Greenfield project
development and investment in operating energy assets. From August 1992 until
May 1995, Mr. Smith was Vice President of BOT Financial Corp. He holds a B.S.
degree from Pennsylvania State University.
Kenneth P. Hoffman was appointed to the NE LP Management Committee by ESI
GP in November, 1997. Mr. Hoffman joined ESI Energy in June 1989, and since 1993
has been the Vice President of Business Management. Mr. Hoffman is currently a
Vice President of FPL Energy. Prior to joining ESI Energy , Mr. Hoffman was
employed by FPL. Mr. Hoffman holds an M.B.A. degree from Florida International
University and a B.S. degree from Rochester Institute of Technology.
Timothy R. Dunne was appointed to the NE LP Management Committee by
Tractebel GP in November, 1997. Mr. Dunne has been the Senior Vice President,
General Counsel and Secretary of Tractebel Power since 1995. In such capacity,
Mr. Dunne manages all of the legal services required by Tractebel Power and its
affiliates. Prior to joining Tractebel Power in 1990, Mr. Dunne acted as
in-house counsel for two major U.S. engineering and construction companies. He
holds a J.D. degree from the University of Toledo and M.S. and B.S. degrees from
the University of Notre Dame.
Paul J. Cavicchi was appointed to the NE LP Management Committee by
Tractebel GP in November, 1997. Mr. Cavicchi has been an Executive Vice
President of Tractebel Power since 1995. In such capacity, Mr. Cavicchi
supervises and directs business development for energy asset investments in
North America. Prior to joining Tractebel Power in 1995, Mr. Cavicchi served as
a General Manager for American Tractebel, Inc., an affiliate of Tractebel Power.
He holds an M.B.A. degree from the University of Virginia, an M.S. degree from
the University of Massachusetts and a B.S. degree from Tufts University.
Pursuant to the Administrative Services Agreement, ESI GP has agreed to
perform services on behalf of NE LP in connection with the management of NE LP,
the Partnerships, and ESI Tractebel Funding. See "SUMMARY OF PRINCIPAL PROJECT
AGREEMENTS -- Administrative Services Agreement."
ITEM 11. EXECUTIVE COMPENSATION
None of the executive officers or directors of ESI Tractebel Funding
received any compensation for his or her services during 1997. The members of
the Management Committee of NE LP are not entitled to any direct compensation
from ESI Tractebel Funding or the Partnerships. The directors and executive
officers of IEC were compensated by IEC and were not entitled to any direct
compensation from the Partnerships. IEC was paid a management fee by the
Partnerships and NE LP is to be paid a management fee by the Partnerships, as
described under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Management
Costs."
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of March 25, 1998, the direct and
indirect partnership interests in the Partnerships.
<TABLE>
<CAPTION>
Name and Address of Nature of
Title of Class Beneficial Owner Beneficial Ownership Percentage Interest
- -------------- ---------------- -------------------- -------------------
<S> <C> <C> <C>
General and Limited Northeast Energy LP(1)(2) General Partner 98%LP
Partnership Interest 1%GP
Limited Partnership Northeast Energy LLC(1)(2) Limited Partner 1%LP
Interest
General Partnership ESI GP(1)(2) General Partner in 1%GP
Interest Northeast Energy LP
General Partnership Tractebel GP(3)(4) General Partner in 1%GP
Interest Northeast Energy LP
Limited Partnership ESI LP(1)(2) Limited Partner in 49%LP
Interest Northeast Energy LP
Limited Partnership Tracebel LP(3)(4) Limited Partner in 49%LP
Interest Northeast Energy LP
</TABLE>
- ----------
(1) The address for each of Northeast Energy LP, Northeast Energy LLC, ESI GP
and ESI LP is c/o FPL Energy, Inc., 11760 US Highway 1, Suite 600, North
Palm Beach, Florida 33408.
(2) ESI GP and ESI LP are wholly-owned, direct subsidiaries of ESI Energy. ESI
Energy is a wholly-owned, indirect subsidiary of FPL Group, Inc.
(3) The address for each of Tractebel GP and Tractebel LP is c/o Tractebel
Power, Inc., 1177 West Loop South, Suite 900, Houston, Texas 77027.
(4) Tractebel GP and Tractebel LP are wholly-owned, direct subsidiaries of
Tractebel Power. Tractebel Power is a wholly-owned, indirect subsidiary of
Tractebel, S.A.
The following table sets forth as of March 25, 1998, the number of shares
and percentage owned of ESI Tractebel Funding's voting securities beneficially
owned by each Person known by ESI Tractebel Funding to be the beneficial owner
of more than five percent (5%) of ESI Tractebel Funding's voting securities.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- -------------- ---------------- -------------------- ----------------
<S> <C> <C> <C>
Common Stock ESI Northeast Energy 3,750 37.5%
Funding, Inc.(1)
Common Stock Tractebel Power, 3,750 37.5%
Inc.(1)
Common Stock Broad Street 2,500 25.0%
Contract Services,
Inc.(2)
</TABLE>
- ----------
(1) The address for ESI Northeast Energy Funding, Inc. is c/o FPL Energy, Inc.,
11760 US Highway 1, Suite 600, North Palm Beach, Florida 33408 and the
address for Tractebel Power, Inc. is 1177 West Loop South, Suite 900,
Houston, Texas 77027.
(2) Broad Street Contract Services, Inc. is located at Two Wall Street, New
York, New York 10005 and is the nominee for the Project Trustee for the
purpose of providing an independent director.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Costs
The Partnerships made direct or indirect payments to IEC and the Sponsor
Members (excluding ratable distributions by the Partnerships to their Partners)
aggregating approximately $6,480,000 during the year ended December 31, 1995,
$8,719,000 during the year ended December 31, 1996 and $8,655,000 during the
year ended December 31, 1997.
Fees payable by the Partnerships to NE LP are limited to the Management
Costs permitted under the Project Indenture, which consists of four components:
(i) out-of-pocket costs payable to third parties (including allocated rent and
independent legal, consulting and accounting fees and expenses), (ii) general
administrative expenses allocable to the Projects, (iii) compensation (including
salary and related benefits) of individuals and (iv) for each calendar year, an
amount equal to $3,500,000, $1,500,000 of which is the Subordinated Management
Fee (each such amount inflated annually in accordance with the Project
Indenture). All costs identified in clauses (i), (ii) and (iii) may be included
as part of the Management Costs and paid from Project Revenues only to the
extent such costs are certified by the Partnerships as being reasonably
allocable to the Projects. The amounts described in clause (iv) for the year
ending December 31, 1997 and 1996 were approximately $3,758,000 and $3,688,000,
respectively, and are subject to escalation as set forth in the Project
Indenture.
Administrative Services Fee
As compensation to ESI GP for the services it performs pursuant to the
Administrative Services Agreement, NE LP has agreed to pay to ESI GP a fee,
payable monthly, equal to $600,000 per annum, adjusted annually based on a
producer price index (the "Administrative Services Fee"), provided that in no
event is the Administrative Services fee to be decreased below $600,000. Neither
of the Partnerships is liable for the Administrative Services Fee. See "SUMMARY
OF PRINCIPAL PROJECT AGREEMENTS -- Administrative Services Agreement."
New O&M Fees
The New Operator, an Affiliate of NE LP, currently is providing certain
oversight and transition services for the Projects and will provide operation
and maintenance services for the Projects following the expiration or early
termination of the O&M Agreements, pursuant to each of the New O&M Agreements.
As compensation for such services, NE LP has agreed under each of the New O&M
Agreements to pay to the New Operator a fee of $750,000 per annum ($1,500,000
per annum in the aggregate), payable monthly and adjusted annually based on a
producer price index (the "New O&M Fees"). In addition, NE LP has agreed to pay
to the New Operator all properly incurred costs and expenses of performing the
transition services and the operation and maintenance services. NE LP expects
that combined operations and maintenance costs for both Projects will be reduced
by approximately $6.5 million per year after 2001, when the O&M Agreements for
the Projects expire. Neither of the Partnerships is liable for the New O&M Fees
prior to the applicable Operating Period Commencement Date. See "SUMMARY OF
PRINCIPAL PROJECT AGREEMENTS -- New O&M Agreements."
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<PAGE>
Fuel Management Fees
The Fuel Manager, an affiliate of FPL Energy, currently is providing
certain fuel management services for the Projects, pursuant to each of the Fuel
Management Agreements. As compensation for such services, each of NEA and NJEA
has agreed to pay to the Fuel Manager a fee under the NEA Fuel Management
Agreement and the NJEA Fuel Management Agreement, respectively, of $450,000 per
annum, payable monthly and adjusted annually based on a producer price index
(the "NEA Fuel Management Fee" and the "NJEA Fuel Management Fee,"
respectively), provided that neither of such Fuel Management Fees is to be
decreased below $450,000. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Fuel
Management Agreements."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Northeast Energy Associates, A Limited Partnership and North Jersey
Energy Associates, A Limited Partnership
Report of Independent Accountants
Combined Balance Sheet at December 31, 1996 and 1997
Combined Statement of Operations for the years ended December 31, 1995,
1996 and 1997
Combined Statement of Partners' Deficit for the years ended December
31, 1995, 1996 and 1997
Combined Statement of Cash Flows for the years ended December 31, 1995,
1996 and 1997
Notes to Combined Financial Statements
ESI Tractebel Funding Corp.
Report of Independent Accountants
Balance Sheet at December 31, 1996 and 1997
Statement of Operations for the years ended December 31, 1995, 1996 and
1997
Statement of Cash Flows for the years ended December 31, 1995, 1996 and
1997
Notes to Financial Statements
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<PAGE>
2. Financial Statement Schedules
Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or the notes thereto.
3. Exhibits
Exhibit No. Description
----------- -----------
3.1* Certificate of Incorporation of ESI Tractebel Funding Corp.
(formerly IEC Funding Corp.)
3.1.1 Certificate of Amendment of Certificate of Incorporation of IEC
Funding Corp as filed with the Secretary of State of the
State of Delaware on February 3, 1998
3.2 By-laws of ESI Tractebel Funding Corp.
3.3 Amended and Restated Certificate of Limited Partnership of
Northeast Energy Associates, A Limited Partnership, as filed
with the Secretary of State of the Commonwealth of
Massachusetts on March 31, 1986, as amended and restated on
January 9, 1987 and November 6, 1987, as further amended on
July 6, 1989 and as amended and restated on February 16,
1998
3.4 Amended and Restated Certificate of Limited Partnership of North
Jersey Energy Associates, A Limited Partnership, as filed
with the Secretary of State of the State of New Jersey on
November 3, 1986, as amended and restated on January 14,
1987, June 25, 1987, March 4, 1988 and February 16, 1998
3.5* Certificate of Incorporation of Intercontinental Energy
Corporation, a Massachusetts corporation ("IEC"), the sole
general partner of the Partnerships (the "General Partner")
3.6* By-laws of the General Partner
3.7 Amended and Restated Agreement of Limited Partnership of
Northeast Energy Associates, A Limited Partnership, dated as
of November 21, 1997
3.8 Amended and Restated Agreement of Limited Partnership of North
Jersey Energy Associates, A Limited Partnership, dated as of
November 21, 1997
3.9 Certificate of Limited Partnership of Northeast Energy, LP, a
Delaware limited partnership, as filed with the Secretary of
State of the State of Delaware on November 21, 1997
75
<PAGE>
3.10 Agreement of Limited Partnership of Northeast Energy, LP, a
Delaware limited partnership, dated as of November 21, 1997
4.1* Trust Indenture dated as of November 15, 1994, among the
Partnerships, IEC Funding and State Street Bank and Trust
Company, a Massachusetts banking corporation, as trustee
(the "Trustee")
4.2* First Supplemental Indenture dated as of November 15, 1994, among
the Partnerships, IEC Funding and the Trustee, including
forms of the Securities
4.3* Credit Agreement dated as of December 1, 1994, among the
Partnerships, each of the financial institutions referred to
therein as a "Bank" (and collectively referred to as the
"Banks") and Sanwa Bank Limited, New York Branch ("Sanwa"),
as issuing bank (in such capacity, the "Issuing Bank") and
as agent for the Banks and the Issuing Bank (in such
capacity, the "Agent")
4.4* Collateral Agency Agreement dated as of December 1, 1994 (the
"Collateral Agency Agreement"), among the Partnerships, IEC
Funding, the Trustee, Sanwa, the Swap Providers (as defined
therein) and State Street Bank and Trust Company, as
Collateral Agent (in such capacity, the "Collateral Agent")
4.5* Amended and Restated Project Loan and Credit Agreement dated as
of December 1, 1994, between the Partnerships and IEC
Funding
4.6* Partnerships' Guarantee Agreement dated as of December 1, 1994,
between the Partnerships and the Trustee
4.7* Registration Rights Agreement dated as of November 21, 1994,
among the Partnerships, IEC Funding, Chase Securities, Inc.,
Merrill Lynch, Pierce Fenner & Smith, Incorporated and
Salomon Brothers, Inc.
4.8* Pledge, Trust and Intercreditor Agreement dated as of December
1, 1994 (the "Pledge, Trust and Intercreditor Agreement"),
among the Partnerships, Sanwa, as "Bank Agent," as a "Bank"
and as a "Letter of Credit Bank" (each as defined therein),
Sanwa Bank Trust Company of New York, as trustee, the
Collateral Agent and the Trustee
4.9* Assignment and Security Agreement dated as of December 1, 1994,
between IEC Funding and the Collateral Agent
4.10* Amended and Restated Assignment and Security Agreement dated as
of December 1, 1994, between the Partnerships, the General
Partner and the Collateral Agent
4.11* Amended and Restated Assignment and Security Agreement dated as
of December 1, 1994, between NEA and the Collateral Agent
76
<PAGE>
4.12* Amended and Restated Assignment and Security Agreement dated as
of December 1, 1994, between NJEA and the Collateral Agent
4.13* Amended and Restated Mortgage, Assignment of Rents, Security
Agreement and Fixture Filing dated as of December 1, 1994,
made by NEA in favor of the Collateral Agent
4.14* Amended and Restated Mortgage, Assignment of Rents, Security
Agreement and Fixture Filing (Additional Properties) dated
as of December 1, 1994, made by NEA in favor of the
Collateral Agent
4.15* Amended and Restated Indenture of Mortgage, Assignment of Rents,
Security Agreement and Fixture Filing dated as of December
1, 1994, made by NJEA in favor of the Collateral Agent
4.16* Amended and Restated Stock Pledge Agreement dated as of December
1, 1994, between NJEA and the Collateral Agent
4.17* Assignment of Mortgage dated as of December 1, 1994, between The
Chase Manhattan Bank (National Association) (the "Existing
Agent") and the Collateral Agent with respect to the
Bellingham Mortgage dated as of June 28, 1989
4.18* Assignment of Mortgage dated as of December 1, 1994, between the
Existing Agent and the Collateral Agent with respect to the
Bellingham Mortgage dated August 10, 1989
4.19* Assignment of Mortgage dated as of December 1, 1994, between the
Existing Agent and the Collateral Agent with respect to the
Sayreville Mortgage dated June 28, 1989
4.20* Assignment of Security Agreements dated as of December 1, 1994,
among the Existing Agent, the Collateral Agent, the
Partnerships, IEC Funding and the General Partner
4.21* Stock Pledge Agreement dated as of December 1, 1994, among Broad
Street Contract Services, Inc., Stephen B. Roy, Ellen S.
Roy, Jane L. Roy, Peter A. Roy, the Partnerships and the
Collateral Agent
4.22 Second Supplemental Trust Indenture dated as of January 14, 1998
among IEC Funding Corp., Northeast Energy Associates, A
Limited Partnership, North Jersey Energy Associates, A
Limited Partnership and State Street Bank and Trust Company,
as trustee.
4.23 Amendment to Amended and Restated Assignment and Security
Agreement by and between NEA, NJEA, IEC and State Street
Bank and Trust Company dated as of January 14, 1998
77
<PAGE>
4.24 Termination of Pledge, Trust and Intercreditor Agreement dated
as of January 30, 1998 among NJEA, NEA, the Sanwa Bank,
Limited, New York Branch, as "Bank Agent," Sanwa Bank Trust
Company of New York, as trustee and State Street Bank and
Trust Company, as Collateral Agent and the Bond Trustee
10.1* Accommodation Agreement dated as of June 28, 1989, between NEA,
Boston Edison Company, a Massachusetts corporation ("BECO"),
Commonwealth Electric Company, a Massachusetts corporation
("Commonwealth"), Montaup Electric Company, a Massachusetts
corporation ("Montaup"), and The Chase Manhattan Bank
(National Association)
10.2.1* Amended and Restated Operation and Maintenance Agreement dated
as of June 28, 1989 (the "Sayreville O&M Agreement"),
between NJEA and Westinghouse Electric Corporation, a
Pennsylvania company ("Westinghouse")
10.2.2* Letter Agreement regarding the Sayreville Heat Rate dated June
23, 1993, between NJEA and Westinghouse
10.2.3* Letter Agreement regarding extension of the Sayreville O&M
Agreement dated June 23, 1993, between Westinghouse and NJEA
10.2.4* Second Amended and Restated Operation and Maintenance Agreement
dated as of June 28, 1989 (the "Bellingham O&M Agreement"),
between NEA and Westinghouse
10.2.5* Letter Agreement regarding the Bellingham Heat Rate dated June
23, 1993, between NEA and Westinghouse
10.2.6* Letter Agreement regarding extension of the Bellingham O&M
Agreement dated June 23, 1993, between NEA and Westinghouse
10.2.7** Amendment No. 1 to the Bellingham O&M Agreement, dated as of
May 1, 1995, by and between NEA and Westinghouse
10.3.1* Power Purchase Agreement dated as of April 1, 1986 (the "BECO I
Power Purchase Agreement"), between NEA and BECO
10.3.2* First Amendment to the BECO I Power Purchase Agreement dated as
of June 8, 1987, between BECO and NEA
10.3.3* Second Amendment to the BECO I Power Purchase Agreement dated as
of June 21, 1989, between BECO and NEA
10.3.4* Power Purchase Agreement dated as of January 28, 1988 (the "BECO
II Power Purchase Agreement"), between NEA and BECO
10.3.5* First Amendment to the BECO II Power Purchase Agreement dated as
of June 21, 1989, between NEA and BECO
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<PAGE>
10.3.6* Power Sale Agreement dated as of November 26, 1986 (the
"Commonwealth I Power Purchase Agreement"), between NEA and
Commonwealth
10.3.7* First Amendment to the Commonwealth I Power Purchase Agreement
dated as of August 15, 1988, between Commonwealth and NEA
10.3.8* Second Amendment to the Commonwealth I Power Purchase Agreement
dated as of January 1, 1989, between Commonwealth and NEA
10.3.9* Power Sale Agreement dated as of August 15, 1988 (the
"Commonwealth II Power Purchase Agreement"), between NEA and
Commonwealth
10.3.10* First Amendment to the Commonwealth II Power Purchase Agreement
dated as of January 1, 1989, between NEA and Commonwealth
10.3.11* Power Purchase Agreement dated as of October 17, 1986 (the
"Montaup Power Purchase Agreement"), between NEA and Montaup
10.3.12* First Amendment to the Montaup Power Purchase Agreement dated
as of June 28, 1989, between Montaup and NEA
10.3.13* Power Purchase Agreement dated as of October 22, 1987 (the
"JCP&L Power Purchase Agreement"), between NJEA and Jersey
Central Power & Light Company, a New Jersey corporation
("JCP&L")
10.3.14* First Amendment to the JCP&L Power Purchase Agreement dated as
of June 16, 1989, between JCP&L and NJEA
10.4.1* Firm Transportation Service Agreement dated as of February 28,
1994, among CNG Transmission Corporation, a Delaware
corporation ("CNG"), NEA, ProGas U.S.A., Inc., a Delaware
corporation ("ProGas USA") and ProGas Limited, a Canadian
corporation ("ProGas")
10.4.2* Firm Gas Transportation Agreement (Rate Schedule X-320) dated
as of February 27, 1991, between NEA and Transcontinental
Gas Pipe Line Corporation, a Delaware corporation
("Transco")
10.4.3* Rate Schedule X-35 Firm Gas Transportation Agreement dated as
of October 1, 1993, between NEA and Algonquin Gas
Transmission Company, a Delaware corporation ("Algonquin")
10.4.4* Service Agreement for Rate Schedule FTS-5 dated as of February
16, 1994, between NEA and Texas Eastern Transmission
Corporation, a Delaware corporation ("Texas Eastern")
10.4.5* ProGas/TransCanada NE Assignment Agreement dated as of July 30,
1993, between ProGas and TransCanada Pipelines Limited, an
Ontario corporation ("TransCanada")
79
<PAGE>
10.4.6* Northeast Gas Substitution Agreement dated as of
July 30, 1993, among ProGas, NEA and TransCanada
10.4.7* Northeast Notice and Consent dated as of July 30, 1993, among
NEA, ProGas and TransCanada
10.4.8* ProGas NE Producer Assignment Agreement dated as
of July 30, 1993, between ProGas and TransCanada
10.4.9* Firm Transportation Service Agreement dated as of February 28,
1994, among CNG, NJEA, ProGas USA and ProGas
10.4.10* Firm Gas Transportation Agreement (Rate Schedule X-319) dated
as of February 27, 1991, between Transco and NJEA
10.4.11* Service Agreement for Rate Schedule FTS-5 dated as of February
16, 1994, between Texas Eastern and NJEA
10.4.12* ProGas/TransCanada NJ Assignment Agreement dated as of July 30,
1993, between ProGas and TransCanada
10.4.13* North Jersey Gas Substitution Agreement dated as of July 30,
1993, among ProGas, NJEA and TransCanada
10.4.14* North Jersey Notice and Consent dated as of July 30, 1993,
among NJEA, ProGas and TransCanada
10.4.15* ProGas NJ Producer Assignment dated as of July 30, 1993,
between ProGas and TransCanada
10.4.16* Gas Purchase and Sales Agreement dated as of May 4, 1989 (the
"PSE&G Agreement"), between NJEA and Public Service Electric
and Gas Company, a New Jersey corporation ("PSE&G")
10.5.1* Service Agreement Applicable to the Storage of Natural Gas
Under Rate Schedule GSS-II dated as of September 30, 1993,
between CNG and NEA
10.5.2* Service Agreement Applicable to the Storage of Natural Gas
Under Rate Schedule GSS-II dated as of September 30, 1993,
between CNG and NJEA
10.5.3** Service Agreement Applicable to Transportation of Natural Gas
under Rate Schedule FT dated as of February 1, 1996, by and
between CNG and NEA
10.5.4** Service Agreement Applicable to Transportation of Natural Gas
under Rate Schedule FT dated as of February 1, 1996, by and
between CNG and NJEA
10.6.1* Gas Purchase Contract dated as of May 12, 1988 (the "Bellingham
ProGas Agreement"), between ProGas and NEA
80
<PAGE>
10.6.2* First Amending Agreement to the Bellingham ProGas Agreement
dated as of April 17, 1989, between ProGas and NEA
10.6.3* Second Amending Agreement to the Bellingham ProGas Agreement
dated as of June 23, 1989, between ProGas and NEA
10.6.4* Amending Agreement to the ProGas Agreements (as defined below)
dated as of November 1, 1991, between ProGas, NEA and NJEA
10.6.5* Third Amending Agreement to the Bellingham ProGas Agreement
dated as of July 30, 1993, between ProGas and NEA
10.6.6* Letter Agreement regarding the Bellingham ProGas Agreement
dated as of September 14, 1992, between ProGas and NEA
10.6.7* Letter Agreement regarding the Bellingham ProGas Agreement
dated as of July 30, 1993, between ProGas and NEA
10.6.8* Gas Purchase Contract dated as of May 12, 1988 (the "Sayreville
ProGas Agreement," and together with the Bellingham ProGas
Agreement, the "ProGas Agreements"), between ProGas and NJEA
10.6.9* First Amending Agreement to the Sayreville ProGas Agreement
dated April 17, 1989, between ProGas and NJEA
10.6.10* Second Amending Agreement to the Sayreville ProGas Agreement
dated June 23, 1989, between ProGas and NJEA
10.6.11* Third Amending Agreement to the Sayreville ProGas Agreement
dated July 30, 1993, between ProGas and NJEA
10.6.12* Letter Agreement regarding the Sayreville ProGas Agreement
dated as of September 14, 1992, between ProGas and NJEA, as
amended as of April 22, 1994 by Letter Agreement between
ProGas and NJEA
10.6.13* Letter Agreement regarding the Sayreville ProGas Agreement
dated July 30, 1993, between ProGas and NJEA
10.7.1* Amended and Restated Steam Sales Agreement dated as of December
21, 1990, between NEA and NECO-Bellingham, Inc., a
Massachusetts corporation ("NECO")
10.7.2* Industrial Steam Sales Contract dated as of June 5, 1989,
between NJEA and Hercules Incorporated, a Delaware
corporation ("Hercules")
10.8.1* Letter agreement regarding Bellingham Project power
transmission arrangements dated June 29, 1989, between NEA
and BECO
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10.8.2* Letter agreement regarding Bellingham Project power
transmission arrangements dated June 6, 1989, between NEA and
Commonwealth
10.8.3* Letter agreement regarding Bellingham Project power
transmission arrangements dated June 28, 1989, between NEA
and Montaup
10.9* Amended and Restated Interconnection Agreement dated as of
September 24, 1993, between BECO and NEA
10.10.1* Amended and Restated Lease Agreement dated as of December 21,
1990, between NEA and NECO
10.10.2* Carbon Dioxide Agreement dated as of December 21, 1990, between
NECO and Praxair, Inc., as successor to Liquid Carbonic
Carbon Dioxide Corporation ("Praxair")
10.10.3* BOC Gases Carbon Dioxide Agreement dated as of December 21,
1990, between NECO and the BOC Gases of the BOC Group, Inc.,
a Delaware corporation (BOC Gases)
10.10.4* Assignment and Security Agreement dated as of December 1, 1991,
between NECO and NEA
10.10.5*** Operation and Maintenance Agreement by and between
NECO-Bellingham, Inc. as Lessee and Westinghouse Operating
Services Company, Inc. as Operator for the Bellingham Project
Carbon Dioxide Recovery Facility dated as of May 1, 1995
10.10.5.1**** Guaranty of Contract for Operation and
Maintenance dated May 12, 1995 by Westinghouse Electric
10.10.6* Licensing Agreement for the Fluor Daniel Carbon Dioxide
Recovery Process dated as of June 28, 1989, between Fluor
Daniel Inc., a California corporation ("Fluor Daniel"), and
NEA
10.11.1* Ground Lease Agreement dated as of June 28, 1989, between NJEA
and IEC Urban Renewal Corporation, a New Jersey corporation
("URC")
10.11.2* Agreement of Sublease dated as of June 28, 1989, between URC
and NJEA
10.11.3* Lease of Property dated as of June 1, 1986, between Prestwich
Corporation and the General Partner
10.12.1* Investment Agreement dated as of December 1, 1994, between
Sanwa and Sanwa Bank Trust Company of New York, as trustee
under the Pledge, Trust and Intercreditor Agreement
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10.12.2* Investment Agreement dated as of December 1, 1994, between
Sanwa and Sanwa Bank Trust Company of New York, as trustee
under the Pledge, Trust and Intercreditor Agreement
10.13* Agreement between the Water and Sewer Commissioners of the Town
of Bellingham and NEA dated as of December 13, 1988 and
December 30, 1988, respectively
10.14* Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing dated June 29, 1989, by NEA in favor of BECO,
Commonwealth and Montaup
10.15*** Declaration of Easements, Covenants, and Restrictions dated as
of June 28, 1989 by NEA
10.16 Operation and Maintenance Agreement dated as of November 21, 1997
by and between Northeast Energy, LP, a Delaware limited
partnership and ESI Operating Services, Inc.
10.17 Operation and Maintenance Agreement dated as of November 21, 1997
by and between Northeast Energy, LP, a Delaware limited
partnership and ESI Operating Services, Inc.
10.18 Fuel Management Agreement, dated as of January 20, 1998, by
and between Northeast Energy, LP, a Delaware limited
partnership and ESI Northeast Fuel Management, Inc., assigned
by Northeast Energy, LP to Northeast Energy Associates, a
limited partnership on January 20, 1998
10.19 Fuel Management Agreement, dated as of January 20, 1998, effective
retroactive to January 14, 1998, by and between Northeast
Energy, LP, a Delaware limited partnership and ESI Northeast
Fuel Management, Inc.
10.20 Administrative Services Agreement dated as of November 21, 1997
between Northeast Energy, LP, a Delaware limited partnership
and ESI Northeast Energy GP, Inc.
12* Statements regarding computation of ratios
21.1* Subsidiary of North Jersey Energy Associates, A Limited
Partnership.
27.1 Financial Data Schedule - ESI Tractebel Funding Corp.
27.2 Financial Data Schedule - Northeast Energy Associates
27.3 Financial Data Schedule - North Jersey Energy Associates
-------------------
* Incorporated herein by reference from the Registration Statement on Form
S-4, file no. 33-87902, filed with the Securities and Exchange Commission by IEC
Funding on February 9, 1995, as amended.
** Incorporated herein by reference from the Annual Report on Form 10-K
filed by IEC Funding and the Partnerships on April 1, 1996.
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***Incorporated herein by reference from the Quarterly Report on Form 10-Q
filed by IEC Funding and the Partnerships on November 14, 1996.
****Incorporated herein by reference from the Annual Report on Form 10-K
filed by IEC Funding and the Partnerships on March 31, 1997.
(b) Reports On Form 8-K:
On December 2, 1997, IEC Funding Corp. and the Partnerships filed a
report on Form 8-K dated December 2, 1997, in connection with the
Acquisitions covering Item 5 (Other Events).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ESI Tractebel Funding Corp., has duly caused this report
to be signed on its behalf by the undersigned hereunto duly authorized in the
City of North Palm Beach, State of Florida, on March 25, 1998.
ESI TRACTEBEL FUNDING CORP.
By: /s/ Glenn E. Smith
-----------------------
Glenn E. Smith
Vice President
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 indicated on March 25, 1998.
Signature Title
--------- -----
/s/ Glenn E. Smith
- ------------------------------ Vice President
Glenn E. Smith
(Principal Executive Officer)
/s/ Peter D. Boylan
- ------------------------------ Treasurer
Peter D. Boylan
(Principal Financial and
Accounting Officer)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, North Jersey Energy Associates, A Limited Partnership, has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized in the City of North Palm Beach, State of Florida on March 25,
1998.
NORTH JERSEY ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP
By: NORTHEAST ENERGY LP, as
General Partner
By: ESI NORTHEAST ENERGY GP,
INC., as General Partner
By: /s/ Glenn E. Smith
-------------------------
Glenn E. Smith
Vice President
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 indicated on March 25, 1998.
Signature Title
--------- -----
/s/ Glenn E. Smith
- ------------------------------- Vice President
Glenn E. Smith
(Principal Executive Officer)
/s/ Peter D. Boylan
- ------------------------------- Treasurer
Peter D. Boylan
(Principal Financial and
Accounting Officer)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Northeast Energy Associates, A Limited Partnership, has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized in the City of North Palm Beach, State of Florida on March 25,
1998.
NORTHEAST ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP
By: NORTHEAST ENERGY, LP, as
General Partner
By: ESI NORTHEAST ENERGY GP,
INC., as General Partner
By: /s/ Glenn E. Smith
-------------------------
Glenn E. Smith
Vice President
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 indicated on March 25, 1998.
Signature Title
--------- -----
/s/ Glenn E. Smith
- ----------------------------- Vice President
Glenn E. Smith
(Principal Executive Officer)
/s/ Peter D. Boylan
- ----------------------------- Treasurer
Peter D. Boylan
(Principal Financial and
Accounting Officer)
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APPENDIX A
Defined Terms
Unless the context requires otherwise, any reference in this Form 10-K to
any agreement shall mean such agreement and all schedules, exhibits and
attachments thereto as amended, supplemented or otherwise modified and in effect
from time to time. Unless otherwise stated, any reference in this Form 10-K to
any person or entity shall include its successors and assignees and, in the case
of any government authority, any entity succeeding to its functions and
capacities. All terms defined herein used in the singular shall have the same
meanings when used in the plural and vice versa.
"Accommodation Agreement" means the Accommodation Agreement dated as of June
28, 1989, among NEA, Commonwealth, Boston Edison and Montaup.
"Acquisition Date" means January 14, 1998, the date of the consummation of the
Acquisitions.
"Acquisitions" means the acquisition by NE LP and NE LLC of all of the
partnership interests in NEA and NJEA and the acquisition by ESI Funding and
Tractebel Power of seventy-five percent (75%) of the outstanding capital stock
of ESI Tractebel Funding pursuant to the Purchase Agreement.
"Additional Project Securities" means any Debt of ESI Tractebel Funding
issued, subject to certain conditions set forth in the Project Indenture, to
provide a source of funds for (i) Required Improvements, (ii) cash collateral to
support Energy Bank Obligations (or to secure obligations of the Partnerships
under the Project Letter of Credit Facility with respect to Project Letters of
Credit issued to secure such Energy Bank Obligations) arising as a result of
Power Purchase Agreements (or amendments thereto) entered into after November
15, 1994 (iii) payment of fees and costs associated with the issuance of
Additional Project Securities, or (iv) funding the Debt Service Reserve Fund to
the extent that the balance in such Fund is less than the Debt Service Reserve
Requirement.
"Administrative Services Agreement" means the Administrative Services
Agreement, dated as of November 21, 1997, by and between NE LP and ESI GP.
"Administrative Services Fee" means a fee, payable monthly, equal to $600,000
per annum, adjusted annually based on a producer price index paid by NE LP to
ESI LP as compensation for the services it performs pursuant to the
Administrative Services Agreement.
"Affiliate," as used in the Project Indenture, means, as to any Person, any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that the beneficial ownership of 20% or more of the Voting
Stock of a Person shall be deemed to be control.
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"Algonquin" means Algonquin Gas Transmission Company, a Delaware corporation.
"Avoided Cost Security" means the security granted, pursuant to the NEA Second
Mortgage, with respect to all amounts paid under the respective Power Purchase
Agreements for the NEA Project in excess of the particular mortgagee's actual
Avoided Costs, with interest thereon at the prime rate of The First National
Bank of Boston, N.A. in effect from time to time.
"Avoided Costs" means, the incremental costs to an electric utility of
electric energy or capacity or both which, but for the purchase from a
qualifying facility, such utility would generate itself or purchase from some
other source.
"BankBoston" means BankBoston, N.A.
"BOC Gases" means the BOC Cases Division of the BOC Group, Inc., a Delaware
corporation.
"Boston Edison" means Boston Edison Company, a Massachusetts corporation.
"Boston Edison I Power Purchase Agreement" means the Power Purchase Agreement
dated as of April 1, 1986, as amended on June 8, 1987 and June 21, 1989, between
NEA and Boston Edison.
"Boston Edison II Power Purchase Agreement" means the Power Purchase Agreement
dated as of January 28, 1988, as amended, between NEA and Boston Edison.
"Boston Edison Interconnection Agreement" means the Amended and Restated
Interconnection Agreement dated as of September 24, 1993, between Boston Edison
and NEA.
"Btu" means British thermal units, a unit of energy.
"Carbon Dioxide Plant" means the carbon dioxide production facility owned by
NEA and located adjacent to the NEA Project on the NEA Site and all equipment
and facilities ancillary thereto.
"Carbon Dioxide Sales Agreements" means those agreements between NECO and BOC
Gases, and NECO and Praxair, respectively, for the purchase and sale of carbon
dioxide.
"Cash Collateral Proceeds" means the cash collateral (and investments thereof)
deposited by the Partnerships to secure the Partnerships' obligations to
reimburse under the Project Letter of Credit Facility.
"Clean Air Act" means the Federal Clean Air Act of 1955, as amended.
"CNG" means CNG Transmission Corporation, a Delaware corporation.
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"Collateral Agency Agreement" means the Collateral Agency Agreement, dated as
of December 1, 1994, as amended, among the Collateral Agent, the Project
Trustee, IEC Funding Corp. (now ESI Tractebel Funding), the Swap Banks, the
Working Capital Banks and the Partnerships.
"Collateral Agent" when used in connection with the Project Securities, means
State Street Bank, as collateral agent pursuant to the Collateral Agency
Agreement.
"Commission" means the United States Securities and Exchange Commission.
"Commonwealth" means Commonwealth Electric Company, a Massachusetts
corporation.
"Commonwealth I Power Purchase Agreement" means the Power Sale Agreement
between Commonwealth and NEA dated as of November 26, 1986, and amended as of
August 15, 1988 and as further amended as of January 1, 1989.
"Commonwealth II Power Purchase Agreement" means the Power Sale Agreement
between Commonwealth and NEA dated as of August 15, 1988, and amended as of
January 1, 1989.
"Commonwealth Power Purchase Agreements" means, collectively, the Commonwealth
I Power Purchase Agreement and the Commonwealth II Power Purchase Agreement.
"Conrail" means Consolidated Rail Corporation.
"CRSS" means CRSS, Inc.
"Daily NEA Quantity" means 48,817 Dth of natural gas.
"Daily NJEA Quantity" means 22,019 Dth of natural gas.
"Debt" of any Person, as defined in the Project Indenture, means (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, (iv) all obligations under capital leases of such Person, (v) all Debt
of others secured by a Lien on any asset of such Person, whether or not such
Debt is assumed by such Person (vi) all Debt of others to the extent guaranteed
by such Person, (vii) all obligations under letters of credit issued for the
account of such Person, (viii) all obligations of such Person under trade or
bankers' acceptances and (ix) all obligations of such Person under agreements
providing for interest rate swaps, collars or caps.
"Debt Service Reserve Fund," as defined in the Project Indenture, means the
Fund entitled "Debt Service Reserve Fund" established and maintained by the
Project Trustee pursuant to the Project Indenture.
"Debt Service Reserve Requirement," as defined in the Project Indenture,
means, as of any Monthly Transfer Date, an amount equal to 50% of the aggregate
regularly scheduled interest, principal and fee payments to be made by the
Partnerships in respect of the Project Notes (for
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application to the payment of principal, interest and fees of the Project
Securities and any Additional Project Securities) during the period commencing
on (and including) such Monthly Transfer Date and ending on (but excluding) the
twelfth (12th) Monthly Transfer Date thereafter; provided that the amount of the
Debt Service Reserve Requirement as of the Closing Date and as of the date of
issuance of any Additional Project Securities and for the period thereafter
until the next succeeding Monthly Transfer Date shall be equal to the Debt
Service Reserve Requirement calculated as of the Closing Date the date of
issuance of any Additional Project Securities or such next succeeding Monthly
Transfer Date, as the case may be.
"Dekatherm" or "Dth" means one MMBtu.
"Dollars" and "$" means lawful money of the United States.
"DTE" means Department of Telecommunications and Energy.
"Energy Bank" or "Energy Bank Obligations" means an account recording the
liability of a Partnership to a Power Purchaser representing cumulative payments
made to such Partnership by such Power Purchaser under the applicable Power
Purchase Agreement in excess of such Power Purchaser's Avoided Costs, determined
in accordance with such Power Purchase Agreement.
"Energy Bank Letters of Credit" means, collectively, any letter or letters of
credit for the benefit of the Power Purchasers to secure the Energy Bank
Obligations.
"Environmental Law" means any and all Government Rules relating to human
health or the environment, or the release of Hazardous Materials into the indoor
or outdoor environment including, without limitation, ambient air, surface
water, groundwater, wetlands, land or subsurface strata or otherwise relating to
the use of Hazardous Material, whether now or hereafter in effect. Environmental
Laws shall include, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Toxic
Substances Control Act, as amended, the Hazardous Materials Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended, the Clean
Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean Air
Act, as amended, the Occupational Safety and Health Act, as amended, and all
analogous laws promulgated or issued by any state or other Governmental
Authority.
"EPA" means the Environmental Protection Agency of the United States.
"ESI" or "ESI Energy" means ESI Energy, Inc., a Florida corporation.
"ESI Acquisition Funding" means ESI Northeast Energy Acquisition Funding,
Inc., a Florida corporation.
"ESI Funding" means ESI Northeast Energy Funding, Inc., a Florida corporation.
"ESI GP" means ESI Northeast Energy GP, Inc., a Florida corporation.
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"ESI LP" means ESI Northeast Energy LP, Inc., a Florida corporation.
"ESI Tractebel Funding" means ESI Tractebel Funding Corp., a Delaware
corporation, formerly known as "IEC Funding Corp."
"Event of Loss" means any compulsory transfer or taking or transfer under
threat of compulsory transfer or taking of all or any material part of either
Project by any Government Authority, or any event which causes all or any
material portion of either Project by any Government Authority, or any event
which cause all or any material portion of either Project to be damaged,
destroyed or rendered unfit for normal use for any reason whatsoever.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extended Gas Service" means the sale and delivery of gas to NJEA by PSE&G for
days on which the mean daily temperature for Newark, New Jersey is between
22(o)F and 14(o)F.
"FERC" means the United States Federal Energy Regulatory Commission.
"Fluor Daniel" means Fluor Daniel Inc., a California corporation.
"Fluor Daniel Agreement" means the Design/Build Contract dated as of June 28,
1989 between NEA and Fluor Daniel.
"FPA" means the Federal Power Act, as amended.
"FPL" means Florida Power & Light Co., a Florida corporation.
"FPL Energy" means FPL Energy, Inc., a Florida corporation.
"FPL Group" means FPL Group, Inc., a Florida corporation.
"FPL Group Capital" means FPL Group Capital Inc., a Florida corporation.
"FPL Group Capital Guaranty" or "FPL Capital Guarantee" means a guaranty or an
agreement made by FPL Group Capital in to reimburse Energy Bank Letter of Credit
Banks and/or Substitute Letter of Credit Banks, issued pursuant to the
Reimbursement Agreement.
"Fuel Management Agreements" means, collectively, the NEA Fuel Management
Agreement and the NJEA Fuel Management Agreement.
"Fuel Management Fees" means the monthly fees required to be paid by NEA and
NJEA to the Fuel Manager pursuant to the Fuel Management Agreements.
"Fuel Manager" means ESI Northeast Fuel Management, Inc., a Florida
corporation.
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"Funds" means the funds established and maintained by the Project Trustee
pursuant to the Project Indenture.
"Gas Transmission Reserve Fund" means the Fund entitled "Gas Transmission
Reserve Fund" established and maintained by the Project Trustee pursuant to the
Project Indenture.
"Gas Transmission Reserve Requirement" means (a) as of any date occurring
within the fifteen month period preceding the earliest expiration date of the
Transco Agreements and which precedes the earliest expiration date of the
Transco Agreements by a period that includes not less than three Monthly
Transfer Dates, $5,300,000, (b) as of any other date thereafter, $10,600,000 and
(c) prior to the date determined pursuant to clause (a), zero; provided that as
of and subsequent to any extension or replacement of the Transco Agreements by
agreements expiring on or after the final maturity date of the Project
Securities and satisfying certain other conditions specified in the Project
Indenture, the Gas Transmission Reserve Requirement shall be zero. The Gas
Transmission Reserve Requirement has been determined based on the assumption
that each Transco Agreement will expire on October 31, 2006, and will not be
extended, in whole or in part, beyond such date. In the event that either or
both Transco Agreements are extended or replaced by agreements satisfying
certain conditions specified in the Project Indenture, the Gas Transmission
Reserve Requirement will be adjusted pursuant to a formula specified in the
Project Indenture.
"General Partner" means NE LP.
"Government Approval" means (i) any authorization, consent, approval, license,
ruling, permit, certification, exemption, filing, variance, order, judgment,
decree or publication of, by or with, (ii) any notice to, (ii) any declaration
of or with or (iv) any registration by or with, any Government Authority
required to be obtained or made by the Issuer, NE LP, ESI Tractebel Funding or a
Partnership or, where the context requires, by any other Person party to a
Project Document.
"Government Authority" means any United States federal, state, municipal,
local, territorial or other governmental subdivision, department, commission,
board, bureau, agency, regulatory authority, instrumentality, judicial or
administrative body, domestic or foreign.
"Government Rule" means any statute, law, regulation, ordinance, rule,
judgment, order, decree, permit, concession, grant, franchise, code, license,
directive, guideline, policy or rule of common law, requirement of, or other
governmental restriction or any judicial or administrative order, consent decree
or judgement or similar form of decision of or determination by, or any
interpretation or administration of any of the foregoing by, any Government
Authority, whether now or hereafter in effect.
"GSR Deficiency", as defined in the Project Indenture, is now zero.
"Guaranty", as defined in the Project Indenture, by any Person means any
guaranty, surety, bond or other obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing in any manner any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person: (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other
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obligation (whether arising by virtue of Partnership arrangements, by agreement
to keep well, to purchase assets, goods, bonds or services, to take-or-pay, or
to maintain financial statement conditions or otherwise), (ii) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part) or (iii) to reimburse any Person for the
payment by such Person under any letter of credit, surety, bond or other
guaranty issued for the benefit of such other Person, but excluding (x)
endorsements for collection or deposit in the ordinary course of business, or
(y) indemnity or hold harmless provisions included in contracts entered into in
the ordinary course of business.
"Hazardous Material", as defined in the Project Indenture, means: (i) any
petroleum or petroleum products, flammable explosives, radioactive materials,
asbestos in any form that is or could become friable, urea formaldehyde foam
insulation and transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls (PCBs), (ii) any chemicals or other
materials or substances which are now or hereafter become defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "contaminants," "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or other
material or substance, exposure to which is now or hereafter prohibited, limited
or regulated as such under any Environmental Law including the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C. Section 6901 et
seq., or any similar state statute.
"Hercules" means Hercules Incorporated, a Delaware corporation.
"HRSG" means a heat recovery steam generator.
"IEC" means Intercontinental Energy Corporation, a Massachusetts corporation,
the former general partner of each of the Partnerships.
"IEC Funding Corp." means the corporation now referred to as ESI Tractebel
Funding Corp., a Delaware corporation.
"IECURC" means IEC Urban Renewal Corporation, a New Jersey corporation
wholly-owned by NJEA.
"Import Point" means the point of interconnection between the TransCanada
pipeline and CNG's pipeline at Niagara Falls, Ontario/Niagara Falls, New York.
"Insurance Proceeds" means all amounts and proceeds (including instruments) in
respect of the proceeds of any casualty insurance policy or title insurance
policy, except proceeds of delayed opening or business interruption insurance.
"Interest Fund," as defined in the Project Indenture, means the Interest Fund
established and maintained by the Project Trustee pursuant to the Project
Indenture.
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"ISO Conditions" means a temperature of 59 degrees F and an atmospheric
pressure of 29.92 inches of mercury absolute (i.e. sea level).
"JCP&L" means Jersey Central Power & Light Company, a New Jersey corporation.
"JCP&L Power Purchase Agreement" means the Power Purchase Agreement dated as
of October 22, 1987, between NJEA and JCP&L, as amended.
"Kilowatt" or "KW" means one thousand watts.
"Kilowatt-hours" or "kWh" means a unit of electrical energy equal to one
kilowatt of power supplied or taken from an electric circuit steadily for one
hour.
"Lien", as defined in the Project Indenture, means, with respect to any
property of any Person, any mortgage, lien, pledge, charge, lease, easement,
servitude, right of others or security interest or encumbrance of any kind in
respect of such property of such Person.
"Limited Partner" means NE LLC.
"Long-term Gas Arrangements" means, collectively, the Long-term Gas Supply
Agreements, the Long-term Gas Transportation Agreements and the Long-term Gas
Storage Agreements.
"Long-term Gas Storage Agreements" means the NEA Gas Storage Agreement and the
NJEA Gas Storage Agreement.
"Long-term Gas Supply Agreements" means the NEA ProGas Agreement, the NJEA
ProGas Agreement and the PSE&G Contract.
"Long-term Gas Transportation Agreements" means the NEA Gas Transportation
Agreements and the NJEA Gas Transportation Agreements.
"Loss Proceeds" means all Insurance Proceeds, all condemnation awards,
settlement payments and other amounts (other than proceeds of delayed opening or
business interruption insurance or similar items) received or payable in respect
of any Event of Loss.
"Major Overhaul Expenses" means expenses not covered by any operations and
maintenance contractor and which are incurred by a Partnership in connection
with scheduled major overhauls of a project in accordance with the maintenance
recommendations of the applicable manufacturer or vendor pursuant to the Project
Indenture.
"Major Overhaul Reserve Fund" means the Fund entitled "Major Overhaul Reserve
Fund" established and maintained by the Project Trustee pursuant to the Project
Indenture.
"Management Costs" means the management fee payable to NE LP, which fee shall
be comprised of four components, without duplication: (i) third-party costs
certified as being reasonably allocable to either or both of the Projects or
either or both of the Partnerships or ESI
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Tractebel Funding (including but not limited to any rent, independent legal,
consulting and accounting fees and expenses that are certified as such), (ii)
general and administrative expenses of NE LP reasonably allocable to either or
both of the Projects or either or both of the Projects or either or both of the
Partnerships or ESI Tractebel Funding, (iii) compensation (including salary and
related benefits) of individuals that are not related by blood or marriage to
the Original Project Sponsors certified as being reasonable allocable to either
or both of the Projects or either or both of the Partnerships or the company and
(iv) for each calendar year, an amount equal to $3,500,000, $1,500,000 of which
shall constitute the Subordinated Management Fee (each such amount inflated
annually commencing on January 1, 1995, in accordance with the Project
Indenture, and adjusted ratably for each partial calendar year in which the
Project Securities shall be outstanding).
"MBtu" means one thousand Btus.
"Mcf" means one thousand cubic feet of gas at 60(o)F and at a pressure of
14.73 pounds per square inch absolute.
"Medway Substation" means the Medway Substation of Boston Edison, located in
Medway, Massachusetts.
"Megawatt" or "MW" means one million watts.
"Megawatt hour" or "MWH" means one thousand kilowatt-hours.
"MMBtu" means one million Btus.
"Montaup" means Montaup Electric Company, a Massachusetts corporation.
"Montaup Power Purchase Agreement" means the Power Purchase Agreement dated as
of October 17, 1986, as amended on June 28, 1989, between NEA and Montaup.
"Monthly MOR Contribution Amount," as defined in the Project Indenture means,
for each Monthly Transfer Date commencing with the first such date in calendar
year 2001 (a) the applicable amount set forth in the Project Indenture as the
aggregate required contribution to the Major Overhaul Reserve Fund for the
calendar year of such Monthly Transfer Date (as such schedule may be revised, as
set forth therein, by the Independent Engineer in the event that either O&M
Agreement is amended or replaced to provide for the payment by a third party
operator for either Project of all or a portion of any Major Overhaul Expenses)
divided by (b) 12 (or, in the case of the calendar year in which the final
maturity date for the Project Securities occurs, the number of Monthly Transfer
Dates occurring in such calendar year prior to such date).
"Monthly Transfer Date," as defined in the Project Indenture means the first
business day of each calendar month.
"Monthly Transfer Period" means the period commencing on (and including) a
Monthly Transfer Date and ending on (but excluding) the immediately succeeding
Monthly Transfer Date.
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"Moody's" means Moody's Investors Service, Inc.
"MOR Deficiency," as defined in the Project Indenture, means, as of any date
of determination subsequent to the first Monthly Transfer Date in calendar year
2001, the excess, if any, of (a) the aggregate Monthly MOR Contribution Amounts
for all prior Monthly Transfer Dates over (b) the excess (if any) of (i) the
aggregate amount of all prior transfers to the Major Overhaul Reserve Fund over
(ii) the aggregate amount of all withdrawals from the Major Overhaul Reserve
Fund made on or prior to such date of determination other than pursuant to the
Project Indenture; provided, that the amount of any MOR Deficiency (i) shall be
reduced by the amount of Major Overhaul Expenses previously paid by the
Partnerships from funds other than disbursements from the Major Overhaul Reserve
Fund, (ii) shall be subject to adjustment as provided in the Project Indenture
and (iii) shall be equal to zero as of any date of determination prior to the
first Monthly Transfer Date in calendar year 2001.
"MOU" means Memorandum of Understanding.
"NationsBank" means NationsBank of Texas.
"NE LLC" means Northeast Energy, LLC, a Delaware limited liability company.
"NE LP" means Northeast Energy, LP, a Delaware limited partnership.
"NE LP Partnership Agreement" means the Agreement of Limited Partnership of
Northeast Energy, LP, dated as of November 21, 1997, by and among ESI GP, ESI
LP, Tractebel GP and Tractebel LP.
"NEA" means Northeast Energy Associates, A Limited Partnership, a
Massachusetts limited partnership.
"NEA Additional Properties Mortgage" means the Amended and Restated Mortgage,
Assignment of Rents, Security Agreement and Fixture Filing (Additional
Properties) granted by NEA to the Collateral Agent with respect to certain real
estate owned by NEA adjacent to the NEA Site.
"NEA Fuel Management Agreement" means the Fuel Management Agreement, dated as
of January 20, 1998 (effective retroactively to January 14, 1998) by and between
the Fuel Manager and NE LP, assigned by NE LP to NEA on January 20, 1998.
"NEA Fuel Management Fee" means $450,000, as compensation for certain fuel
management services for the NEA Project pursuant to the NEA Fuel Management
Agreement.
"NEA Gas Agreements" means the NEA ProGas Agreement, the NEA Gas
Transportation Agreements and the NEA Gas Storage Agreement.
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"NEA Gas Storage Agreement" means the Service Agreement Applicable to the
Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30,
1993, between CNG and NEA, as amended by the parties and in respect of changes
in FERC approved
tariffs.
"NEA Gas Supply Agreement" means the NEA ProGas Agreement.
"NEA Gas Transportation Agreements" means collectively, the Firm
Transportation Service Agreement dated as of February 28, 1994, among CNG, NEA,
ProGas and ProGas U.S.A., Inc., the Firm Gas Transportation Agreement (Rate
Schedule X-320) dated February 27, 1991, between Transco and NEA, the Rate
Schedule X-35 Firm Gas Transportation Agreement dated October, 1993, between
Algonquin and NEA and the Service Agreement for Rate Schedule FTS-5 dated
February 16, 1994, between Texas Eastern and NEA, each as amended by the parties
and in respect of changes in FERC approved tariffs.
"NEA O&M Agreement" means the Second Amended and Restated Operations and
Maintenance Agreement dated as of June 28, 1989, between NEA and the Operator
(as successor to Westinghouse Electric).
"NEA O&M Fee" means the monthly fee required to be paid by NEA to the Operator
pursuant to the NEA O&M Agreement.
"NEA Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Northeast Energy Associates, A Limited Partnership, dated
as of November 21, 1997 by and between NE LP and NE LLC.
"NEA Power Purchase Agreements" means the Boston Edison I Power Purchase
Agreement, the Boston Edison II Power Purchase Agreement, the Commonwealth I
Power Purchase Agreement, the Commonwealth II Power Purchase Agreement and the
Montaup Power Purchase Agreement.
"NEA Power Purchasers" means Boston Edison, Commonwealth and Montaup.
"NEA ProGas Agreement" means the Gas Purchase Contract dated as of May 12,
1988, between NEA and ProGas, as amended.
"NEA Project" means the nominal 300 MW natural gas-fired combined cycle
cogeneration facility owned by NEA located on the NEA Site, including all
electrical and steam generating components, and all electrical, steam and
natural gas interconnection facilities and structures, associated materials,
handling and environmental equipment and ancillary structures, equipment and
systems.
"NEA Project Documents" means, individually and collectively, certain existing
agreements and documents specified in the Project Indenture (which include the
NEA Power Purchase Agreements, the NEA Gas Agreements, the NEA Steam Sales
Agreement and the NECO Lease), as any of the same may from time to time be
amended, modified or supplemented together with all Additional Project Documents
(as defined in the Project Indenture) to which NEA is a party or which relate to
all or any part of the NEA Project as to the Carbon Dioxide Plant.
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"NEA Project Mortgage" means the Amended and Restated Mortgage, Assignment of
Rents, Security Agreement and Fixture Filing granted by NEA to the Collateral
Agent with respect to the NEA Site and all related improvements and fixtures
thereon owned by
NEA.
"NEA Second Mortgage" means the Mortgage, Assignment of Rents, Security
Agreement and Fixture Filing dated as of June 28, 1989, by NEA in favor of
Boston Edison, Commonwealth and Montaup securing the performance by NEA of its
obligations under each of the NEA Power Purchase Agreements.
"NEA Site" means the approximately 44-acre site on the upper Charles River in
the town of Bellingham, Massachusetts, on which the NEA Project and the Carbon
Dioxide Plant are located.
"NEA Steam Sales Agreement" means the Amended and Restated Steam Sales
Agreement dated as of December 21, 1990, between NEA and NECO.
"NECO" means NECO-Bellingham, Inc., a special-purpose subsidiary of a
privately held company based in Houston.
"NECO Lease" means the Amended and Restated Lease dated as of December 21,
1990, between NEA and NECO.
"NEPOOL" means the New England Power Pool.
"NEPOOL Agreement" means the NEPOOL Agreement dated September 1, 1971.
"Net Electrical Capability" means the sum of the nameplate rating of the
generators for each Project, as designated by the manufacturer and expressed in
megawatts, less allowance for station service, at which such Project is designed
to operate continuously in a reasonable and prudent manner under ISO conditions
in accordance with good utility practice.
"New NEA O&M Agreement" means the Operation and Maintenance Agreement, dated
as of November 21, 1997, by and between NE LP and the New Operator, subsequently
assigned by NE LP to NEA.
"New NEA O&M Fee" means the monthly fee required to be paid by NEA to the New
Operator pursuant to the New NEA O&M Agreement.
"New NJEA O&M Agreement" means the Operation and Maintenance Agreement, dated
as of November 21, 1997, by and between NE LP and the New Operator, subsequently
assigned by NE LP to NJEA.
"New NJEA O&M Fee" means the monthly fee required to be paid by NJEA to the
New Operator pursuant to the New NJEA O&M Agreement.
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"New O&M Agreements" means the New NEA O&M Agreement and the New NJEA O&M
Agreement.
"New O&M Fees" means the fees as compensation for the operation and
maintenance services for the Projects under the New O&M Agreements.
"New Operator" means ESI Operating Services, Inc., a Florida corporation.
"1990 Amendments" means the 1990 Amendments to the Federal Clean Air Act of
1955.
"NJBPU" means the New Jersey Board of Public Utilities.
"NJEA" means North Jersey Energy Associates, A Limited Partnership, a New
Jersey limited partnership.
"NJEA Fuel Management Agreement" means the Fuel Management Agreement, dated as
of January 20, 1998 (effective retroactively to January 14, 1998) by and between
the Fuel Manager and NE LP, assigned by NE LP to NJEA on January 20, 1998.
"NJEA Fuel Management Fee" means $450,000, as compensation for certain fuel
management services for the NJEA Project pursuant to the NJEA Fuel Management
Agreement.
"NJEA Gas Agreements" means, collectively, the NJEA ProGas Agreement, the
PSE&G Contract, the NJEA Gas Transportation Agreements and the NJEA Gas Storage
Agreement.
"NJEA Gas Storage Agreement" means the Service Agreement Applicable to the
Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30,
1993, between CNG and NJEA.
"NJEA Gas Supply Agreements" means, collectively, the NJEA ProGas Agreement
and the PSE&G Contract.
"NJEA Gas Transportation Agreements" means collectively, the Firm
Transportation Service Agreement dated as of February 28, 1994, among CNG, NJEA,
ProGas and ProGas U.S.A., Inc., the Firm Gas Transportation Agreement (Rate
Schedule X-319) dated February 27, 1991, between Transco and NJEA and the
Service Agreement for Rate Schedule FTS-5 dated February 16, 1994, between Texas
Eastern and NJEA, each as amended by the parties and in respect of changes in
FERC approved tariffs.
"NJEA O&M Agreement" means the Amended and Restated Operations and Maintenance
Agreement dated as of June 28, 1989, between NJEA and the Operator (as successor
to Westinghouse Electric).
"NJEA O&M Fee" means the monthly fee required to be paid by NJEA to the
Operator pursuant to the NJEA O&M Agreement.
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"NJEA Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of North Jersey Energy Associates, A Limited Partnership,
dated as of November 21, 1997 by and between NE LP and NE LLC.
"NJEA Power Purchase Agreement" means the JCP&L Power Purchase Agreement.
"NJEA Power Purchaser" means JCP&L.
"NJEA ProGas Agreement" means the Gas Purchase Contract dated as of May 12,
1988, between NJEA and ProGas, as amended.
"NJEA Project" means the nominal 300 MW natural gas-fired combined cycle
cogeneration facility owned by NJEA and located on the NJEA Site, including all
electrical and steam generating components, and all electrical, steam and
natural gas interconnection facilities and structures, associated materials
handling and environmental control equipment and ancillary structures, equipment
and systems.
"NJEA Project Documents" means, individually and collectively, certain
existing agreements and documents specified in the Project Indenture (which
include the JCP&L Power Purchase Agreement, the NJEA Gas Agreements and the NJEA
Steam Sales Agreement), as any of the same may from time to time be amended,
modified or supplemented, together with all Additional Project Documents (as
defined in the Project Indenture) to which NJEA is a party or which relate to
all or any part of the NJEA Project.
"NJEA Project Mortgage" means the Amended and Restated Indenture of Mortgage,
Assignment of Rents, Security Agreement and Fixture Filing, dated as of December
1, 1994, granted by NJEA to the Collateral Agent with respect to the NJEA Site
and all related improvements and fixtures thereon owned by NJEA.
"NJEA Site" means the approximately 49-acre site in the Borough of Sayreville,
New Jersey, on which the NJEA Project is located.
"NJEA Steam Sales Agreement" means the Industrial Steam Sales Contract dated
as of June 5, 1989, as amended, between NJEA and Hercules.
"Non-Material Project Document", as defined in the Project Indenture, means
any Project Document (x) which shall be for a term (including any extensions
provided therein, other than those that are optional to the applicable
Partnership) not longer than 1 year or (y) under which such Partnership shall
have obligations not in excess of $1,000,000, excluding, however, (a) any
contract or agreement providing, directly or indirectly, for monetary or
nonmonetary obligations of the Partnership the performance of which could
reasonably be expected to have a material adverse effect and (b) any contract or
agreement providing for the acquisition by either Partnership of property, or
the delivery to the Partnership of services, that if no obtained could
reasonably be expected to have material adverse effect (taking into
consideration all available alternatives). For purposes of this definition,
indemnity or similar obligations of a Partnership subject to a maximum dollar
amount shall be limited to such amount, and, subject to any such limitation,
shall be
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computed at the maximum amount thereof which could, at the time such agreement
is entered into, reasonably be expected to become due and payable.
"NOx" means oxides of nitrogen.
"NYMEX" means the New York Mercantile Exchange.
"O&M Agreements" means the NEA O&M Agreement and the NJEA O&M Agreement, as
applicable, (including any extensions or modifications thereof).
"OASIS" means an open-access same-time information system, as defined in FERC
Order No. 889.
"Operating Expenses," as defined in the Project Indenture means, for any
period, the sum of the following costs and expenses (without duplication) paid
or required to be paid during such period (or, in the case of any future period,
projected to be paid or payable in such period): (a) the operating and
maintenance expenses of the Projects including, without limitation, (i) amounts
due from the applicable Partnership under any operations and maintenance
agreement in respect of the operation and maintenance of either Project, (ii)
fuel procurement, storage, transportation, management and associated costs for
the Projects and costs of any fuel hedging arrangements, (iii) premiums for
insurance including, without limitation, insurance required to be maintained
pursuant to the Project Indenture or pursuant to any Project Document, (iv)
franchise, licensing, excise, property and other similar taxes (other than
federal and state income taxes and any other taxes imposed upon, or measured by,
income or receipts, unless any such tax shall be imposed on the Partnerships
solely by reason of the adoption of a Government Rule or the amendment of an
existing Government Rule subsequent to the closing date with respect to the
offering of the Project Securities) payable by or on behalf of the Partnerships,
(v) all taxes payable by ESI Tractebel Funding, (vi) utilities, supplies and
other services acquired in connection with the operation or maintenance of the
Projects, (vii) maintenance costs with regard to the Projects, including the
rebuilding, repair or replacement of any Project in connection with an Event of
Loss (to the extent such costs are not paid from funds on deposit in the Major
Overhaul Reserve Fund or the Capital Expenditure Fund), (viii) costs and fees
incurred in connection with obtaining and maintaining in effect the Government
Approvals relating to a Project, (ix) costs of the Partnerships and ESI
Tractebel Funding relating to the settlement of pending or threatened litigation
or other claims relating to a Project or any related fines, penalties, judgments
and other costs (including, without limitation, legal fees and expenses)
associated with such litigation or other claims, (x) rental expense of the
Partnerships relating to the rental of any property associated with the
Projects, (xi) fees and expenses of consultants and experts retained by or
required to be paid by either of the Partnerships or ESI Tractebel Funding,
including, without limitation, the Independent Experts, attorneys and
accountants, (xii) indemnification payments made by either of the Partnerships
or ESI Tractebel Funding to any Person pursuant to any bona fide obligation
necessarily and reasonably incurred in connection with the operation or
financing (including any financing contemplated pursuant to the Project
Indenture) of the Projects and owed by such Partnership to such Person and
(xiii) Management Costs (provided that the amount of Management Costs referred
to in clause (iv) of the definition thereof payable as an Operating Expense
during any Monthly Transfer Period shall not exceed the sum of (A) the quotient
of (x) the then applicable annual
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amount of such Management Costs over (y) 12 or, if applicable, the number of
Monthly Transfer Periods in any partial year in which the Project Securities
shall be outstanding and (B) the amount of Management Costs that were permitted
to be paid as operating expenses pursuant to this proviso in any prior Monthly
Transfer Period but not previously paid; provided further that, for purposes of
the foregoing proviso, a portion of the amount determined pursuant to clause (A)
for each Monthly Transfer Period shall be allocated ratably to the Subordinated
Management Fee and amounts determined pursuant to clause (B) shall be allocated
to the Subordinated Management Fee to the extent unpaid amounts are attributable
to deficiencies in the Subordinated Management Fee Subfund of the Operating
Fund); plus (b) fees and expenses of the Project Trustee and the Collateral
Agent, plus (c) costs relating to the issuance of any Project Securities,
including, without limitation, any exchange offer and any registration statement
in respect of the Project Securities or any other costs incurred by ESI
Tractebel Funding and the Partnerships in connection with the performance of any
further assurance obligations hereunder and under the Project Indenture and the
Project Security Documents; plus (d) amounts payable by the Partnerships in
respect of guaranties permitted under the Project Indenture; plus (e) amounts
payable to any entity (other than an affiliate of NE LP), either in the form of
dividends or management or similar fees or reimbursement of expenses (in each
case in reasonable amounts) that owns any of the outstanding capital stock of
ESI Tractebel Funding, provided that all of the foregoing costs and expenses
shall be determined on a cash basis and shall not include depreciation,
amortization or other non-cash items.
"Operator" means Westinghouse Services.
"Original Banks" means the financial institutions party to the Original
Project Credit Agreement.
"Original Project Credit Agreement" means the Project Loan and Credit
Agreement dated as of June 28, 1989, as amended, among the Partnerships as
borrowers, IEC, The Chase Manhattan Bank as issuing bank and as agent for the
Original Banks, The Bank of New York (as successor to Irving Trust Company) as
co-agent and the Original Banks.
"Original Project Indenture" means the Trust Indenture, dated as of November
15, 1994, among each of the Partnerships, IEC Funding Corp. (now ESI Tractebel
Funding), and the Project Trustee, as supplemented by the First Supplemental
Trust Indenture, dated as of November 15, 1994.
"Original Project Notes" means the notes issued by the Partnerships to the
Original Banks pursuant to the Original Project Credit Agreement.
"Original Project Securities" means the 8.43% Senior Secured Notes Due 2000,
the 9.16% Senior Secured Notes Due 2002, the 9.32% Senior Secured Bonds Due 2007
and the 9.77% Senior Secured Bonds Due 2010. The Original Project Securities
were exchanged for Project Securities in May 1995.
"Partial Transportation Extension Event" means the occurrence of the following
with respect to a Transco Agreement: (a) either (i) the extension of the term of
such Transco Agreement on terms and conditions which would constitute a Transco
Extension Event but for the fact that (A) the term
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of such Transco Agreement (as so extended) is scheduled to expire prior to the
final maturity date of the Project Securities and/or (B) the maximum daily
quantity to be transported pursuant to such Transco Agreement is less than that
in effect under such Transco Agreement on December 1, 1994 or (ii) the execution
by either Partnership and one or more third parties of one or more gas
transportation agreements providing for firm gas transportation service to such
Partnership by such third party(ies) which would constitute a Transco
Substitution Event but for the fact that (x) the term of such agreement is
scheduled to expire prior to the final maturity date of the Project Securities
and/or (y) the maximum daily quantity to be transported pursuant to such
agreement(s) is less than that in effect for the applicable Transco Agreement on
December 1, 1994; and (b) the receipt by the Project Trustee of a certificate of
the Independent Gas Consultant to the effect of (a) above.
"Partners" means, collectively, NE LP and NE LLC.
"Partnership Distribution Fund" means the Fund entitled "Partnership
Distribution Fund" established and maintained by the Project Trustee pursuant to
the Project Indenture.
"Partnership Suspense Fund" means the Fund entitled "Partnership Suspense
Fund" established and maintained by the Project Trustee pursuant to the Project
Indenture.
"Partnerships" means NEA and NJEA.
"Peak Gas Service Credit" means the demand charge paid by PSE&G to NJEA in
exchange for the right to retain NJEA's gas supplies on days when the mean daily
temperature forecast for Newark, New Jersey drops below certain levels.
"Permitted Purchase Money Indebtedness," as defined in the Project Indenture,
means purchase money or lease obligations incurred to finance items of equipment
not comprising an integral part of either Project (and obligations in respect of
Debt incurred to refinance any such obligations), provided that (a) if such
obligations are secured, they are secured only by Liens upon the equipment being
financed and (b) such obligations do not in the aggregate have annual scheduled
interest, principal, lease and purchase price installment payments in excess of
$5,000,000.
"Permitted Unsecured Indebtedness" means unsecured Debt in an aggregate
outstanding principal amount at no time greater than $10,000,000.
"Person" means any individual, sole proprietorship, corporation, partnership,
joint venture, limited liability company, trust, unincorporated association,
institution, Government Authority or any other entity.
"PJM" or "PJM Interconnected Power Pool" means the Pennsylvania/New
Jersey/Maryland interconnected Power Pool.
"PJM Agreement" means the PJM Agreement dated September 26, 1956, as amended.
"Policy Act" means the Energy Policy Act of 1992.
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"Power Purchase Agreements" means individually and collectively, the Boston
Edison I Power Purchase Agreement, the Boston Edison II Power Purchase
Agreement, the Commonwealth I Power Purchase Agreement, the Commonwealth II
Power Purchase Agreement, the Montaup Power Purchase Agreement and the JCP&L
Power Purchase Agreement, and any Additional Project Document (as defined in the
Project Indenture) (other than a Non-Material Project Document) providing for
the sale of electric energy or capacity from the Projects.
"Power Purchasers" means Boston Edison, Commonwealth, JCP&L and Montaup and
any other Person (other than the Partnerships) party to a Power Purchase
Agreement.
"Praxair" means Praxair, Inc., the successor to Liquid Carbonic Carbon Dioxide
Corporation.
"Principal Fund" means the Fund entitled "Principal Fund" described in, and
pursuant to the Project Indenture.
"ProGas" means ProGas Limited, an Alberta corporation.
"ProGas Agreement Expiration Date" means, with respect to each ProGas
Agreement, the later of (a) November 1, 2006 and (b) the scheduled expiration
date of such ProGas Agreement after giving effect to any Partial ProGas
Extension Events.
"ProGas Agreements" means the NEA ProGas Agreement and the NJEA ProGas
Agreement.
"Project Accounts" means the accounts entitled "Project Accounts" maintained
and used by the Project Trustee.
"Project Collateral," defined as "Collateral" in the Project Indenture, means,
collectively, all of the collateral mortgaged, pledged or assigned to the
Collateral Agent by any of ESI Tractebel Funding, each Partnership, NE LP, ESI
Funding and Tractebel Power, in each case pursuant to the granting and assigning
clauses of the applicable Project Security Documents.
"Project Credit Agreement" means the Amended and Restated Project Loan and
Credit Agreement, dated as of December 1, 1994, by and among ESI Tractebel
Funding and each of the Partnerships.
"Project Documents" means, collectively, the NEA Project Documents and the
NJEA Project Documents.
"Project Guaranty" means the guaranty agreement, by and among the Project
Trustee, NEA and NJEA, guaranteeing the obligations of ESI Tractebel Funding
under the Project Indenture.
"Project Indebtedness," as used in this Offering Circular means, collectively,
the existing Debt of the Partnerships and ESI Tractebel Funding in connection
with the Project Securities, the existing Debt of the Partnerships in connection
with the Sanwa Credit Agreement and the existing Debt of the Partnerships under
the Swaps.
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"Project Indenture" means the Trust Indenture dated as of November 15, 1994,
entered into by ESI Tractebel Funding, the Partnerships and the Project Trustee
providing for the issuance of the Project Securities, as supplemented by a First
Supplemental Trust Indenture, dated as of November 15, 1994, and as amended and
supplemented by the Second Supplemental Trust Indenture dated as of January 14,
1998.
"Project Letter of Credit Banks" means the financial institutions from time to
time parties to a Project Letter of Credit Facility.
"Project Letter of Credit Facility" means any agreement or agreements from
time to time in effect among the Partnerships and the Project Letter of Credit
Banks, and any replacements thereof which satisfies the requirements under the
Power Purchase Agreements, the Fluor Daniel Agreement and the Prestwich Lease
providing for the issuance of the Project Letters of Credit. No Letters of
Credit are currently outstanding in connection with the Fluor Daniel Agreement
or the Prestwich Lease.
"Project Letters of Credit" means the Letters of Credit securing the
Partnerships' obligations.
"Project Loans" means the loan made by ESI Tractebel Funding to each of the
Partnerships in connection with the Project Credit Agreement and the Project
Indenture.
"Project Notes" means (a) the promissory notes of the Partnerships issued to
ESI Tractebel Funding on December 1, 1994 pursuant to the Project Credit
Agreement, which notes were issued (x) to amend and restate the Original Project
Notes and (y) to evidence the Project Loans together with (b) any promissory
notes issued by the Partnerships to ESI Tractebel Funding subsequent to December
1, 1994 in accordance with the terms of the Project Credit Agreement.
"Project Partnership Agreements" means, collectively, the NEA Partnership
Agreement and the NJEA Partnership Agreement.
"Project Revenues," as defined in the Project Indenture means, for any period,
the sum of the following (without duplication) received by either of the
Partnerships, or credited to the account of either of the Partnerships as
described in clause (iii) below, on a cash basis during such period: (i) all
revenues under the Power Purchase Agreements and the Steam Sales Agreements plus
(ii) all other revenues, whether from the sale of electrical capacity or
electricity, thermal energy or by-products of the operations of the Projects or
otherwise plus (iii) investment earnings on amounts in the Funds and on the
investment of the Cash Collateral Proceeds (and any substitute collateral for
the Project Letter of Credit Facility), but only to the extent such investment
earnings have been transferred to the Revenue Fund plus (iv) the proceeds of any
business interruption insurance and other payments received for interruption of
operations (excluding any proceeds of any physical damage or liability
insurance) plus (v) refunds of deposits plus (vi) all rental and other payments
received by either of the Partnerships from the lease or sale of any portion of
either or both of the Project Sites plus (vii) all other income, proceeds or
receipts, howsoever earned or received by either of the Partnerships during such
period plus (viii) Cash Collateral Proceeds (and any substitute collateral for
the Project Letter of Credit Facility) transferred to the Revenue Fund as a
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result of any reduction in the Energy Bank Obligations. Project Revenues shall
exclude, to the extent otherwise included, (a) proceeds of the Project
Securities (including any such proceeds advanced to the Partnerships pursuant to
the Project Credit Agreement), (b) proceeds of borrowings under the Working
Capital Facility or any other permitted Debt, (c) Cash Collateral Proceeds (and
any substitute collateral for the Project Letter of Credit Facility) released
from the security of the Project Letter of Credit Banks or the Power Purchasers,
as the case may be, which are not the result of any reduction in the Energy Bank
Obligations and (d) Loss Proceeds.
"Project Secured Parties" include the holders of the Project Securities
(represented by the Project Trustee), the Sanwa Working Capital Banks, the Swap
Banks, if any, the Collateral Agent and the Project Trustee.
"Project Securities" means, collectively, the 8.43% Senior Secured Notes Due
2000, Series A, the 9.16% Senior Secured Notes Due 2002, Series A, the 9.32%
Senior Secured Bonds Due 2007, Series A and the 9.77% Senior Secured Bonds Due
2010, Series A issued by ESI Tractebel Funding under the Project Indenture.
"Project Security Documents" means the mortgages and other security agreements
pursuant to which the Partnerships, ESI Tractebel Funding and NE LP grant liens
to the Collateral Agent for the benefit of the Project Secured Parties.
"Project Sites" means, collectively, the NEA Site and the NJEA Site.
"Project Trustee" means State Street Bank and Trust Company in its capacity as
trustee under the Project Indenture.
"Projections" means certain projections of the Projects' revenues and the
costs associated therewith including certain assumptions by NE LP.
"Projects" means, collectively, the NEA Project and the NJEA Project.
"Prudent Utility Practices" means the practices, methods and standards
generally followed by the independent power and electric utility industry with
respect to the design, construction, operation and maintenance of electric
generating equipment of the type applicable to the Projects, and which
practices, methods and standards generally conform to operation and maintenance
standards recommended by the applicable Project's equipment suppliers and
manufacturers.
"PSE&G Contract" means the Gas Purchase and Sales Agreement dated as of May 4,
1989, as amended, between NJEA and PSE&G.
"PTFs" means pool transmission facilities.
"PSE&G" means Public Service Electric and Gas Company, a New Jersey
corporation. "PUHCA" means the Public Utility Holding Company Act of 1935, as
amended.
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"Purchase Agreement" means the Purchase Agreement, dated as of November 21,
1997, by and among the Sellers, the Partners, ESI Funding and Tractebel Power
for the acquisition of all of the partnership interests in the Partnerships.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended,
and the regulations promulgated thereunder.
"QF" or "Qualifying Facility" means a "qualifying cogeneration facility" in
accordance with PURPA and the rules and regulations of FERC under PURPA relating
thereto.
"Qualifying Facility Power Purchase Rate" means the energy rate filed from
time to time by each of the NEA Power Purchasers and approved by the
Massachusetts Department of Public Utilities.
"Quarterly Tax Payment Dates" means, collectively, January 15, April 15, June
15 and September 15 of each calendar year or, in the event that any tax payments
contemplated by the definition of "Tax Requirements" shall become due on any
date or dates other than those provided for immediately above, any such other
date or dates on which such tax payments shall be due.
"Required Improvements" means improvements required to comply with any change
in applicable Environmental Laws or other Government Rules (or interpretations
thereof), or to maintain the status of a Project as a QF.
"Restricted Payments," as defined in the Project Indenture, means: (a) (i) the
declaration or payment of distributions or dividends by, or the occurrence of
any liability to make any such payment or distribution on account of, either
Partnership in cash, property, obligations or other securities on, or (ii) other
payments or distributions on account of, or (iii) the purchase, redemption,
retirement or other acquisition of, or (iv) the setting apart of money for a
sinking or other analogous fund for the purchase, redemption, retirement or
other acquisition of, any Partnership (whether general or limited) interest (or
any share capital of any class or any preferred stock issued by any Permitted
Successor (as defined in the Project Indenture), including redeemable preferred
shares, or any warrant, option or other right to acquire such share capital or
preferred stock, but excluding dividends or other distributions payable solely
in ordinary common shares of such Permitted Successor (as defined in the Project
Indenture)); and (b) any payment of the principal of or interest on any
subordinated indebtedness; and (c) the making of any loans or advances from
either Partnership or ESI Tractebel Funding to any Related Party (other than
certain permitted Debt contemplated by the Project Indenture).
"Revenue Fund" means the Fund entitled "Revenue Fund" established and
maintained by the Project Trustee pursuant to the Project Indenture.
"Rolling Prior Year" means, (i) as of December 1, 1994 and any date occurring
prior to the delivery to the Project Trustee of financial statements of the
Partnerships for any fiscal quarter ending after December 1, 1994, the most
recent period of four consecutive fiscal quarters of the Partnerships ended
prior to
108
<PAGE>
such date, treated as a single accounting period and (ii) as of any other date,
the most recent period of four consecutive fiscal quarters of the Partnerships
ended prior to such date (or shorter period commencing on December 1, 1994),
treated as a single accounting period, with respect to which financial
statements shall have been delivered to the Project Trustee.
"S&P" means Standard & Poor's Ratings Services, a division of McGraw Hill.
"Sanwa Bank" means The Sanwa Bank, Limited, New York Branch.
"Sanwa Credit Agreement" means the Credit Agreement, dated as of December 1,
1994, by and among the Partnerships, Sanwa Bank as issuing bank and as agent,
and the other banks named therein.
"Sanwa Letter of Credit Banks" means the financial institutions from time to
time parties to the Sanwa Letter of Credit Facility,
"Sanwa Letters of Credit" means the letters of credit issued by the Sanwa
Letter of Credit Banks to secure the Partnerships' Energy Bank Obligations.
"Sanwa Working Capital Banks" means the financial institutions from time to
time parties to the Sanwa Working Capital Facility.
"Sanwa Working Capital Facility" means the Working Capital Facility provided
by the Sanwa Working Capital Banks pursuant to the Sanwa Credit Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Second Supplemental Indenture" means the Second Supplemental Trust Indenture
dated as of January 14, 1998 among IEC Funding Corp., Northeast Energy
Associates, A Limited Partnership, North Jersey Energy Associates, A Limited
Partnership and State Street Bank and Trust Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" means those Sellers identified on Schedule I to the Purchase
Agreement.
"Sponsors" means ESI Energy, Inc. and Tractebel Power, Inc.
"Sponsor Members" means individually and collectively, (i) each of John R. Roy
and Mary Lou Roy, (ii) any lineal descendant or any spouse of any of the
foregoing (excluding Jack Roy and his spouse and their lineal descendants and
their spouses) and (iii) the heirs, executors, legal representatives and
administrators of any of the foregoing.
"Spot Gas" means any natural gas purchased by either Partnership pursuant to
(a) arrangements and agreements having a term of one year or less, (b) either
ProGas Agreement subsequent to the ProGas Agreement Expiration Date with respect
thereto (i.e., during the period over which such ProGas Agreement shall be
extended on terms not constituting a Partial ProGas Extension Event) or (c) any
arrangements and agreements entered into after the date hereof and covering a
period
109
<PAGE>
subsequent to the earliest ProGas Agreement Expiration Date and having a term
greater than one year in duration.
"State Street Bank" means State Street Bank and Trust Company, a Massachusetts
banking corporation.
"Steam Sales Agreements" means, collectively, the NEA Steam Sales Agreement
and the NJEA Steam Sales Agreement.
"Subfunds" means the subfunds established and maintained by the Project
Trustee pursuant to the Project Indenture.
"Subordinated Debt" means all Debt of the Partnerships or ESI Tractebel
Funding subordinated in right of payment to the Project Securities in accordance
with certain requirements specified in the Project Indenture.
"Subordinated Management Fee" means, for each calendar year commencing with
the year in which the closing date occurs a portion of the Management Costs
referred to in clause (iv) of the definition thereof in an amount equal to
$1,500,000 (inflated annually commencing on January 1, 1999 and adjusted ratably
for each partial calendar year in which the Project Securities are outstanding).
"Substitute Debt Service Coverage Ratio" means, for any period, the ratio of
(a) the sum of (i) Operating Cash Flow for such period plus (ii) the balance
held in the Partnership Suspense Fund as of the date of determination of the
Substitute Debt Service Coverage Ratio to (b) Mandatory Debt Service for such
period.
"Substitute Letter of Credit" means an irrevocable standby letter of credit
(a) issued by a commercial bank whose long-term unsecured debt obligations are
rated (or whose bank holding company has long-term unsecured debt obligations
rated) at least "A" by S&P, "A2" by Moody's or "A" by Fitch (or an equivalent
rating by another nationally recognized credit rating agency of similar standing
if two or more of such corporations are not in the business of rating long-term
obligations of commercial banks) at the time of issuance, (b) in a form
reasonably acceptable to the Project Trustee, (c) with a minimum term of one
year (or shorter period ending on or after the final maturity date of the
Project Securities), (d) for the benefit of the Project Trustee, (e) which shall
not be a Debt of either ESI Tractebel Funding or either Partnership and shall
not be secured by or otherwise encumber any of the Project Collateral and (f)
providing for the amount thereof to be available to the Project Trustee in
multiple drawings, including a final drawing at any time within 30 days prior to
the expiration of such letter of credit for the full face amount thereof in the
event such letter of credit is not renewed or substituted with one or more other
Substitute Letters of Credit at such time, conditioned only upon presentation of
sight drafts accompanied by the applicable certificate in the form attached to
such letter of credit (and reasonably acceptable in form to the Project
Trustee).
"Substitute Letter of Credit Bank" means BankBoston, Bank Brussels Lambert or
any other financial institutions providing a Substitute Letter of Credit.
110
<PAGE>
"Swap Banks" means the financial institutions that are parties to the Swaps.
"Swaps" means (i) the interest rate exchange agreements entered into by the
Partnerships with various financial institutions in connection with the Original
Project Credit Agreement and (ii) the interest rate exchange agreements entered
into by the Partnerships on December 1, 1994, in connection with the issuance of
the Original Project Securities.
"Tax Requirements," as defined in the Project Indenture, means, for each
Quarterly Tax Payment Date, the aggregate amount of Federal, New Jersey (in the
case of a partner of NJEA) and Massachusetts (in the case of a partner of NEA)
income taxes (including estimated tax payments thereof) estimated to be payable
by the partners on such Quarterly Tax Payment Date, computed based upon and in
accordance with the following assumptions: (a) each partner shall be considered
an unmarried individual without dependents subject to tax on all income at the
highest marginal rate of Federal and, as applicable, New Jersey and/or
Massachusetts income taxes whose only asset and only source of income, gain,
loss, deduction or credit is the Partnership(s) (taking into account net
operating loss, capital loss and any other loss or credit carryforwards or
carrybacks that would be available to such partner, and that arise solely as a
result of the income, gains, losses, deductions and credits of the Partnerships
and the deductibility of state income taxes for Federal income tax purposes);
(b) all income of the Partnerships subject to Massachusetts income tax shall be
treated as ordinary income, interest income, dividend income or net capital gain
in accordance with the relevant provisions of Massachusetts income tax law; and
(c) except as otherwise contemplated pursuant to the next succeeding sentence,
each partner pays its taxes for a given calendar year in quarterly installments
on the applicable Quarterly Tax Payment Date; provided, that any such
computation shall not give effect to, and the term "Tax Requirements" shall not
include, any income taxes payable as a result of a dissolution of one or both
Partnerships to the extent that such income taxes exceed the amount of income
taxes which would have been payable if such dissolution had not occurred. The
Tax Requirements, as of any date of determination (the "Tax Determination
Date"), shall be increased or reduced, as the case may be, to reflect any
difference between (x) the Tax Requirements for any preceding Quarterly Tax
Payment Date as originally computed (after giving effect to any previous
increase or reduction relating thereto) and (y) the Tax Requirements for such
preceding Quarterly Tax Payment Date as recomputed at the Tax Determination Date
to reflect any change in the original computation, including, on an annual
basis, any differences between any estimates of Partnership income and expenses
for any fiscal year (or any period during such fiscal year) utilized in such
computations and the actual Partnership income and expenses for such fiscal
year. In the case of a reduction that exceeds the Tax Requirements amount
calculated before giving effect to such reduction, each subsequent Tax
Requirements amount shall be reduced to the extent of such excess until such
excess has been fully offset against subsequent Tax Requirements. At any time
during which either NJEA, NEA or any Permitted Successor (as defined in the
Project Indenture) is itself an entity subject to Federal or, in the case of
NJEA, New Jersey, or in the case of NEA, Massachusetts, income or franchise or
similar taxes, the Tax Requirements attributable to NJEA, NEA or such Permitted
Successor (as defined in the Project Indenture), as the case may be, shall be
reduced by the amount of such Federal, New Jersey and Massachusetts taxes
payable by NJEA, NEA or such successor entity; provided, however, that in the
case of any such tax payable to New Jersey or Massachusetts, no
111
<PAGE>
such reduction to the applicable Tax Requirements shall occur if the entity on
which the tax is imposed is treated as a pass-through entity in such
jurisdiction.
"Texas Eastern" means Texas Eastern Transmission Line Corporation, a Delaware
corporation.
"Tractebel Belgium" means Tractebel S.A., a company organized under the laws
of Belgium.
"Tractebel GP" means Tractebel Northeast Generation GP, Inc., a Delaware
corporation.
"Tractebel LP" means Tractebel Associates Northeast LP, Inc., a Delaware
corporation.
"Tractebel Power" means Tractebel Power, Inc., a Delaware corporation.
"Tractebel" means Tractebel, Inc., a Delaware corporation.
"TransCanada" means Trans Canada Pipelines Limited, an Ontario corporation.
"Transco" means Transcontinental Gas Pipe Line Corporation, a Delaware
corporation.
"Transco Agreement Expiration Date" means, with respect to each Transco
Agreement, the later of (a) October 31, 2006, and (b) the scheduled expiration
date of such Transco Agreement after giving effect to any Partial Transportation
Extension Events with respect to such Transco Agreement (it being understood
that, in the event of the continuance of such Transco Agreement on terms not
constituting a Partial Transportation Extension Event, the scheduled expiration
date of such Transco Agreement for purposes of this clause (b) shall be deemed
to be the last day through which such Transco Agreement was extended on terms
constituting a Partial Transportation Extension Event.
"Transco Agreements" means the Firm Gas Transportation Agreement for Rate
Schedule X-320 dated February 27, 1991 between Transco and NEA and the Firm Gas
Transportation Agreement for Rate Schedule X-319 dated February 27, 1991 between
Transco and NJEA.
"Transco Extension Event" means the occurrence of each of the following with
respect to a Transco Agreement: (a) the extension of the term of such Transco
Agreement resulting in a scheduled expiration date therefor that is on or after
the final maturity date of the Project Securities and otherwise on substantially
the same terms and conditions contained in such agreement on December 1, 1994,
except for any changes to the charges for transportation service applicable to
the period of any such extension; and (b) the receipt by the Project Trustee of
a certificate of the Independent Gas Consultant to the effect of (a) above.
"Transco Substitution Event" means the occurrence of each of the following:
(a) the execution by each Partnership and one or more third parties of one or
more gas transportation agreements providing for firm gas transportation service
to the Partnerships by such third party(ies) in substitution of the firm
transportation service provided to the Partnerships by Transco under the Transco
Agreements, which substitute firm gas transportation service shall (i) be
furnished during the period form the expiration date of the Transco Agreements
through a date no earlier than the
112
<PAGE>
final maturity date of the Project Securities, (ii) cover volumes of gas for
each Partnership not less than those covered on December 1, 1994 under the
Transco Agreements to which such Partnership is (or was) party, and (iii) be on
terms generally no less favorable to each Partnership than those contained on
December 1, 1994 in the Transco Agreement to which such Partnership is (or was)
party, except for changes to the charges for transportation service; and (b) the
receipt by the Project Trustee of a certificate of the Independent Gas
Consultant to the effect of (a) above (other than with respect to (a)(iii)
above).
"Voting Stock" as defined in the Project Indenture means the Capital Stock of
any Person as of any date that such Person is at the time entitled to vote in
the election of the Board of Directors of such Person.
"Westinghouse Electric" means Westinghouse Electric Corporation, a
Pennsylvania corporation.
"Westinghouse Services" means Westinghouse Operating Services Company, a
Delaware corporation and a subsidiary of Westinghouse Electric.
"Working Capital Banks" means the financial institutions from time to time
parties to a Working Capital Facility.
"Working Capital Facility" means any agreement or agreements from time to time
in effect among the Partnerships and the Working Capital Banks providing for the
availability of working capital loans to the Partnerships in an aggregate
principal amount not to exceed $20 million.
"Working Capital Fund" means the Fund entitled "Working Capital Fund"
established and maintained by the Project Trustee pursuant to the Project
Indenture.
"Working Capital Loans" means loans provided under the Working Capital
Facility.
113
<PAGE>
Index to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Northeast Energy Associates, A Limited Partnership, and North Jersey
Energy Associates, A Limited Partnership
Report of Independent Accountants................................................................... F-2
Combined Balance Sheet at December 31, 1996 and 1997................................................ F-3
Combined Statement of Operations for the years ended December 31, 1995,
1996 and 1997 ...................................................................................... F-4
Combined Statement of Partners' Deficit for the years ended December 31, 1995,
1996 and 1997 ...................................................................................... F-5
Combined Statement of Cash Flows for the years ended December 31, 1995,
1996 and 1997 ...................................................................................... F-6
Notes to Combined Financial Statements.............................................................. F-8
ESI Tractebel Funding Corp. (formerly IEC Funding Corp.)
Report of Independent Accountants .................................................................. F-22
Balance Sheet at December 31, 1996 and 1997......................................................... F-23
Statement of Operations for the years ended December 31, 1995, 1996 and 1997........................ F-24
Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997........................ F-25
Notes to Financial Statements....................................................................... F-26
</TABLE>
<PAGE>
Report of Independent Accountants
To the Partners of Northeast Energy Associates, A Limited Partnership,
and North Jersey Energy Associates, A Limited Partnership
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, of partners' deficit and of cash flows present fairly,
in all material respects, the financial position of Northeast Energy Associates,
A Limited Partnership, and North Jersey Energy Associates, A Limited
Partnership, at December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnerships' managements;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
March 24, 1998
F-2
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1996 1997
---------- ----------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 49,861 $ 61,203
Accounts receivable 43,671 34,036
Fuel inventories 5,410 4,752
Prepaid expenses and other current assets 2,566 3,052
------------ ------------
Total current assets 101,508 103,043
------------ ------------
Cogeneration facilities and carbon dioxide facility (net of accumulated
depreciation of $129,068,000 and $153,963,000 at December 31, 1996 and
1997, respectively) 373,781 349,365
Other fixed assets (net of accumulated depreciation of $438,000 and
$535,000 at December 31, 1996 and 1997, respectively) 304 181
Unamortized financing costs 17,837 15,674
Other assets 3,806 4,012
Restricted cash 69,156 69,156
------------ ------------
Total non-current assets 464,884 438,388
------------ ------------
Total assets $ 566,392 $ 541,431
============ ============
Liabilities and Partners' Deficit
Current liabilities:
Current portion of loans payable - ESI Tractebel Funding Corp. $ 24,075 $ 21,563
(formerly IEC Funding Corp.)
Accounts payable 14,528 15,450
Other accrued expenses 2,037 1,426
Future obligations under interest rate swap agreements 2,022 889
------------- ------------
Total current liabilities 42,662 39,328
------------ ------------
Loans payable - ESI Tractebel Funding Corp. 490,287 468,724
(formerly IEC Funding Corp.)
Amounts due utilities for energy bank balances 220,922 230,565
------------ ------------
Total non-current liabilities 711,209 699,289
------------ ------------
Total liabilities 753,871 738,617
------------ ------------
Partners' deficit:
General partner (4,616) (4,714)
Limited partners (182,863) (192,472)
------------ ------------
Total partners' deficit (187,479) (197,186)
------------ ------------
Commitments and contingencies (Note 6) - -
------------ ------------
Total liabilities and partners' deficit $ 566,392 $ 541,431
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
1995 1996 1997
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Revenue:
Power sales to utilities $ 276,022 $ 267,789 $ 307,530
Steam sales 4,527 4,473 4,624
----------- ----------- -----------
Total revenue 280,549 272,262 312,154
----------- ----------- -----------
Costs and expenses:
Cost of power and steam sales 132,839 138,727 151,476
Operation and maintenance 24,699 22,854 25,689
Depreciation 24,904 24,978 24,992
General and administrative expenses 12,010 14,424 15,984
----------- ----------- -----------
Total costs and expenses 194,452 200,983 218,141
----------- ----------- -----------
Operating income 86,097 71,279 94,013
----------- ----------- -----------
Other expenses (income):
Amortization of financing costs 2,305 2,373 2,163
Interest expense 50,930 49,841 47,673
Interest expense on energy bank balances 16,657 19,675 17,435
Interest income (10,652) (10,534) (9,931)
----------- ----------- -----------
Total other expenses, net 59,240 61,355 57,340
----------- ----------- -----------
Net income $ 26,857 $ 9,924 $ 36,673
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Statement of Partners' Deficit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------- -------- -------
(In thousands)
<S> <C> <C> <C>
Balance at December 31, 1994 $ (3,670) $ (89,258) $ (92,928)
Net income 268 26,589 26,857
Distribution to partners (645) (63,861) (64,506)
----------- ----------- -----------
Balance at December 31, 1995 (4,047) (126,530) (130,577)
Net income 99 9,825 9,924
Distribution to partners (668) (66,158) (66,826)
----------- ----------- -----------
Balance at December 31, 1996 (4,616) (182,863) (187,479)
Net income 366 36,307 36,673
Distribution to partners (464) (45,916) (46,380)
----------- ----------- -----------
Balance at December 31, 1997 $ (4,714) $ (192,472) $ (197,186)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
Increase (Decrease) in Cash and Cash Equivalents 1995 1996 1997
------------ ------------ -----------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from utilities and other customers $ 287,638 $ 294,942 $ 314,293
Cash paid to suppliers (164,875) (170,531) (184,234)
Interest paid (53,869) (51,435) (48,794)
Bank commitment fees paid (38) (38) (37)
Interest received 8,854 10,807 9,602
Cash payments to general partner for operating activities (2,914) (5,031) (4,897)
Cash payments to owners/management (3,566) (3,688) (3,758)
------------ ------------ ------------
Net cash provided by operating activities 71,230 75,026 82,175
------------ ------------ ------------
Cash flows from investing activities:
Net expenditures for facilities (1,885) (808) (334)
Expenditures for other fixed assets (76) (16) (44)
Decrease in restricted cash 3,432 9,412 -
------------ ------------ ------------
Net cash provided by (used for) investing activities 1,471 8,588 (378)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on debt (20,434) (25,204) (24,075)
Payment of financing costs (5,739) - -
Distributions to partners (64,506) (66,826) (46,380)
------------ ------------ ------------
Net cash used for financing activities (90,679) (92,030) (70,455)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (17,978) (8,416) 11,342
Cash and cash equivalents at beginning of year 76,255 58,277 49,861
------------ ------------ ------------
Cash and cash equivalents at end of year $ 58,277 $ 49,861 $ 61,203
============ ============ ============
</TABLE>
Non-cash Investing Activities
In 1996 and 1997, total capitalized facility costs which were accrued at year
end for payment were approximately $165,000 and $240,000, respectively.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Statement of Cash Flows (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
Increase (Decrease) in Cash and Cash Equivalents 1995 1996 1997
- ------------------------------------------------ --------- -------- --------
(In thousands)
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
Net income $ 26,857 $ 9,924 $ 36,673
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 24,904 24,978 24,992
Amortization of financing costs 2,305 2,373 2,163
(Increase) decrease in accounts receivable (11,346) 7,794 9,635
(Increase) decrease in fuel inventories - (894) 658
(Increase) decrease in prepaid expenses
and other current assets (1,765) 347 (486)
Increase in accounts payable 633 129 847
Increase (decrease) in other accrued expenses 651 (67) (611)
(Decrease) in future obligations
under interest rate swap agreements (2,771) (1,632) (1,133)
Increase in amounts due utilities for energy
bank balances 32,557 32,869 9,643
(Increase) in other assets (795) (795) (206)
----------- ----------- -----------
Net cash provided by operating activities $ 71,230 $ 75,026 $ 82,175
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
1. Nature of Business
The enactment in 1978 of the Public Utility Regulatory Policies Act
("PURPA") and the adoption of the regulations thereunder by the Federal
Energy Regulatory Commission ("FERC") provided incentives for the
independent development of power production facilities, such as
cogeneration, by requiring electric utilities to purchase power
generated by qualifying facilities.
Northeast Energy Associates, A Limited Partnership, ("NEA") and North
Jersey Energy Associates, A Limited Partnership, ("NJEA") (or together,
the "Partnerships") operate in the independent power industry. The
Partnerships were organized to develop, finance, construct, own, manage
and operate two 300 megawatt ("MW") natural gas-fueled cogeneration
facilities, one in Bellingham, Massachusetts and one in Sayreville, New
Jersey. The Partnerships have been granted permission by FERC to
operate the cogeneration facilities as qualifying facilities defined in
PURPA and as defined in federal regulations.
Through January 14, 1998, the general partner of each of the
Partnerships was Intercontinental Energy Corporation ("IEC"), a
Massachusetts corporation. IEC owned a one percent interest in each
partnership and the individual stockholders of the general partner
collectively owned the majority of the remaining partnership interests.
On January 14, 1998, all of the partner interests in the Partnerships
were acquired (Note 10).
The partners share profits and losses and have interests in assets and
liabilities and cash flows in proportion to their tax basis capital
accounts. Distributions to the partners may be made only after all
required funds and subfunds have been fully funded, as described in the
trust indenture (Note 5).
Cash Allocations Upon Disposition or Refinancing
In the absence of any dissolution events, the Partnerships shall continue
in existence until December 31, 2025 or thereafter, if so determined by
the majority of partners. Proceeds upon liquidation or refinancing of
partnership property would be apportioned on the following basis:
1. Expenses of liquidation;
2. Third party debts and obligations;
3. To partners in proportion to their designated interests in the
Partnerships.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying combined financial statements include the accounts of
NEA and NJEA and are combined based on common ownership. All
transactions between NEA and NJEA have been eliminated in these
combined financial statements.
F-8
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Cogeneration Facilities and Carbon Dioxide Facility
The cogeneration facilities and the carbon dioxide facility are stated
at cost. Cost includes initial acquisition costs increased by
subsequent development and construction costs, including developer fees
and construction management fees, interest expense and amortization of
project loan acquisition costs incurred during the construction period,
and continuing facility improvements. Capitalized facility costs are
being depreciated using the straight-line method over the estimated
useful life of each facility of 20 years.
Unamortized Financing Costs
Unamortized financing costs consist primarily of investment banking
fees, legal fees and other costs associated with the placement of
securities (Note 5). In May 1995, the Partnerships paid a $5,600,000
restructuring fee, out of excess cash flow, to the general partner in
connection with the refinancing (Note 5) equal to 1% of the total
refinancing. These costs are being amortized over the approximate
15-year term of the securities using the interest method. Unamortized
financing costs are net of accumulated amortization of $4,845,000 and
$7,008,000 at December 31, 1996 and 1997, respectively.
Other Fixed Assets
Other fixed assets consist primarily of furniture, office equipment and
leasehold improvements and are depreciated using the straight-line
method over estimated useful lives ranging from 3-7 years.
Inventories
Inventories consist of natural gas and fuel oil and are stated at the
lower of cost, determined on a first-in, first-out (FIFO) basis, or
market.
Interest Rate Swap Agreements
Notional principal amounts in contracts and related settlement gains
and losses on interest rate swap agreements are allocated to the
Partnerships based on the relative amounts of outstanding borrowings of
each partnership on the date on which the swap agreements were
contracted. Prior to the refinancing (Note 5), gains and losses, based
on the amount the Partnerships were entitled to receive or required to
pay for additional interest, were determined at each calendar
quarter-end based on the outstanding notional balance and the amount by
which the contractual fixed rate exceeded or was less than the
contractual variable rate. Such gains and losses were recognized as
adjustments to interest expense. Subsequent to the refinancing (Note
5), the net payments required pursuant to all swap agreements and the
change in the fair value of the swap agreements are recognized as
adjustments to interest expense. The fair value of the swap agreements
is recorded as a current liability. See Notes 5 and 9 for further
disclosure regarding interest rate swap agreements.
Natural Gas Hedging Instruments
Premiums paid for natural gas call options are deferred within other
current assets and are accounted for in conjunction with the underlying
natural gas purchases at which point the premiums are written off to,
and any resultant gains credited to, cost of power and steam sales.
Gains and losses on natural gas purchase swap agreements are recognized
as adjustments to cost of power and steam sales at monthly settlement
dates. Purchases of natural gas under forward purchase agreements are
accounted for as cost of power and steam sales at their contract price
at the time of delivery. See Note 9 for further disclosure regarding
natural gas hedging instruments.
F-9
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
Revenue Recognition
Revenue from power sales is recognized in accordance with Emerging
Issues Task Force Issue No. 91-6, "Revenue Recognition of Long-Term
Power Sales Contacts." Revenue is recognized based on power delivered
at rates stipulated in power sales agreements, except that revenue is
deferred to the extent that stipulated rates are in excess of amounts,
either scheduled or specified, in the agreements. The excess amounts
deferred are accumulated in energy banks and are reflected as amounts
due utilities for energy bank balances on the combined balance sheet.
Revenue from steam sales is recognized upon delivery of the steam.
Income Taxes
The partners are required to report their respective shares of the
Partnerships' taxable income or losses in their income tax returns and
are liable for any related taxes thereon. Accordingly, no provision for
income taxes is made in the combined financial statements of the
Partnerships.
The Partnerships' net assets and liabilities for financial reporting
purposes exceeded the net assets and liabilities for tax purposes by
approximately $41.6 million and $41.5 million at December 31, 1996 and
1997, respectively.
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 disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
3. Cash and Cash Equivalents and Restricted Cash
The Partnerships consider all investments purchased with an original
maturity of three months or less to be cash equivalents. The
Partnerships invest excess cash in high grade money market accounts and
commercial paper with original maturities less than three months.
Accordingly, the investments are subject to minimal credit and market
risk and are considered by the Partnerships to be cash equivalents. At
December 31, 1996 and 1997, all of the Partnerships' cash equivalents
are classified as held-to-maturity and recorded at amortized cost,
which approximates fair value.
Restricted cash at December 31, 1996 and 1997 represents cash reserved
as collateral for letters of credit related to energy bank balances
(Note 6). This cash is invested with a bank in a fixed-rate investment
agreement. Subsequent to the acquisition on January 14, 1998 of all of
the partner interests in the Partnerships, the cash collateral
requirement related to the energy bank balances was terminated in
exchange for the guarantee of one of the acquiring entities (Note 10).
4. Cogeneration Facilities and Carbon Dioxide Facility
Cogeneration Facilities
Cogeneration facilities consist of costs incurred to develop and
construct two gas-fueled cogeneration plants with maximum output
capacities of any combination of electricity and steam equivalent to
approximately 600 MW in the aggregate.
F-10
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Facility Sites
The facility owned by NEA is constructed on four parcels of land of
approximately 44 acres in Bellingham, Massachusetts. Three of the
parcels were acquired under various purchase and sale agreements. The
remaining parcel of land was acquired under a 26-year operating lease
agreement entered into in 1986 between NEA and a local developer. The
lease may be extended for another 25 years at the option of NEA. The
agreement provides for an annual lease payment of $60,000 from the date
of the agreement increasing annually thereafter by $12,000 (Note 6).
The facility owned by NJEA is constructed on two parcels of land of
approximately 49 acres acquired under various purchase and sale
agreements.
Power Sale Agreements
Commencing in 1986, NEA entered into five power sale agreements with
three major Massachusetts utilities to sell approximately 290 MW at
initial floor prices per kilowatt hour ("Kwh"), subject to adjustment
based on actual volumes of electricity purchased, escalation factors
and other conditions. Performance under certain of these power sale
agreements is secured by a second mortgage on the Bellingham facility.
In 1987, NJEA entered into an agreement with a major New Jersey utility
to sell 250 MW at an initial fixed price per Kwh subject to
adjustments, as defined in the agreement. These power sale agreements
have terms ranging from 20 to 30 years. All of the Partnerships' power
sales to utilities are generated through these arrangements. As such,
the Partnerships are directly affected by changes in the power
generation industry. Substantially all of the Partnerships' accounts
receivable are with utilities located in the Northeast portion of the
United States. The Partnerships do not require collateral or other
security to support their receivables. However, management does not
believe significant credit risk exists at December 31, 1997. Sales to
significant customers are as follows:
During the year ended December 31, 1995, revenue from two different
utilities totaled approximately $132.1 million and $118.3 million, or
approximately 47% and 42% of revenue, respectively.
During the year ended December 31, 1996, revenue from two different
utilities totaled approximately $122.3 million and $121.5 million, or
approximately 45% and 44% of revenue, respectively.
During the year ended December 31, 1997, revenue from two different
utilities totaled approximately $142.4 million and $123.6 million, or
approximately 46% and 40% of revenue, respectively.
Certain agreements require the establishment of suspense accounts
("energy banks") to record cumulative payments made by the utilities in
excess of avoided cost rates scheduled or specified in such agreements.
Some energy banks bear interest at various rates specified in the
agreements. A positive energy bank balance represents a liability of
the applicable Partnership to the applicable power purchaser which will
be reduced by subsequent sales of electric power to such power
purchaser to the extent that in later periods the avoided cost rates
scheduled or specified in such agreements rise above contract rates.
For certain agreements requiring the establishment of energy banks, the
Partnerships are required to provide collateral based on energy bank
balances (Note 6).
F-11
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
On November 25, 1997, the Massachusetts legislature passed a
comprehensive electric deregulation bill, the purpose of which is to
establish a comprehensive framework for the restructuring of the
electric utility industry. Additionally, industry efforts are also
underway in New Jersey. While the Partnerships' do not expect electric
utility industry restructuring to result in material adverse changes to
the Partnerships' Power Purchase Agreements, the impact of electric
utility industry restructuring on the companies that purchase power
from the Partnerships is uncertain.
Steam Sales Agreements and Carbon Dioxide Facility
In order for the Partnerships' facilities to maintain the status as
qualifying facilities under PURPA, the facilities are required to
generate five percent of total energy output as steam for sale to
unrelated third parties.
In 1989, NEA entered into a 25-year steam sales contract with a
processor and seller of carbon dioxide. Pursuant to this agreement, NEA
sells all the steam generated by the Bellingham facility at a price
which fluctuates based on changes in the price of a specified grade of
fuel oil.
This agreement can be extended at the option of the steam user. In
conjunction with this contract, NEA has constructed a carbon dioxide
facility and, in 1989, entered into a 15-year agreement to lease the
facility to the steam user. Base rent under the terms of the lease is
$100,000 per month, adjusted by the operating results of the carbon
dioxide facility for each month as outlined in the lease agreement.
Additionally, NEA pays the steam user $100,000 annually for
administrative services rendered related to the operation of the carbon
dioxide facility. NEA does not operate the carbon dioxide facility.
In 1989, NJEA entered into a 20-year steam sales contract with a steam
user adjacent to the Sayreville facility. Under the terms of this
agreement, NJEA sells a specified maximum quantity of steam at a floor
price which can increase based on changes in prices of coal. This
agreement automatically renews for two consecutive five year terms
unless either party gives notice not to renew two years before the
expiration of each of the prior terms.
Fuel Supply, Transportation and Storage Agreements
Natural gas is provided to the facilities primarily under long-term
contracts for supply, transportation and storage. The remaining fuel
requirements of the facilities are provided under short-term "spot"
arrangements. The long-term natural gas supply is provided under
contracts with ProGas Limited ("ProGas"), a Canadian gas marketing
company, and Public Service Electric and Gas Company ("PSE&G"), a
domestic retail gas distribution company. Transportation of the natural
gas is provided by various pipeline companies, including CNG
Transmission Company ("CNG"), Transcontinental Gas Pipe Line
Corporation ("Transco") and Algonquin Gas Transmission Company
("Algonquin"). Gas storage agreements provide contractual arrangements
for the storage of limited volumes of natural gas with third parties
for future delivery to the projects.
The ProGas contracts commenced in 1991. The initial terms of these
contracts of 15 years were extended an additional seven years effective
in 1994. Under the ProGas contracts, ProGas is required to arrange for
the aggregation, gathering and transportation of gas from Alberta,
Canada to the U.S. pipeline at Niagara, New York. The maximum total
volumes of gas to be delivered under these contracts are approximately
48,800 and 22,000 MMBtu per day for NEA and NJEA,
F-12
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
respectively. The contract price of the ProGas supply delivered to the
import point, inclusive of transportation costs to that point, is
determined with reference to a "base price" in 1990, redetermined
annually thereafter based on specified inflation indices. The PSE&G
contract commenced in 1991. Under the PSE&G agreement, PSE&G will sell
and deliver to NJEA up to 25,000 MMBtu per day of gas for a term of 20
years. The contract price of the PSE&G fuel is established monthly
using a contractually specified mechanism.
With the exception of the PSE&G arrangement, all of the Partnerships'
long-term contractual arrangements call for monthly "demand charge"
payments. These demand charge payments, which are to reserve certain
pipeline transportation capacity, are made regardless of the
facilities' specific fuel requirements in any month and regardless of
whether the facilities utilize the capacity reserved under the
contracts. These demand charges totaled approximately $49 million, $48
million and $46 million in 1995, 1996 and 1997, respectively, and total
payments under such contracts were approximately $98.3 million, $100.5
million and $112.5 million in 1995, 1996 and 1997, respectively,
inclusive of demand charges. Under 1997 pricing conditions, the demand
charge payments would be approximately $46 million under these
contracts for each of the next five years and approximately $723
million over the remaining life of these contracts. Total charges under
the contract with PSE&G, including transportation costs, during 1995,
1996 and 1997, were approximately $24.3 million , $32.4 million and
$28.1 million, respectively. In the event that the available capacity
under these agreements is not utilized by the operations of the
facilities, the Partnerships have the opportunity under certain of
these contractual agreements to sell unused capacity to third parties,
but have not yet done so.
NEA's facility also has the capability to burn #2 fuel oil. Fuel oil
was obtained and is stored on site for contingency supply for the
facility.
5. Loans Payable
In 1989, as amended in 1990, 1991 and 1992, the Partnerships, together
with the general partner, executed a project loan and credit agreement
with a group of banks for a maximum commitment of $600,000,000 for the
construction and development of the Bellingham and Sayreville
facilities and initial working capital and letters of credit facility.
On December 1, 1994, the Partnerships refinanced their existing
borrowings by means of a placement of securities to qualified
institutional investors as defined in Rule 144A of the Securities Act
of 1933 ("Rule 144A"). Borrowings outstanding are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1997
------------ -------------
<S> <C> <C>
8.43% Senior Secured Notes Due 2000 $ 95,482,000 $ 71,407,000
9.16% Senior Secured Notes Due 2002 31,500,000 31,500,000
9.32% Senior Secured Bonds Due 2007 215,740,000 215,740,000
9.77% Senior Secured Bonds Due 2010 171,640,000 171,640,000
------------ -------------
$514,362,000 $490,287,000
============ ============
</TABLE>
F-13
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
The above securities were issued through a special purpose funding
corporation, IEC Funding Corp., established solely for the purpose of
issuing the securities, and are unconditionally guaranteed, jointly and
severally, by the Partnerships. Effective February 10, 1995, IEC
Funding Corp. filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission for purposes of effecting a public
exchange offer whereby the securities listed above were exchanged for a
new issue of securities (the "Securities"). The Securities have terms
identical to the securities issued in accordance with Rule 144A.
Subsequent to the acquisition discussed in Note 10, IEC Funding Corp.
changed its name to ESI Tractebel Funding Corp.
Interest on the Securities is payable semiannually on each June 30 and
December 30, commencing December 30, 1994. Principal repayments, which
commenced on June 30, 1995, are made semiannually in amounts stipulated
in the trust indenture. Future principal payments are as follows:
Year ending December 31,
1998 $ 21,563,000
1999 23,511,000
2000 26,333,000
2001 20,160,000
2002 22,688,000
Thereafter 376,032,000
------------
$490,287,000
============
The Securities are not subject to optional redemption but are subject
to mandatory redemption in certain limited circumstances involving the
occurrence of an event of loss, as defined in the trust indenture, for
which the Partnerships fail to or are unable to restore a facility.
Additionally, the Partnerships may, at their option, repurchase all or
part of the Securities with proceeds received from the release of cash
collateral maintained as security for letters of credit (Note 6).
The proceeds of the Securities were used (a) to purchase the notes
outstanding under the original loan and credit agreement and (b) to
make loans to the Partnerships. In connection with these two
transactions, the notes outstanding under the loan and credit agreement
were surrendered and new notes of the Partnerships were issued to ESI
Tractebel Funding Corp. (formerly IEC Funding Corp.) in an aggregate
principal amount equal to the aggregate principal amount of the
Securities (the "New Notes") and the loan and credit agreement was
assigned to ESI Tractebel Funding Corp. (formerly IEC Funding Corp.)
and amended and restated (the "Amended and Restated Credit Agreement").
Borrowings are secured by a lien on, and a security interest in,
substantially all of the assets of the Partnerships. Under the Amended
and Restated Credit Agreement, the Partnerships are jointly and
severally required to make scheduled payments on the New Notes on dates
and in amounts identical to the scheduled payments of principal and
interest on the Securities. The Securities, the guarantees thereon
provided by the Partnerships and the New Notes are nonrecourse to the
partners of the Partnerships and are payable solely from the collateral
pledged as security.
F-14
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
Under the terms of the trust indenture governing the Securities, the
Partnerships are required to establish certain funds and subfunds,
which must be fully funded before any distributions can be made to
partners. The funding requirements of these funds are defined in the
trust indenture. Cash within these funds can be drawn currently if
funds in the Partnerships' other cash accounts are insufficient to meet
operational cash requirements. The order in which these funds may be
drawn is described in the trust indenture. Funds available for
distribution to partners as of December 31, 1997 have been paid.
The trust indenture contains certain restrictions on certain activities
of the Partnerships, including the incurrence of additional
indebtedness or liens, the payment of distributions to the partners,
the cancellation of power sale and fuel supply agreements, the use of
proceeds from the issuance of the Securities and the execution of
mergers, consolidations and sales of assets.
The trust indenture allows the Partnerships to enter into revolving
credit agreements of up to $20 million in order to provide for working
capital requirements. The Partnerships have entered into an initial
working capital facility of $15 million with a bank. Available
borrowings under the working capital facility are calculated based on
outstanding receivables and fuel inventories. The Partnerships are
required to pay an annual agency fee of $25,000 and quarterly
commitment fees at an annual rate of .25% on the unused portion of the
facility. At December 31, 1996 and 1997, no borrowings were outstanding
under this working capital facility. Subsequent to the acquisition on
January 14, 1998 of all of the partner interests in the Partnerships,
this working capital facility was terminated (Note 10).
Under the terms of the original loan and credit agreement, the
Partnerships were required to enter into interest rate swap agreements
("Swaps") with certain financial institutions, providing for payments
thereunder on a notional principal amount of indebtedness to be made by
the Partnerships at fixed interest rates in exchange for payments to be
made by such financial institutions at floating interest rates. Such
existing Swaps remained in effect after the issuance of the Securities.
In connection with the issuance of the Securities, the Partnerships
entered into counter swap agreements in order to hedge the obligations
of the Partnerships under such existing Swaps. As a result of the
foregoing arrangements, after giving effect to the net payments to be
made and received by the Partnerships pursuant to all of the Swaps, the
Partnerships' net payments pursuant to the Swaps were equivalent to a
fixed net interest rate of approximately 1.35% on the original
specified notional principal amount, which was scheduled to decline
periodically until the scheduled expiration of the Swaps in 1999. The
Partnerships are jointly and severally liable under these agreements.
The Partnerships' exposure to interest rate fluctuations could increase
in the event of nonperformance by the bank who is party to the interest
rate swap agreements; however, the Partnerships do not anticipate
nonperformance by the bank. See Note 9 for additional information
regarding interest rate swap agreements.
As a result of the refinancing described above, the original Swaps no
longer qualify as hedges and, therefore, must be recorded at fair
value. Changes in fair value are recognized in the combined statement
of operations. See Note 9 for information regarding fair value of
financial instruments.
F-15
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
6. Commitments and Contingencies
See Note 4 for information regarding additional commitments and
contingencies.
Energy Bank Collateral
Under the terms of the trust indenture, the Partnerships are required
to maintain a letter of credit facility to secure obligations for
energy bank balances under the various power purchase agreements (Note
4). During December 1994, the Partnerships entered into an agreement
with a bank for a letter of credit facility to issue up to an aggregate
amount of $82 million in letters of credit. This facility contains a
cross-default provision to the trust indenture, as well as a payment
default under the working capital facility (Note 5). The Partnerships
pay quarterly fees on this letter of credit facility at an annual rate
of .30% on outstanding letters of credit and unused commitments to
issue letters of credit. As of December 31, 1996 and 1997, the
Partnerships' obligation for letters of credit outstanding under this
facility is $68,656,000 and $67,656,000, respectively. The Partnerships
are required to provide cash collateral for the maximum amount of
obligations allowed under the terms of this facility. As of December
31, 1996 and 1997, the Partnerships reserved $69,156,000 in cash as
collateral for such obligations (Note 3). Subsequent to the acquisition
on January 14, 1998 of all of the partner interests in the
Partnerships, the cash collateral requirement was terminated in
exchange for the guarantee of one of the acquiring entities; also, the
letters of credit facility was replaced with letters of credit from
other financial institutions (Note 10).
Operation and Maintenance of the Cogeneration Facilities
In 1989, the Partnerships entered into two separate ten year operation
and maintenance agreements with the same contractor responsible for
constructing and installing the combined-cycle cogeneration plants for
both facilities for an aggregate annual consideration of approximately
$11,100,000 subject to changes in specified indices. The agreements
commenced during 1991 after the facilities became operational. The
Partnerships each have an option to enter into a successor operation
and maintenance agreement with the contractor for a ten year term
following the expiration of the term of the original agreement, on
either a cost plus payment basis or a fixed fee payment basis to be
negotiated at the time of the operation exercise.
Under the terms of these agreements, the Partnerships are required to
pay the operation and maintenance contractor a bonus payable annually
over the term of the agreement, based on operating performance for each
year ending on the anniversary of the respective commencement of
operations (September 1, 1991 for NJEA and October 1, 1991 for NEA).
The Partnerships incurred $5,375,000, $3,482,000 and $5,823,000 related
to this bonus in 1995, 1996 and 1997, respectively.
During 1993, the Partnerships entered into a revised ten year heat rate
bonus agreement with the operation and maintenance contractor. Under
the terms of this agreement, the total bonus to be earned over the ten
year period is $11 million, subject to the continued satisfaction of
specified minimum performance standards. The agreement provides that
this amount will be paid to the contractor over the first five years of
the agreement. The agreement also provides that amounts paid under the
former heat rate bonus agreement during 1992 would be applied as
payments under the revised agreement. Total payments made under this
agreement were $1,854,000 in each of 1995, 1996 and 1997. Amounts
expensed under this heat rate bonus agreement were $1,060,000 in each
of 1995, 1996 and 1997.
F-16
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
Operating Lease
Lease payments under the operating lease for the land in Bellingham,
Massachusetts (Note 4) are as follows:
Year ending December 31,
1998 $ 189,000
1999 201,000
2000 213,000
2001 225,000
2002 237,000
Thereafter 2,760,000
----------
$3,825,000
==========
During 1995, 1996 and 1997, NEA paid and expensed $153,000, $165,000
and $177,000, respectively, under this agreement.
7. Employee Savings Plan
Effective January 1, 1991, the general partner (IEC) adopted a defined
contribution employee savings plan qualifying under Section 401(k) of
the Internal Revenue Code. Pursuant to the plan, the general partner
fully matches contributions made by eligible employees to the plan up
to 5% of an employee's base compensation. Contributions made by the
general partner become fully vested after four years of continuous
service. In addition, employees may contribute up to an additional 5%
of base compensation which is not matched by the general partner.
During 1995, 1996 and 1997, the Partnerships were charged $78,000,
$90,000 and $156,000, respectively, for their shares of contributions
made by the general partner to this plan (Note 8).
8. Other Related Party Transactions
Subsequent to the commencement of operations of the Partnerships, the
general partner began to pay certain expenses as a convenience
for the Partnerships. These expenses are reimbursed to the general
partner at cost. The following represents the activity between the
Partnerships and the general partner for the years ended December 31,
1995, 1996 and 1997:
F-17
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31, 1995: NEA NJEA
------------- -------------
<S> <C> <C>
Expenses paid by the general partner
Payroll and related expenses $ 1,053,000 $ 878,000
Travel 76,000 76,000
Office space and utilities 126,000 125,000
Professional fees, insurance and other 424,000 413,000
------------- -------------
1,679,000 1,492,000
Payments to the general partner 1,457,000 1,457,000
------------- -------------
Payments in excess of expenses (222,000) (35,000)
Due from (to) general partner, December 31, 1994 133,000 13,000
------------- -------------
Due from (to) general partner, December 31, 1995 $ (89,000) $ (22,000)
============= =============
<CAPTION>
For the year ended December 31, 1996: NEA NJEA
------------- -------------
<S> <C> <C>
Expenses paid by the general partner
Payroll and related expenses $ 1,364,000 $ 1,311,000
Travel 95,000 95,000
Office space and utilities 128,000 128,000
Professional fees, insurance and other 827,000 830,000
------------- -------------
2,414,000 2,364,000
Payments to the general partner 2,541,000 2,490,000
------------- -------------
Payments in excess of expenses 127,000 126,000
Due from (to) general partner, December 31, 1995 (89,000) (22,000)
------------- -------------
Due from (to) general partner, December 31, 1996 $ 38,000 $ 104,000
============= =============
</TABLE>
F-18
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31, 1997: NEA NJEA
------------ -----------
<S> <C> <C>
Expenses paid by the general partner
Payroll and related expenses $ 1,402,000 $ 1,332,000
Travel 88,000 88,000
Office space and utilities 168,000 168,000
Professional fees, insurance and other 934,000 816,000
------------ ------------
2,592,000 2,404,000
Payments to the general partner 2,483,000 2,414,000
------------ ------------
Payments in excess of expenses (109,000) 10,000
Due from (to) general partner, December 31, 1996 38,000 104,000
------------ ------------
Due from (to) general partner, December 31, 1997 $ (71,000) $ 114,000
------------ ------------
</TABLE>
9. Financial Instruments
The Partnerships have made use of derivative financial instruments to
hedge their exposure to fluctuations in both interest rates and the
purchase price of natural gas.
Under the project loan and credit agreement, the Partnerships were
required to enter into fixed interest rate swap agreements as a means
of managing exposure to the variable rate interest of the original
Partnerships borrowings. In conjunction with the refinancing, the
Partnerships entered into counter swap agreements so that the
Partnerships would no longer be exposed to changes in interest rates
(Note 5).
The prices received by the Partnerships for power sales under their
long-term sales contracts do not move precisely in tandem with the
prices paid by the Partnerships for natural gas. In order to mitigate
the price risk associated with purchases of natural gas, the
Partnerships may, from time to time, enter into certain hedging
transactions either through public exchanges such as the NYMEX, or by
means of over-the-counter transactions with specific counterparties.
The Partnerships hedge purchases of natural gas through the use of (a)
natural gas call options that give the Partnerships the right, but not
the obligation, to purchase specified quantities of natural gas at a
pre-determined price; (b) natural gas purchase swap agreements that
require the Partnerships to pay a price, fixed absolutely or within a
specified range, in return for a variable price on a notional specified
quantity of natural gas; and (c) forward purchases of natural gas.
The Partnerships control the credit risk arising from these instruments
through credit approvals, limits and monitoring procedures. There are
no significant concentrations of credit risk. The Partnerships do not
normally require collateral or other security to support financial
instruments with credit risks.
F-19
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
The following table sets forth the contract or notional amounts of
these financial instruments. While indicating the size of the
transaction entered into, the amounts do not represent the
Partnerships' exposure to loss in the event of nonperformance by the
counterparties involved. The Partnerships do not anticipate
nonperformance by the counterparties.
<TABLE>
<CAPTION>
Contract or Contract or
notional amount notional amount
at December 31, at December 31,
1996 1997
--------------------------- ----------------------------
$ MMBtu $ MMBtu
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Interest rate swap agreements 20,335,000 - 12,940,000 -
Gas purchase swap agreements - 28,600,000 - 21,920,000
Gas forward purchases - 418,000 - -
</TABLE>
The net effect on interest expense due to the interest rate swap
agreements and the net gain/(loss) included in cost of power and steam
sales resulting from the gas purchase options, swap agreements and
forward purchases is as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Net effect on interest expense -
(decrease) increase $ (486,000) $ 137,000 $ 103,000
Net (loss)/gain included in cost of
power and steam sales (448,000) 5,246,000 3,990,000
</TABLE>
The estimated fair value and related carrying amounts of certain
financial instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
----------------------------- ---------------------------------
Related Related
Fair carrying Fair carrying
value amount value amount
$ $ $ $
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Loans payable (564,075,000) (514,362,000) (526,010,000) (490,287,000)
Restricted cash 69,156,000 69,156,000 69,156,000 69,156,000
Interest rate swap agreements (2,022,000) (2,022,000) (889,000) (889,000)
Gas purchase swap agreements 1,671,000 - 2,527,000 -
Gas forward purchases (143,000) - - -
</TABLE>
The estimated fair values may not be representative of actual values of
the financial instruments that could have been realized as of year end
or that will be realized in the future.
F-20
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair
values of certain instruments:
Loans payable - The fair value of loans payable at December 31, 1996
was estimated by an independent third party valuation based on the
fixed nature of the loans, the credit risk associated with such loans
and the current borrowing environment available to the Partnerships.
The estimated fair value of the loans payable at December 31, 1997 has
been determined based upon the borrowing rate (8%) currently available
to the Partnerships for debt instruments with similar terms and average
maturities.
Restricted cash - The fair value of restricted cash is estimated based
upon the fixed yield and term of the investment and rates currently
available to the Partnerships for deposits of similar maturities.
Interest rate swap agreements - The fair value of interest rate swap
agreements is the estimated amount that the banks would receive to
terminate the swap agreements, taking into account current interest
rates and the creditworthiness of the swap counterparties.
Natural gas hedging instruments - The fair value of natural gas hedging
instruments is based upon the amounts the Partnerships would be
entitled to receive or required to pay if the contracts were terminated
at the reporting date, taking into account the forward prices of
natural gas on the reporting date, the fixed purchase prices of the
contracts and the exercise dates of the contracts.
10. Subsequent Events
On January 14, 1998, pursuant to the purchase agreement dated as of
November 21, 1997, all of the partner interests in the Partnerships
were acquired by Tractebel, S.A. and FPL Group, Inc., through their
wholly owned subsidiaries, for approximately $533 million in cash and
the assumption of the Partnerships' outstanding debt. The acquisition
will be accounted for under the purchase method; accordingly, the
carrying value of the assets acquired and liabilities assumed of the
Partnerships will be adjusted based upon the final purchase price
allocation. Concurrent with and related to the acquisition of the
Partnerships, IEC Funding Corp. was also acquired and its name changed
to ESI Tractebel Funding Corp. Subsequent to the acquisition, the
working capital facility was terminated and the letters of credit
facility and the Debt Service Reserve Fund were replaced with new
letter of credit arrangements (Notes 5 and 6) and the cash collateral
requirement related to the energy bank balances was eliminated in
exchange for the guarantee of one of the acquiring entities (Note 6).
F-21
<PAGE>
Report of Independent Accountants
To the Stockholders of ESI Tractebel Funding Corp.
(formerly IEC Funding Corp.)
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of ESI Tractebel Funding Corp. (formerly IEC Funding Corp.)
(the Company) at December 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. These
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
March 24, 1998
F-22
<PAGE>
ESI Tractebel Funding Corp.
(formerly IEC Funding Corp.)
Balance Sheet
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
----------- ------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash $ 1 $ 1
Current portion of notes receivable from the Partnerships 24,075 21,563
----------- -----------
Total current assets 24,076 21,564
Notes receivable from Partnerships 490,287 468,724
----------- -----------
Total assets $ 514,363 $ 490,288
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of securities payable $ 24,075 $ 21,563
----------- -----------
Total current liabilities 24,075 21,563
Securities payable 490,287 468,724
----------- -----------
Total liabilities 514,362 490,287
Stockholders' equity:
Common stock, no par value, 10,000 shares authorized, issued and
outstanding 1 1
----------- -----------
Total liabilities and stockholders' equity $ 514,363 $ 490,288
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
ESI Tractebel Funding Corp.
(formerly IEC Funding Corp.)
Statement of Operations
- -------------------------------------------------------------------------------
For the year ended
December 31,
-------------------------------------------------
1995 1996 1997
---- ---- ----
(In thousands)
Interest income $ 51,084 $ 49,404 $ 47,303
Interest expense (51,084) (49,404) (47,303)
------------ --------------- --------------
Net income $ -- $ -- $ --
------------ --------------- --------------
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
ESI Tractebel Funding Corp.
(formerly IEC Funding Corp.)
Statement of Cash Flows
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended
December 31,
----------------------------------------------
1995 1996 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Interest received from Partnerships $ 51,084 $ 49,404 $ 47,303
Interest paid (51,084) (49,404) (47,303)
------------ ------------ -----------
Net cash provided by operating activities -- -- --
------------ ------------ -----------
Cash flows from financing activities:
Principal received from Partnerships 20,434 25,204 24,075
Principal payments on debt (20,434) (25,204) (24,075)
------------ ------------ -----------
Net cash provided by financing activities -- -- --
------------ ------------ -----------
Net increase in cash -- -- --
Cash at beginning of year 1 1 1
------------ ------------ -----------
Cash at end of year $ 1 $ 1 $ 1
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
ESI Tractebel Funding Corp.
(formerly IEC Funding Corp.)
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. Nature of Business
IEC Funding Corp. (the "Company") is a Delaware corporation that was
established as a special purpose funding corporation for the purpose of
issuing the Securities described in Note 3. A majority of the common stock
of the Company is owned by the partners of Northeast Energy Associates, a
Limited Partnership, and North Jersey Energy Associates, a Limited
Partnership (the "Partnerships"). The Company acts as agent of the
Partnerships with respect to the Securities and holds itself out as the
agent of the Partnerships in all dealings with third parties relating to
the Securities.
Subsequent to the acquisition discussed in Note 4, the Company changed its
name to ESI Tractebel Funding Corp.
The enactment in 1978 of the Public Utility Regulatory Policies Act
("PURPA") and the adoption of the regulations thereunder by the Federal
Energy Regulatory Commission ("FERC") provided incentives for the
development of power production facilities, such as cogeneration, by
requiring electric utilities to purchase power generated by qualifying
facilities.
The Partnerships were organized in 1986 to develop, finance, construct,
own, manage and operate two 300 megawatt gas-fueled cogeneration
facilities, one in Bellingham, Massachusetts and one in Sayreville, New
Jersey. During 1986, the Partnerships were granted permission by FERC to
operate the proposed cogeneration facilities as qualifying facilities
defined in PURPA and as defined in federal regulations.
2. 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
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Placement of Securities
On December 1, 1994, the Company executed a placement of securities to
qualified institutional investors as defined in Rule 144A of the Securities
Act of 1933 ("Rule 144A"). Borrowings outstanding are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1997
---- ----
<S> <C> <C>
8.43% Senior Secured Notes Due 2000 $ 95,482,000 $ 71,407,000
9.16% Senior Secured Notes Due 2002 31,500,000 31,500,000
9.32% Senior Secured Bonds Due 2007 215,740,000 215,740,000
9.77% Senior Secured Bonds Due 2010 171,640,000 171,640,000
-------------- --------------
$ 514,362,000 $ 490,287,000
============== ==============
</TABLE>
F-26
<PAGE>
ESI Tractebel Funding Corp.
(formerly IEC Funding Corp.)
Notes to Financial Statements
- -------------------------------------------------------------------------------
Effective February 10, 1995, the Company filed a Registration Statement on
Form S-4 with the Securities and Exchange Commission for purposes of
effecting a public exchange offer whereby the securities listed above were
exchanged for a new issue of securities (the "Securities"). The Securities
have terms identical to the securities issued in accordance with Rule 144A.
Interest on the above securities is payable semiannually on each June 30
and December 30, commencing December 30, 1994. Principal repayments are
made semiannually commencing on June 30, 1995 and are in amounts stipulated
in the trust indenture. Future principal payments are as follows:
1998 $ 21,563,000
1999 23,511,000
2000 26,333,000
2001 20,160,000
2002 22,688,000
Thereafter 376,032,000
-------------
$ 490,287,000
=============
The Securities are not subject to optional redemption but are subject to
mandatory redemption in certain limited circumstances involving the
occurrence of an event of loss, as defined in the trust indenture, for
which the Partnerships fail to or are unable to restore a facility.
Additionally, the Partnerships may, at their option, repurchase all or part
of the Securities with proceeds received from the release of cash
collateral maintained as security for letters of credit.
The proceeds of the Securities were used (a) to purchase the notes
outstanding under the loan and credit agreement of the Partnerships and (b)
to make loans to the Partnerships. In connection with these two
transactions, the notes outstanding under the loan and credit agreement of
the Partnerships were surrendered and new notes of the Partnerships were
issued to the Company in an aggregate principal amount equal to the
aggregate principal amount of the Securities (the "New Notes") and the loan
and credit agreement of the Partnerships was assigned to the Company and
amended and restated (the "Amended and Restated Credit Agreement").
The Securities are unconditionally guaranteed, jointly and severally, by
the Partnerships and are secured by a lien on, and a security interest in,
substantially all of the assets of the Partnerships. Under the Amended and
Restated Credit Agreement, the Partnerships are jointly and severally
required to make scheduled payments on the New Notes on dates and in
amounts identical to the scheduled payments of principal and interest on
the Securities. The Securities, the guarantees thereon provided by the
Partnerships and the New Notes are nonrecourse to the partners of the
Partnerships and are payable solely from the collateral pledged as
security.
The trust indenture governing the Securities contains certain restrictions
on certain activities of the Partnerships, including the incurrence of
additional indebtedness or liens, the payment of distributions to the
partners, the cancellation of power sale and fuel supply agreements, the
use of proceeds from the issuance of the Securities and the execution of
mergers, consolidations and sales of assets.
F-27
<PAGE>
ESI Tractebel Funding Corp.
(formerly IEC Funding Corp.)
Notes to Financial Statements
- -------------------------------------------------------------------------------
The fair value of the Securities and the notes receivable from the
Partnerships at December 31, 1997 is estimated to be $526,010,000. The fair
value of the Securities and the notes receivable from the Partnerships at
December 31, 1996 was estimated to be $564,075,000. The fair value of the
Securities and the notes receivable has been estimated based on the fixed
nature of the Securities and the notes receivable, the credit risk
associated with the Securities and the notes receivable, and the current
borrowing environment available to the Company.
4. Subsequent Events
On January 14, 1998, pursuant to the purchase agreement dated as of
November 21, 1997, all of the partner interests in the Partnerships were
acquired by Tractebel, S.A. and FPL Group, Inc. through their wholly owned
subsidiaries, for approximately $533 million in cash and the assumption of
the Partnerships' outstanding debt. The acquisition will be accounted for
under the purchase method; accordingly, the carrying value of the assets
acquired and liabilities assumed of the Partnerships will be adjusted based
upon the final purchase price allocation. Concurrent with and related to
the acquisition of the Partnerships, IEC Funding Corp. was also acquired
and its name changed to ESI Tractebel Funding Corp. Subsequent to the
acquisition, the working capital facility was terminated and the letters of
credit facility and the Debt Service Reserve Fund were replaced with new
letter of credit arrangements and the cash collateral requirement related
to the energy bank balances was eliminated in exchange for the guarantee of
one of the acquiring entities.
The financial statements of the Partnerships are included on pages F-2
through F-21.
F-28
EXHIBIT 3.1.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IEC FUNDING CORP.
* * * *
January 30, 1998
IEC FUNDING CORP., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify as follows:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the
Board, adopted resolutions proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of IEC Funding Corp.
be amended by changing Article First thereof so that, as amended, said
Article shall be and read as follows:
ARTICLE FIRST
The Name of the Corporation is ESI Tractebel Funding Corp. (the
"Corporation").
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware by the written consent of a majority of the holders of
common stock of the Corporation.
[Remainder of this page intentionally left blank]
2
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed as of the date first
above written by its Vice President, who hereby affirms and acknowledges, under
the penalty of perjury, that this certificate is the act and deed of the
Corporation and that the facts stated herein are true.
IEC FUNDING CORP.
By: /s/ Glenn E. Smith
-----------------------------
Name: Glenn E. Smith
Title: Vice President
[Signature page to Certificate of Amendment
of Certificate of Incorporation of IEC Funding Corp.]
EXHIBIT 3.2
BY-LAWS
OF
ESI TRACTEBEL FUNDING CORP.
--------------------
ARTICLE I
OFFICES
1.1. Registered Office: The registered office shall be established and
maintained at and shall be the registered agent of the Corporation in charge
hereof.
1.2. Other Offices: The corporation may have other offices, either within
or without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require, provided, however, that the corporation's books and records shall be
maintained at such place within the continental United States as the Board of
Directors shall from time to time designate.
ARTICLE II
STOCKHOLDERS
2.1. Place of Stockholders' Meetings: All meetings of the stockholders of
the corporation shall be held at such place or places, within or outside the
State of Delaware as may be fixed by the Board of Directors from time to time or
as shall be specified in the respective notices thereof.
2.2. Date and Hour of Annual Meetings of Stockholders: An annual meeting of
stockholders shall be held each year within five months after the close of the
fiscal year of the Corporation.
2.3. Purpose of Annual Meetings: At each annual meeting, the stockholders
shall elect the members of the Board of Directors for the succeeding year. At
any such annual meeting any further proper business may be transacted.
2.4. Special Meetings of Stockholders: Special meetings of the stockholders
or of any class or series thereof entitled to vote may be called by the
President or by the Chairman of the Board of Directors, or at the request in
writing by stockholders of record owning at least fifty (50%) percent of the
issued and outstanding voting shares of common stock of the corporation.
By-Laws-1
<PAGE>
2.5. Notice of Meetings of Stockholders: Except as otherwise expressly
required or permitted by law, not less than ten days nor more than sixty days
before the date of every stockholders' meeting the Secretary shall give to each
stockholder of record entitled to vote at such meeting, written notice, served
personally by mail or by telegram, stating the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called. Such notice, if mailed shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address for notices to such stockholder as it appears on the
records of the corporation.
2.6. Quorum of Stockholders: Unless otherwise provided by the Certificate
of Incorporation or by law, at any meeting of the stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of the votes
thereat shall constitute a quorum. The withdrawal of any shareholder after the
commencement of a meeting shall have no effect on the existence of a quorum,
after a quorum has been established at such meeting.
(b) At any meeting of the stockholders at which a quorum shall be present,
a majority of voting stockholders, present in person or by proxy, may adjourn
the meeting from time to time without notice other than announcement at the
meeting. In the absence of a quorum, the officer presiding thereat shall have
power to adjourn the meeting from time to time until a quorum shall be present.
Notice of any adjourned meeting, other than announcement at the meeting, shall
not be required to be given except as provided in paragraph (d) below and except
where expressly required by law.
(c) At any adjourned session at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof, unless a new record date is fixed by the Board of Directors.
(d) If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.7. Chairman and Secretary of Meeting: The President, shall preside at
meetings of the stockholders. The Secretary shall act as secretary of the
meeting or if he is not present, then the presiding officer may appoint a person
to act as secretary of the meeting.
2.8. Voting by Stockholders: Except as may be otherwise provided by the
Certificate of Incorporation or these by-laws, at every meeting of the
stockholders each stockholder shall be entitled to one vote for each share of
voting stock standing in his name on the books of the corporation on the record
date for the meeting. Except as otherwise provided by these by-laws, all
elections and questions shall be decided by the vote of a majority in interest
of the stockholders present in person or represented by proxy and entitled to
vote at the meeting.
By-Laws-2
<PAGE>
2.9. Proxies: Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by proxy. Every proxy shall be in
writing, subscribed by the stockholder or his duly authorized attorney-in-fact,
but need not be dated, sealed, witnessed or acknowledged.
2.10. Inspectors: The election of directors and any other vote by ballot at
any meeting of the stockholders shall be supervised by at least two inspectors.
Such inspectors may be appointed by the presiding officer before or at the
meeting; or if one or both inspectors so appointed shall refuse to serve or
shall not be present, such appointment shall be made by the officer presiding at
the meeting.
2.11. List of Stockholders: At least ten days before every meeting of
stockholders, the Secretary shall prepare and make a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder.
(b) During ordinary business hours, for a period of at least ten days prior
to the meeting, such list shall be open to examination by any stockholder for
any purpose germane to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
(c) The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and it may be inspected by any
stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section 2.11 or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
2.12. Procedure at Stockholders' Meetings: Except as otherwise provided by
these by-laws or any resolutions adopted by the stockholders or Board of
Directors, the order of business and all other matters of procedure at every
meeting of stockholders shall be determined by the presiding officer.
2.13. Action By Consent Without Meeting: Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
By-Laws-3
<PAGE>
ARTICLE III
DIRECTORS
3.1. Powers of Directors: The property, business and affairs of the
corporation shall be managed by its Board of Directors which may exercise all
the powers of the corporation except such as are by the law of the State of
Delaware or the Certificate of Incorporation or these by-laws required to be
exercised or done by the stockholders.
3.2. Number, Method of Election, Terms of Office of Directors: The number
of directors which shall constitute the Board of Directors shall be ( 4 ) unless
and until otherwise determined by a vote of a majority of the entire Board of
Directors. Each Director shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified, provided,
however, that a director may resign at any time. Directors need not be
stockholders.
3.3. Vacancies on Board of Directors; Removal: Any director may resign his
office at any time by delivering his resignation in writing to the Chairman of
the Board or to the President. It will take effect at the time specified therein
or, if no time is specified, it will be effective at the time of its receipt by
the corporation. The acceptance of a resignation shall not be necessary to make
it effective, unless expressly so provided in the resignation.
(b) Any vacancy in the authorized number of directors may be filled by
majority vote of the stockholders and any director so chosen shall hold office
until the next annual election of directors by the stockholders and until his
successor is duly elected and qualified or until his earlier resignation or
removal.
(c) Any director may be removed with or without cause at any time by the
majority vote of the stockholders given at a special meeting of the stockholders
called for that purpose.
3.4. Meetings of the Board of Directors: The Board of Directors may hold
their meetings, both regular and special, either within or outside the State of
Delaware.
(b) Regular meetings of the Board of Directors may be held at such time and
place as shall from time to time be determined by resolution of the Board of
Directors. No notice of such regular meetings shall be required. If the date
designated for any regular meeting be a legal holiday, then the meeting shall be
held on the next day which is not a legal holiday.
(c) The first meeting of each newly elected Board of Directors shall be
held immediately following the annual meeting of the stockholders for the
election of officers and the transaction of such other business as may come
before it. If such meeting is held at the place of the stockholders' meeting, no
notice thereof shall be required.
By-Laws-4
<PAGE>
(d) Special meetings of the Board of Directors shall be held whenever
called by direction of the Chairman of the Board or the President or at the
written request of any one director.
(e) The Secretary shall give notice to each director of any special meeting
of the Board of Directors by mailing the same at least three days before the
meeting or by telegraphing, telexing, or delivering the same not later than the
date before the meeting.
Unless required by law, such notice need not include a statement of the
business to be transacted at, or the purpose of, any such meeting. Any and all
business may be transacted at any meeting of the Board of Directors. No notice
of any adjourned meeting need be given. No notice to or waiver by any director
shall be required with respect to any meeting at which the director is present.
3.5. Quorum and Action: Unless provided otherwise by law or by the
Certificate of Incorporation or these by-laws, a majority of the Directors shall
constitute a quorum for the transaction of business; but if there shall be less
than a quorum at any meeting of the Board, a majority of those present may
adjourn the meeting from time to time. The vote of a majority of the Directors
present at any meeting at which a quorum is present shall be necessary to
constitute the act of the Board of Directors.
3.6. Presiding Officer and Secretary of the Meeting: The President, or, in
his absence a member of the Board of Directors selected by the members present,
shall preside at meetings of the Board. The Secretary shall act as secretary of
the meeting, but in his absence the presiding officer may appoint a secretary of
the meeting.
3.7. Action by Consent Without Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes or proceedings of the Board or committee.
3.8. Action by Telephonic Conference: Members of the Board of Directors, or
any committee designated by such board, may participate in a meeting of such
board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting.
3.9. Committees: The Board of Directors shall, by resolution or resolutions
passed by a majority of Directors designate one or more committees, each of such
committees to consist of one or more Directors of the Corporation, for such
purposes as the Board shall determine. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee.
By-Laws-5
<PAGE>
3.10. Compensation of Directors: Directors shall receive such reasonable
compensation for their service on the Board of Directors or any committees
thereof, whether in the form of salary or a fixed fee for attendance at
meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
4.1. Officers, Title, Elections, Terms: (a) The elected officers of the
corporation shall be a President, a Treasurer and a Secretary, and such other
officers as the Board of Directors shall deem advisable. The officers shall be
elected by the Board of Directors at its annual meeting following the annual
meeting of the stockholders, to serve at the pleasure of the Board or otherwise
as shall be specified by the Board at the time of such election and until their
successors are elected and qualified.
(b) The Board of Directors may elect or appoint at any time, and from time
to time, additional officers or agents with such duties as it may deem necessary
or desirable. Such additional officers shall serve at the pleasure of the Board
or otherwise as shall be specified by the Board at the time of such election or
appointment. Two or more offices may be held by the same person.
(c) Any vacancy in any office may be filled for the unexpired portion of
the term by the Board of Directors.
(d) Any officer may resign his office at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein or, if no
time has been specified, at the time of its receipt by the corporation. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
(e) The salaries of all officers of the corporation shall be fixed by the
Board of Directors.
4.2. Removal of Elected Officers: Any elected officer may be removed at any
time, either with or without cause, by resolution adopted at any regular or
special meeting of the Board of Directors by a majority of the Directors then in
office.
4.3. Duties: President: The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall supervise and control all the business and affairs of the
corporation. He shall, when present, preside at all meetings of the stockholders
and of the Board of Directors. He shall see that all orders and resolutions of
the Board of Directors are carried into effect (unless any such order or
resolution shall provide otherwise), and in general shall perform all duties
incident to the office of president and such other duties as may be prescribed
by the Board of Directors from time to time.
By-Laws-6
<PAGE>
(b) Treasurer: The Treasurer shall (1) have charge and custody of and be
responsible for all funds and securities of the Corporation; (2) receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever; (3) deposit all such moneys in the name of the corporation in such
banks, trust companies, or other depositories as shall be selected by resolution
of the Board of Directors; and (4) in general perform all duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the President or by the Board of Directors. He shall, if required by
the Board of Directors, give a bond for the faithful discharge of his duties in
such sum and with such surety or sureties as the Board of Directors shall
determine.
(c) Secretary: The Secretary shall (1) keep the minutes of the meetings of
the stockholders, the Board of Directors, and all committees, if any, of which a
secretary shall not have been appointed, in one or more books provided for that
purpose; (2) see that all notices are duly given in accordance with the
provisions of these by-laws and as required by law; (3) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents, the execution of which on behalf of
the corporation under its seal, is duly authorized; (4) keep a register of the
post office address of each stockholder which shall be furnished to the
Secretary by such stockholder; (5) have general charge of stock transfer books
of the Corporation; and (6) in general perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
ARTICLE V
CAPITAL STOCK
5.1. Stock Certificates: Every holder of stock in the corporation shall be
entitled to have a certificate signed by, or in the name of, the corporation by
the President and by the Treasurer or the Secretary, certifying the number of
shares owned by him.
(b) If such certificate is countersigned by a transfer agent other than the
corporation or its employee, or by a registrar other than the corporation or its
employee, the signatures of the officers of the corporation may be facsimiles,
and, if permitted by law, any other signature may be a facsimile.
(c) In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer at the date of issue.
By-Laws-7
<PAGE>
(d) Certificates of stock shall be issued in such form not inconsistent
with the Certificate of Incorporation as shall be approved by the Board of
Directors, and shall be numbered and registered in the order in which they were
issued.
(e) All certificates surrendered to the corporation shall be canceled with
the date of cancellation, and shall be retained by the Secretary, together with
the powers of attorney to transfer and the assignments of the shares represented
by such certificates, for such period of time as shall be prescribed from time
to time by resolution of the Board of Directors.
5.2. Record Ownership: A record of the name and address of the holder of
such certificate, the number of shares represented thereby and the date of issue
thereof shall be made on the corporation's books. The corporation shall be
entitled to treat the holder of any share of stock as the holder in fact
thereof, and accordingly shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as required by law.
5.3. Transfer of Record Ownership: Transfers of stock shall be made on the
books of the corporation only by direction of the person named in the
certificate or his attorney, lawfully constituted in writing, and only upon the
surrender of the certificate therefor and a written assignment of the shares
evidenced thereby. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented to the corporation for
transfer, both the transferor and the transferee request the corporation to do
so.
5.4. Lost, Stolen or Destroyed Certificates: Certificates representing
shares of the stock of the corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed in such manner and on
such terms and conditions as the Board of Directors from time to time may
authorize. 5.5. Transfer Agent; Registrar; Rules Respecting Certificates: The
corporation may maintain one or more transfer offices or agencies where stock of
the corporation shall be transferable. The corporation may also maintain one or
more registry offices where such stock shall be registered. The Board of
Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
5.6. Fixing Record Date for Determination of Stockholders of Record: The
Board of Directors may fix, in advance, a date as the record date for the
purpose of determining stockholders entitled to notice of, or to vote at, any
meeting of the stockholders or any adjournment thereof, or the stockholders
entitled to receive payment of any dividend or other distribution or the
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or to express consent to corporate
action in writing without a meeting, or in order to make a determination of the
stockholders for the purpose of any other lawful action. Such record date in any
case shall be not more than sixty days nor less than ten days before the date of
a meeting of the stockholders, nor more than sixty days prior to any other
action requiring such determination of the stockholders. A determination of
By-Laws-8
<PAGE>
stockholders of record entitled to notice or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
5.7. Dividends: Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the Board of Directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the corporation.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
6.1. Voting: Unless the Board of Directors shall otherwise order, the
President, the Secretary or the Treasurer shall have full power and authority,
on behalf of the corporation, to attend, act and vote at any meeting of the
stockholders of any corporation in which the corporation may hold stock, and at
such meeting to exercise any or all rights and powers incident to the ownership
of such stock, and to execute on behalf of the corporation a proxy or proxies
empowering another or others to act as aforesaid. The Board of Directors from
time to time may confer like powers upon any other person or persons.
6.2. General Authorization to Transfer Securities Held by the Corporation:
Any of the following officers, to wit: the President and the Treasurer shall be,
and they hereby are, authorized and empowered to transfer, convert, endorse,
sell, assign, set over and deliver any and all shares of stock, bonds,
debentures, notes, subscription warrants, stock purchase warrants, evidence of
indebtedness, or other securities now or hereafter standing in the name of or
owned by the corporation, and to make, execute and deliver, under the seal of
the corporation, any and all written instruments of assignment and transfer
necessary or proper to effectuate the authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of assignment and
transfer executed pursuant to and in accordance with the foregoing paragraph
(a), a certificate of the Secretary of the corporation in office at the date of
such certificate setting forth the provisions of this Section 6.2 and stating
that they are in full force and effect and setting forth the names of persons
who are then officers of the corporation, then all persons to whom such
instrument and annexed certificate shall thereafter come, shall be entitled,
without @er inquiry or investigation and regardless of the date of such
certificate, to assume and to act in reliance upon the assumption that the
shares of stock or other securities named in such instrument were theretofore
duly and properly transferred, endorsed, sold, assigned, set over and delivered
By-Laws-9
<PAGE>
by the corporation, and that with respect to such securities the authority of
these provisions of the by-laws and of such officers is still in full force and
effect.
ARTICLE VII
MISCELLANEOUS
7.1. Signatories: All checks, drafts or other orders for the payment of
money, notes or other evidences of 'indebtedness issued in the name of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
7.2. Seal: The seal of the corporation shall be in such form and shall have
such content as the Board of Directors shall from time to time determine.
7.3. Notice and Waiver of Notice: Whenever any notice of the time, place or
purpose of any meeting of the stockholders, directors or a committee is required
to be given under the law of the State of Delaware, the Certificate of
Incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the holding
thereof, or actual attendance at the meeting in person or, in the case of any
stockholder, by his attorney-in-fact, shall be deemed equivalent to the giving
of such notice to such persons.
7.4. Indemnity: The corporation shall indemnify its directors, officers and
employees to the fullest extent allowed by law, provided, however, that it shall
be within the discretion of the Board of Directors whether to advance any funds
in advance of disposition of any action, suit or proceeding, and provided
further that nothing in this section 7.4 shall be deemed to obviate the
necessity of the Board of Directors to make any determination that
indemnification of the director, officer or employee is proper under the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of Section 145 of the Delaware General Corporation Law.
7.5. Fiscal Year: Except as from time to time otherwise determined by the
Board of Directors, the fiscal year of the corporation shall end on
By-Laws-10
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF LIMITED PARTNERSHIP
NORTHEAST ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP
1. The name of the limited partnership is "Northeast Energy Associates, A
Limited Partnership", which was formed on March 31, 1986.
2. The character of the Partnership's business is to acquire and/or
construct, and to own and lease a cogeneration plant.
3. The address of the office of the Partnership at which its records are
maintained is 92 Bay Depot Street, Bellingham, Massachusetts 02019. The resident
agent for service of process is CT Corporation System, 2 Oliver Street, Boston,
MA 02109.
4. The name and business address of each Partner and a designation of which
are General Partners and which are Limited Partners are as set forth in Schedule
A hereto.
5. The amounts of the percent of ownership of each partner are as set forth
on Schedule A hereto.
6. There is no right of a Limited Partner to assign his Partnership
interest and to substitute an assignee.
7. No specific time has been agreed upon when a partner may terminate his
membership in the Partnership.
8. No partner shall be entitled to receive distributions which constitute a
return of capital without the consent of the majority of the partners.
9. The term of the Partnership will commence upon the filing of this
Certificate with the Secretary of State of Massachusetts and shall continue in
full force and effect until December 31, 2025, unless sooner terminated prior to
such date by consent of the majority of the partners.
10. The successor General Partner will have the right to continue the
business of the Partnership on the happening of an event of withdrawal of the
General Partner.
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands, as of
the 16th day of February, 1998.
GENERAL PARTNER
NORTHEAST ENERGY, LP
By: ESI Northeast Energy GP, Inc.
General Partner
By: /s/ Glenn E. Smith
--------------------------
Name: Glenn E. Smith
Title: Vice President
2
<PAGE>
SCHEDULE A
GENERAL PERCENTAGE OF
PARTNER OWNERSHIP
------- ---------
Northeast Energy, LP 1.0%
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, FL 33408
LIMITED PARTNERS
- ----------------
Northeast Energy, LP 98.0%
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, FL 33408
Northeast Energy, LLC 1.0%
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, FL 33408
TOTAL 100.0%
3
EXHIBIT 3.4
AMENDED AND RESTATED
CERTIFICATE OF LIMITED PARTNERSHIP
NORTH JERSEY ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP
1. The name of the limited partnership is "North Jersey Energy Associates,
A Limited Partnership", which was formed on November 3, 1986.
2. The character of the Partnership's business is to acquire and/or
construct, and to own and lease a cogeneration plant.
3. The address of the registered office of the Partnership is Jernees Mill
Road, Sayreville, New Jersey 08872. The address of the registered office of the
Partnership immediately prior to the filing of this certificate was c/o
Intercontinental Energy Corp., Box 220, 87 Elm Street, Cohasset, MA 02025. The
general partner is Northeast Energy, LP, whose address is c/o ESI Energy, Inc.,
11760 US Highway One, Suite 600, North Palm Beach, FL 33408. The resident agent
for service of process is The Corporation Trust Company, 820 Bear Tavern Road,
West Trenton, NJ, 08628.
4. The name and business address of each Partner and a designation of which
are General Partners and which are Limited Partners are as set forth in Schedule
A hereto.
5. The amounts of the percent of ownership of each partner are as set forth
on Schedule A hereto. The aggregate amount of cash contributed by all partners
is $100,000.00.
6. There is no right of a Limited Partner to assign his Partnership
interest and to substitute an assignee.
7. No specific time has been agreed upon when a partner may terminate his
membership in the Partnership.
8. No partner shall be entitled to receive distributions which constitute a
return of capital without the consent of the majority of the partners.
9. The term of the Partnership will commence upon the filing of this
Certificate with the Secretary of State of New Jersey and shall continue in full
force and effect until December 31, 2025, unless sooner terminated prior to such
date by consent of the majority of the partners.
10. The successor General Partner will have the right to continue the
business of the Partnership on the happening of an event of withdrawal of the
General Partner.
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands, as of
the 16th day of February, 1998.
GENERAL PARTNER
NORTHEAST ENERGY, LP
By: ESI Northeast Energy GP, Inc.
General Partner
By: /s/ Glenn E. Smith
-------------------------
Name: Glenn E. Smith
Title: Vice President
SCHEDULE A
GENERAL PERCENTAGE OF
PARTNER OWNERSHIP
------- ---------
Northeast Energy, LP 1.0%
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, FL 33408
LIMITED PARTNERS
Northeast Energy, LP 98.0%
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, FL 33408
Northeast Energy, LLC 1.0%
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, FL 33408
TOTAL 100.0%
EXHIBIT 3.7
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
a Massachusetts limited partnership
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I.
Defined Terms............................................. 3
Article II
Formation and Name; Office; Purpose; Term.................................. 7
2.1 Formation and Continuation.................................................................... 7
2.2 Name of the Partnership....................................................................... 7
2.3 Purpose....................................................................................... 7
2.4 Term.......................................................................................... 7
2.5 Registered Office............................................................................. 7
2.6 Partners...................................................................................... 7
2.7 Qualification in Other Jurisdictions.......................................................... 7
2.8 Agent for Service of Process.................................................................. 8
Article III.
Partners' Capital; Capital Accounts..................................... 8
3.1 Capital Accounts.............................................................................. 8
3.2 Capital Contributions......................................................................... 8
3.3 No Interest on Contributions.................................................................. 8
3.4 Return of Contributions....................................................................... 8
3.5 [Intentionally Omitted]....................................................................... 8
3.6 Loans and Other Business Transactions......................................................... 8
Article IV.
Profit, Loss, and Distributions....................................... 9
4.1 [Purposely Omitted]........................................................................... 9
4.2 Distribution of Cash Flow..................................................................... 9
4.3 Allocation of Profit or Loss.................................................................. 9
4.4 Liquidation and Dissolution................................................................... 9
4.5 General....................................................................................... 9
4.6 Restricted Distributions...................................................................... 9
Article V.
General Partner Obligations......................................... 10
5.1 General Partner; General Partner; Meetings; Minutes........................................... 10
5.2 Duties of General Partner..................................................................... 10
5.3 Compensation.................................................................................. 10
5.4 Provision of Services......................................................................... 11
5.5 Indemnification of General Partner............................................................ 11
Article VI.
Limited Partners............................................... 12
6.1 No Liability of or Control by Limited Partners................................................ 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Article VII.
Transfer of Partner Interests and Withdrawals of Partners.......................... 12
7.1 Transfers..................................................................................... 12
7.2 Admission of Transferee as Additional or Substitute Partner................................... 12
7.3 Pledges; Foreclosures......................................................................... 13
Article VIII.
[Purposely Omitted]............................................. 13
Article IX.
Dissolution, Liquidation, and Termination of the Partnership......................... 13
9.1 Right to Cause Dissolution; Events of Dissolution............................................. 13
9.2 Procedure for Winding Up and Dissolution...................................................... 13
9.3 Filing of Certificate of Cancellation......................................................... 14
Article X.
Books, Records, Accounting, and Tax Elections................................ 14
10.1 Bank Accounts................................................................................. 14
10.2 Maintenance of Books and Records.............................................................. 14
10.3 Purposely Omitted............................................................................. 15
10.4 Right to Inspect Books and Records; Receive Information....................................... 15
10.5 Annual Accounting Period...................................................................... 15
10.6 GAAP Allocations.............................................................................. 15
Article XI.
Representations and Warranties........................................ 16
11.1 Representations and Warranties of the Partners................................................ 16
Article XII.
General Provisions.............................................. 16
12.1 Assurances.................................................................................... 16
12.2 Notifications................................................................................. 16
12.3 Specific Performance.......................................................................... 17
12.4 Complete Agreement............................................................................ 17
12.5 Applicable Law................................................................................ 17
12.6 Section Titles................................................................................ 17
12.7 Binding Provisions............................................................................ 18
12.8 Terms......................................................................................... 18
12.9 Separability of Provisions.................................................................... 18
12.10 Counterparts.................................................................................. 18
12.11 Estoppel Certificate.......................................................................... 18
12.12 Non-Disclosure................................................................................ 18
12.13 Waiver........................................................................................ 18
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP,
a Massachusetts limited partnership
This Amended and Restated Agreement of Limited Partnership (the
"Agreement"1. of Northeast Energy Associates, a Limited Partnership, a
Massachusetts limited partnership (the "Partnership"), is entered into as of
November 21, 1997, by and among Northeast Energy, LP, a Delaware limited
partnership ("NE, LP") as a general partner and as a limited partner, and
Northeast Energy, LLC, a Delaware limited liability company, ("NE, LLC") as a
limited partner, with reference to the following recitals of fact:
R E C I T A L S
A. The Original Partners of the Partnership hereinafter described
formed the Partnership as a Massachusetts limited partnership on March 31, 1986
(the "Original Effective Date") by filing on such date the Certificate of
Limited Partnership of the Partnership in the Office of the Secretary of State
of the Commonwealth of Massachusetts, and subsequent thereto such parties
amended such certificate and entered into an Agreement of Limited Partnership of
the Partnership dated as of October 15, 1996 (the "Original Partnership
Agreement").
B. The Partnership was established for the purposes of (a) developing,
financing, constructing, owning, managing, maintaining, operating, encumbering,
exchanging, disposing of and otherwise dealing with (i) the Partnership's
natural gas-fired electrical and steam generating plant located on an
approximately 44-acre site on the upper Charles River in the town of Bellingham,
Massachusetts (the "Project Site"), including without limitation, all electrical
and steam generating components and all electrical steam and natural gas
interconnection facilities and structures, associated materials handling and
environmental control equipment and ancillary structures, equipment and systems
(the "Bellingham Facility"); (ii) all easements, rights-of-way and rights
required to provide the Partnership with access to the Project Site or required
to provide the fuel, water, transportation, utilities and other services at or
from the Project Site necessary for the operation and maintenance of the
Bellingham Facility (the "Bellingham Easements"); and (iii) the carbon dioxide
production facility located adjacent to the Bellingham Facility on the Project
Site and all equipment and facilities ancillary thereto (the "CO2 Facility" and
together with the Bellingham Site, the Bellingham Facility and the Bellingham
Easements, the "Project") or any part thereof; (b) contracting with third
parties to construct, maintain or operate the Project; and (c) selling the
electricity and steam produced by the Project.
C. Pursuant to a Purchase Agreement, NE, LP and NE, LLC have acquired
all of the Interests of the Original Partners.
D. NE, LP and NE, LLC desire to amend and restate the Original
Partnership Agreement in its entirety.
<PAGE>
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, NE, LP and NE, LLC hereby agree to
amend and restate the Original Partnership Agreement in its entirety as of the
Effective Date (as defined in Article I) to read as follows:
Article I.
Defined Terms
The following capitalized terms shall have the respective meanings
specified in this Article I. Capitalized terms not defined in this Agreement
shall have the meaning specified in the Act.
"Acquisition" means the acquisitions by NE, LP and NE, LLC of all of
the Interests of the Original Partners, pursuant to the Purchase Agreement.
"Acquisition Date" means January 2, 1998 or, if the closing of the
Acquisition shall not have occurred on such date, such later date on which such
closing occurs.
"Act" means the Revised Uniform Limited Partnership Act of the
Commonwealth of Massachusetts, as amended from time to time, or any
corresponding provision or provisions of any succeeding or successor law of the
Commonwealth of Massachusetts.
"Affected Party" shall have the meaning ascribed thereto in Section
12.12.
"Affiliate" of any person, entity or group means any person, entity or
group (presently existing or hereafter created or acquired) controlling,
controlled by or under common control with, the specified person, entity or
group, and "control" of a person, entity or group (including, with correlative
meaning, the terms "controlled by" and "under common control with") means the
power to direct or cause the direction of the management, policies or affairs of
the controlled person or entity, whether through ownership of securities or
partnership or other ownership interests, directly or indirectly, by contract or
otherwise.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership of the Partnership, including all schedules, exhibits and appendices
hereto, as originally executed and as amended or restated in writing from time
to time, as the context requires.
"Bankruptcy" or "Bankrupt" means, with respect to any Person, such
Person's becoming subject to any bankruptcy, insolvency, reorganization or
similar proceeding, or admitting in writing its inability to pay its debts as
they mature, or making an assignment for the benefit of creditors.
"Banks" means the banks named in the Credit Agreement.
"Buyers" shall have the meaning ascribed thereto in the Purchase
Agreement.
2
<PAGE>
"Cash Flow" means all cash or other funds received by the Partnership
with respect to a calendar month (including interest received on, and any
release of, reserves) and distributable to the Partners without reduction for
any non-cash charges, but less (i) cash used to pay, with respect to such
calendar month, current operating expenses and (ii) cash used to pay or
establish reasonable reserves for future expenses, debt payments, capital
improvements, and replacements as determined by the General Partner.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership for the Partnership filed with the Office of the Secretary of State
of the Commonwealth of Massachusetts, as amended from time to time.
"Code" means the U.S. Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding law.
"Confidential Information" means any information, technical data, or
know-how of a Partner or any Affiliate thereof relating to the Project,
including but not limited to, information relating to such Partner's or its
Affiliate's services, development, marketing or finances, which shall be
disclosed by such Partner or Affiliate in writing or otherwise. The term
"Confidential Information" does not include information, technical data, or
know-how which at the time such information, technical data, or know-how is
disclosed to the receiving Partner or its Affiliates (the "Recipient") by
another party hereto or an Affiliate thereof (i) is available to the Recipient
from a source other than a party hereto or its Affiliates if the Recipient has
no knowledge that such source, by disclosing such information, would be in
violation of any confidentiality agreement to which it is a party; (ii) is or
becomes published or otherwise available in the public domain without violation
of this Agreement; or (iii) is approved for release by written authorization of
the Partners hereto or their Affiliates from which such information, technical
data or know-how originated. The term "Confidential Information" includes the
terms of this Agreement.
"Consent" means the prior written consent of the Person at issue, which
consent may be withheld by such Person in its sole discretion.
"Contribution" means any money, property or other binding obligation to
contribute money or property, as permitted in this Agreement or by law, which a
Partner contributes to the Partnership as capital in that Partner's capacity as
a Partner pursuant to this Agreement.
"Credit Agreement" means the Credit Agreement, dated as of December 1,
1994 among the Partnership, North Jersey Energy Associates, A Limited
Partnership, each of the Banks and The Sanwa Bank, Limited, New York Branch, as
issuing bank and as agent for such banks.
"Debt Service Reserve Fund" shall have the meaning ascribed to it in
the Trust Indenture.
"Effective Date" means the Acquisition Date.
"ESI" means ESI Energy, Inc., a Florida corporation.
3
<PAGE>
"Fuel Management Agreement" means the Fuel Management Agreement, dated
as of November 21, 1997, by and between NE, LP and ESI Northeast Fuel
Management, Inc., as assigned by NE, LP to the Partnership on the Acquisition
Date.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis.
"General Partner" means NE, LP or any Person who, at the time of the
reference thereto, has been admitted to the Partnership as a successor to the
duties or interest of NE, LP or as a replacement general partner as provided
herein, in any such Person's capacity as a general partner, in any case, so long
as such Person has not ceased to be a General Partner hereunder.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to, any government.
"Interest" means, in the context of a "Partner's Interest," the entire
legal and equitable ownership interest of a Partner in the Partnership at any
particular time, including any right to vote or, with respect to a general
partner, to participate in management, and any right to information concerning
the business and affairs of the Partnership. When used in the context of a
General Partner, "Interest" means the Interest held by the Partner in its
capacity as a General Partner. When used in the context of a Limited Partner,
"Interest" means the Interest held by the Partner in its capacity as a Limited
Partner. "Interest" includes, without limitation the right of such Partner to
participate in Partnership Profits and Losses, Cash Flow, and any and all
benefits to which a Partner may be entitled as provided in this Agreement and
the Act, together with the obligations of such Partner to comply with all the
terms and provisions of this Agreement.
"Letters of Credit" shall have the meaning ascribed to it in the Trust
Indenture.
"Limited Partner" means each of NE, LLC and NE, LP and/or any Person
who has been admitted to the Partnership as a limited partner in accordance with
the terms of this Agreement, at the time of reference thereto, in such Person's
capacity as a limited partner for so long as such Person has not ceased to be a
Limited Partner hereunder.
"NE, LLC" shall have the meaning ascribed to it in the opening
paragraph of this Agreement.
"NE, LP" shall have the meaning ascribed to it in the opening paragraph
of this Agreement.
"Notice" means a notice in writing delivered in accordance with the
provisions of Section 12.2.
4
<PAGE>
"O&M Agreement" means the Operations and Maintenance Agreement, dated
as of November 21, 1997, by and between NE, LP and ESI Operating Services, Inc.,
with respect to the Bellingham Facility.
"Original Effective Date" shall have the meaning set forth in the
Recitals hereto.
"Original Partners" means, collectively, the partners and the assignees
named in the Original Partnership Agreement and their successors or assigns
immediately prior to the date hereof.
"Original Partnership Agreement" shall have the meaning set forth in
the Recitals hereto.
"Partner" means any General Partner or any Limited Partner.
"Percentage" means 1% in the case of NE, LLC; 98% in the case of NE,
LP, in its capacity as a Limited Partner; and 1% in the case of NE, LP, in its
capacity as the General Partner.
"Permitted Investments" shall have the meaning ascribed to it in the
Trust Indenture.
"Person" means any individual, any partnership, any corporation, any
limited liability company, any business trust, any joint stock company, any
trust, any unincorporated association, any joint venture, any Governmental
Authority or any other entity of whatever nature.
"Profit" or "Loss" means, for each taxable year of the Partnership (or
other period for which Profit or Loss must be computed), the Partnership's
taxable income or loss as determined under Code Section 703(a) including items
separately stated pursuant to Section 703(a)(1).
"Project" shall have the meaning set forth in the Recitals hereto.
"Purchase Agreement" means the Purchase Agreement, dated as of November
21, 1997, by and among NE, LP, LP, NE, LLC, LLC, and the other Buyers listed on
Schedule I attached thereto, and the Original Partners.
"Secretary of State" means the Secretary of State of the Commonwealth
of Massachusetts.
"Transferor" means the Partner making a Transfer pursuant to Section
7.1.
"Transfer" means the transfer, assignment, pledge or grant of a
security interest by a Partner or its Affiliate of all or any part of its direct
or indirect (i) Partner's Interest or (ii) any other interest or rights in or
granted by this Agreement.
"Trust Indenture" means the Trust Indenture, dated as of November 15,
1994, among IEC Funding Corp., the Partnership, North Jersey Energy Associates,
a Limited Partnership, and State Street Bank and Trust Company, as trustee, as
amended and supplemented from time to time in accordance with the terms thereof.
"Voluntary Withdrawal" means a Partner's disassociation from the
Partnership.
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Article II.
Formation and Name; Office; Purpose; Term
2.1 Formation and Continuation. The Partnership was formed as a
Massachusetts limited partnership pursuant to Section 8 of the Act by filing the
Certificate of Limited Partnership of the Partnership in the Office of the
Secretary of State on the Original Effective Date. The Partners hereby agree to
continue the Partnership as a limited partnership, and upon the execution
hereof, NE, LP shall be admitted as and become the General Partner and each of
NE, LP and NE, LLC shall be admitted as and become a Limited Partner. The rights
and liabilities of the Partners shall be determined pursuant to the Act and this
Agreement, and to the extent that the rights or obligations of any Partner are
different by reason of any provision of this Agreement than they would be in the
absence of such provision, this Agreement shall, to the extent permitted by the
Act, control.
2.2 Name of the Partnership. The name of the Partnership is Northeast
Energy Associates, a Limited Partnership.
2.3 Purpose. The sole purpose of the Partnership is to acquire, hold,
protect, operate, manage, maintain, encumber, exchange, finance, refinance and
dispose of the Project and all replacements, substitutions and additions thereof
and thereto and to engage in any and all activities necessary, advisable or
incidental thereto.
2.4 Term. The term of this Agreement commenced on the Original
Effective Date and shall continue until December 31, 2048, unless sooner
dissolved as provided by this Agreement or the Act. The existence of the
Partnership as a separate legal entity shall continue until the cancellation of
the Certificate of Limited Partnership of the Partnership in the manner required
by the Act.
2.5 Registered Office. The Partnership shall continuously maintain a
registered office and registered agent in the Commonwealth of Massachusetts. The
principal office of the Partnership shall be determined by the General Partner.
The registered agent in Massachusetts shall be as stated in the Certificate of
Limited Partnership or as otherwise determined by the General Partner.
2.6 Partners. The name, present mailing address and (if applicable)
taxpayer identification number of each Partner shall be kept with the records of
the Partnership maintained in accordance with Section 10.2.
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2.7 Qualification in Other Jurisdictions. The General Partner shall
cause the Partnership to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Partnership transacts business. The General Partner shall have the power to
execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Partnership to qualify to do business in
a jurisdiction in which the Partnership may wish to conduct business.
2.8 Agent for Service of Process. The agent for service of process on
the Partnership in Massachusetts shall be such eligible individual resident or
corporation qualified to act as an agent for service of process as the General
Partner shall designate.
Article III.
Partners' Capital; Capital Accounts
3.1 Capital Accounts. The Partners acknowledge, that as of the
Effective Date, the Partnership is no longer properly treated for Federal income
tax purposes as a partnership but is, instead, properly treated as a non-entity
and that the Acquisition is properly treated for Federal income tax purposes as
an acquisition by the General Partner of all of the assets of the Partnership
(rather than an acquisition by NE, LLC and NE, LP of interests in the
Partnership). Accordingly, the Partnership shall not file any Federal income tax
returns for the period after the Effective Date and shall not maintain any
capital accounts (notwithstanding any provision to the contrary contained in
this Agreement) unless and until the Partnership is properly characterized as a
partnership for Federal income tax purposes.
3.2 Capital Contributions. No Partner shall be required to make any
Contributions to the Partnership subsequent to the Effective Date.
3.3 No Interest on Contributions. No Partner shall be paid interest
with respect to its Contributions.
3.4 Return of Contributions. No Partner shall have the right to receive
the return of any Contribution from the Partnership.
3.5 [Intentionally Omitted].
3.6 Loans and Other Business Transactions. A Partner or an Affiliate
thereof may make a loan to the Partnership only with the consent of the General
Partner and then in such amount and on those terms upon which the General
Partner and such Partner or Affiliate agree. Partners or Affiliates thereof may
also transact other business with the Partnership with the approval of the
General Partner and, in doing so, they shall have the same rights and be subject
to the same obligations arising out of any such business transaction as would be
enjoyed by and imposed upon any Person, not a Partner, engaged in a similar
business transaction with the Partnership. Any business transacted by a Partner
or its Affiliate with the Partnership shall be on terms no less favorable than
would be available from third parties in an arm's length transaction. The
Partners acknowledge that all documents executed by the Partnership with a
Partner or with any Affiliate of a Partner prior to or contemporaneously with
the execution of this Agreement conform to the requirements of the preceding
sentence.
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Article IV.
Profit, Loss, and Distributions
4.1 [Purposely Omitted.]
4.2 Distribution of Cash Flow. Subject to Section 4.4 hereof, Cash Flow
for each taxable year of the Partnership shall be distributed to the Partners in
proportion to their Percentages at such times as determined by the General
Partner.
4.3 Allocation of Profit or Loss. Profit and Loss shall be allocated to
the Partners in proportion to their Percentages.
4.4 Liquidation and Dissolution.
4.4.1 Upon liquidation of the Partnership, the assets of the
Partnership shall be distributed to the Partners in accordance with their
Percentages.
4.4.2 Except as required by applicable law, no Partner shall be
obligated at any time to restore any deficit balance in its capital account.
4.5 General.
4.5.1 Except as otherwise provided for in this Agreement, the timing
and amount of all distributions shall be determined by the General Partner. If
any assets of the Partnership are distributed in kind to the Partners, those
assets shall be valued on the basis of their fair market value, and any Partner
entitled to any interest in those assets shall receive that interest as a
tenant-in-common with all other Partners so entitled. Unless the General Partner
otherwise determines, the fair market value of the assets shall be determined by
an independent appraiser who shall be selected by the General Partner. The
Profit or Loss for each unsold asset shall be determined as if the asset had
been sold at its fair market value, and the Profit or Loss shall be allocated as
provided in Section 4.3 and shall be properly credited or charged to the capital
accounts of the Partners prior to the distribution of the assets in liquidation
pursuant to Section 4.4.
4.5.2 In connection with any Transfer of an Interest, the General
Partner may adopt such conventions as it deems appropriate or advisable for
allocating Profit and Loss between the transferor and transferee of the
Interest.
4.6 Restricted Distributions. Notwithstanding any provision to the
contrary contained in this Agreement, the Partnership, and the General Partner
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on behalf of the Partnership, shall not be required to make a distribution to
any Partner on account of its interest in the Partnership if such distribution
would violate the provisions of the Act or other applicable law.
Article V.
General Partner Obligations
5.1 General Partner; General Partner; Meetings; Minutes.
5.1.1 General. The management of the Partnership shall be directed and
controlled by the General Partner which, except as otherwise expressly provided
in this Agreement, shall have all rights, powers and authority permitted a
general partner under Section 24 of the Act with respect to such direction and
control.
5.2 Duties of General Partner.
5.2.1 Nothing in this Agreement shall be deemed to restrict in any way
the rights of any Partner, or of any other person or entity whether or not an
Affiliate of any Partner, to conduct any other business or activity whatsoever,
and no Partner (an Affiliate thereof) shall be accountable to the Partnership or
to any other Partner with respect to that business or activity even if the
business or activity owns and/or operates property within the same or any other
geographic area or competes with the Partnership's business. The organization of
the Partnership shall be without prejudice to the Partners' respective rights
(or the rights of any other person or entity whether or not an Affiliate of any
Partner) to maintain, expand or diversify such other interests and activities
and to receive and enjoy profits or compensation therefrom. Each Partner waives
any rights the Partner might otherwise have to share or participate in such
other interests, activities, assets or profits of any other Partner or of any
other person or entity in any way affiliated with any Partner, whether or not an
Affiliate of any Partner.
5.2.2 To the fullest extent permitted by Section 24 of the Act, the
only fiduciary duties a General Partner owes to the Partnership and the other
Partners are the duty of loyalty and the duty of care set forth in subdivisions
5.2.2.1, 5.2.2.2 and 5.2.2.3 below. It is the intent of the Partners hereby to
restrict the duties (including fiduciary duties) of the General Partner to the
extent permitted by the Act.
5.2.2.1 The General Partner owes a duty of loyalty to the Partnership
and to the other Partners with respect to the business of the Partnership.
5.2.2.2 The General Partner must act in a commercially reasonable
manner whenever it or its Affiliates provides, or has provided by any other
Person, services to the Partnership.
5.2.2.3 The General Partner's duty of care to the Partnership in each
case is to exercise its reasonable business judgment with regard to all
decisions it makes on behalf of the Partnership.
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5.3 Compensation.
5.3.1 Each month, the Partnership shall pay to NE, LP, for acting as
the General Partner of the Partnership, the amount described in clause (iv) of
the definition of "Management Costs" that is set forth in the Trust Indenture,
as and when distributed to the Partnership during such year in accordance with
Section 4.5 of the Trust Indenture.
5.3.2 The Partnership shall reimburse the General Partner for all
ordinary and necessary out-of-pocket expenses incurred by the General Partner on
behalf of the Partnership in accordance with, and upon the schedule set forth
in, the budget of the General Partner. Such reimbursement shall be treated as an
expense of the Partnership that shall be deducted in computing the Cash Flow and
shall not be deemed to constitute a distributive share of Profits or a
distribution or return of capital to the General Partner.
5.3.3 If a Partner or an Affiliate of a Partner provides services to
the Partnership pursuant to a separate written agreement, such Partner or
Affiliate shall be reimbursed for such services in accordance with such written
agreement.
5.4 Provision of Services. No General Partner shall be required to
perform services for the Partnership solely by virtue of being a General
Partner.
5.5 Indemnification of General Partner.
5.5.1 The General Partner shall not be liable, responsible, or
accountable, in damages or otherwise, to any other Partner or to the Partnership
for any act performed by the General Partner with respect to Partnership
matters, and within the standard of care specified in Section 5.2.2.3 unless
such act constitutes grossly negligent or reckless conduct, intentional
misconduct, a knowing violation of law, or the breach of any representation or
warranty or covenant contained in this Agreement. Each General Partner shall, to
the maximum extent permitted by law, indemnify and hold harmless the
Partnership, the other Partners and their Affiliates from or against any direct
or indirect liability, damage, loss, cost or expense (including without
limitation reasonable attorneys' fees and disbursements) suffered or incurred by
the indemnified Person arising out of or related to the breach of any
representation or warranty or covenant contained in this Agreement.
5.5.2 The Partnership shall indemnify the General Partner and each
partner of the General Partner for any act performed by the General Partner with
respect to Partnership matters, and within the standard of care specified in
Section 5.2.2.3 unless such act constitutes grossly negligent or reckless
conduct, intentional misconduct, the knowing violation of law or the breach of
any representation or warranty or covenant contained in this Agreement.
5.5.3 Nothing contained in this Section 5.5 shall be deemed to
supersede the indemnification provisions contained in any agreement between the
Partnership and a Partner or an Affiliate of a Partner, and any such
indemnification provisions shall exclusively govern any such agreement. The
agreements contained in this Section 5.5 shall survive the withdrawal of any
Partner or any termination or dissolution of the Partnership.
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Article VI.
Limited Partners
6.1 No Liability of or Control by Limited Partners.
6.1.1 No Limited Partner shall be liable for any debts, liabilities,
contracts or obligations of the Partnership in excess of the amount of such
Limited Partner's unpaid contribution or except as expressly required by the
Act. No Limited Partner shall be liable for any debts, liabilities, contracts or
obligations of any other Partner.
6.1.2 No Limited Partner shall (i) have the authority or power to
participate in the management or control of the Partnership's business, (ii)
have the authority or power in its capacity as a Limited Partner to act as agent
for or on behalf of the Partnership or any other Partner, to do any act which
would be binding on the Partnership or any other Partner, or to incur any
expenditures on behalf of or with respect to the Partnership, (iii) have any
right to demand or receive property other than money upon distribution from the
Partnership, or (iv) be compelled to accept a distribution of any asset in kind
from the Partnership in lieu of a proportionate distribution of money being made
to other Partners.
6.1.3 Except as expressly provided in this Agreement, the Limited
Partners shall have no voting or consent rights, including with respect to
actions to be taken by the General Partner.
Article VII.
Transfer of Partner Interests and Withdrawals of Partners
7.1 Transfers. Each Partner may freely sell, assign, gift, hypothecate,
pledge, transfer or otherwise dispose ("Transfer") of its Interest. Additionally
a Partner may assign its interest in Cash Flow and Profit and Loss. Except as
provided in Section 7.2, an assignee of any Interest or portion thereof shall
not become a Partner or have any of the rights conferred upon a Partner by the
Act (other than its assigned share of allocable items).
7.2 Admission of Transferee as Additional or Substitute Partner. Any
person to whom any Interest or portion thereof is Transferred ("Transferee")
shall be entitled to be admitted as a substitute Partner and to have all of the
rights herein conferred upon a Partner only if:
(i) such Transferee's admission as a Partner will not violate,
nor cause the Partnership to violate, any applicable laws, rules or
regulations, including federal and state securities laws, and either
such Transferee shall have delivered an opinion of counsel satisfactory
to the Partnership or counsel for the Partnership shall have delivered
an opinion, to such effect; and
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(ii) such Transferee qualifies and becomes a Partner within
the meaning of the Act by the procedures set forth in the Act.
7.3 Pledges; Foreclosures. Any Partner may mortgage, pledge or
otherwise encumber all or any part of its Interest in the Partnership at any
time, provided, that, in the event of any foreclosure upon the Partner's
Interest in the Partnership (or any part thereof) by a creditor of the
Partnership such foreclosure shall not operate as a dissolution of the
Partnership or relieve the Partner of any of its obligations hereunder, and the
party acquiring such Interest at any sale upon such foreclosure shall not
thereby become a Partner, nor have any of the rights herein conferred upon the
Partner, except that such party shall be entitled to receive the share of Cash
Flow and Profits or Losses which the Partner would have been entitled to receive
under the terms of this Agreement and, upon the dissolution of the Partnership,
the share of the net assets of the Partnership which the Partner would have been
entitled to receive upon such dissolution under the terms of this Agreement and,
provided further, such party may become a Partner upon compliance with the
provisions of the Act and in accordance with Section 7.2 hereof.
Article VIII.
[Purposely Omitted]
Article IX.
Dissolution, Liquidation, and Termination of the Partnership
9.1 Right to Cause Dissolution; Events of Dissolution.
9.1.1 Notwithstanding any agreement herein to the contrary, no Partner
shall have the right, and each Partner hereby agrees not, to cause the winding
up of, or to dissolve, terminate or liquidate the Partnership, or to petition a
court for the winding up, dissolution, termination or liquidation of the
Partnership. The Partnership shall not be dissolved by the admission of
additional Partners or substitute Partners in accordance with the terms of this
Agreement.
9.1.2 The Partnership shall be dissolved automatically and its affairs
wound up, without further act, upon the happening of the first to occur of the
following: (a) December 31, 2048, (b) the written consent of all of the Partners
or (c) the entry of a decree of judicial dissolution under the Act, unless the
remaining Partners vote to continue the Partnership.
9.2 Procedure for Winding Up and Dissolution. If the Partnership is
dissolved, the General Partner shall wind up its affairs. On winding up of the
Partnership, the assets of the Partnership shall be distributed, first to
creditors of the Partnership, including Partners who are creditors, in
satisfaction of the liabilities of the Partnership (whether by payment or the
making of reasonable provision for payment thereof and including the
satisfaction of all contingent, conditional and unmatured liabilities of the
Partnership), and then to the Partners in accordance with Section 4.4 of this
Agreement.
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9.3 Filing of Certificate of Cancellation. Upon completion of winding
up the affairs of the Partnership, the General Partner shall promptly cause to
be filed the Certificate of Cancellation of Certificate of Limited Partnership
with the Secretary of State of the State of Massachusetts.
Article X.
Books, Records, Accounting, and Tax Elections
10.1 Bank Accounts. All funds of the Partnership shall be deposited in
a bank account or accounts opened in the Partnership's name. The bank accounts
will be maintained in Florida, or elsewhere as determined by the General Partner
from time to time. The General Partner shall determine the financial institution
or institutions at which the accounts will be opened and maintained, the types
of accounts, and the Persons who will have authority with respect to the
accounts and the funds therein.
10.2 Maintenance of Books and Records.
10.2.1 The General Partner, as the Partner responsible for
administrative matters, shall keep or cause to be kept, at its offices in North
Palm Beach, Florida, or at such other place as it shall designate in a Notice to
the Partners, complete and accurate books, records, and financial statements of
the Partnership and supporting documentation of transactions with respect to the
conduct of the Partnership's business. The books, records, and financial
statements of the Partnership shall be maintained on the accrual basis in
accordance with GAAP. Such books, records, financial statements, and documents
shall include, but not be limited to, the following:
10.2.1.1 a current register of each of the Partners and
Partners indicating for each such Person its (i) full name, (ii) last
known business or residence address, (iii) Contributions, and (iv)
share in profits and losses, and also indicating each Transfer of an
Interest permitted by Article VII hereof, including the name and
address of the transferor and transferee of such Interest and the
Percentage Interest of the Transferee attributable to the Interest so
transferred;
10.2.1.2 the Certificate of Limited Partnership, including all
amendments; and any powers of attorney under which the Certificate of
Limited Partnership or amendments were executed;
10.2.1.3 federal, state, and local income tax or information
returns and reports, if any, for the six most recent taxable years;
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10.2.1.4 this Agreement and any amendments, and any powers of
attorney under which this Agreement or amendments were executed;
10.2.1.5 financial statements for the six most recent years;
10.2.1.6 internal books and records for the current and four
most recent years which shall, among other things, reflect all capital
accounts; and
10.2.1.7 a true copy of relevant records indicating the amount
and cost of all property the Partnership owns, claims, possesses, or
controls.
10.3 Purposely Omitted.
10.4 Right to Inspect Books and Records; Receive Information.
10.4.1 Upon the request of a Partner, the Partnership shall promptly
deliver to the requesting Partner at the expense of the Partnership a copy of
this Agreement, as well as the information required to be maintained by the
Partnership under subparagraphs (1) and (3) of Section 10.2.1.
10.4.2 Each Partner has the right upon not less than 24 hours notice,
and for purposes reasonably related to the interest of that Partner or the
Partnership, to do the following:
10.4.2.1 to inspect and copy, or cause its agents or
representatives to inspect any copy, during normal business hours any
of the records required to be maintained by the Partnership under
Section 10.2.1 of this Agreement; and
10.4.2.2 to obtain from the Partnership promptly after
becoming available, a copy of the Partnership's federal, state, and
local income tax or information returns for each year (if any).
10.4.3 Unless otherwise expressly provided in this Agreement, the
inspecting or requesting Partner shall reimburse the Partnership for all
reasonable costs and expenses incurred by the Partnership in connection with
such inspection and copying of the Partnership's books and records and the
production and delivery of any other books or records.
10.5 Annual Accounting Period. The annual accounting period of the
Partnership shall be the calendar year.
10.6 GAAP Allocations. All items of income and expense calculated and
reported in accordance with GAAP shall be allocated to each Partner based on
each Partner's Percentage.
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Article XI.
Representations and Warranties
11.1 Representations and Warranties of the Partners. Each Partner
hereby represents and warrants as of the Effective Date that:
11.1.1 It is duly formed, validly existing and in good
standing under the jurisdiction of its formation, with full power and
authority to enter into and perform its obligations under this
Agreement and has duly authorized the execution, delivery and
performance of this Agreement;
11.1.2 It has validly executed this Agreement, and upon
delivery this Agreement shall be a binding obligation of such party,
enforceable against such party in accordance with its terms except
insofar as enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights
generally or by general equitable principles;
11.1.3 Its entry into this Agreement and the performance of
its obligations hereunder will not require the approval of any
governmental body or regulatory authority and will not violate,
conflict with, or cause a default under any of its organizational
documents, any contractual covenant or restriction by which such party
is bound, or any applicable law, regulation, rule, ordinance, order,
judgment or decree; and
11.1.4 It has acted in full compliance with all laws,
statutes, ordinances, rules and regulations in connection with the
execution hereof.
Article XII.
General Provisions
12.1 Assurances. Each Partner shall execute all certificates and other
documents and shall do all such filing, recording, publishing, and other acts as
the Partners deem appropriate to comply with the requirements of law for the
formation and operation of the Partnership and to comply with any laws, rules,
and regulations relating to the acquisition, operation, or holding of the
property of the Partnership.
12.2 Notifications. Any notice, demand, consent, election, offer,
approval, request, or other communication (collectively a "Notice") required or
permitted under this Agreement must be in writing and shall be deemed to have
been duly given and received (i) on the date of service, if a business day, when
served personally or sent by facsimile transmission to the party to whom notice
is to be given, otherwise on the next business day, or (ii) on the fourth (4th)
day after mailing, if mailed by first class registered or certified mail if
mailed nationally, or by registered airmail if mailed internationally, postage
prepaid, and addressed to the party to whom notice is to be given at the address
set forth below or at the most recent address
15
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specified by written notice given to the other Party hereto, or (iii) on the
next business day if sent by a nationally or internationally recognized courier
for next day service and so addressed and if there is evidence of acceptance by
receipt.
To NE, LP: Northeast Energy, LP
- ---------
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
Attention: President
Telecopier: (561) 691-3615
To NE, LLC: Northeast Energy, LLC
- ----------
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
Attention: President
Telecopier: (561) 691-3615
12.3 Specific Performance. The parties recognize that irreparable
injury will result from a breach of any provision of this agreement and that
money damages will be inadequate to fully remedy the injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of this
agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach or (ii) compelling the performance of any obligation which, if not
performed, would constitute a breach.
12.4 Complete Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement among the Partners. It supersedes all prior
written and oral agreements and statements, including the Original Partnership
Agreement and any prior representation, statement, condition, or warranty.
Except as expressly provided otherwise herein, this Agreement may not be amended
without the written consent of all of the Partners.
12.5 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts, without regard
to principles of conflicts of laws.
12.6 Section Titles. The headings herein are inserted as a matter of
convenience only and do not define, limit, or describe the scope of this
Agreement or the intent of the provisions hereof.
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12.7 Binding Provisions. This Agreement is binding upon, and to the
limited extent specifically provided herein, inures to the benefit of, the
parties hereto and their respective heirs, executors, administrators, personal
and legal representatives, successors, and assigns.
12.8 Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the Person
may in the context require.
12.9 Separability of Provisions. Each provision of this Agreement shall
be considered separable; and if, for any reason, any provision or provisions
herein are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or affect those portions of
this Agreement which are valid.
12.10 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which, when taken together, constitute one and the same document. The signature
of any party to any counterpart shall be deemed a signature to, and may be
appended to, any other counterpart.
12.11 Estoppel Certificate. Each Partner shall, within ten (10) days
after written request by any Partner, deliver to the requesting Person a
certificate stating, to the Partner's knowledge, that: (a) this Agreement is in
full force and effect; (b) this Agreement has not been modified except by any
instrument or instruments identified in the certificate; and (c) there is no
default hereunder by the requesting Person, or if there is a default, the nature
or extent thereof.
12.12 Non-Disclosure. Each Partner hereto agrees that it will, and will
cause its officers, other personnel and authorized representatives to, hold in
strict confidence all Confidential Information disclosed by the other Partners
and will ensure that such other persons do not, disclose such information to
others without the prior written consent of the Partners hereto to which such
Confidential Information relates (the "AFFECTED PARTY"); provided, that each
Partner hereto may provide such data and information (i) to its outside lenders,
consultants, accountants, investors and advisers; provided, that, such parties
remain legally obligated (by contract or otherwise) to maintain the
confidentiality of such information, and (ii) in response to legal process or
applicable government regulations, but only that portion of the data and
information which, in the written opinion of counsel for such Partner, is
legally required to be furnished and further provided that such Party notifies
the Affected Party to protect the confidentiality of such data and information
pursuant to applicable law. Notwithstanding the foregoing, each Party hereto may
disclose the terms of this Agreement in connection with any Transfer provided
that the potential purchaser executes appropriate confidentiality agreements.
12.13 Waiver. No failure on the part of any Partner to exercise, and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. Any waiver to be effective shall be in writing
signed by the waiving Partner.
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IN WITNESS WHEREOF, the parties have executed, or caused this Amended
and Restated Agreement of Limited Partnership of Northeast Energy Associates, a
Limited Partnership, to be executed, as of the Effective Date.
NORTHEAST ENERGY, LLC,
a Delaware limited
liability company,
as Limited Partner
By: Northeast Energy, LP,
Member and Manager
By: ESI Northeast Energy GP, Inc.,
General Partner
By: /s/ Glenn E. Smith
----------------------
Name: Glenn E. Smith
Title: Vice President
By: Tractebel Northeast Generation GP, Inc.,
General Partner
By: /s/ Timothy R. Dunne
----------------------
Name: Timothy R. Dunne
Title: Vice President
[Counterpart Signature Page to Amended and Restated
Agreement of Limited Partnership]
EXHIBIT 3.8
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
a New Jersey limited partnership
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Article I.
Defined Terms................................................ 3
Article II.
Formation and Name; Office; Purpose; Term.................................. 7
2.1 Formation and Continuation.................................................................... 7
2.2 Name of the Partnership....................................................................... 7
2.3 Purpose....................................................................................... 7
2.4 Term.......................................................................................... 7
2.5 Registered Office............................................................................. 7
2.6 Partners...................................................................................... 7
2.7 Qualification in Other Jurisdictions.......................................................... 7
2.8 Agent for Service of Process.................................................................. 8
Article III.
Partners' Capital; Capital Accounts..................................... 8
3.1 Capital Accounts.............................................................................. 8
3.2 Capital Contributions......................................................................... 8
3.3 No Interest on Contributions.................................................................. 8
3.4 Return of Contributions....................................................................... 8
3.5 [Intentionally Omitted]....................................................................... 8
3.6 Loans and Other Business Transactions......................................................... 8
Article IV.
Profit, Loss, and Distributions....................................... 9
4.1 [Purposely Omitted]........................................................................... 9
4.2 Distribution of Cash Flow..................................................................... 9
4.3 Allocation of Profit or Loss.................................................................. 9
4.4 Liquidation and Dissolution................................................................... 9
4.5 General....................................................................................... 9
4.6 Restricted Distributions...................................................................... 9
Article V.
General Partner Obligations......................................... 10
5.1 General Partner; General Partner; Meetings; Minutes........................................... 10
5.2 Duties of General Partner..................................................................... 10
5.3 Compensation.................................................................................. 10
5.4 Provision of Services......................................................................... 11
5.5 Indemnification of General Partner............................................................ 11
Article VI.
Limited Partners............................................... 12
6.1 No Liability of or Control by Limited Partners................................................ 12
</TABLE>
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<TABLE>
<S> <C>
Article VII.
Transfer of Partner Interests and Withdrawals of Partners.......................... 12
7.1 Transfers..................................................................................... 12
7.2 Admission of Transferee as Additional or Substitute Partner................................... 12
7.3 Pledges; Foreclosures......................................................................... 13
Article VIII.
[Purposely Omitted]............................................. 13
Article IX.
Dissolution, Liquidation, and Termination of the Partnership......................... 13
9.1 Right to Cause Dissolution; Events of Dissolution............................................. 13
9.2 Procedure for Winding Up and Dissolution...................................................... 13
9.3 Filing of Certificate of Cancellation......................................................... 14
Article X.
Books, Records, Accounting, and Tax Elections................................ 14
10.1 Bank Accounts................................................................................. 14
10.2 Maintenance of Books and Records.............................................................. 14
10.3 Purposely Omitted............................................................................. 15
10.4 Right to Inspect Books and Records; Receive Information....................................... 15
10.5 Annual Accounting Period...................................................................... 15
10.6 GAAP Allocations.............................................................................. 15
Article XI.
Representations and Warranties........................................ 16
11.1 Representations and Warranties of the Partners................................................ 16
Article XII.
General Provisions.............................................. 16
12.1 Assurances.................................................................................... 16
12.2 Notifications................................................................................. 16
12.3 Specific Performance.......................................................................... 17
12.4 Complete Agreement............................................................................ 17
12.5 Applicable Law................................................................................ 17
12.6 Section Titles................................................................................ 17
12.7 Binding Provisions............................................................................ 18
12.8 Terms......................................................................................... 18
12.9 Separability of Provisions.................................................................... 18
12.10 Counterparts.................................................................................. 18
12.11 Estoppel Certificate.......................................................................... 18
12.12 Non-Disclosure................................................................................ 18
12.13 Waiver........................................................................................ 18
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP,
a New Jersey limited partnership
This Amended and Restated Agreement of Limited Partnership (the
"Agreement") of North Jersey Energy Associates, a Limited Partnership, a New
Jersey limited partnership (the "Partnership"), is entered into as of November
21, 1997, by and among Northeast Energy, LP, a Delaware limited partnership
("NE, LP") as a general partner and as a limited partner, and Northeast Energy,
LLC, a Delaware limited liability company, ("NE, LLC") as a limited partner,
with reference to the following recitals of fact:
R E C I T A L S
A. The Original Partners of the Partnership hereinafter described
formed the Partnership as a New Jersey limited partnership on November 3, 1986
(the "Original Effective Date") by filing on such date the Certificate of
Limited Partnership of the Partnership in the Office of the Secretary of State
of the State of New Jersey, and subsequent thereto such parties amended such
certificate and entered into an Agreement of Limited Partnership of the
Partnership dated as of October 15, 1996 (the "Original Partnership Agreement").
B. The Partnership was established for the purposes of (a) developing,
financing, constructing, owning, managing, maintaining, operating, encumbering,
exchanging, disposing of and otherwise dealing with (i) the Partnership's
natural gas-fired electrical and steam generating plant located on an
approximately ___-acre site in the town of Sayreville, New Jersey (the "Project
Site"), including without limitation, all electrical and steam generating
components and all electrical steam and natural gas interconnection facilities
and structures, associated materials handling and environmental control
equipment and ancillary structures, equipment and systems (the "Sayreville
Facility"); and (ii) all easements, rights-of-way and rights required to provide
the Partnership with access to the Project Site or required to provide the fuel,
water, transportation, utilities and other services at or from the Project Site
necessary for the operation and maintenance of the Sayreville Facility (the
"Sayreville Easements"; and together with the Sayreville Site and the Sayreville
Facility, the "Project") or any part thereof; (b) contracting with third parties
to construct, maintain or operate the Project; and (c) selling the electricity
and steam produced by the Project.
C. Pursuant to a Purchase Agreement, NE, LP and NE, LLC have acquired
all of the Interests of the Original Partners.
D. NE, LP and NE, LLC desire to amend and restate the Original
Partnership Agreement in its entirety.
<PAGE>
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, NE, LP and NE, LLC hereby agree to
amend and restate the Original Partnership Agreement in its entirety as of the
Effective Date (as defined in Article I) to read as follows:
Article I.
Defined Terms
The following capitalized terms shall have the respective meanings
specified in this Article I. Capitalized terms not defined in this Agreement
shall have the meaning specified in the Act.
"Acquisition" means the acquisitions by NE, LP and NE, LLC of all of
the Interests of the Original Partners, pursuant to the Purchase Agreement.
"Acquisition Date" means January 2, 1998 or, if the closing of the
Acquisition shall not have occurred on such date, such later date on which such
closing occurs.
"Act" means the Uniform Limited Partnership Law (1976) of the State of
New Jersey, as amended from time to time, or any corresponding provision or
provisions of any succeeding or successor law of the State of New Jersey.
"Affected Party" shall have the meaning ascribed thereto in Section
12.12.
"Affiliate" of any person, entity or group means any person, entity or
group (presently existing or hereafter created or acquired) controlling,
controlled by or under common control with, the specified person, entity or
group, and "control" of a person, entity or group (including, with correlative
meaning, the terms "controlled by" and "under common control with") means the
power to direct or cause the direction of the management, policies or affairs of
the controlled person or entity, whether through ownership of securities or
partnership or other ownership interests, directly or indirectly, by contract or
otherwise.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership of the Partnership, including all schedules, exhibits and appendices
hereto, as originally executed and as amended or restated in writing from time
to time, as the context requires.
"Bankruptcy" or "Bankrupt" means, with respect to any Person, such
Person's becoming subject to any bankruptcy, insolvency, reorganization or
similar proceeding, or admitting in writing its inability to pay its debts as
they mature, or making an assignment for the benefit of creditors.
"Banks" means the banks named in the Credit Agreement.
"Buyers" shall have the meaning ascribed thereto in the Purchase
Agreement.
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<PAGE>
"Cash Flow" means all cash or other funds received by the Partnership
with respect to a calendar month (including interest received on, and any
release of, reserves) and distributable to the Partners without reduction for
any non-cash charges, but less (i) cash used to pay, with respect to such
calendar month, current operating expenses and (ii) cash used to pay or
establish reasonable reserves for future expenses, debt payments, capital
improvements, and replacements as determined by the General Partner.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership for the Partnership filed with the Office of the Secretary of State
of the State of New Jersey, as amended from time to time.
"Code" means the U.S. Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding law.
"Confidential Information" means any information, technical data, or
know-how of a Partner or any Affiliate thereof relating to the Project,
including but not limited to, information relating to such Partner's or its
Affiliate's services, development, marketing or finances, which shall be
disclosed by such Partner or Affiliate in writing or otherwise. The term
"Confidential Information" does not include information, technical data, or
know-how which at the time such information, technical data, or know-how is
disclosed to the receiving Partner or its Affiliates (the "Recipient") by
another party hereto or an Affiliate thereof (i) is available to the Recipient
from a source other than a party hereto or its Affiliates if the Recipient has
no knowledge that such source, by disclosing such information, would be in
violation of any confidentiality agreement to which it is a party; (ii) is or
becomes published or otherwise available in the public domain without violation
of this Agreement; or (iii) is approved for release by written authorization of
the Partners hereto or their Affiliates from which such information, technical
data or know-how originated. The term "Confidential Information" includes the
terms of this Agreement.
"Consent" means the prior written consent of the Person at issue, which
consent may be withheld by such Person in its sole discretion.
"Contribution" means any money, property or other binding obligation to
contribute money or property, as permitted in this Agreement or by law, which a
Partner contributes to the Partnership as capital in that Partner's capacity as
a Partner pursuant to this Agreement.
"Credit Agreement" means the Credit Agreement, dated as of December 1,
1994 among the Partnership, Northeast Energy Associates, A Limited Partnership,
each of the Banks and The Sanwa Bank, Limited, New York Branch, as issuing bank
and as agent for such banks.
"Debt Service Reserve Fund" shall have the meaning ascribed to it in
the Trust Indenture.
"Effective Date" means the Acquisition Date.
"ESI" means ESI Energy, Inc., a Florida corporation.
3
<PAGE>
"Fuel Management Agreement" means the Fuel Management Agreement, dated
as of November 21, 1997, by and between NE, LP and ESI Northeast Fuel
Management, Inc., as assigned by NE, LP to the Partnership on the Acquisition
Date.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis.
"General Partner" means NE, LP or any Person who, at the time of the
reference thereto, has been admitted to the Partnership as a successor to the
duties or interest of NE, LP or as a replacement general partner as provided
herein, in any such Person's capacity as a general partner, in any case, so long
as such Person has not ceased to be a General Partner hereunder.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to, any government.
"Interest" means, in the context of a "Partner's Interest," the entire
legal and equitable ownership interest of a Partner in the Partnership at any
particular time, including any right to vote or, with respect to a general
partner, to participate in management, and any right to information concerning
the business and affairs of the Partnership. When used in the context of a
General Partner, "Interest" means the Interest held by the Partner in its
capacity as a General Partner. When used in the context of a Limited Partner,
"Interest" means the Interest held by the Partner in its capacity as a Limited
Partner. "Interest" includes, without limitation the right of such Partner to
participate in Partnership Profits and Losses, Cash Flow, and any and all
benefits to which a Partner may be entitled as provided in this Agreement and
the Act, together with the obligations of such Partner to comply with all the
terms and provisions of this Agreement.
"Letters of Credit" shall have the meaning ascribed to it in the Trust
Indenture.
"Limited Partner" means each of NE, LLC and NE, LP and/or any Person
who has been admitted to the Partnership as a limited partner in accordance with
the terms of this Agreement, at the time of reference thereto, in such Person's
capacity as a limited partner for so long as such Person has not ceased to be a
Limited Partner hereunder.
"NE, LLC" shall have the meaning ascribed to it in the opening
paragraph of this Agreement.
"NE, LP" shall have the meaning ascribed to it in the opening paragraph
of this Agreement.
"Notice" means a notice in writing delivered in accordance with the
provisions of Section 12.2.
4
<PAGE>
"O&M Agreement" means the Operations and Maintenance Agreement, dated
as of November 21, 1997, by and between NE, LP and ESI Operating Services, Inc.,
with respect to the Sayreville Facility.
"Original Effective Date" shall have the meaning set forth in the
Recitals hereto.
"Original Partners" means, collectively, the partners and the assignees
named in the Original Partnership Agreement and their successors or assigns
immediately prior to the date hereof.
"Original Partnership Agreement" shall have the meaning set forth in
the Recitals hereto.
"Partner" means any General Partner or any Limited Partner.
"Percentage" means 1% in the case of NE, LLC; 98% in the case of NE,
LP, in its capacity as a Limited Partner; and 1% in the case of NE, LP, in its
capacity as the General Partner.
"Permitted Investments" shall have the meaning ascribed to it in the
Trust Indenture.
"Person" means any individual, any partnership, any corporation, any
limited liability company, any business trust, any joint stock company, any
trust, any unincorporated association, any joint venture, any Governmental
Authority or any other entity of whatever nature.
"Profit" or "Loss" means, for each taxable year of the Partnership (or
other period for which Profit or Loss must be computed), the Partnership's
taxable income or loss as determined under Code Section 703(a) including items
separately stated pursuant to Section 703(a)(1).
"Project" shall have the meaning set forth in the Recitals hereto.
"Purchase Agreement" means the Purchase Agreement, dated as of November
21, 1997, by and among NE, LP, NE, LLC, and the other Buyers listed on Schedule
I attached thereto, and the Original Partners.
"Secretary of State" means the Secretary of State of the State of New
Jersey.
"Transferor" means the Partner making a Transfer pursuant to Section
7.1.
"Transfer" means the transfer, assignment, pledge or grant of a
security interest by a Partner or its Affiliate of all or any part of its direct
or indirect (i) Partner's Interest or (ii) any other interest or rights in or
granted by this Agreement.
"Trust Indenture" means the Trust Indenture, dated as of November 15,
1994, among IEC Funding Corp., the Partnership, Northeast Energy Associates, a
Limited Partnership, and State Street Bank and Trust Company, as trustee, as
amended and supplemented from time to time in accordance with the terms thereof.
"Voluntary Withdrawal" means a Partner's disassociation from the
Partnership.
5
<PAGE>
Article II.
Formation and Name; Office; Purpose; Term
2.1 Formation and Continuation. The Partnership was formed as a New
Jersey limited partnership pursuant to Section 2A-15 of the Act by filing the
Certificate of Limited Partnership of the Partnership in the Office of the
Secretary of State on the Original Effective Date. The Partners hereby agree to
continue the Partnership as a limited partnership, and upon the execution
hereof, NE, LP shall be admitted as and become the General Partner and each of
NE, LP and NE, LLC shall be admitted as and become a Limited Partner. The rights
and liabilities of the Partners shall be determined pursuant to the Act and this
Agreement, and to the extent that the rights or obligations of any Partner are
different by reason of any provision of this Agreement than they would be in the
absence of such provision, this Agreement shall, to the extent permitted by the
Act, control.
2.2 Name of the Partnership. The name of the Partnership is North
Jersey Energy Associates, a Limited Partnership.
2.3 Purpose. The sole purpose of the Partnership is to acquire, hold,
protect, operate, manage, maintain, encumber, exchange, finance, refinance and
dispose of the Project and all replacements, substitutions and additions thereof
and thereto and to engage in any and all activities necessary, advisable or
incidental thereto.
2.4 Term. The term of this Agreement commenced on the Original
Effective Date and shall continue until December 31, 2048, unless sooner
dissolved as provided by this Agreement or the Act. The existence of the
Partnership as a separate legal entity shall continue until the cancellation of
the Certificate of Limited Partnership of the Partnership in the manner required
by the Act.
2.5 Registered Office. The Partnership shall continuously maintain a
registered office and registered agent in the State of New Jersey. The principal
office of the Partnership shall be determined by the General Partner. The
registered agent in New Jersey shall be as stated in the Certificate of Limited
Partnership or as otherwise determined by the General Partner.
2.6 Partners. The name, present mailing address and (if applicable)
taxpayer identification number of each Partner shall be kept with the records of
the Partnership maintained in accordance with Section 10.2.
2.7 Qualification in Other Jurisdictions. The General Partner shall
cause the Partnership to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Partnership transacts business. The General Partner shall have the power to
execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Partnership to qualify to do business in
a jurisdiction in which the Partnership may wish to conduct business.
6
<PAGE>
2.8 Agent for Service of Process. The agent for service of process on
the Partnership in New Jersey shall be such eligible individual resident or
corporation qualified to act as an agent for service of process as the General
Partner shall designate.
Article III.
Partners' Capital; Capital Accounts
3.1 Capital Accounts. The Partners acknowledge, that as of the
Effective Date, the Partnership is no longer properly treated for Federal income
tax purposes as a partnership but is, instead, properly treated as a non-entity
and that the Acquisition is properly treated for Federal income tax purposes as
an acquisition by the General Partner of all of the assets of the Partnership
(rather than an acquisition by NE, LLC and NE, LP of interests in the
Partnership). Accordingly, the Partnership shall not file any Federal income tax
returns for the period after the Effective Date and shall not maintain any
capital accounts (notwithstanding any provision to the contrary contained in
this Agreement) unless and until the Partnership is properly characterized as a
partnership for Federal income tax purposes.
3.2 Capital Contributions. No Partner shall be required to make any
Contributions to the Partnership subsequent to the Effective Date.
3.3 No Interest on Contributions. No Partner shall be paid interest
with respect to its Contributions.
3.4 Return of Contributions. No Partner shall have the right to receive
the return of any Contribution from the Partnership.
3.5 [Intentionally Omitted].
3.6 Loans and Other Business Transactions. A Partner or an Affiliate
thereof may make a loan to the Partnership only with the consent of the General
Partner and then in such amount and on those terms upon which the General
Partner and such Partner or Affiliate agree. Partners or Affiliates thereof may
also transact other business with the Partnership with the approval of the
General Partner and, in doing so, they shall have the same rights and be subject
to the same obligations arising out of any such business transaction as would be
enjoyed by and imposed upon any Person, not a Partner, engaged in a similar
business transaction with the Partnership. Any business transacted by a Partner
or its Affiliate with the Partnership shall be on terms no less favorable than
would be available from third parties in an arm's length transaction. The
Partners acknowledge that all documents executed by the Partnership with a
Partner or with any Affiliate of a Partner prior to or contemporaneously with
the execution of this Agreement conform to the requirements of the preceding
sentence.
7
<PAGE>
Article IV.
Profit, Loss, and Distributions
4.1 [Purposely Omitted.]
4.2 Distribution of Cash Flow. Subject to Section 4.4 hereof, Cash Flow
for each taxable year of the Partnership shall be distributed to the Partners in
proportion to their Percentages at such times as determined by the General
Partner.
4.3 Allocation of Profit or Loss. Profit and Loss shall be allocated to
the Partners in proportion to their Percentages.
4.4 Liquidation and Dissolution.
4.4.1 Upon liquidation of the Partnership, the assets of the
Partnership shall be distributed to the Partners in accordance with their
Percentages.
4.4.2 Except as required by applicable law, no Partner shall be
obligated at any time to restore any deficit balance in its capital account.
4.5 General.
4.5.1 Except as otherwise provided for in this Agreement, the timing
and amount of all distributions shall be determined by the General Partner. If
any assets of the Partnership are distributed in kind to the Partners, those
assets shall be valued on the basis of their fair market value, and any Partner
entitled to any interest in those assets shall receive that interest as a
tenant-in-common with all other Partners so entitled. Unless the General Partner
otherwise determines, the fair market value of the assets shall be determined by
an independent appraiser who shall be selected by the General Partner. The
Profit or Loss for each unsold asset shall be determined as if the asset had
been sold at its fair market value, and the Profit or Loss shall be allocated as
provided in Section 4.3 and shall be properly credited or charged to the capital
accounts of the Partners prior to the distribution of the assets in liquidation
pursuant to Section 4.4.
4.5.2 In connection with any Transfer of an Interest, the General
Partner may adopt such conventions as it deems appropriate or advisable for
allocating Profit and Loss between the transferor and transferee of the
Interest.
4.6 Restricted Distributions. Notwithstanding any provision to the
contrary contained in this Agreement, the Partnership, and the General Partner
on behalf of the Partnership, shall not be required to make a distribution to
any Partner on account of its interest in the Partnership if such distribution
would violate the provisions of the Act or other applicable law.
8
<PAGE>
Article V.
General Partner Obligations
5.1 General Partner; General Partner; Meetings; Minutes.
5.1.1 General. The management of the Partnership shall be directed and
controlled by the General Partner which, except as otherwise expressly provided
in this Agreement, shall have all rights, powers and authority permitted a
general partner under Section 2A-32 of the Act with respect to such direction
and control.
5.2 Duties of General Partner.
5.2.1 Nothing in this Agreement shall be deemed to restrict in any way
the rights of any Partner, or of any other person or entity whether or not an
Affiliate of any Partner, to conduct any other business or activity whatsoever,
and no Partner (an Affiliate thereof) shall be accountable to the Partnership or
to any other Partner with respect to that business or activity even if the
business or activity owns and/or operates property within the same or any other
geographic area or competes with the Partnership's business. The organization of
the Partnership shall be without prejudice to the Partners' respective rights
(or the rights of any other person or entity whether or not an Affiliate of any
Partner) to maintain, expand or diversify such other interests and activities
and to receive and enjoy profits or compensation therefrom. Each Partner waives
any rights the Partner might otherwise have to share or participate in such
other interests, activities, assets or profits of any other Partner or of any
other person or entity in any way affiliated with any Partner, whether or not an
Affiliate of any Partner.
5.2.2 To the fullest extent permitted by Section 2A-32 of the Act, the
only fiduciary duties a General Partner owes to the Partnership and the other
Partners are the duty of loyalty and the duty of care set forth in subdivisions
5.2.2.1, 5.2.2.2 and 5.2.2.3 below. It is the intent of the Partners hereby to
restrict the duties (including fiduciary duties) of the General Partner to the
extent permitted by the Act.
5.2.2.1 The General Partner owes a duty of loyalty to the
Partnership and to the other Partners with respect to the business of
the Partnership.
5.2.2.2 The General Partner must act in a commercially
reasonable manner whenever it or its Affiliates provides, or has
provided by any other Person, services to the Partnership.
5.2.2.3 The General Partner's duty of care to the Partnership
in each case is to exercise its reasonable business judgment with
regard to all decisions it makes on behalf of the Partnership.
9
<PAGE>
5.3 Compensation.
5.3.1 Each month, the Partnership shall pay to NE, LP, for acting as
the General Partner of the Partnership, the amount described in clause (iv) of
the definition of "Management Costs" that is set forth in the Trust Indenture,
as and when distributed to the Partnership during such year in accordance with
Section 4.5 of the Trust Indenture.
5.3.2 The Partnership shall reimburse the General Partner for all
ordinary and necessary out-of-pocket expenses incurred by the General Partner on
behalf of the Partnership in accordance with, and upon the schedule set forth
in, the budget of the General Partner. Such reimbursement shall be treated as an
expense of the Partnership that shall be deducted in computing the Cash Flow and
shall not be deemed to constitute a distributive share of Profits or a
distribution or return of capital to the General Partner.
5.3.3 If a Partner or an Affiliate of a Partner provides services to
the Partnership pursuant to a separate written agreement, such Partner or
Affiliate shall be reimbursed for such services in accordance with such written
agreement.
5.4 Provision of Services. No General Partner shall be required to
perform services for the Partnership solely by virtue of being a General
Partner.
5.5 Indemnification of General Partner.
5.5.1 The General Partner shall not be liable, responsible, or
accountable, in damages or otherwise, to any other Partner or to the Partnership
for any act performed by the General Partner with respect to Partnership
matters, and within the standard of care specified in Section 5.2.2.3 unless
such act constitutes grossly negligent or reckless conduct, intentional
misconduct, a knowing violation of law, or the breach of any representation or
warranty or covenant contained in this Agreement. Each General Partner shall, to
the maximum extent permitted by law, indemnify and hold harmless the
Partnership, the other Partners and their Affiliates from or against any direct
or indirect liability, damage, loss, cost or expense (including without
limitation reasonable attorneys' fees and disbursements) suffered or incurred by
the indemnified Person arising out of or related to the breach of any
representation or warranty or covenant contained in this Agreement.
5.5.2 The Partnership shall indemnify the General Partner and each
partner of the General Partner for any act performed by the General Partner with
respect to Partnership matters, and within the standard of care specified in
Section 5.2.2.3 unless such act constitutes grossly negligent or reckless
conduct, intentional misconduct, the knowing violation of law or the breach of
any representation or warranty or covenant contained in this Agreement.
5.5.3 Nothing contained in this Section 5.5 shall be deemed to
supersede the indemnification provisions contained in any agreement between the
Partnership and a Partner or an Affiliate of a Partner, and any such
indemnification provisions shall exclusively govern any such agreement. The
agreements contained in this Section 5.5 shall survive the withdrawal of any
Partner or any termination or dissolution of the Partnership.
10
<PAGE>
Article VI.
Limited Partners
6.1 No Liability of or Control by Limited Partners.
6.1.1 No Limited Partner shall be liable for any debts, liabilities,
contracts or obligations of the Partnership in excess of the amount of such
Limited Partner's unpaid contribution or except as expressly required by the
Act. No Limited Partner shall be liable for any debts, liabilities, contracts or
obligations of any other Partner.
6.1.2 No Limited Partner shall (i) have the authority or power to
participate in the management or control of the Partnership's business, (ii)
have the authority or power in its capacity as a Limited Partner to act as agent
for or on behalf of the Partnership or any other Partner, to do any act which
would be binding on the Partnership or any other Partner, or to incur any
expenditures on behalf of or with respect to the Partnership, (iii) have any
right to demand or receive property other than money upon distribution from the
Partnership, or (iv) be compelled to accept a distribution of any asset in kind
from the Partnership in lieu of a proportionate distribution of money being made
to other Partners.
6.1.3 Except as expressly provided in this Agreement, the Limited
Partners shall have no voting or consent rights, including with respect to
actions to be taken by the General Partner.
Article VII.
Transfer of Partner Interests and Withdrawals of Partners
7.1 Transfers. Each Partner may freely sell, assign, gift, hypothecate,
pledge, transfer or otherwise dispose ("Transfer") of its Interest. Additionally
a Partner may assign its interest in Cash Flow and Profit and Loss. Except as
provided in Section 7.2, an assignee of any Interest or portion thereof shall
not become a Partner or have any of the rights conferred upon a Partner by the
Act (other than its assigned share of allocable items).
7.2 Admission of Transferee as Additional or Substitute Partner. Any
person to whom any Interest or portion thereof is Transferred ("Transferee")
shall be entitled to be admitted as a substitute Partner and to have all of the
rights herein conferred upon a Partner only if:
(i) such Transferee's admission as a Partner will not violate,
nor cause the Partnership to violate, any applicable laws, rules or
regulations, including federal and state securities laws, and either
such Transferee shall have delivered an opinion of counsel satisfactory
to the Partnership or counsel for the Partnership shall have delivered
an opinion, to such effect; and
11
<PAGE>
(ii) such Transferee qualifies and becomes a Partner within
the meaning of the Act by the procedures set forth in the Act.
7.3 Pledges; Foreclosures. Any Partner may mortgage, pledge or
otherwise encumber all or any part of its Interest in the Partnership at any
time, provided, that, in the event of any foreclosure upon the Partner's
Interest in the Partnership (or any part thereof) by a creditor of the
Partnership such foreclosure shall not operate as a dissolution of the
Partnership or relieve the Partner of any of its obligations hereunder, and the
party acquiring such Interest at any sale upon such foreclosure shall not
thereby become a Partner, nor have any of the rights herein conferred upon the
Partner, except that such party shall be entitled to receive the share of Cash
Flow and Profits or Losses which the Partner would have been entitled to receive
under the terms of this Agreement and, upon the dissolution of the Partnership,
the share of the net assets of the Partnership which the Partner would have been
entitled to receive upon such dissolution under the terms of this Agreement and,
provided further, such party may become a Partner upon compliance with the
provisions of the Act and in accordance with Section 7.2 hereof.
Article VIII.
[Purposely Omitted]
Article IX.
Dissolution, Liquidation, and Termination of the Partnership
9.1 Right to Cause Dissolution; Events of Dissolution.
9.1.1 Notwithstanding any agreement herein to the contrary, no Partner
shall have the right, and each Partner hereby agrees not, to cause the winding
up of, or to dissolve, terminate or liquidate the Partnership, or to petition a
court for the winding up, dissolution, termination or liquidation of the
Partnership. The Partnership shall not be dissolved by the admission of
additional Partners or substitute Partners in accordance with the terms of this
Agreement.
9.1.2 The Partnership shall be dissolved automatically and its affairs
wound up, without further act, upon the happening of the first to occur of the
following: (a) December 31, 2048, (b) the written consent of all of the Partners
or (c) the entry of a decree of judicial dissolution under the Act, unless the
remaining Partners vote to continue the Partnership.
9.2 Procedure for Winding Up and Dissolution. If the Partnership is
dissolved, the General Partner shall wind up its affairs. On winding up of the
Partnership, the assets of the Partnership shall be distributed, first to
creditors of the Partnership, including Partners who are creditors, in
satisfaction of the liabilities of the Partnership (whether by payment or the
making of reasonable provision for payment thereof and including the
satisfaction of all contingent, conditional and unmatured liabilities of the
Partnership), and then to the Partners in accordance with Section 4.4 of this
Agreement.
12
<PAGE>
9.3 Filing of Certificate of Cancellation. Upon completion of winding
up the affairs of the Partnership, the General Partner shall promptly cause to
be filed the Certificate of Cancellation of Certificate of Limited Partnership
with the Secretary of State of the State of New Jersey.
Article X.
Books, Records, Accounting, and Tax Elections
10.1 Bank Accounts. All funds of the Partnership shall be deposited in
a bank account or accounts opened in the Partnership's name. The bank accounts
will be maintained in Florida, or elsewhere as determined by the General Partner
from time to time. The General Partner shall determine the financial institution
or institutions at which the accounts will be opened and maintained, the types
of accounts, and the Persons who will have authority with respect to the
accounts and the funds therein.
10.2 Maintenance of Books and Records.
10.2.1 The General Partner, as the Partner responsible for
administrative matters, shall keep or cause to be kept, at its offices in North
Palm Beach, Florida, or at such other place as it shall designate in a Notice to
the Partners, complete and accurate books, records, and financial statements of
the Partnership and supporting documentation of transactions with respect to the
conduct of the Partnership's business. The books, records, and financial
statements of the Partnership shall be maintained on the accrual basis in
accordance with GAAP. Such books, records, financial statements, and documents
shall include, but not be limited to, the following:
10.2.1.1 a current register of each of the Partners and
Partners indicating for each such Person its (i) full name, (ii) last
known business or residence address, (iii) Contributions, and (iv)
share in profits and losses, and also indicating each Transfer of an
Interest permitted by Article VII hereof, including the name and
address of the transferor and transferee of such Interest and the
Percentage Interest of the Transferee attributable to the Interest so
transferred;
10.2.1.2 the Certificate of Limited Partnership, including all
amendments; and any powers of attorney under which the Certificate of
Limited Partnership or amendments were executed;
10.2.1.3 federal, state, and local income tax or information
returns and reports, if any, for the six most recent taxable years;
13
<PAGE>
10.2.1.4 this Agreement and any amendments, and any powers of
attorney under which this Agreement or amendments were executed;
10.2.1.5 financial statements for the six most recent years;
10.2.1.6 internal books and records for the current and four
most recent years which shall, among other things, reflect all capital
accounts; and
10.2.1.7 a true copy of relevant records indicating the amount
and cost of all property the Partnership owns, claims, possesses, or
controls.
10.3 Purposely Omitted.
10.4 Right to Inspect Books and Records; Receive Information.
10.4.1 Upon the request of a Partner, the Partnership shall promptly
deliver to the requesting Partner at the expense of the Partnership a copy of
this Agreement, as well as the information required to be maintained by the
Partnership under subparagraphs (1) and (3) of Section 10.2.1.
10.4.2 Each Partner has the right upon not less than 24 hours notice,
and for purposes reasonably related to the interest of that Partner or the
Partnership, to do the following:
10.4.2.1 to inspect and copy, or cause its agents or
representatives to inspect any copy, during normal business hours any
of the records required to be maintained by the Partnership under
Section 10.2.1 of this Agreement; and
10.4.2.2 to obtain from the Partnership promptly after
becoming available, a copy of the Partnership's federal, state, and
local income tax or information returns for each year (if any).
10.4.3 Unless otherwise expressly provided in this Agreement,
the inspecting or requesting Partner shall reimburse the Partnership
for all reasonable costs and expenses incurred by the Partnership in
connection with such inspection and copying of the Partnership's books
and records and the production and delivery of any other books or
records.
10.5 Annual Accounting Period. The annual accounting period of the
Partnership shall be the calendar year.
10.6 GAAP Allocations. All items of income and expense calculated and
reported in accordance with GAAP shall be allocated to each Partner based on
each Partner's Percentage.
14
<PAGE>
Article XI.
Representations and Warranties
11.1 Representations and Warranties of the Partners. Each Partner
hereby represents and warrants as of the Effective Date that:
11.1.1 It is duly formed, validly existing and in good
standing under the jurisdiction of its formation, with full power and
authority to enter into and perform its obligations under this
Agreement and has duly authorized the execution, delivery and
performance of this Agreement;
11.1.2 It has validly executed this Agreement, and upon
delivery this Agreement shall be a binding obligation of such party,
enforceable against such party in accordance with its terms except
insofar as enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights
generally or by general equitable principles;
11.1.3 Its entry into this Agreement and the performance of
its obligations hereunder will not require the approval of any
governmental body or regulatory authority and will not violate,
conflict with, or cause a default under any of its organizational
documents, any contractual covenant or restriction by which such party
is bound, or any applicable law, regulation, rule, ordinance, order,
judgment or decree; and
11.1.4 It has acted in full compliance with all laws,
statutes, ordinances, rules and regulations in connection with the
execution hereof.
Article XII.
General Provisions
12.1 Assurances. Each Partner shall execute all certificates and other
documents and shall do all such filing, recording, publishing, and other acts as
the Partners deem appropriate to comply with the requirements of law for the
formation and operation of the Partnership and to comply with any laws, rules,
and regulations relating to the acquisition, operation, or holding of the
property of the Partnership.
12.2 Notifications. Any notice, demand, consent, election, offer,
approval, request, or other communication (collectively a "Notice") required or
permitted under this Agreement must be in writing and shall be deemed to have
been duly given and received (i) on the date of service, if a business day, when
served personally or sent by facsimile transmission to the party to whom notice
is to be given, otherwise on the next business day, or (ii) on the fourth (4th)
day after mailing, if mailed by first class registered or certified mail if
mailed nationally, or by registered airmail if mailed internationally, postage
prepaid, and addressed to the party to whom notice is to be given at the address
set forth below or at the most recent address specified by written notice given
to the other Party hereto, or (iii) on the next business day if sent by a
nationally or internationally recognized courier for next day service and so
addressed and if there is evidence of acceptance by receipt.
15
<PAGE>
To NE, LP: Northeast Energy, LP
- ---------
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
Attention: President
Telecopier: (561) 691-3615
To NE, LLC: Northeast Energy, LLC
- ----------
c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
Attention: President
Telecopier: (561) 691-3615
12.3 Specific Performance. The parties recognize that irreparable
injury will result from a breach of any provision of this agreement and that
money damages will be inadequate to fully remedy the injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of this
agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach or (ii) compelling the performance of any obligation which, if not
performed, would constitute a breach.
12.4 Complete Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement among the Partners. It supersedes all prior
written and oral agreements and statements, including the Original Partnership
Agreement and any prior representation, statement, condition, or warranty.
Except as expressly provided otherwise herein, this Agreement may not be amended
without the written consent of all of the Partners.
12.5 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey, without regard to
principles of conflicts of laws.
12.6 Section Titles. The headings herein are inserted as a matter of
convenience only and do not define, limit, or describe the scope of this
Agreement or the intent of the provisions hereof.
16
<PAGE>
12.7 Binding Provisions. This Agreement is binding upon, and to the
limited extent specifically provided herein, inures to the benefit of, the
parties hereto and their respective heirs, executors, administrators, personal
and legal representatives, successors, and assigns.
12.8 Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the Person
may in the context require.
12.9 Separability of Provisions. Each provision of this Agreement shall
be considered separable; and if, for any reason, any provision or provisions
herein are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or affect those portions of
this Agreement which are valid.
12.10 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which, when taken together, constitute one and the same document. The signature
of any party to any counterpart shall be deemed a signature to, and may be
appended to, any other counterpart.
12.11 Estoppel Certificate. Each Partner shall, within ten (10) days
after written request by any Partner, deliver to the requesting Person a
certificate stating, to the Partner's knowledge, that: (a) this Agreement is in
full force and effect; (b) this Agreement has not been modified except by any
instrument or instruments identified in the certificate; and (c) there is no
default hereunder by the requesting Person, or if there is a default, the nature
or extent thereof.
12.12 Non-Disclosure. Each Partner hereto agrees that it will, and will
cause its officers, other personnel and authorized representatives to, hold in
strict confidence all Confidential Information disclosed by the other Partners
and will ensure that such other persons do not, disclose such information to
others without the prior written consent of the Partners hereto to which such
Confidential Information relates (the "Affected Party"); provided, that each
Partner hereto may provide such data and information (i) to its outside lenders,
consultants, accountants, investors and advisers; provided, that, such parties
remain legally obligated (by contract or otherwise) to maintain the
confidentiality of such information, and (ii) in response to legal process or
applicable government regulations, but only that portion of the data and
information which, in the written opinion of counsel for such Partner, is
legally required to be furnished and further provided that such Party notifies
the Affected Party to protect the confidentiality of such data and information
pursuant to applicable law. Notwithstanding the foregoing, each Party hereto may
disclose the terms of this Agreement in connection with any Transfer provided
that the potential purchaser executes appropriate confidentiality agreements.
12.13 Waiver. No failure on the part of any Partner to exercise, and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. Any waiver to be effective shall be in writing
signed by the waiving Partner.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed, or caused this Amended
and Restated Agreement of Limited Partnership of North Jersey Energy Associates,
a Limited Partnership, to be executed, as of the Effective Date.
NORTHEAST ENERGY, LLC,
a Delaware limited
liability company,
as Limited Partner
By: Northeast Energy, LP,
Member and Manager
By: ESI Northeast Energy GP, Inc.,
General Partner
By: /s/ Glenn E. Smith
----------------------
Name: Glenn E. Smith
Title: Vice President
By: Tractebel Northeast Generation GP, Inc.,
General Partner
By: /s/ Timothy R. Dunne
----------------------
Name: Timothy R. Dunne
Title: Vice President
[Counterpart Signature Page to Amended and Restated
Agreement of Limited Partnership]
EXHIBIT 3.9
CERTIFICATE OF LIMITED PARTNERSHIP
OF
NORTHEAST ENERGY, LP
The undersigned, desiring to form a limited partnership pursuant to the
Delaware revised Uniform Limited Partnership Act, 6 Delaware Code, Chapter 17,
do hereby certify as follows:
I. The name of the limited partnership is Northeast Energy, LP.
II. The address of the Partnership's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington,
County of New Castle. The name of the Partnership's registered agent
for service of process in the State of Delaware at such address is The
Corporation Trust Company.
III. The name and mailing address of each general partner is as follows:
Name Mailing Address
- ---- ---------------
ESI Northeast Energy GP, Inc. c/o ESI Energy, Inc.
11760 US Highway 1
Suite 600
North Palm Beach, Florida 33408
Tractebel Northeast Generation GP, Inc. c/o Tractebel Power, Inc.
1177 West Loop South
Suite 900
Houston, Texas 77027
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Limited Partnership of Northeast Energy, LP, as of November 21, 1997.
ESI NORTHEAST ENERGY GP, INC.,
General Partner
By: /s/ Glenn E. Smith
-------------------------
Name: Glenn E. Smith
Title: Vice President
TRACTEBEL NORTHEAST
GENERATION GP, INC.,
General Partner
By: /s/ Timothy R. Dunne
-------------------------
Name: Timothy R. Dunne
Title: Vice President
EXHIBIT 3.10
AGREEMENT OF LIMITED PARTNERSHIP
OF
NORTHEAST ENERGY, LP
a Delaware limited partnership
<PAGE>
TABLE OF CONTENTS
Page
----
Article I . . . . . . . . . . . . . . 1
Article II.
Formation and Name; Office; Purpose; Term. . . . . 9
2.1 Formation and Continuation. . . . . . . . . . . . . . 9
2.2 Name of the Partnership . . . . . . . . . . . . . . . 9
2.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Term. . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Registered Office . . . . . . . . . . . . . . . . . . 9
2.6 Partners. . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Qualification in Other Jurisdictions. . . . . . . . . 10
2.8 Agent for Service of Process. . . . . . . . . . . . . 10
Article III.
Partners' Capital; Capital Accounts. . . . . . . . 10
3.1 Capital Contributions; Capital Account Balances . . . 10
3.2 No Additional Contributions Required. . . . . . . . . 10
3.3 No Interest on Contributions. . . . . . . . . . . . . 10
3.4 Return of Contributions . . . . . . . . . . . . . . . 10
3.5 Capital Accounts. . . . . . . . . . . . . . . . . . . 10
3.6 Loans and Other Business Transactions . . . . . . . . 11
Article IV.
Profit, Loss and Distributions . . . . . . . . . . 11
4.1 Payment of Certain Funds. . . . . . . . . . . . . . . 11
4.2 Distribution of Cash Flow . . . . . . . . . . . . . . 13
4.3 Allocation of Profit or Loss. . . . . . . . . . . . . 13
4.4 Regulatory Allocations. . . . . . . . . . . . . . . . 13
4.5 Liquidation and Dissolution . . . . . . . . . . . . . 15
4.6 General . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 Restricted Distributions. . . . . . . . . . . . . . . 16
Article V . . . . . . . . . . . . . . 16
5.1 Management Committee; Meetings; Minutes . . . . . . . 16
5.2 Duties of General Partners. . . . . . . . . . . . . . 19
5.3 Compensation. . . . . . . . . . . . . . . . . . . . . 20
5.4 Provision of Services . . . . . . . . . . . . . . . . 21
5.5 Indemnification of General Partners . . . . . . . . . 21
i
<PAGE>
5.6 Sharing of Information. . . . . . . . . . . . . . . . 22
5.7 Rule 144A Financing . . . . . . . . . . . . . . . . . 22
5.8 Authorization of Project Documents. . . . . . . . . . 22
Article VI.
Limited Partners; General Partner Meetings . . . . 22
6.1 No Liability of or Control by Limited Partners. . . . 22
Article VII.
Transfer of Partner Interests and Withdrawals
of Partners . . . . . . . . . . . . . . . . . . 23
7.1 Transfers. . . . . .. . . . . . . . . . . . . . . . . 23
7.2 Voluntary Withdrawal. . . . . . . . . . . . . . . . . 26
7.3 Special Rules With Respect to General Partners. . . . 26
Article VIII.
Dispute Resolutions; Arbitration . . . . . . . . . 26
8.1 Dispute Resolution. . . . . . . . . . . . . . . . . . 26
8.2 Arbitration . . . . . . . . . . . . . . . . . . . . . 27
Article IX.
Dissolution, Liquidation, and Termination of the
Partnership. . . . . . . . . . . . . . . . . . . 28
9.1 Right to Cause Dissolution; Events of Dissolution . . 28
9.2 Procedure for Winding Up and Dissolution. . . . . . . 28
9.3 Filing of Certificate of Cancellation . . . . . . . . 28
Article X.
Books, Records, Accounting, and Tax Elections. . . 28
10.1 Bank Accounts . . . . . . . . . . . . . . . . . . . . 28
10.2 Maintenance of Books and Records. . . . . . . . . . . 29
10.3 Financial Statements and Reports. . . . . . . . . . . 29
10.4 Right to Inspect Books and Records; Receive
Information . . . . . . . . . . . . . . . . . . . . 29
10.5 Annual Accounting Period. . . . . . . . . . . . . . . 29
10.6 Tax Matters . . . . . . . . . . . . . . . . . . . . . 29
10.7 GAAP Allocations. . . . . . . . . . . . . . . . . . . 30
Article XI.
Representations and Warranties . . . . . . . . . . 30
11.1 Representations and Warranties of the Partners. . . . 30
11.2 Representations and Warranties of ESI Partners. . . . 30
Article XII.
True-Up of Stream of Benefits. . . . . . . . . . . 30
12.1 True-Up . . . . . . . . . . . . . . . . . . . . . . . 30
ii
<PAGE>
Article XIII.
General Provisions . . . . . .. . . . . . . . . . 32
13.1 Assurances.. . . . . . . . . . . . . . . . . . . . . 33
13.2 Notifications. . . . . . . . . . . . . . . . . . . . 33
13.3 Specific Performance.. . . . . . . . . . . . . . . . 33
13.4 Complete Agreement.. . . . . . . . . . . . . . . . . 34
13.5 Applicable Law.. . . . . . . . . . . . . . . . . . . 34
13.6 Section Titles.. . . . . . . . . . . . . . . . . . . 34
13.7 Binding Provisions.. . . . . . . . . . . . . . . . . 34
13.8 Terms. . . . . . . . . . . . . . . . . . . . . . . . 34
13.9 Separability of Provisions.. . . . . . . . . . . . . 34
13.10 Counterparts.. . . . . . . . . . . . . . . . . . . . 34
13.11 Estoppel Certificate.. . . . . . . . . . . . . . . . 34
13.12 Non-Disclosure.. . . . . . . . . . . . . . . . . . . 34
13.13 Waiver.. . . . . . . . . . . . . . . . . . . . . . . 35
iii
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
NORTHEAST ENERGY, LP,
a Delaware limited partnership
This Agreement of Limited Partnership (the "Agreement") of NORTHEAST
ENERGY, LP, a Delaware limited partnership (the "Partnership"), is entered into
as of November 21, 1997, by and among ESI NORTHEAST ENERGY GP, INC., a Florida
corporation ("ESI GP") as a general partner, ESI NORTHEAST ENERGY LP, INC., a
Florida corporation ("ESI Sub") as a limited partner, TRACTEBEL NORTHEAST
GENERATION GP, INC., a Delaware corporation ("Tractebel GP") as a general
partner, and TRACTE BEL ASSOCIATES NORTHEAST LP, INC., a Delaware corporation,
("Tractebel Sub") as a limited partner.
In consideration of the agreements and obligations set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, ESI GP, ESI Sub, Tractebel GP and Tractebel Sub hereby
agree as follows:
Article I.
Defined Terms
The following capitalized terms shall have the respective meanings
specified in this Article I. Capitalized terms not defined in this Agreement
shall have the meaning specified in the Act.
"Acquisition" means the acquisitions by the Partnership and NE, LLC of all
of the interests of the Original Partners in and to the Project Partnerships,
pursuant to the Purchase Agreement.
"Acquisition Date" means January 2, 1998 or, if the closing of the
Acquisition shall not have occurred on such date, such later date on which such
closing occurs.
"Act" means the Revised Uniform Limited Partnership Act of the State of
Delaware, as amended from time to time, or any corresponding provision or
provisions of any succeeding or successor law of the State of Delaware.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in the Partner's Capital Account as of the end of the
relevant taxable year, after giving effect to the following adjustments:
(a) the deficit shall be decreased by the amounts which the Partner is
obligated to restore or is deemed obligated to restore pursuant to Regulation
Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) and 1.704-2(i)(5); and
<PAGE>
(b) the deficit shall be increased by the items described in Regulation
Sections 1.704-1(b)(2)(ii)(d)(4),(5), and (6).
This definition is intended to comply with the provisions of Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith.
"Additional Required Capital" means aggregate capital contributions equal
to all amounts payable by the Buyers (excluding the Initial Required Capital) in
connection with the Acquisition and the Rule 144A Financing, including fees and
expenses.
"Administrative Services Agreement" means the Administrative Service
Agreement by and between the Partnership and ESI GP, dated November 21, 1997, as
amended from time to time, and any replacement administrative services agreement
entered into upon termination thereof and which the General Partners specify as
the "Administrative Services Agreement" for purposes hereof.
"Affected Party" shall have the meaning ascribed thereto in Section 13.12.
"Affiliate" of any person, entity or group means any person, entity or
group (presently existing or hereafter created or acquired) controlling,
controlled by or under common control with, the specified person, entity or
group, and "control" of a person, entity or group (including, with correlative
meaning, the terms "controlled by" and "under common control with") means the
power to direct or cause the direction of the management, policies or affairs
of the controlled person or entity, whether through ownership of securities or
partnership or other ownership interests, directly or indirectly, by contract
or otherwise.
"Agreement" means this Agreement of Limited Partnership of the Partnership,
including all schedules, exhibits and appendices hereto, as originally executed
and as amended or restated in writing from time to time, as the context
requires.
"Arbitration Rules" shall have the meaning set forth in Section 8.1.
"Back-up Letter of Credit" shall have the meaning specified in the Trust
Indenture.
"Bankruptcy" or "Bankrupt" means, with respect to any Person, such Person's
becoming subject to any bankruptcy, insolvency, reorganization or similar
proceeding, or admitting in writing its inability to pay its debts as they
mature, or making an assignment for the benefit of creditors.
"Budget" means the combined operating and capital budget of the
Partnership, NE, LLC and the Project Partnerships, to be prepared by the Manager
and approved by the Management Committee, as such budget is amended from time to
time with the approval of the Management Committee. The Budget shall be prepared
by the Manager in accordance with the guidelines set forth in the Administrative
Services Agreement.
2
<PAGE>
"Buyers" shall have the meaning ascribed thereto in the Purchase Agreement.
"Capital Account" means the account to be maintained by the Partnership for
each Partner in accordance with the following provisions:
(a) a Partner's Capital Account shall be credited with the amount of money
and the fair market value of any property contributed to the Partnership (net of
liabilities secured by such property that the Partnership either assumes or to
which such property is subject), the amount of any Partnership unsecured
liabilities assumed by the Partner and the Partner's distributive share of
Profit and any item in the nature of income or gain allocated to the Partner
pursuant to the provisions of Section 4.4 (oth er than Section 4.4.3); and
(b) a Partner's Capital Account shall be debited with the amount of money
and the fair market value of any Partnership property (valued in the manner set
forth in Section 4.6.1) distributed to the Partner (net of liabilities secured
by such distributed property that the Partner either assumes or to which such
property is subject), the amount of any unsecured liabilities of the Partner
assumed by the Partnership, and the Partner's distributive share of Loss and any
item in the nature of expenses or los ses allocated to the Partner pursuant to
the provisions of Section 4.4 (other than Section 4.4.3).
When Partnership property is distributed in kind (whether in connection
with liquidation and dissolution or otherwise), the Capital Accounts of the
Partners shall first be adjusted to reflect the manner in which the unrealized
income, gain, loss and deduction inherent in such property (that has not been
reflected in the Capital Account previously) would be allocated among the
Partners if there were a taxable disposition of such property for the fair
market value of such property (taking into account s ection 7701(g) of the Code)
on the date of distribution.
If any Interest is transferred pursuant to the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
the Capital Account is attributable to the transferred Interest. If the book
value of Partnership property is adjusted pursuant to Section 4.4.3, the Capital
Account of each Partner shall be adjusted to reflect the aggregate adjustment in
the same manner as if the Partnership had recognized gain or loss equal to the
amount of such aggregate adjust ment. It is intended that the Capital Accounts
of all Partners shall be maintained in compliance with the provisions of
Regulation Section 1.704-1(b), and all provisions of this Agreement relating to
the maintenance of Capital Accounts shall be interpreted and applied in a manner
consistent with that Regulation.
"Cash Flow" means all cash or other funds received by the Partnership with
respect to a calendar month and distributable to the Partners (including
interest received on, and release of, reserves and the proceeds of the Rule 144A
Financing, but excluding the releases of cash contemplated by Section 4.1
hereof) without reduction for any non-cash charges, but less (i) cash used to
pay, with respect to such calendar month, current operating expenses (including
fees payable by the Partnership under the Adm inistrative Services Agreement and
the O&M Agreement) and (ii) cash used to pay or establish reasonable reserves
for future expenses and debt payments as determined by the Management Committee.
3
<PAGE>
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership for the Partnership filed with the Office of the Secretary of State
of Delaware, as amended from time to time.
"Code" means the U.S. Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding law.
"Confidential Information" means any information, technical data, or
know-how of a Partner or any Affiliate thereof relating to the Projects,
including but not limited to, information relating to such Partner's or its
Affiliate's services, development, marketing or finances, which shall be
disclosed by such Partner or Affiliate in writing or otherwise. The term
"Confidential Information" does not include information, technical data, or
know-how which at the time such information, technical data, or k now-how is
disclosed to the receiving Partner or its Affiliates (the "Recipient") by
another party hereto or an Affiliate thereof (i) is available to the Recipient
from a source other than a party hereto or its Affiliates if the Recipient has
no knowledge that such source, by disclosing such information, would be in
violation of any confidentiality agreement to which it is a party; (ii) is or
becomes published or otherwise available in the public domain without violation
of this Agreement; or (iii) is appr oved for release by written authorization of
the Partners hereto or their Affiliates from which such information, technical
data or know-how originated. The term "Confidential Information" includes the
terms of this Agreement.
"Consent" means the prior written consent of the Person at issue, which
consent may be withheld by such Person in its sole discretion.
"Contribution" means any money, property or other binding obligation to
contribute money or property, as permitted in this Agreement or by law, which a
Partner contributes to the Partnership as capital in that Partner's capacity as
a Partner pursuant to this Agreement.
"Debt Service Reserve Fund" shall have the meaning specified in the Trust
Indenture.
"Effective Date" means the Acquisition Date.
"ESI GP" shall have the meaning ascribed to it in the opening paragraph of
this Agreement.
"ESI Partners" means, collectively, ESI GP and ESI Sub.
"ESI Release Percentage" means a percentage (expressed as a decimal)
calculated on the Acquisition Date equal to one minus the Tractebel Release
Percentage.
"ESI Sub" shall have the meaning ascribed to it in the opening paragraph of
this Agreement.
"Fuel Management Agreements" means (i) the fuel management agreement dated
November 21, 1997 between ESI Northeast Fuel Management, Inc. and the
Partnership, which agreement
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shall be assigned by the Partnership to NEA on the Acquisition Date and (ii) the
fuel management agreement dated November 21, 1997 between ESI Northeast Fuel
Management, Inc. and the Partnership, which agreement shall be assigned by the
Partnership to NJEA on the Acquisition Date.
"GAAP" means generally accepted accounting principles in the United States
applied on a consistent basis.
"General Partner" means ESI GP or Tractebel GP or any Person who, at the
time of the reference thereto, has been admitted to the Partnership as a
successor to the duties or interest of ESI GP or Tractebel GP or as a
replacement general partner as provided herein, in any such Person's capacity as
a general partner, in any case, so long as such Person has not ceased to be a
General Partner hereunder.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of, or pertaining to, any
government.
"Initial Required Capital" means aggregate capital contributions equal to
(i) the Initial Payment (as defined in the Purchase Agreement), plus interest
thereon as provided in the Purchase Agreement, plus all costs and expenses of
Buyers to the Acquisition Date in connection with the Acquisition.
"Interest" means, in the context of a "Partner's Interest," the entire
legal and equitable ownership interest of a Partner in the Partnership at any
particular time, including any right to vote or, with respect to a general
partner, to participate in management, and any right to information concerning
the business and affairs of the Partnership. When used in the context of a
General Partner, "Interest" means the Interest held by the Partner in its
capacity as a General Partner. When used in the cont ext of a Limited Partner,
"Interest" means the Interest held by the Partner in its capacity as a Limited
Partner. "Interest" includes, without limitation the right of such Partner to
participate in Partnership Profits and Losses, Cash Flow, and any and all
benefits to which a Partner may be entitled as provided in this Agreement and
the Act, together with the obligations of such Partner to comply with all the
terms and provisions of this Agreement.
"Letter of Credit Facility" shall have the meaning specified in the Trust
Indenture.
"Limited Partner" means Tractebel Sub, ESI Sub and/or any Person who has
been admitted to the Partnership as a limited partner in accordance with the
terms of this Agreement, at the time of reference thereto, in such Person's
capacity as a limited partner for so long as such Person has not ceased to be a
Limited Partner hereunder.
"Management Committee" shall have the meaning ascribed to it in Section
5.1.1 hereof.
"Manager" shall have the meaning set forth in the Administrative Services
Agreement.
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"Negative Capital Account" means a Capital Account with a balance of less
than zero.
"Nonrecourse Deductions" has the meaning set forth in Regulation Section
1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year of the
Partnership equals the net increase, if any, in the amount of Partnership
Minimum Gain during that taxable year, determined according to the provisions of
Regulation Section 1.704-2(c).
"NE, LLC" means Northeast Energy, LLC, a Delaware limited liability company
having the Partnership as its sole member.
"NEA" means Northeast Energy Associates, a Limited Partnership, a
Massachusetts limited partnership.
"NEA Facility" means the 300 megawatt gas-fired combined cycle cogeneration
plant located in Bellingham, Massachusetts.
"NJEA" means North Jersey Energy Associates, a Limited Partnership, a New
Jersey limited partnership.
"NJEA Facility" means the 300 megawatt gas-fired combined cycle
cogeneration plant, located in Sayreville, New Jersey.
"Nonrecourse Liability" has the meaning set forth in Regulation Section
1.704-2(b)(3).
"Non-Reimbursable Expenses" has the meaning set forth in the Administrative
Services Agreement.
"Notice" means a notice in writing delivered in accordance with the
provisions of Section 13.2.
"O&M Agreements" means (i) the Operation and Maintenance Agreement, dated
as of November 21, 1997, by and between the Partnership and ESI Operating
Services, Inc. for the NEA Facility, which agreement shall be assigned by the
Partnership to NEA on the Operating Period Commencement Date, as defined in such
Agreement and (ii) the Operation and Maintenance Agreement, dated as of November
21, 1997, by and between the Partnership and ESI Operating Services, Inc. for
the NJEA Facility, which agreement shall be assigned by the Partnership to NJEA
on the Operating Period Commencement Date, as defined in such agreement.
"Original Effective Date" means March 31, 1986.
"Original Partners" means, collectively, the partners named in the
partnership agreement for each of the Project Partnerships and their successors
or assigns immediately prior to the date hereof.
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"Parent Guaranty" shall mean any corporate guaranty of an Affiliate of any
of the Partners that is permitted under the terms of the Trust Indenture (as
amended from time to time) to be provided in substitution for a Back-up Letter
of Credit.
"Partner" means any General Partner or any Limited Partner.
"Partner Loan Nonrecourse Deductions" means any Partnership deductions that
would be Nonrecourse Deductions if they were not attributable to a loan as to
which a Partner bears the economic risk of loss within the meaning of Regulation
Section 1.704-2(i).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulation Section 1.704-2(i)(3).
"Partnership Minimum Gain" has the meaning set forth in Regulation Section
1.704-2(d). Partnership Minimum Gain shall be computed separately for each
Partner in a manner consistent with the Regulations under Code Section 704(b).
"Percentage" means 1% in the case of each of ESI GP and Tractebel GP and
49% in the case of each of ESI Sub and Tractebel Sub.
"Permitted Investments" shall have the meaning ascribed to it in the Trust
Indenture.
"Person" means any individual, any partnership, any corporation, any
limited liability company, any business trust, any joint stock company, any
trust, any unincorporated association, any joint venture, any Governmental
Authority or any other entity of whatever nature.
"Profit" or "Loss" means, for each taxable year of the Partnership (or
other period for which Profit or Loss must be computed), the Partnership's
taxable income or loss determined in accordance with Code Section 703(a), with
the following adjustments:
(a) all items of income, gain, loss, deduction, or credit required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
computing taxable income or loss;
(b) any tax-exempt income of the Partnership, not otherwise taken into
account in computing Profit or Loss, shall be included in computing taxable
income or loss;
(c) any expenditures of the Partnership described in Code Section
705(a)(2)(B) (or treated as such pursuant to Regulation Section
1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit
or Loss, shall be subtracted from taxable income or loss;
(d) gain or loss resulting from any taxable disposition of Partnership
property shall be computed by reference to the book value as adjusted under
Regulation Section 1.704-1(b) ("adjusted book value") of the property disposed
of, notwithstanding the fact that the adjusted book value differs from the
adjusted basis of the property for federal income tax purposes;
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(e) in lieu of the depreciation, amortization or cost recovery deductions
allowable in computing taxable income or loss, there shall be taken into account
the depreciation computed based upon the adjusted book value of the asset; and
(f) notwithstanding any other provision of this definition, any items that
are allocated pursuant to Section 4.4 shall not be taken into account in
computing Profit or Loss.
"Project Documents" means the documents listed in Part A of Schedule 1 to
the Trust Indenture other than any of such documents that have been terminated
or that expired on or prior to the date hereof.
"Project Partnerships" means NEA and NJEA.
"Project Partnership Agreements" mean the Amended and Restated Agreement of
Limited Partnership of Northeast Energy Associates, a Limited Partnership, a
Massachusetts limited partnership, dated as of November 21, 1997 and the Amended
and Restated Agreement of Limited Partnership of North Jersey Energy Associates,
a Limited Partnership, a New Jersey limited partnership, dated as of November
21, 1997.
"Purchase Agreement" means the Purchase Agreement, dated as of November 21,
1997 by and among the Partnership, NE, LLC and the Original Partners.
"PURPA" has the meaning set forth in Section 12.1.1 hereof.
"Regulation" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.
"Rule 144A Financing" means the offering and sale of bonds by ESI Tractebel
Acquisition Corp., as agent and nominee for the Partnership.
"Secretary of State" means the Secretary of State of Delaware.
"Substitute Letter of Credit" shall have the meaning specified in the Trust
Indenture.
"Tractebel GP" shall have the meaning ascribed to it in the opening
paragraph of this Agreement.
"Tractebel Partners" means, collectively, Tractebel GP and Tractebel Sub.
"Tractebel Release Percentage" means a percentage (expressed as a decimal)
calculated on the Acquisition Date equal to (i) 50% of the funds deposited to
the Debt Service Reserve Fund that are the property of NJEA (which 50% is
projected to be $6,903,500 as of the Acquisition Date), divided by (ii) the sum
of the amounts available to be released from the Debt Service Reserve Fund
(projected to be $33,270,000 as of the Acquisition Date).
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"Tractebel Sub" shall have the meaning ascribed to it in the opening
paragraph of this Agreement.
"Transfer" means the transfer, assignment, pledge or grant of a security
interest by a Partner or its Affiliate of all or any part of its direct or
indirect (i) Partner's Interest or (ii) any other interest or rights in or
granted by this Agreement.
"Transferor" means the Partner making a Transfer pursuant to Section 7.1.
"Trust Indenture" means the Trust Indenture, dated as of November 15, 1994,
among IEC Funding Corp., each of the Project Partnerships, and State Street Bank
and Trust Company, as trustee, as amended and supplemented from time to time in
accordance with the terms thereof.
"Voluntary Withdrawal" means a Partner's disassociation from the
Partnership.
Article II.
Formation and Name; Office; Purpose; Term
2.1 Formation and Continuation. The Partnership was formed as a Delaware
limited partnership by filing the Certificate of Limited Partnership in the
Office of the Secretary of State on November 21, 1997. Each of ESI GP and
Tractebel GP shall be the initial General Partners and each of ESI Sub and
Tractebel Sub shall be the initial Limited Partners of the Partnership. The
rights and liabilities of the Partners shall be determined pursuant to the Act
and this Agreement, and to the extent that the ri ghts or obligations of any
Partner are different by reason of any provision of this Agreement than they
would be in the absence of such provision, this Agreement shall, to the extent
permitted by the Act, control.
2.2 Name of the Partnership. The name of the Partnership is Northeast
Energy, LP.
2.3 Purpose. The sole purpose of the Partnership is to acquire, hold,
protect, manage, encumber, exchange, finance, refinance and dispose of interests
in NE, LLC and the Project Partnerships, and to engage in any and all activities
necessary, advisable or incidental thereto.
2.4 Term. The term of this Agreement commenced on the Original Effective
Date and shall continue until December 31, 2048, unless sooner dissolved as
provided by this Agreement or the Act. The existence of the Partnership as a
separate legal entity shall continue until the cancellation of the Certificate
of Limited Partnership of the Partnership in the manner required by the Act.
2.5 Registered Office. The Partnership shall continuously maintain a
registered office and registered agent in the State of Delaware. The principal
office of the Partnership shall be determined by the Management Committee. The
registered agent in Delaware shall be as stated in the Certificate of Limited
Partnership or as otherwise determined by the Management Committee.
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2.6 Partners. The name, present mailing address and taxpayer identification
number of each Partner shall be kept with the records of the Partnership
maintained in accordance with Section 10.2.
2.7 Qualification in Other Jurisdictions. The Management Committee shall
cause the Partnership to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Partnership transacts business. The Management Committee shall have the power to
execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Partnership to qualify to do business in
a jurisdiction in which the Partnership may wis to conduct business.
2.8 Agent for Service of Process. The agent for service of process on the
Partnership in Delaware shall be such eligible individual resident or
corporation qualified to act as an agent for service of process as the
Management Committee shall designate.
Article III.
Partners' Capital; Capital Accounts
3.1 Capital Contributions; Capital Account Balances. On the Effective Date,
ESI GP, ESI Sub, Tractebel GP and Tractebel Sub shall make cash contributions to
the Partnership, pro rata according to their respective Percentages, in an
aggregate amount equal to the Initial Required Capital, which amounts shall be
credited to the Partners' respective Capital Accounts. In addition, ESI GP, ESI
Sub, Tractebel GP and Tractebel Sub shall make additional cash contributions to
the Partnership, pro rata accordi ng to their respective Percentages, in an
aggregate amount equal to the Additional Required Capital, which capital
contributions shall be made at such times as may be determined by the Management
Committee, with such amounts to be credited to the Partners' respective Capital
Accounts. Simultaneously with the execution of this Agreement, ESI Energy, Inc.,
a Florida corporation, and Tractebel Power, Inc., a Delaware corporation, shall
deliver to the Partnership and each of the Partners, a guaranty of the ob
ligations of their respective Affiliates to contribute the Initial Required
Capital and the Additional Required Capital.
3.2 No Additional Contributions Required. No Partner shall be required to
make any Contributions to the Partnership other than as set forth in Section
3.1.
3.3 No Interest on Contributions. No Partners shall be paid interest with
respect to Contributions.
3.4 Return of Contributions. No Partner shall have the right to receive the
return of any Contribution from the Partnership.
3.5 Capital Accounts. A separate Capital Account shall be maintained for
each Partner.
3.6 Loans and Other Business Transactions. A Partner may make a loan to the
Partnership only with the consent of the Management Committee and then in such
amount and on
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those terms upon which the Management Committee and the Partner agree. Partners
may also transact other business with the Partnership with the approval of the
Management Committee and, in doing so, they shall have the same rights and be
subject to the same obligations arising out of any such business transaction as
would be enjoyed b y and imposed upon any Person, not a Partner, engaged in a
similar business transaction with the Partnership. Any business transacted by a
Partner or its Affiliate with the Partnership shall be on terms no less
favorable to the Partnership than would be available from third parties in an
arms-length transaction. The Partners acknowledge that all documents executed by
the Partnership with a Partner or with any Affiliate of a Partner prior to or
contemporaneously with the execution of this Agreement confor m to the
requirements of the preceding sentence.
Article IV.
Profit, Loss and Distributions
4.1 Payment of Certain Funds.
4.1.1 On the Acquisition Date or such other date as may be specified by
the Management Committee and to the extent permitted under the Trust Indenture
and the Letter of Credit Facility, the ESI Partners shall provide a Back-up
Letter of Credit or Parent Guaranty for the cash and Permitted Investments
backing the Letters of Credit (as defined in the Trust Indenture), and the ESI
Partners shall receive the corresponding amount of cash released as a special
payment under this Agreement (with any interest earned on such cash from the
date the Back-up Letters of Credit or Parent Guaranty are provided to the date
the amounts are released to the Project Partnerships, as contemplated by this
Section 4.1.1, being also distributed to the ESI Partners), with the payment
made to the ESI Partners to be split between ESI GP and ESI Sub in accordance
with the ratio of each of their Percentages to the sum of their Percentages
(with the cash being paid pursuant to this sentence being treated as though (a)
it had been received by the applicable Project Partnership; (b) the Project
Partnerships had distributed this cash to NE, LLC and the Partnership in
accordance with their respective percentage interests in the Project
Partnerships; (c) NE, LLC had distributed the cash it had received in accordance
with the foregoing to the Partnership; and (d) the Partnership made the payments
to the ESI Partners that are provided for in this sentence).
4.1.2 On the Acquisition Date or such other date as may be specified by
the Management Committee, (i) the ESI Partners shall provide a Substitute Letter
of Credit for the ESI Release Percentage times the amount in the Debt Service
Reserve Fund, (ii) the Tractebel Partners shall provide a Substitute Letter of
Credit for the Tractebel Release Percentage times the amount in the Debt Service
Reserve Fund, and (iii) the ESI Partners and the Tractebel Partners shall each
receive the corresponding amount of cash released from the Debt Service Reserve
Fund as a special payment under this Agreement (with any interest earned on such
cash from the date the Substitute Letters of Credit are provided to the date the
amounts are released to the Project Partnerships, as contemplated by this
Section 4.1.2, being also distributed to the ESI Partners and the Tractebel
Partners in accordance with the ESI Release Percentage and the Tractebel Release
Percentage, respectively), with the payment made to the ESI Partners to be split
between ESI GP
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and ESI Sub in accordance with the ratio of each of their Percentages to the sum
of their Percentages and with the payment to the Tractebel Partners to be split
between Tractebel GP and Tractebel Sub in accordance with the ratio of each of
their Percentages to the sum of their Percentages (with the cash being paid
pursuant to this sentence being treated as though (a) it had been received by
the applicable Project Partnership; (b) the applicable Project Partnership had
distributed this cash to NE, LLC and the Partnership in accordance with their
respective percentage interests in the applicable Project Partnership; (c) NE,
LLC had distributed the cash it had received in accordance with the foregoing to
the Partnership; and (d) the Partnership made payment to the Tractebel Partners
of 50% of the Debt Service Reserve Fund that is the property of NJEA and to the
ESI Partners of 50% of the Debt Service Reserve Fund that is the property of
NJEA and 100% of the Debt Service Reserve Fund that is the property of NEA. Each
such Substitute Letter of Credit will provide, among other things, that draws
must be made simultaneously, with the total under both drawn in the ratio of the
ESI Release Percentage to the Tractebel Release Percentage.
4.1.3 At any time that the balance required to be maintained in the
Debt Service Reserve Fund is increased to an amount greater than $33.270
million, the ESI Partners and the Tractebel Partners shall each provide a
Substitute Letter of Credit for 50% of the amount of the excess above $33.270
million and shall each receive the corresponding amount of cash released from
the Debt Service Reserve Fund as a special payment under this Agreement, with
the payment made to the ESI Partners to be split between ESI GP and ESI Sub in
accordance the ratio of each of their Percentages to the sum of their
Percentages and with the payment to the Tractebel Partners to be split between
Tractebel GP and Tractebel Sub in accordance with the ratio of each of their
Percentages to the sum of their Percentages (with the cash being paid pursuant
to this sentence being treated as though (a) it had been received by the
applicable Project Partnership; (b) the applicable Project Partnership had
distributed this cash to NE, LLC and the Partnership in accordance with their
respective percentage interests in the applicable Project Partnership; (c) NE,
LLC had distributed the cash it had received in accordance with the foregoing to
the Partnership; and (d) as though the Partnership made the payments to the ESI
Partners that are provided for in this sentence. Each such Substitute Letter of
Credit will provide, among other things, that draws must be made simultaneously,
with the total under both drawn in a fifty-fifty ratio, and draws u nder either
Substitute Letter of Credit may be made only after complete drawdown of the
Substitute Letters of Credit described in subsection 4.1.2 above.
4.1.4 If at any time funds are drawn by the Trustee (as defined in the
Trust Indenture) under the Substitute Letters of Credit, thereafter as
sufficient funds are deposited to the Debt Service Reserve Fund so as to permit
the substitution of one or more Substitute Letters of Credit, as to the first
$33.270 million the ESI Partners and Tractebel Partners shall provide Substitute
Letters of Credit as provided in subsection 4.1.2 above and each shall receive
the corresponding amount of cash released from the Debt Service Reserve Fund as
a special payment under this Agreement, and as to any replenishment of the Debt
Service Reserve Fund in excess of $33.270 million, the ESI Partners and the
Tractebel Partners shall provide Substitute Letters of Credit as provided in
subsection 4.1.3 above and each shall receive the corresponding amount of cash
released from the Debt Service Reserve Fund as a special payment under this
Agreement, with any payments to the ESI Partners pursuant to this Section 4.1.4
to be split between ESI GP
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and ESI Sub in accordance with the ratio of each of their Percentages to the sum
of their Percentages and with any payments to the Tractebel Partners pursuant to
this Section 4.1.4 to be split between Tractebel GP and Tractebel Sub in
accordance with the ratio of each of their Percentages to the sum of their
Percentages (with the cash being paid pursuant to this sentence being treated as
though (a) it had been received by the applicable Project Partnership; (b) the
applicable Project Part nership had distributed this cash to NE, LLC and the
Partnership in accordance with their respective percentage interests in the
applicable Project Partnership; (c) NE, LLC had distributed the cash it had
received in accordance with the foregoing to the Partnership; and (d) the
Partnership made the payments to the ESI Partners and Tractebel Partners that
are provided for in this sentence).
4.1.5 If at any time or from time to time the Indenture permits a
reduction in the amounts available under the Substitute Letters of Credit, the
reduction shall be made simultaneously under each Substitute Letter of Credit
provided in accordance with Section 4.1.3, with the total reduction under both
in a fifty-fifty ratio, until such substitute Letters of Credit are reduced to
zero, and thereafter the reduction shall be made simultaneously under each
Substitute Letter of Credit provided in accordance with Section 4.1.2, with the
total reduction under both in the ratio of the ESI Release Percentage to the
Tractebel Release Percentage.
4.1.6 On or as soon as practicable following the closing of the Rule
144A Financing and at any time thereafter when there are funds in the debt
service reserve fund in connection with such financing, each of ESI GP and
Tractebel GP shall provide a letter of credit or corporate guaranty for 50% of
the amount in such debt service reserve fund, and each shall receive the
corresponding amount of cash released from the debt service reserve fund as a
special distribution under this Agreement, with the payme nt made to the ESI
Partners to be split between ESI GP and ESI Sub in accordance the ratio of each
of their Percentages to the sum of their Percentages and with the payment to the
Tractebel Partners to be split between Tractebel GP and Tractebel Sub in
accordance with the ratio of each of their Percentages to the sum of their
Percentages. Each such letter of credit will provide, among other things, that
draws must be made simultaneously, with the total under both drawn in a
fifty-fifty ratio.
4.2 Distribution of Cash Flow. Subject to Section 4.5 hereof, Cash Flow for
each taxable year of the Partnership shall be distributed to the Partners in
proportion to their Percentages at such times as determined by the Management
Committee.
4.3 Allocation of Profit or Loss. After giving effect to the allocations
set forth in Section 4.4, for any taxable year of the Partnership, Profit and
Loss shall be allocated to the Partners in proportion to their Percentages;
provided, however, that on a liquidation of the Partnership, Profits or Loss
shall be allocated in such proportions and in such amounts so as to cause the
Partner's Capital Account balances to be in the ratio of the Partners'
Percentages and provided further, that the amount of any depreciation recapture
included within the Profit or Loss otherwise allocated to a Partner pursuant to
the terms of this Agreement shall be determined in accordance with Treasury
Regulations ss. 1.1245-1(e)(2) and (3).
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4.4 Regulatory Allocations.
4.4.1 Impermissible Deficits and Qualified Income Offset. No Partner
shall be allocated Losses or deductions if the allocation causes the Partner to
have an Adjusted Capital Account Deficit; instead, such items shall be allocated
to the other Partners. If a Partner for any reason has an Adjusted Capital
Account Deficit at the end of any taxable year, all items of income and gain of
the Partnership for that taxable year (consisting of a pro rata portion of each
item of Partnership income, including g ross income and gain) shall be allocated
to that Partner in the amount required to eliminate the excess as quickly as
possible, provided, however, that an allocation pursuant to this sentence shall
be made if and only to the extent that such Partner would have an Adjusted
Capital Account Deficit after all other allocations provided for in this
Agreement had been tentatively made as if this sentence were not contained in
the Agreement. This Section 4.4.1 is intended to comply with, and shall be
interpreted consistently with, the "alternate test for economic effect" and
"qualified income offset" provisions of the regulations promulgated under Code
Section 704(b).
4.4.2 Minimum Gain Chargebacks. In order to comply with the "minimum
gain chargeback" requirements of Regulation Sections 1.704-2(f)(1) and
1.704-2(i)(4), and notwithstanding any other provision of this Agreement to the
contrary, in the event there is a net decrease in a Partner's share of
Partnership Minimum Gain and/or Partner Nonrecourse Debt Minimum Gain during a
Partnership taxable year, such Partner shall be allocated items of income and
gain for that year (and if necessary, other years) as requ ired by and in
accordance with Regulation Sections 1.704-2(f)(1) and 1.704-2(i)(4) before any
other allocation is made. It is the intent of the parties hereto that any
allocation pursuant to this Section 4.4.2 shall constitute a "minimum gain
chargeback" under Regulation Section 1.704-2(f) and 1.704-2(i)(4).
4.4.3 Contributed Property and Book-Ups. In accordance with Code
Section 704(c) and the Regulations thereunder, including Regulation Section
1.704-l(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any
property contributed (or deemed contributed) to the Partnership shall, solely
for tax purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of the property to the Partnership for
Federal income tax purposes and its fair market valu e at the date of
Contribution (or deemed Contribution). If the adjusted book value of any
Partnership asset is adjusted under Regulation Section 1.704-1(b)(2)(iv)(f),
subsequent allocations of income, gain, loss, and deduction with respect to the
asset shall take into account any variation between the adjusted basis of the
asset for federal income tax purposes and its adjusted book value in the manner
required under Code Section 704(c) and the regulations thereunder. The parties
hereto agree to use the c urative method, as described in Regulation Section
1.704-3, for making Code Section 704(c) allocations. Except as required by
Sections 704(b) and 704(c) of the Code and the regulations thereunder, the
Partnership shall allocate items for tax purposes in the same manner that it
allocates items for book (as defined in Section 704(c)) purposes.
4.4.4 Tax Elections. At the direction of the Management Committee, ESI
GP, as Tax Matters Partner, shall make an election pursuant to Section 754 of
the Code, to adjust the basis of the Partnership's property as permitted by
Sections 734 and 743 of the Code and shall make or refrain from making any other
tax elections available to the Partnership.
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4.4.5 Nonrecourse Deductions. Nonrecourse Deductions for a taxable year
or other period shall be allocated among the Partners in proportion to their
Percentages.
4.4.6 Recourse Deductions and Partner Loan Nonrecourse Deductions. Any
Partner Loan Nonrecourse Deductions for any taxable year or other period shall
be allocated to the Partner who bears the economic risk of loss with respect to
the loan to which the Partner Loan Nonrecourse Deductions are attributable in
accordance with Regulation Section 1.704-2(i). Items of deduction and loss
attributable to any recourse liabilities of the Partnership, within the meaning
of Treasury Regulation ss.1.752-2, shall e allocated among the Partners in the
ratio in which the Partners share the economic risk of loss for such liabilities
(in accordance with Revenue Ruling 97-38).
4.4.7 Guaranteed Payments. To the extent any compensation paid to any
Partner by the Partnership is determined by the Internal Revenue Service not to
be a guaranteed payment under Code Section 707(c) or is not paid to the Partner
other than in the Person's capacity as a "partner" within the meaning of Code
Section 707(a), the Partner shall be allocated gross income in an amount equal
to the amount of that compensation prior to making any allocations under Section
4.4.
4.4.8 Loans. Subject to the other provisions of this Section 4.4, if
and to the extent that any Partner is deemed to recognize income as a result of
any loans pursuant to Section 1272, 1273, 1274, 7872 or 482 of the Code or any
similar provision of law, any corresponding resulting deduction of the
Partnership shall be allocated to the Partner who is charged with the income.
Subject to the other provisions of this Section 4.4, if and to the extent that
the Partnership is deemed to recognize income a a result of any loans pursuant
to Section 1272, 1273, 1274, 7872 or 482 of the Code or any similar provision of
law, such income shall be allocated to the Partner who is deemed to have paid
such income to the Partnership.
4.4.9 Withholding. All amounts required to be withheld pursuant to Code
Section 1446 or any other provision of federal, state, local or foreign tax law
shall be treated as amounts actually distributed to the affected Partners for
all purposes under this Agreement.
4.5 Liquidation and Dissolution.
4.5.1 Upon liquidation of the Partnership, the assets of the
Partnership shall be distributed to the Partners in accordance with their
positive balances in their respective Capital Accounts, after giving effect to
all contributions, distributions, and allocations for all periods. Distributions
to the Partners pursuant to this Section 4.5.1 shall be made in accordance with
Regulation Section 1.704-1(b)(2)(ii)(b)(2).
4.5.2 No Limited Partner shall ever be obligated to restore a Negative
Capital Account. Similarly, except as required by applicable law, no General
Partner shall ever be obligated to restore a Negative Capital Account.
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4.6 General.
4.6.1 Except as otherwise provided for in this Agreement, the timing
and amount of all distributions shall be determined by the Management Committee.
If any assets of the Partnership are distributed in kind to the Partners, those
assets shall be valued on the basis of their fair market value, and any Partner
entitled to any interest in those assets shall receive that interest as a
tenant-in-common with all other Partners so entitled. Unless the Management
Committee otherwise determines, the fair mar ket value of the assets shall be
determined by an independent appraiser who shall be selected by the Management
Committee. The Profit or Loss for each unsold asset shall be determined as if
the asset had been sold at its fair market value, and the Profit or Loss shall
be allocated as provided in Section 4.3 and shall be properly credited or
charged to the Capital Accounts of the Partners prior to the distribution of the
assets in liquidation pursuant to Section 4.5.
4.6.2 In connection with any Transfer of an Interest, the Management
Committee may adopt such conventions as it deems appropriate or advisable for
allocating Profit and Loss between the transferor and transferee of the
Interest.
4.6.3 Solely for purposes of determining a Partner's proportionate
share of "excess nonrecourse liabilities" of the Partnership within the meaning
of Regulation Section 1.752-3(a)(3), the Partners' interest in Partnership
profits shall be based on their respective Percentages.
4.6.4 The Partners are aware of the income tax consequences of this
Article IV and agree to be bound by these provisions in reporting their shares
of Profit, Losses, and other items for Federal and State income tax purposes.
4.7 Restricted Distributions. Notwithstanding any provision to the contrary
contained in this Agreement, the Partnership, and the Management Committee on
behalf of the Partnership, shall not be required to make a distribution to any
Partner on account of its interest in the Partnership if such distribution would
violate the provisions of the Act or other applicable law.
Article V.
Management and General Partner Obligations
5.1 Management Committee; Meetings; Minutes.
5.1.1 General. The management of the Partnership shall be directed and
controlled by the management committee of the Partnership (the "Management
Committee") which, except as otherwise expressly provided in this Agreement,
shall have all rights, powers and authority permitted a general partner under
Section 17-403 of the Act with respect to such direction and control. Except as
authorized in writing by the Management Committee or as set forth in this
Agreement or in the Budget, no Partner shall have any right or authority to take
any
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action on behalf of the Partnership or to bind or commit the Partnership with
respect to third parties.
5.1.2 Membership. The Management Committee shall consist of four
representatives, two appointed by each of the General Partners. Each General
Partner may remove or replace its representatives on the Management Committee,
with or without cause, by Notice to the other General Partner, and in the
absence of a General Partner's representative such General Partner may designate
by Notice to the other General Partner an alternate to act for the absent
representative. Vacancies on the Management Committee shall be filled by the
General Partner who appointed the Management Committee representative previously
holding the position that is vacant. Each General Partner hereby represents and
warrants that its representatives on the Management Committee are and shall be
fully authorized to provide any consent or approval that may be required of such
General Partner or of the Management Committee hereunder.
5.1.3 Regular and Special Meetings. The Management Committee will hold
regular quarterly meetings. Special meetings may be called at any time by any
representative on the Management Committee upon reasonable prior notice to the
other representative. Minutes of each meeting will be kept and distributed to
each member of the Management Committee.
5.1.4 Telephonic Meetings. Any meeting of the Management Committee may
be held by conference telephone call or through similar communications equipment
by means of which the representatives of the General Partners on the Management
Committee participating in the meeting can hear each other. Participation in a
telephonic meeting held pursuant to this Section 5.1.4 shall constitute presence
in person at such meeting.
5.1.5 Approval Requirements. The unanimous affirmative vote of the
representatives on the Management Committee shall be required for any act or
decision of the Management Committee. Any action required or permitted to be
taken by the Management Committee may be taken without a meeting, if the
representatives consent in writing to such action. With respect to those actions
requiring approval by the Management Committee, the Management Committee shall
use all reasonable efforts to indicate its approv al or disapproval of such
action within ten (10) business days after receiving a written request therefor
from either of the General Partners. If one representative of a General Partner
on the Management Committee is absent, but the other representative of such
General Partner is present, then the present representative shall have the power
to vote (at a meeting or by written consent) on behalf of both of the
representatives of such General Partner.
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5.1.6 Annual Budget. The Manager shall cause an annual Budget to be
prepared each year in accordance with the terms of the Administrative Services
Agreement.
5.1.7 Enumerated Management Committee Powers. Without limiting the
power and authority of the Management Committee to control the Partnership, the
following shall require the prior approval of the Management Committee:
5.1.7.1 the adoption or amendment of the Budget;
5.1.7.2 the admission to the Partnership of a new Partner (other
than pursuant to Section 7.1.5), the Transfer by a Partner of all or any portion
of its Interest (unless the consent of the Management Committee is not required
with respect to the Transfer under Article VII hereof) or the transfer of any
interest in NE, LLC or any of the Project Partnerships;
5.1.7.3 except as set forth in or contemplated by the annual
Budget, including any amendment thereto, the taking of any of the following
actions with respect to the Partnership:
5.1.7.3.1 entering into, executing, acknowledging,
delivering, modifying or amending any contract, agreement or other instrument to
which the Partnership is a party which individually or in the aggregate could
involve amounts to be paid to or by the Partnership in excess of $250,000 per
annum;
5.1.7.3.2 mortgaging, pledging or otherwise encumbering
any assets of the Partnership or disposing of any assets of the Partnership;
5.1.7.3.3 commencing, settling, compromising or
abandoning any claim, action or proceeding of the Partnership that is in excess
of $100,000;
5.1.7.3.4 allowing any Person other than the General
Partners and their Affiliates to possess any assets of the Partnership;
5.1.7.3.5 engaging in any business activities other than
as contemplated by Section 2.3;
5.1.7.3.6 approval of any plan of liquidation of the
Partnership;
5.1.7.3.7 waiving any condition to closing under the
Purchase Agreement;
5.1.7.3.8 permitting the sale by the Project Partnerships
of any power on a merchant basis; and
5.1.7.3.9 entering into any contract or agreement with an
Affiliate of a Partner (except as provided in Section 5.8).
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5.1.7.3.10 taking any action in its capacity as member or
manager of NEA LLC or as general partner of the Project Partnerships, except for
such actions which the Manager is expressly authorized to take on behalf of the
Partnership in the Administrative Services Agreement.
5.1.7.3.11 the failure of ESI GP or its Affiliates to
object to any proposed contract under Section 4(j)(vii) of the Purchase
Agreement.
5.1.7.3.12 the taking of any action by ESI GP or its
Affiliates under Section 5(b) or (8(c) of the Purchase Agreement (except, in the
case of Section 8(c), for any release or announcement that may be required by
law or the rules or regulations of any securities exchange).
5.1.8 Sole General Partner. If there remains only one General Partner
of the Partnership with a representative on the Management Committee because all
of the other General Partners have ceased to be General Partners pursuant to
Section 7.3.2 (other than pursuant to a permitted Transfer which permits the
transferee to appoint a replacement member of the Management Committee), then
the responsibilities and duties of the Management Committee under this Agreement
shall be assumed by such remaining Genera l Partner and the Management Committee
shall cease to exist.
5.2 Duties of General Partners.
5.2.1 Each representative of a General Partner on the Management
Committee shall devote such time to the business and affairs of the Partnership
as is reasonably necessary to carry out the duties of the Management Committee
as set forth in this Agreement.
5.2.2 [Intentionally omitted]
5.2.3 Nothing in this Agreement shall be deemed to restrict in any way
the rights of any Partner, or of any other person or entity whether or not an
Affiliate of any Partner, to conduct any other business or activity whatsoever,
and no Partner or Affiliate thereof shall be accountable to the Partnership or
to any other Partner with respect to that business or activity even if the
business or activity owns and/or operates property within the same or any other
geographic area or competes with the Partne rship's business. The organization
of the Partnership shall be without prejudice to the Partners' respective rights
(or the rights of any other person or entity whether or not an Affiliate of any
Partner) to maintain, expand or diversify such other interests and activities
and to receive and enjoy profits or compensation therefrom. Each Partner waives
any rights the Partner might otherwise have to share or participate in such
other interests, activities, assets or profits of any other Partner or of any o
ther person or entity in any way affiliated with any Partner, whether or not an
Affiliate of any Partner.
5.2.4 To the fullest extent permitted by Section 17-403 of the Act, the
only fiduciary duties a General Partner owes to the Partnership and the other
Partners are the duty of loyalty and the duty of care set forth in subdivisions
5.2.4.1, 5.2.4.2 and 5.2.4.3 below. It is the
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intent of the Partners hereby to restrict the duties (including fiduciary
duties) of the General Partners and the Management Committee to the extent
permitted by the Act.
5.2.4.1 The Management Committee and the General Partners owe a
duty of loyalty to the Partnership and to the other Partners with respect to the
business of the Partnership.
5.2.4.2 The Management Committee, the General Partners must act
in a commercially reasonable manner whenever any of them or their Affiliates
provides, or has provided by any other Person, services to the Partnership.
5.2.4.3 The Management Committee's duty of care to the
Partnership in each case is to exercise its reasonable business judgment with
regard to all decisions it makes on the behalf of the Partnership.
5.2.5 Subject to the direction and control of the Management Committee,
the Manager shall be responsible for (i) the management of the day-to-day
affairs of the Partnership and (ii) such other matters as are set forth in the
Administrative Services Agreement, in accordance with the terms thereof. If ESI
GP transfers its General Partner Interest in the Partnership (other than to an
Affiliate) in compliance with Section 7.1.2 hereof or otherwise in compliance
with this Agreement then, if the Tractebel GP so elects, Tractebel GP or its
Affiliate shall have the right to become the Manager (and ESI GP shall cause the
Manager to transfer to Tractebel GP all of its right, title and interest in and
to the Administrative Services Agreement) in place of the Manager.
5.2.6 Subject to the direction and control of the Management Committee,
if an ESI Partner or an Affiliate thereof, or a Tractebel Partner or an
Affiliate thereof (the "Partner Affiliate"), provides or proposes to provide
goods or services to the Partnership, NE, LLC or either or both of the Project
Partnerships pursuant to a contract or other agreement (a "Partner Affiliate
Agreement"), the other Partner (the "Non-Affiliate Partner") shall be
responsible for representing the Partnership, NE, LLC or th e applicable Project
Partnership, as the case may be, in connection with the negotiation of the terms
of such Partner Affiliate Agreement. Subject to the direction and control of the
Management Committee, upon the execution of any Partner Affiliate Agreement
(which shall be subject to the approval of the Management Committee except as
provided in Section 5.8), the Manager shall be responsible for representing the
Partnership with respect to the management of the day-to-day affairs thereunder
in accordance with the terms of the Administrative Services Agreement. In the
event of any dispute, breach or alleged breach of a Partner Affiliate Agreement,
the Non-Affiliate Partner shall have the right to represent the Partnership with
respect to such dispute, breach or alleged breach (including any litigation
relating thereto); provided, that the Non-Affiliate Partner may not terminate
the Partner Affiliate Agreement without the approval of the Management Committee
or incur expenditures on behalf of the Partnersh ip with respect to any such
dispute, breach or alleged breach in excess of $100,000 without the approval of
the Management Committee.
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5.3 Compensation.
5.3.1 [Intentionally omitted].
5.3.2 The Partnership shall reimburse all General Partners for all
ordinary and necessary out-of-pocket expenses incurred by the General Partners
on behalf of the Partnership in accordance with, and upon the schedule set forth
in, the Budget (but excluding Non- Reimbursable Expenses). Such reimbursement
shall be treated as an expense of the Partnership that shall be deducted in
computing the Cash Flow and shall not be deemed to constitute a distributive
share of Profits or a distribution or return of capital to the General Partners.
Any expenditures, by any Partner, that are not provided for in the Budget or
approved by the Management Committee and for which reasonably detailed
documentation is not submitted to the Partnership are not subject to
reimbursement, except as provided in Section 5.2.5.
5.3.3 If a Partner or an Affiliate of a Partner provides services to
the Partnership pursuant to a separate written agreement, such Partner or
Affiliate shall be reimbursed for such services in accordance with such written
agreement.
5.3.4 The Partners acknowledge that ESI GP and Tractebel GP have
incurred and will incur certain due diligence and other related costs in
connection with the transactions associated with the Acquisition and the Rule
144A Financing. Subject to the submission of reasonably detailed documentation,
the Management Committee shall cause ESI GP and Tractebel GP to be reimbursed
for such costs at the time of the Rule 144A Financing or out of the initial
funds that would otherwise be available for distribution by the Project
Partnerships (excluding, however, the payments described in Sections 4.1.1 and
4.1.2), whichever first occurs.
5.4 Provision of Services. No General Partner shall be required to perform
services for the Partnership solely by virtue of being a General Partner. Except
as set forth in Section 5.3 or pursuant to a contract with the Partnership, or
approved by the Management Committee in the Budget or otherwise, no General
Partner shall be entitled to compensation for services performed for the
Partnership, reimbursement for expenses incurred, or advances of funds made.
5.5 Indemnification of General Partners.
5.5.1 None of the General Partners or members of the Management
Committee shall be liable, responsible, or accountable, in damages or otherwise,
to any other Partner or to the Partnership for any act performed by such General
Partner or member of the Management Committee with respect to Partnership
matters, and within the standard of care specified in Section 5.2.4.3 unless
such act constitutes grossly negligent or reckless conduct, intentional
misconduct, a knowing violation of law, or the breach of any representation or
warranty or covenant contained in this Agreement. Each General Partner shall, to
the maximum extent permitted by law, indemnify and hold harmless the
Partnership, the other Partners and their Affiliates from or against any direct
or indirect liability, damage, loss, cost or expense (including without
limitation reasonable attorneys' fees and disbursements) suffered or incurred by
the indemnified Person arising out of or related to the breach of any
representation or warranty or coven ant contained in this Agreement.
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5.5.2 The Partnership shall indemnify each General Partner and each
member of the Management Committee for any act performed by the General Partner
or a member of the Management Committee with respect to Partnership matters, and
within the standard of care specified in Section 5.2.4.3 unless such act
constitutes grossly negligent or reckless conduct, intentional misconduct, the
knowing violation of law or the breach of any representation or warranty or
covenant contained in this Agreement.
5.5.3 Nothing contained in this Section 5.5 shall be deemed to
supersede the indemnification provisions contained in any agreement between the
Partnership and a Partner or an Affiliate of a Partner, and any such
indemnification provisions shall exclusively govern any such agreement. The
agreements contained in this Section 5.5 shall survive the withdrawal of any
Partner or any termination or dissolution of the Partnership.
5.6 Sharing of Information. If either of Tractebel GP or ESI GP at any time
receives information that such General Partner believes may be material to the
prospects of the business of the Partnership and which such General Partner
believes is not known to the other Partners, then such General Partner will
promptly disclose such information to the other Partners.
5.7 Rule 144A Financing. The Partners agree that they will use their
commercially reasonable best efforts to effect the Rule 144A Financing as soon
as possible following the Acquisition Date.
5.8 Authorization of Project Documents. The Partnership is hereby
authorized and directed to enter into the Administrative Services Agreement, the
O&M Agreements and the Fuel Management Agreements; provided, that such
agreements shall be held in escrow until execution and delivery of the Purchase
Agreement.
5.9 Delivery of No Knowledge Agreement. The Partners agree to enter an
agreement in the form attached hereto as Exhibit A immediately prior to the
closing of the Acquisition.
Article VI.
Limited Partners; General Partner Meetings
6.1 No Liability of or Control by Limited Partners.
6.1.1 No Limited Partner shall be liable for any debts, liabilities,
contracts or obligations of the Partnership in excess of the amount of such
Limited Partner's unpaid contribution or except as expressly required by the
Act. No Limited Partner shall be liable for any debts, liabilities, contracts or
obligations of any other Partner.
6.1.2 No Limited Partner shall (i) have the authority or power to
participate in the management or control of the Partnership's business, (ii)
have the authority or power in its capacity as a Limited Partner to act as agent
for or on behalf of the Partnership or any other Partner, to do any act which
would be binding on the Partnership or any other Partner, or to incur any
expenditures on behalf of or with respect to the Partnership, (iii) have any
right to demand or
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receive property other than money upon distribution from the Partnership, or
(iv) be compelled to accept a distribution of any asset in kind from the
Partnership in lieu of a proportionate distribution of money being made to other
Partners.
6.1.3 The Limited Partners shall have no voting or consent rights,
including with respect to actions to be taken by the Management Committee or the
General Partners.
Article VII.
Transfer of Partner Interests and Withdrawals of Partners
7.1 Transfers.
7.1.1 General Prohibition on Transfers. Except as set forth in Sections
7.1.2 and 7.1.3 below, no Partner may Transfer all or any part of its Interest
to any other Person without the consent of the Management Committee, such
approval to be given or withheld in the Management Committee's sole discretion.
Each Partner hereby acknowledges the reasonableness of this prohibition in view
of the purposes of the Partnership and the relationship of the Partners. For the
purposes of this Section, a Transfer of a Partner Interest shall be deemed to
include a sale, transfer or assignment (other than as collateral) of the stock,
partnership interest or other equity ownership of the entity or entities (an
"Upper Tier Entity") that directly or through one or more intervening
subsidiaries own or have ownership interests in a Partner such that, after
giving effect to such sale, transfer or assignment ESI Energy, Inc. or Tractebel
Power, Inc., as the case may be (or a permitted transferee of their respective
Partner Interests under Section 7.1.2, 7.1.3.1 or 7.1.3.2), or their respective
Affiliates, fail to own 100% of the equity ownership in such Upper Tier Entities
and to have voting and control rights in such Upper Tier Entities commensurate
with such ownership. The attempted Transfer by a Partner of any portion or all
of its Interest in violation of the prohibition contained in this Section 7.1.1
shall be deemed invalid, null and void, and of no force or effect, except any
Transfer mandated by operation of law and then only to the extent necessary to
give effect to such Transfer by operation of law.
7.1.2 Transfers of Interests. Subject to compliance with Section 7.1.4,
the ESI Partners and Tractebel Partners may Transfer all (but not less than all)
of their respective Interests in the Partnership (both as a General Partner and
as a Limited Partner) to a bona fide third party (the "Potential Purchaser")
without the consent of the Management Committee, provided however that, prior to
making any such Transfer, Tractebel Partners or the ESI Partners desiring to
Transfer their Interests, as the case may be (the "Transferring Partners"),
shall notify the ESI Partners or Tractebel Partners, as the case may be (the
"Remaining Partners"), of the material terms and conditions on which the
Potential Purchaser has agreed to purchase all the Interests of the Transferring
Partners (and shall provide the Remaining Partners with such documentation
relating to its agreement with the Potential Purchaser as reasonably requested
by the Remaining Partners) and, within sixty days of such notification, the
Remaining P artners shall give Notice to the Transferring Partners that it or
they intend to purchase the Interests of the Transferring Partners on the same
terms and conditions (including price) as agreed to by the Potential Purchaser;
provided, however, that any Remaining Partner that has been a Partner for a
longer
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period of time than any other Remaining Partner shall have the right and option,
but not the obligation, prior and senior to the right or option of each such
other Remaining Partner, to purchase 100%, or less than 100%, at such senior
Remaining Partners' sole and absolute discretion, of the Interests of the
Transferring Partners. Remaining Partners equal in seniority shall be entitled
to purchase Interests of the Transferring Partners in the ratio of such
Remaining Partners' Interests immediately prior to such purchase (subject to the
right granted above to the Senior Remaining Partners), provided, that if any
such Remaining Partner purchases less than its proportionate share of Interests
of the Transfer ring Partners, the resulting excess portion of Interests shall
be allocated equally to the other Remaining Partners that are equal in right of
seniority. If all of the Remaining Partners shall fail to give such Notice
within such sixty day period or if the Interests which the Remaining Partners
indicate they wish to purchase is less than 100% of the Interests of the
Transferring Partners, the Transferring Partners shall thereafter be free for a
180-day period, subject to compliance with Section 7.1.4, to Transfer their
entire Interests to the Potential Purchaser on the same terms and conditions
that had been agreed to by the Potential Purchaser. If any Remaining Partners
give timely Notice of their intent to purchase the Interests of the Transferring
Partners, then the Transferring Partners shall be obligated to consummate such
purchase within the longer of 90 days or such time as the Potential Purchaser
shall have had to consummate such purchase. Any Transfer to Remaining Partners
pursuant to this Secti on 7.1.2 shall only be permitted if the Transferring
Partners (i) represent and warrant to the Remaining Partners that they are
transferring their Interests free and clear of any encumbrance, security
interest, mortgage, lien, pledge, charge, easement, reservation, guarantee,
option, restriction, or similar right of any third party, and (ii) delivers any
agreements, certificates, opinions or any other documents, and takes such
further actions as shall be reasonably necessary, in the Remaining Partners' sol
e and absolute discretion, to consummate the Transfer.
7.1.3 Permitted Transfers. Notwithstanding Section 7.1.1 above (but
subject to Section 7.1.4), a General Partner may Transfer:
7.1.3.1 All, or any portion of, such Partner's Interest to any
Affiliate, in which case such Affiliate will become a General Partner in place
of the transferring Partner without any further action on the part of the
Partnership or any other Partner and, except as expressly provided otherwise in
this Agreement, shall be entitled to all of the rights previously held by the
General Partner (including the right to appoint representatives to the
Management Committee); provided, that, such Affiliate assumes all of the
liabilities and obligations of such transferring Partner arising from this
Agreement;
7.1.3.2 All, or any portion of, such Partner's Interest to any
Person with the unanimous approval of all of the General Partners, such approval
to be given or withheld in each General Partner's sole discretion; and
7.1.3.3 All, or any portion of, such Partner's Interest in the
form of a collateral assignment of such Interest, but only if and to the extent
approved by the Management Committee and required in connection with the Rule
144A Financing for security purposes.
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7.1.4 Conditions on Transfer. Any Transfer described and permitted in
this Section 7.1 shall only be permitted if:
7.1.4.1 such Transfer is accomplished in compliance with all
applicable securities laws and regulations;
7.1.4.2 the effect of the Transfer will not be to terminate the
Partnership pursuant to Code Section 708(b) or any similar successor provision
of the Code, or otherwise to adversely affect the Partnership or any other
Partner under the Code, or any other laws of any taxing jurisdiction to which
the Partnership is subject, or result in the imposition of a transfer tax on the
Partnership or any other Partner, in each case, unless indemnified against by
the Transferor or its transferee in a manner reason ably acceptable to each
affected Partner;
7.1.4.3 the Transfer does not result in a default under, breach
of any material obligation contained in, or cause the failure of a material
condition contained in, any material agreement (including any Financing
Document) to which the Partnership is a party or, if it does so result, a
consent to or waiver of such default, breach or failure has been obtained from
the other party to such agreement;
7.1.4.4 the Transferor and/or the transferee bears all reasonable
costs of the Partnership and of the other Partners in connection with the
Transfer, including costs incurred in amending this Agreement;
7.1.4.5 the Partnership has received the written opinion,
prepared and delivered to the Partnership at the Transferor's expense prior to
the effectiveness of the Transfer, of counsel selected by the Transferor that
the conditions specified in clauses 7.1.4.1 and 7.1.4.2 above and 7.1.4.9 below
are satisfied (such counsel and opinion to be reasonably acceptable to the
Management Committee); provided, that, the opinion with respect to the matters
described in Sections 7.1.4.2 and 7.1.4.9 need only be ba sed on the knowledge
of such counsel and need not address any indemnification provided and provided
further, no opinion need be provided in connection with a Transfer for security
purposes of any portion of an Interest to a lender;
7.1.4.6 the Transfer does not result in the Partnership being
treated as an association taxable as a corporation, or as a publicly traded
partnership taxable as provided in Code Section 7704, or otherwise as an entity
not taxable as a partnership for U.S. federal income tax purposes or for the
purposes of any other laws of any taxing jurisdiction to which the Partnership
is subject;
7.1.4.7 if the Transfer is to an Affiliate of the Transferor
pursuant to Section 7.1.3.1 above (a) the Transferor has given thirty (30) days'
prior written notice to the other Partners identifying such Affiliate, and (b)
the Transferor remains liable to the other Partners for the performance of the
Transferor's obligations under this Agreement and any related agreement or
contract to which the Transferor is a party;
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7.1.4.8 the transferee executes an agreement agreeing to be bound
by the terms and conditions of this Agreement and any other relevant document,
which agreement shall contain representations and warranties of the transferee
in substantially the same form as contained in Article XI; provided, that, the
condition set forth in this subsection 7.1.4.8 shall not apply to the Transfer
of any portion of a Partner's Interest but shall apply to an Assignee becoming a
substitute Limited Partner;
7.1.4.9 such Transfer shall not adversely affect the
classification of each Project as a "Qualifying Facility" under PURPA, or the
regulations of the Federal Energy Regulatory Commission thereunder, or adversely
affect the Partnership's entitlement to the exemptions contained in 18 C.F.R.
ss.ss. 292.601(c) and 292.607.
7.1.5 Corresponding Changes to Agreement. If, pursuant to the
provisions of this Section 7.1, a Partner Transfers, in whole or in part, any of
its Partner Interest in a permitted manner, then the Partners and the transferee
shall, at the reasonable request of any Partner, amend this Agreement to reflect
such event. If an Interest shall be transferred in a permitted manner, the
transferee shall be admitted into the Partnership as a substitute partner.
7.2 Voluntary Withdrawal. No Partner shall have the right or power to
Voluntarily Withdraw from the Partnership.
7.3 Special Rules With Respect to General Partners.
7.3.1 Events of Cessation. A General Partner shall cease to be a
general partner of the Partnership upon the earliest to happen of the following
events:
7.3.1.1 [Intentionally omitted]
7.3.1.2 the Transfer of all of the General Partner's Interest as
a general partner in the Partnership;
7.3.1.3 the Bankruptcy of a General Partner or any other event
which causes a General Partner to cease to be a general partner; provided, that
if a General Partner ceases to be a general partner in the Partnership pursuant
to this Section 7.3.2.2, the General Partner Interest of such General Partner
shall be converted to a Limited Partner Interest, such that such Partner shall
be deemed admitted solely as a Limited Partner in the Partnership with all of
the rights and subject to all of the limitations of a Limited Partner hereunder,
retaining its Capital Account and its Interest.
Article VIII.
Dispute Resolutions; Arbitration
8.1 Dispute Resolution. If a dispute arises among the Partners, or between
any of them, regarding the conduct of the business of the Partnership or the
interpretation of any provision of
26
<PAGE>
this Agreement or any other matter with respect to the Partnership or its
operations, an aggrieved Partner shall give a Notice of such dispute (a "Dispute
Notice") to the other Partners. Within fifteen (15) days after such Dispute
Notice, the President or an Executive Vice President of each of the companies
which owns a controlling interest in each General Partner shall confer with each
other to seek with diligence and in good faith to resolve such dispute. If such
officers are unable to resolve such dispute within forty-five days after such
Dispute Notice, then the parties shall be bound to arbitrate such dispute in
accordance with Section 8.2.
8.2 Arbitration. To the fullest extent permitted by law, any dispute
between the Partners regarding the business of the Partnership, the
interpretation of any provision of this Agreement or any other matter with
respect to the partnership and its operations, if not resolved by negotiation by
the Partners within 45 days after the Dispute Notice, shall be resolved
exclusively by binding arbitration between the Partners pursuant to the Rules of
the American Arbitration Association for Commercial Dispute s (the "Arbitration
Rules"). Arbitration shall be administered by the American Arbitration
Association. Any Partner may institute arbitration proceedings at any time by
delivering written Notice demanding arbitration to the other Partners in the
manner described in Section 13.2.
8.2.1 Within 20 days after receipt of a written demand for arbitration,
the General Partners shall each appoint one arbitrator. Within 15 days of the
expiration of that 20 day period, the two arbitrators so appointed shall appoint
a third arbitrator. If any Partner shall fail to appoint an arbitrator, or if
the two arbitrators shall fail to appoint a third arbitrator, the American
Arbitration Association shall make that selection within 10 days of a Partner's
request. The arbitrators shall meet th qualifications and abide by the Code of
Ethics for arbitrators in commercial disputes of the American Arbitration
Association. The arbitrators shall have knowledge of and experience in the power
generation and project financing business.
8.2.2 To the fullest extent permitted by law, the arbitration shall be
conducted in accordance with the procedures set forth in the Arbitration Rules.
In determining any question, matter or dispute before them, the arbitrators
shall apply the provisions of this Agreement without varying therefrom in any
respect. They shall not have the power to add to, modify or change any of the
provisions of this Agreement. The Partners shall exercise all commercially
reasonable efforts in good faith to cause a h earing to be held within 90 days
after the date upon which the last arbitrator is appointed and to conclude all
hearings within 30 days after the first hearing date. The arbitrators shall only
grant a Partner's request for postponement of the hearing upon a showing of good
cause as determined by the arbitrators. Within 30 days of the last hearing date,
the arbitrators shall issue a written decision setting forth their analysis and
ruling. The arbitrators shall determine in what proportion the Partners s hall
bear the fees and expenses of the arbitrators. Each Partner shall bear the fees
and expenses of its own counsel and other consultants. All arbitration
proceedings shall be subject to the choice of law provisions set forth in
Section 13.5, and shall be held at a location agreed to by the parties, or if
the parties cannot agree, then in Atlanta, Georgia.
27
<PAGE>
8.2.3 The Partners acknowledge and agree that any arbitral award shall
be final, binding and conclusive upon the Partners and may be confirmed or
embodied in any order of any court having jurisdiction.
8.2.4 To the fullest extent permitted by law, service of any matters
referenced in this Article VIII shall be given in the manner described in
Section 13.2 or as permitted by the rules of the American Arbitration
Association.
8.2.5 Notwithstanding anything to the contrary contained in this
Article VIII, if, due to a breach or threatened breach or default or threatened
default, a Partner is suffering irreparable harm for which monetary damages are
inadequate, such Partner may petition a court of competent jurisdiction for
injunctive relief, specific performance or other equitable relief.
Article IX.
Dissolution, Liquidation, and Termination of the Partnership
9.1 Right to Cause Dissolution; Events of Dissolution.
9.1.1 Notwithstanding any agreement herein to the contrary, no Partner
shall have the right, and each Partner hereby agrees not, to cause the winding
up of, or to dissolve, terminate or liquidate the Partnership, or to petition a
court for the winding up, dissolution, termination or liquidation of the
Partnership. The Partnership shall not be dissolved by the admission of
additional Partners or substitute Partners in accordance with the terms of this
Agreement.
9.1.2 The Partnership shall be dissolved automatically and its affairs
wound up, without further act, upon the happening of the first to occur of the
following: (a) December 31, 2048, (b) the written consent of all of the Partners
or (c) the entry of a decree of judicial dissolution under the Act.
9.2 Procedure for Winding Up and Dissolution. If the Partnership is
dissolved, the Management Committee shall wind up its affairs. On winding up of
the Partnership, the assets of the Partnership shall be distributed, first to
creditors of the Partnership, including Partners who are creditors, in
satisfaction of the liabilities of the Partnership (whether by payment or the
making of reasonable provision for payment thereof and including the
satisfaction of all contingent, conditional and unmatured l abilities of the
Partnership), and then to the Partners in accordance with Section 4.6 of this
Agreement.
9.3 Filing of Certificate of Cancellation. Upon completion of winding up
the affairs of the Partnership, the Management Committee shall promptly cause to
be filed the Certificate of Cancellation of Certificate of Limited Partnership
with the Secretary of State.
28
<PAGE>
Article X.
Books, Records, Accounting, and Tax Elections
10.1 Bank Accounts. All funds of the Partnership shall be deposited in a
bank account or accounts opened in the Partnership's name. The bank accounts
will be maintained in Florida, or elsewhere as determined by the Management
Committee from time to time. The Management Committee shall determine the
financial institution or institutions at which the accounts will be opened and
maintained, the types of accounts, and the Persons who will have authority with
respect to the accounts and the funds therein.
10.2 Maintenance of Books and Records.
10.2.1 The Manager shall maintain such books and records as required
under the Administrative Services Agreement.
10.3 Financial Statements and Reports. The Manager shall provide such
financial statements and reports to the Partners as required under the
Administrative Services Agreement.
10.4 Right to Inspect Books and Records; Receive Information.
10.4.1 Upon the request of a General Partner, the Partnership shall
promptly deliver to the requesting Partner at the expense of the Partnership a
copy of this Agreement, as well as the information required to be maintained by
the Manager under the Administrative Services Agreement.
10.4.2 Each Partner has the right upon not less than 24 hours prior
notice, and for purposes reasonably related to the interest of that Partner or
the Partnership, to do the following:
10.4.2.1 to inspect and copy, or cause its agents or
representatives to inspect and copy, during normal business hours any of the
records required to be maintained by the Manager under the Administrative
Services Agreement; and
10.4.2.2 to obtain from the Partnership promptly after becoming
available, a copy of the Partnership's federal, state, and local income tax or
information returns for each year.
10.4.3 Unless otherwise expressly provided in this Agreement, the
inspecting or requesting Partner shall reimburse the Partnership for all
reasonable costs and expenses incurred by the Partnership in connection with
such inspection and copying of the Partnership's books and records and the
production and delivery of any other books or records.
10.5 Annual Accounting Period. The annual accounting period of the
Partnership shall be its taxable year. The Partnership's taxable year shall be
the calendar year.
29
<PAGE>
10.6 Tax Matters. ESI GP shall be the "Tax Matters Partner" for the
purposes of Code Section 6231. Unless otherwise agreed to by the Management
Committee, the Tax Matters Partner shall not elect for the Partnership to be
treated as other than a partnership for tax purposes; shall treat NE, LLC and
the Project Partnerships as non-entities for Federal income tax purposes (unless
and until NE, LLC and/or the Project Partnerships shall have more than one
equity owner for such purposes); and shall treat the Acquisition as the
acquisition by the Partnership of all of the assets of the Project Partnerships
(rather than an acquisition by the Partnership and NE, LLC of interests in the
Project Partnerships). Except as provided in the preceding sentence, the Tax
Matters Partner shall not make any material decisions or take any material
actions in its capacity as such without the prior consent of the Management
Committee.
10.7 GAAP Allocations. All items of income and expense calculated and
reported in accordance with GAAP shall be allocated to each Partner based on
each Partner's Percentage.
Article XI.
Representations and Warranties
11.1 Representations and Warranties of the Partners. Each Partner hereby
represents and warrants as of the Effective Date that:
11.1.1 It is duly formed, validly existing and in good standing under
the jurisdiction of its formation, with full power and authority to enter into
and perform its obligations under this Agreement and has duly authorized the
execution, delivery and performance of this Agreement;
11.1.2 It has validly executed this Agreement, and upon delivery this
Agreement shall be a binding obligation of such party, enforceable against such
party in accordance with its terms except insofar as enforcement may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles;
11.1.3 Its entry into this Agreement and the performance of its
obligations hereunder will not require the approval of any governmental body or
regulatory authority and will not violate, conflict with, or cause a default
under any of its organizational documents, any contractual covenant or
restriction by which such party is bound, or any applicable law, regulation,
rule, ordinance, order, judgment or decree; and
11.1.4 It has acted in full compliance with all laws, statutes,
ordinances, rules and regulations in connection with the execution hereof.
11.2 Representations and Warranties of ESI Partners. The ESI Partners
hereby represent and warrant that, as of the Effective Date, to the best of
their knowledge the stream of benefits analysis attached hereto as Schedule 11.2
is true, accurate and complete, and has been prepared in accordance with the
guidance provided in applicable FERC proceedings and decisions.
30
<PAGE>
Article XII.
True-Up of Stream of Benefits
12.1 True-Up.
12.1.1 Dissolution. Not later than ninety (90) days after the
dissolution of the Partnership pursuant to Article IX, ESI GP shall calculate,
as of the date of the dissolution of the Partnership, (a) the sum of (i) the
present value of the proposed distribution or allocation to the ESI Partners in
connection with the proposed dissolution plus (ii) the present value of all
prior benefits which have been distributed or allocated to the ESI Partners (the
"Utility Affiliate Share of Benefits"); and (b) t he sum of (i) the present
value of the proposed distributions or allocations to all the Partners in
connection with the dissolution; plus (ii) all prior benefits which have been
distributed or allocated to all the Partners (including predecessors in
interest) pursuant to this Agreement and any prior agreement of the Partnership
(without duplication thereof) (the "Total Benefits"), excluding from each
calculation in (i) and (ii) all distributions or allocations in an amount equal
to the capital contribution s made by the Partners. If the calculation
demonstrates that the Utility Affiliate Share of Benefits exceeds fifty (50)
percent of the Total Benefits, then the ESI Partners shall promptly make a
payment to the other Partners in an amount necessary to reduce the Utility
Affiliate Share of Benefits to fifty (50) percent of the Total Benefits. As used
herein, the "Utility Affiliate Share of Benefits" and "Total Benefits" shall be
limited to the stream of benefits indicated under FERC restrictions for determ
ining whether the Project is or has been a qualifying facility under the Public
Utility Regulatory Policy Act of 1978, as amended ("PURPA"). Notwithstanding
anything set forth above to the contrary, as used herein, the "Utility Affiliate
Share of Benefits" and "Total Benefits" shall be calculated in conformance with
guidance in FERC Qualifying Facility decisions issued through the date of
calculation, including but not limited to guidance concerning appropriate
discount rates and the types of benefits to be included in the stream of
benefits (it being agreed that the Total Benefits shall include benefits
received by the prior owners of the Project Partnerships unless the FERC or a
federal court has issued an order or ruling finding that such benefits received
by the prior owners should not be included in such calculation or the FERC has
issued an order or ruling or a federal court has rendered a decision, in either
case making a similar finding with respect to a facility other than the Projects
based on facts pertaining to the FERC's qualifying facility ownership criteria
under PURPA ("Ownership Criteria") that are similar to those presented by the
ownership of the Project Partnerships from the Original Effective Date).
12.1.2 Transfer of Interests. Not later than ninety (90) days after the
sale or other transfer of any interest in the Partnership which is owned by an
ESI Partner, ESI GP shall calculate, as of the date of the sale or other
transfer of the Partnership, (a) the present value of the benefit to the ESI
Partners from the sale or transfer of such interest and all prior benefits which
have been distributed or allocated to the ESI Partners (the "Utility Affiliate
Share of Benefits") and (b) the present val ue of the retained interests in the
Partnership, if any, as of the transfer date and all prior benefits which have
been distributed or allocated to all the Partners (including predecessors in
interest) pursuant to this Agreement and any prior agreement of the Partnership
(without duplication thereof) (the "Total Benefits"), excluding from each
calculation in (a) and (b) all distributions or allocations in an amount equal
to the capital contributions made by the Partners. If the calculation
demonstrates that the Utility Affiliate Share of Benefits exceeds fifty
31
<PAGE>
(50) percent of the Total Benefits, then the ESI Partners shall promptly make a
payment to the other Partners in an amount necessary to reduce the Utility
Affiliate Share of Benefits to fifty (50) percent of the Total Benefits. As used
herein, the "Utility Affiliate Share of Benefits" and "Benefits" shall be
limited to the stream of benefits indicated under FERC restrictions for
determining whether the Project is or has been a qualifying facility un der
PURPA. Notwithstanding anything set forth above to the contrary, as used herein,
the "Utility Affiliate Share of Benefits" and "Total Benefits" shall be
calculated in conformance with guidance in FERC Qualifying Facility decisions
issued through the date of calculation, including but not limited to guidance
concerning appropriate discount rates and the types of benefits to be included
in the stream of benefits (it being agreed that the Total Benefits shall include
benefits received by the prior owners of the Project Partnerships unless the
FERC or a federal court has issued an order or ruling finding that such benefits
received by the prior owners should not be included in such calculation or the
FERC has issued an order or ruling or a federal court has rendered a decision,
in either case making a similar finding with respect to a facility other than
the Projects based on facts pertaining to the Ownership Criteria that are
similar to those presented by the ownership of the Project Partnerships from the
Original Effective Date).
12.1.3 FERC Action. If at any time the FERC or a federal court issues
an order or ruling ("Order") (i) finding that the ESI Partners' equity interest
in the Partnership exceeds a level that is permitted under the Ownership
Criteria, or (ii) making a similar finding with respect to a facility other than
the Project based on facts pertaining to the Ownership Criteria that are similar
to those presented by this Agreement inclusive of the terms hereof from the
Original Effective Date and, as a result, an y Partner requests the Partnership
to obtain from the law firm of Reid & Priest (or if such firm is no longer in
existence, from other nationally recognized FERC counsel) ("FERC Counsel") an
unqualified opinion dated, as of a then current date, to the same effect as the
opinion dated November 22, 1997 from Reid & Priest but such FERC Counsel is
unwilling to provide such opinion, then, in either such case, not later than
ninety (90) days after the issuance of the Order, the ESI Partners shall take
such acti on as is necessary to cause the FERC to rescind the Order or otherwise
to comply with the Ownership Criteria (including, without limitation, reducing
the Percentages of the ESI Partners, paying to the Tractebel Partners an amount
necessary to reduce the Utility Affiliate Share of Total Benefits received by
the prior owners to fifty percent (50%) of the Total Benefits calculated in
accordance with Section 12.1.2 hereof, transferring all or a portion of the
Partnership Interests of the ESI Partners to the Tr actebel Partners or to some
third party, or any combination of such actions) to meet the Ownership Criteria.
12.1.4 Change in Regulation. The foregoing requirements contained in
this Article 12 shall no longer apply or be effective in the event that (1) such
provisions are no longer required in order to comply with the ownership criteria
applicable to qualifying facilities under PURPA, and the rules, regulations and
orders issued thereunder by the FERC; and (2) the Partnership is no longer
required to maintain its status as a qualifying facility (i) under the express
terms of any agreement to which the Partnership or either of the Project
Partnerships is a party; (ii) in order to avoid any material adverse effect
under any agreement to which the Partnership or Project Partnerships is a party;
and (iii) in order to be eligible for exemption from the Public Utility Holding
Company Act of 1935, as amended, and from the financial, organizational or rate
32
<PAGE>
regulations imposed upon electric utilities, public utilities or similar
entities by any governmental authority.
Article XIII.
General Provisions
13.1 Assurances. Each Partner shall execute all certificates and other
documents and shall do all such filing, recording, publishing, and other acts as
the Partners deem appropriate to comply with the requirements of law for the
formation and operation of the Partnership and to comply with any laws, rules,
and regulations relating to the acquisition, operation, or holding of the
property of the Partnership.
13.2 Notifications. Any notice, demand, consent, election, offer, approval,
request, or other communication (collectively a "Notice") required or permitted
under this Agreement must be in writing and shall be deemed to have been
received only upon actual receipt thereof.
To Tractebel GP: c/o Tractebel Power, Inc.
1177 West Loop South
Suite 900
Houston, Texas 77027
Attention: General Counsel
Telecopier: (713) 552-2364
To Tractebel Sub: c/o Tractebel Power, Inc.
1177 West Loop South
Suite 900
Houston, Texas 77027
Attention: General Counsel
Telecopier: (713) 552-2364
To ESI GP: c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
Attention: President
Telecopier: (561) 691-3615
33
<PAGE>
To ESI Sub: c/o ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
Attention: President
Telecopier: (561) 691-3615
13.3 Specific Performance. The parties recognize that irreparable injury
will result from a breach of any provision of this agreement and that money
damages will be inadequate to fully remedy the injury. Accordingly, in the event
of a breach or threatened breach of one or more of the provisions of this
agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach or (ii) compelling the performance of any obligation which, if not
performed, would constitute a breach.
13.4 Complete Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement among the Partners. It supersedes all prior
written and oral agreements and statements, and any prior representation,
statement, condition, or warranty. Except as expressly provided otherwise
herein, this Agreement may not be amended without the written consent of all of
the Partners.
13.5 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Delaware without regard to
principles of conflicts of laws.
13.6 Section Titles. The headings herein are inserted as a matter of
convenience only and do not define, limit, or describe the scope of this
Agreement or the intent of the provisions hereof.
13.7 Binding Provisions. This Agreement is binding upon, and to the limited
extent specifically provided herein, inures to the benefit of, the parties
hereto and their respective heirs, executors, administrators, personal and legal
representatives, successors, and assigns.
13.8 Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the Person
may in the context require.
13.9 Separability of Provisions. Each provision of this Agreement shall be
considered separable; and if, for any reason, any provision or provisions herein
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
13.10 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which,
when taken together, constitute one and the same document. The signature of any
party to any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.
34
<PAGE>
13.11 Estoppel Certificate. Each Partner shall, within ten (10) days after
written request by any Partner, deliver to the requesting Person a certificate
stating, to the Partner's knowledge, that: (a) this Agreement is in full force
and effect; (b) this Agreement has not been modified except by any instrument or
instruments identified in the certificate; and (c) there is no default hereunder
by the requesting Person, or if there is a default, the nature or extent
thereof.
13.12 Non-Disclosure. Each Partner hereto agrees that it will, and will
cause its officers, other personnel and authorized representatives to, hold in
strict confidence all Confidential Information disclosed by the other Partners
and will ensure that such other persons do not, disclose such information to
others without the prior written consent of the Partners hereto to which such
Confidential Information relates (the "Affected Party"); provided, that each
Partner hereto may provide such data and in formation (i) to its outside
lenders, consultants, accountants, investors and advisers; provided, that, such
parties remain legally obligated (by contract or otherwise) to maintain the
confidentiality of such information, and (ii) in response to legal process or
applicable government regulations, but only that portion of the data and
information which, in the written opinion of counsel for such Partner, is
legally required to be furnished and further provided that such Party notifies
the Affected Party to protect the confidentiality of such data and information
pursuant to applicable law. Notwithstanding the foregoing, each Party hereto may
disclose the terms of this Agreement in connection with any Transfer provided
that the potential purchaser executes appropriate confidentiality agreements.
13.13 Waiver. No failure on the part of any Partner to exercise, and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. Any waiver to be effective shall be in writing
signed by the waiving Partner.
35
<PAGE>
IN WITNESS WHEREOF, the parties have executed, or caused this Agreement to
be executed, as of the Effective Date.
ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation
By: /s/ Glenn E. Smith
--------------------------
Name: Glenn E. Smith
Title: Vice President
ESI NORTHEAST ENERGY LP, INC.,
a Florida corporation
By: /s/ Glenn E. Smith
--------------------------
Name: Glenn E. Smith
Title: Vice President
TRACTEBEL NORTHEAST GENERATION GP, INC.
a Delaware corporation
By: /s/ Timothy R. Dunne
--------------------------
Name: Timothy R. Dunne
Title: Vice President
TRACTEBEL ASSOCIATES NORTHEAST LP, INC.
a Delaware corporation
By: /s/ Charles Vetters
--------------------------
Name: Charles Vetters
Title: Vice President
[Signature Page to Agreement of Limited Partnership]
<PAGE>
Exhibit A
NO KNOWLEDGE AGREEMENT
This AGREEMENT is dated as of [The Acquisition Date] among ESI NORTHEAST
ENERGY GP, INC., a Florida corporation, and ESI NORTHEAST ENERGY LP, INC., a
Florida corporation (the "ESI Partners"); and TRACTEBEL NORTHEAST GENERATION GP,
INC., a Delaware corporation and TRACTEBEL ASSOCIATES NORTHEAST LP, INC., a
Delaware corporation (collectively, the "Tractebel Partners").
The ESI Partners and the Tractebel Partners are the partners of Northeast
Energy, LP (the "Partnership") under the Agreement of Limited Partnership of
Northeast Energy, LP, a Delaware limited partnership (the "Partnership
Agreement"). All capitalized terms used herein shall have the meaning set forth
in the Partnership Agreement unless otherwise herein defined.
The ESI Partners and the Tractebel Partners hereby agree as follows:
1. ESI Partners Knowledge. Except as set forth in Schedule 1 hereto,
the ESI Partners have no knowledge of any breach by any "Seller" (as
defined in the Purchase Agreement) of any representations or warranties
made by such Seller in the Purchase Agreement.
2. Tractebel Partners Knowledge. Except as set forth in Schedule 2
hereto, the Tractebel Partners have no knowledge of any breach by any
Seller of any representations or warranties made by such Seller in the
Purchase Agreement.
3. ESI Indemnity. The ESI Partners hereby agree to indemnify and hold
harmless the Tractebel Partners from and against fifty percent (50%) of any
loss, damage, cost or expense suffered or incurred by the Partnership as a
result of the Partnership's inability to recover against the Sellers under
Section 11 of the Purchase Agreement for breach of representation or
warranty by the Sellers, to the extent such inability is a result of the
successful assertion by the Sellers of the defense that such recover y is
barred because the ESI Partners had knowledge of such breach at the time of
Closing (as defined in the Purchase Agreement).
4. Tractebel Indemnity. The Tractebel Partners hereby agree to
indemnify and hold harmless the ESI Partners from and against fifty percent
(50%) of any loss, damage, cost or expense suffered or incurred by the
Partnership as a result of the Partnership's inability to recover under
Section 11 of the Purchase Agreement for breach of representation or
warranty by the Sellers, to the extent such inability is a result of the
successful assertion by the Sellers of the defense that such recovery is
barred be cause the Tractebel Partners had knowledge of such breach at the
time of Closing.
5. Waiver. No failure or delay by the Partners or the Partnership to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof nor shall
<PAGE>
any single or partial exercise of such right, power or privilege preclude
any further exercise thereof or of any other right, power or privilege.
6. Amendments. This Agreement may be amended but only by an instrument
in writing signed by the Partners.
7. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York.
8. Notices. Any notice hereunder shall be in writing and shall be
personally delivered or delivered by an internationally recognized courier
service such as DHL or Federal Express, addressed to the party receiving
such notice at the following address:
If to the ESI Partners to:
ESI Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
Attn:President
If to the Tractebel Partners to:
Tractebel Power, Inc.
1177 West Loop South
Suite 900
Houston, Texas 77027
Attn: General Counsel
or at such other address as a party may by notice specify to the other
party. Notices shall be deemed effective upon confirmed receipt of
delivery.
9. Severability. If any term contained in this Agreement shall be
invalid, illegal or unenforceable in any respect under any applicable law,
the remaining terms hereof shall not in any way be affected or impaired.
10. Continuing Obligations. The obligations of the Partners hereunder
shall continue in full force and effect until all of such obligations have
been fully paid or performed.
11. Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract.IN WITNESS WHEREOF, the Partners have
executed, or caused this Agreement to be executed, as of the Acquisition
Date.
A-2
<PAGE>
IN WITNESS WHEREOF, the Partners have executed, or caused this Agreement to
be executed, as of the Acquisition Date.
ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation
By:
-----------------------------
Name:
Title:
ESI NORTHEAST ENERGY LP, INC.,
a Florida corporation
By:
-----------------------------
Name:
Title:
TRACTEBEL NORTHEAST GENERATION GP, INC.,
a Delaware corporation
By:
-----------------------------
Name:
Title:
TRACTEBEL ASSOCIATES NORTHEAST LP, INC.,
a Delaware corporation
By:
-----------------------------
Name:
Title:
A-3
EXHIBIT 4.22
================================================================================
EXECUTION COPY
-----------------
SECOND SUPPLEMENTAL TRUST INDENTURE
Dated as of January 14, 1998
to
TRUST INDENTURE
Dated as of November 15, 1994
as supplemented by
FIRST SUPPLEMENTAL TRUST INDENTURE
Dated as of November 15, 1994
-----------------
among
IEC FUNDING CORP.,
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP,
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP,
and
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
------------------
================================================================================
<PAGE>
SECOND SUPPLEMENTAL TRUST INDENTURE (this "Second Supplemental Indenture"),
dated as of January 14, 1998, by and among IEC FUNDING CORP., a Delaware
corporation (together with its successors and assigns, the "Company"), its
executive office and mailing address being at 350 Lincoln Place, Hingham,
Massachusetts 02043, NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a
Massachusetts limited partnership ("NEA"), its executive office and mailing
address being at 350 Lincoln Place, Hingham, Massachusetts 02043, NORTH JERSEY
ENERGY ASSOCIATES, A LIMITED PARTNERSHIP ("NJEA," and together with NEA, the
"Partnerships"), its executive office and mailing address being at 350 Lincoln
Place, Hingham, Massachusetts 02043, and STATE STREET BANK AND TRUST COMPANY, as
trustee (the "Trustee"), its corporate trust office and mailing address being at
2 International Place, Boston, Massachusetts 02110, Attention: Corporation Trust
Department, to the Trust indenture (the "Original Indenture"), as supplemented
by the First Supplemental Indenture (the "First Supplemental Indenture"), each
dated as of November 15, 1994, by and among the Company, the Partnerships and
the Trustee relating to the Company's 8.43% Senior Secured Notes due 2000, 9.16%
Senior Secured Notes due 2002, 9.32% Senior Secured Bonds due 2007 and 9.77%
Senior Secured Bonds due 2010, in the aggregate principal amount of $560,000,000
(collectively, the "Bonds").
Capitalized terms used herein without definition shall have the meanings
assigned thereto in the Original Indenture.
WITNESSETH:
WHEREAS, Intercontinental Energy Corporation, a Delaware corporation and
the sole general partner of each Partnership ("IEC"), and the limited partners
of each Partnership, as sellers (collectively, the "Sellers"), and Northeast
Energy, LP, a Delaware limited partnership ("NE LP"), Northeast Energy, LLC, a
Delaware limited liability company ("NE LLC"), ESI Northeast Energy Funding,
Inc., a Florida corporation ("ESI Funding") and Tractebel Power, Inc.
("Tractebel"), a Delaware corporation, as buyers (collectively, the "Buyers")
have entered into the Purchase Agreement dated as of November 21, 1997 (the
"Purchase Agreement"), pursuant to which NE LP and NE LLC agreed to purchase
from the Sellers (upon the satisfaction of the conditions set forth in the
Purchase Agreement) all of the general and limited partnership interests in the
Partnerships and ESI Funding and Tractebel agreed to purchase (upon the
satisfaction of the conditions set forth in the Purchase Agreement) 7,500 issued
and outstanding shares of common stock of the Company (the "Acquisition").
WHEREAS, in connection with the Acquisition and as a condition precedent to
the consummation thereof, the Company, the Partnerships and the Trustee wish to
enter into this Second Supplemental Indenture in order to implement certain
amendments to the Original
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Indenture, which, among other things, (a) permit IEC and the persons who, prior
to the consummation of the Acquisition, are the limited partners of NEA and NJEA
(the "Original Limited Partners") to sell to one more of the Buyers all of their
general and limited partnership interests in the Partnerships and all of their
shares of common stock of the Company, (b) permit the substitution for the cash
collateral that secures the Partnerships' obligations relating to the Letters of
Credit of one or more guarantees (the "FPL Capital Guarantees") of FPL Group
Capital Inc., an affiliate of ESI Energy, Inc. (instead of or together with one
or more Back-up Letters of Credit currently permitted by the Original Indenture
to be substituted for such cash collateral), (c) permit the immediate release to
the General Partner or at the direction of the General Partner of such cash
collateral upon the substitution for such cash collateral of one or more Back-up
Letters of Credit and/or one or more FPL Capital Guarantees, (d) permit the
immediate release to the General Partner or at the direction of the General
Partner of any cash released from the Debt Service Reserve Fund upon a
substitution therefor, in accordance with the Original Indenture, of one or more
Substitute Letters of Credit, and (e) permit the payment as an Operating Expense
of fuel management fees to be paid under a Fuel Management Agreement to ESI
Northeast Fuel Management, Inc., an affiliate of ESI Energy, Inc.
WHEREAS, the Consent Solicitation Statement dated as of December 4, 1997
(the "Consent Solicitation Statement") stated that the requisite Holders'
consent to any of the proposed amendments described therein will be deemed to
constitute (i) a waiver of any other provisions of the Original Indenture, as
supplemented by the First Supplemental Indenture, and of any related financing
documents that may be inadvertently breached as a result of the Acquisition and
(ii) an authorization and a direction to the Trustee to execute all of the
related amendments to the Transaction Documents;
WHEREAS, Section 13.2 of the Original Indenture provides that with the
consent of the Holders of not less than a majority in aggregate principal amount
of the Bonds of all series then Outstanding, considered as one class, by Act of
said Holders delivered to the Company and the Partnerships and the Trustee, the
Company and the Partnerships may, upon authorization evidenced by a resolution
of the Company's Board of Directors or a resolution of the Management Committee
of the General Partner, on behalf of the Partnerships, as the case may be, and
the Trustee shall, subject to certain conditions set forth in Sections 13.3 and
13.4 of the Original Indenture, enter into an indenture or indentures
supplemental thereto for the purpose of adding any provisions to or changing in
any manner or eliminating or waiving any of the provisions of the Original
Indenture;
WHEREAS, the written consents of the Holders (other than Affiliates of the
Company) of 99.56% in aggregate principal amount outstanding of the Bonds,
treated as one class, have been delivered to the Trustee in accordance with
Sections 1.4 and 13.2 of the Original Indenture
2
<PAGE>
and the documents described in Section 1.2, 13.2 and 13.4 of the Original
Indenture have been provided to the Trustee;
WHEREAS, the Company and the Partnerships desire to implement the proposed
amendments in respect of which, pursuant to the Consent Solicitation Statement,
the requisite Holders have given their consent, and have requested that the
Trustee join them in the execution of this Second Supplemental Indenture;
WHEREAS, the Board of Directors of the Company and the Management Committee
of the General Partner of the Partnerships have authorized the execution of this
Second Supplemental Indenture;
WHEREAS, all action on the part of the Company and the Partnerships
necessary to amend the Original Indenture and execute and deliver this Second
Supplemental Indenture (the Original Indenture, as supplemented by the First
Supplemental Indenture and as supplemented and amended by this Second
Supplemental Indenture, being hereinafter referred to as the "Indenture") have
been duly taken by each of the Company and the Partnerships, and each of the
Company and the Partnerships, in the exercise of the legal right and power
vested in it, is executing this Second Supplemental Indenture.
NOW, THEREFORE, the Trustee hereby joins the Company and the Partnerships
in the execution and delivery of this Second Supplemental Indenture in order to
amend the Original Indenture as follows:
ARTICLE I
AMENDMENTS
SECTION 1.1 Amendments to Provisions. The Original Indenture, as
supplemented by the First Supplemental Indenture, is hereby amended as follows:
(a) Definitions; Construction. Section 1.1(g) of the Original
Indenture is hereby amended by inserting after the word "supplemented",
which appears in the fifth line thereof, and before the word "or", which
appears in the sixth line thereof, the word "assigned".
(b) Debt Service Reserve Fund. Section 4.10(b) of the Original
Indenture is hereby amended by inserting after the words "upon any
Substitute Letter of Credit", which appear at the end thereof, the
following language:
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<PAGE>
Notwithstanding any provision of the Indenture to the contrary, in the
event that a Substitute Letter of Credit is issued to replace cash or
Permitted Investments then on deposit in the Debt Service Reserve Fund
(and if, upon the issuance of such Substitute Letter of Credit, the
Debt Service Reserve Fund will be fully funded with cash, Permitted
Investments and/or Substitute Letters of Credit in an aggregate amount
equal to the then current Debt Service Reserve Requirement), the
Trustee shall, promptly upon the receipt of such Substitute Letter of
Credit accompanied by the written request of the Company, release and
pay an amount of cash and/or Permitted Investments equal to the amount
of such Substitute Letter of Credit directly to or as directed by the
General Partner.
(c) Restricted Payments. Section 7.18(a) of the Original Indenture is
hereby amended by replacing the words "Sponsor Family Member, IEC or any
Affiliate of IEC", which appear in the seventh and the eighth lines thereof, by
the words "Affiliate of the Sponsors".
(d) Letter of Credit Obligations. Section 7.23 of the Original Indenture is
hereby amended as follows:
(i) by replacing the words "the Back-up Letter of Credit", which appear
in clause (y) thereof in the tenth and eleventh lines from the end of that
Section, by the words "one or more Back-up Letters of Credit and/or FPL
Capital Guarantees";
(ii) by replacing the words "the Back-up Letter of Credit", which
appear in clause (y) thereof in the ninth and tenth lines from the end of
that Section, with the words "any such Back-up Letters of Credit or FPL
Capital Guarantees";
(iii) by inserting after the words "Cash Collateral Proceeds; provided
that", and before the words "the Letters of Credit", which appear in the
seventh and eighth lines from the end of that Section, the following
language:
, notwithstanding any provision of this Indenture to the contrary,
if one or more Back-up Letters of Credit or FPL Capital Guarantees
are provided to replace all or portion of the cash or Permitted
Investments referred to in clause (x) (and if, upon the issuance of
such Back-up Letters of Credit and/or FPL Capital Guarantees, the
Letters of Credit shall be fully collateralized with any
combination
4
<PAGE>
of cash, Permitted Investments, Back-up Letters of Credit or FPL
Capital Guarantees in an amount equal to the Letter of Credit
Maximum Amount), the Letter of Credit Banks or an agent or a
trustee thereof shall promptly, upon its receipt of such Back-up
Letters of Credit or FPL Capital Guarantees and the written request
of the Company, release and pay an amount of cash and/or Permitted
Investments equal to the amount of such Back-up Letters of Credit
and/or the amount of the guaranteed obligations under such FLP
Capital Guarantees directly to or as directed by the General
Partner; and provided, further, that
(e) Certain Required Contributions to Revenue Fund. Section 7.26 of the
Original Indenture is hereby amended as follows:
(i) by inserting after the words "pursuant to Section 7.23" and
before the words "(whether as a result of)", which appear in the fourth
and fifth lines thereof, the following language:
, such Released Letter of Credit Collateral (other than any
Released Letter of Credit Collateral included in clause (ii) of the
definition thereof) shall be deposited into the Revenue Fund.
"Released Letter of Credit Collateral" shall mean any cash or
Permitted Investments which collateralize the Letters of Credit or
constitute Substitute LOC Collateral and which are released from
the collateral required pursuant to Section 7.23.
(ii) by replacing the words "a Back-up Letter of Credit", which
appear in the seventh and eighth lines thereof, with the words "one or
more Back-up Letters of Credit and/or FLP Capital Guarantees as
contemplated by the first proviso of the last sentence of Section
7.23,";
(iii) by inserting after the words "in accordance with the", which
appear in the tenth line thereof, the word "second";
(iv) by deleting the following language, which appears in the last
three lines of that Section:
(such cash or Permitted Investments being referred to as "Released
Letter of Credit Collateral") such released cash or Permitted
Investments shall be deposited into the Revenue Fund.
5
<PAGE>
(f) Events of Default. Section 10.1 of the Original Indenture is hereby
amended as follows:
(i) by replacing the word "IEC", which appears in the second,
twentieth and twenty-six lines of Section 10.1(b), with the word "NE
LP";
(ii) by replacing the word "IEC", which appears in the first and
the fourteenth lines of Section 10.1(d), with the word "NE LP";
(iii) by (i) replacing the words "the Sponsor Control Group shall
cease to own and", which appear in the first and second lines of
Section 10.1(n), with the words "neither Sponsor, alone or together
with the other Sponsor, shall own or"; (ii) by inserting after the
words "each Project," and before the words "(ii) 51% of the Voting",
which appear in the third line of Section 10(b), the word "or"; and
(iii) by replacing the word "IEC", which appears in the fourth line of
Section 10.1(n), with the words "the general partner of each
Partnership";
(iv) by deleting Section 10.1(o) in its entirety and replacing it
with the following language:
any Person other than a Sponsor or an Affiliate of a Sponsor shall
hold any general partnership interest in either Partnership.
SECTION 1.2 Amendments to Definitions. Appendix A to the Original
Indenture is hereby amended as follows:
(a) The following definitions are hereby inserted in Appendix A of the
Original Indenture, in alphabetical order:
"FPL Capital Guarantee" shall mean one or more corporate guarantees in
form and substance satisfactory to the Letter of Credit Banks issued by
FPL Group Capital Inc in favor of the Letter of Credit Banks in
accordance with Section 7.23.
"FPL Group Capital Inc" shall mean FPL Group Capital Inc, a subsidiary
of FPL Group, Inc.
"NE LP" shall mean Northeast Energy, LP, a Delaware limited
partnership.
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<PAGE>
"Second Supplemental Indenture" shall mean the Supplemental Indenture
dated as of January 14, 1998 among the IEC Funding, the Partnerships
and the Trustee.
(b) The definitions of "Sponsor Control Group" and "Sponsor Family
Members" are hereby deleted in their entirety from Appendix A of the Original
Indenture.
(c) Each reference to "IEC", wherever it appears, in the definitions of
"Authorized Representative", "Collateral", "Outstanding", "Partners" and
"Prestwich Letter of Credit", is hereby deleted and replaced with the words "NE
LP":
(d) The following definitions set forth in Appendix A to the Original
Indenture are hereby amended as follows:
(i) The definition of "General Partner" is hereby amended by
replacing the word "IEC", which appears in the first line
thereof, with the words "each of NE LP";
(ii) The definition of "Management Costs" is hereby amended by: (1)
replacing the word "IEC", which appears in the second and tenth
lines thereof, with the words "NE LP"; (ii) replacing the word
"IEC", which appears in the fourth and fifteenth lines thereof
after the words "or a vice president of" and before the words
"and in an Officers' Certificate", with the words "a general
partner of NE LP"; and (iii) deleting the words "that are not
related by blood or marriage to the Sponsors", which appear in
clause (iii) in the thirteenth and fourteenth lines thereof.
(iii) The definition of "Operating Expenses" is hereby amended by: (i)
inserting after the words "storage, transportation" and before
the words "and associated costs", which appear in the ninth line
thereof, the word "management"; and (ii) replacing the word
"IEC", which appears in clause (e) in the seventh line from the
end of the definition of "Operating Expenses", with the words "NE
LP";
(iv) the definition of "Related Party" is hereby amended by deleting
the words "Family Member", which appear in the second line
thereof; and
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<PAGE>
(v) the definition of "Sponsors" is hereby amended by replacing the
words "the Sponsor Family Members (other than executors, legal
representatives and administrators);" which appear in the first
and second lines thereof, with the words "ESI Energy, Inc. and
Tractebel Power, Inc."
ARTICLE II
CONDITIONS TO EFFECTIVENESS
This Second Supplemental Indenture shall become effective on the date (the
"Closing Date") on which each of the following conditions shall have been
satisfied (which date shall have occurred on or prior to March 31, 1998):
(a) Each of the conditions set forth in the Purchase Agreement shall have
been satisfied or waived by the parties thereto and the Acquisition shall have
been consummated;
(b) The Trustee shall have received certificates, each dated as of the
Closing Date, of the Secretary or Assistant Secretary of the Company and of the
General Partner of each Partnership (a) attaching a true and complete copy of
the resolutions of the Board of Directors of the Company and the resolutions of
the Management Committee of the General Partner of each Partnership,
respectively, and of all documents evidencing other necessary corporate or
partnership action taken by the Company and each Partnership to authorize this
Second Supplemental Indenture and all of the Related Amendments to the other
Transaction Documents being amended in connection herewith and the transactions
contemplated herein and therein, and (b) setting forth the incumbency and
authority of its officer or officers or, in the case of each Partnership, of the
officer or officers of the General Partner, who may sign this Second
Supplemental Indenture and all of the related amendments to the other
Transaction Documents being amended in connection herewith, including therein a
signature specimen of such officer or officers;
(c) All conditions precedent to the effectiveness of the related amendments
to the other Transaction Documents being amended in connection herewith shall
have been satisfied or waived by the parties thereto;
(d) The Trustee shall have received counterparts of this Second
Supplemental Indenture signed by each of the parties hereto (or the Trustee
shall have received from a party hereto a facsimile signature page signed by
such party, which party shall have agreed to promptly provide the Trustee with
originally executed counterparts hereof); and
8
<PAGE>
(e) The Trustee shall have received a favorable opinion of Orrick,
Herrington & Sutcliffe LLP a form and substance reasonably satisfactory to the
Trustee, stating, among other things, that the execution of this Second
Supplemental Indenture is authorized or permitted by the Original Indenture, as
amended by the First Supplemental Indenture.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Execution of Supplemental Indenture. This Second Supplemental
Indenture is executed and shall be construed as an indenture supplemental to the
Original Indenture, as supplemented by the First Supplemental Indenture, and, as
provided in the Original Indenture, this Second Supplemental Indenture forms a
part thereof.
SECTION 3.2 Concerning the Trustee. The recitals contained herein shall be
taken as the statements of the Company, NEA and NJEA, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Second Supplemental
Indenture.
SECTION 3.3 Counterparts. This Second Supplemental Indenture may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
SECTION 3.4 Severability. Any provision of the Second Supplemental
Indenture which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 3.5 Section Headings. Section headings have been inserted in this
Second Supplemental Indenture as a matter of convenience for reference only and
it is agreed that such section headings are not a part of this Second
Supplemental Indenture and shall not be used in the interpretation of any
provision of this Second Supplemental Indenture.
SECTION 3.6 Reference to and Effect on the Transaction Documents. (a) Upon
the effectiveness of this Second Supplemental Indenture, on and after the date
hereof, each reference in the Original Indenture to "this Indenture",
"hereunder", "hereof", "herein", or words of like import, and each reference in
the other Transaction Documents to the Indenture, shall mean and be a reference
to the Original Indenture as amended by the First Supplemental Indenture and
hereby.
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(b) Exception as specifically amended or waived above, the Original
Indenture, as supplemented by the First Supplemental Indenture, shall
remain in full force and effect and is hereby ratified and confirmed.
SECTION 3.7 Waivers. The execution, delivery and effectiveness of this
Second Supplemental Indenture shall operate as a consent and a waiver by the
Holders of any other provision of the Original Indenture which might have been
inadvertently breached as a result of the Acquisition and the execution of the
related amendments to the other Transaction Documents being amended in
connection herewith had therewith. Except as set forth in the preceding
sentence, the execution, delivery and effectiveness of this Second Supplemental
Indenture shall not operate as a waiver of any right, power or remedy of any of
the Holders or the Trustee under any of the Transaction Documents, nor
constitute a waiver of any provision of any of the Transaction Documents.
SECTION 3.8 GOVERNING LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF OTHER THAN SECTION 5-1401 OF
THE NEW YORK GENERAL OBLIGATIONS LAW.
[Signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed as of the date and year first written above.
COMPANY
IEC FUNDING CORP.
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
PARTNERSHIPS
NORTHEAST ENERGY ASSOCIATES, A
LIMITED PARTNERSHIP
By: NORTHEAST ENERGY, LP.
its sole general partner
By: ESI NORTHEAST ENERGY GP.
INC.,
as a general partner
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
GENERAL GP. INC.,
as general partner
By: /s/ Timothy R. Dunne
----------------------------
Name: Timothy R. Dunne
Title: Vice President
Address for Notices:
c/o ESI Energy, Inc.
11760 U.S. Highway 1, Suite 600
North Palm Beach, FL 33408
Execution Copy
EXHIBIT 4.23
AMENDMENT TO AMENDED AND RESTATED ASSIGNMENT
AND SECURITY AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED ASSIGNMENT AND SECURITY
AGREEMENT is made and entered into as of January 14, 1998, by and between
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a Massachusetts limited
partnership ("NEA"), NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a
New Jersey limited partnership ("NJEA"), (NEA and NJEA are individually referred
to as a "Borrower" and collectively referred to as the "Borrowers"),
INTERCONTINENTAL ENERGY CORPORATION ("IEC") Northeast Energy, LP, a Delaware
limited partnership ("NE LP") and STATE STREET BANK AND TRUST COMPANY as
"Collateral Agent" under the Collateral Agency Agreement referred to below (in
such capacity, the "Collateral Agent").
R E C I T A L S:
A. The Borrowers, the Collateral Agent and IEC have entered into the
Amended and Restated Assignment and Security Agreement dated as of December 1,
1994 (the "Amended and Restated Assignment and Security Agreement") pursuant to
which IEC granted to the Collateral Agent a security interest in all of the
Collateral (as such term is defined in the Amended and Restated Assignment and
Security Agreement).
B. Pursuant to and subject to the terms and conditions of the Credit
Agreement dated as of December 1, 1994 (as amended, the "Credit Agreement")
among the Borrowers and The Sanwa Bank Limited, the New York Branch ("Sanwa"),
as issuing bank (in such capacity, the "Issuing Bank"), as a "Bank" (in such
capacity, the "Bank") and as agent for the Bank and the Issuing Bank (in such
capacity, the "Agent"), the Issuing Bank has agreed to issue and renew letters
of credit (the "Letters of Credit") in support of certain obligations of the
Borrowers under the Power Purchase Agreements referred to therein as well as
certain other obligations referred to therein.
C. IEC Funding Corp., a Delaware corporation (the "Issuer"), has
entered into the trust indenture, dated as of November 15, 1994, as supplemented
by the first supplemental trust indenture, dated as of November 15, 1994 (the
"Indenture"), with the Borrowers and State Street Bank and Trust Company ("State
Street"), as Trustee (in such capacity, the "Trustee"), pursuant to which the
Issuer's 8.43% Senior Secured Notes due 2000, 9.16% Senior Secured Notes due
2002, 9.32% Senior Secured Bonds due 2007 and 9.77% Senior Secured Bonds due
2010, in the aggregate principal amount outstanding as of the date hereof of
$490,286,720, were issued.
<PAGE>
D. In connection with the Credit Agreement and the Indenture, and as a
condition to the obligations of the Issuing Bank to issue or renew the Letters
of Credit and of the Bank to make working capital loans to the Borrowers, the
Borrowers, Sanwa Bank Trust Company of New York, as Trustee and the Collateral
Agent entered into a Pledge, Trust & Intercreditor Agreement dated as of
December 1, 1994 (the "Pledge, Trust & Intercreditor Agreement").
E. In connection with the Indenture and certain other agreements, the
Borrowers and the Secured Parties (as defined in the Collateral Agency
Agreement) have entered into the Collateral Agency Agreement dated as of
December 1, 1994 (the "Collateral Agency Agreement") which provides, among other
things, for (a) the exercise of certain rights and remedies under the Amended
and Restated Assignment and Security Agreement and certain other Security
Documents (the "Security Documents") referred to therein, by the Collateral
Agent and (b) the priority of their respective security interests created by the
Security Documents.
F. Pursuant to the Purchase Agreement dated as of November 21, 1997
(the "Purchase Agreement") among Intercontinental Energy Corporation, a Delaware
corporation and the sole general partner of each Borrower, and the limited
partners of each Borrower, as sellers (the "Sellers"), NE LP, Northeast Energy,
LLC, a Delaware limited liability company ("NE LLC"), ESI Northeast Energy
Funding, Inc. a Florida corporation ("ESI Funding") and Tractebel Power, Inc.
("Tractebel"), a Delaware corporation, as buyers (collectively, the "Buyers")
pursuant to which (i) NE LP and NE LLC shall purchase from the Sellers all of
the general and limited partnership interests in the Borrowers and (ii) ESI
Funding and Tractebel shall purchase 7,500 issued and outstanding shares of
Common stock of the Issuer (the "Acquisition").
G. Upon the consummation of the Acquisition, the general partner of the
Borrowers will be NE LP, which is directly or indirectly wholly-owned by special
purpose subsidiaries of ESI Energy, Inc. and Tractebel Power, Inc.
H. In connection with the Acquisition, the Borrowers, the Grantor and
the Collateral Agent have agreed to enter into this Amendment in order to
implement an amendment to the Amended and Restated Assignment and Security
Agreement, which amendment permits the Grantor to, among other things, (i) sell,
assign or otherwise dispose of its general partnership interest in the Borrowers
pursuant to the Purchase Agreement, (ii) admit NE LP as a general partner to
each Borrower pursuant to the Purchase Agreement, (iii) enter into certain
amendments and restatements of the Partnership Agreement and (iv) consummate
certain transactions not constituting certain Events of Default under the
Indenture.
I. Further, in connection with the Acquisition, the Issuer, the
Borrowers and the Trustee are executing and delivering concurrently herewith a
Second Supplemental Trust Indenture to the Indenture (the "Second Supplemental
Indenture") in order to implement, among other things, certain of the proposed
amendments described in the preceding paragraph.
NOW, THEREFORE, the Borrowers, IEC, NE LP and the Collateral Agent
hereby agree as follows:
<PAGE>
1. Terms. Capitalized terms not defined herein shall have the meaning
given such terms in the Amended and Restated Assignment and Security Agreement.
2. Amendments.
2.1 Section 3 of the Amended and Restated Assignment and
Security Agreement is hereby amended to read in its entirety as follows:
(b) So long as the Secured Obligations have not been satisfied
or performed or paid in full, as the case may be, the Grantor will not,
except as otherwise permitted under the Indenture, (i) cancel or
terminate the Partnership Agreement or consent to or accept any
cancellation or termination thereof, (ii) sell, assign or otherwise
dispose of (by operation of law or otherwise) any part of its general
partnership interest in the Borrowers (other than pursuant to the
Purchase Agreement dated as of November 21, 1997 (the "Purchase
Agreement") among the parties identified on Schedule I thereto), (iii)
admit any other partner to either Borrower as a general partner (other
than NE LP, as contemplated in the Purchase Agreement) or (iv) amend,
supplement or otherwise modify the Partnership Agreement (as in effect
on the date hereof) in a manner that would materially and adversely
affect the rights of the Grantor as a general partner thereunder,
provided that the foregoing shall not be construed to preclude (i)
entry into amendments and restatements of the Partnership Agreement
simultaneously with closing of the transactions contemplated by the
Purchase Agreement, or (ii) the consummation of any transaction (A) not
constituting an Event of Default under Section 10.1(n) or 10.1(o) of
the Indenture (in each case as amended by the Second Supplemental
Indenture dated as of January 14, 1998 among IEC Funding, the
Partnerships and the Trustee), or (B) permitted under the Indenture
resulting in a Permitted Successor to either Borrower in accordance
with the Indenture. The Grantor at the Borrowers' expense will perform
and comply in all material respects with all terms and provisions of
the Partnership Agreement required to be complied with by the Grantor.
2.2 The addresses for notices specified on the signature pages hereof
shall supersede any prior addresses designated pursuant to the Amended and
Restated Assignment and Security Agreement.
2.3 It is acknowledged and agreed that (a) NE LP is hereby substituted
for IEC as the Grantor under the Amended and Restated Assignment and Security
Agreement, and (b) IEC shall cease to be a party thereto.
<PAGE>
3. Conditions to Effectiveness. This Amendment shall become effective
on the date on which each of the conditions specified in Article II of the
Second Supplemental Indenture shall have been satisfied.
4. Successors and Assignees. This Amendment shall be binding upon and
inure to the benefit of the Borrowers, the Grantor and the Collateral Agent and
their respective successors and assigns.
5. Counterparts. This Amendment may be executed in any number of
counterparts and each such counterpart shall be deemed to constitute but one and
the same instrument.
6. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
7. No Other Changes. Except as modified and amended pursuant to the
terms of this Amendment, the terms and conditions of the Amended and Restated
Assignment and Security Agreement shall remain in full force and effect in
accordance with its terms, and the Borrowers, the Grantor and the Collateral
Agent hereby ratify, confirm and reaffirm the terms and conditions of the
Amended and Restated Assignment and Security Agreement as modified and amended
hereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
INTERCONTINENTAL ENERGY CORPORATION,
By: /s/ James Blakey
------------------------
Name: James Blakey
Title: Vice President
NORTHEAST ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP
By: Intercontinental Energy
Corporation,
By: /s/ James Blakey
------------------------
Name: James Blakey
Title: Vice President
Address for Notices:
c/o ESI Energy, Inc.
11760 U.S. Highway 1, Suite 600
North Palm Beach, FL 33408
NORTH JERSEY ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP
By: Intercontinental Energy
Corporation,
By: /s/ James Blakey
-------------------------
Name: James Blakey
Title: Vice President
Address for Notices:
c/o ESI Energy, Inc.
11760 U.S. Highway 1, Suite 600
North Palm Beach, FL 33408
<PAGE>
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By: /s/ Paul D. Allen
Name: Paul D. Allen
Title: Vice President
NORTHEAST ENERGY, LP,
By: ESI Northeast Energy GP, Inc.,
General Partner
By: /s/ Glenn E. Smith
-----------------
Name: Glenn E. Smith
Title: Vice President
By: Tractebel Northeast Generation GP, Inc.,
General Partner
By: /s/ Charles Vetters
-------------------
Name: Charles Vetters
Title: Vice President
EXHIBIT 4.24
TERMINATION OF PLEDGE, TRUST AND INTERCREDITOR AGREEMENT
TERMINATION OF PLEDGE, TRUST AND INTERCREDITOR AGREEMENT, dated as of
January 30, 1998 (this "Termination Agreement"), among NORTH JERSEY ENERGY
ASSOCIATES, A LIMITED PARTNERSHIP, a New Jersey limited partnership ("NJEALP"),
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a Massachusetts limited
partnership ("NEALP" and, together with NJEALP, the "Pledgors"), THE SANWA BANK,
LIMITED, NEW YORK BRANCH, as "Bank Agent," as a "Bank" and as the "Letter of
Credit Bank" (each as defined in the Pledge Agreement referred to below), SANWA
BANK TRUST COMPANY OF NEW YORK, in its capacity as trustee (together with its
successors in such capacity, the "Trustee") for the benefit of the Secured
Parties (as defined in the Pledge Agreement), STATE STREET BANK AND TRUST
COMPANY, in its capacity as "Collateral Agent" (as defined in the Pledge
Agreement) under the Collateral Agency Agreement referred to below, and STATE
STREET BANK AND TRUST COMPANY, in its capacity as "Bond Trustee" under the Bond
Indenture referred to below.
WHEREAS, pursuant to the Credit Agreement, dated as of December 1, 1994
(as amended, the "Credit Agreement"), among the Pledgors, the Bank Agent, the
Bank and the Letter of Credit Bank, the Letter of Credit Bank agreed to issue
and renew letters of credit (the "Letters of Credit") in support of certain
obligations of the Pledgors under the Power Purchase Agreements referred to
therein as well as certain other obligations referred to therein;
WHEREAS, IEC Funding Corp., a Delaware corporation (the "Issuer"),
entered into the trust indenture, dated as of November 15, 1994, as supplemented
by the first supplemental trust indenture, dated as of November 15, 1994 (the
"Original Bond Indenture"), with the Pledgors and the Bond Trustee, pursuant to
which the Issuer's 8.43% Senior Secured Notes due 2000, 9.16% Senior Secured
Notes due 2002, 9.32% Senior Secured Bonds due 2007 and 9.77% Senior Secured
Bonds due 2010, currently outstanding in the aggregate principal amount of
$490,286,720, were issued;
WHEREAS, in connection with the Credit Agreement and with the Original
Bond Indenture, and as a condition to the obligations of the Letter of Credit
Bank to issue and to renew the Letters of Credit and of the Banks to make
working capital loans to the Pledgors, the Pledgors, the Bank Agent, the Letter
of Credit Bank, the Trustee, the Collateral Agent and the Bond Trustee entered
into the Pledge, Trust & Intercreditor Agreement dated as of December 1, 1994
(the "Pledge Agreement");
WHEREAS, in connection with the Bond Indenture and certain other
agreements, the Pledgors and the Secured Parties (as such term is defined in the
Collateral Agency Agreement) entered into the Collateral Agency Agreement, dated
as of December 1, 1994 (the "Collateral Agency Agreement"), which provides,
among other things, for (a) the exercise by the Collateral Agent of certain
rights and remedies under the Amended and Restated Assignment and Security
Agreement and under certain other Security Documents (the "Security Documents")
referred to therein and (b) the priority of their respective security interests
created by the Security Documents;
<PAGE>
WHEREAS, pursuant to the Purchase Agreement, dated as of November 21,
1997 (the "Purchase Agreement"), among Intercontinental Energy Corporation, a
Delaware corporation and the sole general partner of each of NJEALP and NEALP,
and the limited partners of each of NJEALP and NEALP, as sellers (the
"Sellers"), and Northeast Energy, L.P., a Delaware limited partnership ("NE
LP"), Northeast Energy, LLC, a Delaware limited liability company ("NE LLC"),
ESI Northeast Energy Funding, Inc. a Florida corporation ("ESI Funding") and
Tractebel Power, Inc. ("Tractebel"), a Delaware corporation, as buyers
(collectively, the "Buyers"), on January 14, 1998 (i) NE LP and NE LLC purchased
from the Sellers all of the general and limited partnership interests in the
Pledgors and (ii) ESI Funding and Tractebel purchased 7,500 issued and
outstanding shares of Common stock of the Issuer (the "Acquisition");
WHEREAS, after the consummation of the Acquisition, the sole partners
of both Pledgors are NE LP and NE LLC, which are directly or indirectly
wholly-owned by special purpose subsidiaries of ESI Energy, Inc. and Tractebel
Power, Inc.;
WHEREAS, in connection with the Acquisition, (i) the Issuer, the
Pledgors and the Bond Trustee executed and delivered a Second Supplemental Trust
Indenture, which amends and supplements the Original Bond Indenture (the "Second
Supplemental Bond Indenture" and together with the Original Bond Indenture, the
"Bond Indenture"), and (ii) the Pledgors and the other parties to the Credit
Agreement executed and delivered an amendment to the Credit Agreement (the
"Credit Agreement Amendment") to reflect, among other things, the
Acquisition;and
WHEREAS, following the Acquisition, the Pledgors arranged for the
delivery to the Power Purchasers of new letters of credit in substitution for
the Letters of Credit issued by the Letter of Credit Bank and for the delivery
to the issuers of such new letters of credit of a guaranty in lieu of the
Pledged Deposits and Pledged Investments required by the Pledge Agreement;
NOW, THEREFORE, in consideration of the premises and as provided in the
Credit Agreement and the Pledge Agreement, the parties hereto hereby agree as
follows:
Section 1. Definitions. All capitalized terms not defined herein shall
have the meanings assigned thereto in the Pledge Agreement. Terms defined in the
introductory paragraph or in the preambles or other provisions hereof shall have
the meanings assigned therein.
Section 2. Termination Date and Withdrawal of Collateral. The Pledgors
hereby notify the Bank Agent that, effective as of the date hereof, they are
terminating in entirety (a) the Working Capital Loan Commitment (as defined in
the Credit Agreement) and (b) the L/C Commitment (as defined in the Credit
Agreement). The Bank Agent hereby waives any further or additional notice of
such termination and the parties confirm that such Working Capital Loan
<PAGE>
Commitment and L/C Commitment are hereby terminated in their entirety. Subject
to the payment to the Bank Agent of any fees, expenses, reimbursements or other
amounts due to it under the Credit Agreement, including without limitation, any
fees due under Section 4.1 or Section 7 of the Credit Agreement and the
reimbursement of costs and expenses under Section 13 of the Credit Agreement,
and except as provided in Section 14.7 of the Credit Agreement, the Bank Agent
hereby confirms that no Bank Obligations are outstanding under the Credit
Agreement. Subject to receipt by the Letter of Credit Bank of the original of
each outstanding Letter of Credit for cancellation and the written confirmation
thereof from each beneficiary to each Letter of Credit reasonably satisfactory
to the Letter of Credit Bank, the parties agree that the Termination Date is
January 30, 1998. As provided in subsection 3.4(d) of the Pledge Agreement, the
Bank Agent hereby directs the Trustee to withdraw the Pledged Deposits deposited
in the Accounts and to liquidate the Pledged Investments credited to the
Accounts and, upon written confirmation from the Bank Agent that all amounts due
to it under the Credit Agreement have been paid in full and from the issuers of
the new letters of credit that such issuers have received an FPL Capital
Guarantee (as defined in the Bond Indenture), to pay over to or at the direction
of the General Partner of the Pledgors all of such proceeds and deposits, after
deducting for its own account any amounts due to it under Section 7.1 and
Section 7.18 of the Pledge Agreement. Each of the parties hereto agrees that
upon such payment of such proceeds and deposits by the Trustee, the Trustee
shall be released and discharged from its duties and responsibilities under the
Pledge Agreement or with respect to the Collateral.
Section 3. Joinder and Release. Each of the Collateral Agent and the
Bond Trustee joins in the request and direction of the Bank Agent to the Trustee
set forth in Section 2 hereof and each party to this Termination Agreement
agrees that the Pledgors shall be released from their obligations under the
Pledge Agreement, that the Collateral shall be released and that the Collateral
and the proceeds thereof shall be paid over to or at the direction of the
General Partner of the Pledgors.
Section 4. Counterparts. This Termination Agreement may be executed in
any number of counterparts and each such counterpart shall be deemed to
constitute but one and the same instrument.
Section 4. Governing Law. This Termination Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the 30th day of January, 1998.
NORTHEAST ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP
By: NORTHEAST ENERGY, LP,
its sole general partner
By: ESI Northeast Energy GP, Inc.,
General Partner
By: /s/ Glenn E. Smith
-----------------
Name: Glenn E. Smith
Title: Vice President
By: Tractebel Northeast Generation GP, Inc.,
General Partner
By: /s/ Charles Vetters
--------------------
Name: Charles Vetters
Title: Vice President
<PAGE>
NORTH JERSEY ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP
By: NORTHEAST ENERGY, LP,
its sole general partner
By: ESI Northeast Energy GP, Inc.,
General Partner
By: /s/ Glenn E. Smith
Name: Glenn E. Smith
Title: Vice President
By: Tractebel Northeast Generation GP, Inc.,
General Partner
By: /s/ Charles Vetters
Name: Charles Vetters
Title: Vice President
THE SANWA BANK, LIMITED, NEW YORK BRANCH,
as Bank Agent, as Bank and as Letter of
Credit Bank
By: /s/ Thomas R. Cantello
----------------------
Name: Thomas R. Cantello
Title: Vice President
<PAGE>
SANWA BANK AND TRUST COMPANY OF NEW YORK,
as Trustee
By: /s/ Peter P. Kearns
Name: Peter P. Kearns
Title: Vice President
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent and Bond Trustee
By: /s/ Paul D. Allen
--------------------------
Name: Paul D. Allen
Title: Vice President
EXHIBIT 10.16
================================================================================
OPERATION AND MAINTENANCE AGREEMENT
for the
Bellingham Cogeneration Plant
at
Bellingham, Massachusetts
between
Northeast Energy, LP
and
ESI Operating Services, Inc.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page No.
--------
ARTICLE I.
DEFINITIONS................................1
ARTICLE II.
SCOPE OF SERVICES.............................2
Section 2.01 Oversight Services......................................2
Section 2.02 Transition Services.....................................2
Section 2.03 Operator Services.......................................2
Section 2.04 Agency..................................................2
Section 2.05 Operator Notices........................................3
ARTICLE III.
RESPONSIBILITIES OF OWNER........................3
Section 3.01 Responsibilities of Owner...............................3
Section 3.02 Owner Notices...........................................3
ARTICLE IV.
PROCEDURES, PLANS AND RECORDS......................3
Section 4.01 Plant Manual............................................3
Section 4.02 Transition Plan.........................................4
Section 4.03 Annual Plan.............................................5
Section 4.04 Emergencies.............................................7
Section 4.05 Right of Owner to Inspect Records.......................7
Section 4.06 Capital Improvements....................................7
ARTICLE V.
COMPENSATION, COSTS AND REIMBURSEMENTS..................8
Section 5.01 Costs and Expenses......................................8
Section 5.02 Operating Fee...........................................8
Section 5.03 O&M Operating Account...................................9
Section 5.04 Late Payments...........................................9
(i)
<PAGE>
Page No.
--------
ARTICLE VI.
TERM AND TERMINATION...........................9
Section 6.01 Term....................................................9
Section 6.02 Termination upon Notice by Owner........................9
Section 6.03 Termination upon Notice by Operator....................10
Section 6.04 Termination for Insolvency.............................10
Section 6.05 Termination Upon Certain Other Events..................10
Section 6.06 Duties Upon Termination................................10
Section 6.07 Effect of Termination..................................11
Section 6.08 Termination Payment....................................11
ARTICLE VII.
LIMITATION OF LIABILITY.......................11
Section 7.01 No Consequential Damages..............................11
Section 7.02 Limitation of Aggregate Liability.....................12
ARTICLE VIII.
INDEMNIFICATION, INSURANCE BY OPERATOR................12
Section 8.01 Indemnification.......................................12
Section 8.02 Insurance Coverage....................................12
ARTICLE IX.
INDEMNIFICATION, INSURANCE BY OWNER................13
Section 9.01 Indemnification.......................................13
Section 9.02 Procedure.............................................13
Section 9.03 Insurance Coverage....................................14
ARTICLE X.
FORCE MAJEURE.............................14
Section 10.01 Force Majeure.........................................14
Section 10.02 Notice................................................14
ARTICLE XI.
(ii)
<PAGE>
Page No.
--------
RELATIONSHIP OF THE PARTIES.....................15
ARTICLE XII.
REPRESENTATIONS, WARRANTIES AND STANDARD OF CARE...........15
Section 12.01 Representations and Warranties of Owner...............15
Section 12.02 Representations and Warranties of Operator............16
Section 12.03 Standard of Care......................................16
ARTICLE XIII.
NOTICES...............................16
ARTICLE XIV.
ASSIGNMENTS AND SUBCONTRACTING....................17
Section 14.01 Assignments...........................................17
Section 14.02 Assignment by Owner to NEA............................17
Section 14.03 Security Interest.....................................18
Section 14.04 Cooperation in Financing..............................18
Section 14.05 Subcontracting........................................18
ARTICLE XV.
LIMITATIONS OF AUTHORITY; LIENS AND ENCUMBRANCES...........18
Section 15.01 Limitation on Authority...............................18
Section 15.02 No Liens or Encumbrances..............................19
ARTICLE XVI.
DISPUTE RESOLUTION AND ARBITRATION...................19
Section 16.01 Dispute Resolution....................................19
Section 16.02 Arbitration...........................................19
Section 16.03 Survival..............................................20
ARTICLE XVII.
MISCELLANEOUS............................21
(iii)
<PAGE>
Page No.
--------
Section 17.01 Severability..........................................21
Section 17.02 Governing Law.........................................21
Section 17.03 Entire Agreement......................................21
Section 17.04 Captions..............................................21
Section 17.05 Counterparts..........................................21
Section 17.06 No Third Party Beneficiaries..........................21
Section 17.07 Further Assurances....................................21
Section 17.08 No Implied Waiver.....................................21
Section 17.09 Amendments............................................22
Section 17.10 Confidentiality.......................................22
Section 17.11 Decision-Making by Parties............................22
Section 17.12 Schedules.............................................22
(iv)
<PAGE>
OPERATION AND MAINTENANCE AGREEMENT
This OPERATION AND MAINTENANCE AGREEMENT (this "Agreement") is
made as of the 21st day of November, 1997, between NORTHEAST ENERGY, LP, a
Delaware limited partnership ("Owner"), and ESI OPERATING SERVICES, INC., a
Florida corporation ("Operator"). Owner and Operator are sometimes referred to
individually as a "party," and collectively, the "parties".
RECITALS
WHEREAS, Northeast Energy Associates, a Limited Partnership
("NEA"), is the owner of a 300 megawatt gas-fuel combined cycle cogeneration
plant located in Bellingham, Massachusetts (the "Facility");
WHEREAS, NEA has entered into that certain Second Amended and
Restated Operation and Maintenance Agreement, dated as of June 28, 1989 (the
"Westinghouse O&M Agreement"), with Westinghouse Electric Corporation, a
corporation organized under the laws of the Commonwealth of Pennsylvania;
WHEREAS, Owner indirectly holds 100% of the partnership interests
in NEA;
WHEREAS, subject to the terms and conditions of this Agreement,
Owner desires to retain, effective as of the expiration or early termination of
the Westinghouse O&M Agreement, Operator to operate and maintain the Facility
and Operator is willing to perform the services described in this Agreement; and
WHEREAS, until such time, Operator is willing, subject to the
terms and conditions in this Agreement, to perform the Oversight Services and
the Transition Services described herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the receipt and sufficiency of which are hereby
acknowledged, Owner and Operator, intending to be legally bound, agree as
follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, capitalized terms shall have the
definitions set forth in Schedule 1.01.
<PAGE>
ARTICLE II.
SCOPE OF SERVICES
Section 2.01 Oversight Services. From the Effective Date through
the day immediately preceding the Transition Period Commencement Date (the
"Oversight Period"), Operator shall provide the services listed on Schedule 2.01
(the "Oversight Services"). Such services shall be conducted in a manner so as
to minimize disruption of operation and maintenance of the Facility. During the
Oversight Period, Operator shall not be responsible for operation or maintenance
of the Facility.
Section 2.02 Transition Services. From the Transition Period
Commencement Date through the day immediately preceding the Operating Period
Commencement Date (the "Transition Period"), Operator shall review existing
maintenance and operation records and perform all activities necessary to
mobilize its personnel (the "Transition Services"), including without
limitation, the services listed on Schedule 2.02. Such review and mobilization
efforts shall be conducted in a manner so as to minimize disruption of operation
and maintenance of the Facility. During the Transition Period, Operator shall
not be responsible for operation or maintenance of the Facility.
Section 2.03 Operator Services. From the Operating Period
Commencement Date through the termination, of this Agreement, Operator shall
perform all activities necessary to operate and maintain the Facility (the "O&M
Services"), including without limitation, the services listed on Schedule 2.03.
The O&M Services shall not include, and Operator shall not be responsible for,
supplying water, natural gas, appropriate distillate fuel oil or start up
electrical power for the Facility, securing or maintaining Owner Permits,
arranging for the sale of steam or electricity, except as specifically required
by this Agreement maintaining the insurance required by the Indenture, or the
services described in Schedule 3.01; provided, however, that the foregoing shall
not limit Operator's obligation to coordinate and/or arrange for the supply of
such services as set forth herein.
Section 2.04 Agency.
(a) To the extent expressly set forth in the Approved Transition
Plan, Operator is hereby authorized by Owner to enter into, on behalf of Owner
and as agent of Owner, purchase orders and service agreements in connection with
the Transition Services.
(b) Subject to the Approved Annual Plan, the administrative
procedures set forth in the Approved Plant Manual and Article XI hereof,
Operator is hereby authorized by Owner to enter into, on behalf of Owner and as
agent of Owner, purchase orders and service agreements in connection with the
O&M Services.
(c) Operator shall not claim title to any supplies, consumables,
tools, office equipment or furniture acquired on behalf of Owner.
Notwithstanding anything herein to the contrary, title to any software developed
or modified specifically for the Facility, whether by
2
<PAGE>
Owner, Operator or a third-party contractor, shall vest in Owner. Operator may
retain title to any commercially available software or equipment purchased by
Operator or its Affiliates with its own funds; provided, however, all records
with respect to the operation and maintenance of the Facility maintained with
such software shall be the property of Owner.
Section 2.05 Operator Notices. Operator shall provide to Owner
copies of all notices from third parties received by Operator in connection with
Operator's performance of its responsibilities under this Article II. Operator
shall designate in writing to Owner an individual who will act on behalf of
Operator with respect to communicating decisions and directions to Owner under
this Agreement. Such individual shall also be available at reasonable times to
receive communications from Owner and provide appropriate responses to Owner.
ARTICLE III.
RESPONSIBILITIES OF OWNER
Section 3.01 Responsibilities of Owner. From the Effective Date
to the end of the term of this Agreement, Owner shall provide, at Owner's sole
cost and expense, and in addition to the other services specifically set forth
in this Agreement, the services listed on Schedule 3.01.
Section 3.02 Owner Notices. Owner shall give Operator at least
120 days prior written notice of an early termination of the Westinghouse
Agreement. Owner shall also provide to Operator copies of all notices from third
parties received by Owner in connection with Owner's performance of its
responsibilities under this Article III. Owner shall designate in writing to
Operator an individual who will act on behalf of Owner with respect to
communicating decisions and directions to Operator under this Agreement. Such
individual shall also be available at reasonable times to receive communications
from Operator and provide appropriate responses to Operator.
ARTICLE IV.
PROCEDURES, PLANS AND RECORDS
Section 4.01 Plant Manual. During the Transition Period, Operator
shall review the existing plant operating, maintenance and safety procedures
(the "Existing Plant Procedures") currently in use at the Facility and sixty
(60) days before the Operating Period Commencement Date, submit to Owner a
report outlining the proposed scope of and schedule for revision and the
incorporation of the Existing Plant Procedures into a plant manual (the "Plant
Manual"). The Plant Manual shall be consistent with applicable Law, the Project
Documents and the original equipment manufacturers manuals. All safety,
environmental and administrative-related revisions shall be scheduled for
implementation as of the Operating Period Commencement Date. Operator's report
shall address, at a minimum, the following plans and procedures:
3
<PAGE>
(a) staffing plan;
(b) spare parts program;
(c) administrative procedures;
(d) operating procedures;
(e) maintenance program;
(f) safety and security program;
(g) accounting procedures;
(h) environmental procedures;
(i) record-keeping and reporting procedures;
(j) procurement procedures; and
(k) outage planning procedures.
Thereafter, Owner and Operator shall meet to resolve any differences with
respect to the Existing Plant Procedures and to agree on a Plant Manual and a
plan for revision of the Plant Manual, if necessary; provided, however, that if
Owner and Operator are unable to agree, the decision of Owner shall be binding
on the parties unless patently unreasonable or contrary to this Agreement or
applicable Law. Owner and Operator shall seek diligently to agree on the Plant
Manual and the plan for revision of the Plant Manual, if necessary, no later
than twenty (20) days before the Operating Period Commencement Date. The
approved Plant Manual shall remain in effect for the term of this Agreement,
subject to revision and amendment as may be proposed by Owner or Operator and
consented to in writing by both parties. The Plant Manual and all revisions
approved pursuant to this section shall be the "Approved Plant Manual." Operator
shall be responsible for maintenance and update of the Approved Plant Manual,
shall conduct an annual review of the Approved Plant Manual and shall make such
changes to the Approved Plant Manual as Owner shall reasonably request, except
as required by applicable Law or this Agreement. All costs associated with
developing the Approved Plant Manual and any revisions thereof shall be deemed
O&M Expenses.
Section 4.02 Transition Plan.
(a) Eighty (80) days before the Operating Period Commencement
Date, Operator shall prepare and submit to Owner a proposed plan for orderly
transition of the operation and maintenance responsibilities for the Facility to
Operator (the "Transition Plan"). The Transition Plan shall describe, in detail
reasonably acceptable to Owner, anticipated schedule, objectives, staffing
plans, equipment acquisitions, spare parts and Consumables inventories
(including a
4
<PAGE>
breakdown of capital items and expense items), schedules of subcontractor
services, and such other matters as Owner may reasonably require. Any actions
proposed under the Transition Plan shall be consistent with Prudent Industry
Practices and this Agreement. The Transition Plan shall contain a proposed
budget for the Transition Period that shall describe, in detail reasonably
acceptable to Owner, the estimated cost, based on time and materials and all
fees, for any anticipated Transition Services to be provided by Operator during
Transition Period and the assumptions used in developing such budget. When
approved pursuant to Section 4.02(b) below, the Transition Plan shall be an
"Approved Transition Plan."
(b) Owner shall give its written approval or disapproval of the
Transition Plan no later than 30 days after receipt thereof from Operator. If
Owner disapproves all or any portion of the proposed Transition Plan, Owner and
Operator shall make all reasonable efforts to agree upon the items and
associated costs to be included in the Transition Plan. If Owner and Operator
cannot agree on the Transition Plan, those elements of the Transition Plan that
are in dispute shall be revised in accordance with the reasonable specifications
of Owner, however, in no event shall the Transition Plan require Operator to (i)
deviate from its practices regarding salary administration, compensation and
personnel practices, except as required by Laws or Prudent Industry Practices or
(ii) perform services that might conflict with Operator's duties under this
Agreement or applicable Laws.
(c) An Approved Transition Plan shall constitute authorization for
Operator to incur costs and expenses as agent on behalf of Owner to the extent
set forth in the budget contained in Approved Transition Plan. Operator shall
notify Owner as soon as reasonably possible of any anticipated monetary
variances in estimated expenses for the Transition Period.
(d) If either party desires to request an amendment to the
Approved Transition Plan, Owner and Operator shall make all reasonable efforts
to agree upon any proposed changes to the Approved Transition Plan. Once
approved, the revised Transition Plan shall supersede the then current Approved
Transition Plan.
Section 4.03 Annual Plan.
(a) Sixty (60) days before the Operating Period Commencement Date
and ninety (90) days before the first day of each Operating Year commencing
thereafter, Operator shall prepare and submit to Owner a proposed operating and
maintenance plan for the upcoming Operating Year (the "Operating Plan"). The
Operating Plan shall describe, in detail reasonably acceptable to Owner,
anticipated maintenance and overhaul schedules, performance objectives,
predictive and preventative maintenance programs or plans, Planned Outages,
staffing plans, equipment acquisitions, spare parts and Consumables inventories
(including a breakdown of capital items and expense items), schedules of
subcontractor services, plant performance data regarding required environmental
performance, and such other matters as Owner may reasonably require. Any actions
proposed under the Operating Plan shall be consistent with the Approved Plant
Manual, Prudent Industry Practices and this Agreement. Together with the
Operating Plan, Operator shall submit to Owner for its review and written
approval a proposed budget for operating and maintaining the Facility during the
upcoming Operating Year pursuant to the
5
<PAGE>
Operating Plan and Prudent Industry Practices (the "Operating Budget") that
shall describe, in detail reasonably acceptable to Owner, the estimated cost,
based on time and materials and all fees, for all anticipated O&M Services to be
provided by Operator during each month of the upcoming Operating Year and the
assumptions used in developing the Operating Budget. (The Operating Plan and the
Operating Budget for the upcoming Operating Year are sometimes collectively
referred to as the "Annual Plan"). When approved pursuant to Section 4.03(b)
below, the Annual Plan shall be an "Approved Annual Plan" and shall consist of
an "Approved Operating Plan" and an "Approved Operating Budget."
(b) Owner shall give its written approval or disapproval of the
Annual Plan no later than 60 days after receipt thereof from Operator. If the
Annual Plan is not approved or disapproved within such 60-day period, the Annual
Plan for the previous year shall remain in effect until a new Annual Plan has
been approved by Owner. If Owner disapproves all or any portion of the proposed
Annual Plan, Owner shall provide the reasons for such disapproval in writing and
Owner and Operator shall make all reasonable efforts to agree upon the items and
associated costs to be included in the Annual Plan. If Owner and Operator cannot
agree on the Annual Plan, those elements of the Annual Plan that are in dispute
shall be revised on an interim basis in accordance with the reasonable
specifications of Owner. Owner and Operator agree to proceed pursuant to such
revised Annual Plan pending the final resolution of their disagreement. The
Owner-specified Operating Budget or Operating Plan will be deemed an Approved
Operating Budget or an Approved Operating Plan until such resolution. However,
in no event shall such revised Annual Plan require Operator to (i) deviate from
its practices regarding salary administration, compensation and personnel
practices, except as required by Laws or to comply with Prudent Industry
Practices or (ii) perform services that might conflict with Operator's duties
under this Agreement or applicable Laws. Facility staffing levels shall be
adjusted to appropriately respond to any material and sustained changes in the
operation of the Facility required by changes to the Project Documents, or as
mutually agreed upon by Owner and Operator.
(c) An Approved Annual Plan shall constitute authorization for
Operator to incur costs and expenses as agent on behalf of Owner to operate and
maintain the Facility in accordance with such Approved Operating Budget.
Operator shall notify Owner if Operator reasonably believes that expenses
anticipated to be incurred would exceed the O&M Expenses projected to be
incurred as set forth in the Approved Operating Budget for the applicable
Operating Year. Operator shall follow Owner's instructions regarding further
expenditures on Owner's behalf with respect to such variances. Unless and until
Owner approves additional expenditures, Operator shall, subject to Section 4.04
below, not incur expenses on behalf of Owner in excess of the projected O&M
Expenses in the Approved Operating Budget, and any expenses so incurred shall
not be deemed to be O&M Expenses.
(d) If either party desires to request an amendment to an Approved
Annual Plan at any time during the Operating Year, such party shall submit a
proposed revised Annual Plan for the other party's consideration, including the
basis for the adjustment, and such other party shall approve or disapprove the
proposed revised Annual Plan in writing within 30 days after submission thereof.
If the proposed revised Annual Plan is not approved within such 30-day
6
<PAGE>
period, it shall be deemed to have been disapproved. If the proposed revised
Annual Plan is disapproved within such 30 day period, the disapproving party
shall furnish the other party with the reasons for such disapproval in writing
and shall immediately begin good faith discussions in an effort to reach a
mutually agreeable revised Annual Plan. Operator shall not, except in an
emergency as described in Section 4.04 hereof, act outside of the Approved
Annual Plan for such Operating Year without the prior written consent of Owner.
Once approved, the revised Annual Plan shall supersede the then current Approved
Annual Plan.
Section 4.04 Emergencies. In the event of an emergency involving
the Facility or any adjoining property on or after the Operating Period
Commencement Date and Owner is unavailable or there is insufficient time to
reach Owner, Operator shall be authorized, without the necessity of obtaining
any approvals from Owner that might otherwise be required hereunder, to take any
action (including making payments and incurring expenses on behalf of Owner in
the nature of capital or operating expenses or otherwise) deemed by Operator to
be reasonably necessary or advisable under the circumstances to prevent, avoid
or mitigate injury, damage or loss to persons or property or loss of Owner's
revenue from the Facility; provided, however, that Operator shall not make any
such expenditures if the aggregate amount for any incident is estimated by
Operator to exceed $50,000 unless Owner has approved the same or the same is
made in accordance with the following sentence. If there is an emergency
resulting in, or imminently threatening, injury, damage or loss of life to
persons, or environmental damage and Operator has been unable to contact Owner
notwithstanding its diligent efforts to do so, Operator shall be authorized to
make such emergency expenditures in excess of $50,000, provided that Operator
continues its diligent efforts to contact Owner regarding any such expenditure.
Operator shall notify Owner of any emergency as soon as practicable. If, as a
result of action taken in response to such an emergency, Operator properly
incurs costs or expenses in connection therewith and provides Owner with
justification and invoices therefor, the Approved Annual Plan shall be revised
to properly incorporate and reflect such costs and expenses, and adequate funds
shall be deposited by Owner into the Operating Account in accordance therewith.
Section 4.05 Right of Owner to Inspect Records. Owner shall have
the right, at its own expense, throughout the term of this Agreement and for a
period of two years following termination of this Agreement, to inspect and/or
audit Operator's records of operation, permit compliance, past maintenance and
scheduled maintenance for the Facility, as well as procurement, expenditure and
cost records and supporting data (excluding the underlying basis for the rates
for Home Office Personnel) and all other books and records maintained by
Operator with respect to the Facility or the operation and maintenance thereof.
Upon reasonable prior notice, Operator hereby agrees to make all such records
maintained by Operator available, subject to Operator's record retention policy
as set forth in the Approved Plant Manual, for inspection or audit by Owner or
any third party reasonably designated by Owner and to cooperate with Owner and
Owner's designated auditor with respect to any audit or review. Neither the
third party nor the auditor shall be a direct competitor of Operator. Any audit
or review shall be conducted in a manner so as to minimize disruption of
Operator's business.
Section 4.06 Capital Improvements. Owner and Operator shall
develop a capital authorization procedure agreeable to both parties that
provides for proper Owner approval prior
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to implementation. No capital expenditures will be made by Operator unless the
same is specifically included in both the Approved Operating Budget and the
Approved Operating Plan or have otherwise been approved in accordance with
procedures adopted by Owner, and any such capital expenses incurred without
Owner's approval shall be at the sole expense of Operator.
ARTICLE V.
COMPENSATION, COSTS AND REIMBURSEMENTS
Section 5.01 Costs and Expenses.
(a) Owner shall pay all properly incurred costs and expenses of
performing the Transitional Services, including without limitation the
applicable costs and expenses listed on Schedule 5.01 to the extent in the
budget contained in the Approved Transition Plan, and all costs and expenses
(whether or not on Schedule 5.01) approved by Owner and incurred during the
Transition Period. Acting on behalf of Owner as agent, Operator shall incur
expenses during the Transition Period only to the extent the nature and amount
of such costs and expenses are included in the Approved Transition Plan or are
otherwise approved by Owner. Payment of such expenses shall be made by Owner
within thirty (30) days of Operator's submission of an invoice therefor;
provided, however, that Owner may defer payment until the Operating Period
Commencement Date set forth in the notice by Owner pursuant to Section 3.02.
(b) Subject to the provisions of this Section 5.01(b), Owner shall
pay all properly incurred costs and expenses of performing the O&M Services
(collectively, the "O&M Expenses"), including without limitation the costs and
expenses listed on Schedule 5.01. Acting on behalf of Owner as agent, Operator
shall incur O&M Expenses only to the extent the nature and amount of such costs
and expenses (i) are included within the Approved Operating Budget (it being
agreed that Operator may exceed the budget amount for any line item so long as
the overall budget amount has not been exceeded) or are otherwise approved by
Owner, (ii) are incurred in connection with the performance of any Unscheduled
Maintenance as approved in writing by Owner, or (iii) are incurred in connection
with an emergency as provided under Section 4.04 hereof. Operator shall be
responsible for paying all expenses not incurred in accordance with this
Agreement. Payment of O&M Expenses by Owner shall be made from the O&M Operating
Account, which is more particularly described in Section 5.03. Except as
specifically provided herein, Operator shall not incur on Owner's behalf any O&M
Expenses. All O&M Expenses, except the Labor Costs of Operator's personnel, the
cost of services provided by Operator's Affiliates and items purchased with
petty cash, shall be incurred in the name of Owner.
Section 5.02 Operating Fee.
(a) From the Effective Date until this Agreement is terminated,
Operator shall receive a fee (the "Operating Fee") of $750,000 per annum, as
adjusted in accordance with this Section 5.02. The Operating Fee shall be paid
in monthly installments and shall be due on the first
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Business Day of each month for the preceding month. The Operating Fee for any
partial month shall be pro rated to cover the actual portion of such month that
this Agreement was in effect.
(b) As of January 1 of each year, commencing January 1, 1999, the
Operating Fee shall be adjusted upwards or downwards by multiplying the
Operating Fee for the prior year by a fraction the numerator of which will be
the Index for the immediately preceding December and the denominator of which
will be the Index for the month of December one year earlier; provided, that in
no event shall the Operating Fee be decreased below $750,000. This adjusted
Operating Fee shall be the Operating Fee for the current Operating Year and the
basis for calculation of the Operating Fee for the next Operating Year.
Section 5.03 O&M Operating Account. Owner shall establish and
maintain an O&M operating account ("O&M Operating Account") and will designate
Operator as an additional signatory on the account, subject to the restrictions
set forth in the Approved Plant Manual. Owner will deposit into the O&M
Operating Account on or before the 15th day of each month an amount equal to (a)
the amount of O&M Expenses in the Approved Operating Budget for the next month,
plus (b) any amount reasonably expected by Operator, as communicated to Owner in
writing by the 10th day of the month, to be required for costs and expenses
relating to emergencies or approved Unscheduled Maintenance, plus or minus (c)
the difference between the amounts deposited in the O&M Operating Account in the
preceding month and the actual amount of O&M Expenses incurred in that month. On
or before the 10th day of each month, Operator shall deliver to Owner an
accounting report that reflects all O&M Expenses for the preceding month,
reconciled against the amounts deposited to the O&M Operating Account and
against the amounts projected in the Approved Operating Budget for such
preceding month.
Section 5.04 Late Payments. If any amounts owing under this
Agreement are not paid to Operator or Owner, as applicable, when due, the same
shall bear interest at the Late Payment Rate from the due date until paid.
ARTICLE VI.
TERM AND TERMINATION
Section 6.01 Term. Unless terminated as provided in Article VI or
Article X, this Agreement shall continue in effect for the period commencing on
the Effective Date and ending on the 18th anniversary of the Effective Date (the
"Initial Term"), unless the parties shall at least six (6) months prior to the
expiration of the Initial Term agree in writing to an extension.
Section 6.02 Termination upon Notice by Owner. If (a) prior to
the Operating Period Commencement Date an Independent Engineer has not certified
that Operator is capable of operating the Facility in accordance with Prudent
Industry Practices, (b) if the Purchase Agreement terminates in accordance with
Section 15 thereof, or (c) Operator defaults in the performance of any material
term, covenant or obligation contained in this Agreement and does not remedy
such default within 30 days after Operator's receipt of Owner's written notice
thereof
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to Operator (or as soon as possible thereafter but in any event within 180 days,
if it cannot be reasonably accomplished in such 30 day period and Operator shall
have commenced all actions required to remedy such default within such 30 day
period and diligently thereafter pursues the same to completion), Owner may, by
written notice to Operator, terminate this Agreement and Owner shall pay to
Operator all amounts due and not previously paid to Operator for services
performed in accordance with this Agreement up until the effective date of such
termination. All such amounts will be paid to Operator within 30 days of the
effective termination date or within 30 days of receipt of an invoice from
Operator for any amounts not invoiced prior to the effective termination date,
provided that Owner shall have the right to offset the amounts of any damages
owing by Operator under this Agreement against any such amounts due and not
previously paid to Operator by Owner.
Section 6.03 Termination upon Notice by Operator. If Owner (a)
fails to make any payment hereunder within 5 days after the same shall have
become due, or (b) defaults in the performance of any material term, covenant or
agreement contained in this Agreement and does not remedy such default within 30
days after Owner's receipt of Operator's written notice thereof to Owner (or as
soon as possible thereafter but in any event within 180 days, if it cannot be
reasonably accomplished in such 30 day period and Owner shall have commenced all
actions required to remedy such default within such 30 day period and diligently
thereafter pursues the same to completion), Operator may, by written notice to
Owner, terminate this Agreement.
Section 6.04 Termination for Insolvency. Either party may
terminate this Agreement by written notice to the other party (but only with the
concurrence of the Agent in the case of termination by Owner) if: (a) the other
party (i) makes a general assignment for the benefit of creditors, (ii)
institutes proceedings in any court of competent jurisdiction or takes any other
steps to subject itself to the laws of any jurisdiction to which it may be
subject providing for it to be wound up or adjudicating it to be bankrupt or
insolvent or (iii) takes or consents to the institution of any bankruptcy or
insolvency proceedings which relate to any reorganization, arrangement or
compromise of its debts; (b) any proceedings are commenced or steps taken
whether by way of private appointment, seizure, court proceedings or otherwise
for the appointment of a receiver, custodian, liquidator, trustee or similar
person with respect to all or a substantial portion of the other party's
property; or (c) any proceedings are commenced or steps taken by any creditor,
regulatory agency or other person relating to the reorganization, arrangement,
adjustment composition, liquidation, dissolution, winding up, custodianship or
other similar relief with respect to such other party.
Section 6.05 Termination Upon Certain Other Events. Either party
may terminate this Agreement by written notice to the other party if: (a) the
Facility is destroyed or suffers damage in excess of $100,000,000 and is not
rebuilt and in commercial operation within 24 months after such damage or
destruction, (b) the Facility cannot be operated for a period of at least 18
consecutive months as a result of a Force Majeure event, (c) loss of "qualifying
facility" status, or (d) Owner determines to permanently shut down the Facility.
Section 6.06 Duties Upon Termination. Upon termination or
expiration of this Agreement:
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(a) At the request of Owner, and provided that Owner is not in
default of any material provision of this Agreement, Operator shall have the
obligation to assist in making, at Owner's expense, a smooth transition to a new
operator (including training new operating personnel);
(b) Operator shall provide to Owner all books and records relating
to the Facility or the operation or maintenance thereof (other than Operator's
own internal accounting records), including, without limitation, the Approved
Plant Manual, provided that Operator may retain a copy of such records at its
own expense;
(c) Operator shall provide Owner with a current inventory record
of the assets at the Site and a reconciliation of inventory balances of such
assets; and
(d) Operator shall provide to Owner at the Site all tools and
Consumables purchased by Operator on behalf of Owner pursuant to this Agreement.
This Section 6.06 shall survive termination of this Agreement.
Section 6.07 Effect of Termination. On the effective date of
termination, Owner shall assume and become responsible for all operation and
maintenance of the Facility, including, but not limited to, obligations under
outstanding contracts and commitments relating to the operation and maintenance
of the Facility and the purchase of equipment for the Facility. Notwithstanding
such termination, neither party shall be relieved from any obligations or
liabilities that accrued prior to the effective date of termination. The
applicable provisions of this Agreement will continue in effect after
termination of this Agreement to the extent necessary to provide for final
payments, payment adjustments and any other final expense reimbursements, and
with respect to liability and indemnification payments and expense
reimbursements from acts or events that occurred prior to the date of
termination of this Agreement.
Section 6.08 Termination Payment. In the event of a termination
of this Agreement by Operator other than pursuant to Section 6.02, Operator
shall be entitled, in addition to all other amounts due hereunder as of the date
of termination, to a demobilization and cancellation payment equal to (a) the
total of all costs and expenses incurred by Operator as a direct result of such
termination, including all relocation, severance and outplacement costs incurred
with respect to, and any other termination benefits due, Operator's employees,
which costs Operator is at such time contractually or legally obligated to pay
to its employees, or which are incurred with the prior written approval of Owner
or in accordance with any established cancellation costs incurred with respect
to third parties, plus (b) in the case of a termination by Operator pursuant to
Section 6.03, $1,500,000. Subject to Owner's rights to conduct a subsequent
audit and review pursuant to Section 4.05, such amounts shall be due and payable
by Owner within thirty (30) days of Operator's submission of an invoice
therefor.
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ARTICLE VII.
LIMITATION OF LIABILITY
Section 7.01 No Consequential Damages. With respect to claims
arising under this Agreement or out of performance or non-performance of the
services and obligations under this Agreement, neither Operator, its Affiliates
nor their respective employees or agents shall be liable to Owner, its
Affiliates or their respective employees, agents or subcontractors and neither
Owner, its Affiliates nor their respective employees, agents or subcontractors
shall be liable to Operator, whether based in contract, in tort (including
negligence and strict liability), under warranty, or otherwise, for any special,
indirect, incidental, exemplary or consequential loss or damage whatsoever,
including without limitation, loss of use, opportunity or profits, damages to
good will or reputation or punitive damages.
Section 7.02 Limitation of Aggregate Liability. The total annual
aggregate liability of Operator with respect to this Agreement under any theory
of recovery, whether based in contract, in tort (including negligence and strict
liability), under warranty, or otherwise, and notwithstanding any other
provision of this Agreement, shall be limited in any Operating Year to the
Operating Fee for such Operating Year.
Section 7.03 NonRecourse Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of Owner hereunder
are recourse only to the assets of Owner and neither the partners of Owner nor
any shareholder, director, officer, agent or affiliate of Owner or any partner
of Owner, shall have any personal responsibility or liability for any payment
obligations of Owner hereunder, or otherwise for any breach in performance or
observance of the covenants, representations, or obligations of Owner hereunder.
ARTICLE VIII.
INDEMNIFICATION, INSURANCE BY OPERATOR
Section 8.01 Indemnification. Subject to the limitations set
forth in Article VII hereof, Operator hereby agrees to indemnify, defend and
hold harmless Owner, all partners of Owner, Lender and each of their respective
officers, directors, shareholders, agents, Affiliates and employees
(collectively, "Owner's Indemnitee") from and against all losses, liabilities
(including environmental liabilities), damages, demands, claims, suits, actions,
judgments or causes of action, assessments, interest, penalties, costs and
expenses (including the costs of reperforming any services or work), including,
without limitation, attorneys' fees, and expenses (whether suit is instituted or
not and, if instituted, whether at trial or appellate levels) (collectively
"Damages") asserted against, resulting to, imposed upon, or incurred or suffered
by Owner's Indemnitee, directly or indirectly, whether raised by Owner's
Indemnitee or a third party, arising out of, caused by or resulting from the
performance by Operator of Operator's duties hereunder to the extent that any
such Damages are caused in whole or in part by (i) Operator's failure to perform
under this Agreement in accordance with the terms of this Agreement, including
Section 12.03
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hereof, or (ii) the negligence or willful misconduct of Operator or its agents,
any subcontractor of Operator, anyone employed by any of them or anyone for
whose acts any of them is liable. Section 9.02 shall apply to any claim for
indemnity pursuant to this Section 8.01.
Section 8.02 Insurance Coverage. During the term of this
Agreement, Operator shall maintain the insurance coverage listed on Schedule
8.02. Operator shall deliver certificates of insurance evidencing such coverages
to Owner on or before the Operating Period Commencement Date and shall
thereafter deliver to Owner evidence of appropriate renewal and continuance of
such policies on an annual basis.
ARTICLE IX.
INDEMNIFICATION, INSURANCE BY OWNER
Section 9.01 Indemnification. Subject to the limitations set
forth in Article VII hereof, Owner shall indemnify, defend and hold harmless
Operator, and its officers, directors, shareholders, agents, Affiliates and
employees (collectively, "Operator's Indemnitee") from and against all Damages
asserted against, resulting to, imposed upon, or incurred or suffered by
Operator's Indemnitee, directly or indirectly, whether raised by Operator's
Indemnitee or a third party, arising out of or resulting from (a) Owner's
ownership or use of the Facility or the Site, (b) the performance by Owner of
Owner's duties hereunder, or (c) matters relating to any environmental laws,
regulations or orders ("Environmental Laws"), provided that such environmental
indemnification does not apply to the extent that the Damages arise from (i)
Operator's violation of Environmental Laws or (ii) Operator's negligence or
willful misconduct in its activities at the Facility or the Site. Owner waives
and releases and will require its insurers waive and release Operator from
damage to or risk of loss of Owner's property or property for which Owner or
Operator has assumed liability (but excluding Operator's property), howsoever
such damage or loss is caused.
Section 9.02 Procedure. If any person or entity not a party to
this Agreement shall make any demand or claim or file or threaten to file or
continue any lawsuit, which demand, claim or lawsuit may result in Damages to
any party pursuant to the indemnification provisions of this Agreement, then, in
any such event, within 10 days after notice by the indemnified party (the
"Notice") to the indemnifying party of such demand, claim or lawsuit (provided,
however, that the failure to give the Notice shall not relieve the indemnifying
party of its obligations under this Agreement unless, and only to the extent
that, such failure caused the Damages for which the indemnifying party is
obligated to be greater than they would otherwise have been had the indemnified
party given prompt notice under this Agreement), the indemnifying party shall
have the option, at its sole cost and expense, to retain counsel for the
indemnified party (which counsel shall be selected by or be reasonably
satisfactory to the indemnified party), to defend any such demand, claim or
lawsuit. Thereafter, the indemnified party shall be permitted to participate in
such defense at its own expense, provided that, if the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party or if the indemnifying party proposes that the same
counsel represent both the indemnified party and the indemnifying party
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and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them, then the
indemnified party shall have the right to retain its own counsel at the cost and
expense of the indemnifying party. If the indemnifying party shall fail to
respond within 10 days after receipt of the Notice, the indemnified party may
retain counsel and conduct the defense of such demand, claim or lawsuit, as it
may in its sole discretion deem proper, at the sole cost and expense of the
indemnifying party.
(a) The indemnified party shall provide reasonable assistance to
the indemnifying party and provide access to its books, records and personnel as
the indemnifying party reasonably requests in connection with the investigation
or defense of the indemnified Damage. The indemnifying party shall promptly upon
receipt of reasonable supporting documentation reimburse the indemnified party
for out-of-pocket costs and expenses incurred by the latter in providing the
requested assistance.
(b) With regard to claims for which indemnification is payable
under this Agreement, such indemnification shall be paid by the indemnifying
party upon: (i) the entry of a judgment against the indemnified party and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
judgment or final appellate decision against the indemnified party; or (iii) a
settlement with the consent of the indemnifying party, which consent shall not
be unreasonably withheld, provided that no such consent need be obtained if the
indemnifying party fails to respond to the Notice as provided in this Section
9.02. Notwithstanding the foregoing, provided that there is no dispute as to the
applicability of indemnification, expenses of counsel to the indemnified party
shall be reimbursed on a current basis by the indemnifying party if such
expenses are a liability of the indemnifying party.
Section 9.03 Insurance Coverage. During the term of this
Agreement, Owner shall maintain at least the insurance coverage listed on
Schedule 9.03. Owner shall deliver certificates of insurance evidencing such
coverages to Operator on or before the Effective Date and shall thereafter
deliver to Operator evidence of appropriate renewal and continuance of such
policies on an annual basis.
ARTICLE X.
FORCE MAJEURE
Section 10.01 Force Majeure. Any delay in or failure of
performance of either party (other than delay or failure to pay a monetary
obligation when due) shall not constitute a default hereunder or give rise to
any claim for damage if and to the extent such delay or failure is caused by
"Force Majeure," and the party claiming the benefit of Force Majeure shall use
all reasonable efforts to minimize the period of such delay or failure and the
effects thereof.
Section 10.02 Notice. Either party claiming Force Majeure shall
give the other party (a) notice of such Force Majeure event as soon as
practicable, but in any event within three days
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after its occurrence and (b) a complete description of such Force Majeure event
within fourteen days after its occurrence.
ARTICLE XI.
RELATIONSHIP OF THE PARTIES
Owner hereby engages Operator, as an independent contractor, to
maintain and operate the Facility according to the terms of this Agreement.
Subject to the terms of this Agreement, Operator shall determine the means,
manner and methods by which Operator shall perform its services under this
Agreement. Operator and Owner acknowledge that, except as otherwise expressly
provided in this Agreement, Owner shall not have any control over Operator or
the means, manner or methods of its performance under this Agreement. All
personnel involved in the operation of the Facility shall be employees of
Operator or its Affiliates or independent contractors that have contracted with
Operator or its Affiliates and shall not for any purposes be deemed employees or
independent contractors of Owner. Nothing in this Agreement or the arrangement
for which it is written shall constitute or create a joint venture, partnership,
or any other similar arrangement between Owner and Operator. Neither party is
authorized to act as agent for the other party, except as expressly stated in
this Agreement.
ARTICLE XII.
REPRESENTATIONS, WARRANTIES AND STANDARD OF CARE
Section 12.01 Representations and Warranties of Owner. Owner
hereby represents and warrants as of the Effective Date that:
(a) It is duly formed, validly existing and in good standing under
the laws of the State of Delaware, with full power and authority to enter into
and perform its obligations under this Agreement and has duly authorized the
execution, delivery and performance of this Agreement;
(b) It has validly executed this Agreement, and upon delivery this
Agreement shall be a binding obligation of such party, enforceable against such
party in accordance with its terms except insofar as enforcement may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles;
(c) Its entry into this Agreement and the performance of its
obligations hereunder will not require the approval of any governmental body or
regulatory authority and will not violate, conflict with, or cause a default
under any of its organizational documents, any contractual covenant or
restriction by which such party is bound, or any applicable Law, order, judgment
or decree; and
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(d) There is no pending or, to the knowledge of Owner, threatened
actions, suit, investigation or proceeding against Owner before any governmental
authority which, if determined adverse to it, would materially adversely affect
Owner's ability to perform its obligations under this Agreement.
Section 12.02 Representations and Warranties of Operator. Operator
hereby represents and warrants as of the Effective Date that:
(a) It is duly formed, validly existing and in good standing under
the laws of the State of Florida, with full power and authority to enter into
and perform its obligations under this Agreement and has duly authorized the
execution, delivery and performance of this Agreement;
(b) It has validly executed this Agreement, and upon delivery this
Agreement shall be a binding obligation of such party, enforceable against such
party in accordance with its terms except insofar as enforcement may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles;
(c) Its entry into this Agreement and the performance of its
obligations hereunder will not require the approval of any governmental body or
regulatory authority and will not violate, conflict with, or cause a default
under any of its organizational documents, any contractual covenant or
restriction by which such party is bound, or any applicable Law, order, judgment
or decree;
(d) There is no pending or, to the knowledge of Operator,
threatened actions, suit, investigation or proceeding against Operator before
any governmental authority which, if determined adverse to it, would materially
adversely affect Operator's ability to perform its obligations under this
Agreement;
(e) It has the necessary training, experience and capability to
operate and maintain the Facility and to perform its obligations under this
Agreement; and
(f) It has or will, as of the Operating Period Commencement Date,
have all permits and licenses required by applicable Law (other than Owner's
Permits or permits and licenses relating to the Facility) for the performance by
Operator of the Operating Services and its other obligations under this
Agreement.
Section 12.03 Standard of Care. Operator covenants and agrees that
it will perform its duties hereunder in accordance with the Approved Operating
Budget, the Approved Operating Plan and Prudent Industry Practice.
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ARTICLE XIII.
NOTICES
Any notice to either party required or permitted hereunder shall
be in writing and shall be given by personal delivery or by commercial courier
or by certified mail, return receipt requested, postage prepaid, or by
telecopier with confirmed receipt, addressed as follows:
If to Owner: Northeast Energy, LP
----------- c/o ESI Energy, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopier: (561) 691-3615
Attention: President
with a copy to: Tractebel Power, Inc.
1177 West Loop South, Suite 900
Houston, Texas 77027
Telecopier: (713) 552-2364
Attention: General Counsel
If to Operator: ESI Operating Services, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopy: (561) 691-3615
Attention: President
or to such other address as Owner or Operator may have specified in a notice
duly given as provided herein to the other party. All notices given in the
foregoing manner shall be effective when received, except that a notice sent by
telecopier and received after normal business hours shall be deemed to be
received the following Business Day.
ARTICLE XIV.
ASSIGNMENTS AND SUBCONTRACTING
Section 14.01 Assignments.
(a) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
(b) Except as otherwise provided in this Agreement, neither party
may assign or otherwise convey any of its rights, title or interest under this
Agreement, without the prior written consent of the other party hereto (which
consent shall not be unreasonably withheld).
Section 14.02 Assignment by Owner to NEA. Upon the later to occur
of (i) the Operating Period Commencement Date and (ii) the execution and
delivery by NEA of a counterpart hereof to Owner and Operator (such later date
being the "Dropdown Date"), but
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without any further action by any Person, all rights, title and interest of
Owner hereunder shall be assigned to, and all of Owner's obligations,
liabilities and duties whether past, present or future, arising under, in or in
connection with this Agreement shall be assumed by NEA. By executing and
delivering the counterpart hereof, NEA shall be deemed, as of the Dropdown Date,
to be making the representations and warranties in Section 12.01 of this
Agreement as if such representations and warranties related to NEA.
Section 14.03 Security Interest. Operator acknowledges that
Owner's interest in and to this Agreement will be subject to the security
interest in favor of the Trustee and the Agent pursuant to the Security
Documents and agrees that the Trustee and the Agent may assign such interest in
and to this Agreement to any subsequent assignee in connection with the sale,
transfer, or exchange of its rights in this Agreement or for the purpose of
operating the Facility pursuant to such assignment upon and after the exercise
of its rights and enforcement of its remedies against the Facility under any
deed of trust or other security instrument creating a lien in its favor.
Section 14.04 Cooperation in Financing. Operator agrees to
cooperate with Owner in negotiation and execution of any reasonable amendment or
addition to this Agreement required by the Trustee or the Agent, which does not
result in a material adverse change in Operator's rights or obligations
hereunder. For avoidance of doubt, Operator will, if required by the Trustee or
the Agent, enter into consents typical for project financings, or substantially
similar to those required of the project parties under the existing financing
for the Facility.
Section 14.05 Subcontracting. Operator may subcontract any of its
duties or obligations hereunder to a non-affiliate with the prior written
consent (which may be in the Approved Annual Plan) of Owner to the subcontractor
and subcontract, which consent shall not be unreasonably withheld; provided,
that no such written consent of Owner shall be required for subcontracting to
any Affiliate of Operator which is qualified to operate, or capable of
operating, in accordance with Prudent Industry Practice. Owner shall not direct
Operator to, and Operator shall not, enter into any subcontract with any
contractor if entering into such contract will result in loss of "qualifying
facility" status for the Facility. No subcontract shall relieve Operator of its
duties and obligations hereunder.
ARTICLE XV.
LIMITATIONS OF AUTHORITY; LIENS AND ENCUMBRANCES
Section 15.01 Limitation on Authority. Unless specifically
approved in the Annual Plan or approved in writing by Owner, Operator shall not
have the authority to take the following actions:
(a) The sale, lease, pledge, mortgage, conveyance, license,
exchange or other transfer or disposition of any property or assets of Owner,
including any tangible personal property acquired by Operator under this
Agreement. The proceeds of any sales of scrap shall
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inure to the benefit of Owner and Operator shall hold the proceeds in trust for
Owner and immediately forward such proceeds to Owner;
(b) Subject to Section 2.03, making, entering into, executing,
amending, waiving any rights under, modifying or supplementing any contract or
agreement on behalf of, binding upon, or in the name of Owner, including the
Project Documents;
(c) The settling, compromising, assigning, pledging, transferring,
releasing or consenting to the same of any claim, suit, debt, demand or judgment
against or due by Owner, or submitting any such claim, dispute or controversy to
arbitration or judicial process or stipulating to a judgment, or consent to do
same. Operator agrees that Owner shall retain control of any such claim suit,
debt or demand and any other litigation regarding the Facility, except as to
Operator's individual liability;
(d) Agreeing to any penalty for violation of any governmental
license or permit;
(e) Make any expenditures or use any of Owner's funds, or make
commitments of same, except in accordance with Articles IV and V of this
Agreement;
(f) Commit Owner to be liable for obligations of others as
guarantor, surety, or otherwise; and
(g) Enter into, without the consent of Owner (which may be in the
Approved Annual Plan), any agreement with any Affiliate of Operator in
connection with the performance of its obligations under this Agreement, which
is on the whole less favorable to Owner than similar agreements reasonably
available from unrelated third parties or if not so available, other than on an
arm's length basis.
Section 15.02 No Liens or Encumbrances. Operator shall keep and
maintain the Facility free and clear of all liens and encumbrances resulting
from the acts or omissions of Operator or work done at request of Operator,
except such liens or encumbrances resulting directly from nonpayment of any
amount due and owing to Operator under this Agreement.
ARTICLE XVI.
DISPUTE RESOLUTION AND ARBITRATION
Section 16.01 Dispute Resolution. If a dispute arises between the
parties regarding the application or interpretation of any provision of this
Agreement, the aggrieved party shall give a notice of such dispute (a "Dispute
Notice") to the other parties. Within fifteen (15) days after such Dispute
Notice, the President or an Executive Vice President of each of the parties
shall confer with each other to seek with diligence and in good faith to resolve
such dispute. If such officers are unable to resolve such dispute within
forty-five days after such Dispute Notice, then the parties shall be bound to
arbitrate such dispute in accordance with Section 16.02.
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Section 16.02 Arbitration. To the fullest extent permitted by law,
any dispute between the parties regarding the application or interpretation of
any provision of this Agreement, if not resolved by negotiation by the parties
within 45 days after the Dispute Notice, shall be resolved exclusively by
binding arbitration between the parties pursuant to the Rules of the American
Arbitration Association for Commercial Disputes (the "Arbitration Rules").
Arbitration shall be administered by the American Arbitration Association.
Either party may institute arbitration proceedings at any time by delivering
written notice demanding arbitration to the other party in the manner described
in Article XIII.
(a) Within 20 days after receipt of a written demand for
arbitration, the parties shall each appoint one arbitrator. Within 15 days of
the expiration of that 20 day period, the two arbitrators so appointed shall
appoint a third arbitrator. If any party shall fail to appoint an arbitrator, or
if the two arbitrators shall fail to appoint a third arbitrator, the American
Arbitration Association shall make that selection within 10 days of a party's
request. The arbitrators shall meet the qualifications and abide by the Code of
Ethics for arbitrators in commercial disputes of the American Arbitration
Association. The arbitrators shall have knowledge of and experience in the power
generation and project financing business.
(b) To the fullest extent permitted by law, the arbitration shall
be conducted in accordance with the procedures set forth in the Arbitration
Rules. In determining any question, matter or dispute before them, the
arbitrators shall apply the provisions of this Agreement without varying
therefrom in any respect. They shall not have the power to add to, modify or
change any of the provisions of this Agreement. The parties shall exercise all
commercially reasonable efforts in good faith to cause a hearing to be held
within 90 days after the date upon which the last arbitrator is appointed and to
conclude all hearings within 30 days after the first hearing date. The
arbitrators shall only grant a party's request for postponement of the hearing
upon a showing of good cause as determined by the arbitrators. Within 30 days of
the last hearing date, the arbitrators shall issue a written decision setting
forth their analysis and ruling. The arbitrators shall determine in what
proportion the parties shall bear the fees and expenses of the arbitrators. Each
party shall bear the fees and expenses of its own counsel and other consultants.
All arbitration proceedings shall be subject to the choice of law provisions set
forth in Section 17.02, and shall be held at a location agreed to by the
parties, or if the parties cannot agree, then in Atlanta, Georgia.
(c) The parties acknowledge and agree that any arbitral award
shall be final, binding and conclusive upon the parties and may be confirmed or
embodied in any order of any court having jurisdiction.
(d) To the fullest extent permitted by law, service of any matters
referenced in this Article XVI shall be given in the manner described in Article
XIII or as permitted by the rules of the American Arbitration Association.
Section 16.03 Survival. This Article XVI shall survive expiration
or termination of this Agreement.
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ARTICLE XVII.
MISCELLANEOUS
Section 17.01 Severability. If any provision of this Agreement
shall be held or deemed to be invalid, inoperative or unenforceable, such
circumstances shall not affect the validity of any other provision of this
Agreement, but this Agreement shall be reformed and construed as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted.
Section 17.02 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws.
Section 17.03 Entire Agreement. This Agreement constitutes the
entire final understanding and agreement of the parties with respect to its
subject matter, and there are no agreements, understandings, restrictions,
representations or warranties among the parties other than those set forth in
this Agreement. By execution of this Agreement, each of the parties represents
and warrants that it has relied on no oral or written statements, promises,
inducements, representations or warranties to enter into this Agreement except
for those expressly set forth herein. The parties agree that the inclusion of
this provision evidences the intent of the parties that no parole evidence shall
be admissible to alter or vary the terms of this Agreement.
Section 17.04 Captions. The captions or headings of the sections
and paragraphs of this Agreement have been inserted for convenience of reference
only and shall have no effect upon the construction or interpretation of any
part of this Agreement.
Section 17.05 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
Section 17.06 No Third Party Beneficiaries. Except as expressly
set forth herein, the terms of this Agreement are for the sole benefit of Owner
and Operator and their respective successors and permitted assigns and not for
any third party whatsoever.
Section 17.07 Further Assurances. If either party reasonably
determines or is reasonably advised that any further instruments or any other
things are necessary or desirable to carry out the terms of this Agreement, the
other party shall execute and deliver all such instruments and assurances and do
all things reasonably necessary and proper to carry out the terms of this
Agreement.
Section 17.08 No Implied Waiver. Failure of either party to
exercise any right to enforce any provision, or to require strict performance by
the other party of any provision, shall
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not release the other party from any of its obligations under this Agreement and
shall not operate as a waiver of any right to insist upon strict performance, or
of either party's rights or remedies under this Agreement or at law.
Section 17.09 Amendments. No amendment, waiver or modification of
any provision of this Agreement shall be effective unless made in writing and
signed by both parties.
Section 17.10 Confidentiality. Except to the extent expressly
authorized herein including, without limitation, in connection with a proposed
assignment of this Agreement or a proposed financing transaction entered into by
Owner, in which case disclosure of the terms hereof shall be limited to the
extent reasonably practicable, each of the parties agree that neither it nor its
attorneys, agents or representatives shall reveal to anyone any of the terms of
this Agreement or any of the terms of the documents executed pursuant hereto,
including, without limitation, the amount, terms or conditions of payment
hereunder, other than (i) as may be hereafter mutually agreed to in writing,
(ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors,
officers, employees, representatives, advisors, consultants and attorneys, and
the directors, officers, employees, representatives, advisors, consultants and
attorneys of affiliated companies who need to know such information, and (iv) to
the extent required to be disclosed by applicable law or legal process.
Section 17.11 Decision-Making by Parties. Except where this
Agreement expressly provides for a different standard and/or time period,
whenever this Agreement provides for a determination, decision, permission,
consent or approval of a party, the party shall promptly make such
determination, decision, grant or withholding of consent or approval in a
commercially reasonable manner and without unreasonable delay. Any denial of
consent required to be made in a commercially reasonable manner shall include in
reasonable detail the reason for denial or aspect of the request that was not
acceptable.
Section 17.12 Schedules. The attached Schedules that are referred
to in this Agreement are incorporated by reference and made a part of this
Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed multiple
originals of this Agreement as of the date first written above.
OWNER:
NORTHEAST ENERGY, LP,
a Delaware limited partnership
By: ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation,
a general partner
By: /s/ Glenn E. Smith
-------------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
-------------------------------
GENERATION GP, INC.,
a Delaware corporation,
a general partner
By: /s/ Charles Vetters
-------------------------------
Name: Charles Vetters
Title: Vice President
OPERATOR:
ESI OPERATING SERVICES, INC.,
a Florida corporation
By: /s/ Glenn E. Smith
-------------------------------
Name: Glenn E. Smith
Title: Vice President
[Signature Page to Bellingham O&M Agreement]
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ASSIGNEE:
NORTHEAST ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP,
a Massachusetts limited partnership
By: NORTHEAST ENERGY, LP,
a Delaware limited partnership,
a general partner
By: ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation,
a general partner
By: /s/ Glenn E. Smith
-------------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
GENERATION GP, INC.,
a Delaware corporation,
a general partner
By: /s/ Charles Vetters
-------------------------------
Name: Charles Vetters
Title: Vice President
[Signature Page to Bellingham O&M Agreement]
24
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SCHEDULE 1.01
DEFINITIONS
"Acquisition Date" shall have the meaning set forth in the
Partnership Agreement.
"Affiliate" shall mean any Person that, directly or
indirectly, controls, is controlled by, or is under common control with, another
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, means the power to direct or cause
the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities or by contract or
otherwise.
"Agent" shall mean Sanwa Bank, Limited, New York Branch, as
agent for the Lenders under the Credit Agreement, together with its successors
in such capacity.
"Agreement" shall have the meaning set forth in the preamble
hereof.
"Annual Plan" shall have the meaning set forth in Section 4.03
of the Agreement.
"Approved Annual Plan" shall have the meaning set forth in
Section 4.03 of the Agreement.
"Approved Operating Budget" shall have the meaning set forth
in Section 4.03 of the Agreement.
"Approved Operating Plan" shall have the meaning set forth in
Section 4.03 of the Agreement.
"Approved Plant Manual" shall have the meaning set forth in
Section 4.01 of the Agreement.
"Arbitration Rules" shall have the meaning set forth in
Section 16.02 of the Agreement.
"BEC" shall mean Boston Edison Company, a Massachusetts
corporation, and its successors and permitted assigns.
"Bondholders" shall mean the holder of bonds issued by Owner
under the Indenture.
"Business Day" shall mean a calendar day other than Saturday,
Sunday or a statutory holiday in the Commonwealth of Massachusetts.
"Carbon Dioxide Facility" shall mean the carbon dioxide
facility owned by NEA and located adjacent to the Facility, and all equipment
and facilities ancillary thereto.
<PAGE>
"CEC" shall mean Commonwealth Electric Company, a
Massachusetts corporation, and its successors and permitted assigns.
"Consumables" shall mean collectively all chemicals, water,
fuel, lubricants, laboratory supplies, office supplies and other items to be
used up during the normal operation of the Facility.
"Credit Agreement" means the Credit Agreement dated as of
December 1, 1994 among NEA, NJEA, the Lenders and Agent, as amended, modified
and supplemented and in effect from time to time.
"Damages" shall have the meaning set forth in Section 8.01 of
the Agreement.
"Debt Agreements" shall mean the Indenture, the Credit
Agreement and the Rule 144A Indenture.
"Debt Holders" shall mean the Lenders, Bondholders and the
Rule 144A Bondholders.
"Dispute Notice" shall have the meaning set forth in Section
16.01 of the Agreement.
"Dropdown Date" shall have the meaning set forth in Section
14.02 of the Agreement.
"Effective Date" shall mean the later to occur of (i) the date
the Agreement shall be executed and delivered and (ii) the Acquisition Date.
"Existing Plant Procedures" shall have the meaning set forth
in Section 4.01 of the Agreement.
"Facility" shall have the meaning set forth in recitals to the
Agreement.
"Force Majeure" shall mean any cause beyond the reasonable
control of and without the fault, negligence, or willful misconduct of the party
claiming Force Majeure. Such causes shall include, but not be limited to, acts
of God, fires, floods, storms, earthquakes, strikes, labor disputes, riots,
insurrections, acts of war, actions or inactions of any government or
governmental agency or a material change in applicable statutory, regulatory,
administrative or other relevant law that prohibits the operation of the
Facility; provided, however, that lack of money or changes in operating costs
shall not constitute Force Majeure.
"Home Office Personnel" means personnel based in Operator's
home office, whether employees of Operator or its parent compan(ies).
"IEC" shall mean International Energy Corporation, a
Massachusetts corporation and its successors and permitted assigns.
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"Indenture" shall mean the Trust Indenture dated as of
November 15, 1994 among IEC, NEA, NJEA and the Trustee, as amended, modified and
supplemented and in effect from time to time.
"Independent Engineer" shall have the meaning set forth in the
Appendix A to the Indenture.
"Initial Term" shall have the meaning set forth in Section
6.01 of the Agreement.
"Index" shall mean the Department of Labor, Bureau of Labor
Statistics, Producer Price Index for All Commodities (1982=100). If the Index
ceases to be published or is otherwise unavailable, Index shall mean an index
that Owner and Operator shall mutually determine in good faith to be most nearly
comparable to the foregoing.
"Labor Costs" means all fully burdened labor costs, including
overtime, bonuses, vacation, holidays, sick leave, approved paid leave of
absence, insurance, retirement benefits, taxes, recruiting costs, relocation
costs and all other benefits.
"Late Payment Rate" shall mean a per annum rate of interest
equal to the rate announced from time to time in the Wall Street Journal as the
prime commercial lending rate of national commercial banks plus two percent
(2%), but in no event more than the maximum rate permitted under applicable law.
"Laws" shall mean any applicable federal, state or local
statute, law, ordinance, rule or regulation.
"Lenders" shall mean the lenders under the Credit Agreement.
"MEC" shall mean Montaup Electric Company, a Massachusetts
corporation, and its successors and permitted assigns.
"NEA" shall have the meaning set forth in the first recital to
the Agreement.
"NJEA" shall mean North Jersey Energy Associates, A Limited
Partnership, a New Jersey limited partnership, and its successors and permitted
assigns.
"O&M Expenses" shall have the meaning set forth in Section
5.01(b) of the Agreement.
"O&M Operating Account" shall have the meaning set forth in
Section 5.03 of the Agreement.
"O&M Services" shall have the meaning set forth in Section
2.03 of the Agreement.
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<PAGE>
"On-Site Personnel" means all personnel regularly on-Site,
including the plant manager and the administrative supervisor, although some
On-Site Personnel may be employees or Affiliates of Operator.
"Operating Budget" shall have the meaning set forth in Section
4.03 of the Agreement.
"Operating Fee" shall have the meaning set forth in Section
5.02 of the Agreement.
"Operating Period Commencement Date" shall mean the day
following the day on which the Westinghouse Agreement shall terminate or expire.
"Operating Plan" shall have the meaning set forth in Section
4.03 of the Agreement.
"Operating Year" shall mean the twelve (12) month period
beginning on the Commencement Date and each successive twelve (12) month period
beginning on the consecutive dates thereof.
"Operator" shall have the meaning set forth in the preamble
hereof.
"Oversight Services" shall have the meaning set forth in
Section 2.01 of the Agreement.
"Oversight Period" shall have the meaning set forth in Section
2.01 of the Agreement.
"Owner" shall have the meaning set forth in the preamble
hereof.
"Owner Permits" shall mean those approvals, certificates,
permits and licenses required for Owner to operate the Facility, including,
without limitation, any permits required for disposal of waste generated by the
Facility.
"Partnership Agreement" shall mean that certain Agreement of
Limited Partnership of Northeast Energy, LP, a Delaware limited partnership,
dated as of November 21, 1997, by and among ESI Northeast Energy GP, Inc.,
Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and
Tractebel Associates Northeast LP, Inc.
"Person" shall mean any individual, partnership, corporation,
trust, unincorporated association, joint venture or any other entity.
"Planned Outage" shall mean the cessation of operation of the
Facility for Scheduled Maintenance or any other scheduled outage.
"Plant Manual" shall have the meaning set forth in Section
4.01 of the Agreement.
4
<PAGE>
"Power Purchase Agreements" shall mean (i) the Power Purchase
Agreement dated April 1, 1986 between NEA and BEC, (ii) the Power Purchase
Agreement dated January 28, 1988 between NEA and BEC, (iii) the Power Purchase
Agreement dated October 17, 1986 between Owner and MEC, (iv) the Power Sale
Agreement dated November 26, 1986 between CEC and NEA, and (v) the Power Sale
Agreement dated August 15, 1988 between CEC and NEA, all as amended.
"Project Documents" shall mean the Agreement, the Power
Purchase Agreements, any additional power purchase agreements between NEA and
any Purchasing Utility entered into after the execution of the Agreement, any
gas purchase, storage and transportation agreements entered into by or on behalf
of NEA for the acquisition, storage or transportation of gas to be used at the
Facility, any steam and energy agreements entered into by NEA with the
purchasers of steam generated at the Facility and any other agreements, in all
cases as amended, affecting the maintenance or operation of the Facility and
reasonably designated by Owner in writing to Operator as a Project Document.
"Prudent Industry Practices" shall mean the practices, methods
and standards generally followed by the independent power industry with respect
to the design, construction, operation and maintenance of electric generating
equipment of the type applicable to the Facility, and which practices, methods
and standards generally conform to operation and maintenance standards
recommended by the Facility's equipment suppliers and manufacturers.
"Purchasing Utilities" shall mean BEC, CEC and MEC as
purchasers of electricity generated by the Facility pursuant to the Power
Purchase Agreements and any other purchasers of electricity generated by the
Facility.
"Rule 144A Bondholders" shall mean the holders of the bonds
issued under the Rule 144A Indenture.
"Rule 144A Indenture" shall mean the indenture to be entered
into by the Partnership and certain other parties in connection with the
financing of the acquisition of NEA and NJEA.
"Security Documents" shall have the meaning set forth in the
Credit Agreement.
"Scheduled Maintenance" shall mean those maintenance and
repair activities contemplated, either generally or specifically, in the
Approved Annual Plan, or any approved revision thereof, for such Operating Year.
"Site" shall mean the tract of land on which the Facility is
located, and all easements of Owner or easements held for the benefit of Owner
appurtenant thereto.
"Steam Purchasers" shall mean the purchaser(s) of export steam
generated by the Facility pursuant to a steam purchase agreement or agreements.
5
<PAGE>
"Technical Support Service" shall have the meaning set forth
in Section 7 of Schedule 2.03.
"Transaction Documents" shall mean, collectively, the Project
Documents and each of the documents entered into by NEA, Owner or Operator in
connection with NEA's debt financing of its assets.
"Transition Period" shall have the meaning set forth in
Section 2.02 of the Agreement.
"Transition Plan" shall have the meaning set forth in Section
4.02 of the Agreement. "Transition Services" shall have the meaning set forth in
Section 2.02 of the Agreement.
"Transition Period Commencement Date" shall mean the day
ninety (90) days prior to the scheduled Operating Period Commencement Date.
"Trustee" shall mean State Street Bank and Trust Company as
trustee under the Indenture.
"Unscheduled Maintenance" shall mean any and all maintenance,
repair and replacement requirements of the Facility during a Operating Year,
other than Scheduled Maintenance.
"Westinghouse O&M Agreement" shall have the meaning set forth
in the second recital hereto.
6
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SCHEDULE 2.01
OVERSIGHT SERVICES
1. Review quarterly reports delivered pursuant to Section 4.5
of the Westinghouse O&M Agreement;
2. Assess general Site condition on a quarterly basis;
3. Review all changes in procedures proposed by the operator
under the Westinghouse O&M Agreements;
4. Review annual generation forecast pursuant to Section 4.8
of the Westinghouse O&M Agreement;
5. Assess operators' personnel, policies, and procedures
yearly;
6. Analyze all proposed capital expenditures at the Facility;
7. Review facility performance data;
8. Review of operating logs and records of unplanned outages;
9. Provide such technical support as Owner may reasonably
request;
10. Review environmental and safety performance and compliance
reports by the operator on a quarterly basis; and
11. Monitor operator's activities during major scheduled
outages and major equipment overhauls.
12. Report to the Management Committee with respect to the
foregoing.
<PAGE>
SCHEDULE 2.02
TRANSITION SERVICES
1. Mobilizing Personnel. Operator shall provide the necessary
staff to operate and maintain the Facility on the Operating Period Commencement
Date. In connection therewith, Operator will, in accordance with the Agreement,
the Transition Plan and the budget included therein:
(a) Continue to provide the Oversight Services set
forth on Schedule 2.01;
(b) Review qualifications and fitness for duty
testing of personnel;
(c) Relocate personnel, as necessary;
(d) Recruit, hire and train personnel to meet the
applicable staffing requirements; and
(e) Train personnel on Operator's policies and
benefits.
Hiring will be completed and personnel relocated five (5) days prior to the
Operating Period Commencement Date.
2. Reporting and Coordination. Operator shall:
(a) Review Existing Plant Procedures, prior operation
and maintenance records and other relevant material to prepare
the report required by Section 4.01 of the Agreement;
(b) Develop the Transition Plan and budget contained
therein for submission to Owner pursuant to Section 4.02 of
the Agreement;
(c) Develop the initial Operating Plan and the
initial Operating Budget for submission to Owner pursuant to
Section 4.03 of the Agreement; and
(d) Develop and submit for Owner's approval format of
monthly reports to be delivered by Operator pursuant to
paragraph 4(g) of Schedule 2.03 of the Agreement. The draft
monthly report shall be submitted to Owner for approval not
less than 20 days prior to the Operating Period Commencement
Date.
3. Other Transition Services. Operator shall, in accordance
with the Agreement, the Transition Plan and the budget included therein:
<PAGE>
(a) Develop the necessary programs and procedures to
perform the operation and maintenance of the Facility in
accordance with the initial Operating Plan and the initial
Operating Budget;
(b) Identify and procure as Owner's agent necessary
tools, equipment, goods, and other items and materials that
are necessary to operate and maintain the Facility in
accordance with the initial Operating Plan and the initial
Operating Budget; and
(c) Review regulatory and legal filings (EPA, FERC,
etc.), and complete regulatory filings (other than Owner
Permits) as required by law, or if not specified, 30 days
prior to the Operating Period Commencement Date.
8
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SCHEDULE 2.03
O&M SERVICES
1. Personnel. Operator shall make available qualified labor
and professional, supervisory and managerial personnel reasonably necessary to
perform the O&M Services. To the extent set forth in the Approved Operating Plan
and the Approved Operating Budget, personnel shall be available 24 hours a day,
7 days a week, 365 days a year. Except for subcontractors pursuant to Section
13.04 of the Agreement, all individuals providing the O&M Services shall be
employees or independent contractors of Operator or its Affiliates. Operator
shall comply with all applicable federal and state labor and employment laws and
shall exercise control over labor relations in a reasonable manner consistent
with the intent and purpose of the Agreement. Operator shall appoint the plant
manager which shall be reasonably acceptable to Owner. Operator may replace such
plan manager for any reason provided the replacement plant manager is reasonably
acceptable to Owner. Operator shall, at the request of Owner, replace the plant
manager for cause. Operator shall have sole authority, control, and
responsibility with respect to labor matters in connection with the performance
of the services hereunder. Notwithstanding the foregoing, Operator acknowledges
and agrees that Operator shall not enter into any contracts or collective
bargaining agreements with respect to labor matters that purport to bind or
otherwise obligate Owner, and Operator shall seek advice of Owner in the event
Operator is notified of any effort to establish collective bargaining or labor
representation at the Facility.
2. Compliance. Operator shall:
(a) Operate and maintain the Facility in compliance
with all present and future (once enacted and operative) Laws
and permits applicable to the operation and maintenance of the
Facility and the Site (including monitoring and sampling) and
shall assist Owner in securing and maintaining all permits
necessary to perform its obligations under the Agreement and
in filing all reports relating to the Facility;
(b) Operate and maintain the Facility in accordance
with Prudent Industry Practices, the Approved Annual Plan, the
Project Documents (including the Power Purchase Agreements)
and the Approved Plant Manual, and in such a manner as to
cause the Facility to supply steam and electricity requested
by Owner and Owner's customers or required to be delivered by
Owner from time to time, in all cases within the rated design
and test capacity of the Facility and subject to the
production targets set forth in the Approved Annual Plan;
provided, that the foregoing shall not constitute a covenant
or guarantee of electricity production and delivery;
(c) Operate and maintain the Facility in compliance
with the efficiency requirements set forth in 18 C.F.R. ss.
292.205 (assuming steam is used in the manner required by 18
C.F.R. ss. 292.205); provided, that the foregoing shall not
constitute a guaranty thereof;
<PAGE>
(d) Seek appropriate warranties from vendors and
maintain all vendor's warranties in effect; and
(e) Procure and maintain the insurance required by
Section 8.02 of the Agreement.
3. Operations and Maintenance. Operator shall:
(a) Perform yearly capability audits under the power
purchase agreements;
(b) Dispose of waste products from the Facility in
compliance with all applicable Laws and permits and the
Approved Plant Manual;
(c) Respond to emergencies pertaining to the Facility
or the Site promptly and effectively, in accordance with
Section 4.04 of the Agreement;
(d) Perform or cause to be performed all services and
make or cause to be made all repairs and replacements at the
Facility as are required due to Unscheduled Maintenance.
Operator shall promptly notify Owner of the need for such
Unscheduled Maintenance and thereupon request an adjustment to
the Approved Annual Plan in accordance with Section 4.03(d).
Operator shall perform any such Unscheduled Maintenance in a
timely and cost effective fashion upon satisfaction of the
requirements of Section 5.01;
(e) Establish and maintain a proactive maintenance
program;
(f) Perform operations and maintenance accounting
functions, including the processing and paying of bills at the
home office, and to the extent set forth in the Approved
Annual Budget maintain a bookkeeper part time at the Facility
to perform day-to-day bookkeeping, processing of purchase
orders and similar matters;
(g) Perform all project purchasing functions pursuant
to the Annual Plan;
(h) Design, document, implement and periodically
evaluate a system of internal control; and
(i) Prepare and document accounting policies and
procedures.
4. Reporting and Coordination. Operator shall:
(a) Coordinate with Owner, affected parties, and
Purchasing Utilities as required when generation of
electricity or steam is to be initiated, interrupted or
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curtailed. Operator shall make all reasonable efforts to
schedule any outages at the Facility having the effect of
reducing the electricity or steam output of the Facility in
advance and at the most appropriate times for Owner, Operator,
and Purchasing Utilities in accordance with the Project
Documents, and in a manner that will minimize any profit loss
to Owner;
(b) Coordinate with Owner, Purchasing Utilities and
Steam Purchasers regarding the various activities and duties
related to the operation of the Facility to be performed under
the provisions of the Power Purchase Agreement and under the
provisions of any steam purchase agreement then in effect;
(c) In the case of unplanned interruptions or
curtailments of electric power production or delivery, provide
Owner or Purchasing Utilities, as applicable, with notice
thereof as soon as practicable, which notice shall state the
reason therefor and the probable duration thereof and shall
also contain any other information necessary for the notice to
conform to the requirements of the Power Purchase Agreement;
(d) Prepare, in accordance with Section 4.03 of the
Agreement, the Annual Plan;
(e) Report to Owner promptly any (i) material failure
or reasonably anticipated material failure to operate and
maintain the Facility in accordance with any Laws or permits
applicable to the operation and maintenance of the Facility,
(ii) actual or reasonably anticipated material disruption in
supplies to the Facility, (iii) actual or reasonably
anticipated disputes with Purchasing Utilities, regulatory
agencies, local officials or parties to the Project Documents,
(iv) actual or reasonably anticipated labor disorders, (v)
actual or threatened litigation relative to the Facility of
which Operator becomes aware, (vi) actual or reasonably
anticipated lien filings made against the Facility of which
Operator becomes aware, and (vii) actual or reasonably
anticipated lapse of, modification to or refusal to renew any
permit for the Facility of which Operator becomes aware;
(f) Coordinate on-Site actions with regard to and
document support for any and all warranty and other claims
against suppliers of materials and equipment to the Facility,
and any claims against any insurance carriers for payment of
claims, liabilities or losses in connection with the Facility
or its operation covered by such insurance, all as may be from
time to time requested by Owner;
(g) Provide a monthly report to Owner by the 10th
Business Day of each month, reporting in reasonably specific
detail and in a form reasonably acceptable to Owner the
results of operations for the preceding month, calendar
quarter and Operating Year. Such reports shall address the
following issues as appropriate: safety; environmental;
instances of Force Majeure, if any; availability; staffing
changes and community relations activities; outage summary;
compliance with
3
<PAGE>
requirements for "qualifying facilities"; electric production;
operations summary; maintenance summary; production summary;
variance from year-to-date budget by more than +/-5% of total
budget, +/-20% by category or +/-50% by line item over $5,000,
if any; projected schedule for the current month; evaluations
of key plant performance and financial indicators with
recommendations for improvement, if any; and a forecast of key
upcoming events at the Site; and
(h) Perform physical inventories of all Consumables,
equipment, furniture and fixtures in accordance with the
Approved Plant Manual and deliver copies of the inventory
reports to Owner.
5. Records. Operator shall:
(a) Maintain records of electricity delivered to
Purchasing Utilities and steam delivered to Steam Purchasers;
(b) Maintain records of all maintenance that has been
performed and is scheduled to be performed, subject to
Operator's record retention policy set forth in the Approved
Plant Manual;
(c) Maintain appropriate records for, and with
Owner's approval, prepare, present and prosecute applications
for all permits, licenses and approvals (or renewals thereof)
required for operation and maintenance of the Facility;
(d) Maintain adequate records of any accidents that
occur at the Facility or the Site, including the frequency,
cause, severity and corrective action taken with respect
thereto;
(e) Maintain adequate records of emissions data for
the Facility as required by environmental control agencies and
the Approved Plant Manual and furnish to Owner and any
applicable governmental agencies (if so directed by Owner and
on behalf of Owner) any reports and other information required
to comply with applicable Laws and permits, with any such
reports and information maintained by Operator being the
property of Owner and being transferred to Owner upon
termination of the Agreement;
(f) Maintain financial records sufficient to enable
Owner to verify the accuracy of costs and expenses incurred in
the operation and maintenance of the Facility in accordance
with the terms hereof;
(g) Maintain and update, as needed, as-built drawings
of the Facility; and
(h) Maintain all records required by Laws, under any
of the Project Documents or as reasonably requested by Owner.
4
<PAGE>
6. Procurement. Subject to the limitations of the Approved
Operating Budget, Operator shall maintain an inventory of tools, equipment,
goods, and other items and materials owned by Owner that are necessary to
operate and maintain the Facility in accordance with Prudent Industry Practices
and the Project Documents.
7. Technical Support Services. Operator will provide the
following technical support services ("Technical Support Services") with respect
to the Facility:
(a) Strategic planning reviews to include evaluation
of the Operating Plan, performance indicator targets, and
long-range planning.
(b) O&M reviews to include general assessment of
power generating equipment, recommendations to improve
equipment reliability and availability, and review of the
preventive and routine maintenance program.
(c) Safety reviews to include evaluation and update
of the safety program to ensure compliance with latest rules
and regulations and plant inspection.
(d) Environmental reviews to include evaluation and
update of the environmental compliance program to ensure
latest regulatory requirements are incorporated and review of
noncompliance.
(e) Human Resources support including benefits
assistance, merit review, and incidental support as required.
(f) Home office support including evaluation of
special projects, projects benefit analysis, and other support
activities as required.
(g) Review condition of power generating equipment.
Make recommendations to improve equipment reliability and
availability. Establish preventive and routine maintenance
program.
(h) Review outage plans for scope, schedule and cost
justification. Make recommendations pertaining to pre-outage,
outage and start-up schedules.
(i) Perform services described in Section 4.01 of the
Agreement with respect to the Existing Plant Procedures and
plant manual, including implementing revision plan.
5
<PAGE>
SCHEDULE 3.01
OWNER SERVICES
1. From the Effective Date through the Transition Period
Commencement Date, Owner shall:
(a) Provide to Operator current copies of all
existing regulatory and governmental permits, operating
licenses and authorizations (including such permits, licenses
and authorizations required by additional regulations or
changes to regulations);
(b) To the extent available to Owner, provide to
Operator (i) the most up to date as-built drawings of the
Facility, (ii) copies of all quarterly reports delivered
pursuant to Section 4.5 of the Westinghouse O&M Agreement,
(iii) current copies of all Project Documents (except the
Agreement), as amended from time to time, (iv) the most recent
inventory list provided by the operator under the Westinghouse
O&M Agreement, (v) the Existing Plant Procedures, and (vi)
such other information with respect to the operation and
maintenance of the Facility as Operator may reasonably
request;
(c) Provide rights of ingress to and egress from the
Site and access to the Facility and all components thereof, to
the extent reasonably necessary for the performance by
Operator of the Oversight Services; and
(d) At the request of Operator, cooperate with
Operator in its efforts to obtain certification from an
Independent Engineer that Operator is capable of operating the
Facility.
2. During the Transition Period, Owner shall:
(a) Provide to Operator current copies of all
existing regulatory and governmental permits, operating
licenses and authorizations (including such permits, licenses
and authorizations required by additional regulations or
changes to regulations);
(b) To the extent available to Owner, provide to
Operator (i) the most up to date as-built drawings of the
Facility, (ii) copies of all quarterly reports delivered
pursuant to Section 4.5 of the Westinghouse O&M Agreement,
(iii) current copies of all Project Documents (except the
Agreement), as amended from time to time, (iv) the most recent
inventory list provided by the operator under the Westinghouse
O&M Agreement, (v) the Existing Plant Procedures, and (vi)
such other information with respect to the operation and
maintenance of the Facility as Operator may reasonably
request;
6
<PAGE>
(c) Provide rights of ingress to and egress from the
Site and access to the Facility and all components thereof, to
the extent reasonably necessary for the performance by
Operator of the Transition Services;
(d) Coordinate and arrange the turnover of the
Facility to Operator in a timely manner on the Operating
Period Commencement Date;
(e) Reimburse Operator for costs and expenses in
accordance with Section 5.01(a); and
(f) At the request of Operator, cooperate with
Operator in its efforts to obtain certification from an
Independent Engineer that Operator is capable of operating the
Facility.
3. From the Operating Period Commencement Date through the
termination of the Agreement, Owner shall:
(a) Provide Operator rights of ingress to and egress
from the Site and full access to the Facility and all
components thereof;
(b) Investigate, determine, and seek to secure and
maintain and pay for all Owner Permits, and any renewal and
updating thereof; provided that Operator shall prepare and
submit to Owner (or to such other party as Owner may designate
on behalf of Owner) such existing pertinent data and
information as Owner or such other party may reasonably
request in order to obtain, renew and update the Owner
Permits;
(c) Provide an O&M Operating Account that shall
contain adequate funds to pay Operator in full and in a timely
fashion for all costs and expenses, as more particularly
described in Section 5.03 of the Agreement;
(d) Manage and control accounting functions and cash
flow of Owner;
(e) Review and approve or disapprove the Annual Plan
as provided in Section 4.03 of the Agreement;
(f) Approve disposal of all regulated (hazardous
waste) from the Facility;
(g) Procure and maintain insurance for the Facility
as provided in Section 9.03 of the Agreement;
(h) Pay all taxes relating to the Facility and the
maintenance and operation of the Facility, except for
Operator's income tax; and
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<PAGE>
(i) At the request of Operator, take reasonable steps
to allow the Facility to meet the operating standards set
forth under 18 C.F.R. ss. 292.205.
3
<PAGE>
SCHEDULE 5.01
O&M EXPENSES
The following, to the extent properly incurred pursuant to the
terms of the Agreement:
1. The Labor Costs for all On-Site Personnel. The Labor Cost
for On-Site Personnel will be charged based on actual costs.
2. Operator will be reimbursed for reasonable out-of-pocket
expenses of Home Office Personnel incurred in accordance with the Approved
Annual Plan.
3. Costs of training On-Site Personnel, including travel.
4. Reasonable travel costs and related expenses for On-Site
Personnel.
5. The delivered costs, including any air freight or
expediting fee, of special order parts, rental equipment, tools, office
equipment, and furniture.
6. The costs of suppliers, subcontractors, attorneys,
certified public accountants and other third party advisors to the extent of
work performed specifically for the Facility.
7. All utility costs.
8. Waste disposal costs.
9. Costs and expenses incurred pursuant to Section 6.08(c) of
the Agreement.
10. The cost and expenses of services requested or approved in
writing by Owner (whether or not included within the scope of services provided
by Operator pursuant to the Agreement).
<PAGE>
SCHEDULE 8.02
OPERATOR INSURANCE*
1. Statutory Workers's Compensation Insurance, including
coverage for Longshoremen's and Federal Harbor Workers Act and with minimum
Employer Liability limits of One Million Dollars ($1,000,000) with "all states"
endorsements.
2. Comprehensive Automobile Liability Insurance for bodily
injury and death or property damage arising out of the use of all owned,
non-owned and hired motor vehicles, including loading and unloading in a minimum
amount of $1,000,000 per occurrence.
3. Comprehensive General Liability Insurance with minimum
limits of $1,000,000 per occurrence.
4. Operator shall assume, and at its election shall insure,
all risk of loss or damage to Operator's property at the Facility site. Operator
hereby releases and waives any rights it may have against Owner in connection
with such loss or damage.
- -----------------
* Operator hereby waives and agrees to require the issuers of the insurance
policies required by the Agreement to waive any rights of subrogation
against Owner for any loss or damage however caused.
<PAGE>
SCHEDULE 9.03
OWNER INSURANCE*
1. Comprehensive General Liability Insurance with minimum
limits of $10,000,000 per occurrence including premises/operations, explosion,
collapse and underground hazards, broad form contractual, products/completed
operations and personal injury. The policies for the foregoing coverage shall
include Operator as an additional named insured with respect to the performance
by Operator of its obligations under this Agreement and be endorsed to be
primary to any coverage maintained by or on behalf of Operator. Any deductible
shall be the responsibility of Owner except to the extent the Operator is
responsible under Section 8.01.
2. Comprehensive Automobile Liability Insurance for bodily
injury and death or property damage arising out of the use of all owned,
non-owned and hired vehicles in a minimum amount of $1,000,000 per occurrence.
The policy shall name Owner and Operator as named insureds in connection with
the performance by Operator of its obligations under the Agreement and be
primary to any other coverage which might be maintained by Operator. Any
deductible shall be the responsibility of Owner except to the extent Operator is
responsible under Section 8.01.
3. The Physical Damage Insurance (as defined in Section 7.4(v)
of the Indenture) for the Facility required by Section 7.4(v) of the
Indenture.**
- -------------------
* Owner hereby waives and agrees to require the issuers of the insurance
policies required by the Agreement to waive any rights of subrogations
against the Operator for any loss or damage however caused.
** Operator acknowledges that the Physical Damage Insurance provided by Owner
does not cover personal property belonging to Operator located at the Site.
EXHIBIT 10.17
================================================================================
OPERATION AND MAINTENANCE AGREEMENT
for the
Sayreville Cogeneration Plant
at
Sayreville, New Jersey
between
Northeast Energy, LP
and
ESI Operating Services, Inc.
================================================================================
1
<PAGE>
TABLE OF CONTENTS
Page No.
--------
ARTICLE I.
DEFINITIONS.......................... 1
ARTICLE II.
SCOPE OF SERVICES....................... 2
Section 2.01 Oversight Services.......................................... 2
Section 2.02 Transition Services......................................... 2
Section 2.03 Operator Services........................................... 2
Section 2.04 Agency...................................................... 2
Section 2.05 Operator Notices............................................ 3
ARTICLE III.
RESPONSIBILITIES OF OWNER................... 3
Section 3.01 Responsibilities of Owner................................... 3
Section 3.02 Owner Notices............................................... 3
ARTICLE IV.
PROCEDURES, PLANS AND RECORDS................. 3
Section 4.01 Plant Manual................................................ 3
Section 4.02 Transition Plan............................................. 4
Section 4.03 Annual Plan................................................. 5
Section 4.04 Emergencies................................................. 7
Section 4.05 Right of Owner to Inspect Records........................... 7
Section 4.06 Capital Improvements........................................ 7
ARTICLE V.
COMPENSATION, COSTS AND REIMBURSEMENTS............. 8
Section 5.01 Costs and Expenses.......................................... 8
Section 5.02 Operating Fee............................................... 8
Section 5.03 O&M Operating Account....................................... 9
Section 5.04 Late Payments............................................... 9
(i)
<PAGE>
ARTICLE VI.
TERM AND TERMINATION...................... 9
Section 6.01 Term........................................................ 9
Section 6.02 Termination upon Notice by Owner............................ 9
Section 6.03 Termination upon Notice by Operator......................... 10
Section 6.04 Termination for Insolvency.................................. 10
Section 6.05 Termination Upon Certain Other Events....................... 10
Section 6.06 Duties Upon Termination..................................... 10
Section 6.07 Effect of Termination....................................... 11
Section 6.08 Termination Payment......................................... 11
ARTICLE VII.
LIMITATION OF LIABILITY.................... 11
Section 7.01 No Consequential Damages.................................... 11
Section 7.02 Limitation of Aggregate Liability........................... 12
ARTICLE VIII.
INDEMNIFICATION, INSURANCE BY OPERATOR............. 12
Section 8.01 Indemnification............................................. 12
Section 8.02 Insurance Coverage.......................................... 12
ARTICLE IX.
INDEMNIFICATION, INSURANCE BY OWNER.............. 13
Section 9.01 Indemnification............................................. 13
Section 9.02 Procedure................................................... 13
Section 9.03 Insurance Coverage.......................................... 14
ARTICLE X.
FORCE MAJEURE......................... 14
Section 10.01 Force Majeure............................................... 14
Section 10.02 Notice...................................................... 14
ARTICLE XI.
RELATIONSHIP OF THE PARTIES.................. 15
(ii)
<PAGE>
ARTICLE XII.
REPRESENTATIONS, WARRANTIES AND STANDARD OF CARE........ 15
Section 12.01 Representations and Warranties of Owner..................... 15
Section 12.02 Representations and Warranties of Operator.................. 16
Section 12.03 Standard of Care............................................ 16
ARTICLE XIII.
NOTICES............................ 16
ARTICLE XIV.
ASSIGNMENTS AND SUBCONTRACTING................. 17
Section 14.01 Assignments................................................. 17
Section 14.02 Assignment by Owner to NJEA................................. 17
Section 14.03 Security Interest........................................... 18
Section 14.04 Cooperation in Financing.................................... 18
Section 14.05 Subcontracting.............................................. 18
ARTICLE XV.
LIMITATIONS OF AUTHORITY; LIENS AND ENCUMBRANCES........ 18
Section 15.01 Limitation on Authority..................................... 18
Section 15.02 No Liens or Encumbrances.................................... 19
ARTICLE XVI.
DISPUTE RESOLUTION AND ARBITRATION............... 19
Section 16.01 Dispute Resolution.......................................... 19
Section 16.02 Arbitration................................................. 19
Section 16.03 Survival.................................................... 20
(iii)
<PAGE>
ARTICLE XVII.
MISCELLANEOUS......................... 21
Section 17.01 Severability................................................ 21
Section 17.02 Governing Law............................................... 21
Section 17.03 Entire Agreement............................................ 21
Section 17.04 Captions.................................................... 21
Section 17.05 Counterparts................................................ 21
Section 17.06 No Third Party Beneficiaries................................ 21
Section 17.07 Further Assurances.......................................... 21
Section 17.08 No Implied Waiver........................................... 21
Section 17.09 Amendments.................................................. 22
Section 17.10 Confidentiality............................................. 22
Section 17.11 Decision-Making by Parties.................................. 22
Section 17.12 Schedules................................................... 22
(iv)
<PAGE>
OPERATION AND MAINTENANCE AGREEMENT
This OPERATION AND MAINTENANCE AGREEMENT (this "Agreement") is
made as of the 21st day of November, 1997, between NORTHEAST ENERGY, LP, a
Delaware limited partnership ("Owner"), and ESI OPERATING SERVICES, INC., a
Florida corporation ("Operator"). Owner and Operator are sometimes referred to
individually as a "party," and collectively, the "parties".
RECITALS
WHEREAS, North Jersey Energy Associates, a Limited Partnership
("NJEA"), is the owner of a 300 megawatt gas-fuel combined cycle cogeneration
plant located in Sayreville, New Jersey (the "Facility");
WHEREAS, NJEA has entered into that certain Second Amended and
Restated Operation and Maintenance Agreement, dated as of June 28, 1989 (the
"Westinghouse O&M Agreement"), with Westinghouse Electric Corporation, a
corporation organized under the laws of the Commonwealth of Pennsylvania;
WHEREAS, Owner indirectly holds 100% of the partnership interests
in NJEA;
WHEREAS, subject to the terms and conditions of this Agreement,
Owner desires to retain, effective as of the expiration or early termination of
the Westinghouse O&M Agreement, Operator to operate and maintain the Facility
and Operator is willing to perform the services described in this Agreement; and
WHEREAS, until such time, Operator is willing, subject to the
terms and conditions in this Agreement, to perform the Oversight Services and
the Transition Services described herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the receipt and sufficiency of which are hereby
acknowledged, Owner and Operator, intending to be legally bound, agree as
follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, capitalized terms shall have the
definitions set forth in Schedule 1.01.
<PAGE>
ARTICLE II.
SCOPE OF SERVICES
Section 2.01 Oversight Services. From the Effective Date through
the day immediately preceding the Transition Period Commencement Date (the
"Oversight Period"), Operator shall provide the services listed on Schedule 2.01
(the "Oversight Services"). Such services shall be conducted in a manner so as
to minimize disruption of operation and maintenance of the Facility. During the
Oversight Period, Operator shall not be responsible for operation or maintenance
of the Facility.
Section 2.02 Transition Services. From the Transition Period
Commencement Date through the day immediately preceding the Operating Period
Commencement Date (the "Transition Period"), Operator shall review existing
maintenance and operation records and perform all activities necessary to
mobilize its personnel (the "Transition Services"), including without
limitation, the services listed on Schedule 2.02. Such review and mobilization
efforts shall be conducted in a manner so as to minimize disruption of operation
and maintenance of the Facility. During the Transition Period, Operator shall
not be responsible for operation or maintenance of the Facility.
Section 2.03 Operator Services. From the Operating Period
Commencement Date through the termination, of this Agreement, Operator shall
perform all activities necessary to operate and maintain the Facility (the "O&M
Services"), including without limitation, the services listed on Schedule 2.03.
The O&M Services shall not include, and Operator shall not be responsible for,
supplying water, natural gas or start up electrical power for the Facility,
securing or maintaining Owner Permits, arranging for the sale of steam or
electricity, except as specifically required by this Agreement maintaining the
insurance required by the Indenture, or the services described in Schedule 3.01;
provided, however, that the foregoing shall not limit Operator's obligation to
coordinate and/or arrange for the supply of such services as set forth herein.
Section 2.04 Agency.
(a) To the extent expressly set forth in the Approved Transition
Plan, Operator is hereby authorized by Owner to enter into, on behalf of Owner
and as agent of Owner, purchase orders and service agreements in connection with
the Transition Services.
(b) Subject to the Approved Annual Plan, the administrative
procedures set forth in the Approved Plant Manual and Article XI hereof,
Operator is hereby authorized by Owner to enter into, on behalf of Owner and as
agent of Owner, purchase orders and service agreements in connection with the
O&M Services.
(c) Operator shall not claim title to any supplies, consumables,
tools, office equipment or furniture acquired on behalf of Owner.
Notwithstanding anything herein to the contrary, title to any software developed
or modified specifically for the Facility, whether by Owner, Operator or a
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<PAGE>
third-party contractor, shall vest in Owner. Operator may retain title to any
commercially available software or equipment purchased by Operator or its
Affiliates with its own funds; provided, however, all records with respect to
the operation and maintenance of the Facility maintained with such software
shall be the property of Owner.
Section 2.05 Operator Notices. Operator shall provide to Owner
copies of all notices from third parties received by Operator in connection with
Operator's performance of its responsibilities under this Article II. Operator
shall designate in writing to Owner an individual who will act on behalf of
Operator with respect to communicating decisions and directions to Owner under
this Agreement. Such individual shall also be available at reasonable times to
receive communications from Owner and provide appropriate responses to Owner.
ARTICLE III.
RESPONSIBILITIES OF OWNER
Section 3.01 Responsibilities of Owner. From the Effective Date to
the end of the term of this Agreement, Owner shall provide, at Owner's sole cost
and expense, and in addition to the other services specifically set forth in
this Agreement, the services listed on Schedule 3.01.
Section 3.02 Owner Notices. Owner shall give Operator at least 120
days prior written notice of an early termination of the Westinghouse Agreement.
Owner shall also provide to Operator copies of all notices from third parties
received by Owner in connection with Owner's performance of its responsibilities
under this Article III. Owner shall designate in writing to Operator an
individual who will act on behalf of Owner with respect to communicating
decisions and directions to Operator under this Agreement. Such individual shall
also be available at reasonable times to receive communications from Operator
and provide appropriate responses to Operator.
ARTICLE IV.
PROCEDURES, PLANS AND RECORDS
Section 4.01 Plant Manual. During the Transition Period, Operator
shall review the existing plant operating, maintenance and safety procedures
(the "Existing Plant Procedures") currently in use at the Facility and sixty
(60) days before the Operating Period Commencement Date, submit to Owner a
report outlining the proposed scope of and schedule for revision and the
incorporation of the Existing Plant Procedures into a plant manual (the "Plant
Manual"). The Plant Manual shall be consistent with applicable Law, the Project
Documents and the original equipment manufacturers manuals. All safety,
environmental and administrative-related revisions shall be scheduled for
implementation as of the Operating Period Commencement Date. Operator's report
shall address, at a minimum, the following plans and procedures:
(a) staffing plan;
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<PAGE>
(b) spare parts program;
(c) administrative procedures;
(d) operating procedures;
(e) maintenance program;
(f) safety and security program;
(g) accounting procedures;
(h) environmental procedures;
(i) record-keeping and reporting procedures;
(j) procurement procedures; and
(k) outage planning procedures.
Thereafter, Owner and Operator shall meet to resolve any differences with
respect to the Existing Plant Procedures and to agree on a Plant Manual and a
plan for revision of the Plant Manual, if necessary; provided, however, that if
Owner and Operator are unable to agree, the decision of Owner shall be binding
on the parties unless patently unreasonable or contrary to this Agreement or
applicable Law. Owner and Operator shall seek diligently to agree on the Plant
Manual and the plan for revision of the Plant Manual, if necessary, no later
than twenty (20) days before the Operating Period Commencement Date. The
approved Plant Manual shall remain in effect for the term of this Agreement,
subject to revision and amendment as may be proposed by Owner or Operator and
consented to in writing by both parties. The Plant Manual and all revisions
approved pursuant to this section shall be the "Approved Plant Manual." Operator
shall be responsible for maintenance and update of the Approved Plant Manual,
shall conduct an annual review of the Approved Plant Manual and shall make such
changes to the Approved Plant Manual as Owner shall reasonably request, except
as required by applicable Law or this Agreement. All costs associated with
developing the Approved Plant Manual and any revisions thereof shall be deemed
O&M Expenses.
Section 4.02 Transition Plan.
(a) Eighty (80) days before the Operating Period Commencement
Date, Operator shall prepare and submit to Owner a proposed plan for orderly
transition of the operation and maintenance responsibilities for the Facility to
Operator (the "Transition Plan"). The Transition Plan shall describe, in detail
reasonably acceptable to Owner, anticipated schedule, objectives, staffing
plans, equipment acquisitions, spare parts and Consumables inventories
(including a breakdown of capital items and expense items), schedules of
subcontractor services, and such other matters as Owner may reasonably require.
Any actions proposed under the Transition Plan shall be consistent with Prudent
Industry Practices and this Agreement. The Transition Plan shall contain a
proposed budget for the Transition Period that shall describe, in detail
reasonably acceptable to Owner, the estimated cost, based on time and materials
and all fees, for any anticipated Transition Services to be provided by Operator
during Transition Period and the assumptions used in developing such budget.
When approved pursuant to Section 4.02(b) below, the Transition Plan shall be an
"APPROVED TRANSITION PLAN."
4
<PAGE>
(b) Owner shall give its written approval or disapproval of the
Transition Plan no later than 30 days after receipt thereof from Operator. If
Owner disapproves all or any portion of the proposed Transition Plan, Owner and
Operator shall make all reasonable efforts to agree upon the items and
associated costs to be included in the Transition Plan. If Owner and Operator
cannot agree on the Transition Plan, those elements of the Transition Plan that
are in dispute shall be revised in accordance with the reasonable specifications
of Owner, however, in no event shall the Transition Plan require Operator to (i)
deviate from its practices regarding salary administration, compensation and
personnel practices, except as required by Laws or Prudent Industry Practices or
(ii) perform services that might conflict with Operator's duties under this
Agreement or applicable Laws.
(c) An Approved Transition Plan shall constitute authorization for
Operator to incur costs and expenses as agent on behalf of Owner to the extent
set forth in the budget contained in Approved Transition Plan. Operator shall
notify Owner as soon as reasonably possible of any anticipated monetary
variances in estimated expenses for the Transition Period.
(d) If either party desires to request an amendment to the
Approved Transition Plan, Owner and Operator shall make all reasonable efforts
to agree upon any proposed changes to the Approved Transition Plan. Once
approved, the revised Transition Plan shall supersede the then current Approved
Transition Plan.
Section 4.03 Annual Plan.
(a) Sixty (60) days before the Operating Period Commencement Date
and ninety (90) days before the first day of each Operating Year commencing
thereafter, Operator shall prepare and submit to Owner a proposed operating and
maintenance plan for the upcoming Operating Year (the "OPERATING PLAN"). The
Operating Plan shall describe, in detail reasonably acceptable to Owner,
anticipated maintenance and overhaul schedules, performance objectives,
predictive and preventative maintenance programs or plans, Planned Outages,
staffing plans, equipment acquisitions, spare parts and Consumables inventories
(including a breakdown of capital items and expense items), schedules of
subcontractor services, plant performance data regarding required environmental
performance, and such other matters as Owner may reasonably require. Any actions
proposed under the Operating Plan shall be consistent with the Approved Plant
Manual, Prudent Industry Practices and this Agreement. Together with the
Operating Plan, Operator shall submit to Owner for its review and written
approval a proposed budget for operating and maintaining the Facility during the
upcoming Operating Year pursuant to the Operating Plan and Prudent Industry
Practices (the "OPERATING BUDGET") that shall describe, in detail reasonably
acceptable to Owner, the estimated cost, based on time and materials and all
5
<PAGE>
fees, for all anticipated O&M Services to be provided by Operator during each
month of the upcoming Operating Year and the assumptions used in developing the
Operating Budget. (The Operating Plan and the Operating Budget for the upcoming
Operating Year are sometimes collectively referred to as the "Annual Plan").
When approved pursuant to Section 4.03(b) below, the Annual Plan shall be an
"APPROVED ANNUAL PLAN" and shall consist of an "APPROVED OPERATING PLAN" and an
"APPROVED OPERATING BUDGET."
(b) Owner shall give its written approval or disapproval of the
Annual Plan no later than 60 days after receipt thereof from Operator. If the
Annual Plan is not approved or disapproved within such 60-day period, the Annual
Plan for the previous year shall remain in effect until a new Annual Plan has
been approved by Owner. If Owner disapproves all or any portion of the proposed
Annual Plan, Owner shall provide the reasons for such disapproval in writing and
Owner and Operator shall make all reasonable efforts to agree upon the items and
associated costs to be included in the Annual Plan. If Owner and Operator cannot
agree on the Annual Plan, those elements of the Annual Plan that are in dispute
shall be revised on an interim basis in accordance with the reasonable
specifications of Owner. Owner and Operator agree to proceed pursuant to such
revised Annual Plan pending the final resolution of their disagreement. The
Owner-specified Operating Budget or Operating Plan will be deemed an Approved
Operating Budget or an Approved Operating Plan until such resolution. However,
in no event shall such revised Annual Plan require Operator to (i) deviate from
its practices regarding salary administration, compensation and personnel
practices, except as required by Laws or to comply with Prudent Industry
Practices or (ii) perform services that might conflict with Operator's duties
under this Agreement or applicable Laws. Facility staffing levels shall be
adjusted to appropriately respond to any material and sustained changes in the
operation of the Facility required by changes to the Project Documents, or as
mutually agreed upon by Owner and Operator.
(c) An Approved Annual Plan shall constitute authorization for
Operator to incur costs and expenses as agent on behalf of Owner to operate and
maintain the Facility in accordance with such Approved Operating Budget.
Operator shall notify Owner if Operator reasonably believes that expenses
anticipated to be incurred would exceed the O&M Expenses projected to be
incurred as set forth in the Approved Operating Budget for the applicable
Operating Year. Operator shall follow Owner's instructions regarding further
expenditures on Owner's behalf with respect to such variances. Unless and until
Owner approves additional expenditures, Operator shall, subject to Section 4.04
below, not incur expenses on behalf of Owner in excess of the projected O&M
Expenses in the Approved Operating Budget, and any expenses so incurred shall
not be deemed to be O&M Expenses.
(d) If either party desires to request an amendment to an Approved
Annual Plan at any time during the Operating Year, such party shall submit a
proposed revised Annual Plan for the other party's consideration, including the
basis for the adjustment, and such other party shall approve or disapprove the
proposed revised Annual Plan in writing within 30 days after submission thereof.
If the proposed revised Annual Plan is not approved within such 30-day period,
it shall be deemed to have been disapproved. If the proposed revised Annual Plan
is disapproved within such 30 day period, the disapproving party shall furnish
the other party with the reasons for such disapproval in writing and shall
immediately begin good faith discussions in an effort to reach a mutually
agreeable revised Annual Plan. Operator shall not, except in an
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emergency as described in Section 4.04 hereof, act outside of the Approved
Annual Plan for such Operating Year without the prior written consent of Owner.
Once approved, the revised Annual Plan shall supersede the then current Approved
Annual Plan.
Section 4.04 Emergencies. In the event of an emergency involving
the Facility or any adjoining property on or after the Operating Period
Commencement Date and Owner is unavailable or there is insufficient time to
reach Owner, Operator shall be authorized, without the necessity of obtaining
any approvals from Owner that might otherwise be required hereunder, to take any
action (including making payments and incurring expenses on behalf of Owner in
the nature of capital or operating expenses or otherwise) deemed by Operator to
be reasonably necessary or advisable under the circumstances to prevent, avoid
or mitigate injury, damage or loss to persons or property or loss of Owner's
revenue from the Facility; provided, however, that Operator shall not make any
such expenditures if the aggregate amount for any incident is estimated by
Operator to exceed $50,000 unless Owner has approved the same or the same is
made in accordance with the following sentence. If there is an emergency
resulting in, or imminently threatening, injury, damage or loss of life to
persons, or environmental damage and Operator has been unable to contact Owner
notwithstanding its diligent efforts to do so, Operator shall be authorized to
make such emergency expenditures in excess of $50,000, provided that Operator
continues its diligent efforts to contact Owner regarding any such expenditure.
Operator shall notify Owner of any emergency as soon as practicable. If, as a
result of action taken in response to such an emergency, Operator properly
incurs costs or expenses in connection therewith and provides Owner with
justification and invoices therefor, the Approved Annual Plan shall be revised
to properly incorporate and reflect such costs and expenses, and adequate funds
shall be deposited by Owner into the Operating Account in accordance therewith.
Section 4.05 Right of Owner to Inspect Records. Owner shall have
the right, at its own expense, throughout the term of this Agreement and for a
period of two years following termination of this Agreement, to inspect and/or
audit Operator's records of operation, permit compliance, past maintenance and
scheduled maintenance for the Facility, as well as procurement, expenditure and
cost records and supporting data (excluding the underlying basis for the rates
for Home Office Personnel) and all other books and records maintained by
Operator with respect to the Facility or the operation and maintenance thereof.
Upon reasonable prior notice, Operator hereby agrees to make all such records
maintained by Operator available, subject to Operator's record retention policy
as set forth in the Approved Plant Manual, for inspection or audit by Owner or
any third party reasonably designated by Owner and to cooperate with Owner and
Owner's designated auditor with respect to any audit or review. Neither the
third party nor the auditor shall be a direct competitor of Operator. Any audit
or review shall be conducted in a manner so as to minimize disruption of
Operator's business.
Section 4.06 Capital Improvements. Owner and Operator shall
develop a capital authorization procedure agreeable to both parties that
provides for proper Owner approval prior to implementation. No capital
expenditures will be made by Operator unless the same is specifically included
in both the Approved Operating Budget and the Approved Operating Plan or have
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otherwise been approved in accordance with procedures adopted by Owner, and any
such capital expenses incurred without Owner's approval shall be at the sole
expense of Operator.
ARTICLE V.
COMPENSATION, COSTS AND REIMBURSEMENTS
Section 5.01 Costs and Expenses.
(a) Owner shall pay all properly incurred costs and expenses of
performing the Transitional Services, including without limitation the
applicable costs and expenses listed on Schedule 5.01 to the extent in the
budget contained in the Approved Transition Plan, and all costs and expenses
(whether or not on Schedule 5.01) approved by Owner and incurred during the
Transition Period. Acting on behalf of Owner as agent, Operator shall incur
expenses during the Transition Period only to the extent the nature and amount
of such costs and expenses are included in the Approved Transition Plan or are
otherwise approved by Owner. Payment of such expenses shall be made by Owner
within thirty (30) days of Operator's submission of an invoice therefor;
provided, however, that Owner may defer payment until the Operating Period
Commencement Date set forth in the notice by Owner pursuant to Section 3.02.
(b) Subject to the provisions of this Section 5.01(b), Owner shall
pay all properly incurred costs and expenses of performing the O&M Services
(collectively, the "O&M Expenses"), including without limitation the costs and
expenses listed on Schedule 5.01. Acting on behalf of Owner as agent, Operator
shall incur O&M Expenses only to the extent the nature and amount of such costs
and expenses (i) are included within the Approved Operating Budget (it being
agreed that Operator may exceed the budget amount for any line item so long as
the overall budget amount has not been exceeded) or are otherwise approved by
Owner, (ii) are incurred in connection with the performance of any Unscheduled
Maintenance as approved in writing by Owner, or (iii) are incurred in connection
with an emergency as provided under Section 4.04 hereof. Operator shall be
responsible for paying all expenses not incurred in accordance with this
Agreement. Payment of O&M Expenses by Owner shall be made from the O&M Operating
Account, which is more particularly described in Section 5.03. Except as
specifically provided herein, Operator shall not incur on Owner's behalf any O&M
Expenses. All O&M Expenses, except the Labor Costs of Operator's personnel, the
cost of services provided by Operator's Affiliates and items purchased with
petty cash, shall be incurred in the name of Owner.
Section 5.02 Operating Fee.
(a) From the Effective Date until this Agreement is terminated,
Operator shall receive a fee (the "Operating Fee") of $750,000 per annum, as
adjusted in accordance with this Section 5.02. The Operating Fee shall be paid
in monthly installments and shall be due on the first Business Day of each month
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for the preceding month. The Operating Fee for any partial month shall be pro
rated to cover the actual portion of such month that this Agreement was in
effect.
(b) As of January 1 of each year, commencing January 1, 1999, the
Operating Fee shall be adjusted upwards or downwards by multiplying the
Operating Fee for the prior year by a fraction the numerator of which will be
the Index for the immediately preceding December and the denominator of which
will be the Index for the month of December one year earlier; provided, that in
no event shall the Operating Fee be decreased below $750,000. This adjusted
Operating Fee shall be the Operating Fee for the current Operating Year and the
basis for calculation of the Operating Fee for the next Operating Year.
Section 5.03 O&M Operating Account. Owner shall establish and
maintain an O&M operating account ("O&M Operating Account") and will designate
Operator as an additional signatory on the account, subject to the restrictions
set forth in the Approved Plant Manual. Owner will deposit into the O&M
Operating Account on or before the 15th day of each month an amount equal to (a)
the amount of O&M Expenses in the Approved Operating Budget for the next month,
plus (b) any amount reasonably expected by Operator, as communicated to Owner in
writing by the 10th day of the month, to be required for costs and expenses
relating to emergencies or approved Unscheduled Maintenance, plus or minus (c)
the difference between the amounts deposited in the O&M Operating Account in the
preceding month and the actual amount of O&M Expenses incurred in that month. On
or before the 10th day of each month, Operator shall deliver to Owner an
accounting report that reflects all O&M Expenses for the preceding month,
reconciled against the amounts deposited to the O&M Operating Account and
against the amounts projected in the Approved Operating Budget for such
preceding month.
Section 5.04 Late Payments. If any amounts owing under this
Agreement are not paid to Operator or Owner, as applicable, when due, the same
shall bear interest at the Late Payment Rate from the due date until paid.
ARTICLE VI.
TERM AND TERMINATION
Section 6.01 Term. Unless terminated as provided in Article VI or
Article X, this Agreement shall continue in effect for the period commencing on
the Effective Date and ending on the 18th anniversary of the Effective Date (the
"INITIAL TERM"), unless the parties shall at least six (6) months prior to the
expiration of the Initial Term agree in writing to an extension.
Section 6.02 Termination upon Notice by Owner. If (a) prior to the
Operating Period Commencement Date an Independent Engineer has not certified
that Operator is capable of operating the Facility in accordance with Prudent
Industry Practices, (b) if the Purchase Agreement terminates in accordance with
Section 15 thereof, or (c) Operator defaults in the performance of any material
term, covenant or obligation contained in this Agreement and does not remedy
such default within 30 days after Operator's receipt of Owner's written notice
thereof to Operator (or as soon as possible thereafter but in any event within
180 days, if it cannot be reasonably accomplished in such 30 day period and
Operator shall have commenced all actions required to remedy such default within
such 30 day period and diligently thereafter pursues the same to completion),
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Owner may, by written notice to Operator, terminate this Agreement and Owner
shall pay to Operator all amounts due and not previously paid to Operator for
services performed in accordance with this Agreement up until the effective date
of such termination. All such amounts will be paid to Operator within 30 days of
the effective termination date or within 30 days of receipt of an invoice from
Operator for any amounts not invoiced prior to the effective termination date,
provided that Owner shall have the right to -------- offset the amounts of any
damages owing by Operator under this Agreement against any such amounts due and
not previously paid to Operator by Owner.
Section 6.03 Termination upon Notice by Operator. If Owner (a)
fails to make any payment hereunder within 5 days after the same shall have
become due, or (b) defaults in the performance of any material term, covenant or
agreement contained in this Agreement and does not remedy such default within 30
days after Owner's receipt of Operator's written notice thereof to Owner (or as
soon as possible thereafter but in any event within 180 days, if it cannot be
reasonably accomplished in such 30 day period and Owner shall have commenced all
actions required to remedy such default within such 30 day period and diligently
thereafter pursues the same to completion), Operator may, by written notice to
Owner, terminate this Agreement.
Section 6.04 Termination for Insolvency. Either party may
terminate this Agreement by written notice to the other party (but only with the
concurrence of the Agent in the case of termination by Owner) if: (a) the other
party (i) makes a general assignment for the benefit of creditors, (ii)
institutes proceedings in any court of competent jurisdiction or takes any other
steps to subject itself to the laws of any jurisdiction to which it may be
subject providing for it to be wound up or adjudicating it to be bankrupt or
insolvent or (iii) takes or consents to the institution of any bankruptcy or
insolvency proceedings which relate to any reorganization, arrangement or
compromise of its debts; (b) any proceedings are commenced or steps taken
whether by way of private appointment, seizure, court proceedings or otherwise
for the appointment of a receiver, custodian, liquidator, trustee or similar
person with respect to all or a substantial portion of the other party's
property; or (c) any proceedings are commenced or steps taken by any creditor,
regulatory agency or other person relating to the reorganization, arrangement,
adjustment composition, liquidation, dissolution, winding up, custodianship or
other similar relief with respect to such other party.
Section 6.05 Termination Upon Certain Other Events. Either party
may terminate this Agreement by written notice to the other party if: (a) the
Facility is destroyed or suffers damage in excess of $100,000,000 and is not
rebuilt and in commercial operation within 24 months after such damage or
destruction, (b) the Facility cannot be operated for a period of at least 18
consecutive months as a result of a Force Majeure event, (c) loss of "qualifying
facility" status, or (d) Owner determines to permanently shut down the Facility.
Section 6.06 Duties Upon Termination. Upon termination or
expiration of this Agreement:
(a) At the request of Owner, and provided that Owner
is not in default of any material provision of this Agreement,
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Operator shall have the obligation to assist in making, at Owner's
expense, a smooth transition to a new operator (including training
new operating personnel);
(b) Operator shall provide to Owner all books and
records relating to the Facility or the operation or maintenance
thereof (other than Operator's own internal accounting records),
including, without limitation, the Approved Plant Manual, provided
that Operator may retain a copy of such records at its own
expense;
(c) Operator shall provide Owner with a current
inventory record of the assets at the Site and a reconciliation of
inventory balances of such assets; and
(d) Operator shall provide to Owner at the Site all
tools and Consumables purchased by Operator on behalf of Owner
pursuant to this Agreement.
This Section 6.06 shall survive termination of this Agreement.
Section 6.07 Effect of Termination. On the effective date of
termination, Owner shall assume and become responsible for all operation and
maintenance of the Facility, including, but not limited to, obligations under
outstanding contracts and commitments relating to the operation and maintenance
of the Facility and the purchase of equipment for the Facility. Notwithstanding
such termination, neither party shall be relieved from any obligations or
liabilities that accrued prior to the effective date of termination. The
applicable provisions of this Agreement will continue in effect after
termination of this Agreement to the extent necessary to provide for final
payments, payment adjustments and any other final expense reimbursements, and
with respect to liability and indemnification payments and expense
reimbursements from acts or events that occurred prior to the date of
termination of this Agreement.
Section 6.08 Termination Payment. In the event of a termination of
this Agreement by Operator other than pursuant to Section 6.02, Operator shall
be entitled, in addition to all other amounts due hereunder as of the date of
termination, to a demobilization and cancellation payment equal to (a) the total
of all costs and expenses incurred by Operator as a direct result of such
termination, including all relocation, severance and outplacement costs incurred
with respect to, and any other termination benefits due, Operator's employees,
which costs Operator is at such time contractually or legally obligated to pay
to its employees, or which are incurred with the prior written approval of Owner
or in accordance with any established cancellation costs incurred with respect
to third parties, plus (b) in the case of a termination by Operator pursuant to
Section 6.03, $1,500,000. Subject to Owner's rights to conduct a subsequent
audit and review pursuant to Section 4.05, such amounts shall be due and payable
by Owner within thirty (30) days of Operator's submission of an invoice
therefor.
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ARTICLE VII.
LIMITATION OF LIABILITY
Section 7.01 No Consequential Damages. With respect to claims
arising under this Agreement or out of performance or non-performance of the
services and obligations under this Agreement, neither Operator, its Affiliates
nor their respective employees or agents shall be
liable to Owner, its Affiliates or their respective employees, agents or
subcontractors and neither Owner, its Affiliates nor their respective employees,
agents or subcontractors shall be liable to Operator, whether based in contract,
in tort (including negligence and strict liability), under warranty, or
otherwise, for any special, indirect, incidental, exemplary or consequential
loss or damage whatsoever, including without limitation, loss of use,
opportunity or profits, damages to good will or reputation or punitive damages.
Section 7.02 Limitation of Aggregate Liability. The total annual
aggregate liability of Operator with respect to this Agreement under any theory
of recovery, whether based in contract, in tort (including negligence and strict
liability), under warranty, or otherwise, and notwithstanding any other
provision of this Agreement, shall be limited in any Operating Year to the
Operating Fee for such Operating Year.
Section 7.03 NonRecourse Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of Owner hereunder
are recourse only to the assets of Owner and neither the partners of Owner nor
any shareholder, director, officer, agent or affiliate of Owner or any partner
of Owner, shall have any personal responsibility or liability for any payment
obligations of Owner hereunder, or otherwise for any breach in performance or
observance of the covenants, representations, or obligations of Owner hereunder.
ARTICLE VIII.
INDEMNIFICATION, INSURANCE BY OPERATOR
Section 8.01 Indemnification. Subject to the limitations set forth
in Article VII hereof, Operator hereby agrees to indemnify, defend and hold
harmless Owner, all partners of Owner, Lender and each of their respective
officers, directors, shareholders, agents, Affiliates and employees
(collectively, "Owner's Indemnitee") from and against all losses, liabilities
(including environmental liabilities), damages, demands, claims, suits, actions,
judgments or causes of action, assessments, interest, penalties, costs and
expenses (including the costs of reperforming any services or work), including,
without limitation, attorneys' fees, and expenses (whether suit is instituted or
not and, if instituted, whether at trial or appellate levels) (collectively
"Damages") asserted against, resulting to, imposed upon, or incurred or suffered
by Owner's Indemnitee, directly or indirectly, whether raised by Owner's
Indemnitee or a third party, arising out of, caused by or resulting from the
performance by Operator of Operator's duties hereunder to the extent that any
such Damages are caused in whole or in part by (i) Operator's failure to perform
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under this Agreement in accordance with the terms of this Agreement, including
Section 12.03 hereof, or (ii) the negligence or willful misconduct of Operator
or its agents, any subcontractor of Operator, anyone employed by any of them or
anyone for whose acts any of them is liable. Section 9.02 shall apply to any
claim for indemnity pursuant to this Section 8.01.
Section 8.02 Insurance Coverage. During the term of this
Agreement, Operator shall maintain the insurance coverage listed on Schedule
8.02. Operator shall deliver certificates of insurance evidencing such coverages
to Owner on or before the Operating Period Commencement Date and shall
thereafter deliver to Owner evidence of appropriate renewal and continuance of
such policies on an annual basis.
ARTICLE IX.
INDEMNIFICATION, INSURANCE BY OWNER
Section 9.01 Indemnification. Subject to the limitations set forth
in Article VII hereof, Owner shall indemnify, defend and hold harmless Operator,
and its officers, directors, shareholders, agents, Affiliates and employees
(collectively, "OPERATOR'S INDEMNITEE") from and against all Damages asserted
against, resulting to, imposed upon, or incurred or suffered by Operator's
Indemnitee, directly or indirectly, whether raised by Operator's Indemnitee or a
third party, arising out of or resulting from (a) Owner's ownership or use of
the Facility or the Site, (b) the performance by Owner of Owner's duties
hereunder, or (c) matters relating to any environmental laws, regulations or
orders ("ENVIRONMENTAL LAWS"), provided that such environmental indemnification
does not apply to the extent that the Damages arise from (i) Operator's
violation of Environmental Laws or (ii) Operator's negligence or willful
misconduct in its activities at the Facility or the Site. Owner waives and
releases and will require its insurers waive and release Operator from damage to
or risk of loss of Owner's property or property for which Owner or Operator has
assumed liability (but excluding Operator's property), howsoever such damage or
loss is caused.
Section 9.02 Procedure. If any person or entity not a party to
this Agreement shall make any demand or claim or file or threaten to file or
continue any lawsuit, which demand, claim or lawsuit may result in Damages to
any party pursuant to the indemnification provisions of this Agreement, then, in
any such event, within 10 days after notice by the indemnified party (the
"NOTICE") to the indemnifying party of such demand, claim or lawsuit (provided,
however, that the failure to give the Notice shall not relieve the indemnifying
party of its obligations under this Agreement unless, and only to the extent
that, such failure caused the Damages for which the indemnifying party is
obligated to be greater than they would otherwise have been had the indemnified
party given prompt notice under this Agreement), the indemnifying party shall
have the option, at its sole cost and expense, to retain counsel for the
indemnified party (which counsel shall be selected by or be reasonably
satisfactory to the indemnified party), to defend any such demand, claim or
lawsuit. Thereafter, the indemnified party shall be permitted to participate in
such defense at its own expense, provided that, if the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
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and the indemnified party or if the indemnifying party proposes that the same
counsel represent both the indemnified party and the indemnifying party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, then the indemnified party
shall have the right to retain its own counsel at the cost and expense of the
indemnifying party. If the indemnifying party shall fail to respond within 10
days after receipt of the Notice, the indemnified party may retain counsel and
conduct the defense of such demand, claim or lawsuit, as it may in its sole
discretion deem proper, at the sole cost and expense of the indemnifying party.
(a) The indemnified party shall provide reasonable assistance to
the indemnifying party and provide access to its books, records and personnel as
the indemnifying party reasonably requests in connection with the investigation
or defense of the indemnified Damage. The indemnifying party shall promptly upon
receipt of reasonable supporting documentation reimburse the indemnified party
for out-of-pocket costs and expenses incurred by the latter in providing the
requested assistance.
(b) With regard to claims for which indemnification is payable
under this Agreement, such indemnification shall be paid by the indemnifying
party upon: (i) the entry of a judgment against the indemnified party and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
judgment or final appellate decision against the indemnified party; or (iii) a
settlement with the consent of the indemnifying party, which consent shall not
be unreasonably withheld, provided that no such consent need be obtained if the
indemnifying party fails to respond to the Notice as provided in this Section
9.02. Notwithstanding the foregoing, provided that there is no dispute as to the
applicability of indemnification, expenses of counsel to the indemnified party
shall be reimbursed on a current basis by the indemnifying party if such
expenses are a liability of the indemnifying party.
Section 9.03 Insurance Coverage. During the term of this
Agreement, Owner shall maintain at least the insurance coverage listed on
Schedule 9.03. Owner shall deliver certificates of insurance evidencing such
coverages to Operator on or before the Effective Date and shall thereafter
deliver to Operator evidence of appropriate renewal and continuance of such
policies on an annual basis.
ARTICLE X.
FORCE MAJEURE
Section 10.01 Force Majeure. Any delay in or failure of
performance of either party (other than delay or failure to pay a monetary
obligation when due) shall not constitute a default hereunder or give rise to
any claim for damage if and to the extent such delay or failure is caused by
"Force Majeure," and the party claiming the benefit of Force Majeure shall use
all reasonable efforts to minimize the period of such delay or failure and the
effects thereof.
Section 10.02 Notice. Either party claiming Force Majeure shall
give the other party (a) notice of such Force Majeure event as soon as
practicable, but in any event within three days after its occurrence and (b) a
complete description of such Force Majeure event within fourteen days after its
occurrence.
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ARTICLE XI.
RELATIONSHIP OF THE PARTIES
Owner hereby engages Operator, as an independent contractor, to
maintain and operate the Facility according to the terms of this Agreement.
Subject to the terms of this Agreement, Operator shall determine the means,
manner and methods by which Operator shall perform its services under this
Agreement. Operator and Owner acknowledge that, except as otherwise expressly
provided in this Agreement, Owner shall not have any control over Operator or
the means, manner or methods of its performance under this Agreement. All
personnel involved in the operation of the Facility shall be employees of
Operator or its Affiliates or independent contractors that have contracted with
Operator or its Affiliates and shall not for any purposes be deemed employees or
independent contractors of Owner. Nothing in this Agreement or the arrangement
for which it is written shall constitute or create a joint venture, partnership,
or any other similar arrangement between Owner and Operator. Neither party is
authorized to act as agent for the other party, except as expressly stated in
this Agreement.
ARTICLE XII.
REPRESENTATIONS, WARRANTIES AND STANDARD OF CARE
Section 12.01 Representations and Warranties of Owner. Owner
hereby represents and warrants as of the Effective Date that:
(a) It is duly formed, validly existing and in good
standing under the laws of the State of Delaware, with full power
and authority to enter into and perform its obligations under this
Agreement and has duly authorized the execution, delivery and
performance of this Agreement;
(b) It has validly executed this Agreement, and upon
delivery this Agreement shall be a binding obligation of such
party, enforceable against such party in accordance with its terms
except insofar as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles;
(c) Its entry into this Agreement and the
performance of its obligations hereunder will not require the
approval of any governmental body or regulatory authority and will
not violate, conflict with, or cause a default under any of its
organizational documents, any contractual covenant or restriction
by which such party is bound, or any applicable Law, order,
judgment or decree; and
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(d) There is no pending or, to the knowledge of
Owner, threatened actions, suit, investigation or proceeding
against Owner before any governmental authority which, if
determined adverse to it, would materially adversely affect
Owner's ability to perform its obligations under this Agreement.
Section 12.02 Representations and Warranties of Operator. Operator
hereby represents and warrants as of the Effective Date that:
(a) It is duly formed, validly existing and in good
standing under the laws of the State of Florida, with full power
and authority to enter into and perform its obligations under this
Agreement and has duly authorized the execution, delivery and
performance of this Agreement;
(b) It has validly executed this Agreement, and upon
delivery this Agreement shall be a binding obligation of such
party, enforceable against such party in accordance with its terms
except insofar as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles;
(c) Its entry into this Agreement and the
performance of its obligations hereunder will not require the
approval of any governmental body or regulatory authority and will
not violate, conflict with, or cause a default under any of its
organizational documents, any contractual covenant or restriction
by which such party is bound, or any applicable Law, order,
judgment or decree;
(d) There is no pending or, to the knowledge of
Operator, threatened actions, suit, investigation or proceeding
against Operator before any governmental authority which, if
determined adverse to it, would materially adversely affect
Operator's ability to perform its obligations under this
Agreement;
(e) It has the necessary training, experience and
capability to operate and maintain the Facility and to perform its
obligations under this Agreement; and
(f) It has or will, as of the Operating Period
Commencement Date, have all permits and licenses required by
applicable Law (other than Owner's Permits or permits and licenses
relating to the Facility) for the performance by Operator of the
Operating Services and its other obligations under this Agreement.
Section 12.03 Standard of Care. Operator covenants and agrees that
it will perform its duties hereunder in accordance with the Approved Operating
Budget, the Approved Operating Plan and Prudent Industry Practice.
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ARTICLE XIII.
NOTICES
Any notice to either party required or permitted hereunder shall
be in writing and shall be given by personal delivery or by commercial courier
or by certified mail, return receipt requested, postage prepaid, or by
telecopier with confirmed receipt, addressed as follows:
If to Owner: Northeast Energy, LP
-----------
c/o ESI Energy, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopier: (561) 691-3615
Attention: President
with a copy to: Tractebel Power, Inc.
1177 West Loop South, Suite 900
Houston, Texas 77027
Telecopier: (713) 552-2364
Attention: General Counsel
If to Operator: ESI Operating Services, Inc.
---------------
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopy: (561) 691-3615
Attention: President
or to such other address as Owner or Operator may have specified in a notice
duly given as provided herein to the other party. All notices given in the
foregoing manner shall be effective when received, except that a notice sent by
telecopier and received after normal business hours shall be deemed to be
received the following Business Day.
ARTICLE XIV.
ASSIGNMENTS AND SUBCONTRACTING
Section 14.01 Assignments.
(a) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
(b) Except as otherwise provided in this Agreement, neither party
may assign or otherwise convey any of its rights, title or interest under this
Agreement, without the prior written consent of the other party hereto (which
consent shall not be unreasonably withheld).
Section 14.02 Assignment by Owner to NJEA. Upon the later to occur
of (i) the Operating Period Commencement Date and (ii) the execution and
delivery by NJEA of a counterpart hereof to Owner and Operator (such later date
17
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being the "Dropdown Date"), but without any further action by any Person, all
rights, title and interest of Owner hereunder shall be assigned to, and all of
Owner's obligations, liabilities and duties whether past, present or future,
arising under, in or in connection with this Agreement shall be assumed by NJEA.
By executing and delivering the counterpart hereof, NJEA shall be deemed, as of
the Dropdown Date, to be making the representations and warranties in Section
12.01 of this Agreement as if such representations and warranties related to
NJEA.
Section 14.03 Security Interest. Operator acknowledges that
Owner's interest in and to this Agreement will be subject to the security
interest in favor of the Trustee and the Agent pursuant to the Security
Documents and agrees that the Trustee and the Agent may assign such interest in
and to this Agreement to any subsequent assignee in connection with the sale,
transfer, or exchange of its rights in this Agreement or for the purpose of
operating the Facility pursuant to such assignment upon and after the exercise
of its rights and enforcement of its remedies against the Facility under any
deed of trust or other security instrument creating a lien in its favor.
Section 14.04 Cooperation in Financing. Operator agrees to
cooperate with Owner in negotiation and execution of any reasonable amendment or
addition to this Agreement required by the Trustee or the Agent, which does not
result in a material adverse change in Operator's rights or obligations
hereunder. For avoidance of doubt, Operator will, if required by the Trustee or
the Agent, enter into consents typical for project financings, or substantially
similar to those required of the project parties under the existing financing
for the Facility.
Section 14.05 Subcontracting. Operator may subcontract any of its
duties or obligations hereunder to a non-affiliate with the prior written
consent (which may be in the Approved Annual Plan) of Owner to the subcontractor
and subcontract, which consent shall not be unreasonably withheld; provided,
that no such written consent of Owner shall be required for subcontracting to
any Affiliate of Operator which is qualified to or capable of operating in
accordance with Prudent Industry Practice. Owner shall not direct Operator to,
and Operator shall not, enter into any subcontract with any contractor if
entering into such contract will result in loss of "qualifying facility" status
for the Facility. No subcontract shall relieve Operator of its duties and
obligations hereunder.
ARTICLE XV.
LIMITATIONS OF AUTHORITY; LIENS AND ENCUMBRANCES
Section 15.01 Limitation on Authority. Unless specifically
approved in the Annual Plan or approved in writing by Owner, Operator shall not
have the authority to take the following actions:
(a) The sale, lease, pledge, mortgage, conveyance, license,
exchange or other transfer or disposition of any property or assets of Owner,
including any tangible personal property acquired by Operator under this
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Agreement. The proceeds of any sales of scrap shall inure to the benefit of
Owner and Operator shall hold the proceeds in trust for Owner and immediately
forward such proceeds to Owner;
(b) Subject to Section 2.03, making, entering into, executing,
amending, waiving any rights under, modifying or supplementing any contract or
agreement on behalf of, binding upon, or in the name of Owner, including the
Project Documents;
(c) The settling, compromising, assigning, pledging, transferring,
releasing or consenting to the same of any claim, suit, debt, demand or judgment
against or due by Owner, or submitting any such claim, dispute or controversy to
arbitration or judicial process or stipulating to a judgment, or consent to do
same. Operator agrees that Owner shall retain control of any such claim suit,
debt or demand and any other litigation regarding the Facility, except as to
Operator's individual liability;
(d) Agreeing to any penalty for violation of any governmental
license or permit;
(e) Make any expenditures or use any of Owner's funds, or make
commitments of same, except in accordance with Articles IV and V of this
Agreement;
(f) Commit Owner to be liable for obligations of others as
guarantor, surety, or otherwise; and
(g) Enter into, without the consent of Owner (which may be in the
Approved Annual Plan), any agreement with any Affiliate of Operator in
connection with the performance of its obligations under this Agreement, which
is on the whole less favorable to Owner than similar agreements reasonably
available from unrelated third parties or if not so available, other than on an
arm's length basis.
Section 15.02 No Liens or Encumbrances. Operator shall keep and
maintain the Facility free and clear of all liens and encumbrances resulting
from the acts or omissions of Operator or work done at request of Operator,
except such liens or encumbrances resulting directly from nonpayment of any
amount due and owing to Operator under this Agreement.
ARTICLE XVI.
DISPUTE RESOLUTION AND ARBITRATION
Section 16.01 Dispute Resolution. If a dispute arises between the
parties regarding the application or interpretation of any provision of this
Agreement, the aggrieved party shall give a notice of such dispute (a "Dispute
Notice") to the other parties. Within fifteen (15) days after such Dispute
Notice, the President or an Executive Vice President of each of the parties
shall confer with each other to seek with diligence and in good faith to resolve
such dispute. If such officers are unable to resolve such dispute within
forty-five days after such Dispute Notice, then the parties shall be bound to
arbitrate such dispute in accordance with Section 16.02.
19
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Section 16.02 Arbitration. To the fullest extent permitted by law,
any dispute between the parties regarding the application or interpretation of
any provision of this Agreement, if not resolved by negotiation by the parties
within 45 days after the Dispute Notice, shall be resolved exclusively by
binding arbitration between the parties pursuant to the Rules of the American
Arbitration Association for Commercial Disputes (the "Arbitration Rules").
Arbitration shall be administered by the American Arbitration Association.
Either party may institute arbitration proceedings at any time by delivering
written notice demanding arbitration to the other party in the manner described
in Article XIII.
(a) Within 20 days after receipt of a written demand for
arbitration, the parties shall each appoint one arbitrator. Within 15 days of
the expiration of that 20 day period, the two arbitrators so appointed shall
appoint a third arbitrator. If any party shall fail to appoint an arbitrator, or
if the two arbitrators shall fail to appoint a third arbitrator, the American
Arbitration Association shall make that selection within 10 days of a party's
request. The arbitrators shall meet the qualifications and abide by the Code of
Ethics for arbitrators in commercial disputes of the American Arbitration
Association. The arbitrators shall have knowledge of and experience in the power
generation and project financing business.
(b) To the fullest extent permitted by law, the arbitration shall
be conducted in accordance with the procedures set forth in the Arbitration
Rules. In determining any question, matter or dispute before them, the
arbitrators shall apply the provisions of this Agreement without varying
therefrom in any respect. They shall not have the power to add to, modify or
change any of the provisions of this Agreement. The parties shall exercise all
commercially reasonable efforts in good faith to cause a hearing to be held
within 90 days after the date upon which the last arbitrator is appointed and to
conclude all hearings within 30 days after the first hearing date. The
arbitrators shall only grant a party's request for postponement of the hearing
upon a showing of good cause as determined by the arbitrators. Within 30 days of
the last hearing date, the arbitrators shall issue a written decision setting
forth their analysis and ruling. The arbitrators shall determine in what
proportion the parties shall bear the fees and expenses of the arbitrators. Each
party shall bear the fees and expenses of its own counsel and other consultants.
All arbitration proceedings shall be subject to the choice of law provisions set
forth in Section 17.02, and shall be held at a location agreed to by the
parties, or if the parties cannot agree, then in Atlanta, Georgia.
(c) The parties acknowledge and agree that any arbitral award
shall be final, binding and conclusive upon the parties and may be confirmed or
embodied in any order of any court having jurisdiction.
(d) To the fullest extent permitted by law, service of any matters
referenced in this Article XVI shall be given in the manner described in Article
XIII or as permitted by the rules of the American Arbitration Association.
Section 16.03 Survival. This Article XVI shall survive expiration
or termination of this Agreement.
20
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ARTICLE XVII.
MISCELLANEOUS
Section 17.01 Severability. If any provision of this Agreement
shall be held or deemed to be invalid, inoperative or unenforceable, such
circumstances shall not affect the validity of any other provision of this
Agreement, but this Agreement shall be reformed and construed as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted.
Section 17.02 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws.
Section 17.03 Entire Agreement. This Agreement constitutes the
entire final understanding and agreement of the parties with respect to its
subject matter, and there are no agreements, understandings, restrictions,
representations or warranties among the parties other than those set forth in
this Agreement. By execution of this Agreement, each of the parties represents
and warrants that it has relied on no oral or written statements, promises,
inducements, representations or warranties to enter into this Agreement except
for those expressly set forth herein. The parties agree that the inclusion of
this provision evidences the intent of the parties that no parole evidence shall
be admissible to alter or vary the terms of this Agreement.
Section 17.04 Captions. The captions or headings of the sections
and paragraphs of this Agreement have been inserted for convenience of reference
only and shall have no effect upon the construction or interpretation of any
part of this Agreement.
Section 17.05 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
Section 17.06 No Third Party Beneficiaries. Except as expressly
set forth herein, the terms of this Agreement are for the sole benefit of Owner
and Operator and their respective successors and permitted assigns and not for
any third party whatsoever.
Section 17.07 Further Assurances. If either party reasonably
determines or is reasonably advised that any further instruments or any other
things are necessary or desirable to carry out the terms of this Agreement, the
other party shall execute and deliver all such instruments and assurances and do
all things reasonably necessary and proper to carry out the terms of this
Agreement.
Section 17.08 No Implied Waiver. Failure of either party to
exercise any right to enforce any provision, or to require strict performance by
the other party of any provision, shall not release the other party from any of
its obligations under this Agreement and shall not operate as a waiver of any
right to insist upon strict performance, or of either party's rights or remedies
under this Agreement or at law.
21
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Section 17.09 Amendments. No amendment, waiver or modification of
any provision of this Agreement shall be effective unless made in writing and
signed by both parties.
Section 17.10 Confidentiality. Except to the extent expressly
authorized herein including, without limitation, in connection with a proposed
assignment of this Agreement or a proposed financing transaction entered into by
Owner, in which case disclosure of the terms hereof shall be limited to the
extent reasonably practicable, each of the parties agree that neither it nor its
attorneys, agents or representatives shall reveal to anyone any of the terms of
this Agreement or any of the terms of the documents executed pursuant hereto,
including, without limitation, the amount, terms or conditions of payment
hereunder, other than (i) as may be hereafter mutually agreed to in writing,
(ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors,
officers, employees, representatives, advisors, consultants and attorneys, and
the directors, officers, employees, representatives, advisors, consultants and
attorneys of affiliated companies who need to know such information, and (iv) to
the extent required to be disclosed by applicable law or legal process.
Section 17.11 Decision-Making by Parties. Except where this
Agreement expressly provides for a different standard and/or time period,
whenever this Agreement provides for a determination, decision, permission,
consent or approval of a party, the party shall promptly make such
determination, decision, grant or withholding of consent or approval in a
commercially reasonable manner and without unreasonable delay. Any denial of
consent required to be made in a commercially reasonable manner shall include in
reasonable detail the reason for denial or aspect of the request that was not
acceptable.
Section 17.12 Schedules. The attached Schedules that are referred
to in this Agreement are incorporated by reference and made a part of this
Agreement.
[Remainder of Page Intentionally Left Blank]
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed multiple
originals of this Agreement as of the date first written above.
OWNER:
NORTHEAST ENERGY, LP,
a Delaware limited partnership
By: ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation,
a general partner
By: /s/ Glenn E. Smith
----------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
GENERATION GP, INC.,
a Delaware corporation,
a general partner
By: /s/ Charles Vetters
----------------------
Name: Charles Vetters
Title: Vice President
OPERATOR: ESI OPERATING SERVICES, INC.,
a Florida corporation
By: /s/ Glenn E. Smith
Name: Glenn E. Smith
Title: Vice President
[Signature Page to Sayreville O&M Agreement]
23
<PAGE>
ASSIGNEE:
NORTH JERSEY ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP,
a New Jersey limited partnership
By: NORTHEAST ENERGY, LP,
a Delaware limited partnership,
a general partner
By: ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation,
a general partner
By: /s/ Glenn E. Smith
----------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
GENERATION GP, INC.,
a Delaware corporation,
a general partner
By: /s/ Charles Vetters
----------------------
Name: Charles Vetters
Title: Vice President
[Signature Page to Sayreville O&M Agreement]
24
<PAGE>
SCHEDULE 1.01
DEFINITIONS
"Acquisition Date" shall have the meaning set forth in the
Partnership Agreement.
"Affiliate" shall mean any Person that, directly or indirectly,
controls, is controlled by, or is under common control with, another Person. For
the purposes of this definition, "control" (including with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, means the power to direct or cause the direction of the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities or by contract or otherwise.
"Agent" shall mean Sanwa Bank, Limited, New York Branch, as agent
for the Lenders under the Credit Agreement, together with its successors in such
capacity.
"Agreement" shall have the meaning set forth in the preamble
hereof.
"Annual Plan" shall have the meaning set forth in Section 4.03 of
the Agreement.
"Approved Annual Plan" shall have the meaning set forth in Section
4.03 of the Agreement.
"Approved Operating Budget" shall have the meaning set forth in
Section 4.03 of the Agreement.
"Approved Operating Plan" shall have the meaning set forth in
Section 4.03 of the Agreement.
"Approved Plant Manual" shall have the meaning set forth in
Section 4.01 of the Agreement.
"Arbitration Rules" shall have the meaning set forth in Section
16.02 of the Agreement.
"Bondholders" shall mean the holder of bonds issued by Owner under
the Indenture.
"Business Day" shall mean a calendar day other than Saturday,
Sunday or a statutory holiday in the Commonwealth of New Jersey.
"Carbon Dioxide Facility" shall mean the carbon dioxide facility
owned by NJEA and located adjacent to the Facility, and all equipment and
facilities ancillary thereto.
<PAGE>
"Consumables" shall mean collectively all chemicals, water, fuel,
lubricants, laboratory supplies, office supplies and other items to be used up
during the normal operation of the Facility.
"Credit Agreement" means the Credit Agreement dated as of December
1, 1994 among NJEA, NEA, the Lenders and Agent, as amended, modified and
supplemented and in effect from time to time.
"Debt Agreements" shall mean the Indenture, the Credit Agreement
and the Rule 144A Indenture.
"Debt Holders" shall mean the Lenders, Bondholders and the Rule
144A Bondholders.
"Dispute Notice" shall have the meaning set forth in Section 16.01
of the Agreement.
"Dropdown Date" shall have the meaning set forth in Section 14.02
of the Agreement.
"Effective Date" shall mean the later to occur of (i) the date the
Agreement shall be executed and delivered and (ii) the Acquisition Date.
"Existing Plant Procedures" shall have the meaning set forth in
Section 4.01 of the Agreement.
"Facility" shall have the meaning set forth in recitals to the
Agreement.
"Force Majeure" shall mean any cause beyond the reasonable control
of and without the fault, negligence, or willful misconduct of the party
claiming Force Majeure. Such causes shall include, but not be limited to, acts
of God, fires, floods, storms, earthquakes, strikes, labor disputes, riots,
insurrections, acts of war, actions or inactions of any government or
governmental agency or a material change in applicable statutory, regulatory,
administrative or other relevant law that prohibits the operation of the
Facility; provided, however, that lack of money or changes in operating costs
shall not constitute Force Majeure.
"Home Office Personnel" means personnel based in Operator's home
office, whether employees of Operator or its parent compan(ies).
"IEC" shall mean International Energy Corporation, a Massachusetts
corporation and its successors and permitted assigns.
"Indenture" shall mean the Trust Indenture dated as of November
15, 1994 among IEC, NJEA, NEA and the Trustee, as amended, modified and
supplemented and in effect from time to time.
2
<PAGE>
"Independent Engineer" shall have the meaning set forth in the
Appendix A to the Indenture.
"Initial Term" shall have the meaning set forth in Section 6.01 of
the Agreement.
"Index" shall mean the Department of Labor, Bureau of Labor
Statistics, Producer Price Index for All Commodities (1982=100). If the Index
ceases to be published or is otherwise unavailable, Index shall mean an index
that Owner and Operator shall mutually determine in good faith to be most nearly
comparable to the foregoing.
"Labor Costs" means all fully burdened labor costs, including
overtime, bonuses, vacation, holidays, sick leave, approved paid leave of
absence, insurance, retirement benefits, taxes, recruiting costs, relocation
costs and all other benefits.
"Late Payment Rate" shall mean a per annum rate of interest equal
to the rate announced from time to time in the Wall Street Journal as the prime
commercial lending rate of national commercial banks plus two percent (2%), but
in no event more than the maximum rate permitted under applicable law.
"Laws" shall mean any applicable federal, state or local statute,
law, ordinance, rule or regulation.
"Lenders" shall mean the lenders under the Credit Agreement.
"NEA" shall mean Northeast Energy Associates, A Limited
Partnership, a Massachusetts limited partnership, and its successors and
permitted assigns.
"NJEA" shall have the meaning set forth in the first recital to
the Agreement.
"O&M Expenses" shall have the meaning set forth in Section 5.01(b)
of the Agreement.
"O&M Operating Account" shall have the meaning set forth in
Section 5.03 of the Agreement.
"O&M Services" shall have the meaning set forth in Section 2.03 of
the Agreement.
"On-Site Personnel" means all personnel regularly on-Site,
including the plant manager and the administrative supervisor, although some
On-Site Personnel may be employees or Affiliates of Operator.
"Operating Budget" shall have the meaning set forth in Section
4.03 of the Agreement.
"Operating Fee" shall have the meaning set forth in Section 5.02
of the Agreement.
3
<PAGE>
"Operating Period Commencement Date" shall mean the day following
the day on which the Westinghouse Agreement shall terminate or expire.
"Operating Plan" shall have the meaning set forth in Section 4.03
of the Agreement.
"Operating Year" shall mean the twelve (12) month period beginning
on the Commencement Date and each successive twelve (12) month period beginning
on the consecutive dates thereof.
"Operator" shall have the meaning set forth in the preamble
hereof.
"Oversight Services" shall have the meaning set forth in Section
2.01 of the Agreement.
"Oversight Period" shall have the meaning set forth in Section
2.01 of the Agreement.
"Owner" shall have the meaning set forth in the preamble hereof.
"Owner Permits" shall mean those approvals, certificates, permits
and licenses required for Owner to operate the Facility, including, without
limitation, any permits required for disposal of waste generated by the
Facility.
"Partnership Agreement" shall mean that certain Agreement of
Limited Partnership of Northeast Energy, LP, a Delaware limited partnership,
dated as of November 21, 1997, by and among ESI Northeast Energy GP, Inc.,
Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and
Tractebel Associates Northeast LP, Inc.
"Person" shall mean any individual, partnership, corporation,
trust, unincorporated association, joint venture or any other entity.
"Planned Outage" shall mean the cessation of operation of the
Facility for Scheduled Maintenance or any other scheduled outage.
"Plant Manual" shall have the meaning set forth in Section 4.01 of
the Agreement.
"Power Purchase Agreement" shall mean the Power Purchase Agreement
dated October 22, 1987 between NJEA and Jersey Central Power & Light Company, as
amended.
"Project Documents" shall mean the Agreement, the Power Purchase
Agreement, any additional power purchase agreements between NJEA and any
Purchasing Utility entered into after the execution of the Agreement, any gas
purchase, storage and transportation agreements entered into by or on behalf of
NJEA for the acquisition, storage or transportation of gas to be used at the
Facility, any steam and energy agreements entered into by NJEA with the
purchasers of steam generated at the Facility and any other agreements, in all
cases as amended, affecting the maintenance or operation of the Facility and
reasonably designated by Owner in writing to Operator as a Project Document.
4
<PAGE>
"Prudent Industry Practices" shall mean the practices, methods and
standards generally followed by the independent power industry with respect to
the design, construction, operation and maintenance of electric generating
equipment of the type applicable to the Facility, and which practices, methods
and standards generally conform to operation and maintenance standards
recommended by the Facility's equipment suppliers and manufacturers.
"Purchasing Utilities" shall mean Jersey Central Power & Light
Company, as purchasers of electricity generated by the Facility pursuant to the
Power Purchase Agreement and any other purchasers of electricity generated by
the Facility.
"Rule 144A Bondholders" shall mean the holders of the bonds issued
under the Rule 144A Indenture.
"Rule 144A Indenture" shall mean the indenture to be entered into
by the Partnership and certain other parties in connection with the financing of
the acquisition of NJEA and NEA.
"Security Documents" shall have the meaning set forth in the
Credit Agreement.
"Scheduled Maintenance" shall mean those maintenance and repair
activities contemplated, either generally or specifically, in the Approved
Annual Plan, or any approved revision thereof, for such Operating Year.
"Site" shall mean the tract of land on which the Facility is
located, and all easements of Owner or easements held for the benefit of Owner
appurtenant thereto.
"Steam Purchasers" shall mean the purchaser(s) of export steam
generated by the Facility pursuant to a steam purchase agreement or agreements.
"Technical Support Service" shall have the meaning set forth in
Section 7 of Schedule 2.03.
"Transaction Documents" shall mean, collectively, the Project
Documents and each of the documents entered into by NJEA, Owner or Operator in
connection with NJEA's debt financing of its assets.
"Transition Period" shall have the meaning set forth in Section
2.02 of the Agreement.
"Transition Plan" shall have the meaning set forth in Section 4.02
of the Agreement.
"Transition Services" shall have the meaning set forth in Section
2.02 of the Agreement.
5
<PAGE>
"Transition Period Commencement Date" shall mean the day ninety
(90) days prior to the scheduled Operating Period Commencement Date.
"Trustee" shall mean State Street Bank and Trust Company as
trustee under the Indenture.
"Unscheduled Maintenance" shall mean any and all maintenance,
repair and replacement requirements of the Facility during a Operating Year,
other than Scheduled Maintenance.
"Westinghouse O&M Agreement" shall have the meaning set forth in
the second recital hereto.
6
<PAGE>
SCHEDULE 2.01
OVERSIGHT SERVICES
1. Review quarterly reports delivered pursuant to Section 4.5 of
the Westinghouse O&M Agreement;
2. Assess general Site condition on a quarterly basis;
3. Review all changes in procedures proposed by the operator under
the Westinghouse O&M Agreements;
4. Review annual generation forecast pursuant to Section 4.8 of
the Westinghouse O&M Agreement;
5. Assess operators' personnel, policies, and procedures yearly;
6. Analyze all proposed capital expenditures at the Facility;
7. Review facility performance data;
8. Review of operating logs and records of unplanned outages;
9. Provide such technical support as Owner may reasonably request;
10. Review environmental and safety performance and compliance
reports by the operator on a quarterly basis; and
11. Monitor operator's activities during major scheduled outages
and major equipment overhauls.
12. Report to the Management Committee with respect to the
foregoing.
<PAGE>
SCHEDULE 2.02
TRANSITION SERVICES
1. Mobilizing Personnel. Operator shall provide the necessary
staff to operate and maintain the Facility on the Operating Period Commencement
Date. In connection therewith, Operator will, in accordance with the Agreement,
the Transition Plan and the budget included therein:
(a) Continue to provide the Oversight Services set
forth on Schedule 2.01;
(b) Review qualifications and fitness for duty
testing of personnel;
(c) Relocate personnel, as necessary;
(d) Recruit, hire and train personnel to meet the
applicable staffing requirements; and
(e) Train personnel on Operator's policies and
benefits.
Hiring will be completed and personnel relocated five (5) days prior to the
Operating Period Commencement Date.
2. Reporting and Coordination. Operator shall:
(a) Review Existing Plant Procedures, prior
operation and maintenance records and other relevant material to
prepare the report required by Section 4.01 of the Agreement;
(b) Develop the Transition Plan and budget contained
therein for submission to Owner pursuant to Section 4.02 of the
Agreement;
(c) Develop the initial Operating Plan and the
initial Operating Budget for submission to Owner pursuant to
Section 4.03 of the Agreement; and
(d) Develop and submit for Owner's approval format
of monthly reports to be delivered by Operator pursuant to
paragraph 4(g) of Schedule 2.03 of the Agreement. The draft
monthly report shall be submitted to Owner for approval not less
than 20 days prior to the Operating Period Commencement Date.
3. Other Transition Services. Operator shall, in accordance with
the Agreement, the Transition Plan and the budget included therein:
2
<PAGE>
(a) Develop the necessary programs and procedures to
perform the operation and maintenance of the Facility in
accordance with the initial Operating Plan and the initial
Operating Budget;
(b) Identify and procure as Owner's agent necessary
tools, equipment, goods, and other items and materials that are
necessary to operate and maintain the Facility in accordance with
the initial Operating Plan and the initial Operating Budget; and
(c) Review regulatory and legal filings (EPA, FERC,
etc.), and complete regulatory filings (other than Owner Permits)
as required by law, or if not specified, 30 days prior to the
Operating Period Commencement Date.
3
<PAGE>
SCHEDULE 2.03
O&M SERVICES
1. Personnel. Operator shall make available qualified labor and
professional, supervisory and managerial personnel reasonably necessary to
perform the O&M Services. To the extent set forth in the Approved Operating Plan
and the Approved Operating Budget, personnel shall be available 24 hours a day,
7 days a week, 365 days a year. Except for subcontractors pursuant to Section
13.04 of the Agreement, all individuals providing the O&M Services shall be
employees or independent contractors of Operator or its Affiliates. Operator
shall comply with all applicable federal and state labor and employment laws and
shall exercise control over labor relations in a reasonable manner consistent
with the intent and purpose of the Agreement. Operator shall appoint the plant
manager which shall be reasonably acceptable to Owner. Operator may replace such
plan manager for any reason provided the replacement plant manager is reasonably
acceptable to Owner. Operator shall, at the request of Owner, replace the plant
manager for cause. Operator shall have sole authority, control, and
responsibility with respect to labor matters in connection with the performance
of the services hereunder. Notwithstanding the foregoing, Operator acknowledges
and agrees that Operator shall not enter into any contracts or collective
bargaining agreements with respect to labor matters that purport to bind or
otherwise obligate Owner, and Operator shall seek advice of Owner in the event
Operator is notified of any effort to establish collective bargaining or labor
representation at the Facility.
2. Compliance. Operator shall:
(a) Operate and maintain the Facility in compliance
with all present and future (once enacted and operative) Laws and
permits applicable to the operation and maintenance of the
Facility and the Site (including monitoring and sampling) and
shall assist Owner in securing and maintaining all permits
necessary to perform its obligations under the Agreement and in
filing all reports relating to the Facility;
(b) Operate and maintain the Facility in accordance
with Prudent Industry Practices, the Approved Annual Plan, the
Project Documents (including the Power Purchase Agreement) and the
Approved Plant Manual, and in such a manner as to cause the
Facility to supply steam and electricity requested by Owner and
Owner's customers or required to be delivered by Owner from time
to time, in all cases within the rated design and test capacity of
the Facility and subject to the production targets set forth in
the Approved Annual Plan; provided, that the foregoing shall not
constitute a covenant or guarantee of electricity production and
delivery;
(c) Operate and maintain the Facility in compliance
with the efficiency requirements set forth in 18 C.F.R. ss.
292.205 (assuming steam is used in the manner required by 18
C.F.R. ss. 292.205); provided, that the foregoing shall not
constitute a guaranty thereof;
<PAGE>
(d) Seek appropriate warranties from vendors and
maintain all vendor's warranties in effect; and
(e) Procure and maintain the insurance required by
Section 8.02 of the Agreement.
3. Operations and Maintenance. Operator shall:
(a) Perform yearly capability audits under the power
purchase agreements;
(b) Dispose of waste products from the Facility in
compliance with all applicable Laws and permits and the Approved
Plant Manual;
(c) Respond to emergencies pertaining to the
Facility or the Site promptly and effectively, in accordance with
Section 4.04 of the Agreement;
(d) Perform or cause to be performed all services
and make or cause to be made all repairs and replacements at the
Facility as are required due to Unscheduled Maintenance. Operator
shall promptly notify Owner of the need for such Unscheduled
Maintenance and thereupon request an adjustment to the Approved
Annual Plan in accordance with Section 4.03(d). Operator shall
perform any such Unscheduled Maintenance in a timely and cost
effective fashion upon satisfaction of the requirements of Section
5.01;
(e) Establish and maintain a proactive maintenance
program;
(f) Perform operations and maintenance accounting
functions, including the processing and paying of bills at the
home office, and to the extent set forth in the Approved Annual
Budget maintain a bookkeeper part time at the Facility to perform
day-to-day bookkeeping, processing of purchase orders and similar
matters;
(g) Perform all project purchasing functions
pursuant to the Annual Plan;
(h) Design, document, implement and periodically
evaluate a system of internal control; and
(i) Prepare and document accounting policies and
procedures.
4. Reporting and Coordination. Operator shall:
(a) Coordinate with Owner, affected parties, and
Purchasing Utilities as required when generation of electricity or
steam is to be initiated, interrupted or curtailed. Operator shall
make all reasonable efforts to schedule any outages at the
2
<PAGE>
Facility having the effect of reducing the electricity or steam
output of the Facility in advance and at the most appropriate
times for Owner, Operator, and Purchasing Utilities in accordance
with the Project Documents, and in a manner that will minimize any
profit loss to Owner;
(b) Coordinate with Owner, Purchasing Utilities and
Steam Purchasers regarding the various activities and duties
related to the operation of the Facility to be performed under the
provisions of the Power Purchase Agreement and under the
provisions of any steam purchase agreement then in effect;
(c) In the case of unplanned interruptions or
curtailments of electric power production or delivery, provide
Owner or Purchasing Utilities, as applicable, with notice thereof
as soon as practicable, which notice shall state the reason
therefor and the probable duration thereof and shall also contain
any other information necessary for the notice to conform to the
requirements of the Power Purchase Agreement;
(d) Prepare, in accordance with Section 4.03 of the
Agreement, the Annual Plan;
(e) Report to Owner promptly any (i) material
failure or reasonably anticipated material failure to operate and
maintain the Facility in accordance with any Laws or permits
applicable to the operation and maintenance of the Facility, (ii)
actual or reasonably anticipated material disruption in supplies
to the Facility, (iii) actual or reasonably anticipated disputes
with Purchasing Utilities, regulatory agencies, local officials or
parties to the Project Documents, (iv) actual or reasonably
anticipated labor disorders, (v) actual or threatened litigation
relative to the Facility of which Operator becomes aware, (vi)
actual or reasonably anticipated lien filings made against the
Facility of which Operator becomes aware, and (vii) actual or
reasonably anticipated lapse of, modification to or refusal to
renew any permit for the Facility of which Operator becomes aware;
(f) Coordinate on-Site actions with regard to and
document support for any and all warranty and other claims against
suppliers of materials and equipment to the Facility, and any
claims against any insurance carriers for payment of claims,
liabilities or losses in connection with the Facility or its
operation covered by such insurance, all as may be from time to
time requested by Owner;
(g) Provide a monthly report to Owner by the 10th
Business Day of each month, reporting in reasonably specific
detail and in a form reasonably acceptable to Owner the results of
operations for the preceding month, calendar quarter and Operating
Year. Such reports shall address the following issues as
appropriate: safety; environmental; instances of Force Majeure, if
any; availability; staffing changes and community relations
activities; outage summary; compliance with requirements for
3
<PAGE>
"qualifying facilities"; electric production; operations summary;
maintenance summary; production summary; variance from
year-to-date budget by more than +/-5% of total budget, +/-20% by
category or +/-50% by line item over $5,000, if any; projected
schedule for the current month; evaluations of key plant
performance and financial indicators with recommendations for
improvement, if any; and a forecast of key upcoming events at the
Site; and
(h) Perform physical inventories of all Consumables,
equipment, furniture and fixtures in accordance with the Approved
Plant Manual and deliver copies of the inventory reports to Owner.
5. Records. Operator shall:
(a) Maintain records of electricity delivered to
Purchasing Utilities and steam delivered to Steam Purchasers;
(b) Maintain records of all maintenance that has
been performed and is scheduled to be performed, subject to
Operator's record retention policy set forth in the Approved Plant
Manual;
(c) Maintain appropriate records for, and with
Owner's approval, prepare, present and prosecute applications for
all permits, licenses and approvals (or renewals thereof) required
for operation and maintenance of the Facility;
(d) Maintain adequate records of any accidents that
occur at the Facility or the Site, including the frequency, cause,
severity and corrective action taken with respect thereto;
(e) Maintain adequate records of emissions data for
the Facility as required by environmental control agencies and the
Approved Plant Manual and furnish to Owner and any applicable
governmental agencies (if so directed by Owner and on behalf of
Owner) any reports and other information required to comply with
applicable Laws and permits, with any such reports and information
maintained by Operator being the property of Owner and being
transferred to Owner upon termination of the Agreement;
(f) Maintain financial records sufficient to enable
Owner to verify the accuracy of costs and expenses incurred in the
operation and maintenance of the Facility in accordance with the
terms hereof;
(g) Maintain and update, as needed, as-built
drawings of the Facility; and
(h) Maintain all records required by Laws, under any
of the Project Documents or as reasonably requested by Owner.
4
<PAGE>
6. Procurement. Subject to the limitations of the Approved
Operating Budget, Operator shall maintain an inventory of tools, equipment,
goods, and other items and materials owned by Owner that are necessary to
operate and maintain the Facility in accordance with Prudent Industry Practices
and the Project Documents.
7. Technical Support Services. Operator will provide the following
technical support services ("Technical Support Services") with respect to the
Facility:
(a) Strategic planning reviews to include evaluation
of the Operating Plan, performance indicator targets, and
long-range planning.
(b) O&M reviews to include general assessment of
power generating equipment, recommendations to improve equipment
reliability and availability, and review of the preventive and
routine maintenance program.
(c) Safety reviews to include evaluation and update
of the safety program to ensure compliance with latest rules and
regulations and plant inspection.
(d) Environmental reviews to include evaluation and
update of the environmental compliance program to ensure latest
regulatory requirements are incorporated and review of
noncompliance.
(e) Human Resources support including benefits
assistance, merit review, and incidental support as required.
(f) Home office support including evaluation of
special projects, projects benefit analysis, and other support
activities as required.
(g) Review condition of power generating equipment.
Make recommendations to improve equipment reliability and
availability. Establish preventive and routine maintenance
program.
(h) Review outage plans for scope, schedule and cost
justification. Make recommendations pertaining to pre-outage,
outage and start-up schedules.
(i) Perform services described in Section 4.01 of
the Agreement with respect to the Existing Plant Procedures and
plant manual, including implementing revision plan.
5
<PAGE>
SCHEDULE 3.01
OWNER SERVICES
1. From the Effective Date through the Transition Period
Commencement Date, Owner shall:
(a) Provide to Operator current copies of all
existing regulatory and governmental permits, operating licenses
and authorizations (including such permits, licenses and
authorizations required by additional regulations or changes to
regulations);
(b) To the extent available to Owner, provide to
Operator (i) the most up to date as-built drawings of the
Facility, (ii) copies of all quarterly reports delivered pursuant
to Section 4.5 of the Westinghouse O&M Agreement, (iii) current
copies of all Project Documents (except the Agreement), as amended
from time to time, (iv) the most recent inventory list provided by
the operator under the Westinghouse O&M Agreement, (v) the
Existing Plant Procedures, and (vi) such other information with
respect to the operation and maintenance of the Facility as
Operator may reasonably request;
(c) Provide rights of ingress to and egress from the
Site and access to the Facility and all components thereof, to the
extent reasonably necessary for the performance by Operator of the
Oversight Services; and
(d) At the request of Operator, cooperate with
Operator in its efforts to obtain certification from an
Independent Engineer that Operator is capable of operating the
Facility.
2. During the Transition Period, Owner shall:
(a) Provide to Operator current copies of all
existing regulatory and governmental permits, operating licenses
and authorizations (including such permits, licenses and
authorizations required by additional regulations or changes to
regulations);
(b) To the extent available to Owner, provide to
Operator (i) the most up to date as-built drawings of the
Facility, (ii) copies of all quarterly reports delivered pursuant
to Section 4.5 of the Westinghouse O&M Agreement, (iii) current
copies of all Project Documents (except the Agreement), as amended
from time to time, (iv) the most recent inventory list provided by
the operator under the Westinghouse O&M Agreement, (v) the
Existing Plant Procedures, and (vi) such other information with
respect to the operation and maintenance of the Facility as
Operator may reasonably request;
<PAGE>
(c) Provide rights of ingress to and egress from the
Site and access to the Facility and all components thereof, to the
extent reasonably necessary for the performance by Operator of the
Transition Services;
(d) Coordinate and arrange the turnover of the
Facility to Operator in a timely manner on the Operating Period
Commencement Date;
(e) Reimburse Operator for costs and expenses in
accordance with Section 5.01(a); and
(f) At the request of Operator, cooperate with
Operator in its efforts to obtain certification from an
Independent Engineer that Operator is capable of operating the
Facility.
3. From the Operating Period Commencement Date through the
termination of the Agreement, Owner shall:
(a) Provide Operator rights of ingress to and egress
from the Site and full access to the Facility and all components
thereof;
(b) Investigate, determine, and seek to secure and
maintain and pay for all Owner Permits, and any renewal and
updating thereof; provided that Operator shall prepare and submit
to Owner (or to such other party as Owner may designate on behalf
of Owner) such existing pertinent data and information as Owner or
such other party may reasonably request in order to obtain, renew
and update the Owner Permits;
(c) Provide an O&M Operating Account that shall
contain adequate funds to pay Operator in full and in a timely
fashion for all costs and expenses, as more particularly described
in Section 5.03 of the Agreement;
(d) Manage and control accounting functions and cash
flow of Owner;
(e) Review and approve or disapprove the Annual Plan
as provided in Section 4.03 of the Agreement;
(f) Approve disposal of all regulated (hazardous
waste) from the Facility;
(g) Procure and maintain insurance for the Facility
as provided in Section 9.03 of the Agreement;
(h) Pay all taxes relating to the Facility and the
maintenance and operation of the Facility, except for Operator's
income tax; and
2
<PAGE>
(i) At the request of Operator, take reasonable steps
to allow the Facility to meet the operating standards set
forth under 18 C.F.R. ss. 292.205.
3
<PAGE>
SCHEDULE 5.01
O&M EXPENSES
The following, to the extent properly incurred pursuant to the
terms of the Agreement:
1. The Labor Costs for all On-Site Personnel. The Labor Cost for
On-Site Personnel will be charged based on actual costs.
2. Operator will be reimbursed for reasonable out-of-pocket
expenses of Home Office Personnel incurred in accordance with the Approved
Annual Plan.
3. Costs of training On-Site Personnel, including travel.
4. Reasonable travel costs and related expenses for On-Site
Personnel.
5. The delivered costs, including any air freight or expediting
fee, of special order parts, rental equipment, tools, office equipment, and
furniture.
6. The costs of suppliers, subcontractors, attorneys, certified
public accountants and other third party advisors to the extent of work
performed specifically for the Facility.
7. All utility costs.
8. Waste disposal costs.
9. Costs and expenses incurred pursuant to Section 6.08(c) of the
Agreement.
10. The cost and expenses of services requested or approved in
writing by Owner (whether or not included within the scope of services provided
by Operator pursuant to the Agreement).
<PAGE>
SCHEDULE 8.02
OPERATOR INSURANCE
1. Statutory Workers's Compensation Insurance, including coverage
for Longshoremen's and Federal Harbor Workers Act and with minimum Employer
Liability limits of One Million Dollars ($1,000,000) with "all states"
endorsements.
2. Comprehensive Automobile Liability Insurance for bodily injury
and death or property damage arising out of the use of all owned, non-owned and
hired motor vehicles, including loading and unloading in a minimum amount of
$1,000,000 per occurrence.
3. Comprehensive General Liability Insurance with minimum limits
of $1,000,000 per occurrence.
- --------
* Operator hereby waives and agrees to require the issuers of the insurance
policies required by the Agreement to waive any rights of subrogation
against Owner for any loss or damage however caused.
<PAGE>
SCHEDULE 9.03
OWNER INSURANCE
1. Comprehensive General Liability Insurance with minimum limits
of $10,000,000 per occurrence including premises/operations, explosion, collapse
and underground hazards, broad form contractual, products/completed operations
and personal injury. The policies for the foregoing coverage shall include
Operator as an additional named insured with respect to the performance by
Operator of its obligations under this Agreement and be endorsed to be primary
to any coverage maintained by or on behalf of Operator. Any deductible shall be
the responsibility of Owner.
2. Comprehensive Automobile Liability Insurance for bodily injury
and death or property damage arising out of the use of all owned, non-owned and
hired vehicles in a minimum amount of $1,000,000 per occurrence. The policy
shall name Owner and Operator as named insureds in connection with the
performance by Operator of its obligations under the Agreement and be primary to
any other coverage which might be maintained by Operator. Any deductible shall
be the responsibility of Owner.
3. The Physical Damage Insurance (as defined in Section 7.4(v) of
the Indenture) for the Facility required by Section 7.4(v) of the Indenture.
- --------
* Owner hereby waives and agrees to require the issuers of the insurance
policies required by the Agreement to waive any rights of subrogation
against the Operator for any loss or damage however caused.
** Operator acknowledges that the Physical Damage Insurance provided by Owner
does not cover personal property belonging to Operator located at the Site.
EXHIBIT 10.18
================================================================================
FUEL MANAGEMENT AGREEMENT
dated as of January 20, 1998
for the
Bellingham Cogeneration Plant
at
Bellingham, Massachusetts
between
Northeast Energy, LP
and
ESI Northeast Fuel Management, Inc.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
DEFINITION OF TERMS................................. 1
ARTICLE II.
FUEL MANAGEMENT SERVICES............................ 5
2.01 Transition Services................................................. 5
2.02 Fuel Management Services............................................ 6
2.03 Supply and Transportation Portfolio Planning........................ 6
2.04 Fuel Supply Plan.................................................... 7
2.05 Replacement Fuel.................................................... 8
2.06 Replacement Transportation Services................................. 9
2.07 Sale of Excess Fuel................................................. 9
2.08 Appointment of Fuel Manager as Owner's Agent........................ 10
ARTICLE III.
NOMINATION, COORDINATION AND OPTIONAL SERVICES...... 10
3.01 90-Day Nomination................................................... 10
3.02 30-Day Nomination................................................... 10
3.03 Daily Confirmation with Facility.................................... 11
3.04 Notification by Owner............................................... 11
3.05 Supply of Gas and Oil by Fuel Manager............................... 11
3.06 Substitute Gas and Oil Transactions................................. 11
3.07 Other Services...................................................... 11
ARTICLE IV.
PAYMENTS, COMPENSATION AND EXPENSES................. 11
4.01 Payments to Suppliers, Transporters and Storage Operators........... 11
4.02 Management Fee...................................................... 12
4.03 Expenses............................................................ 12
4.04 Late Payments....................................................... 12
ARTICLE V.
LIABILITY, INDEMNITY AND GUARANTY................... 12
5.01 Indemnification by Fuel Manager..................................... 12
5.02 Indemnification by Owner............................................ 13
5.03 No Consequential Damages............................................ 13
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<PAGE>
Page
----
5.04 Limitation of Aggregate Liability................................... 13
5.05 Non-Recourse Obligations............................................ 13
5.06 Guaranty............................................................ 14
ARTICLE VI.
ASSIGNMENT.......................................... 14
6.01 Assignments......................................................... 14
6.02 Assignment by Owner to NEA.......................................... 14
6.03 Subcontracting...................................................... 14
ARTICLE VII.
NOTICES............................................. 14
ARTICLE VIII.
FORCE MAJEURE....................................... 16
8.01 Suspension of Obligation............................................ 16
8.02 Definition.......................................................... 16
ARTICLE IX.
TERM AND TERMINATION................................ 16
9.01 Term................................................................ 16
9.02 Termination upon Notice by Fuel Manager............................. 16
9.03 Termination upon Notice by Owner.................................... 17
9.04 Termination Upon Certain Other Events............................... 17
9.05 Effect on Termination............................................... 17
ARTICLE X.
LIMITATIONS ON AGENCY............................... 17
ARTICLE XI.
DISPUTE, RESOLUTION AND ARBITRATION................. 18
11.01 Dispute Resolution.................................................. 18
11.02 Arbitration......................................................... 18
11.03 Survival............................................................ 19
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<PAGE>
ARTICLE XII.
GENERAL PROVISIONS.................................. 19
12.01 Severability........................................................ 19
12.02 Governing Law....................................................... 19
12.03 Entire Agreement.................................................... 19
12.04 Captions............................................................ 20
12.05 Counterparts........................................................ 20
12.06 No Third Party Beneficiaries........................................ 20
12.07 Further Assurances.................................................. 20
12.08 No Implied Waiver................................................... 20
12.09 Amendments.......................................................... 20
12.10 Confidentiality..................................................... 20
12.11 Decision-Making by Parties.......................................... 20
Attachments:
- ------------
Exhibit A - Existing Agreements
Exhibit B - Form of Guaranty
Schedule 1 - Oil Specifications
iii
<PAGE>
FUEL MANAGEMENT AGREEMENT
This FUEL MANAGEMENT AGREEMENT (this "Agreement"), is made as
of the 20th day of January, 1998, between NORTHEAST ENERGY, LP, a Delaware
limited partnership ("Owner") and ESI NORTHEAST FUEL MANAGEMENT, INC., a Florida
corporation ("Fuel Manager"). Owner and Fuel Manager are sometimes referred to
individually as a "party" and collectively, the "parties".
WITNESSETH THAT:
WHEREAS, on the Commencement Date Owner will indirectly hold
100% of the partnership interests in Northeast Energy Associates, A Limited
Partnership ("NEA"), the owner of the 300 megawatt combined cycle cogeneration
plant located in Bellingham, Massachusetts (the "Facility"); and
WHEREAS, the Facility is fueled by natural gas or fuel oil;
and
WHEREAS, NEA currently purchases approximately 80% of the
natural gas that fuels the Facility from gas suppliers pursuant to long-term gas
supply agreements; and
WHEREAS, Owner desires that Fuel Manager manage on behalf of
Owner, all gas supply, transportation and storage agreements and any agreements
with respect to the purchase, transportation and storage of fuel oil; and
WHEREAS, to the extent the gas and fuel oil supplied under
such agreements are not sufficient to meet Owner's fuel requirements, Owner
desires that Fuel Manager locate and purchase as Owner's agent natural gas
and/or fuel oil in such quantities and on such terms and conditions as Owner may
request;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the receipt and sufficiency of which are hereby
acknowledged, Fuel Manager and Owner, intending to be legally bound, agree as
follows:
ARTICLE I.
DEFINITION OF TERMS
Except where the context requires another meaning, the
following terms shall be construed to have the following meanings:
"Additional Agreements" shall mean the Additional Gas Supply
Agreements, the Additional Gas Transportation Agreements, the Additional Gas
Storage Agreements, the Oil Supply Agreements, the Oil Transportation Agreements
and the Oil Storage Agreements.
<PAGE>
"Additional Gas Storage Agreements" shall mean the contracts
and agreements entered into by or on behalf of NEA after the Effective Date
relating to the storage of Gas to be used by the Facility, as amended from time
to time.
"Additional Gas Supply Agreements" shall mean the contracts,
purchase orders and other agreements (including hedging contracts) entered into
by or on behalf of NEA after the Effective Date relating to the supply of Gas to
the Facility, as amended from time to time.
"Additional Gas Transportation Agreements" shall mean the
contracts and agreements entered into by or on behalf of NEA after the Effective
Date relating to the transportation of Gas to be used by the Facility, as
amended from time to time.
"Affiliate" shall mean any person that, directly or
indirectly, controls, is controlled by, or is under common control with, another
person. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any person, means, the power to direct or cause the direction of
the management and policies of such person, directly or indirectly, whether
through the ownership of voting securities or by contract or otherwise.
"Agency Designation Agreements" shall have the meaning set
forth in Section 2.08 hereof.
"Agreement" shall have the meaning set forth in the preamble
hereto, and include all exhibits and schedules attached hereto. All exhibits and
schedules referenced in this Agreement are incorporated herein for all purposes
and shall be updated by the parties as necessary.
"Alternative Transportation" shall have the meaning set forth
in Section 2.06 hereof.
"Arbitration Rules" shall have the meaning set forth in
Section 11.02 hereof.
"Business Day" shall mean a calendar day other than a
Saturday, Sunday or a statutory holiday in the State of Massachusetts.
"Commencement Date" shall mean the Acquisition Date as defined
in the Partnership Agreement.
"Damages" shall have the meaning set forth in Section 5.01
hereof.
"Dispute Notice" shall have the meaning set forth in Section
11.01 hereof.
"Effective Date" shall mean January 14, 1998.
"Excess Fuel" shall have the meaning set forth in Section 2.07
hereof.
2
<PAGE>
"Existing Agreements" shall mean the Gas Supply Agreements,
the Gas Transportation Agreements and the Gas Storage Agreements. As of the
Effective Date, there are no agreements for the supply of Oil to, or the
transportation or storage of any Oil to be used at, the Facility.
"Facilities Purchase Agreement" shall mean the Purchase
Agreement as defined in the Partnership Agreement.
"Facility" shall have the meaning in the first recital hereto.
"FERC" shall mean the Federal Energy Regulatory Commission.
"Force Majeure" shall have the meaning set forth in Section
8.02 hereof.
"Fuel Management Services" shall have the meaning set forth in
Section 2.02 hereof.
"Fuel Manager" shall have the meaning set forth in the
preamble hereof.
"Fuel Manager's Indemnitees" shall have the meaning set forth
in Section 5.02 hereof.
"Fuel Period" shall mean a Summer Fuel Period or a Winter Fuel
Period.
"Fuel Supply Plan" shall have the meaning set forth in Section
2.04 hereof.
"Gas" shall mean natural gas conforming to the specifications
provided for by the FERC approved tariff of the Algonquin Gas Transmission
Company.
"Gas Day" shall mean the 24 hour period commencing at 10:00
a.m. eastern standard time on any calendar day and ending at 9:59 a.m. eastern
standard time on the succeeding calendar day.
"Gas Storage Agreements" shall mean the contracts and
agreements entered into by NEA before the Effective Date with respect to the
storage of Gas to be used by the Facility, as such contracts and agreements are
listed on Exhibit A hereto, as amended from time to time.
"Gas Suppliers" shall mean the suppliers of Gas used at the
Facility pursuant to the Gas Supply Agreements or the Additional Gas Supply
Agreements.
"Gas Supply Agreements" shall mean the contracts, purchase
orders and other agreements (including hedging contracts) entered into by NEA
before the Effective Date with respect to the supply of Gas to the Facility, as
such contracts, purchase orders and other agreements are listed on Exhibit A
hereto, as amended from time to time.
3
<PAGE>
"Gas Transportation Agreements" shall mean the contracts and
agreements entered into by NEA before the Effective Date with respect to the
transportation of Gas to be used by the Facility, as such contracts and
agreements are listed on Exhibit A hereto, as amended from time to time.
"Indemnitees" shall have the meaning set forth in Section 5.01
hereof.
"Late Payment Rate" shall mean a per annum rate of interest
equal to the rate announced from time to time in the Wall Street Journal as the
prime commercial lending rate of national commercial banks plus two percent
(2%), but in no event more than the maximum rate permitted under applicable law.
"Laws" shall mean any applicable federal, state or local
statute, law, ordinance, rule or regulation.
"Management Fee" shall have the meaning set forth in Section
4.02 hereof.
"NEA" shall have the meaning set forth in the first recital
hereto.
"Oil" shall mean fuel oil meeting the specifications set forth
in Schedule 1 hereto.
"Oil Storage Agreements" shall mean the contracts and
agreements entered into by or on behalf of NEA after the Effective Date relating
to the storage of Oil to be used at the Facility, as amended from time to time.
"Oil Suppliers" shall mean the suppliers of Oil used at the
Facility pursuant to the Oil Supply Agreements.
"Oil Supply Agreements" shall mean the contracts, purchase
orders and other agreements entered into by or on behalf of NEA after the
Effective Date relating to the supply of Oil to the Facility, as amended from
time to time.
"Oil Transportation Agreements" shall mean the contracts and
agreements entered into by or on behalf of NEA after the Effective Date relating
to the transportation of Oil to the Facility, as amended from time to time.
"Operator" shall mean Westinghouse Electric Corporation until
such time as it no longer serves as Operator of the Facility, then it shall mean
ESI Operating Services, Inc., or such other person or entity who may be acting
as operator of the Facility.
"Owner" shall have the meaning set forth in the preamble
hereof.
"Owner's Fuel Requirements" shall mean the aggregate total
supply of Gas and Oil required during a specified period by Owner in connection
with the operation of the Facility for such specified period.
4
<PAGE>
"party" and "parties" shall have the meanings set forth in the
preamble hereof.
"Partnership Agreement" shall mean that certain Agreement of
Limited Partnership of Northeast Energy, LP, a Delaware limited partnership,
dated as of November 21, 1997, by and among ESI Northeast Energy GP, Inc.,
Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and
Tractebel Associates Northeast LP, Inc.
"PPI Index" shall mean the Department of Labor, Bureau of
Labor Statistics, Producer Price Index for All Commodities (1982=100). If the
PPI Index ceases to be published or is otherwise unavailable, "PPI Index" shall
mean an index that Owner and Fuel Manager shall mutually determine in good faith
to be most nearly comparable to the foregoing.
"Project Year" shall mean the twelve (12) month period
beginning on the Commencement Date and each successive twelve (12) month period
beginning on the anniversary dates thereof.
"Replacement Fuel" shall have the meaning set forth in Section
2.05 hereof.
"Summer Fuel Period" shall mean the seven-month period
commencing April 1 of any year ending on October 31 of such year.
"Winter Fuel Period" shall mean the five-month period
commencing on November 1 of any year and ending on March 31 of the next
succeeding year.
"30-Day Nomination" shall have the meaning set forth in
Section 3.02 hereof.
"90-Day Nomination" shall have the meaning set forth in
Section 3.01 hereof.
ARTICLE II.
FUEL MANAGEMENT SERVICES
2.01 Transition Services. From the Effective Date through the
Commencement Date, Fuel Manager shall provide each of the following services:
(a) review existing fuel management procedures for the
Facility and all relevant records, documents and materials relating to
such procedures;
(b) review existing fuel supply, transportation and storage
arrangements in effect on the Effective Date and update Exhibit A
accordingly;
(c) prepare and submit the initial Fuel Supply Plan to Owner
as soon as reasonably practicable after the Effective Date, but in no
event later than January 30, 1998;
5
<PAGE>
(d) update the initial Fuel Supply Plan to reflect any changes
requested by Owner (provided that no revision to the initial Fuel
Supply Plan shall require Fuel Manager to perform services which might
conflict with Fuel Manager's duties under this Agreement or applicable
Laws);
(e) develop the necessary programs and procedures to perform
the Fuel Management Services in accordance with the initial Fuel Supply
Plan; and
(f) such other services as are necessary and incidental to the
performance of the foregoing services.
2.02 Fuel Management Services. From the Commencement Date
through the termination of this Agreement, Fuel Manager shall furnish to Owner
the following services in connection with the supply, transportation and storage
of Gas and Oil to be used by the Facility (the "Fuel Management Services"):
(a) preparation and modification of the Fuel Supply Plans in
accordance with Section 2.04;
(b) transportation scheduling; transportation balancing;
transportation imbalance reconciliation; proposals for and, if Owner so
approves, utilization of excess transportation capacity through
scheduling and relinquishment and through sales to third parties at
alternate delivery points; compliance with pipeline operational orders;
general operational and planning advice; and attendance at such
Partnership meetings as the parties deem appropriate for Fuel Manager
to fully represent the interests of Owner, as contemplated by this
Agreement;
(c) monitoring of pipeline tariff filings in consultation with
Owner, consultants and legal counsel and intervention, at the request
and expense of Owner, in the applicable FERC hearings and provision of
testimony; and
(d) such other services as are necessary and incidental to
performance of the foregoing Fuel Management Services.
2.03 Supply and Transportation Portfolio Planning. In
connection with the preparation of the Fuel Supply Plan and the performance of
its obligations under Section 2.02, and using information made available by
Owner and such other information as it deems necessary, Fuel Manager shall:
(a) analyze Owner's Fuel Requirements in light of the amount
of Gas and Oil then being supplied under the Existing Agreements and
the Additional Agreements then in effect;
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(b) analyze regional Gas and Oil supply and demand, sources,
transportation, delivery, supply mechanisms and the regulatory
structure with respect to additional Gas and Oil required by the
Facility;
(c) prequalify Gas and Oil suppliers, obtain and evaluate
proposals, and recommend proposals to Owner for Additional Gas Supply
Agreements and Oil Supply Agreements, and if such proposals are
approved by Owner (which approval may be in the Fuel Supply Plan),
negotiate and obtain Additional Gas Supply Agreements and Oil Supply
Agreements for the Facility on behalf of Owner;
(d) evaluate price risk management proposals, make
recommendations to Owner with respect to price risk management, and if
such recommendations are approved by Owner (which approval may be in
the Fuel Supply Plan), negotiate and enter into such risk management
arrangements on behalf of Owner;
(e) review existing and potential arrangements for
transportation and storage of the Gas and Oil to be acquired in
accordance with the Fuel Supply Plan, make recommendations to Owner
with respect to such arrangements, and if such recommendations are
approved by Owner (which approval may be in the Fuel Supply Plan),
negotiate and obtain necessary Additional Gas Transportation
Agreements, Oil Transportation Agreements, Additional Gas Storage
Agreements and/or Oil Storage Agreements on behalf of Owner; and
(f) to the extent known, advise Owner of changes and
anticipated changes in cost, reliability, interruption or other factors
affecting the current or anticipated future supply of Gas and Oil to
the Facility, make recommendations to Owner with respect to alternate
supplies or transportation mechanisms, and if such recommendations are
approved by Owner (which approval may be in the Fuel Supply Plan),
implement those recommendations deemed desirable by Owner.
All Additional Agreements shall be entered into by Owner;
provided, however, that upon the approval of Owner (which approval may be
contained in the Fuel Supply Plan), Fuel Manager will enter into any such
contract in its capacity as agent for Owner.
In connection with the services provided by Fuel Manager under
Article II of this Agreement, Fuel Manager will, except as otherwise agreed by
the parties, provide Owner with copies of all reasonable proposals it receives
from third parties for the supply, transportation, or storage of Gas or Oil for
the Facility and such other relevant information in Fuel Manager's possession as
Owner may reasonably request from time to time.
2.04 Fuel Supply Plan. Fuel Manager shall furnish to Owner at
least forty-five (45) days prior to the first full Fuel Period after the
Commencement Date and each Fuel Period thereafter, a fuel, transportation and
storage supply plan (the "Fuel Supply Plan"). Fuel Manager's analysis and
strategy shall incorporate a least-cost optimization of the available options
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to develop a Fuel Supply Plan designed to provide Owner with a low-cost Gas and
Oil supply portfolio that is highly flexible and secure.
Owner shall give its written approval or disapproval of the
Fuel Supply Plan no later than thirty (30) days after receipt thereof from Fuel
Manager. If the Fuel Supply Plan is not approved or disapproved within such
30-day period, Fuel Manager shall, in the absence of instructions to the
contrary from Owner, purchase Gas and Oil in the 30-day spot market in the
quantities specified by Owner's nominations pursuant to Article III, to the
extent required by the Facility but not covered by Existing Agreements and
Additional Agreements until such time as the Fuel Supply Plan is approved. If
Owner disapproves all or any portion of the proposed Fuel Supply Plan, Owner
shall provide the reasons for such disapproval in writing and Owner and Fuel
Manager shall make reasonable efforts to agree on a Fuel Supply Plan. If Owner
and Fuel Manager cannot agree on the Fuel Supply Plan, those elements of the
Fuel Supply Plan that are in dispute shall be revised in accordance with the
recommendations of Owner. However, in no event shall such revised Fuel Supply
Plan require Fuel Manager to perform services that might conflict with Fuel
Manager's duties under this Agreement or applicable Laws.
An approved Fuel Supply Plan shall constitute authorization
for Fuel Manager to enter into the transactions and agreements contemplated
therein as agent on behalf of Owner in accordance with such approved Fuel Supply
Plan.
If Fuel Manager desires to request an amendment to an approved
Fuel Supply Plan at any time, Fuel Manager shall submit a proposed revised Fuel
Supply Plan for Owner's consideration, including the basis for the amendment,
and Owner shall approve or disapprove the proposed revised Fuel Supply Plan in
writing within thirty (30) days after submission thereof. If the proposed
revised Fuel Supply Plan is not approved within such 30-day period, it shall be
deemed to have been disapproved. If the proposed revised Fuel Supply Plan is
disapproved within such 30-day period, Owner shall furnish Fuel Manager with the
reasons for such disapproval in writing and, if appropriate, Fuel Manager shall
update and resubmit the proposed revised Fuel Supply Plan for approval by Owner.
Once approved by Owner, the revised Fuel Supply Plan shall supersede the then
current approved Fuel Supply Plan. If Owner requests an amendment, Fuel Manager
shall revise the Fuel Supply Plan to reflect any changes requested by Owner;
provided, however, that in no event shall such revised Fuel Supply Plan require
Fuel Manager to perform services that might conflict with Fuel Manager's duties
under this Agreement or applicable Laws. Fuel Manager shall not, except as
described in Section 2.05 or 2.06 hereof, act outside of the approved Fuel
Supply Plan without the prior written consent of Owner.
2.05 Replacement Fuel. If for any reason (including Force
Majeure), a Gas Supplier or Oil Supplier fails to deliver Gas or Oil to Owner,
Fuel Manager shall promptly upon obtaining actual knowledge thereof notify
Owner. If Owner is unavailable or, in the reasonable judgment of Fuel Manager,
there is insufficient time to reach Owner and insure the adequate supply of Gas
and Oil to the Facility for any of the next thirty (30) days, Fuel Manager
shall, as agent for Owner, use commercially reasonable efforts to locate and
acquire Gas or Oil ("Replacement Fuel") to replace any Gas or Oil not delivered
to Owner; provided that Fuel Manager shall not without the prior written consent
of Owner enter into any agreement for the
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supply of Gas or Oil with a term in excess of 30 days. Fuel Manager shall seek
to locate and acquire Replacement Fuel under substantially similar terms and
conditions and with equivalent economic ramifications to Owner as those
applicable to the lost Gas and Oil supply, but if it is unable to do so, Fuel
Manager shall nevertheless use commercially reasonable efforts to locate and
acquire other Replacement Fuel. Fuel Manager shall, as agent for Owner, use
commercially reasonable efforts to minimize the cost of Replacement Fuel by
choosing among available Replacement Fuel supplies that which is most
cost-efficient, taking into consideration dependability, safety, transportation
cost, and the anticipated extent and duration of the interruption in supply of
the Gas or Oil that would have been provided under the existing arrangements.
Fuel Manager shall promptly notify Owner after Fuel Manager's acquisition, as
agent of Owner, of Replacement Fuel pursuant to this Section 2.05 and the price
of such Replacement Fuel. If Fuel Manager determines it is not able to acquire
Replacement Fuel, Fuel Manager shall promptly notify Owner and prepare and
submit to Owner a plan to address such unavailability of Replacement Fuel.
2.06 Replacement Transportation Services. If for any reason
(including Force Majeure), Gas or Oil is not being transported pursuant to any
Gas Transportation Agreement, any Additional Gas Transportation Agreement or any
Oil Transportation Agreement, Fuel Manager shall promptly upon obtaining actual
knowledge thereof notify Owner. If Owner is unavailable or, in the reasonable
judgment of Fuel Manager, there is insufficient time to reach Owner and insure
the adequate supply of Gas and Oil to the Facility for any of the next thirty
(30) days, Fuel Manager shall, as agent for Owner, use commercially reasonable
efforts to arrange for alternative transportation arrangements to replace the
transportation services which are no longer available ("Alternative
Transportation"). Fuel Manager shall seek to arrange Alternative Transportation
under substantially similar terms and conditions and with equivalent economic
ramifications to Owner as those applicable to the lost transportation services,
but if it is unable to do so, Fuel Manager shall nevertheless use commercially
reasonable efforts to arrange Alternative Transportation. Fuel Manager shall, as
agent for Owner, use commercially reasonable efforts to minimize the costs of
Alternative Transportation by choosing among available transportation
alternatives that which is most cost-efficient, taking into consideration
dependability, safety, and the anticipated duration of the interruption in
transportation services that would have been provided under the Existing Gas
Transportation Agreements, Additional Gas Transportation Agreements or Oil
Transportation Agreements. Fuel Manager shall promptly notify Owner after Fuel
Manager's arranging for Alternative Transportation, as agent of Owner, pursuant
to this Section 2.06 and the price of such Alternative Transportation. If Fuel
Manager determines it is not able to arrange Alternative Transportation, Fuel
Manager shall promptly notify Owner and prepare and submit to Owner a plan to
address such unavailability of Alternative Transportation.
2.07 Sale of Excess Fuel. If at any time the Fuel Manager
believes or anticipates that the Facility will not require any of the Gas or Oil
purchased under the Existing Agreements or the Additional Agreements or procured
on Owner's behalf by Fuel Manager (either pursuant to a Fuel Supply Plan or by
express instruction of Owner to procure such Gas or Oil) (the "Excess Fuel"),
Fuel Manager shall promptly notify Owner and, upon Owner's request, shall use
reasonable efforts to market for sale and arrange for delivery of such Excess
Fuel to a third party buyer at the best available prices possible given the then
current conditions in the market. Any
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amount received over the price originally paid by Owner for such Excess Fuel
shall belong to the Owner and Owner shall bear any loss incurred should the
amount received for such Excess Fuel be less than that originally paid by Owner.
2.08 Appointment of Fuel Manager as Owner's Agent. Subject to
the limitations set forth in Article X, Owner hereby appoints Fuel Manager (and
any permitted subcontractor) as its agent solely for the following purposes:
(a) to act on Owner's behalf and for Owner's benefit in
submitting nominations to the Gas Suppliers pursuant to Article III
hereof;
(b) to act on Owner's behalf and for Owner's benefit, for
purposes set forth in any Agency Designation Agreement entered into by
Owner pursuant to this Section 2.08; and
(c) to negotiate and, upon the approval of Owner (which
approval may be in the Fuel Supply Plan), enter into Additional
Agreements as agent of Owner for the purchase, storage or
transportation of Gas or Oil on the terms and subject to such
conditions as Owner may approve (which approval may be in the Fuel
Supply Plan).
Owner and Fuel Manager shall notify all existing and future
Gas Suppliers and Oil Suppliers and all applicable transportation and storage
providers of the foregoing agency promptly after the Commencement Date and
shall, to the extent required by such suppliers or operators, enter into an
agency designation agreement in form and substance reasonably acceptable to
Owner and Fuel Manager confirming such agency for purposes of any Existing
Agreement or Additional Agreement (the "Agency Designation Agreements"). Owner
and Fuel Manager shall, immediately upon expiration or early termination of the
Agreement, notify the applicable entities that such agency has terminated. The
Agency Designation Agreements and any notice to Gas Suppliers, Oil Suppliers and
others of the existence of the agency shall state that either Owner or Fuel
Manager, acting alone, may give notice to such party terminating the agency.
The appointment of Fuel Manager (and any permitted
subcontractor) as agent shall terminate automatically and without prior notice
upon termination of this Agreement for whatever reason.
ARTICLE III.
NOMINATION, COORDINATION AND OPTIONAL SERVICES
3.01 90-Day Nomination. Within 15 days of Fuel Manager's
written request, which request may be made once each quarter, Owner shall
provide to Fuel Manager a 90-day nomination (the "90-Day Nomination") setting
forth on a daily basis Owner's anticipated need for the procurement,
transportation and storage of Gas and Oil.
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3.02 30-Day Nomination. At least 15 days prior to the end of
each month, Owner shall provide to Fuel Manager a 30-day nomination (the "30-Day
Nomination") setting forth on a daily basis Owner's anticipated need for the
procurement, transportation and storage of Gas and Oil for the subsequent month.
3.03 Daily Confirmation with Facility. Fuel Manager shall call
the Facility each day by 8:00 a.m. to confirm with Operator the Facility's
requirements for Gas and Oil for such Gas Day and the estimated requirements for
the following Gas Day and for Fuel Manager to confirm the availability of Gas
and Oil for such Gas Day pursuant to the applicable Fuel Supply Plan and the
applicable 30-Day Nomination. Fuel Manager shall confirm to Owner and Operator
by hand delivery or by facsimile the information confirmed by such call.
3.04 Notification by Owner. Owner shall use all reasonable
efforts to provide Fuel Manager with prompt notice of all information regarding
startups or shutdowns of the Facility, including, but not limited to (A)
maintenance not scheduled or included as part of the applicable Fuel Supply
Plan; (B) forced outages, (C) scheduled outages, and (D) any other relevant
information or event which may impact the quantities of Gas and Oil to be
provided to the Facility pursuant to the applicable Fuel Supply Plan or 30-Day
Nomination.
3.05 Supply of Gas and Oil by Fuel Manager. Fuel Manager may,
but is not obligated to, offer to supply Gas or Oil to Owner at a price and on
terms to be determined by Fuel Manager in its sole and absolute discretion.
Owner may, in its sole and absolute discretion, accept or reject Fuel Manager's
offer to supply such Gas or Oil. In connection therewith, Owner will, at the
request of Fuel Manager, negotiate in good faith an enabling agreement for the
sale of Gas and Oil by Fuel Manager to Owner, to be used in the event the
parties agree to consummate such transactions.
3.06 Substitute Gas and Oil Transactions. Fuel Manager may,
but is not obligated to, propose transactions to Owner pursuant to which Fuel
Manager or a third party (which may be an Affiliate of Fuel Manager) will take
delivery of a volume of Gas or Oil equal to all or any part of the Gas or Oil to
be supplied by any Gas Supplier or Oil Supplier for all or any portion of the
term of the applicable supply contract and substitute Gas or Oil from another
source therefor. Owner may, in its sole and absolute discretion, accept or
reject Fuel Manager's proposals. If Owner and Fuel Manager decide to proceed
with any such transaction, they will enter into a separate agreement with
respect thereto.
3.07 Other Services. All other services not within the scope
of this Agreement, which may be requested by Owner shall be handled by separate
agreement and compensation.
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ARTICLE IV.
PAYMENTS, COMPENSATION AND EXPENSES
4.01 Payments to Suppliers, Transporters and Storage
Operators. Owner shall be responsible for remitting payment to all Gas
Suppliers, Oil Suppliers and any and all pipeline and other transporters or
storage operators utilized hereunder to serve the Facility. In connection
therewith, Fuel Manager shall review and approve invoices from all such
suppliers and operators.
4.02 Management Fee. Fuel Manager shall receive a management
fee for each Project Year (the "Management Fee") of $450,000 per annum, as
adjusted in accordance with this Section 4.02. The Management Fee shall be paid
in monthly installments and shall be due on the first Business Day of each month
for the preceding month. The Management Fee for any partial month shall be pro
rated to cover the actual portion of such month that this Agreement was in
effect.
As of January 1 of each year, commencing January 1, 1999, the
Management Fee shall be adjusted upwards or downwards by multiplying the
Management Fee for the prior year by a fraction the numerator of which will be
the PPI Index for immediately preceding December and the denominator of which
will be the PPI Index for the month of December one year earlier; provided, that
in no event shall the Management Fee be decreased below $450,000. This adjusted
Management Fee shall be the Management Fee for the current Project Year and the
basis for calculation of the Management Fee for the next Project Year.
4.03 Expenses. Fuel Manager shall submit for Owner's approval
any out-of-pocket expenses that Fuel Manager anticipates will be incurred in the
performance of its obligations hereunder or any services requested by Owner.
Fuel Manager shall only incur expenses, and Owner is only obligated to reimburse
Fuel Manager for expenses, to the extent such expenses are (i) approved in
advance by Owner (as part of an approved Fuel Supply Plan or otherwise) or (ii)
incurred in accordance with the terms of Section 2.05 or 2.06. Owner's
reimbursement of Fuel Manager for such out-of-pocket expenses shall be in
addition to the compensation set forth in Section 4.02.
4.04 Late Payments. If any amounts owing under this Agreement
are not paid to Fuel Manager or Owner, as applicable, when due, the same shall
bear interest at the Late Payment Rate from the due date until paid.
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ARTICLE V.
LIABILITY, INDEMNITY AND GUARANTY
5.01 Indemnification by Fuel Manager. Subject to the
limitations in this Article V, Fuel Manager hereby agrees to indemnify, defend
and hold harmless Owner, all partners of Owner, and each of their respective
officers, directors, shareholders, agents, Affiliates and employees
(collectively, the "Indemnitees") from and against all losses, liabilities,
damages, demands, claims, suits, actions, judgments or causes of action,
assessments, interest, penalties, costs and expenses, including, without
limitation, attorney's fees, and expenses (whether suit is instituted or not
and, if instituted, whether at trial or appellate levels) (collectively
"Damages") asserted against, resulting to, imposed upon, or incurred or suffered
by any of the Indemnitees, directly or indirectly, whether raised by an
Indemnitee or a third party, arising out of, caused by or resulting from the
performance or non-performance by Fuel Manager of its duties hereunder, to the
extent that any such Damages are caused in whole or in part by (a) any
agreement, contract or arrangement executed by Fuel Manager in the name of (and
without the written consent of) the Owner which is prohibited by this Agreement
or beyond the scope of its authority, or (b) the negligence or willful
misconduct of Fuel Manager.
5.02 Indemnification by Owner. Subject to the limitations set
forth in this Article V, Owner shall indemnify, defend and hold harmless Fuel
Manager, any subcontractor and their respective officers, directors,
shareholders, agents, Affiliates and employees (collectively, "Fuel Manager's
Indemnitees") from and against all Damages asserted against, resulting to,
imposed upon, or incurred or suffered by any of the Fuel Manager's Indemnitees,
directly or indirectly, whether raised by Fuel Manager's Indemnitees or a third
party, to the extent arising out of or resulting from the performance or
non-performance by Owner of its duties hereunder or under any Existing Agreement
or Additional Agreement; provided, however, that such indemnification does not
apply to the extent that the Damages arise from (a) Fuel Manager's negligence or
willful misconduct in connection with the performance of its duties hereunder,
or (b) any Existing Agreement or Additional Agreement which was executed by Fuel
Manager in the name of Owner which is prohibited by this Agreement or is outside
of the authority granted to Fuel Manager by Owner under or pursuant to this
Agreement.
5.03 No Consequential Damages. With respect to claims arising
under this Agreement or out of performance or non-performance of the services
and obligations under this Agreement, neither Fuel Manager, any subcontractor
nor their respective officers, directors, shareholders, agents, Affiliates or
employees shall be liable to Owner, any Partner of Owner, nor their respective
officers, directors shareholders, agents, Affiliates or employees, and neither
Owner, any Partner of Owner, nor their respective officers, directors,
shareholders, agents, Affiliates or employees shall be liable to Fuel Manager,
any subcontractor, or any of their respective officers, directors, shareholders,
agents, Affiliates or employees, whether based in contract, in tort (including
negligence and strict liability), under warranty, or otherwise, for any special
indirect, incidental, exemplary or consequential loss or damage whatsoever,
including without limitation, loss of use, opportunity or profits, damages to
good will or reputation or punitive damages; provided, however, that this
limitation on liability shall not apply to Fuel Manager's actions under Section
5.01(a) unless the Fuel Manager has acted in good faith and with a reasonable
basis for believing that such actions were permitted by this Agreement and were
within the scope of its authority.
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5.04 Limitation of Aggregate Liability. The total annual
aggregate liability of Fuel Manager with respect to this Agreement under any
theory of recovery, whether based in contract, in tort (including negligence and
strict liability), under warranty or otherwise, and notwithstanding any other
provision of this Agreement, shall be limited in any Project Year to the
Management Fee for such Project Year; provided, however, that this limitation on
liability shall not apply to Fuel Manager's actions under Section 5.01(a) unless
the Fuel Manager has acted in good faith and with a reasonable basis for
believing that such actions were permitted by this Agreement and were within the
scope of its authority.
5.05 Non-Recourse Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of Owner hereunder
are recourse only to the assets of Owner and neither the partners of Owner nor
any shareholder, director, officer, agent, Affiliate or employee of Owner or any
partner of Owner, shall have any personal responsibility or liability for any
payment obligations of Owner hereunder, or otherwise for any breach in
performance or observance of the covenants, representations, or obligations of
Owner hereunder.
5.06 Guaranty. Prior to the Commencement Date, Fuel Manager
shall cause ESI Energy, Inc. to execute and deliver to Owner a guaranty of Fuel
Manager's obligations under Section 5.01 in substantially the form attached
hereto as Exhibit B.
ARTICLE VI.
ASSIGNMENT
6.01 Assignments.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
(b) Except as otherwise provided in this Agreement, neither
party may assign or otherwise convey any of its rights, title or interest under
this Agreement, without the prior written consent of the other party hereto
(which consent shall not be unreasonably withheld); provided, however, that
either party may collaterally assign its interests in this Agreement as security
for debt, with notice to, but without need for the consent of, the other party.
6.02 Assignment by Owner to NEA. Upon the later to occur of
(i) the Commencement Date and (ii) the execution and delivery by NEA of a
counterpart hereof to Owner and Fuel Manager, but without any further action by
any Person, all right, title and interest of Owner hereunder shall be assigned
to, and all of Owner's obligations, liabilities and duties
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whether past, present or future, arising under, in or in connection with this
Agreement, including Owner's obligations under Section 4.02 hereof, shall be
assumed by, NEA.
6.03 Subcontracting. Fuel Manager may, without the consent of
the Owner, subcontract any of its duties or obligations hereunder to one of its
Affiliates. Fuel Manager may not subcontract any of its duties or obligations
hereunder to a non-affiliate without the prior written consent (which consent
may be in the Fuel Supply Plan) of Owner to the subcontractor and subcontract,
which consent shall not be unreasonably withheld. No subcontract shall relieve
Fuel Manager of its duties and obligations hereunder.
ARTICLE VII.
NOTICES
Any notice to either party required or permitted hereunder
shall be in writing and shall be given by personal delivery or by commercial
courier or by certified mail, return receipt requested, postage prepaid, or by
telecopier with confirmed receipt, addressed as follows:
If to Owner:
------------
Prior to assignment to NEA:
Northeast Energy, LP
c/o ESI Energy, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopier: (561) 691-3615
Attention: President
After assignment to NEA:
Northeast Energy Associates,
A Limited Partnership
c/o ESI Energy, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopier: (561) 691-3615
Attention: President
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with, in either case, a copy to:
Tractebel Power, Inc.
1177 West Loop South, Suite 900
Houston, Texas 77027
Telecopier: (713) 552-2364
Attention: General Counsel
If to Fuel Manager:
-------------------
Northeast Fuel Management, Inc.
c/o ESI Energy, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopier: (561) 691-3615
Attention: President
or to such other address as Owner or Fuel Manager may have specified in a notice
duly given as provided herein to the other party. All notices given in the
foregoing manner shall be effective when received, except that a notice sent by
telecopier and received after normal business hours shall be deemed to be
received the following Business Day.
ARTICLE VIII.
FORCE MAJEURE
8.01 Suspension of Obligation. If either party hereto is
rendered unable, wholly or in part, by Force Majeure to carry out its
obligations under this Agreement, other than to make payments on obligations due
hereunder, it is agreed that upon such party giving notice and full particulars
of such Force Majeure to the other party as soon as possible after the
occurrence of the cause relied on, the obligations of the party(ies), only
insofar as they are affected by such Force Majeure, shall be suspended during
the continuance of any inability so caused, but for no longer period. Such cause
shall, as far as possible, be remedied with all reasonable dispatch, except that
settlement of strikes or lockouts shall be entirely within the discretion of the
party having the difficulty.
8.02 Definition. The term "Force Majeure" as used herein shall
mean an occurrence not within the reasonable control of a party and without the
fault, negligence or willful misconduct of such party claiming Force Majeure and
shall include, but not be limited to: acts of God, epidemics, landslides,
lightning, earthquakes, fires, storms, hurricanes, floods, and washouts;
strikes, lockouts, and other industrial disturbances; civil disturbances, acts
of the public enemy, wars, blockades, insurrections, riots, sabotage, and
arrests and restraints of governments and people, or actions or inactions of any
government or governmental agency or changes in the law or applicable
regulations subsequent to the date hereof preventing performance, or the
inability
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despite due diligence to obtain or renew required licenses; provided, however,
that lack of money or changes in market considerations shall not constitute
"Force Majeure."
ARTICLE IX.
TERM AND TERMINATION
9.01 Term. This Agreement shall be in effect from the
Effective Date for a primary term ending on the twenty-fifth (25th) anniversary
of the Commencement Date, unless terminated earlier as provided herein.
9.02 Termination upon Notice by Fuel Manager. If Owner (a)
fails to make any payment due to Fuel Manager hereunder within ten (10) days
after such payment shall have become due or (b) fails, for reasons other than
Force Majeure, to perform any of the material covenants or obligations imposed
upon it under and by virtue of this Agreement and in the case of a default under
(b) does not remedy or cure such default (and the effects thereof) within thirty
(30) days after receipt of written notice thereof from Fuel Manager (or within
ninety (90) days after receipt of such notice, in the case of defaults not
susceptible of cure within thirty (30) days; provided, however, that Owner
commences and diligently seeks to cure such default within such thirty (30) day
period), then Fuel Manager may, by written notice to Owner, terminate this
Agreement.
9.03 Termination upon Notice by Owner. If Fuel Manager (a)
acts, in a material way, outside of the authority granted to it by Owner in this
Agreement or (b) fails, for reasons other than Force Majeure, to perform any of
the material covenants or obligations imposed upon it under and by virtue of
this Agreement and in the case of a default under (b) does not remedy or cure
such default (and the effects thereof) within thirty (30) days after receipt of
written notice thereof from Owner (or within ninety (90) days after receipt of
such notice, in the case of defaults not susceptible of cure within thirty (30)
days; provided, however, that Fuel Manager commences and diligently seeks to
cure such default within such thirty (30) day period), then Owner may, by
written notice to Fuel Manager, terminate this Agreement.
9.04 Termination Upon Certain Other Events. Either party may
terminate this Agreement by written notice to the other party if (a) the
Facility is destroyed or suffers damage in excess of $100,000,000 and is not
rebuilt and in commercial operation within twenty-four (24) months after such
damage or destruction, (b) the Facility cannot be operated for a period of at
least eighteen (18) consecutive months as a result of a Force Majeure event, (c)
loss of "qualifying facility" status, (d) Owner determines to permanently shut
down the Facility, or (e) if the Facilities Purchase Agreement shall terminate
pursuant to Section 15 thereof.
9.05 Effect on Termination. Any termination of this Agreement
pursuant to provisions of this Article IX shall be without prejudice to the
right of Fuel Manager to collect any amounts then due for services rendered
prior to the time of termination, and without waiver of any
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and all other remedies, including rights of set-off, to which the party not in
default may be entitled for violations of this Agreement by the defaulting
party.
ARTICLE X.
LIMITATIONS ON AGENCY
Except with respect to the acquisition of Replacement Fuel and
Alternative Transportation as permitted by Section 2.05 or 2.06 or the sale of
Excess Fuel pursuant to Section 2.07, Fuel Manager is not authorized to, and
shall not, without prior written consent of Owner (which consent may be
contained in the Fuel Supply Plan):
(a) Enter into any agreements for the sale of Gas or the
transportation or storage of such sold Gas on behalf of or in the name
of Owner;
(b) Enter into any hedging transaction or any unhedged future
contracts, or otherwise assume unhedged trading positions, on behalf of
or in the name of Owner;
(c) Enter into any agreements or transactions on behalf of
Owner not contemplated by the Fuel Supply Plan;
(d) Agree to any amendment or modification to any provision in
the Existing Agreements or any Additional Agreements or other
agreements to which Owner is a party;
(e) Enter into any agreement or any amendment, supplement or
modification of any agreement, in any manner inconsistent with or in
violation of this Agreement, applicable Law or the Trust Indenture; or
(f) Grant or create any lien or other encumbrance on any of
Owner's Gas or Oil or any of the Existing Agreements or the Additional
Agreements.
ARTICLE XI.
DISPUTE, RESOLUTION AND ARBITRATION
11.01 Dispute Resolution. If a dispute arises among the
parties, or between any of them, regarding the application or the interpretation
of any provision of this Agreement or any other matter with respect to the Fuel
Management Services, an aggrieved party shall give a notice of such dispute (a
"Dispute Notice") to the other party. Within fifteen (15) days after such
Dispute Notice, a senior officer of each of the companies shall confer with each
other to seek with diligence and in good faith to resolve such dispute. If such
officers are unable to resolve such dispute within forty-five (45) days after
such Dispute Notice, then the parties shall be bound to arbitrate such dispute
in accordance with Section 11.02.
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11.02 Arbitration. To the fullest extent permitted by law, any
dispute between the parties regarding the interpretation of any provision of
this Agreement, if not resolved by negotiation by the parties within forty-five
(45) days after the Dispute Notice, shall be resolved exclusively by binding
arbitration between the parties pursuant to the Rules of the American
Arbitration Association for Commercial Disputes (the "Arbitration Rules").
Arbitration shall be administered by the American Arbitration Association. Any
Party may institute arbitration proceedings at any time by delivering written
notice demanding arbitration to the parties in the manner described in Article
VII.
(a) Within twenty (20) days after receipt of a written demand
for arbitration, each party shall appoint one arbitrator. Within fifteen (15)
days of the expiration of that 20-day period, the two arbitrators so appointed
shall appoint a third arbitrator. If any party shall fail to appoint an
arbitrator, or if the two arbitrators shall fail to appoint a third arbitrator,
the American Arbitration Association shall make the selection within ten (10)
days of a party's request. The arbitrators shall meet the qualifications and
abide by the Code of Ethics for arbitrators in commercial disputes of the
American Arbitration Association. The arbitrators shall have knowledge of and
experience in the gas and oil supply industry.
(b) To the fullest extent permitted by law, the arbitration
shall be conducted in accordance with the procedures set forth in the
Arbitration Rules. In determining any question, matter or dispute before them,
the arbitrators shall apply the provisions of this Agreement without varying
therefrom in any respect. They shall not have the power to add to, modify or
change any of the provisions of this Agreement. The parties shall exercise all
commercially reasonable efforts in good faith to cause a hearing to be held
within ninety (90) days after the date upon which the last arbitrator is
appointed and to conclude all hearings within thirty (30) days after the first
hearing date. The arbitrators shall only grant a party's request for
postponement of the hearing upon a showing of good cause as determined by the
arbitrators. Within thirty (30) days of the last hearing date, the arbitrators
shall issue a written decision setting forth their analysis and ruling. The
arbitrators shall determine in what proportion the parties shall bear the fees
and expenses of the arbitrators. Each party shall bear the fees and expenses of
its own counsel and other consultants. All arbitration proceedings shall be
subject to the choice of law provisions set forth in Section 12.02 hereof, and
shall be held at a location agreed to by the parties, or if the parties cannot
agree, then in Atlanta, Georgia.
(c) The parties acknowledge and agree that any arbitral award
shall be final, binding and conclusive upon the parties and may be confirmed or
embodied in any order of any court having jurisdiction.
(d) To the fullest extent permitted by law, service of any
matters referenced in this Article XI shall be given in the manner described in
Article VII or as permitted by the rules of the American Arbitration
Association.
11.03 Survival. This Article XI shall survive expiration or
termination of this Agreement.
19
<PAGE>
ARTICLE XII.
GENERAL PROVISIONS
12.01 Severability. If any provision of this Agreement shall
be held or deemed to be invalid, inoperative or unenforceable, such
circumstances shall not affect the validity of any other provision of this
Agreement, but this Agreement shall be reformed and construed as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted.
12.02 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws.
12.03 Entire Agreement. This Agreement and related schedules
constitutes the entire final understanding and agreement of the parties with
respect to its subject matter, and there are no agreements, understandings,
restrictions, representations or warranties among the parties other than those
set forth in this Agreement. By execution of this Agreement, each of the parties
represents and warrants that it has not relied on any oral or written
statements, promises, inducements, representations or warranties to enter into
this Agreement except for those expressly set forth herein. The parties agree
that the inclusion of this provision evidences the intent of the parties that no
parole evidence shall be admissible to alter or vary the terms of this
Agreement.
12.04 Captions. The captions or headings of the sections and
paragraphs of this Agreement have been inserted for convenience of reference
only and shall have no effect upon the construction or interpretation of any
part of this Agreement.
12.05 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
12.06 No Third Party Beneficiaries. Except as expressly set
forth herein, the terms of this Agreement are for the sole benefit of Owner and
Fuel Manager and their respective successors and permitted assigns and not for
any third party whatsoever.
12.07 Further Assurances. If either party reasonably
determines or is reasonably advised that any further instruments or any other
things are necessary or desirable to carry out the terms of this Agreement, the
other party shall execute and deliver all such instruments and assurances and do
all things reasonably necessary and proper to carry out the terms of this
Agreement.
20
<PAGE>
12.08 No Implied Waiver. Failure of either party to exercise
any right to enforce any provision, or to require strict performance by the
other party of any provision, shall not release the other party from any of its
obligations under this Agreement and shall not operate as a waiver of any right
to insist upon strict performance, or of either party's rights or remedies under
this Agreement or at law.
12.09 Amendments. No amendment, waiver or modification of any
provision of this Agreement shall be effective unless made in writing and signed
by both parties.
12.10 Confidentiality. Except to the extent expressly
authorized herein including, without limitation, in connection with a proposed
assignment of this Agreement or a proposed financing transaction entered into by
Owner, in which case disclosure of the terms hereof shall be limited to the
extent reasonably practicable, each of the parties agree that neither it nor its
attorneys, agents or representatives shall reveal to anyone any of the terms of
this Agreement or any of the terms of the documents executed pursuant hereto,
including, without limitation, the amount, terms or conditions of payment
hereunder, other than (i) as may be hereafter mutually agreed to in writing,
(ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors,
officers, employees, representatives, advisors, consultants and attorneys, and
the directors, officers, employees, representatives, advisors, consultants and
attorneys of affiliated companies who need to know such information, and (iv) to
the extent required to be disclosed by applicable law or legal process.
12.11 Decision-Making by Parties. Except where this Agreement
expressly provides for a different standard and/or time period, whenever this
Agreement provides for a determination, decision, permission, consent or
approval of a party, the party shall promptly make such determination, decision,
grant or withholding of consent or approval in a
commercially reasonable manner and without unreasonable delay. Any denial of
consent required to be made in a commercially reasonable manner shall include in
reasonable detail the reason for denial or aspect of the request that was not
acceptable.
[Remainder Of Page Intentionally Left Blank]
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto executed multiple
originals of this Agreement as of the date first written above.
OWNER: NORTHEAST ENERGY, LP,
a Delaware limited partnership
By: ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation,
a general partner
By: /s/ Glenn E. Smith
--------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST GENERATION GP, INC.,
a Delaware corporation,
a general partner
By: /s/ Timothy R. Dunne
--------------------------
Name: Timothy R. Dunne
Title: Vice President
FUEL MANAGER: ESI NORTHEAST FUEL MANAGEMENT, INC.,
a Florida corporation
By: /s/ Glenn E. Smith
--------------------------
Name: Glenn E. Smith
Title: Vice President
[Signature Page to Bellingham Fuel Management Agreement]
22
<PAGE>
ASSIGNEE: NORTHEAST ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP,
a Massachusetts limited partnership
By: ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation,
a general partner
By: /s/ Glenn E. Smith
--------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST GENERATION GP, INC.,
a Delaware corporation,
a general partner
By: /s/ Timothy R. Dunne
--------------------------
Name: Timothy R. Dunne
Title: Vice President
[Signature Page to Bellingham Fuel Management Agreement]
<PAGE>
EXHIBIT A
Existing Agreements
-------------------
A-1
<PAGE>
EXHIBIT B
Form of Guaranty
----------------
B-1
<PAGE>
SCHEDULE 1
Oil Specifications
------------------
[Attach Oil Specifications from Westinghouse O&M Contract.]
S1-1
EXHIBIT 10.19
================================================================================
FUEL MANAGEMENT AGREEMENT
dated as of January 20, 1998
for the
Sayreville Cogeneration Plant
at
Sayreville, New Jersey
between
Northeast Energy, LP
and
ESI Northeast Fuel Management, Inc.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I.
DEFINITION OF TERMS................................................................................. 1
ARTICLE II.
FUEL MANAGEMENT SERVICES............................................................................ 5
2.01 Transition Services........................................................................... 5
2.02 Fuel Management Services...................................................................... 5
2.03 Supply and Transportation Portfolio Planning.................................................. 6
2.04 Fuel Supply Plan.............................................................................. 7
2.05 Replacement Fuel.............................................................................. 8
2.06 Replacement Transportation Services........................................................... 8
2.07 Sale of Excess Fuel........................................................................... 9
2.08 Appointment of Fuel Manager as Owner's Agent.................................................. 9
ARTICLE III.
NOMINATION, COORDINATION AND OPTIONAL SERVICES...................................................... 10
3.01 90-Day Nomination............................................................................. 10
3.02 30-Day Nomination............................................................................. 10
3.03 Daily Confirmation with Facility.............................................................. 10
3.04 Notification by Owner......................................................................... 10
3.05 Supply of Gas by Fuel Manager................................................................. 10
3.06 Substitute Gas Transactions................................................................... 10
3.07 Other Services................................................................................ 11
ARTICLE IV.
PAYMENTS, COMPENSATION AND EXPENSES................................................................. 11
4.01 Payments to Suppliers, Transporters and Storage Operators..................................... 11
4.02 Management Fee................................................................................ 11
4.03 Expenses...................................................................................... 11
4.04 Late Payments................................................................................. 12
ARTICLE V.
LIABILITY, INDEMNITY AND GUARANTY................................................................... 12
5.01 Indemnification by Fuel Manager............................................................... 12
5.02 Indemnification by Owner...................................................................... 12
5.03 No Consequential Damages...................................................................... 12
5.04 Limitation of Aggregate Liability............................................................. 13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.05 Non-Recourse Obligations...................................................................... 13
5.06 Guaranty...................................................................................... 13
ARTICLE VI.
ASSIGNMENT.......................................................................................... 13
6.01 Assignments................................................................................... 13
6.02 Assignment by Owner to NJEA................................................................... 14
6.03 Subcontracting................................................................................ 14
ARTICLE VII.
NOTICES............................................................................................. 14
ARTICLE VIII.
FORCE MAJEURE....................................................................................... 15
8.01 Suspension of Obligation...................................................................... 15
8.02 Definition.................................................................................... 15
ARTICLE IX.
TERM AND TERMINATION................................................................................ 16
9.01 Term.......................................................................................... 16
9.02 Termination upon Notice by Fuel Manager....................................................... 16
9.03 Termination upon Notice by Owner.............................................................. 16
9.04 Termination Upon Certain Other Events......................................................... 16
9.05 Effect on Termination......................................................................... 16
ARTICLE X.
LIMITATIONS ON AGENCY............................................................................... 17
ARTICLE XI.
DISPUTE, RESOLUTION AND ARBITRATION................................................................. 17
11.01 Dispute Resolution............................................................................ 17
11.02 Arbitration................................................................................... 17
11.03 Survival...................................................................................... 18
ARTICLE XII.
GENERAL PROVISIONS.................................................................................. 19
12.01 Severability.................................................................................. 19
12.02 Governing Law................................................................................. 19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
12.03 Entire Agreement.............................................................................. 19
12.04 Captions...................................................................................... 19
12.05 Counterparts.................................................................................. 19
12.06 No Third Party Beneficiaries.................................................................. 19
12.07 Further Assurances............................................................................ 19
12.08 No Implied Waiver............................................................................. 19
12.09 Amendments.................................................................................... 20
12.10 Confidentiality............................................................................... 20
12.11 Decision-Making by Parties.................................................................... 20
Attachments:
- ------------
Exhibit A - Existing Agreements
Exhibit B - Form of Guaranty
</TABLE>
iii
<PAGE>
FUEL MANAGEMENT AGREEMENT
This FUEL MANAGEMENT AGREEMENT (this "Agreement"), is made as
of the 20th day of January, 1998, between NORTHEAST ENERGY, LP, a Delaware
limited partnership ("Owner") and ESI NORTHEAST FUEL MANAGEMENT, INC., a Florida
corporation ("Fuel Manager"). Owner and Fuel Manager are sometimes referred to
individually as a "party" and collectively, the "parties".
WITNESSETH THAT:
WHEREAS, on the Commencement Date Owner will indirectly hold
100% of the partnership interests in New Jersey Energy Associates, A Limited
Partnership ("NJEA"), the owner of the 300 megawatt combined cycle cogeneration
plant located in Sayreville, New Jersey (the "Facility"); and
WHEREAS, the Facility is fueled by natural gas; and
WHEREAS, NJEA currently purchases approximately 80% of the
natural gas that fuels the Facility from gas suppliers pursuant to long-term gas
supply agreements; and
WHEREAS, Owner desires that Fuel Manager manage on behalf of
Owner, all gas supply, transportation and storage agreements; and
WHEREAS, to the extent the gas supplied under such agreements
are not sufficient to meet Owner's fuel requirements, Owner desires that Fuel
Manager locate and purchase as Owner's agent natural gas in such quantities and
on such terms and conditions as Owner may request;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the receipt and sufficiency of which are hereby
acknowledged, Fuel Manager and Owner, intending to be legally bound, agree as
follows:
ARTICLE I.
DEFINITION OF TERMS
Except where the context requires another meaning, the
following terms shall be construed to have the following meanings:
"Additional Agreements" shall mean the Additional Gas Supply
Agreements, the Additional Gas Transportation Agreements and the Additional Gas
Storage Agreements.
<PAGE>
"Additional Gas Storage Agreements" shall mean the contracts
and agreements entered into by or on behalf of NJEA after the Effective Date
relating to the storage of Gas to be used by the Facility, as amended from time
to time.
"Additional Gas Supply Agreements" shall mean the contracts,
purchase orders and other agreements (including hedging contracts) entered into
by or on behalf of NJEA after the Effective Date relating to the supply of Gas
to the Facility, as amended from time to time.
"Additional Gas Transportation Agreements" shall mean the
contracts and agreements entered into by or on behalf of NJEA after the
Effective Date relating to the transportation of Gas to be used by the Facility,
as amended from time to time.
"Affiliate" shall mean any person that, directly or
indirectly, controls, is controlled by, or is under common control with, another
person. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any person, means, the power to direct or cause the direction of
the management and policies of such person, directly or indirectly, whether
through the ownership of voting securities or by contract or otherwise.
"Agency Designation Agreements" shall have the meaning set
forth in Section 2.08 hereof.
"Agreement" shall have the meaning set forth in the preamble
hereto, and include all exhibits and schedules attached hereto. All exhibits and
schedules referenced in this Agreement are incorporated herein for all purposes
and shall be updated by the parties as necessary.
"Alternative Transportation" shall have the meaning set forth
in Section 2.06 hereof.
"Arbitration Rules" shall have the meaning set forth in
Section 11.02 hereof.
"Business Day" shall mean a calendar day other than a
Saturday, Sunday or a statutory holiday in the State of New Jersey.
"Commencement Date" shall mean the Acquisition Date as defined
in the Partnership Agreement.
"Damages" shall have the meaning set forth in Section 5.01
hereof.
"Dispute Notice" shall have the meaning set forth in Section
11.01 hereof.
"Effective Date" shall mean January 14, 1998.
"Excess Fuel" shall have the meaning set forth in Section 2.07
hereof.
2
<PAGE>
"Existing Agreements" shall mean the Gas Supply Agreements,
the Gas Transportation Agreements and the Gas Storage Agreements.
"Facilities Purchase Agreement" shall mean the Purchase
Agreement as defined in the Partnership Agreement.
"Facility" shall have the meaning in the first recital hereto.
"FERC" shall mean the Federal Energy Regulatory Commission.
"Force Majeure" shall have the meaning set forth in Section
8.02 hereof.
"Fuel Management Services" shall have the meaning set forth in
Section 2.02 hereof.
"Fuel Manager" shall have the meaning set forth in the
preamble hereof.
"Fuel Manager's Indemnitees" shall have the meaning set forth
in Section 5.02 hereof.
"Fuel Period" shall mean a Summer Fuel Period or a Winter Fuel
Period.
"Fuel Supply Plan" shall have the meaning set forth in Section
2.04 hereof.
"Gas" shall mean natural gas conforming to the specifications
provided for by the FERC approved tariff of the Algonquin Gas Transmission
Company.
"Gas Day" shall mean the 24 hour period commencing at 10:00
a.m. eastern standard time on any calendar day and ending at 9:59 a.m. eastern
standard time on the succeeding calendar day.
"Gas Storage Agreements" shall mean the contracts and
agreements entered into by NJEA before the Effective Date with respect to the
storage of Gas to be used by the Facility, as such contracts and agreements are
listed on Exhibit A hereto, as amended from time to time.
"Gas Suppliers" shall mean the suppliers of Gas used at the
Facility pursuant to the Gas Supply Agreements or the Additional Gas Supply
Agreements.
"Gas Supply Agreements" shall mean the contracts, purchase
orders and other agreements (including hedging contracts) entered into by NJEA
before the Effective Date with respect to the supply of Gas to the Facility, as
such contracts, purchase orders and other agreements are listed on Exhibit A
hereto, as amended from time to time.
"Gas Transportation Agreements" shall mean the contracts and
agreements entered into by NJEA before the Effective Date with respect to the
transportation of Gas to be
3
<PAGE>
used by the Facility, as such contracts and agreements are listed on Exhibit A
hereto, as amended from time to time.
"Indemnitees" shall have the meaning set forth in Section 5.01
hereof.
"Late Payment Rate" shall mean a per annum rate of interest
equal to the rate announced from time to time in the Wall Street Journal as the
prime commercial lending rate of national commercial banks plus two percent
(2%), but in no event more than the maximum rate permitted under applicable law.
"Laws" shall mean any applicable federal, state or local
statute, law, ordinance, rule or regulation.
"Management Fee" shall have the meaning set forth in Section
4.02 hereof.
"NJEA" shall have the meaning set forth in the first recital
hereto.
"Operator" shall mean Westinghouse Electric Corporation until
such time as it no longer serves as Operator of the Facility, then it shall mean
ESI Operating Services, Inc., or such other person or entity who may be acting
as operator of the Facility.
"Owner" shall have the meaning set forth in the preamble
hereof.
"Owner's Fuel Requirements" shall mean the aggregate total
supply of Gas required during a specified period by Owner in connection with the
operation of the Facility for such specified period.
"party" and "parties" shall have the meanings set forth in the
preamble hereof.
"Partnership Agreement" shall mean that certain Agreement of
Limited Partnership of Northeast Energy, LP, a Delaware limited partnership,
dated as of November 21, 1997, by and among ESI Northeast Energy GP, Inc.,
Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and
Tractebel Associates Northeast LP, Inc.
"PPI Index" shall mean the Department of Labor, Bureau of
Labor Statistics, Producer Price Index for All Commodities (1982=100). If the
PPI Index ceases to be published or is otherwise unavailable, "PPI Index" shall
mean an index that Owner and Fuel Manager shall mutually determine in good faith
to be most nearly comparable to the foregoing.
"Project Year" shall mean the twelve (12) month period
beginning on the Commencement Date and each successive twelve (12) month period
beginning on the anniversary dates thereof.
"Replacement Fuel" shall have the meaning set forth in Section
2.05 hereof.
4
<PAGE>
"Summer Fuel Period" shall mean the seven-month period
commencing April 1 of any year ending on October 31 of such year.
"Winter Fuel Period" shall mean the five-month period
commencing on November 1 of any year and ending on March 31 of the next
succeeding year.
"30-Day Nomination" shall have the meaning set forth in
Section 3.02 hereof.
"90-Day Nomination" shall have the meaning set forth in
Section 3.01 hereof.
ARTICLE II.
FUEL MANAGEMENT SERVICES
2.01 Transition Services. From the Effective Date through the
Commencement Date, Fuel Manager shall provide each of the following services:
(a) review existing fuel management procedures for the
Facility and all relevant records, documents and materials relating to
such procedures;
(b) review existing fuel supply, transportation and storage
arrangements in effect on the Effective Date and update Exhibit A
accordingly;
(c) prepare and submit the initial Fuel Supply Plan to Owner
as soon as reasonably practicable after the Effective Date, but in no
event later than January 30, 1998;
(d) update the initial Fuel Supply Plan to reflect any changes
requested by Owner (provided that no revision to the initial Fuel
Supply Plan shall require Fuel Manager to perform services which might
conflict with Fuel Manager's duties under this Agreement or applicable
Laws);
(e) develop the necessary programs and procedures to perform
the Fuel Management Services in accordance with the initial Fuel Supply
Plan; and
(f) such other services as are necessary and incidental to the
performance of the foregoing services.
2.02 Fuel Management Services. From the Commencement Date
through the termination of this Agreement, Fuel Manager shall furnish to Owner
the following services in connection with the supply, transportation and storage
of Gas to be used by the Facility (the "Fuel Management Services"):
(a) preparation and modification of the Fuel Supply Plans in
accordance with Section 2.04;
5
<PAGE>
(b) transportation scheduling; transportation balancing;
transportation imbalance reconciliation; proposals for and, if Owner so
approves, utilization of excess transportation capacity through
scheduling and relinquishment and through sales to third parties at
alternate delivery points; compliance with pipeline operational orders;
general operational and planning advice; and attendance at such
Partnership meetings as the parties deem appropriate for Fuel Manager
to fully represent the interests of Owner, as contemplated by this
Agreement;
(c) monitoring of pipeline tariff filings in consultation with
Owner, consultants and legal counsel and intervention, at the request
and expense of Owner, in the applicable FERC hearings and provision of
testimony; and
(d) such other services as are necessary and incidental to
performance of the foregoing Fuel Management Services.
2.03 Supply and Transportation Portfolio Planning. In
connection with the preparation of the Fuel Supply Plan and the performance of
its obligations under Section 2.02, and using information made available by
Owner and such other information as it deems necessary, Fuel Manager shall:
(a) analyze Owner's Fuel Requirements in light of the amount
of Gas then being supplied under the Existing Agreements and the
Additional Agreements then in effect;
(b) analyze regional Gas supply and demand, sources,
transportation, delivery, supply mechanisms and the regulatory
structure with respect to additional Gas required by the Facility;
(c) prequalify Gas suppliers, obtain and evaluate proposals,
and recommend proposals to Owner for Additional Gas Supply Agreements
and if such proposals are approved by Owner (which approval may be in
the Fuel Supply Plan), negotiate and obtain Additional Gas Supply
Agreements for the Facility on behalf of Owner;
(d) evaluate price risk management proposals, make
recommendations to Owner with respect to price risk management, and if
such recommendations are approved by Owner (which approval may be in
the Fuel Supply Plan), negotiate and enter into such risk management
arrangements on behalf of Owner;
(e) review existing and potential arrangements for
transportation and storage of the Gas to be acquired in accordance with
the Fuel Supply Plan, make recommendations to Owner with respect to
such arrangements, and if such recommendations are approved by Owner
(which approval may be in the Fuel Supply Plan), negotiate and obtain
necessary Additional Gas Transportation Agreements and/or Additional
Gas Storage Agreements on behalf of Owner; and
6
<PAGE>
(f) to the extent known, advise Owner of changes and
anticipated changes in cost, reliability, interruption or other factors
affecting the current or anticipated future supply of Gas to the
Facility, make recommendations to Owner with respect to alternate
supplies or transportation mechanisms, and if such recommendations are
approved by Owner (which approval may be in the Fuel Supply Plan),
implement those recommendations deemed desirable by Owner.
All Additional Agreements shall be entered into by Owner;
provided, however, that upon the approval of Owner (which approval may be
contained in the Fuel Supply Plan), Fuel Manager will enter into any such
contract in its capacity as agent for Owner.
In connection with the services provided by Fuel Manager under
Article II of this Agreement, Fuel Manager will, except as otherwise agreed by
the parties, provide Owner with copies of all reasonable proposals it receives
from third parties for the supply, transportation, or storage of Gas for the
Facility and such other relevant information in Fuel Manager's possession as
Owner may reasonably request from time to time.
2.04 Fuel Supply Plan. Fuel Manager shall furnish to Owner at
least forty-five (45) days prior to the first full Fuel Period after the
Commencement Date and each Fuel Period thereafter, a fuel, transportation and
storage supply plan (the "Fuel Supply Plan"). Fuel Manager's analysis and
strategy shall incorporate a least-cost optimization of the available options to
develop a Fuel Supply Plan designed to provide Owner with a low-cost Gas supply
portfolio that is highly flexible and secure.
Owner shall give its written approval or disapproval of the
Fuel Supply Plan no later than thirty (30) days after receipt thereof from Fuel
Manager. If the Fuel Supply Plan is not approved or disapproved within such
30-day period, Fuel Manager shall, in the absence of instructions to the
contrary from Owner, purchase Gas in the 30-day spot market in the quantities
specified by Owner's nominations pursuant to Article III, to the extent required
by the Facility but not covered by Existing Agreements and Additional Agreements
until such time as the Fuel Supply Plan is approved. If Owner disapproves all or
any portion of the proposed Fuel Supply Plan, Owner shall provide the reasons
for such disapproval in writing and Owner and Fuel Manager shall make reasonable
efforts to agree on a Fuel Supply Plan. If Owner and Fuel Manager cannot agree
on the Fuel Supply Plan, those elements of the Fuel Supply Plan that are in
dispute shall be revised in accordance with the recommendations of Owner.
However, in no event shall such revised Fuel Supply Plan require Fuel Manager to
perform services that might conflict with Fuel Manager's duties under this
Agreement or applicable Laws.
An approved Fuel Supply Plan shall constitute authorization
for Fuel Manager to enter into the transactions and agreements contemplated
therein as agent on behalf of Owner in accordance with such approved Fuel Supply
Plan.
If Fuel Manager desires to request an amendment to an approved
Fuel Supply Plan at any time, Fuel Manager shall submit a proposed revised Fuel
Supply Plan for Owner's consideration, including the basis for the amendment,
and Owner shall approve or disapprove the proposed revised Fuel Supply Plan in
writing within thirty (30) days after submission
7
<PAGE>
thereof. If the proposed revised Fuel Supply Plan is not approved within such
30-day period, it shall be deemed to have been disapproved. If the proposed
revised Fuel Supply Plan is disapproved within such 30-day period, Owner shall
furnish Fuel Manager with the reasons for such disapproval in writing and, if
appropriate, Fuel Manager shall update and resubmit the proposed revised Fuel
Supply Plan for approval by Owner. Once approved by Owner, the revised Fuel
Supply Plan shall supersede the then current approved Fuel Supply Plan. If Owner
requests an amendment, Fuel Manager shall revise the Fuel Supply Plan to reflect
any changes requested by Owner; provided, however, that in no event shall such
revised Fuel Supply Plan require Fuel Manager to perform services that might
conflict with Fuel Manager's duties under this Agreement or applicable Laws.
Fuel Manager shall not, except as described in Section 2.05 or 2.06 hereof, act
outside of the approved Fuel Supply Plan without the prior written consent of
Owner.
2.05 Replacement Fuel. If for any reason (including Force
Majeure), a Gas Supplier fails to deliver Gas to Owner, Fuel Manager shall
promptly upon obtaining actual knowledge thereof notify Owner. If Owner is
unavailable or, in the reasonable judgment of Fuel Manager, there is
insufficient time to reach Owner and insure the adequate supply of Gas to the
Facility for any of the next thirty (30) days, Fuel Manager shall, as agent for
Owner, use commercially reasonable efforts to locate and acquire Gas
("Replacement Fuel") to replace any Gas not delivered to Owner; provided that
Fuel Manager shall not without the prior written consent of Owner enter into any
agreement for the supply of Gas with a term in excess of 30 days. Fuel Manager
shall seek to locate and acquire Replacement Fuel under substantially similar
terms and conditions and with equivalent economic ramifications to Owner as
those applicable to the lost Gas supply, but if it is unable to do so, Fuel
Manager shall nevertheless use commercially reasonable efforts to locate and
acquire other Replacement Fuel. Fuel Manager shall, as agent for Owner, use
commercially reasonable efforts to minimize the cost of Replacement Fuel by
choosing among available Replacement Fuel supplies that which is most
cost-efficient, taking into consideration dependability, safety, transportation
cost, and the anticipated extent and duration of the interruption in supply of
the Gas that would have been provided under the existing arrangements. Fuel
Manager shall promptly notify Owner after Fuel Manager's acquisition, as agent
of Owner, of Replacement Fuel pursuant to this Section 2.05 and the price of
such Replacement Fuel. If Fuel Manager determines it is not able to acquire
Replacement Fuel, Fuel Manager shall promptly notify Owner and prepare and
submit to Owner a plan to address such unavailability of Replacement Fuel.
2.06 Replacement Transportation Services. If for any reason
(including Force Majeure), Gas is not being transported pursuant to any Gas
Transportation Agreement or any Additional Gas Transportation Agreement, Fuel
Manager shall promptly upon obtaining actual knowledge thereof notify Owner. If
Owner is unavailable or, in the reasonable judgment of Fuel Manager, there is
insufficient time to reach Owner and insure the adequate supply of Gas to the
Facility for any of the next thirty (30) days, Fuel Manager shall, as agent for
Owner, use commercially reasonable efforts to arrange for alternative
transportation arrangements to replace the transportation services which are no
longer available ("Alternative Transportation"). Fuel Manager shall seek to
arrange Alternative Transportation under substantially similar terms and
conditions and with equivalent economic ramifications to Owner as those
applicable to the lost transportation services, but if it is unable to do so,
Fuel Manager shall nevertheless use
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commercially reasonable efforts to arrange Alternative Transportation. Fuel
Manager shall, as agent for Owner, use commercially reasonable efforts to
minimize the costs of Alternative Transportation by choosing among available
transportation alternatives that which is most cost- efficient, taking into
consideration dependability, safety, and the anticipated duration of the
interruption in transportation services that would have been provided under the
Existing Gas Transportation Agreements or Additional Gas Transportation
Agreements. Fuel Manager shall promptly notify Owner after Fuel Manager's
arranging for Alternative Transportation, as agent of Owner, pursuant to this
Section 2.06 and the price of such Alternative Transportation. If Fuel Manager
determines it is not able to arrange Alternative Transportation, Fuel Manager
shall promptly notify Owner and prepare and submit to Owner a plan to address
such unavailability of Alternative Transportation.
2.07 Sale of Excess Fuel. If at any time the Fuel Manager
believes or anticipates that the Facility will not require any of the Gas
purchased under the Existing Agreements or the Additional Agreements or procured
on Owner's behalf by Fuel Manager (either pursuant to a Fuel Supply Plan or by
express instruction of Owner to procure such Gas) (the "Excess Fuel"), Fuel
Manager shall promptly notify Owner and, upon Owner's request, shall use
reasonable efforts to market for sale and arrange for delivery of such Excess
Fuel to a third party buyer at the best available prices possible given the then
current conditions in the market. Any amount received over the price originally
paid by Owner for such Excess Fuel shall belong to the Owner and Owner shall
bear any loss incurred should the amount received for such Excess Fuel be less
than that originally paid by Owner.
2.08 Appointment of Fuel Manager as Owner's Agent. Subject to
the limitations set forth in Article X, Owner hereby appoints Fuel Manager (and
any permitted subcontractor) as its agent solely for the following purposes:
(a) to act on Owner's behalf and for Owner's benefit in
submitting nominations to the Gas Suppliers pursuant to Article III
hereof;
(b) to act on Owner's behalf and for Owner's benefit, for
purposes set forth in any Agency Designation Agreement entered into by
Owner pursuant to this Section 2.08; and
(c) to negotiate and, upon the approval of Owner (which
approval may be in the Fuel Supply Plan), enter into Additional
Agreements as agent of Owner for the purchase, storage or
transportation of Gas on the terms and subject to such conditions as
Owner may approve (which approval may be in the Fuel Supply Plan).
Owner and Fuel Manager shall notify all existing and future
Gas Suppliers and all applicable transportation and storage providers of the
foregoing agency promptly after the Commencement Date and shall, to the extent
required by such suppliers or operators, enter into an agency designation
agreement in form and substance reasonably acceptable to Owner and Fuel Manager
confirming such agency for purposes of any Existing Agreement or Additional
Agreement (the "Agency Designation Agreements"). Owner and Fuel Manager shall,
immediately upon expiration or early termination of the Agreement, notify the
applicable entities
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that such agency has terminated. The Agency Designation Agreements and any
notice to Gas Suppliers and others of the existence of the agency shall state
that either Owner or Fuel Manager, acting alone, may give notice to such party
terminating the agency.
The appointment of Fuel Manager (and any permitted
subcontractor) as agent shall terminate automatically and without prior notice
upon termination of this Agreement for whatever reason.
ARTICLE III.
NOMINATION, COORDINATION AND OPTIONAL SERVICES
3.01 90-Day Nomination. Within 15 days of Fuel Manager's
written request, which request may be made once each quarter, Owner shall
provide to Fuel Manager a 90-day nomination (the "90-Day Nomination") setting
forth on a daily basis Owner's anticipated need for the procurement,
transportation and storage of Gas.
3.02 30-Day Nomination. At least 15 days prior to the end of
each month, Owner shall provide to Fuel Manager a 30-day nomination (the "30-Day
Nomination") setting forth on a daily basis Owner's anticipated need for the
procurement, transportation and storage of Gas for the subsequent month.
3.03 Daily Confirmation with Facility. Fuel Manager shall call
the Facility each day by 8:00 a.m. to confirm with Operator the Facility's
requirements for Gas for such Gas Day and the estimated requirements for the
following Gas Day and for Fuel Manager to confirm the availability of Gas for
such Gas Day pursuant to the applicable Fuel Supply Plan and the applicable
30-Day Nomination. Fuel Manager shall confirm to Owner and Operator by hand
delivery or by facsimile the information confirmed by such call.
3.04 Notification by Owner. Owner shall use all reasonable
efforts to provide Fuel Manager with prompt notice of all information regarding
startups or shutdowns of the Facility, including, but not limited to (A)
maintenance not scheduled or included as part of the applicable Fuel Supply
Plan; (B) forced outages, (C) scheduled outages, and (D) any other relevant
information or event which may impact the quantities of Gas to be provided to
the Facility pursuant to the applicable Fuel Supply Plan or 30-Day Nomination.
3.05 Supply of Gas by Fuel Manager. Fuel Manager may, but is
not obligated to, offer to supply Gas to Owner at a price and on terms to be
determined by Fuel Manager in its sole and absolute discretion. Owner may, in
its sole and absolute discretion, accept or reject Fuel Manager's offer to
supply such Gas. In connection therewith, Owner will, at the request of Fuel
Manager, negotiate in good faith an enabling agreement for the sale of Gas by
Fuel Manager to Owner, to be used in the event the parties agree to consummate
such transactions.
3.06 Substitute Gas Transactions. Fuel Manager may, but is not
obligated to, propose transactions to Owner pursuant to which Fuel Manager or a
third party (which may be
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an Affiliate of Fuel Manager) will take delivery of a volume of Gas equal to all
or any part of the Gas to be supplied by any Gas Supplier for all or any portion
of the term of the applicable supply contract and substitute Gas from another
source therefor. Owner may, in its sole and absolute discretion, accept or
reject Fuel Manager's proposals. If Owner and Fuel Manager decide to proceed
with any such transaction, they will enter into a separate agreement with
respect thereto.
3.07 Other Services. All other services not within the scope
of this Agreement, which may be requested by Owner shall be handled by separate
agreement and compensation.
ARTICLE IV.
PAYMENTS, COMPENSATION AND EXPENSES
4.01 Payments to Suppliers, Transporters and Storage
Operators. Owner shall be responsible for remitting payment to all Gas Suppliers
and any and all pipeline and other transporters or storage operators utilized
hereunder to serve the Facility. In connection therewith, Fuel Manager shall
review and approve invoices from all such suppliers and operators.
4.02 Management Fee. Fuel Manager shall receive a management
fee for each Project Year (the "Management Fee") of $450,000 per annum, as
adjusted in accordance with this Section 4.02. The Management Fee shall be paid
in monthly installments and shall be due on the first Business Day of each month
for the preceding month. The Management Fee for any partial month shall be pro
rated to cover the actual portion of such month that this Agreement was in
effect.
As of January 1 of each year, commencing January 1, 1999, the
Management Fee shall be adjusted upwards or downwards by multiplying the
Management Fee for the prior year by a fraction the numerator of which will be
the PPI Index for immediately preceding December and the denominator of which
will be the PPI Index for the month of December one year earlier; provided, that
in no event shall the Management Fee be decreased below $450,000. This adjusted
Management Fee shall be the Management Fee for the current Project Year and the
basis for calculation of the Management Fee for the next Project Year.
4.03 Expenses. Fuel Manager shall submit for Owner's approval
any out-of-pocket expenses that Fuel Manager anticipates will be incurred in the
performance of its obligations hereunder or any services requested by Owner.
Fuel Manager shall only incur expenses, and Owner is only obligated to reimburse
Fuel Manager for expenses, to the extent such expenses are (i) approved in
advance by Owner (as part of an approved Fuel Supply Plan or otherwise) or (ii)
incurred in accordance with the terms of Section 2.05 or 2.06. Owner's
reimbursement of Fuel Manager for such out-of-pocket expenses shall be in
addition to the compensation set forth in Section 4.02.
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4.04 Late Payments. If any amounts owing under this Agreement
are not paid to Fuel Manager or Owner, as applicable, when due, the same shall
bear interest at the Late Payment Rate from the due date until paid.
ARTICLE V.
LIABILITY, INDEMNITY AND GUARANTY
5.01 Indemnification by Fuel Manager. Subject to the
limitations in this Article V, Fuel Manager hereby agrees to indemnify, defend
and hold harmless Owner, all partners of Owner, and each of their respective
officers, directors, shareholders, agents, Affiliates and employees
(collectively, the "Indemnitees") from and against all losses, liabilities,
damages, demands, claims, suits, actions, judgments or causes of action,
assessments, interest, penalties, costs and expenses, including, without
limitation, attorney's fees, and expenses (whether suit is instituted or not
and, if instituted, whether at trial or appellate levels) (collectively
"Damages") asserted against, resulting to, imposed upon, or incurred or suffered
by any of the Indemnitees, directly or indirectly, whether raised by an
Indemnitee or a third party, arising out of, caused by or resulting from the
performance or non-performance by Fuel Manager of its duties hereunder, to the
extent that any such Damages are caused in whole or in part by (a) any
agreement, contract or arrangement executed by Fuel Manager in the name of (and
without the written consent of) the Owner which is prohibited by this Agreement
or beyond the scope of its authority, or (b) the negligence or willful
misconduct of Fuel Manager.
5.02 Indemnification by Owner. Subject to the limitations set
forth in this Article V, Owner shall indemnify, defend and hold harmless Fuel
Manager, any subcontractor and their respective officers, directors,
shareholders, agents, Affiliates and employees (collectively, "Fuel Manager's
Indemnitees") from and against all Damages asserted against, resulting to,
imposed upon, or incurred or suffered by any of the Fuel Manager's Indemnitees,
directly or indirectly, whether raised by Fuel Manager's Indemnitees or a third
party, to the extent arising out of or resulting from the performance or
non-performance by Owner of its duties hereunder or under any Existing Agreement
or Additional Agreement; provided, however, that such indemnification does not
apply to the extent that the Damages arise from (a) Fuel Manager's negligence or
willful misconduct in connection with the performance of its duties hereunder,
or (b) any Existing Agreement or Additional Agreement which was executed by Fuel
Manager in the name of Owner which is prohibited by this Agreement or is outside
of the authority granted to Fuel Manager by Owner under or pursuant to this
Agreement.
5.03 No Consequential Damages. With respect to claims arising
under this Agreement or out of performance or non-performance of the services
and obligations under this Agreement, neither Fuel Manager, any subcontractor
nor their respective officers, directors, shareholders, agents, Affiliates or
employees shall be liable to Owner, any Partner of Owner, nor their respective
officers, directors shareholders, agents, Affiliates or employees, and neither
Owner, any Partner of Owner, nor their respective officers, directors,
shareholders, agents, Affiliates or employees shall be liable to Fuel Manager,
any subcontractor, or any of their respective officers, directors, shareholders,
agents, Affiliates or employees, whether based in
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contract, in tort (including negligence and strict liability), under warranty,
or otherwise, for any special indirect, incidental, exemplary or consequential
loss or damage whatsoever, including without limitation, loss of use,
opportunity or profits, damages to good will or reputation or punitive damages;
provided, however, that this limitation on liability shall not apply to Fuel
Manager's actions under Section 5.01(a) unless the Fuel Manager has acted in
good faith and with a reasonable basis for believing that such actions were
permitted by this Agreement and were within the scope of its authority.
5.04 Limitation of Aggregate Liability. The total annual
aggregate liability of Fuel Manager with respect to this Agreement under any
theory of recovery, whether based in contract, in tort (including negligence and
strict liability), under warranty or otherwise, and notwithstanding any other
provision of this Agreement, shall be limited in any Project Year to the
Management Fee for such Project Year; provided, however, that this limitation on
liability shall not apply to Fuel Manager's actions under Section 5.01(a) unless
the Fuel Manager has acted in good faith and with a reasonable basis for
believing that such actions were permitted by this Agreement and were within the
scope of its authority.
5.05 Non-Recourse Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of Owner hereunder
are recourse only to the assets of Owner and neither the partners of Owner nor
any shareholder, director, officer, agent, Affiliate or employee of Owner or any
partner of Owner, shall have any personal responsibility or liability for any
payment obligations of Owner hereunder, or otherwise for any breach in
performance or observance of the covenants, representations, or obligations of
Owner hereunder.
5.06 Guaranty. Prior to the Commencement Date, Fuel Manager
shall cause ESI Energy, Inc. to execute and deliver to Owner a guaranty of Fuel
Manager's obligations under Section 5.01 in substantially the form attached
hereto as Exhibit B.
ARTICLE VI.
ASSIGNMENT
6.01 Assignments.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
(b) Except as otherwise provided in this Agreement, neither
party may assign or otherwise convey any of its rights, title or interest under
this Agreement, without the prior written consent of the other party hereto
(which consent shall not be unreasonably withheld); provided, however, that
either party may collaterally assign its interests in this Agreement as security
for debt, with notice to, but without need for the consent of, the other party.
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6.02 Assignment by Owner to NJEA. Upon the later to occur of
(i) the Commencement Date and (ii) the execution and delivery by NJEA of a
counterpart hereof to Owner and Fuel Manager, but without any further action by
any Person, all right, title and interest of Owner hereunder shall be assigned
to, and all of Owner's obligations, liabilities and duties whether past, present
or future, arising under, in or in connection with this Agreement, including
Owner's obligations under Section 4.02 hereof, shall be assumed by, NJEA.
6.03 Subcontracting. Fuel Manager may, without the consent of
the Owner, subcontract any of its duties or obligations hereunder to one of its
Affiliates. Fuel Manager may not subcontract any of its duties or obligations
hereunder to a non-affiliate without the prior written consent (which consent
may be in the Fuel Supply Plan) of Owner to the subcontractor and subcontract,
which consent shall not be unreasonably withheld. No subcontract shall relieve
Fuel Manager of its duties and obligations hereunder.
ARTICLE VII.
NOTICES
Any notice to either party required or permitted hereunder
shall be in writing and shall be given by personal delivery or by commercial
courier or by certified mail, return receipt requested, postage prepaid, or by
telecopier with confirmed receipt, addressed as follows:
If to Owner:
Prior to assignment to NJEA:
Northeast Energy, LP
c/o ESI Energy, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopier: (561) 691-3615
Attention: President
After assignment to NJEA:
New Jersey Energy Associates,
A Limited Partnership
c/o ESI Energy, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopier: (561) 691-3615
Attention: President
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with, in either case, a copy to:
Tractebel Power, Inc.
1177 West Loop South, Suite 900
Houston, Texas 77027
Telecopier: (713) 552-2364
Attention: General Counsel
If to Fuel Manager:
Northeast Fuel Management, Inc.
c/o ESI Energy, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopier: (561) 691-3615
Attention: President
or to such other address as Owner or Fuel Manager may have specified in a notice
duly given as provided herein to the other party. All notices given in the
foregoing manner shall be effective when received, except that a notice sent by
telecopier and received after normal business hours shall be deemed to be
received the following Business Day.
ARTICLE VIII.
FORCE MAJEURE
8.01 Suspension of Obligation. If either party hereto is
rendered unable, wholly or in part, by Force Majeure to carry out its
obligations under this Agreement, other than to make payments on obligations due
hereunder, it is agreed that upon such party giving notice and full particulars
of such Force Majeure to the other party as soon as possible after the
occurrence of the cause relied on, the obligations of the party(ies), only
insofar as they are affected by such Force Majeure, shall be suspended during
the continuance of any inability so caused, but for no longer period. Such cause
shall, as far as possible, be remedied with all reasonable dispatch, except that
settlement of strikes or lockouts shall be entirely within the discretion of the
party having the difficulty.
8.02 Definition. The term "Force Majeure" as used herein shall
mean an occurrence not within the reasonable control of a party and without the
fault, negligence or willful misconduct of such party claiming Force Majeure and
shall include, but not be limited to: acts of God, epidemics, landslides,
lightning, earthquakes, fires, storms, hurricanes, floods, and washouts;
strikes, lockouts, and other industrial disturbances; civil disturbances, acts
of the public enemy, wars, blockades, insurrections, riots, sabotage, and
arrests and restraints of governments and people, or actions or inactions of any
government or governmental agency or changes in the law or applicable
regulations subsequent to the date hereof preventing performance, or the
inability despite due diligence to obtain or renew required licenses;
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provided, however, that lack of money or changes in market considerations shall
not constitute "Force Majeure."
ARTICLE IX.
TERM AND TERMINATION
9.01 Term. This Agreement shall be in effect from the
Effective Date for a primary term ending on the twenty-fifth (25th) anniversary
of the Commencement Date, unless terminated earlier as provided herein.
9.02 Termination upon Notice by Fuel Manager. If Owner (a)
fails to make any payment due to Fuel Manager hereunder within ten (10) days
after such payment shall have become due or (b) fails, for reasons other than
Force Majeure, to perform any of the material covenants or obligations imposed
upon it under and by virtue of this Agreement and in the case of a default under
(b) does not remedy or cure such default (and the effects thereof) within thirty
(30) days after receipt of written notice thereof from Fuel Manager (or within
ninety (90) days after receipt of such notice, in the case of defaults not
susceptible of cure within thirty (30) days; provided, however, that Owner
commences and diligently seeks to cure such default within such thirty (30) day
period), then Fuel Manager may, by written notice to Owner, terminate this
Agreement.
9.03 Termination upon Notice by Owner. If Fuel Manager (a)
acts, in a material way, outside of the authority granted to it by Owner in this
Agreement or (b) fails, for reasons other than Force Majeure, to perform any of
the material covenants or obligations imposed upon it under and by virtue of
this Agreement and in the case of a default under (b) does not remedy or cure
such default (and the effects thereof) within thirty (30) days after receipt of
written notice thereof from Owner (or within ninety (90) days after receipt of
such notice, in the case of defaults not susceptible of cure within thirty (30)
days; provided, however, that Fuel Manager commences and diligently seeks to
cure such default within such thirty (30) day period), then Owner may, by
written notice to Fuel Manager, terminate this Agreement.
9.04 Termination Upon Certain Other Events. Either party may
terminate this Agreement by written notice to the other party if (a) the
Facility is destroyed or suffers damage in excess of $100,000,000 and is not
rebuilt and in commercial operation within twenty-four (24) months after such
damage or destruction, (b) the Facility cannot be operated for a period of at
least eighteen (18) consecutive months as a result of a Force Majeure event, (c)
loss of "qualifying facility" status, (d) Owner determines to permanently shut
down the Facility, or (e) if the Facilities Purchase Agreement shall terminate
pursuant to Section 15 thereof.
9.05 Effect on Termination. Any termination of this Agreement
pursuant to provisions of this Article IX shall be without prejudice to the
right of Fuel Manager to collect any amounts then due for services rendered
prior to the time of termination, and without waiver of any and all other
remedies, including rights of set-off, to which the party not in default may be
entitled for violations of this Agreement by the defaulting party.
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ARTICLE X.
LIMITATIONS ON AGENCY
Except with respect to the acquisition of Replacement Fuel and
Alternative Transportation as permitted by Section 2.05 or 2.06 or the sale of
Excess Fuel pursuant to Section 2.07, Fuel Manager is not authorized to, and
shall not, without prior written consent of Owner (which consent may be
contained in the Fuel Supply Plan):
(a) Enter into any agreements for the sale of Gas or the
transportation or storage of such sold Gas on behalf of or in the name
of Owner;
(b) Enter into any hedging transaction or any unhedged future
contracts, or otherwise assume unhedged trading positions, on behalf of
or in the name of Owner;
(c) Enter into any agreements or transactions on behalf of
Owner not contemplated by the Fuel Supply Plan;
(d) Agree to any amendment or modification to any provision in
the Existing Agreements or any Additional Agreements or other
agreements to which Owner is a party;
(e) Enter into any agreement or any amendment, supplement or
modification of any agreement, in any manner inconsistent with or in
violation of this Agreement, applicable Law or the Trust Indenture; or
(f) Grant or create any lien or other encumbrance on any of
Owner's Gas or any of the Existing Agreements or the Additional
Agreements.
ARTICLE XI.
DISPUTE, RESOLUTION AND ARBITRATION
11.01 Dispute Resolution. If a dispute arises among the
parties, or between any of them, regarding the application or the interpretation
of any provision of this Agreement or any other matter with respect to the Fuel
Management Services, an aggrieved party shall give a notice of such dispute (a
"Dispute Notice") to the other party. Within fifteen (15) days after such
Dispute Notice, a senior officer of each of the companies shall confer with each
other to seek with diligence and in good faith to resolve such dispute. If such
officers are unable to resolve such dispute within forty-five (45) days after
such Dispute Notice, then the parties shall be bound to arbitrate such dispute
in accordance with Section 11.02.
11.02 Arbitration. To the fullest extent permitted by law, any
dispute between the parties regarding the interpretation of any provision of
this Agreement, if not resolved by
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negotiation by the parties within forty-five (45) days after the Dispute Notice,
shall be resolved exclusively by binding arbitration between the parties
pursuant to the Rules of the American Arbitration Association for Commercial
Disputes (the "Arbitration Rules"). Arbitration shall be administered by the
American Arbitration Association. Any Party may institute arbitration
proceedings at any time by delivering written notice demanding arbitration to
the parties in the manner described in Article VII.
(a) Within twenty (20) days after receipt of a written demand
for arbitration, each party shall appoint one arbitrator. Within fifteen (15)
days of the expiration of that 20-day period, the two arbitrators so appointed
shall appoint a third arbitrator. If any party shall fail to appoint an
arbitrator, or if the two arbitrators shall fail to appoint a third arbitrator,
the American Arbitration Association shall make the selection within ten (10)
days of a party's request. The arbitrators shall meet the qualifications and
abide by the Code of Ethics for arbitrators in commercial disputes of the
American Arbitration Association. The arbitrators shall have knowledge of and
experience in the gas supply industry.
(b) To the fullest extent permitted by law, the arbitration
shall be conducted in accordance with the procedures set forth in the
Arbitration Rules. In determining any question, matter or dispute before them,
the arbitrators shall apply the provisions of this Agreement without varying
therefrom in any respect. They shall not have the power to add to, modify or
change any of the provisions of this Agreement. The parties shall exercise all
commercially reasonable efforts in good faith to cause a hearing to be held
within ninety (90) days after the date upon which the last arbitrator is
appointed and to conclude all hearings within thirty (30) days after the first
hearing date. The arbitrators shall only grant a party's request for
postponement of the hearing upon a showing of good cause as determined by the
arbitrators. Within thirty (30) days of the last hearing date, the arbitrators
shall issue a written decision setting forth their analysis and ruling. The
arbitrators shall determine in what proportion the parties shall bear the fees
and expenses of the arbitrators. Each party shall bear the fees and expenses of
its own counsel and other consultants. All arbitration proceedings shall be
subject to the choice of law provisions set forth in Section 12.02 hereof, and
shall be held at a location agreed to by the parties, or if the parties cannot
agree, then in Atlanta, Georgia.
(c) The parties acknowledge and agree that any arbitral award
shall be final, binding and conclusive upon the parties and may be confirmed or
embodied in any order of any court having jurisdiction.
(d) To the fullest extent permitted by law, service of any
matters referenced in this Article XI shall be given in the manner described in
Article VII or as permitted by the rules of the American Arbitration
Association.
11.03 Survival. This Article XI shall survive expiration or
termination of this Agreement.
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ARTICLE XII.
GENERAL PROVISIONS
12.01 Severability. If any provision of this Agreement shall
be held or deemed to be invalid, inoperative or unenforceable, such
circumstances shall not affect the validity of any other provision of this
Agreement, but this Agreement shall be reformed and construed as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted.
12.02 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws.
12.03 Entire Agreement. This Agreement and related schedules
constitutes the entire final understanding and agreement of the parties with
respect to its subject matter, and there are no agreements, understandings,
restrictions, representations or warranties among the parties other than those
set forth in this Agreement. By execution of this Agreement, each of the parties
represents and warrants that it has not relied on any oral or written
statements, promises, inducements, representations or warranties to enter into
this Agreement except for those expressly set forth herein. The parties agree
that the inclusion of this provision evidences the intent of the parties that no
parole evidence shall be admissible to alter or vary the terms of this
Agreement.
12.04 Captions. The captions or headings of the sections and
paragraphs of this Agreement have been inserted for convenience of reference
only and shall have no effect upon the construction or interpretation of any
part of this Agreement.
12.05 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
12.06 No Third Party Beneficiaries. Except as expressly set
forth herein, the terms of this Agreement are for the sole benefit of Owner and
Fuel Manager and their respective successors and permitted assigns and not for
any third party whatsoever.
12.07 Further Assurances. If either party reasonably
determines or is reasonably advised that any further instruments or any other
things are necessary or desirable to carry out the terms of this Agreement, the
other party shall execute and deliver all such instruments and assurances and do
all things reasonably necessary and proper to carry out the terms of this
Agreement.
12.08 No Implied Waiver. Failure of either party to exercise
any right to enforce any provision, or to require strict performance by the
other party of any provision, shall not
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release the other party from any of its obligations under this Agreement and
shall not operate as a waiver of any right to insist upon strict performance, or
of either party's rights or remedies under this Agreement or at law.
12.09 Amendments. No amendment, waiver or modification of any
provision of this Agreement shall be effective unless made in writing and signed
by both parties.
12.10 Confidentiality. Except to the extent expressly
authorized herein including, without limitation, in connection with a proposed
assignment of this Agreement or a proposed financing transaction entered into by
Owner, in which case disclosure of the terms hereof shall be limited to the
extent reasonably practicable, each of the parties agree that neither it nor its
attorneys, agents or representatives shall reveal to anyone any of the terms of
this Agreement or any of the terms of the documents executed pursuant hereto,
including, without limitation, the amount, terms or conditions of payment
hereunder, other than (i) as may be hereafter mutually agreed to in writing,
(ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors,
officers, employees, representatives, advisors, consultants and attorneys, and
the directors, officers, employees, representatives, advisors, consultants and
attorneys of affiliated companies who need to know such information, and (iv) to
the extent required to be disclosed by applicable law or legal process.
12.11 Decision-Making by Parties. Except where this Agreement
expressly provides for a different standard and/or time period, whenever this
Agreement provides for a determination, decision, permission, consent or
approval of a party, the party shall promptly make such determination, decision,
grant or withholding of consent or approval in a commercially reasonable manner
and without unreasonable delay. Any denial of consent required to be made in a
commercially reasonable manner shall include in reasonable detail the reason for
denial or aspect of the request that was not acceptable.
[Remainder Of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto executed multiple
originals of this Agreement as of the date first written above.
OWNER: NORTHEAST ENERGY, LP,
a Delaware limited partnership
By: ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation,
a general partner
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST GENERATION GP, INC.,
a Delaware corporation,
a general partner
By: /s/ Timothy R. Dunne
----------------------------
Name: Timothy R. Dunne
Title: Vice President
FUEL MANAGER: ESI NORTHEAST FUEL MANAGEMENT, INC.,
a Florida corporation
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
[Signature Page to Sayreville Fuel Management Agreement]
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ASSIGNEE: NEW JERSEY ENERGY ASSOCIATES,
A LIMITED PARTNERSHIP,
a New Jersey limited partnership
By: ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation,
a general partner
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST GENERATION GP, INC.,
a Delaware corporation,
a general partner
By: /s/ Timothy R. Dunne
----------------------------
Name: Timothy R. Dunne
Title: Vice President
[Signature Page to Sayreville Fuel Management Agreement]
22
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EXHIBIT A
Existing Agreements
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A-1
<PAGE>
EXHIBIT B
Form of Guaranty
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B-1
EXHIBIT 10.20
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ADMINISTRATIVE SERVICES AGREEMENT
between
Northeast Energy, LP
and
ESI Northeast Energy GP, Inc.
================================================================================
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TABLE OF CONTENTS
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ARTICLE I.
DEFINITIONS.................................... 2
ARTICLE II.
SCOPE OF SERVICES AND POWER OF ATTORNEY...................... 4
Section 2.01 Manager Services........................................................ 4
Section 2.02 Agency.................................................................. 7
Section 2.03 Manager Notices......................................................... 7
ARTICLE III.
COMPENSATION, COSTS AND REIMBURSEMENTS....................... 7
Section 3.01 Costs and Expenses...................................................... 7
Section 3.02 Administration Fee...................................................... 7
Section 3.03 Administrative Operating Account........................................ 8
Section 3.04 Late Payments........................................................... 8
ARTICLE IV.
TERM AND TERMINATION ............................... 8
Section 4.01 Term.................................................................... 8
Section 4.02 Termination upon Default by Manager..................................... 8
Section 4.03 Termination upon Default by the Partnership............................. 9
Section 4.04 Termination for Insolvency.............................................. 9
Section 4.05 Duties Upon Termination................................................. 9
Section 4.06 Effect of Termination................................................... 9
ARTICLE V.
LIMITATION OF LIABILITY.............................. 10
Section 5.01 No Consequential Damages................................................ 10
Section 5.02 Non-Recourse Obligations................................................ 10
ARTICLE VI.
[Intentionally Deleted].............................. 10
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ARTICLE VII.
INDEMNIFICATION BY THE PARTNERSHIP......................... 10
Section 7.01 Indemnification......................................................... 10
Section 7.02 Procedure............................................................... 11
ARTICLE VIII.
FORCE MAJEURE................................... 12
Section 8.01 Force Majeure........................................................... 12
Section 8.02 Notice.................................................................. 12
ARTICLE IX.
RELATIONSHIP OF THE PARTIES............................ 12
ARTICLE X.
NOTICES...................................... 12
ARTICLE XI.
ASSIGNMENTS AND SUBCONTRACTING........................... 13
Section 11.01 Assignments............................................................. 13
Section 11.02 Subcontracting.......................................................... 13
ARTICLE XII.
LIMITATIONS OF AUTHORITY.............................. 14
ARTICLE XIII.
DISPUTE RESOLUTION AND ARBITRATION......................... 14
Section 13.01 Dispute Resolution...................................................... 14
Section 13.02 Arbitration............................................................. 14
Section 13.03 Survival................................................................ 15
ARTICLE XIV.
MISCELLANEOUS................................... 15
Section 14.01 Severability............................................................ 15
Section 14.02 Governing Law........................................................... 16
Section 14.03 Entire Agreement........................................................ 16
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Section 14.04 Captions................................................................ 16
Section 14.05 Counterparts............................................................ 16
Section 14.06 No Third Party Beneficiaries............................................ 16
Section 14.07 Further Assurances...................................................... 16
Section 14.08 No Implied Waiver....................................................... 16
Section 14.09 Amendments.............................................................. 16
Section 16.10 Confidentiality......................................................... 17
Section 16.11 Decision-Making by Parties.............................................. 17
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(iii)
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ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made
as of the 21 day of November, 1997, between NORTHEAST ENERGY, LP, a Delaware
limited partnership (the "Partnership"), and ESI NORTHEAST ENERGY GP, INC., a
Florida corporation ("Manager"). The Partnership and Manager are sometimes
referred to individually as a "party," and collectively, the "parties".
RECITALS
WHEREAS, the Partnership is the direct or indirect owner of (i)
Northeast Energy Associates, a Limited Partnership ("NEA"), which in turn owns a
300 megawatt gas-fuel combined cycle cogeneration plant (the "NEA Facility") and
a carbon dioxide facility located in Bellingham, Massachusetts and (ii) North
Jersey Energy Associates, a Limited Partnership ("NJEA") which in turn owns a
300 megawatt gas-fuel combined cycle cogeneration plant located in Sayreville,
New Jersey (the"NJEA Facility") (NEA and NJEA being referred to collectively as
the "Project Partnerships" and the NEA Facility and the NJEA Facilities being
referred to collectively as the "Facilities").
WHEREAS, the Partnership has entered into two Operation and
Maintenance Agreements relating to the Facilities dated as of November 21, 1997
(the "O&M Agreements"), entered into by and between the Partnership and ESI
Operating Services, Inc. (the "Operator"), which O&M Agreements shall be
assigned by the Partnership to the respective Project Partnerships on the
Operating Period Commencement Date, as defined in each O&M Agreement.
WHEREAS, the Partnership has entered into two Fuel Management
Agreements relating to the Facilities dated as of November 21, 1997 (the "Fuel
Management Agreements"), entered into by and between the Partnership and ESI
Northeast Fuel Management, Inc. (the "Fuel Manager"), which Fuel Management
Agreements shall be assigned by the Partnership to the respective Project
Partnerships on the Acquisition Date, as defined in the Fuel Management
Agreements;
WHEREAS, pursuant to the terms of the Partnership Agreement the
affairs of the Partnership and the Project Partnerships are to be administered
by the Management Committee; and
WHEREAS, subject to the terms and conditions of this Agreement,
the Partnership desires to retain Manager and Manager is willing to perform the
services described in this Agreement to assist the Management Committee with the
management and administration of the Partnership;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the Partnership and Manager, intending to be legally bound, agree
as follows:
<PAGE>
ARTICLE I.
DEFINITIONS
All capitalized terms used, but not otherwise defined herein,
shall have the meanings provided in the Partnership Agreement.
"Administration Fee" shall have the meaning set forth in Section
3.02 hereof.
"Administration Operating Account" shall have the meaning set
forth in Section 3.03 hereof.
"Administrative Expenses" shall have the meaning set forth in
Section 3.01 hereof.
"Administrative Services" shall have the meaning set forth in
Section 2.01 hereof.
"Affiliate" shall mean any entity or person that, directly or
indirectly, controls, is controlled by, or is under common control with, another
entity or person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any entity or person, means the power to direct
or cause the direction of the management and policies of such entity or person,
directly or indirectly, whether through the ownership of voting securities or by
contract or otherwise.
"Agreement" shall have the meaning set forth in the preamble
hereof.
"Arbitration Rules" shall have the meaning set forth in Section
13.02 hereof.
"Budget" shall mean each annual budget of the Partnership, NEA,
LLC and the Project Partnerships.
"Business Day" shall mean a calendar day other than Saturday,
Sunday or a statutory holiday in the Commonwealth of Massachusetts.
"Damages" shall mean all losses, liabilities, damages, demands,
claims, suits, actions, judgments or causes of action, assessments, interest,
penalties, costs and expenses, including, without limitation, attorneys' fees,
and expenses (whether suit is instituted or not and, if instituted, whether at
trial or appellate levels).
"Dispute Notice" shall have the meaning set forth in Section 13.01
hereof.
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"Effective Date" shall mean the date on which the Partnership and
NEA, LLC acquire all of the partnership interests in NEA and NJEA.
"Facilities" shall have the meaning set forth in recitals to this
Agreement.
"Force Majeure" shall mean any cause beyond the reasonable control
of and without the fault, negligence, or willful misconduct of the party
claiming Force Majeure. Such causes shall include, but not be limited to, acts
of God, fires, floods, storms, earthquakes, strikes, labor disputes, riots,
insurrections, acts of war, actions or inactions of any government or
governmental agency or a material change in applicable statutory, regulatory,
administrative or other relevant law that prohibits the operation of the
Facility; provided, however, that lack of money or changes in operating costs
shall not constitute Force Majeure.
"Fuel Management Agreements" shall have the meaning set forth in
recitals to this Agreement.
"Fuel Manager" shall have the meaning set forth in recitals to
this Agreement.
"Late Payment Rate" shall mean a per annum rate of interest equal
to the rate announced from time to time in the Wall Street Journal as the prime
commercial lending rate of national commercial banks plus two percent (2%), but
in no event more than the maximum rate permitted under applicable law.
"Laws" shall mean any applicable federal, state or local statute,
law, ordinance, rule or regulation.
"Manager" shall have the meaning set forth in the preamble hereof.
"Manager's Indemnitee" shall have the meaning set forth in Section
7.01 hereof.
"NEA" shall have the meaning set forth in recitals to this
Agreement.
"NJEA" shall have the meaning set forth in recitals to this
Agreement.
"Notice" shall have the meaning set forth in Section 7.02 hereof.
"Operator" shall have the meaning set forth in recitals to this
Agreement.
"O&M Agreements" shall have the meaning set forth in recitals to
this Agreement.
"Partnership" shall have the meaning set forth in the preamble
hereof.
"Partnership Agreement" shall mean that certain Agreement of
Limited Partnership of Northeast Energy, LP, a Delaware limited Partnership,
dated as of November 21, 1997, entered
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into by and among ESI Northeast Energy GP, Inc., Tractebel Northeast Generation
GP, Inc., ESI Northeast Energy LP, Inc., and Tractebel Associates Northeast LP,
Inc.
"Producer Price Index" means the Producer Price Index for all
commodities (1982=100), as reported by the Department of Labor Bureau of Labor
Statistics for the immediately preceding year. If the Producer Price Index
ceases to be published or is otherwise unavailable, Producer Price Index shall
mean an index that the Partnership and the Manager shall mutually determine in
good faith to be most nearly comparable to the foregoing.
"Project Partnerships" shall have the meaning set forth in
recitals to this Agreement.
ARTICLE II.
SCOPE OF SERVICES AND POWER OF ATTORNEY
Section 2.01 Manager Services. Commencing on the Effective Date
and continuing through the end of the term of this Agreement, the Partnership
hereby employs Manager and Manager hereby accepts the employment on the terms
and conditions hereinafter set forth to provide the following administrative
services (the "Administrative Services"), subject to the direction and control
of the Management Committee:
(a) General Duties/Emergency Action. Manager will be
responsible for the negotiation and administration of all contracts to which the
Partnership, NEA and NJEA are parties (except that the Manager shall not be
responsible for contracts with Affiliates of the Manager to the extent provided
in Section 5.2.6 of the Partnership Agreement), the implementation of the Budget
and of other policies and directions given by the Management Committee, the
management of the affairs of the Partnership and the Project Partnerships and
the administration and coordination of any financing to which the Partnership is
a party. In the event of explosion, fire, flood or other emergency, or
malfunction or threatened malfunction of machinery or equipment, or any
emergency actions required to comply with any government rule or order and if
Manager is unable to consult with the Management Committee, Manager may make any
expenditures it deems advisable to protect and safeguard life and property with
respect to the Facilities, regardless of whether such expenditures are
authorized in the then current Budget.
(b) Administration of Fuel Management
Agreements/Supervision of Fuel Manager. Manager shall administer the Fuel
Management Agreements on behalf of the Partnership and the Project Partnerships
and monitor and supervise the Fuel Manager's compliance therewith.
(c) Administration of O&M Agreements/Supervision of
Operator. Manager shall administer the O&M Agreements on behalf of the
Partnerships and the Project Partnerships and monitor and supervise the
Operator's compliance therewith.
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(d) Preparation of Initial and Annual Budgets. The initial
annual Budget for 1998 will be prepared by Manager and adopted by the Management
Committee as soon as reasonably practicable after the execution of this
Agreement. Thereafter, Manager shall cause an annual Budget to be prepared by
October 1st of each year preceding the year for which the Budget shall be
applied, and the Management Committee shall review and approve the annual Budget
prior to the commencement of such next calendar year, which the Partnership
shall endeavor to adopt not later than December 1st. The proposed annual Budget
for the Partnership shall include, without limitation, all line items that are
required from time to time by the Management Committee, including in reasonable
detail the anticipated receipts and expenditures of the Partnership, NEA, LLC
and the Project Partnerships for the coming calendar year and the succeeding
four years (provided, however, the approved annual Budget shall not be deemed to
include approval of expenditures for any year other than the current year). In
the event that the Management Committee does not approve the annual Budget or
any individual line items therein prior to the beginning of the applicable year,
the annual Budget or the individual line items for the preceding year, as the
case may be, shall remain in effect until the new annual Budget or such line
items are approved.
(e) Recommendations Regarding Annual Budget. At each
meeting of the Management Committee, Manager shall report on the receipts and
expenditures of the Partnership, NEA, LLC and the Project Partnerships as of a
date reasonably close to the date of the meeting and will recommend to the
Management Committee any changes in the annual Budget which it considers
necessary or appropriate.
(f) Maintenance of Books and Records. Manager shall keep
or cause to be kept, at its offices, or at such other place as it shall
designate in a notice to the Partners, complete and accurate books, records, and
financial statements of the Partnership and supporting documentation of
transactions with respect to the conduct of the Partnership's business. The
books, records, and financial statements of the Partnership shall be maintained
on the accrual basis in accordance with GAAP. Such books, records, financial
statements, and documents shall include, but not be limited to, the following:
1. Partner Register. A current register of each
of the Partners indicating for each such Person its (i) full name,
(ii) last known business or residence address, (iii)
Contributions, and (iv) share in profits and losses, and also
indicating each Transfer of an Interest permitted by Article VII
of the Partnership Agreement, including the name and address of
the transferor and transferee of such Interest and the units of
the Transferee attributable to the Interest so transferred;
2. Certificate of LP. The Partnership's
Certificate of Limited Partnership, including all amendments; and
any powers of attorney under which the Certificate of Limited
Partnership or amendments were executed;
3. Tax Information. Federal, state, and local
income tax or information returns and reports, if any, for the six
most recent taxable years;
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4. Partnership Agreement and Related Information.
The Partnership Agreement and any amendments, and any powers of
attorney under which the Partnership Agreement or amendments were
executed;
5. Financial Information. Financial statements
for the six most recent years;
6. Books and Records. The internal books and
records of the Partnership for the current and four most recent
years which shall, among other things, reflect all Capital
Accounts; and
7. Property Records. A true copy of relevant
records indicating the amount and cost of all property the
Partnership owns, claims, possesses, or controls.
(g) Financial Statements and Reports. Manager shall
provide the following financial statements and reports to the Partners:
1. Unaudited Balance Sheet. Within forty-five
(45) days after the end of each fiscal quarter, and the fiscal
year, an unaudited closing balance sheet as of the end of such
fiscal quarter or fiscal year, as the case may be, and related
statements of operations for such fiscal quarter or fiscal year
prepared in accordance with GAAP;
2. Audited Financial Reports. As soon as
available but in any event not later than 90 days after the end of
the fiscal year, audited financial reports, including the detailed
balance sheet of the Partnership as of the end of the preceding
fiscal year and related statements of income, cash flow and
Partners' capital and changes in financial position for the fiscal
year, accompanied by an opinion of the Partnership's independent
public accountants stating that the financial statements have been
prepared according to GAAP;
3. Form K-1 and Other Forms. As soon as
practicable after the end of each fiscal year, Form K-1 or any
similar form as may be required by the Code or the Internal
Revenue Service, as well as any similar form which may be required
by any state or local taxing authority;
4. Tax Returns and Tax Preparation Forms. On a
timely basis, all federal, state and local tax returns and
statements (including Capital Accounts and Balance Sheets), if
any, which must be filed on behalf of the Partnership with any
taxing Governmental Authority, all of which shall be prepared on a
tax basis, including all supporting information provided with such
returns. In addition, Manager shall cause to be furnished to each
Partner a report for each fiscal year setting forth all data and
information regarding the business of the Partnership as may be
necessary to enable the Partnership and each Partner to prepare
its federal, state and local tax returns;
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5. Cash Distributions. At any time a cash
distribution is made by the Partnership, a statement in form
acceptable to the Partners which indicates in detail the
calculation of such distribution by the Partnership;
6. Monthly Financial Statements. Within
forty-five (45) days after the end of each month, a balance sheet
and statement of operations for the Partnership along with any
supporting detail that may be required by the Partners; and
7. Budget Variance Reports. Within forty-five
(45) days after the end of each calendar quarter, a report in form
acceptable to the Partners that shows budgeted versus actual
revenues and expenditures on a monthly basis and a year-to-date
basis for the Partnership.
Section 2.02 Agency. Commencing on the Effective Date, the
Partnership hereby makes, constitutes, and appoints Manager to be its true and
lawful attorney-in-fact and in the Partnership's name, place, and stead, and on
the Partnership's behalf, and solely for its use and benefit to carry out the
Administrative Services.
Section 2.03 Manager Notices. Manager shall provide to the
Partnership all notices from third parties received by Manager in connection
with the Partnership, the Project Partnerships, the Facilities or the Manager's
performance of its responsibilities under this Article II. Manager shall
designate in writing to the Partnership an individual who will act on behalf of
Manager with respect to communicating decisions and directions to the
Partnership under this Agreement. Such individual shall also be available at
reasonable times to receive communications from the Partnership and provide
appropriate responses to the Partnership.
ARTICLE III.
COMPENSATION, COSTS AND REIMBURSEMENTS
Section 3.01 Costs and Expenses. Subject to the provisions of this
Section 3.01, the Partnership shall pay all out-of-pocket costs and expenses of
performing the Administrative Services (collectively, the "Administrative
Expenses"). Acting on behalf of the Partnership and the Project Partnerships as
agent, Manager shall incur Administrative Expenses to the extent the nature and
amount of such costs and expenses (i) are included within the Budget or are
otherwise approved by the Partnership, or (ii) are incurred in connection with
an emergency. Payment of Administrative Expenses shall be made from the
Administrative Operating Account, which is more particularly described in
Section 3.03. All Administrative Expenses, except the labor costs of Manager's
personnel, the cost of services provided by Manager's Affiliates and items
purchased with petty cash, shall be incurred in the name of the Partnership.
Section 3.02 Administration Fee. The Partnership shall pay
annually to Manager, as compensation for its services, beginning on the
Acquisition Date, a fee, payable monthly, equal to $600,000 per annum (the
"Administration Fee"), as adjusted in accordance with this Section
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3.02. As of January 1 of each year, commencing January 1, 1999, the
Administration Fee shall be adjusted upwards or downwards by multiplying the
Administration Fee for the prior year by a fraction the numerator of which will
be the Producer Price Index for the immediately preceding December and the
denominator of which will be the Producer Price Index for the month of December
one year earlier; provided, that in no event shall the Administration Fee be
decreased below $600,000. This adjusted Administration Fee shall be the
Administration Fee for the current year and the basis for calculation of the
Administration Fee for the next year.
Section 3.03 Administrative Operating Account. The Partnership
shall establish and maintain an administrative operating account
("Administrative Operating Account") and will designate Manager as an additional
signatory on the account. The Partnership will deposit into the Administrative
Operating Account on or before the 15th day of each month an amount equal to (a)
the amount of Administrative Expenses in the Budget for the next month, plus (b)
any amount reasonably expected by Manager, as communicated to the Partnership in
writing by the 10th day of the month, to be required for costs and expenses
relating to emergencies or other approved expenditures, plus or minus (c) the
difference between the amounts deposited in the Administrative Operating Account
in the preceding month and the actual amount of Administrative Expenses incurred
in that month. On or before the 10th day of each month, Manager shall deliver to
the Partnership an accounting report that reflects all Administrative Expenses
for the preceding month, reconciled against the amounts deposited to the
Administrative Operating Account and against the amounts projected in the Budget
for such preceding month.
Section 3.04 Late Payments. If any amounts owing under this
Agreement are not paid to Manager or the Partnership, as applicable, when due,
the same shall bear interest at the Late Payment Rate from the due date until
paid.
ARTICLE IV.
TERM AND TERMINATION
Section 4.01 Term. Unless terminated as provided in this Article
IV or Article VIII, this Agreement shall continue in effect for the period
commencing on the Effective Date and ending on the twentieth (20th) anniversary
of the Effective Date. Notwithstanding the foregoing, if ESI Northeast Energy
GP, Inc. transfers its general partnership interest in the Partnership (other
than to an Affiliate), the Partnership shall have the right to terminate this
Agreement upon 30 days notice to manager.
Section 4.02 Termination upon Default by Manager. If Manager
materially defaults in the performance of any material term, covenant or
obligation contained in this Agreement and does not remedy such default within
thirty (30) days after Manager's receipt of the Partnership's written notice
thereof to Manager (or within 180 days, if it cannot be reasonably accomplished
in such thirty (30) day period and Manager shall diligently take all appropriate
actions to remedy such default as soon as commercially practicable within such
thirty (30) day period), the Partnership may, by written notice to Manager,
terminate this Agreement and the Partnership shall
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pay to Manager all amounts due and not previously paid to Manager for services
performed in accordance with this Agreement up until the effective date of such
termination. All such amounts will be paid to Manager within thirty (30) days of
the effective termination date or within thirty (30) days of receipt of an
invoice from Manager for any amounts not invoiced prior to the effective
termination date, provided that the Partnership shall have the right to offset
the amounts of any damages owing by Manager under this Agreement against any
such amounts due and not previously paid to Manager by the Partnership.
Section 4.03 Termination upon Default by the Partnership. If the
Partnership (a) fails to make any payment hereunder within 5 days after the same
shall have become due, or (b) materially defaults in the performance of any
material term, covenant or agreement contained in this Agreement and does not
remedy such default within thirty (30) days after the Partnership's receipt of
Manager's written notice thereof to the Partnership (or within 180 days, if it
cannot be reasonably accomplished in such thirty (30) day period and the
Partnership shall have commenced all actions required to remedy such default
within such thirty (30) day period), Manager may, by written notice to the
Partnership, terminate this Agreement.
Section 4.04 Termination for Insolvency. Either party may
terminate this Agreement by written notice to the other party (but only with the
concurrence of the Manager in the case of termination by the Partnership) if:
(a) the other party (i) makes a general assignment for the benefit of creditors,
(ii) institutes proceedings in any court of competent jurisdiction or takes any
other steps to subject itself to the laws of any jurisdiction to which it may be
subject providing for it to be wound up or adjudicating it to be bankrupt or
insolvent or (iii) takes or consents to the institution of any bankruptcy or
insolvency proceedings which relate to any reorganization, arrangement or
compromise of its debts; (b) any proceedings are commenced or steps taken
whether by way of private appointment, seizure, court proceedings or otherwise
for the appointment of a receiver, custodian, liquidator, trustee or similar
person with respect to all or a substantial portion of the other party's
property; or (c) any proceedings are commenced or steps taken by any creditor,
regulatory agency or other person relating to the reorganization, arrangement,
adjustment composition, liquidation, dissolution, winding up, custodianship or
other similar relief with respect to such other party.
Section 4.05 Duties Upon Termination. Upon termination or
expiration of this Agreement:
(a) At the request of the Partnership, and provided that the
Partnership is not in default of any material provision of this Agreement,
Manager shall have the obligation to assist in making, at the Partnership's
expense, a smooth transition to a new manager; and
(b) Manager shall continue to be reimbursed for expenses incurred
by it and compensated in accordance with the provisions of this Agreement,
provided that Manager continues to perform services under and in accordance with
this Agreement.
Section 4.06 Effect of Termination. On the effective date of
termination, the Partnership shall assume and become responsible for all
management obligations of the
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Partnership. Notwithstanding such termination, neither party shall be relieved
from any obligations or liabilities that accrued prior to the effective date of
termination. The applicable provisions of this Agreement will continue in effect
after termination of this Agreement to the extent necessary to provide for final
payments, payment adjustments and any other final expense reimbursements, and
with respect to liability and indemnification payments and expense
reimbursements from acts or events that occurred prior to the date of
termination of this Agreement.
ARTICLE V.
LIMITATION OF LIABILITY
Section 5.01 No Consequential Damages. Neither Manager, its
Affiliates nor their respective employees or agents shall be liable to the
Partnership, its Affiliates or their respective employees, agents or
subcontractors or either of the Project Partnerships or their respective
employees, agents or subcontractors, and neither the Partnership, its Affiliates
nor their respective employees, agents or subcontractors nor either of the
Project Partnerships or their respective employees, agents or subcontractors,
shall be liable to Manager, whether based in contract, in tort (including
negligence and strict liability), under warranty, or otherwise, for any special,
indirect, incidental, exemplary or consequential loss or damage whatsoever,
including without limitation, loss of use, opportunity or profits, damages to
good will or reputation or punitive damages.
Section 5.02 Non-Recourse Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of the Partnership
hereunder are recourse only to the assets of Partnership and neither the
partners of the Partnership nor any shareholder, director, officer, agent or
affiliate of Partnership or any partner of the Partnership, shall have any
personal responsibility or liability for any payment obligations of the
Partnership hereunder, or otherwise for any breach in performance or observance
of the covenants, representations, or obligations of the Partnership hereunder.
ARTICLE VI.
[Intentionally Deleted]
ARTICLE VII.
INDEMNIFICATION BY THE PARTNERSHIP
Section 7.01 Indemnification. Subject to the limitations set forth
in Article V hereof, the Partnership shall indemnify and hold harmless Manager,
and its officers, directors, shareholders, agents, Affiliates and employees
(collectively, "Manager's Indemnitee") from and against all Damages asserted
against, resulting to, imposed upon, or incurred or suffered by
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Manager's Indemnitee, directly or indirectly, whether raised by Manager's
Indemnitee or a third party, arising out of or resulting from (a) the Project
Partnerships' ownership or use of the Facilities, or (b) the performance by the
Partnership of the Partnership's duties hereunder.
Section 7.02 Procedure. If any person or entity not a party to
this Agreement shall make any demand or claim or file or threaten to file or
continue any lawsuit, which demand, claim or lawsuit may result in Damages to
any party pursuant to the indemnification provisions of this Agreement, then, in
any such event, within 10 days after notice by the indemnified party (the
"Notice") to the indemnifying party of such demand, claim or lawsuit (provided,
however, that the failure to give the Notice shall not relieve the indemnifying
party of its obligations under this Agreement unless, and only to the extent
that, such failure caused the Damages for which the indemnifying party is
obligated to be greater than they would otherwise have been had the indemnified
party given prompt notice under this Agreement), the indemnifying party shall
have the option, at its sole cost and expense, to retain counsel for the
indemnified party (which counsel shall be selected by or be reasonably
satisfactory to the indemnified party), to defend any such demand, claim or
lawsuit. Thereafter, the indemnified party shall be permitted to participate in
such defense at its own expense, provided that, if the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party or if the indemnifying party proposes that the same
counsel represent both the indemnified party and the indemnifying party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, then the indemnified party
shall have the right to retain its own counsel at the cost and expense of the
indemnifying party. If the indemnifying party shall fail to respond within 10
days after receipt of the Notice, the indemnified party may retain counsel and
conduct the defense of such demand, claim or lawsuit, as it may in its sole
discretion deem proper, at the sole cost and expense of the indemnifying party.
(a) The indemnified party shall provide reasonable assistance to
the indemnifying party and provide access to its books, records and personnel as
the indemnifying party reasonably requests in connection with the investigation
or defense of the indemnified Damage. The indemnifying party shall promptly upon
receipt of reasonable supporting documentation reimburse the indemnified party
for out-of-pocket costs and expenses incurred by the latter in providing the
requested assistance.
(b) With regard to claims for which indemnification is payable
under this Agreement, such indemnification shall be paid by the indemnifying
party upon: (i) the entry of a judgment against the indemnified party and the
expiration of any applicable appeal period; (ii) the entry of an unappealable
judgment or final appellate decision against the indemnified party; or (iii) a
settlement with the consent of the indemnifying party, which consent shall not
be unreasonably withheld, provided that no such consent need be obtained if the
indemnifying party fails to respond to the Notice as provided in this Section
7.02. Notwithstanding the foregoing, provided that there is no dispute as to the
applicability of indemnification, expenses of counsel to the indemnified party
shall be reimbursed on a current basis by the indemnifying party if such
expenses are a liability of the indemnifying party.
11
<PAGE>
ARTICLE VIII.
FORCE MAJEURE
Section 8.01 Force Majeure. Any delay in or failure of performance
of either party (other than delay or failure to pay a monetary obligation when
due) shall not constitute a default hereunder or give rise to any claim for
damage if and to the extent such delay or failure is caused by "Force Majeure,"
and the party claiming the benefit of Force Majeure shall use all reasonable
efforts to minimize the period of such delay or failure and the effects thereof.
Section 8.02 Notice. Either party claiming Force Majeure shall
give the other party (a) notice of such Force Majeure event as soon as
practicable, but in any event within three (3) days after its occurrence and (b)
a complete description of such Force Majeure event within fourteen (14) days
after its occurrence.
ARTICLE IX.
RELATIONSHIP OF THE PARTIES
The Partnership hereby engages Manager, as an independent
contractor, to manage and administer the affairs of the Partnership and the
Project Partnerships according to the terms of this Agreement. Subject to the
terms of this Agreement, Manager shall determine the means, manner and methods
by which Manager shall perform its services under this Agreement. Manager and
the Partnership acknowledge that, except as otherwise expressly provided in this
Agreement, the Partnership shall not have any control over Manager or the means,
manner or methods of its performance under this Agreement. All personnel
involved in the management and administration of the Partnership and the Project
Partnerships shall be employees of Manager or its Affiliates or independent
contractors that have contracted with Manager or its Affiliates and shall not
for any purposes be deemed employees or independent contractors of the
Partnership or the Project Partnerships. Nothing in this Agreement or the
arrangement for which it is written shall constitute or create a joint venture,
partnership, or any other similar arrangement between the Partnership or the
Project Partnerships and Manager. Neither party is authorized to act as agent
for the other party, except as expressly stated in this Agreement.
ARTICLE X.
NOTICES
Any notice to either party required or permitted hereunder shall
be in writing and shall be given by personal delivery or by commercial courier
or by certified mail, return receipt requested, postage prepaid, or by
telecopier with confirmed receipt, addressed as follows:
12
<PAGE>
If to Partnership: Northeast Energy, LP
-----------------
c/o ESI Northeast Energy GP, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopy: (561) 691-3615
Attention: President
with a copy to: Tractebel Power, Inc.
1177 West Loop South, Suite 900
Houston, Texas 77027
Telecopier: (713) 552-2364
Attention: General Counsel
If to Manager: ESI Northeast Energy GP, Inc.
11760 U.S. Highway One, Suite 600
North Palm Beach, Florida 33408
Telecopy: (561) 691-3615
Attention: President
or to such other address as the Partnership or Manager may have specified in a
notice duly given as provided herein to the other party. All notices given in
the foregoing manner shall be effective when received, except that a notice sent
by telecopier and received after normal business hours shall be deemed to be
received the following Business Day.
ARTICLE XI.
ASSIGNMENTS AND SUBCONTRACTING
Section 11.01 Assignments.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
(b) Except as otherwise provided in this Agreement, neither
party may assign or otherwise convey any of its rights, title or interest under
this Agreement, without the prior written consent of the other party hereto
(which consent shall not be unreasonably withheld).
Section 11.02 Subcontracting. Manager may subcontract any of
its duties or obligations hereunder to a non-affiliate with the prior written
consent of the Partnership to the subcontractor and subcontract, which consent
shall not be unreasonably withheld; provided, that no such written consent of
the Partnership shall be required for subcontracting to any Affiliate of
Manager. No subcontract shall relieve Manager of its duties and obligations
hereunder.
13
<PAGE>
ARTICLE XII.
LIMITATIONS OF AUTHORITY
Unless specifically approved in writing by the Partnership,
Manager shall not have the authority to take the following actions:
(a) The sale, lease, pledge, mortgage, conveyance, license,
exchange or other transfer or disposition of any property or assets of the
Partnership or the Project Partnerships, including any tangible personal
property acquired by Manager under this Agreement;
(b) Subject to Section 2.01, making, entering into, executing,
amending, waiving any rights under, modifying or supplementing any contract or
agreement on behalf of, binding upon, or in the name of the Partnership or the
Project Partnerships;
(c) The settling, compromising, assigning, pledging,
transferring, releasing or consenting to the same of any claim, suit, debt,
demand or judgment against or due by the Partnership or the Project
Partnerships, or submitting any such claim, dispute or controversy to
arbitration or judicial process or stipulating to a judgment, or consent to do
same. Manager agrees that the Partnership shall retain control of any such claim
suit, debt or demand and any other litigation regarding the management of the
Partnership and the Project Partnerships, except as to Manager's individual
liability; and
(d) Taking any action requiring unanimous consent of the
Management Committee pursuant to Section 5.1.7 of the Partnership Agreement.
ARTICLE XIII.
DISPUTE RESOLUTION AND ARBITRATION
Section 13.01 Dispute Resolution. If a dispute arises among
the parties, or between any of them, regarding the interpretation of any
provision of this Agreement or any other matter herein, an aggrieved party shall
give a notice of such dispute (a "Dispute Notice") to the other parties. Within
fifteen (15) days after such Dispute Notice, senior officers of each of the
companies shall confer with each other to seek with diligence and in good faith
to resolve such dispute. If such officers are unable to resolve such dispute
within forty-five (45) days after such Dispute Notice, then the parties shall be
bound to arbitrate such dispute in accordance with Section 13.02.
Section 13.02 Arbitration. To the fullest extent permitted by
law, any dispute between the parties regarding the interpretation of any
provision of this Agreement or any other matter herein, if not resolved by
negotiation by the parties within forth-five (45) days after the Dispute Notice,
shall be resolved exclusively by binding arbitration between the parties
pursuant to the Rules of the American Arbitration Association for Commercial
Disputes (the "Arbitration
14
<PAGE>
Rules"). Arbitration shall be administered by the American Arbitration
Association. Any party may institute arbitration proceedings at any time by
delivering written Notice demanding arbitration to the other parties in the
manner described in Article X.
(a) Within twenty (20) days after receipt of a written demand
for arbitration, each party shall appoint one arbitrator. Within fifteen (15)
days of the expiration of that twenty (20) day period, the two arbitrators so
appointed shall appoint a third arbitrator. If any party shall fail to appoint
an arbitrator, or if the two arbitrators shall fail to appoint a third
arbitrator, the American Arbitration Association shall make that selection
within ten (10) days of a party's request. The arbitrators shall meet the
qualifications and abide by the Code of Ethics for arbitrators in commercial
disputes of the American Arbitration Association. The arbitrators shall have
knowledge of and experience in the power generation and project financing
business.
(b) To the fullest extent permitted by law, the arbitration
shall be conducted in accordance with the procedures set forth in the
Arbitration Rules. In determining any question, matter or dispute before them,
the arbitrators shall apply the provisions of this Agreement without varying
therefrom in any respect. They shall not have the power to add to, modify or
change any of the provisions of this Agreement. The parties shall exercise all
commercially reasonable efforts in good faith to cause a hearing to be held
within ninety (90) days after the date upon which the last arbitrator is
appointed and to conclude all hearings within thirty (30) days after the first
hearing date. The arbitrators shall only grant a party's request for
postponement of the hearing upon a showing of good cause as determined by the
arbitrators. Within thirty (30) days of the last hearing date, the arbitrators
shall issue a written decision setting forth their analysis and ruling. The
arbitrators shall determine in what proportion the parties shall bear the fees
and expenses of the arbitrators. Each party shall bear the fees and expenses of
its own counsel and other consultants. All arbitration proceedings shall be
subject to the choice of law provisions set forth in Section 14.02, and shall be
held at a location agreed to by the parties, or if the parties cannot agree,
then in Atlanta, Georgia.
(c) The parties acknowledge and agree that any arbitral award
shall be final, binding and conclusive upon the parties and may be confirmed or
embodied in any order of any court having jurisdiction.
(d) To the fullest extent permitted by law, service of any
matters referenced in this Article XIII shall be given in the manner described
in Article X or as permitted by the rules of the American Arbitration
Association.
Section 13.03 Survival. This Article XIII shall survive
cancellation, expiration, completion or termination of this Agreement.
15
<PAGE>
ARTICLE XIV.
MISCELLANEOUS
Section 14.01 Severability. If any provision of this Agreement
shall be held or deemed to be invalid, inoperative or unenforceable, such
circumstances shall not affect the validity of any other provision of this
Agreement, but this Agreement shall be reformed and construed as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted.
Section 14.02 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws.
Section 14.03 Entire Agreement. This Agreement constitutes the
entire final understanding and agreement of the parties with respect to its
subject matter, and there are no agreements, understandings, restrictions,
representations or warranties among the parties other than those set forth in
this Agreement. By execution of this Agreement, each of the parties represents
and warrants that it has relied on no oral or written statements, promises,
inducements, representations or warranties to enter into this Agreement except
for those expressly set forth herein. The parties agree that the inclusion of
this provision evidences the intent of the parties that no parole evidence shall
be admissible to alter or vary the terms of this Agreement.
Section 14.04 Captions. The captions or headings of the
sections and paragraphs of this Agreement have been inserted for convenience of
reference only and shall have no effect upon the construction or interpretation
of any part of this Agreement.
Section 14.05 Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original,
and all of which taken together shall constitute one and the same agreement.
Section 14.06 No Third Party Beneficiaries. Except as
expressly set forth herein, the terms of this Agreement are for the sole benefit
of the Partnership and Manager and their respective successors and permitted
assigns and not for any third party whatsoever.
Section 14.07 Further Assurances. If either party reasonably
determines or is reasonably advised that any further instruments or any other
things are necessary or desirable to carry out the terms of this Agreement, the
other party shall execute and deliver all such instruments and assurances and do
all things reasonably necessary and proper to carry out the terms of this
Agreement.
Section 14.08 No Implied Waiver. Failure of either party to
exercise any right to enforce any provision, or to require strict performance by
the other party of any provision, shall
16
<PAGE>
not release the other party from any of its obligations under this Agreement and
shall not operate as a waiver of any right to insist upon strict performance, or
of either party's rights or remedies under this Agreement or at law.
Section 14.09 Amendments. No amendment, waiver or modification
of any provision of this Agreement shall be effective unless made in writing and
signed by both parties.
Section 14.10 Confidentiality. Except to the extent expressly
authorized herein including, without limitation, in connection with a proposed
assignment of this Agreement or a proposed financing transaction entered into by
the Partnership, in which case disclosure of the terms hereof shall be limited
to the extent reasonably practicable, each of the parties agree that neither it
nor its attorneys, agents or representatives shall reveal to anyone any of the
terms of this Agreement or any of the terms of the documents executed pursuant
hereto, including, without limitation, the amount, terms or conditions of
payment hereunder, other than (i) as may be hereafter mutually agreed to in
writing, (ii) as ordered by a judicial tribunal, (iii) to any of such parties'
directors, officers, employees, representatives, advisors, consultants and
attorneys, and the directors, officers, employees, representatives, advisors,
consultants and attorneys of affiliated companies who need to know such
information, and (iv) to the extent required to be disclosed by applicable law
or legal process.
Section 14.11 Decision-Making by Parties. Except where this
Agreement expressly provides for a different standard and/or time period,
whenever this Agreement provides for a determination, decision, permission,
consent or approval of a party, the party shall promptly make such
determination, decision, grant or withholding of consent or approval in a
commercially reasonable manner and without unreasonable delay. Any denial of
consent required to be made in a commercially reasonable manner shall include in
reasonable detail the reason for denial or aspect of the request that was not
acceptable.
[Remainder of Page Intentionally Left Blank]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed multiple
originals of this Agreement as of the date first written above.
The Partnership:
NORTHEAST ENERGY, LP
a Delaware limited partnership
By: ESI NORTHEAST ENERGY GP, INC.,
a general partner
By: /s/ Glenn E. Smith
------------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
GENERATION GP, INC.,
a general partner
By: /s/ Timothy R. Dunne
-------------------------------
Name: Timothy R. Dunne
Title: Vice President
The Manager:
ESI NORTHEAST ENERGY GP, INC.,
a Florida corporation
By: /s/ Glenn E. Smith
-------------------------------
Name: Glenn E. Smith
Title: Vice President
[Signature Page to Administrative Services Agreement]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000934665
<NAME> ESI Tractebel Funding Corp.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 21,563
<ALLOWANCES> 0
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<CURRENT-ASSETS> 21,564
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 490,288
<CURRENT-LIABILITIES> 21,563
<BONDS> 468,724
0
0
<COMMON> 0
<OTHER-SE> 1
<TOTAL-LIABILITY-AND-EQUITY> 490,288
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,303
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000934667
<NAME> Northeast Energy Associates
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 61,203
<SECURITIES> 0
<RECEIVABLES> 34,036
<ALLOWANCES> 0
<INVENTORY> 4,752
<CURRENT-ASSETS> 103,043
<PP&E> 504,044
<DEPRECIATION> 154,498
<TOTAL-ASSETS> 541,431
<CURRENT-LIABILITIES> 39,328
<BONDS> 468,724
0
0
<COMMON> 0
<OTHER-SE> (197,186)
<TOTAL-LIABILITY-AND-EQUITY> 541,431
<SALES> 312,154
<TOTAL-REVENUES> 312,154
<CGS> 0
<TOTAL-COSTS> 202,157<F1>
<OTHER-EXPENSES> 18,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,108
<INCOME-PRETAX> 36,673
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<INCOME-CONTINUING> 36,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,673
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> Includes depreciation of $24,992
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000934666
<NAME> North Jersey Energy Associates
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 61,203
<SECURITIES> 0
<RECEIVABLES> 34,036
<ALLOWANCES> 0
<INVENTORY> 4,752
<CURRENT-ASSETS> 103,043
<PP&E> 504,044
<DEPRECIATION> 154,498
<TOTAL-ASSETS> 541,431
<CURRENT-LIABILITIES> 39,328
<BONDS> 468,724
0
0
<COMMON> 0
<OTHER-SE> (197,186)
<TOTAL-LIABILITY-AND-EQUITY> 541,431
<SALES> 312,154
<TOTAL-REVENUES> 312,154
<CGS> 0
<TOTAL-COSTS> 202,157<F1>
<OTHER-EXPENSES> 18,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,108
<INCOME-PRETAX> 36,673
<INCOME-TAX> 0
<INCOME-CONTINUING> 36,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,673
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> Includes depreciation of $24,992
</FN>
</TABLE>
