<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
Commission File Number 33-95928
LS POWER FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 81-0502366
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NC 28273, (704) 525-3800
(Address, including zip code, and
telephone number, including area code,
of registrant's principal executive offices)
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 81-0493289
DELAWARE 81-0493287
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Numbers)
</TABLE>
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NC 28273, (704) 525-3800
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NC 28273, (704) 525-3800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
<PAGE> 2
LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
INDEX
TO THE QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PART I
Page
<S> <C> <C>
Item 1. Condensed Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
PART II
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
Financial Statement Index F-1
</TABLE>
2
<PAGE> 3
PART I/ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed financial statements contained herein have been
prepared pursuant to the rules and regulations of the United States Securities
and Exchange Commission (the "Commission"). Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. While the management of LS Power Funding Corporation ("Funding"),
LSP-Cottage Grove, L.P. ("Cottage Grove") and LSP-Whitewater Limited Partnership
("Whitewater") (Cottage Grove and Whitewater sometimes referred to herein
individually as a "Partnership" and collectively as the "Partnerships") believe
that the disclosures made are adequate to make the information presented not
misleading, these unaudited condensed financial statements should be read in
conjunction with the audited financial statements included in the Annual Report
on Form 10-K for the year ended December 31, 1998, filed by Funding and the
Partnerships.
PART I/ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In addition to discussing and analyzing Funding and the Partnerships'
recent historical financial results and condition, the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
includes statements concerning certain trends and other forward-looking
information affecting or relating to Funding and the Partnerships which are
intended to qualify for the protections afforded "Forward-Looking Statements"
under the Private Securities Litigation Reform Act of 1995, Public Law 104-67.
The forward-looking statements made herein are inherently subject to risks and
uncertainties which could cause Funding's and the Partnerships' actual results
to differ materially from the forward-looking statements.
GENERAL
Cottage Grove is a single purpose Delaware limited partnership
established in December 1993 to develop, finance, construct and own a gas-fired
cogeneration facility located in Cottage Grove, Minnesota (the "Cottage Grove
Facility"). The 1% general partner, LSP-Cottage Grove, Inc., and the 72% limited
partner, Cogentrix Cottage Grove, LLC, are indirect subsidiaries of Cogentrix
Energy, Inc. ("Cogentrix Energy"). The other limited partner is TPC Cottage
Grove, Inc. ("TPC Cottage Grove") and is not affiliated with Cogentrix Energy.
Whitewater is a single purpose Delaware limited partnership established in
December 1993 to develop, finance, construct and own a gas-fired cogeneration
facility located in Whitewater, Wisconsin (the "Whitewater Facility", and,
collectively with the Cottage Grove Facility, the "Facilities"). The 1% general
partner, LSP-Whitewater I, Inc., and the 73% limited partner, Cogentrix
Whitewater, LLC, are indirect subsidiaries of Cogentrix Energy. The other
limited partner is TPC Whitewater, Inc. ("TPC Whitewater") and is not affiliated
with Cogentrix Energy. The Partnerships sell electric capacity and energy
generated by their Facilities to two utilities under separate long-term power
purchase agreements (individually, the "Power Purchase Agreement" and,
collectively, the "Power Purchase Agreements"). Whitewater sells up to 236.5
megawatts of electric capacity and associated energy generated by the Whitewater
Facility to Wisconsin Electric Power Company ("WEPCO") pursuant to a 25-year
Power Purchase Agreement. Whitewater may also sell to third parties up to 12
megawatts of electric capacity and any energy not dispatched by WEPCO. All of
the electric capacity and energy generated by the Cottage Grove Facility is sold
to Northern States Power Company ("NSP") pursuant to a 30-year Power Purchase
Agreement. The Partnerships also have long-term steam supply agreements with
steam hosts to supply thermal energy produced by the Facilities.
The Whitewater Facility commenced commercial operations on September
18, 1997, and the Cottage Grove Facility commenced commercial operations on
October 1, 1997. The Whitewater and Cottage Grove Power Purchase Agreements meet
the criteria of a "sales-type" capital lease as described in Statement of
Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." Cottage
Grove and Whitewater each recognized a gain on sales-type capital lease for the
difference between the estimated fair market value and the historical cost of
the Facilities as of the commencement of each respective Power Purchase
Agreement's terms (commencement of commercial operations). The Partnerships each
recorded a net investment in lease that reflects the present value of future
minimum lease payments. Future minimum lease payments represent the amount of
capacity payments due from the utilities under the Power Purchase Agreements in
excess of fixed operating costs (i.e., executory costs). The difference between
the undiscounted future minimum lease payments due from the utilities and the
net investment in lease represents unearned income. This unearned income will be
recognized as lease revenue over the respective terms of the Power Purchase
Agreements using the effective interest rate method. The Partnerships will also
recognize service revenue related to the reimbursement of costs incurred in
operating the Facilities and providing electricity and thermal energy. The
amount of service revenue recognized by each Partnership will be directly
related to the level of dispatch of the Facilities by the utility and to a
lesser extent the level of thermal energy required by the steam hosts.
3
<PAGE> 4
Funding
Funding was organized in June, 1995 as a special purpose Delaware
corporation to issue debt securities in connection with financing the
construction of the Facilities. Funding's sole business activities are limited
to maintaining its organization and activities necessary pursuant to the
offering of the Senior Secured Bonds (defined below) and its acquisition of the
First Mortgage Bonds (defined below) from the Partnerships.
The Senior Secured Bonds are the following:
7.19% Senior Secured Bonds Due 2010, Series A of LS Power
Funding Corporation
8.08% Senior Secured Bonds Due 2016, Series A of LS Power
Funding Corporation
The First Mortgage Bonds are the following:
7.19% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2010
8.08% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2016
7.19% First Mortgage Bonds of LSP-Whitewater Limited
Partnership Due 2010
8.08% First Mortgage Bonds of LSP-Whitewater Limited
Partnership Due 2016
Cottage Grove and Whitewater each own 50% of the outstanding stock
of Funding.
RESULTS OF OPERATIONS
Whitewater
Operating revenues increased approximately 4.0% for the first quarter
of 1999 as compared to the first quarter of 1998. This increase was primarily
the result of an increase in service revenue. The increase in service revenue
resulted from a slight increase in megawatt hours provided to the purchasing
utility. This increase was partially offset by a decrease in other revenue
resulting from a decrease in excess fuel sales to third party purchasers.
Cost of services remained fairly consistent for the first quarter of
1999 as compared to the first quarter of 1998. Although the number of megawatt
hours produced in the first quarter of 1999 as compared to the first quarter of
1998 increased slightly, the Whitewater Facility took advantage of lower gas
prices in the first quarter of 1999. This decrease in gas prices resulted in a
decline in fuel expense, a component of cost of services, for the first quarter
of 1999 as compared to the first quarter of 1998.
Interest expense consists primarily of interest expense on the First
Mortgage Bonds and amortization of the costs incurred to issue the bonds.
Cottage Grove
Operating revenues increased approximately 21.4% for the first quarter
of 1999 as compared to the first quarter of 1998. This increase was primarily a
result of an increase in service revenue and other revenue. The increase in
service revenue resulted from an increase in megawatt hours provided to the
purchasing utility. The increase in other revenue resulted primarily from an
increase in remarketed fuel sales to third party purchasers.
Cost of services increased approximately 39.3% for the first quarter of
1999 as compared to the first quarter of 1998. This increase is primarily the
result of a $1.6 million increase in fuel expense, a component of cost of
services, related to the increase in megawatt hours provided to the purchasing
utility. The increase in fuel expense was partially offset by the Cottage Grove
Facility taking advantage of lower fuel prices in the first quarter of 1999 as
compared to the first quarter of 1998. The increase in cost of services, to a
lesser extent, is also a result of an increase in general and administrative
expenses related to the increased production of electricity.
4
<PAGE> 5
Interest expense consists primarily of interest expense on the First
Mortgage Bonds and amortization of the costs incurred to issue the bonds.
FACILITY CONSTRUCTION
The Whitewater Facility
Effective September 18, 1997, Whitewater and Westinghouse Electric
Corporation (the "Contractor"), with the concurrence of R.W. Beck, the
independent engineer, agreed to a construction contract change order. Under the
change order, certain nonmaterial modifications were made to the Whitewater
construction contract and certain guarantees were deferred until final
completion, which allowed the Contractor to achieve substantial completion and
Whitewater to commence commercial operation. In addition, the Contractor
committed to certain future modifications in the Whitewater Facility's
construction, extension of certain warranty periods and certain financial
concessions. As of March 31, 1999, Whitewater had retained construction contract
payments (in the form of cash and an irrevocable letter of credit) totaling
approximately $11,174,000.
The Cottage Grove Facility
Effective September 30, 1997, Cottage Grove and the Contractor, with
the concurrence of R.W. Beck, the independent engineer, agreed to a construction
contract change order. Under the change order, certain nonmaterial modifications
were made to the Cottage Grove construction contract and certain guarantees were
deferred until final completion, which allowed the Contractor to achieve
substantial completion and Cottage Grove to commence commercial operation. In
addition, the Contractor committed to certain future modifications in the
Cottage Grove Facility's construction, extension of certain warranty periods and
certain financial concessions. As of March 31, 1999, Cottage Grove had retained
construction contract payments (in the form of cash and an irrevocable letter of
credit) totaling approximately $10,886,000.
OPERATIONS AND MAINTENANCE
Operations and Maintenance Agreements
Each of the Cottage Grove and Whitewater Facilities has been operated
by Westinghouse Operating Services Company, Inc. ("Westinghouse Services")
pursuant to a seven-year operations and maintenance agreement (an "O&M
Agreement" and collectively, the "O&M Agreements").
On March 16, 1999, each Partnership exercised an option under its O&M
Agreement to terminate the O&M Agreement with Westinghouse Services effective
April 15, 1999. In connection with the exercise of such option, Cottage Grove
and Whitewater each made a payment to Westinghouse Services pursuant to its O&M
Agreement in an amount approximately equal to $320,000. Each O&M Agreement has
been replaced with a similar agreement, in all material respects identical to
the applicable O&M Agreement, executed with LSP-Whitewater I, Inc. and
LSP-Cottage Grove, Inc. respectively, each of which is an indirect subsidiary of
Cogentrix Energy.
LIQUIDITY AND CAPITAL RESOURCES
Whitewater
The principal components of operating cash flow for the three-month
period ended March 31, 1999 were net income of $2.2 million, a net $4.3 million
of cash provided by changes in other working capital assets and liabilities, and
a $0.2 million adjustment for depreciation and amortization of debt issuance and
financing costs, which were partially offset by amortization of unearned lease
income, net of minimum lease payments received of $0.1 million. Cash flow
provided by operating activities of $6.6 million and a portion of the cash on
hand at the beginning of the period of $0.3 million were primarily used to fund
$6.9 million of restricted cash.
Cottage Grove
The principal components of operating cash flow for the three-month
period ending March 31, 1999 were net income of $2.1 million, a $0.1 million
adjustment for amortization of debt issuance and financing costs and a net $4.7
million of cash provided by changes in other working capital assets and
liabilities, which were partially offset by amortization of unearned lease
income, net of minimum lease payments received of $0.3 million. Cash flow
provided by operating activities of $6.6 million was primarily used to make
partner distributions of $0.2 million, lend $0.5 million to an affiliate and
fund $5.9 million of restricted cash.
The $332,000,000 of proceeds received by Funding from the sale of the
Senior Secured Bonds were used by Funding to acquire (i) $155,000,000 of Cottage
Grove First Mortgage Bonds and (ii) $177,000,000 of Whitewater First Mortgage
Bonds. In addition to the proceeds of the First Mortgage Bonds, the Partnerships
each received equity contributions from TPC Cottage Grove and TPC Whitewater in
1997, in the respective amounts of $18,167,000 for Cottage Grove and $20,556,000
for Whitewater (the "Equity Contribution Amounts"). The net proceeds from the
sale of the Partnerships' First Mortgage Bonds and the Equity Contribution
Amounts together with other sources of funds available to the Partnerships were
used to: (i) finance the development, design, engineering, construction,
testing, inspection and start-up of the Facilities, (ii) pay interest on the
Partnerships' First Mortgage Bonds during construction and (iii) maintain a debt
service reserve fund as required by certain financing
5
<PAGE> 6
documents (currently equal to $6,585,000 and $6,900,000 for Cottage Grove and
Whitewater, respectively). During the year ended December 31, 1998, the
Partnership transferred the cash held in the debt service reserve fund to an
affiliate of one of the limited partners, Cogentrix Energy, Inc. The required
funds are included on the respective balance sheets as a Note Receivable from
Affiliate. The receivables are backed by an irrevocable letter of credit issued
on behalf of Cogentrix Energy.
As required by the financing documents, both Cottage Grove and
Whitewater have set aside certain funds to pay for project cost overruns,
including change orders to the construction contracts and any other reasonable
contingencies, during construction and through final completion of the
Facilities (the "Contingency Fund"). At March 31, 1999, the balances of the
Contingency Fund accounts were $1,426,000 for Cottage Grove and $345,000 for
Whitewater.
In addition to funds received through the acquisition of the First
Mortgage Bonds by Funding and through the Equity Contribution Amount, each
Partnership may each receive on its behalf certain letters of credit to be
issued pursuant to a letter of credit facility. Each letter of credit facility
provides for letters of credit in a face amount not to exceed $5,000,000 for
Whitewater and $5,500,000 for Cottage Grove, which may be drawn on by the
respective Partnership from time to time. Such letters of credit will satisfy
certain requirements of the Partnerships under various project agreements.
Cottage Grove has issued a $500,000 letter of credit under the letter of credit
facility to secure certain obligations of Cottage Grove under the Cottage Grove
Power Purchase Agreement.
In order to provide for the Partnerships' working capital needs, the
Partnerships have each entered into a working capital facility. Each working
capital facility will provide for working capital loans in an aggregate
principal amount not to exceed $3,000,000 for each Partnership. At March 31,
1999, no loans were outstanding under the working capital facilities.
The Partnerships expect that payments from the utilities under the
Power Purchase Agreements will provide the substantial majority of their
revenues. Under and subject to the terms of the Power Purchase Agreements, each
utility is obligated to purchase electric capacity made available to it and
energy that it requests from the related Partnership. For additional information
regarding NSP and WEPCO, reference is made to the respective Annual Reports
filed on Form 10-K, the Quarterly Reports filed on Form 10-Q, proxy, and any
other filings made by NSP and WEPCO with the Commission.
The Power Purchase Agreements are dispatchable contracts that provide
the utilities the right to suspend or reduce purchases of electricity from the
Facilities. The Power Purchase Agreements are structured such that the
Partnerships will continue to receive capacity payments during any period of
dispatch. Each Partnership is dependent on capacity payments under its Power
Purchase Agreement to meet its fixed obligations, including the payment of debt
service under each Partnership's First Mortgage Bonds (which will be Funding's
sole source of revenues for payment of debt service under the Senior Secured
Bonds). Capacity payments by each of NSP and WEPCO are based on the tested
capacity and availability of the Facilities and are unaffected by levels of
dispatch. Each Facility's capacity is subject to semi-annual verification
through testing. Capacity payments are subject to reduction if a Facility is
operating at reduced or degraded capacity at the time of such test, although
each Facility is permitted a retest subject to certain retest limitations. Also,
capacity payments for each Facility are subject to rebate or reduction if the
respective Facility does not maintain certain minimum levels of availability.
Under the Cottage Grove Power Purchase Agreement, capacity payments are further
adjusted by, among other things, the capacity loss factor which is determined in
accordance with procedures jointly agreed to by Cottage Grove and NSP. The
Partnerships expect to achieve the minimum capacity and availability levels;
however, any material shortfall in tested capacity or availability over a
significant period could result in a shortage of funds to the Partnerships.
Each Partnership presently believes that funds available from cash and
investments on hand, restricted funds, operations and letter of credit and
working capital facilities will be more than sufficient to liquidate each
Partnership's obligations as they come due, pay project debt service and make
required contributions to project reserve accounts.
As with any power generation facility, operation of the Facilities will
involve certain risks, including the performance of a Facility below expected
levels of output or efficiency, interruptions in fuel supply, pipeline
disruptions, disruptions in the supply of thermal or electrical energy, power
shut-downs due to the breakdown or failure of equipment or processes, violation
of permit requirements (whether through operation, or change in law), operator
error, labor disputes or catastrophic events such as fires, earthquakes,
explosions, floods or other similar
6
<PAGE> 7
occurrences affecting a Facility or its power purchasers, thermal energy
purchasers, fuel suppliers or fuel transporters. The occurrence of any of these
events could significantly reduce or eliminate revenues generated by a Facility
or significantly increase the expenses of that Facility, thereby impacting the
ability of a Partnership to make payments of the amounts necessary to fund
principal of and interest on its First Mortgage Bonds, and, consequently,
Funding's ability to make payments of principal of and interest on the Senior
Secured Bonds. Not all risks are insured and the proceeds of such insurance
applicable to covered risks may not be adequate to cover a Facility's lost
revenues or increased expenses. In addition, extended unavailability under the
Power Purchase Agreements, which may result from one or more of such events, may
entitle the respective power purchaser to terminate its Power Purchase
Agreement.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
The Partnerships have attempted to mitigate the risk of increases in
fuel and transportation costs by providing contractually for matching increases
in the energy payments the Partnerships receive from the utilities purchasing
electricity generated by the Facilities. In addition, the Partnerships have
hedged against the risk of fluctuations in interest rates by arranging fixed
rate financing.
YEAR 2000 COMPLIANCE
The Partnerships continue to assess their readiness with the Year 2000
issue, and expect that all the business critical systems such as corporate,
embedded technology systems, business partners and vendor systems will be Year
2000 compliant by June 30, 1999. Non-compliance with the embedded technology
systems, or business partner and vendor systems could result in temporary
shutdown of the facilities and equipment damage. The investigation, analysis,
remediation and contingency planning for the embedded technology at the power
generation facilities was completed before January 1, 1999. The investigation
and analysis identified no significant Year 2000 issues. The Partnerships will
continue to communicate with critical suppliers, vendors, joint venture partners
and major customers to assess their compliance efforts and the Partnership's
exposure to their efforts. The Partnerships have not incurred any significant
additional expenses related to the Year 2000 issue in the quarter ended March
31, 1999. At this time, the Partnerships do not expect a major impact from
non-compliant Year 2000 suppliers, vendors, joint venture partners or major
customers. The Partnerships have developed contingency plans for all of the
critical systems. These plans were developed to address their most likely worse
case scenario, the inability of the plants to produce and distribute power.
These plans have been tested, and appear to be adequate. Despite management's
current expectations, there can be no assurances that there will not be
interruptions or other limitations of financial and operating system
functionality or that the Partnerships will not ultimately incur significant,
unplanned costs to avoid such interruptions or limitations.
7
<PAGE> 8
PART 2/ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of LS Power Funding Corporation. (1)
3.2 Bylaws of LS Power Funding Corporation. (1)
3.3 Certificate of Limited Partnership of LSP-Cottage Grove, L.P. (1)
3.4 Amended and Restated Partnership Agreement dated as of June 30,
1995 among LSP-Cottage Grove, Inc., Granite Power Partners, L.P.
and TPC Cottage Grove, Inc. (1)
3.4.1 Amendment #1 to the Cottage Grove Partnership Agreement. (2)
3.4.2 Consent, Waiver and Amendment No. 2 dated March 20, 1998 to the
Amended and Restated Limited Partnership Agreement of LSP-Cottage
Grove, L.P. (3)
3.4.3 Third Amendment, dated December 11, 1998, to the Amended and
Restated Limited Partnership Agreement of LSP-Cottage
Grove, L.P. (3)
3.5. Certificate of Limited Partnership of LSP-Whitewater Limited
Partnership. (1)
3.6 Amended and Restated Partnership Agreement dated as of June 30,
1995 among LSP-Whitewater I, Inc., Granite Power Partners, L.P.
and TPC Whitewater, Inc. (1)
3.6.1 Consent, Waiver and Amendment No. 1 dated March 20, 1998 to the
Amended and Restated Limited Partnership Agreement of
LSP-Whitewater Limited Partnership. (3)
3.6.2 Second Amendment, dated December 11, 1998, to the Amended and
Restated Limited Partnership Agreement of LSP-Whitewater Limited
Partnership. (3)
4.1 Trust Indenture dated as of May 1, 1995 by and among LS Power
Funding Corporation and IBJ Schroder Bank & Trust Company, as
Trustee, with respect to the Senior Secured Bonds (as supplemented
by the First Supplemental Indenture dated as of May 1, 1995 by and
among LS Power Funding Corporation and IBJ Schroder Bank & Trust
Company, as Trustee). (1)
4.2 Trust Indenture dated as of May 1, 1995 by and among LSP-Cottage
Grove, L.P. and IBJ Schroder Bank & Trust Company, as Trustee,
with respect to the Cottage Grove First Mortgage Bonds (as
supplemented by the First Supplemental Indenture dated as of May 1,
1995 by and among LSP-Cottage Grove, L.P. and IBJ Schroder Bank &
Trust Company, as Trustee). (1)
4.3 Trust Indenture dated as of May 1, 1995 by and among LSP-Whitewater
Limited Partnership and IBJ Schroder Bank & Trust Company, as
Trustee, with respect to the Whitewater First Mortgage Bonds (as
supplemented by the First Supplemental Indenture dated as of May 1,
1995 by and among LSP-Whitewater Limited Partnership and IBJ
Schroder Bank & Trust Company, as Trustee). (1)
.
4.4 Registration Rights Agreement dated as of June 30, 1995 by and
among Chase Securities, Inc., Morgan Stanley & Co. Incorporated,
LS Power Funding Corporation, LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership (1)
4.5 Form of Senior Secured Bond (included in Exhibit 4.1). (1)
4.6 Form of Cottage Grove First Mortgage Bond (included in Exhibit
4.2). (1)
4.7 Form of Whitewater First Mortgage Bond (included in Exhibit
4.3). (1)
10.1 Operation and Maintenance Agreement by and between LSP-Whitewater
Limited Partnership as Owner and LSP-Whitewater I, Inc. as Operator
dated as of April 15, 1999.(*)
10.2 Operation and Maintenance Agreement by and between LSP-Cottage
Grove, L.P. as Owner and LSP-Cottage Grove, Inc. as Operator
dated as of April 15, 1999.(*)
27.1 Financial Data Schedule - LS Power Funding Corporation
27.2 Financial Data Schedule - LSP - Cottage Grove, L.P.
27.3 Financial Data Schedule - LSP - Whitewater Limited Partnership
- -------------
(*) Certain portions of this exhibit have been deleted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
(1) Incorporated herein by reference to the Registration Statement on Form S-4
(File No. 33-95928) filed by LS Power Funding Corporation, LSP-Cottage
Grove, L.P. and LSP-Whitewater Limited Partnership on August 16, 1995, as
amended, or to the Form 10-K (File No. 33-95928) filed for the fiscal year
ended December 31, 1995 by LS Power Funding Corporation, LSP-Cottage Grove,
L.P. and LSP-Whitewater Limited Partnership.
(2) Incorporated herein by reference to the Form 10-Q (File No. 33-95928) filed
August 14, 1996.
(3) Incorporated herein by reference to the Form 10-K (File No. 33-95928) filed
April 15, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
SIGNATURES: Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
LS POWER FUNDING CORPORATION
By: /s/ Thomas F. Schwartz
----------------------------
Name: Thomas F. Schwartz
Title: Vice President and Assistant Treasurer
Date: May 17, 1999
LSP-COTTAGE GROVE, L.P.
By: LSP-Cottage Grove, Inc.
Its: General Partner
By: /s/ Thomas F. Schwartz
----------------------------
Name: Thomas F. Schwartz
Title: Vice President and Assistant Treasurer
Date: May 17, 1999
LSP-WHITEWATER LIMITED PARTNERSHIP
By: LSP-Whitewater I, Inc.
Its: General Partner
By: /s/ Thomas F. Schwartz
----------------------------
Name: Thomas F. Schwartz
Title: Vice President and Assistant Treasurer
Date: May 17, 1999
8
<PAGE> 9
LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
LS POWER FUNDING CORPORATION
Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 F-2
Statements of Income for the Three Months Ended March 31, 1999 and 1998 (unaudited) F-3
Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 (unaudited) F-4
Notes to Condensed Financial Statements (unaudited) F-5
LSP-COTTAGE GROVE, L.P.
Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 F-6
Statements of Income for the Three Months Ended March 31, 1999 and 1998 (unaudited) F-7
Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 (unaudited) F-8
Notes to Condensed Financial Statements (unaudited) F-9
LSP-WHITEWATER LIMITED PARTNERSHIP
Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 F-12
Statements of Income for the Three Months Ended March 31, 1999 and 1998 (unaudited) F-13
Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 (unaudited) F-14
Notes to Condensed Financial Statements (unaudited) F-15
</TABLE>
F-1
<PAGE> 10
LS POWER FUNDING CORPORATION
BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1 $ 1
Interest receivable on First Mortgage Bonds 6,472 --
-------- --------
Total current assets 6,473 1
INVESTMENT IN FIRST MORTGAGE BONDS 332,000 332,000
-------- --------
Total assets $338,473 $332,001
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITY - Interest payable on Senior Secured Bonds $ 6,472 $ --
SENIOR SECURED BONDS PAYABLE 332,000 332,000
-------- --------
Total liabilities 338,472 332,000
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000 shares authorized,
100 shares issued and outstanding -- --
Additional paid-in capital 1 1
-------- --------
Total stockholders' equity 1 1
-------- --------
Total liabilities and stockholders' equity $338,473 $332,001
======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part
of these balance sheets.
F-2
<PAGE> 11
LS POWER FUNDING CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Interest income $ 6,472 $ 6,472
Interest expense 6,472 6,472
----------- -----------
Net income $ -- $ --
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
F-3
<PAGE> 12
LS POWER FUNDING CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------------ -----------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ -- $ --
CASH PROVIDED BY INVESTING ACTIVITIES -- --
CASH PROVIDED BY FINANCING ACTIVITIES -- --
------------ -----------
NET INCREASE (DECREASE) IN CASH -- --
CASH, beginning of period 1 1
------------ -----------
CASH, end of period $ 1 $ 1
============ ===========
</TABLE>
The accompanying notes to the financial statements are an integral
part of these statements.
F-4
<PAGE> 13
LS POWER FUNDING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The balance sheet as of March 31, 1999 and the statements of income and
cash flows for the periods ended March 31, 1999 and 1998 have been prepared by
LS Power Funding Corporation ("Funding"), without audit. In the opinion of
management, these unaudited condensed financial statements include all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly Funding's financial position as of March 31, 1999, and the results of its
operations and its cash flows for the periods ended March 31, 1999 and 1998.
The unaudited condensed financial statements have been prepared pursuant to
the rules and regulations of the United States Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. While management believes that the
disclosures made are adequate to make the information presented not misleading,
these unaudited condensed financial statements should be read in conjunction
with Funding's audited financial statements included in Funding's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998.
2. ORGANIZATION
Funding was established on June 23, 1995 as a special purpose Delaware
corporation to issue debt securities in connection with financing construction
of two gas-fired cogeneration facilities, one located in Cottage Grove,
Minnesota and the other located in Whitewater, Wisconsin. LSP-Cottage Grove,
L.P. ("Cottage Grove") and LSP-Whitewater Limited Partnership ("Whitewater") are
single purpose Delaware limited partnerships established to develop, finance,
construct and own the facilities located in Cottage Grove and Whitewater,
respectively. Cottage Grove and Whitewater each owns 50% of the outstanding
stock of Funding. Funding's sole business activities are limited to maintaining
its organization, the offering of the Senior Secured Bonds, and its acquisition
of the First Mortgage Bonds issued by Cottage Grove and Whitewater.
F-5
<PAGE> 14
LSP-COTTAGE GROVE, L.P.
BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 928 $ 918
Restricted cash 13,704 7,827
Accounts receivable - trade 4,610 4,560
Accounts receivable - other 702 1,227
Fuel inventories 303 1,448
Fuel held for resale 203 401
Spare parts inventories 423 486
Other current assets 237 280
-------- --------
Total current assets 21,110 17,147
NET INVESTMENT IN LEASE (Note 4) 235,829 235,566
DEBT ISSUANCE AND FINANCING COSTS, net of accumulated
amortization: March 31, 1999 (unaudited), $936;
December 31, 1998, $867 6,186 6,255
NOTE RECEIVABLE FROM AFFILIATE (Note 3) 6,585 6,043
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
-------- --------
Total assets $269,711 $265,012
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 688 $ 2,122
Retainage payable 5,443 5,443
Interest payable 3,021 --
Accrued expenses 1,459 243
-------- --------
Total current liabilities 10,611 7,808
FIRST MORTGAGE BONDS PAYABLE 155,000 155,000
-------- --------
Total liabilities 165,611 162,808
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 104,100 102,204
-------- --------
Total liabilities and partners' capital $269,711 $265,012
======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-6
<PAGE> 15
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING REVENUES:
Lease $ 5,306 $ 5,273
Service 5,475 4,067
Other 1,430 721
-------- --------
12,211 10,061
OPERATING EXPENSES:
Cost of services 7,203 5,172
-------- --------
OPERATING INCOME 5,008 4,889
NONOPERATING INCOME (EXPENSE):
Interest expense (3,096) (3,087)
Interest income 204 327
-------- --------
Net income $ 2,116 $ 2,129
======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-7
<PAGE> 16
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,116 $ 2,129
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of unearned lease income (5,306) (5,273)
Minimum lease payments received 5,043 4,902
Amortization of debt issuance and financing costs 69 65
Decrease (increase) in accounts receivable - trade (50) 42
Decrease in accounts receivable - other 525 3,012
Decrease in fuel inventories 1,343 1,469
Increase (decrease) in spare parts inventories 63 (53)
Increase (decrease) in other current assets 43 (111)
Decrease in accounts payable (1,434) (1,976)
Increase in interest payable 3,021 3,021
Increase in accrued expenses 1,216 1,288
------- -------
Net cash flows provided by operating activities 6,649 8,515
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment -- (45)
Increase in restricted cash (5,877) (7,799)
------- -------
Net cash used in investing activities (5,877) (7,844)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Partner distributions (220) --
Increase in receivable from affiliate (542) --
------- -------
Net cash used in financial activities 762 --
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 10 671
CASH AND CASH EQUIVALENTS, beginning of period 918 8,816
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 928 $ 9,487
======= =======
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-8
<PAGE> 17
LSP-COTTAGE GROVE, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The balance sheet as of March 31, 1999 and the statements of income and
cash flows for the periods ended March 31, 1999 and 1998 have been prepared by
LSP-Cottage Grove, L.P. (the "Partnership"), without audit. In the opinion of
management, these unaudited condensed financial statements include all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the Partnership's financial position as of March 31, 1999, and the
results of its operations and its cash flows for the periods ended March 31,
1999 and 1998.
The unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While management believes
that the disclosures made are adequate to make the information presented not
misleading, these unaudited condensed financial statements should be read in
conjunction with the Partnership's audited financial statements included in the
Partnership's Annual Report on Form 10-K for the Fiscal Year ended December 31,
1998.
2. ORGANIZATION
The Partnership is a Delaware limited partnership that was formed on
December 14, 1993 to develop, finance, construct and own a gas-fired
cogeneration facility with a design capacity of approximately 245 megawatts
located in Cottage Grove, Minnesota (the "Facility"). Construction and start-up
of the Facility was substantially completed and commercial operation commenced
October 1, 1997 (the "Commercial Operations Date"). The 1% general partner of
the Partnership is LSP-Cottage Grove, Inc., a wholly-owned subsidiary of
Cogentrix Cottage Grove, LLC ("Cogentrix Cottage Grove"). Cogentrix Cottage
Grove and TPC Cottage Grove, Inc. are the sole limited partners of the
Partnership, owning approximately 72% and 27% limited partnership interests,
respectively. The ultimate parent of Cogentrix is Cogentrix Energy, Inc.
("Cogentrix Energy"), a North Carolina corporation.
The Partnership holds a 50% equity ownership interest in LS Power
Funding Corporation ("Funding"), which was established on June 23, 1995 as a
special purpose funding corporation to issue debt securities (the "Senior
Secured Bonds") in connection with financing construction of the Facility and a
similar gas-fired cogeneration facility located in Whitewater, Wisconsin. On
June 30, 1995, a portion of the proceeds from the offering and sale of the
Senior Secured Bonds issued by Funding was used to purchase $155 million of
First Mortgage Bonds issued simultaneously by the Partnership.
All of the electric capacity and energy generated by the Facility is
sold to Northern States Power Company (the "Utility") under a 30-year power
purchase agreement (the "Power Purchase Agreement"). The thermal energy
generated by the Facility is sold in the form of steam to Minnesota Mining and
Manufacturing Company (the "Steam Purchaser") under a 30-year thermal energy
sales agreement.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include
unrestricted short-term investments with original maturities of three months or
less.
F-9
<PAGE> 18
RESTRICTED CASH
The majority of the revenue received by the Partnership is required to
be deposited into accounts administered by the trustee under the trust indenture
for the First Mortgage Bonds (the "Trustee"). The Trustee invests funds held in
these accounts at the direction of the Partnership. The funds are invested in
commercial paper, high grade government money market funds and overnight
repurchase obligations secured by U.S. Treasury Notes. The investments are
carried at cost, which approximates market at March 31, 1999 and 1998. In
addition, special accounts are established to provide for debt service reserves
and payments, and major maintenance reserves. Amounts held by the Trustee in
accounts designated for debt service, major maintenance and construction, which
might otherwise be considered cash equivalents, are treated as restricted cash.
NOTE RECEIVABLE FROM AFFILIATE
At March 31, 1999, the Partnership had a note receivable from Cogentrix
Energy. The amount of the note receivable is equal to the amount of funds
required to be on deposit in the debt service reserve account. The note
receivable is backed by a letter of credit issued to the Partnership. The note
receivable bears interest at the three-month LIBOR rate plus 0.25%, and is due
December 15, 2016.
RETAINAGE PAYABLE
As of March 31, 1999 (unaudited) and December 31, 1998, the amount in
retainage payable represented project costs and are eligible for payment from
funds held by the Trustee, which are included in restricted cash in the
accompanying balance sheets.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
All of the electric capacity and energy generated by the Facility is
sold to the Utility under a 30-year power purchase agreement (the "Power
Purchase Agreement"). The Power Purchase Agreement has characteristics similar
to a lease in that the agreement confers to the Utility the right to use
specific property, plant and equipment. At the Commercial Operations Date, the
Partnership accounted for the Power Purchase Agreement as a "sales-type" capital
lease in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 13, "Accounting for Leases" (see Note 4).
LEASE REVENUE
Lease revenue represents the amortization of unearned income on the
lease using the effective interest rate method as well as contingent rentals
that result from changes in payment escalators occurring subsequent to the
Commercial Operations Date. These contingent rentals are not expected to
materially change the lease revenue recognized over the life of the Power
Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs
incurred to operate the Facility and to provide variable electric energy to the
Utility and thermal energy to the Steam Purchaser.
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural
gas fuel inventory, including amounts remarketed directly to third parties.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility
and providing variable electric energy to the Utility as well as thermal energy
to the Steam Purchaser.
F-10
<PAGE> 19
4. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sales-type capital lease of $87.1 million reflecting the
difference between the estimated fair market value ($233.6 million) and the
historical cost ($146.5 million) of the Facility. The interest rate implicit in
the lease is 9.01%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at March 31,
1999, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Gross Investment in Lease $ 542,764
Unearned Income on Lease (306,935)
----------
Net Investment in Lease $ 235,829
==========
</TABLE>
Gross investment in lease represents total capacity payments receivable
over the term of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
F-11
<PAGE> 20
LSP-WHITEWATER LIMITED PARTNERSHIP
BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 829 $ 1,181
Restricted cash 13,210 6,289
Accounts receivable - trade 4,363 4,512
Accounts receivable - other 1,675 1,885
Fuel inventories 332 743
Spare parts inventories 677 641
Other current assets 787 552
-------- --------
Total current assets 21,873 15,803
NET INVESTMENT IN LEASE (Note 4) 263,167 263,048
GREENHOUSE FACILITY, net 8,065 8,172
DEBT ISSUANCE AND FINANCE COSTS, net of accumulated
amortization: March 31, 1999 (unaudited), $962; December 31, 1998, $882 6,261 6,341
NOTE RECEIVABLE FROM AFFILIATE (Note 3) 6,900 6,900
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
-------- --------
Total assets $306,267 $300,265
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 921 $ 2,177
Retainage payable 5,587 5,587
Interest payable 3,451 --
Accrued expenses 2,954 1,386
-------- --------
Total current liabilities 12,913 9,150
FIRST MORTGAGE BONDS PAYABLE 177,000 177,000
-------- --------
Total liabilities 189,913 186,150
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 116,354 114,115
-------- --------
Total liabilities and partners' capital $306,267 $300,265
======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
balance sheets.
F-12
<PAGE> 21
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING REVENUES:
Lease $ 5,855 $ 5,834
Service 6,395 5,790
Other 281 427
-------- --------
12,531 12,051
-------- --------
OPERATING EXPENSES:
Cost of services 6,792 6,827
Greenhouse operating expenses 196 175
-------- --------
6,988 7,002
-------- --------
OPERATING INCOME 5,543 5,049
NON-OPERATING INCOME (EXPENSE):
Interest expense (3,533) (3,517)
Interest income 229 297
-------- --------
Net income $ 2,239 $ 1,829
======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-13
<PAGE> 22
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,239 $ 1,829
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of unearned lease income (5,855) (5,834)
Minimum lease payments received 5,736 5,598
Amortization of debt issuance and financing costs 80 66
Depreciation 107 96
Decrease (increase) in accounts receivable - trade 149 (424)
Decrease in accounts receivable - other 210 2,195
Decrease in fuel inventories 411 1,166
Increase in spare parts inventories (36) (30)
Decrease (increase) in other current assets (235) 52
Decrease in accounts payable (1,256) (3,562)
Increase in interest payable 3,451 3,450
Increase in accrued expenses 1,568 1,702
------- -------
Net cash provided by operating activities 6,569 6,304
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment -- (1,015)
Increase in restricted cash (6,921) (4,984)
------- -------
Net cash used in investing activities (6,921) (5,999)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES -- --
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (352) 305
CASH AND CASH EQUIVALENTS, beginning of period 1,181 7,749
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 829 $ 8,054
======= =======
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-14
<PAGE> 23
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The balance sheet as of March 31, 1999 and the statements of income and
cash flows for the periods ended March 31, 1999 and 1998 have been prepared by
LSP-Whitewater Limited Partnership (the "Partnership"), without audit. In the
opinion of management, these unaudited condensed financial statements include
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the Partnership's financial position as of March 31, 1999 and the
results of its operations and its cash flows for the periods ended March 31,
1999 and 1998.
The unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While management believes
that the disclosures made are adequate to make the information presented not
misleading, these unaudited condensed financial statements should be read in
conjunction with the Partnership's audited financial statements included in the
Partnership's Annual Report on Form 10-K for the Fiscal Year ended December 31,
1998.
2. ORGANIZATION
LSP-Whitewater Limited Partnership is a Delaware limited partnership
that was formed on December 14, 1993 to develop, finance, construct and own a
gas-fired cogeneration facility with a design capacity of approximately 245
megawatts located in Whitewater, Wisconsin (the "Facility"). Construction and
start-up of the Facility was substantially completed and commercial operation
commenced September 18, 1997 (the "Commercial Operations Date"). The 1% general
partner of the Partnership is LSP-Whitewater I, Inc., a wholly-owned subsidiary
of Cogentrix Whitewater, LLC ("Cogentrix Whitewater"). Cogentrix Whitewater and
TPC Whitewater, Inc. are the sole limited partners of the Partnership, owning
approximately 73% and 26% limited partnership interests, respectively. The
ultimate parent of Cogentrix Whitewater is Cogentrix Energy, Inc. ("Cogentrix
Energy").
The Partnership holds a 50% equity ownership interest in LS Power
Funding Corporation ("Funding"), which was established on June 23, 1995 as a
special purpose Delaware corporation to issue debt securities (the "Senior
Secured Bonds") in connection with financing construction of the Facility and a
similar gas-fired cogeneration facility located in Cottage Grove, Minnesota. On
June 30, 1995, a portion of the proceeds from the offering and sale of the
Senior Secured Bonds issued by Funding was used to purchase $177 million of
First Mortgage Bonds issued simultaneously by the Partnership.
The Partnership sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Facility to Wisconsin Electric Power Company
("WEPCO" or, as the context requires, the "Utility") pursuant to a 25-year power
purchase agreement (the "Power Purchase Agreement"). The Partnership may also
sell to third parties up to 12 megawatts of electric capacity and any energy
that is not dispatched by WEPCO. The thermal energy generated by the Facility is
provided in the form of steam to the University of Wisconsin - Whitewater
under a steam supply agreement expiring on June 30, 2005 and in the form of
hot water to a greenhouse (the "Greenhouse Facility") owned by the Partnership
(collectively, the "Steam Purchasers").
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include
unrestricted short-term investments with original maturities of three months or
less.
F-15
<PAGE> 24
RESTRICTED CASH
The majority of the revenue received by the Partnership is required to
be deposited into accounts administered by the trustee under the trust indenture
for the First Mortgage Bonds (the "Trustee"). The Trustee invests funds held in
these accounts at the direction of the Partnership. The funds are invested in
commercial paper, high grade government money market funds and overnight
repurchase obligations secured by U.S. Treasury Notes. In addition, special
accounts are established to provide for debt service reserves and payments, and
major maintenance reserves. Amounts held by the Trustee in accounts designated
for debt service, major maintenance and construction, which might otherwise be
considered cash equivalents, are treated as restricted cash.
NOTE RECEIVABLE FROM AFFILIATE
At March 31, 1999 (unaudited), the Partnership had a note receivable
from Cogentrix Energy. The amount of the note receivable is equal to the amount
of funds required to be on deposit in the debt service reserve account. The note
receivable is backed by a letter of credit issued to the Partnership. The note
receivable bears interest at the three-month LIBOR rate plus 0.25%, and is due
December 15, 2016.
GREENHOUSE FACILITY
Depreciation on the Greenhouse Facility and related equipment is
computed using the straight-line method over 25 years and 10 years,
respectively.
RETAINAGE PAYABLE
As of March 31, 1999 (unaudited) and December 31,1998, the amount in
retainage payable represented project costs and are eligible for payment from
funds held by the Trustee, which are included in restricted cash in the
accompanying balance sheets.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Partnership sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Facility to the Utility pursuant to the Power
Purchase Agreement. The Power Purchase Agreement has characteristics similar
to a lease in that the agreement confers to the Utility the right to use
specific property, plant and equipment. At the Commercial Operations Date, the
Partnership accounted for the Power Purchase Agreement as a "sales-type" capital
lease in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 13, "Accounting for Leases" (see Note 4).
LEASE REVENUE
Lease revenue represents the amortization of unearned income on lease
using the effective interest rate method as well as contingent rentals that
result from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
SERVICE REVENUE
Service revenues represent reimbursement to the Partnership of costs
incurred to operate the Facility and to provide variable electric energy to the
Utility and thermal energy to the Steam Purchaser.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility
and providing variable electric energy to the Utility as well as thermal energy
to the Steam Purchasers.
F-16
<PAGE> 25
4. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sales-type capital lease of $97.0 million reflecting the
difference between the estimated fair market value ($261.7 million) and the
historical cost ($164.7 million) of the Facility. The interest rate implicit in
the lease is 9.79%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at March 31,
1999 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Gross Investment in Lease $ 587,361
Unearned Income on Lease (324,194)
------------
Net Investment in Lease $ 263,167
============
</TABLE>
Gross investment in lease represents total capacity payments receivable
over the term of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
F-17
<PAGE> 1
EXECUTION COPY
OPERATION AND MAINTENANCE AGREEMENT
by and between
LSP-WHITEWATER LIMITED PARTNERSHIP
as Owner
and
LSP-WHITEWATER I, INC.
as Operator
Dated as of April 15, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS .......................................................1
ARTICLE II - SCOPE; PROJECT AGREEMENTS; REPRESENTATIVES........................6
SECTION 2.1 - SCOPE OF WORK ...................................................6
SECTION 2.2 - EXAMINATION OF PROJECT AGREEMENTS. PROJECT PERMITS AND SITE .....6
SECTION 2.3 - COMPLIANCE WITH PROJECT AGREEMENTS AND PERMITS ..................6
SECTION 2.4 - PARTY REPRESENTATIVES ...........................................6
ARTICLE III - OPERATOR RESPONSIBILITIES........................................7
SECTION 3.1 - INDEPENDENT CONTRACTOR...........................................7
SECTION 3.2 - NOT USED
SECTION 3.3 - SITE PROCEDURES .................................................7
SECTION 3.4 - OPERATIONAL PHASE SERVICES ......................................7
SECTION 3.5 - STANDARDS OF PERFORMANCE ........................................8
SECTION 3.6 - NOT USED
SECTION 3.7 - ANNUAL OPERATING BUDGET AND PLAN; THREE YEAR PROJECTION..........9
SECTION 3.8 - PROCUREMENT OF MATERIALS AND SERVICES ..........................10
SECTION 3.9 - INVENTORY ......................................................11
SECTION 3.10 - PERSONNEL......................................................11
SECTION 3.11 - TRAINING PROGRAMS .............................................12
SECTION 3.12 - REPORTS .......................................................12
SECTION 3.13 - EMERGENCY AND OUTAGE PROCEDURES................................13
SECTION 3.14 - IMPROVEMENTS ..................................................13
SECTION 3.15 - ANNUAL REVIEW..................................................13
SECTION 3.16 - NOT USED
SECTION 3.17 - ADMINISTRATION ................................................14
SECTION 3.18 - TAXES .........................................................14
SECTION 3.19 - FACILITY PERFORMANCE ..........................................14
SECTION 3.20 - LOAN AGREEMENT ................................................14
SECTION 3.21 - FUEL SUPPLY ...................................................14
SECTION 3.22 - SAFETY ........................................................15
SECTION 3.23 - BOOKS AND RECORDS . ...........................................15
SECTION 3.24 - SCHEDULING MAINTENANCE ........................................16
SECTION 3.25 - COOPERATION WITH OTHERS .......................................16
SECTION 3.26 - ACCESS ........................................................16
SECTION 3.27 - OPERATOR LICENSES; PERMITS.....................................16
SECTION 3.28 - ENFORCEMENT OF WARRANTIES .....................................16
SECTION 3.29 - COMPLIANCE WITH LAWS ..........................................16
SECTION 3.30 - NO LIENS OR ENCUMBRANCES.......................................16
SECTION 3.31 - NO ACTION .....................................................16
SECTION 3.32 - LITIGATION; PERMIT LAPSES .....................................17
ARTICLE IV - OWNER RESPONSIBILITIES...........................................17
SECTION 4.1 - FUEL SUPPLY ...................................................17
SECTION 4.2 - REASONABLE ACCESS .............................................17
SECTION 4.3 - ACCOMMODATIONS.................................................17
SECTION 4.4 - UTILITIES .....................................................17
SECTION 4.5 - MANUALS AND DRAWINGS ..........................................17
SECTION 4.6 - TAXES .........................................................18
SECTION 4.7 - MAINTENANCE OF PERMITS ........................................18
i
<PAGE> 3
TABLE OF CONTENTS
SECTION 4.8 - PAYMENT ........................................................18
ARTICLE V - LIMITATIONS ON AUTHORITY .........................................18
SECTION 5.1 - GENERAL LIMITATIONS ............................................18
ARTICLE VI - PAYMENT AMOUNT AND TERMS ........................................19
SECTION 6.1 - PAYMENT ........................................................19
SECTION 6.2 - REIMBURSABLE COSTS .............................................19
SECTION 6.3 - FEES ...........................................................20
SECTION 6.4 - PERFORMANCE BONUSES AND PENALTIES ..............................20
SECTION 6.5 - DETERMINATION OF PERFORMANCE BONUS AND PENALTY..................20
SECTION 6.6 - DISPUTES........................................................20
SECTION 6.7 - EXCLUSION.......................................................21
SECTION 6.8 - AUDIT RIGHTS....................................................21
SECTION 6.9 - PAYMENT OF FINES AND PENALTIES..................................21
SECTION 6.10 - INTEREST ......................................................21
SECTION 6.11 - PAYMENT ADJUSTMENT ............................................22
ARTICLE VII - INSURANCE ......................................................22
SECTION 7.1 - GENERAL REQUIREMENTS ...........................................22
SECTION 7.2 - OPERATOR PROVIDED INSURANCE ....................................23
SECTION 7.3 - OWNER PROVIDED INSURANCE .......................................24
SECTION 7.4 - OPTIONAL INSURANCE RESPONSIBILITIES ............................25
ARTICLE VIII - DISPUTE RESOLUTION ............................................25
SECTION 8.1 - PROCEDURE. .....................................................25
SECTION 8.2 - ARBITRATION PROCEDURE...........................................26
SECTION 8.3 - QUALIFICATIONS OF ARBITRATORS; EXPENSES ........................27
SECTION 8.4 - INDEPENDENT ARBITRATION AGREEMENT ..............................27
SECTION 8.5 - CONTINUATION OF WORK............................................27
ARTICLE IX - COMMENCEMENT AND TERMINATION ....................................27
SECTION 9.1 - COMMENCEMENT OF WORK ...........................................27
SECTION 9.2 - TERM...........................................................27
SECTION 9.3 - RENEWALS........................................................27
SECTION 9.4 - EARLY TERMINATION ..............................................27
SECTION 9.5 - TERMINATION PROCEDURE ..........................................28
SECTION 9.6 - SUSPENSION OF PERFORMANCE. .....................................29
ARTICLE X - REPRESENTATIONS..................................................29
SECTION 10.1 - REPRESENTATIONS AND WARRANTIES ................................29
ARTICLE XI - CONFIDENTIALITY.................................................30
SECTION 11.1 - GENERAL........................................................30
SECTION 11.2 - EXCEPTIONS.....................................................30
SECTION 11.3 - REQUIRED DISCLOSURE. ..........................................30
SECTION 11.4 - RETURN OF CONFIDENTIAL INFORMATION ............................30
ii
<PAGE> 4
TABLE OF CONTENTS
ARTICLE XII - DEFAULT ........................................................31
SECTION 12.1 - EVENTS OF DEFAULT .............................................31
SECTION 12.2 - RIGHTS UPON DEFAULT ...........................................31
ARTICLE XIII- INDEMNITY ......................................................32
SECTION 13.1 - OPERATOR'S INDEMNITY ..........................................32
SECTION 13.2 - OWNER'S INDEMNITY..............................................32
SECTION 13.3 - SURVIVAL OF INDEMNITY . .......................................33
SECTION 13.4 - LITIGATION.....................................................33
ARTICLE XIV - LIABILITY OF THE PARTIES........................................34
SECTION 14.1 - LIMITATION OF LIABILITY........................................34
SECTION 14.2 - SURVIVAL.......................................................34
SECTION 14.3 - NO WARRANTIES OR GUARANTEES....................................34
ARTICLE XV - FORCE MAJEURE....................................................34
SECTION 15.1- FORCE MAJEURE, EVENTS LIMITATION................................34
ARTICLE XVI - TITLE, DOCUMENTS AND DATA.......................................35
SECTION 16.1 - MATERIALS AND EQUIPMENT........................................35
SECTION 16.2 - REVIEW BY OWNER................................................35
ARTICLE XVII - HAZARDOUS MATERIALS............................................35
SECTION 17.1 -OWNER'S INDEMNITY ..............................................35
SECTION 17.2 -COLLECTION AND REMOVAL .........................................36
SECTION 17.3 - MATERIAL SAFETY DATA SHEETS ...................................36
SECTION 17.4 -OPERATOR'S INDEMNITY ...........................................36
ARTICLE XVIII - MISCELLANEOUS PROVISIONS .....................................36
SECTION 18.1 - ENTIRE AGREEMENT...............................................36
SECTION 18.2 - CHANGES TO PROJECT AGREEMENTS..................................37
SECTION 18.3 - AMENDMENTS.....................................................37
SECTION 18.4 - JOINT EFFORT...................................................37
SECTION 18.5 - CAPTIONS.......................................................37
SECTION 18.6 - NOTICE.........................................................37
SECTION 18.7 - EFFECTIVE DATE OF NOTICE.......................................38
SECTION 18.8 - PARTIAL INVALIDITY.............................................38
SECTION 18.9 - ASSIGNMENT.....................................................39
SECTION 18.10 - NO WAIVER.....................................................39
SECTION 18.11 - COUNTERPARTS..................................................39
SECTION 18.12 - PUBLICITY.....................................................39
SECTION 18.13 - APPLICABLE LAW................................................39
SECTION 18.14 - SUCCESSORS AND ASSIGNS.......................................39
SECTION 18.15 - EXHIBITS AND SCHEDULES........................................39
SECTION 18.16 - THIRD PARTY BENEFICIARIES. ...................................39
SECTION 18.17 - OPERATOR LIENS AND ENCUMBRANCES...............................40
SECTION 18.18 - EFFECT OF APPROVAL RIGHTS
iii
<PAGE> 5
EXHIBITS
A. Description of Facility and Site
B. Typical List of Site Procedures
C. Typical Annual Operating Budget
D. Services Included with Management Fees
E. Performance Bonus and Penalty Determination
F. Project Agreements and Project Permits Delivered to Operator
G. Termination Fee
iv
<PAGE> 6
OPERATION AND MAINTENANCE AGREEMENT
This OPERATION AND MAINTENANCE AGREEMENT dated as of April 15, 1999
(the "Effective Date"), is by and between LSP-Whitewater Limited Partnership, a
Delaware limited partnership ("Owner"), having its principal office at c/o
Cogentrix Energy, Inc., 9405 Arrowpoint Blvd., Charlotte, North Carolina 28273
and LSP-Whitewater I, Inc., a Delaware corporation ("Operator"), having its
principal office at c/o Cogentrix Energy, Inc., 9405 Arrowpoint Blvd.,
Charlotte, North Carolina 28273.
RECITALS:
1. Owner has constructed, owns and operates the Facility (as
hereinafter defined) located in Whitewater, Wisconsin.
2. Owner has entered into a Construction Contract (as
hereinafter defined) for the design and construction of the Facility.
3. Operator, by itself and through suppliers and
subcontractors, desires to provide certain operation and management services for
the Facility.
4. Operator is knowledgeable in the operation and maintenance
of thermal energy equipment and electrical generation equipment of the types
used at the Facility, and has reviewed certain Project Agreements (as
hereinafter defined) and has determined it is able and willing to perform the
services described herein.
5. Owner desires to engage Operator to perform such work as is
necessary to operate and maintain the Facility in accordance with the terms and
conditions expressed in this Agreement (as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants and promises set
forth herein, IT IS AGREED:
ARTICLE I - Definitions
"Affiliate" means, in relation to any Person, any Person which
directly or indirectly controls, or is under common control with, or is
controlled by such other Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled" and "under common
control with" shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). Notwithstanding the foregoing, no individual shall be deemed to be
an Affiliate of a Person solely by reason of his or her being a director,
committee member, officer or employee of such Person.
"Agreement" means this Operation and Maintenance Agreement
(including all exhibits and schedules attached hereto), as it may be amended,
supplemented, or otherwise modified from time to time.
"Annual Operating Budget" shall have the meaning as set forth
in Section 3.7.
1
<PAGE> 7
"Annual Operating Plan" shall have the meaning as set forth in
Section 3.7.
"COD Year" means the period commencing on September 18, 1998
and ending on the first anniversary thereof, and each succeeding year
thereafter.
"Commencement Date" means April 16, 1999, the date on which
Operator commences to provide services under this Agreement.
"Construction Contract" means the Second Amended and Restated
Turnkey Construction Agreement for the Project dated as of April 11, 1995, by
and between Owner and Contractor for the engineering, procurement, construction
and start-up of the Facility, as amended, supplemented, or otherwise modified
from time to time.
"Contractor" means Westinghouse Electric Corporation, a
Pennsylvania corporation, including its representatives, successors and
permitted assigns acting in its capacity as contractor pursuant to the
Construction Contract.
"Day" shall mean a calendar day, unless otherwise specified.
In the event that any monetary obligation or obligation to deliver any report or
budget falls due on a Saturday, Sunday or legal holiday in the locality where
such Work is being performed, such obligation shall be deemed due on the next
business day thereafter.
"Effective Date" means the date on which this Agreement is
entered into by Owner and Operator, as first above written.
"Emergency" means any event or condition relating to or
affecting the Facility which may result in injury to persons or damage to
property, including, without limitation, any person or property at the Facility.
"Facility" means the dual fuel cogeneration facility and
auxiliary boilers, as constructed on the Site pursuant to the Construction
Contract, including without limitation, all equipment and machinery integral or
related to the operation of the facility, the steam interconnection and delivery
systems described or referred to in the Steam Supply Agreements and the gas
interconnection equipment referred to in the Fuel Supply Agreements (each to the
extent owned by or operated by Owner pursuant to any Project Agreement), and all
other equipment, systems, electric interconnection facilities and facilities
associated therewith.
"Facility Equipment" means all equipment owned or leased by
Owner and used in the operation and maintenance of the Facility.
"Force Majeure" shall have the meaning as set forth in Article
XV.
"Fuel Supply Agreements" means, collectively, all agreements
as shall be in effect from time to time between Owner and any other entity for
the provision, sale, transportation or delivery of fuel to the Facility.
2
<PAGE> 8
"Governmental Authority" means the United States of America,
the State of Wisconsin, or any local or special district agency, department,
authority, political subdivision, court, judicial or administrative authority or
instrumentality of either.
"Hazardous Materials" means asbestos or any "hazardous
substance" as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et
seq.), "hazardous wastes" as defined in the Resource Conservation and Recovery
Act, as amended (42 U.S.C. Sections 9601 et seq.), "toxic substances" as defined
in the Toxic Substance Control Act, as amended (15 U.S.C. Section 2601 et seq.),
and in the regulations adopted and publications promulgated pursuant thereto, or
in any other federal, state or local environmental governmental requirements.
"Law(s)" means any constitution, charter, act, statute, law,
ordinance, code, rule, regulation, order, permit, condition, specified standards
or objective criteria contained in any applicable permit, approval, order,
decision, determination or ruling of any Governmental Authority having
jurisdiction, all as in effect from time to time, including without limitation,
environmental laws pertaining to air and water emissions relating to the
Facility and the operation thereof, which standards or criteria must be met in
order for the Facility to be operated lawfully, or other legislative,
administrative or judicial action, final decree, judgment or order of any
Governmental Authority having jurisdiction relating to the Facility.
"Loan Agreement" means the promissory notes, loan agreements,
guarantees, assignments security agreements, mortgages and other agreements
between Owner and any Project Lender for the development, construction and/or
permanent financing or refinancing of the Facility, and any documents relating
thereto, as the same may be amended, supplemented, or otherwise modified from
time to time.
"Major Equipment" means the combustion turbine generator,
steam turbine generator and waste heat recovery boiler.
"Major Maintenance" means the Major Equipment disassembly,
inspections, overhauls, reassembly and significant capital improvements which
require an outage of the Major Equipment.
"Management Fee" means the amount that Owner shall pay to
Operator as provided in Section 6.3(b).
"Materials" means all supplies, spare parts, materials, tools,
consumables, chemicals and equipment (excluding fuel oil and natural gas)
necessary for the operation and maintenance of the Facility.
"Operating Year" means the period commencing on January 1 and
ending on December 31 of each calendar year.
"Operation and Maintenance Manuals" means the operating
manuals for the Facility provided by Contractor pursuant to the Construction
Contract, and the operating data, design drawings, specifications, vendor
manuals, and similar materials provided by Owner to Operator with respect to the
Facility.
"Operational Phase Services" means the services to be
performed by the Operator pursuant to Section 3.4.
3
<PAGE> 9
"Operator" means LSP-Whitewater I, Inc., its successors and/or
assigns.
"Owner" shall mean LSP-Whitewater Limited Partnership, its
successors and/or assigns.
"Party" means Owner or Operator and in the plural, both Owner
and Operator together.
"Performance Bonus" shall have the meaning as set forth in
Exhibit E.
"Performance Penalty" shall have the meaning as set forth in
Exhibit E.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Personnel" means the persons employed by the Operator and
assigned to the Site to operate and maintain the Facility and generally to
perform the Work, as described in Section 3.10.
"Plant Manager" shall mean the individual designated by
Operator and approved by Owner pursuant to Section 3.10 (c) that is empowered by
Operator to direct and manage the Work and with whom Owner may consult at all
reasonable times. Such individual shall not be empowered to execute any
amendments to this Agreement.
"Power Purchase Agreement" means the Power Purchase Agreement
dated as of December 21 1993, between Utility and Owner, as amended,
supplemented, or otherwise modified from time to time.
"Project" means the Facility, the Site, the Project Permits,
the Project Agreements and other real or personal property interests relating to
the Facility and/or the Site which are owned by Owner or in which Owner has any
rights.
"Project Agreements" means, collectively, the collective
reference to the Construction Contract, the Steam Supply Agreement, the Fuel
Supply Agreements, the Power Purchase Agreement, this Agreement, the Loan
Agreement and any other agreement relating to the Facility or its operation,
maintenance or servicing designated by Owner as a Project Agreement to the
extent Operator has been provided notice and a copy thereof. "Project Agreement"
shall include any amendment, modification, supplement or addition to any Project
Agreement and any new agreements designated by Owner as a Project Agreement,
executed after the date of this Agreement to the extent Operator has been
provided notice and a copy thereof.
"Project Lender" or "Lender" means any bank, financial
institution or other Person providing construction or permanent financing or
refinancing, working capital financing and/or other credit enhancements for the
Facility.
"Project Permits" means any permit, license, exception,
action, order, authorization, assent, consent or approval for the Facility and
any amendments, modifications, supplements or additions thereto, of which
Operator has been provided notice by Owner.
"Prudent Operating Practice" means those practices, methods,
specifications and standards of safety and performance, as the same may change
from time to time, as are commonly used by experienced,
4
<PAGE> 10
knowledgeable and professional firms performing operation and maintenance
services on facilities of the type and size similar to the Facility, which in
the exercise of reasonable judgement and in the light of the facts known at the
time decisions are made, are considered good, safe and prudent practice in
connection with the operation and maintenance of electrical, steam generating
and other related equipment facilities and improvements, with commensurate
standards of safety, performance, dependability, efficiency and economy.
"PURPA" means the Public Utility Regulatory Policies Act of
1978, as the same may be amended, supplemented, or otherwise modified from time
to time.
"Reference Rate" means the interest rate established by The
Chase Manhattan Bank, N.A. from time to time as its "prime rate" plus one
percent (1%).
"Reimbursable Costs" shall have the meaning as set forth in
Section 6.2.
"Service Recipient(s)" means the Utility and the Steam
Purchaser.
"Services" mean those services to be provided by
Subcontractors in connection with Owner's obligations under Section 2.1(c) of
this Agreement.
"Site" means the site where the Facility is located.
"Site Procedure" means those on-Site rules, regulations and
procedures to which Operator shall adhere in the performance of its obligations
pursuant to this Agreement, as prepared or revised and approved pursuant to
Section 3.3.
"Standards of Performance" means the standards for Operator's
performance of the Work as set forth in Section 3.5.
"Steam Purchasers" means the State of Wisconsin Department of
Administration ("DOA") and Floriculture, Inc. ("Floriculture") or their
successor and assigns.
"Steam Supply Agreements" means i) the Steam Supply Agreement
between Owner and DOA dated as of July 25, 1994, and, ii) the Greenhouse Hot
Water Supply Agreement between Owner and Floriculture, each as amended,
supplemented or otherwise modified from time to time.
"Subcontractor" means a person or entity having a direct
contractual relationship with Owner to provide Materials and Services.
"Termination Fee" shall have the meaning as set forth in
Section 9.5.
"Unscheduled Outage" means an unplanned Facility failure or
other condition that requires either (i) the Facility to be removed from
service, or from a state in which the Facility is available for service but not
in service, or, (ii) the load of the Facility (or the Facility's capacity level)
available for dispatch to be reduced but does not require that the Facility be
removed from service.
"Utility" means Wisconsin Electric Power Company, a Wisconsin
corporation, and such other entities as may enter into power purchase agreements
with Owner, and their successors and/or assigns, each
5
<PAGE> 11
acting pursuant to its agreement with Owner for the purchase and sale of
electrical power generated by the Facility.
"Work" shall have the meaning as set forth in Section 2.1.
ARTICLE II - Scope; Project Agreements; Representatives
Section 2.1 - Scope of Work.
(a) Operator will operate and maintain the Facility and
perform certain other duties, as hereinafter set
forth (the "Work"). Operator shall operate and maintain the Facility in a clean,
safe, efficient and environmentally acceptable manner.
(b) All Work shall be performed in accordance with the
Standards of Performance set forth in Section 3.5.
(c) Owner shall, at its expense during the term of this
Agreement, provide Operator with the information,
services, Materials and authorizations as Operator may reasonably require from
Owner to perform the Work in accordance with this Agreement.
Section 2.2 - Examination of Project Agreements, Project
Permits and Site.
Prior to the Effective Date, Owner has provided Operator with copies of the
Project Agreements and Project Permits. Upon execution and/or receipt by Owner
of any new Project Agreements, Project Permits, or any amendments to Project
Agreements or Project Permits previously transmitted to Operator, Owner shall
provide Operator with executed copies thereof. Operator represents that, prior
to signing this Agreement, it has carefully examined the Site and each of the
Project Agreements and the Project Permits, or applications relating thereto,
which it has been provided and has determined the acceptability of each of the
foregoing for the purposes of Operator's performance of its obligations
hereunder. The Parties hereto recognize and agree that this Agreement is
intended, in part, to fulfill Owner's operating and maintenance obligations
under the Project Agreements and, consistent with the Project Permits, to
optimize the operation of the Facility consistent with Owner's objective to
maximize its net profit reasonably attainable from the Service Recipients or
others under such agreements.
Section 2.3 - Compliance with Project Agreements and Permits.
Operator shall abide by all terms and conditions of the Project Agreements and
Project Permits applicable to the operation and maintenance of the Facility in
performing any part of the Work. If Operator's compliance with this Agreement
would cause Owner to be in default or otherwise in breach or violation of any of
its obligations under any Project Agreement or any Project Permit, the
requirements of such agreements or permits shall control Operator's performance
hereunder to the extent necessary to avoid such default, breach or violation,
subject to Operator's obligation to comply with all Laws. Each Party shall
notify the other as soon as it knows or believes that compliance with this
Agreement will result in such a default, breach or violation.
Section 2.4 - Party Representatives.
On or before the Commencement Date, Owner and Operator shall each notify the
other in writing of its designation of an individual to act as its
representative with respect to matters which may arise during the performance of
the Work. At any time after the initial designation by any Party of its
representative, such
6
<PAGE> 12
Party may designate a successor representative by similar written notice to the
other Party. The Plant Manager approved pursuant to Section 3.10 (c) shall be
Operator's representative and shall be located at the Site.
ARTICLE III - Operator Responsibilities
Section 3.1 - Independent Contractor.
In performing the Work hereunder, Operator is and shall remain an independent
contractor. As such, Operator shall not be entitled or eligible to participate
in any benefits or privileges given or extended by Owner to its employees and
shall be responsible for all employer tax, withholding, insurance, and other
payments and filings required as a result of the performance of Operator's
obligations pursuant to this Agreement. Nothing contained in this Agreement
shall be construed as creating a joint venture or partnership relationship
between Operator and Owner.
Section 3.2 - Not Used.
Section 3.3 - Site Procedures.
Operator shall prepare detailed Site Procedures. Operator shall submit such
documents to Owner for review, comment and approval. Owner's review, comment and
approval of any proposed Site Procedures presented to it by Operator shall not
be unreasonably withheld or delayed. Owner shall notify Operator in writing of
its comments or approval of each Site Procedure within thirty (30) Days
following Operator's submittal of such proposed Site Procedure to Owner. In
addition, Owner may require Operator to prepare additional Site Procedures as
Owner deems necessary. Subsequent modifications to Site Procedures, including
any revisions required by Owner's rejection of such Site Procedures, shall
likewise be submitted to Owner for approval and comment, as applicable, prior to
implementation.
Section 3.4 - Operational Phase Services.
On and after the Commencement Date and subject to the approval by Owner of the
necessary budget pursuant to Section 3.7, the Operator shall be responsible for
the operation and maintenance of the Facility, including the following services
(the "Operational Phase Services"). Operator shall:
(a) perform all operation and maintenance of the Facility,
and, in accordance with Section 3.8, arrange for the procurement of all
Materials and Services required to operate and maintain the Facility in
accordance with the provisions of this Agreement (except as expressly reserved
to Owner under Article IV and subject to the limitations on Operator's authority
set forth in Article V);
(b) perform or coordinate and supervise the performance of all
maintenance in such a manner to minimize the loss of electrical or steam output
and damage to the Facility to optimize the operation of the Facility consistent
with the Owner's objective to maximize its net profit. Furthermore, Operator
shall, consistent with the other terms of this Agreement and with such
objective, maintain the Facility to optimize its useful life and to minimize
down-time because of maintenance;
(c) perform the daily administration and coordination of the
Power Purchase Agreement and Steam Supply Agreements including, but not limited
to, daily communication with the Utility and the Steam Purchasers and
preparation of' monthly invoices and supporting data for the Owner's review and
submittal under such agreements;
7
<PAGE> 13
(d) identify the need for, schedule, arrange for the
procurement, coordinate and supervise the Subcontractor's performance of
Services or other work;
(e) perform the daily administration and coordination of the
fuel supply in accordance with Section 3.21;
(f) provide, for submittal by Owner with the appropriate
Person, all reports, data and other information required by the Project Permits
and Project Agreements;
(g) provide the Annual Operating Budget and the Annual
Operating Plan and the Three Year Projection in accordance with Section 3.7;
(h) provide periodic technical and administrative reports in
accordance with Section 3.12;
(i) maintain, update as necessary, and comply with the Site
Procedures;
(j) respond in a timely manner (but in no event shall the time
to make such a response exceed five (5) Days) to written requests by Owner for
information about the Work; and
(k) verify completion of items on "punch list" compiled
pursuant to the Construction Contract.
Section 3.5 - Standards of Performance.
Operator shall perform each item of the Work in a careful, professional, prudent
and efficient manner in accordance with the following requirements
(collectively, "Standards of Performance"):
(a) Prudent Operating Practice;
(b) the terms of the Operation and Maintenance Manuals and
other operating instructions provided by Contractor pursuant to the Construction
Contract or provided by any other vendors, suppliers or contractors (and, with
regard to any Facility Equipment acquired subsequent to the Commencement Date,
in accordance with the operating instructions provided by the respective
equipment suppliers, vendors or manufacturers);
(c) all operational and maintenance obligations imposed on the
Owner pursuant to any Project Agreement;
(d) the requirements of the providers of insurance described
in Article VII, and any and all insurance coverage documents maintained by Owner
for the protection of the Facility and its revenues, copies of which are
provided to Operator;
(e) any and all warranties received from Contractor or any
manufacturer of the Facility Equipment or Materials, which are not part of any
Project Agreements, but which copies have been provided to Operator;
(f) the Project Permits and all applicable Laws (including,
without limitation, the requirements for the continuing status of the Facility
as a "Qualifying Cogeneration Facility" pursuant to PURPA and the regulations
promulgated thereunder);
8
<PAGE> 14
(g) the Site Procedures; and
(h) to operate the Facility consistent with Owner's objective
to maximize its net profits from the operation of the Facility.
In the case of any conflict between any such standards, the most
stringent applicable standard shall govern.
Section 3.6 - Not Used.
Section 3.7 - Annual Operating Budget and Plan; Three Year
Projection.
(a) Annual Operating Budget. No later than October 1 of each
Operating Year, Operator shall submit for Owner's review and approval, a
proposed budget on a monthly basis for the Operational Phase Services to be
performed in the next succeeding Operating Year, substantially in the form of
Exhibit C (the "Annual Operating Budget"). The proposed Annual Operating Budget
shall be based on Operator's assessment of such services for such Operating Year
and shall reflect the most economical and reasonable means of performing such
activities in accordance with the Standards of Performance. The proposed Annual
Operating Budget shall include:
(i) the proposed amount to be spent annually for
Reimbursable Costs and the Management Fee then in effect;
(ii) the proposed amounts to be spent for the purchase
of Materials and Services in accordance with Section 3.8, identifying the items
to be purchased; and
(iii) a proposed inventory plan.
Each proposed Annual Operating Budget shall identify and list separately capital
items.
Within thirty (30) Days after Owner receives Operator's proposal for
such Annual Operating Budget, Owner shall notify Operator in writing of Owner's
approval or any proposed changes to the Annual Operating Budget, and projections
reflected therein as Owner may deem necessary or appropriate. Within fifteen
(15) Days following receipt of any such notice of proposed changes from Owner,
Operator shall either confirm to Owner its ability to perform the Work during
such period in accordance with Owner's proposed changes, or object to Owner's
proposed changes, stating in detail the reasons for such objection. Owner and
Operator shall use their best efforts to agree upon an Annual Operating Budget,
which shall be approved in writing by both Parties, which approval shall not be
unreasonably withheld. If Owner and Operator are unable to agree upon an Annual
Operating Budget, Owner and Operator shall present the dispute for dispute
resolution in accordance with Article VIII. Each Annual Operating Budget shall
remain in effect throughout the applicable Operating Year, subject to updating,
revision and amendment as may be proposed by either Party and consented to in
writing by the other Party, which consent may not be unreasonably withheld.
If, during any Operating Year, Operator determines that any category
within an Annual Operating Budget will vary for such Operating Year by more than
ten percent (10%) or twenty thousand dollars ($20,000), whichever is greater,
Operator shall immediately notify Owner and shall follow Owner's instructions
regarding further expenditures for the operation and maintenance of the Facility
pursuant to this
9
<PAGE> 15
Agreement. Until such time as Operator receives such instructions, Operator
shall continue to operate and maintain the Facility according to the terms of
this Agreement as permitted under the Annual Operating Budget then in effect. At
no time, without Owner consent, shall Operator be entitled to make expenditures
in any Annual Operating Budget category which exceed the amount allocated for
such category; provided, however, that the foregoing limitation shall not apply
in the case of Emergencies, which shall be governed by Section 3.13.
(b) Annual Operating Plan. With the Annual Operating Budget
submitted in accordance with this Section 3.7(a), Operator shall submit to Owner
for Owner's approval Operator's proposed operating plan for the next Operating
Year (the "Annual Operating Plan") in a form reasonably acceptable to Owner.
Such plan shall describe in detail acceptable to Owner the annual operation and
maintenance plan for the Facility including, without limitation, a summary of
the items in the Annual Operating Budget, hours of operation, holidays to be
observed, schedule of Services, consumption of fuels, purchased electricity,
data regarding expected environmental performance, projected electricity and
steam generated for sale, and any other matters as Owner may require. All such
items shall be set forth on a monthly basis. The proposed Annual Operating Plan
shall be accompanied by all underlying assumptions necessary for its evaluation.
All actions proposed under the Annual Operating Plan shall comply with the
Standards of Performance. Owner shall indicate in writing any proposed
revisions, corrections, deletions or additions to Operator's proposed Annual
Operating Plan within thirty (30) Days after each such submission. The final
form of the Annual Operating Plan shall be approved in writing by both Parties,
such approval not to be unreasonably withheld. In the event of any disagreement,
the Parties shall promptly meet and resolve in good faith any areas of
disagreement. If Owner and Operator are unable to agree upon an Annual Operating
Plan, Owner and Operator shall present the dispute for dispute resolution in
accordance with Article VIII hereof.
(c) Three Year Projection. In addition, with the Annual
Operating Plan, Operator shall submit to Owner for approval a written proposal
describing in detail reasonably acceptable to Owner a proposed operation and
maintenance plan, including scheduled outages, and budget for the next three (3)
Operating Years, including anticipated Major Maintenance (the "Three Year
Projection"). Owner shall indicate in writing any proposed revisions,
corrections, deletions or additions to Operator's proposed Three Year Projection
within thirty (30) Days after each such submission.
(d) 1999 Budget, Plan and Projection. Owner and Operator agree
that the Annual Operating Budget, the Annual Operating Plan and Three Year
Projection approved pursuant to the Amended and Restated Operation and
Maintenance Agreement dated as of April 11, 1995 between Owner and Westinghouse
Operating Services Company, Inc. shall constitute the Annual Operating Budget,
the Annual Operating Plan and Three Year Projection hereunder for the Operating
Year in which the Commencement Date occurs.
Section 3.8 - Procurement of Materials and Services.
Operator shall arrange for the procurement of Materials and Services (excluding
natural gas and fuel oil) necessary for the operation and maintenance of the
Facility pursuant to the following provisions.
(a) All Materials and Services shall be purchased directly by
Owner from Subcontractors, except as otherwise provided in the Site Procedures
for small local purchases and purchases necessary to handle Emergencies. At any
other time that Operator desires to subcontract directly to obtain materials or
services, Operator shall obtain the prior written approval of Owner. In no event
shall Operator be relieved of
10
<PAGE> 16
any of its obligations under this Agreement or of any of its responsibilities
due to faulty performance of any Work performed by subcontractors.
(b) Operator shall identify Materials and Services needed,
establish technical and commercial requirements, develop qualified bid lists,
request bids/proposals from prospective Subcontractors, evaluate bids/proposals
received and provide a recommendation for award and purchase order to Owner for
approval and execution. In no event shall Operator take title to any Materials.
All purchase orders and bills of lading with respect to Materials shall specify
that Owner shall take title to the Materials directly from Subcontractors.
(c) In evaluating and selecting prospective Subcontractors.
Operator shall make reasonable attempts to optimize Facility costs in
consideration of Facility availability and reliability and to otherwise minimize
procurement costs.
(d) Operator shall receive, inspect, inventory and resolve
defects or deficiencies found in Materials delivered by Subcontractors, and
shall sign all invoices for the Materials indicating Operator's acceptance of
the material as meeting the purchase order. If Operator is unable, using
reasonable efforts, to resolve defects or deficiencies discovered, Operator
shall promptly notify Owner. Operator shall administer on behalf of Owner any
claim or dispute arising under a purchase order. Owner shall provide for direct
payment due each Subcontractor in accordance with the applicable purchase order.
(e) Operator shall be responsible for supervising,
coordinating, and administering all Subcontractors providing Services, including
maintenance or construction services.
Section 3.9 - Inventory.
(a) Operator shall comply with the provisions for maintaining
an inventory of Materials set forth in the Site Procedures.
(b) Operator shall maintain an inventory of Materials adequate
to support the continuous and successful operation of the Facility. The
procurement of such inventory, including replacement Materials, shall be made in
accordance with the provisions of Section 3.8.
(c) Operator shall provide security for such inventory.
Section 3.10 - Personnel
(a) Operator shall employ at the Facility the appropriate
number of properly qualified and trained Personnel to perform the Operator's
obligations under this Agreement as approved under the Annual Operating Budget.
(b) All Personnel shall be qualified (including, holding all
appropriate valid licenses required by Law) and fully trained for their
respective positions. At least one member of the Personnel shall hold a first
class engineer's license as required under Law. All individuals utilized by
Operator to perform Work shall be employees of the Operator or, subject to
Owners approval, workers or independent contractors under Operator's direction.
Working hours, rates of compensation, and all other matters relating to such
Personnel shall be determined by Operator (subject to Owner's approval with
respect to budget items).
(c) Owner shall approve the selection of the Plant Manager and
Operator shall consult with Owner regarding the selection of all other
Personnel. Owner shall inform Operator of any objection to any Plant Manager
selection as soon as possible, but in no event later than ten (10) Days after
receipt of Operator's
11
<PAGE> 17
Personnel selection. Operator shall retain sole responsibility and control of
labor matters pertaining to the Personnel. Operator shall provide Owner with
such information regarding the selection of the Personnel, as Owner may
reasonably request. With respect to hiring of Personnel and its employment
policy, 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 this Agreement. If in Owner's
opinion, the Plant Manager is not adequately performing the requirements of the
job function to the Owner's satisfaction, including fostering a positive working
relationship with the Owner's staff, the Service Recipients, and other project
participants, then upon the request of Owner, Operator shall replace the Plant
Manager, if, within sixty (60) days following such request, Operator has not
modified the Plant Manager's performance to the satisfaction of Owner. Owner nay
also request Operator to replace any other Personnel, provided, that Owner
presents Operator with reasonable justification therefor, which request shall
not be unreasonably rejected. Operator shall either accept Owner's request or
provide Owner with the reasons for rejection within five (5) Days after receipt
of such request. Costs required to be incurred by Operator as a result of the
replacement of such Personnel pursuant to Owner's exercise of its rights under
this Section 3.10(c) shall be eligible for treatment as Reimbursable Costs, in
accordance with the other requirements of this Agreement.
(d) Either Owner or Operator may request changes to the job
titles, duties and positions of the Personnel described in this Agreement,
subject to the approval of the other Party, which approval shall not be
unreasonably withheld, provided that, such change does not have a material
adverse impact on the other Party.
Section 3.11 - Training Programs.
Operator shall require its Personnel to participate in and satisfactorily
complete the following training programs:
(a) Initial Training. Operator shall insure that the Personnel
are trained in a satisfactory manner so as to enable each of the Personnel to
perform their assigned functions and as required to enable Operator to comply
with its obligations under this Agreement.
(b) Ongoing Training. Operator shall establish and maintain a
regular ongoing training program for the Personnel. This training program shall
be designed to train new Personnel, keep existing Personnel familiar with all
existing Site Procedures and informed of all new revisions thereto. Owner may at
any time, upon reasonable notice, review Operator's regular training program in
order to assess its adequacy and compliance with this Section 3.11.
(c) Operator Training Upon Termination. If this Agreement is
scheduled to terminate for any reason, the Operator will cooperate with Owner
and the replacement operator, at Owner's expense, in training replacement
personnel for the Facility, including permitting such replacement personnel to
participate in the foregoing training program. In addition, Operator will
surrender to Owner all training material created, acquired or provided pursuant
to this Section 3.11, provided that, subject to the requirements of Article XI,
Operator may retain a copy thereof.
Section 3.12 - Reports.
Operator shall cooperate with Owner in complying with the reporting requirements
set forth in the Project Agreements and shall, from and after the Commencement
Date, furnish or cause to be furnished to Owner the following reports concerning
the Facility operations:
12
<PAGE> 18
(a) Monthly Reports. Commencing within ten (10) Days after the
end of each calendar month after the Commencement Date, Operator shall submit:
(i) a progress report, in detail acceptable to Owner, covering all operations
conducted during such calendar month with respect to operations and maintenance
(including without limitation information regarding power generation, heat rates
and fuel consumption), procurement, capital improvements, labor relations,
significant interactions with Utility and Steam Purchasers and governmental
authorities, and other significant matters, which report shall include (with
respect to quantitative items) a comparison of such items to corresponding
values for the then preceding month and year and listing of any significant
operating problems along with remedial actions planned and a brief summary of
major activities planned for the next two reporting periods; and (ii) a
statement setting forth all Reimbursable Costs paid or incurred, which statement
shall itemize in detail acceptable to Owner the computation of such Reimbursable
Costs and shall state whether or not the Facility operations have conformed to
the applicable Annual Operating Plan and Annual Operating Budget during such
reporting period and if not the extent and reasons for such deviation and any
remedial action, if remediable.
(b) Annual Reports. As soon as available, and in any event
within thirty (30) Days after the end of each Operating Year, Operator shall
submit to Owner an annual report certified by the Plant Manager describing in
detail substantially similar to that contained in the monthly reports referred
to in Section 3.12(a) above, all of the Facility operations for such Operating
Year and presenting a comparison of such Facility operations with the Annual
Operating Plan and Annual Operating Budget for such Operating Year and with
those obtained for the preceding Operating Year, if any (the "Annual Report").
Within thirty (30) Days after the submission of each Annual Report, the Plant
Manager shall meet with Owner to review and discuss the report and to report
upon any other aspects of the operations at the Facility that Owner may request.
(c) Fuel Reports. Notwithstanding Owner's obligation to
furnish fuel as set forth in Section 4.1 hereof, within ten (10) Days after the
end of each calendar month, Operator shall prepare and submit to Owner a fuel
report summarizing the amounts and type of fuel delivered in accordance with the
Fuel Supply Agreements and accepted at the Facility and the amounts and type of
such fuel consumed at the Facility during the preceding month. Such report shall
also include a statement of the estimated total inventory of such fuel on hand
at the Facility as of the end of such preceding mouth.
(d) Additional Reports. Operator shall periodically provide
reports to Owner advising Owner of any information Operator becomes aware of
concerning changes in Laws and/or Prudent Operating Practices that it believes
may be material to the operation and maintenance of the Facility.
Section 3.13 - Emergency and Outage Procedures.
In the case of an Unscheduled Outage or Emergency, Operator shall, in
accordance with the requirements of the applicable Site Procedures, notify Owner
of the nature of such Unscheduled Outage or Emergency, the proposed remedial
measures and its probable duration. Operator shall take corrective action
pursuant to Owner's direction only; provided that in the case of an Emergency,
Operator shall act immediately as required to prevent or overcome the threat of
injury to persons or damage to property or to minimize the adverse consequences
thereof pending receipt of instructions by Owner.
Section 3.14 - Improvements.
If at any time, Operator believes that certain alterations, additions,
modifications or other changes to the Facility ("Improvements") would improve
the overall operation, output and/or efficiency of the Facility, then Operator
shall advise Owner in writing of such proposed Improvements and, upon the
written approval of Owner, the Operator shall arrange for the procurement and
integration of all such equipment, materials and
13
<PAGE> 19
other resources necessary to implement such Improvements at the Facility. Except
as set forth in the Annual Operating Plan or Annual Operating Budget, the
Operator shall make no Improvements other than Improvements made in accordance
with this Section 3.14.
Section 3.15 - Annual Review.
No later than one hundred twenty (120) Days prior to each Operating Year,
commencing with the first full Operating Year following the Operating Year in
which the Commencement Date occurs, the Operator shall participate in an annual
review. The purpose of the annual review shall be to analyze the past year's
operations and propose changes for the improved quality of the Facility's
operation and maintenance and to review the proposed Annual Operating Plan for
the next Operating Year. To this end, the Operator and Owner shall establish a
standing committee comprised of the Plant Manager and one (1) representative
from each of the Operator and the Owner to monitor and review existing and
proposed activities with respect to the operation and maintenance of the
Facility. Such committee shall meet at least once every year and at such other
times as may be reasonably requested by Owner.
Section 3.16 - Not Used.
Section 3.17 - Administration.
Operator shall administer and be responsible for the cost accounting,
requisitioning, personnel, and payroll functions related to Operator's Personnel
pursuant to this Agreement. Without limiting the foregoing, Operator shall (i)
pay all bills to be paid by Operator in a timely manner, and (ii) forward in a
timely manner to Owner all bills received by Operator that are Owner's
responsibility to pay hereunder, together with Operator's advice as to which are
due, if there are any offsets or credits, and such other matters as reasonably
related thereto.
Section 3.18 - Taxes.
Operator shall pay, subject to Owner's reimbursement in accordance with Section
6.2, all federal, state and local unemployment taxes, Federal Insurance
Contribution Act (FICA) taxes and other taxes which it is obligated to pay with
respect to wages and salaries paid by it to its employees performing the Work
and maintain all appropriate records with respect thereto.
Section 3.19 - Facility Performance.
If any significant deficiency in performance of the Facility occurs, including,
but not limited to, a failure to meet any warranty under the Project Agreements,
or if such a deficiency is projected, then Operator shall notify Owner of such
deficiency or projected deficiency and shall state Operator's opinion as to the
cause of such deficiency or projected deficiency and prepare a report in detail,
as required, together with a plan to remedy the problem. Upon Owner's request,
Operator shall make available such of its Personnel as reasonably necessary to
review and assess the cause of such deficiency with Owner and Contractor and/or
any of their agents.
Section 3.20 - Loan Agreement.
Operator acknowledges that Owner has obtained long-term debt and equity
financing for the Facility and that compliance by Owner with the terms and
conditions applicable thereto may require the cooperation of Operator in matters
not now ascertainable. Accordingly, Operator will reasonably cooperate with
Owner, so as to permit Owner to comply with the various requirements relating to
the operation and maintenance of the Facility that are imposed by such Project
Lenders, including, but not limited to, providing any required or reasonably
requested information or reports on the operation and maintenance of the
Facility.
14
<PAGE> 20
Section 3.21 - Fuel Supply.
(a) Owner shall be responsible for contracting for natural gas
supply and transportation and for supply and delivery of fuel oil. Operator
shall be responsible for day to day communication and coordination with Owner's
fuel supply and transportation Subcontractors.
(b) Operator understands that the primary fuel for the
Facility is to be natural gas supplied' under the Fuel Supply Agreements. Fuel
oil shall be maintained at the Site for use when natural gas is unavailable. In
the event natural gas is unavailable under Owner's Fuel Supply Agreements,
Operator shall immediately notify Owner. Unless otherwise instructed by Owner,
Operator shall use fuel oil as necessary to cause the continued operation of the
Facility if natural gas is unavailable.
(c) Operator shall monitor the fuel requirements of the
Facility and Operator shall be responsible for keeping Owner informed that the
supply of fuel available is adequate to operate the Facility at its optimal
level. Operator shall promptly notify Owner of any use of fuel oil and arrange
for deliveries of fuel oil necessary to maintain the Facility's oil storage
capacity at the level required by Owner.
(d) Operator shall be responsible for receiving the fuel oil
supplied to the Facility and insuring that such deliveries are in compliance
with Owner's purchase orders and applicable Laws.
(e) For any period natural gas is unavailable for the supply
of the Facility's total fuel requirements, Operator shall, if required by a
Project Permit, notify the appropriate agency of the need to use oil as a fuel.
Section 3.22 - Safety.
Operator shall comply with all Site Procedures regarding safety, security and
fire protection to prevent accidents or injuries to persons or damage to
property on or about the Site. Operator shall continuously update the same to
optimize the safe, reliable and efficient operation of the Facility.
Section 3.23 - Books and Records
(a) Operator shall maintain operating logs, records and
reports (in form and substance as required by the Site Procedures) documenting
the operation of the Facility including those logs, records and reports required
by any Project Agreement; maintain current revisions of Facility drawings,
equipment manuals, instruction books, and the Operation and Maintenance Manuals;
maintain accurate cost ledgers and accounting records regarding the Work in
accordance with generally accepted accounting principles for review by Owner.
Operator shall also prepare all reports required for Governmental Authorities,
or by the Project Permits, and provide same to Owner for its review and
submittal. Upon termination of this Agreement, the Operator shall turn over a
copy of all such books, logs, ledgers, manuals, reports and records to Owner.
(b) Operator shall establish and maintain an information
system reasonably satisfactory to Owner to provide storage and ready retrieval
of Facility operating data, including such information necessary to verify and
support calculations for preparation of invoices made pursuant to the Power
Purchase and Steam Supply Agreements.
15
<PAGE> 21
(c) Operator shall prepare and maintain, on a current basis,
proper, accurate, and complete books and records and accounts of all
transactions related to the Facility, including such information necessary to
verify calculations made pursuant to this Agreement.
(d) At all reasonable times Owner shall have access to the
records maintained pursuant to this Section and may audit the record keeping
practices and systems used to generate the data required by this Section 3.23
and shall have the right to determine whether such practices and systems are in
accordance with generally accepted accounting principles and cause Operator to
make such changes as necessary to conform with such principles.
(e) Owner's right of access to the records described in this
Section 3.23 and Operator's obligation to maintain and preserve the same shall
survive for a five (5) year period following the termination of this Agreement.
Section 3.24 - Scheduling Maintenance.
Operator shall arrange and schedule all maintenance for the Facility in
accordance with the Standards of Performance and Project Agreements. Scheduled
outages shall be approved by Owner, such approval not to be unreasonably
withheld. Operator shall coordinate with Owner in scheduling such maintenance
and notify the Service Recipients, as necessary, of Facility conditions as
required by the Project Agreements. Generally, scheduled maintenance will be
performed, to the extent practical, during off-peak hours.
Section 3.25 - Cooperation With Others.
Operator shall cooperate fully with (i) any Subcontractor, including, without
limitation, any entity supplying or transporting fuel (including oil) to the
Facility and (ii) the Service Recipients.
Section 3.26 - Access.
Operator shall allow Owner and such other parties as Owner designates from time
to time, to have full, unrestricted access to the Facility and Site and all
reports, data, information and documents related to the Project in Operator's
possession at the Site at all times, provided, however, such parties must adhere
to all applicable Site Procedures.
Section 3.27 - Operator Licenses; Permits.
Operator shall cause each of the Personnel to procure and maintain their
respective licenses as required to perform the Work and shall assist Owner in
the maintenance of the Project Permits and procurement of any revisions,
waivers, or additional permits necessary or desirable for the operation of the
Facility as contemplated hereunder. Operator shall prepare all operating and
other reports for Owner's review and submittal to maintain the Project Permits.
Section 3.28 - Enforcement of Warranties.
Operator shall preserve and maintain warranties or guarantees of which Owner is
beneficiary regarding the Facility, Materials or any component thereof and shall
notify Owner of any claims which Owner may have under such warranties or
guarantees of which Operator becomes aware during the performance of Work.
Operator shall manage and operate the Facility consistent with the conditions
applicable to all such warranties and guarantees so as to preserve the
effectiveness thereof and shall take no action which may adversely affect any
claim under any such warranty or guarantee without the express written consent
of the Owner.
Section 3.29 - Compliance with Laws.
16
<PAGE> 22
Operator shall at all times operate and maintain the Facility such that it
complies in every material respect with all applicable Laws and Project Permits.
Operator shall notify Owner of any deficiencies or compliance requirements of
such Laws and Project Permits and changes in Laws or requirements of any
Governmental Authority relevant to the Project of which Operator is aware.
Section 3.30 - No Liens or Encumbrances.
Operator shall keep and maintain the Facility free and clear of all liens and
encumbrances resulting from acts or omissions of Operator or its subcontractors
or work done at the request of Operator or its subcontractors to the extent
Owner has paid Operator for the Work.
Section 3.31 - No Action.
Operator shall not intentionally take any action or intentionally fail to take
any action that would (i) relieve Contractor from any obligation or liability
under the Construction Contract, (ii) give rise to any claim by Contractor
against Owner or Operator or (iii) otherwise cause a default (or a condition
which with passage of time, notice or both, would be a default) under any
Project Agreement or a violation of any applicable Law or Project Permit.
Section 3.32 - Litigation; Permit Lapses.
Upon obtaining notice or knowledge thereof, Operator shall submit prompt written
notice to Owner of: (i) any litigation, or material claim, dispute or action,
threatened in writing or filed, concerning the Facility, the Site, the Project
Agreements, or the Work; (ii) any written refusal or threatened refusal to
grant, renew or extend or any pending or written threatened action that might
affect the granting, renewal or extension of, any license, permit, approval,
authorization or consent concerning the Facility or the Work; and (iii) any
dispute with any Governmental Authority concerning the Facility or the Work, any
Project Permit or any dispute with respect to any Project Agreement.
ARTICLE IV - Owner Responsibilities
Section 4.1 - Fuel Supply.
Owner shall cause natural gas and fuel oil to be provided for use at the
Facility, in such quantities as contemplated pursuant to the Project Agreements
and as reasonably requested by Operator pursuant to Section 3.21. Owner shall be
responsible for the placing of all natural gas and fuel oil contracts or
agreements based on the information to be provided by Operator under this
Agreement. Owner shall be responsible for making direct payment on invoices for
natural gas and fuel oil to the applicable suppliers.
Section 4.2 - Reasonable Access.
Owner shall provide and grant to Operator right of access to the Facility and
the Site throughout the term of this Agreement. As reasonably requested by
Operator, Owner shall provide Operator with reasonable access to any information
in its possession relating to the physical characteristics of the Facility or to
any of the Facility Equipment.
Section 4.3 - Accommodations.
Owner shall provide for and make available to Operator such office space,
storage facilities, unloading areas, rest rooms and
office equipment facilities as Operator may reasonably require and are
reasonably practicable at the Facility, as constructed pursuant to the
Construction Contract.
17
<PAGE> 23
Section 4.4 - Utilities.
Owner shall provide for and make available to Operator sufficient quantities of
electricity and other utilities as Operator may reasonably request for (a) the
operation and maintenance of the Facility and (b) the health and safety of its
employees.
Section 4.5 - Manuals and Drawings.
Owner shall provide Operator with all operation and maintenance manuals and all
drawings, specifications, diagrams, and other information which Owner has or may
obtain with respect to the Facility including any of the same that Contractor is
obligated to provide to Owner pursuant to the Construction Contract. Should any
such information be classified as confidential or proprietary, then Owner shall
use reasonable efforts to obtain all necessary authorizations, releases,
acknowledgments, or other approvals to provide Operator access to and use of
such information. Operator, in turn, shall comply with all resulting
requirements for protecting the confidential or proprietary nature of such
information, including without limitation, any such requirements contained in
any Project Agreement following receipt of such requirements.
Section 4.6 - Taxes.
Owner shall pay (or reimburse Operator) for any present or future duty or tax
(other than income taxes of Operator) which may be assessed against it and/or
Operator, upon reasonable notice from Operator, relative to the operation and
maintenance of the Facility. Operator shall promptly furnish any such bills it
receives to Owner. If Owner is exempt from the payment of any applicable sales
and/or use taxes or has a direct payment permit with respect to such taxes, then
Owner shall provide Operator with a copy of the certificate or permit, duly
executed and issued by the appropriate governmental authority, or an opinion of
counsel regarding such exemption in lieu of such certificate or permit.
Section 4.7 - Maintenance of Permits.
Owner shall pay for and maintain, with the cooperation of the Operator, any and
all certificates, permits, governmental fees, licenses, and inspections
necessary for the continuous operation of the Facility (except any of the same
required to be obtained and maintained by Operator or the Personnel pursuant to
Section 3.27 of this Agreement), including any required renewals of the Project
Permits.
Section 4.8 - Payment.
Owner shall make payments to Operator pursuant to Article VI.
ARTICLE V - Limitations on Authority
Section 5.1 - General Limitations.
Notwithstanding any provision in this Agreement to the contrary, unless
previously expressly approved in (i) the Annual Operating Plan or the Annual
Operating Budget; or (ii) otherwise approved in writing by Owner, Operator or
any agent, representative or contractor of Operator shall not:
(a) Disposition of Assets. Sell, lease, pledge, mortgage,
convey, or make any license, exchange or other transfer or disposition of any
property or any interest therein comprising any part of the Project;
(b) Contract. Make, enter into, execute, amend, terminate,
suspend, modify or supplement or give or accept waivers under any contract or
agreement on behalf of or in the name of Owner;
18
<PAGE> 24
(c) Expenditures. Make or commit to any expenditure, incur any
obligation or liability or acquire on a Reimbursable Cost basis any Materials,
assets or other items, or consent or agree to do any of the foregoing; provided
that in the event of an Emergency affecting the safety or protection of Persons
or endangering the Facility or property located at the Facility, Operator,
without approval from Owner, shall be authorized to take all reasonable actions
to prevent such threatened damage, injury or loss in accordance with Sections
3.8 and 3.13;
(d) Other Actions. Take or agree to take any other action that
materially varies with the applicable Annual Operating Plan or Annual Operating
Budget or with any Project Agreement or fail to take any action required by the
Annual Operating Plan, Annual Operating Budget or any Project Agreement;
(e) Lawsuits and Settlement. Settle, compromise, assign,
pledge, transfer, release or consent to the compromise, assignment, pledge,
transfer or release of, any claim, suit, debt, demand or judgment against or due
by, Owner or Operator, the cost of which, in the case of Operator, would be
Reimbursable Costs hereunder, or submit any such claim, dispute or controversy
to arbitration or judicial process, or stipulate in respect thereof to a
judgment, or consent to do the same or commence any litigation, action,
arbitration, or other proceeding on behalf of Owner; provided, however, that
Owner shall not unreasonably withhold its approval of any settlement,
compromise, arbitration or litigation of any claim, suit, demand, debt or
judgment involving a liability or potential liability only against Operator;
(f) Project Agreements. Initiate or respond to any complaint
or dispute resolution under or negotiate with any party to any Project
Agreement, except as expressly authorized in writing by Owner.
ARTICLE VI - Payment Amount and Terms
Section 6.1 - Payment.
As the sole and exclusive compensation and reimbursement to Operator for the
performance of the Work hereunder, Owner shall pay Operator, in the manner and
at the times specified in this Article VI, all Reimbursable Costs, the
Management Fee and, to the extent earned by Operator, the Performance Bonus. In
the event that Operator fails to achieve certain performance requirements,
Operator shall pay to Owner the Performance Penalties as further described
herein.
Section 6.2 - Reimbursable Costs.
(a) Covered Expenditures. Subject to the limitations on
expenditures set forth elsewhere in this Agreement, Owner shall reimburse
Operator for the following costs incurred by Operator in performing the Work,
each as properly incurred by Operator pursuant to this Agreement and documented
by written invoice or receipt provided to Owner (the "Reimbursable Costs"): (i)
the actual payroll cost for the Personnel involved in the performance of the
Work, including overtime, plus the actual cost of associated payroll taxes,
unemployment and disability insurance, worker's compensation, vacation,
holidays, fringe benefits and other statutory compensation; (ii) relocation and
recruitment costs of salaried employees, and recruitment costs (but not
relocation costs) of non-salaried employees as approved in advance by Owner;
(iii) the actual costs of Operator's subcontractors approved as provided herein;
(iv) the actual cost of insurance paid by Operator to provide the coverages set
forth in Section 7.1 (except for payments for deductibles to be paid by Operator
pursuant to Section 7.4); (v) upon Owner's request and subject to Owner' s prior
approval, other services provided (other than the Work) at a mutually agreed
upon price, terms and conditions; and (vi) any other cost
19
<PAGE> 25
designated as a Reimbursable Cost pursuant to the terms of this Agreement. Owner
shall pay Reimbursable Costs as follows:
(b) Payments. Operator shall submit a statement to Owner at
the end of each month itemizing the total Reimbursable Costs incurred during
such month. Upon the approval of such statement and subject to Section 6.6,
Owner shall make payment to Operator due for such month within thirty (30) Days
from the date of such invoice statement. No Reimbursable Costs shall be invoiced
by Operator unless they were incurred in accordance with the applicable Annual
Operating Budget, as amended, supplemented, or otherwise modified from time to
time. If at any time during the performance of the Work after the Commencement
Date, Operator becomes aware that for any monthly period Reimbursable Costs
exceed or could be reasonably anticipated to exceed the amount provided therefor
in the Annual Operating Budget, Operator shall promptly notify Owner of such
budget overrun and shall not, without the written approval of Owner amending
such Annual Operating Budget or authorizing such expenditure, perform any
further Work that will result in or increase such budget overrun, except in the
case of an Emergency as provided in Section 3.13.
(c) Direct Payments.
(i) For each item of Material and rendition of
Services, Operator shall promptly notify Owner in writing that a payment is due
to a Subcontractor pursuant to a purchase order issued by Owner. The written
notification shall be certified by the Operator as pertaining to work that has
been duly performed in accordance with the applicable purchase order, and shall
be accompanied by an invoice, bill of sale or other appropriate documentation
evidencing the payment due. Upon receipt of such written notification, Owner
shall cause such payment to be made in a timely manner directly to said
Subcontractor in accordance with the purchase order.
(ii) All payments due from Owner to Subcontractors (the
"Direct Payments") in a given month shall be separately itemized in the invoice
statements required pursuant to Section 6.2(a), provided, however, that Direct
Payments shall not be included in the amount of the Reimbursable Costs.
(iii) In no event shall any separate or additional
compensation be payable by Owner to Operator in connection with Operator's
performance under this Section.
Section 6.3- Fees.
(a) Not Used.
(b) Management Fee. Owner shall pay to Operator an annual
Management Fee of [XXX] for each Operating Year, adjusted as set forth in
Section 6.11, commencing on the Commencement Date and continuing for each
Operating Year thereafter. Each annual Management Fee shall be earned in monthly
increments of one-twelfth (1/12) of such Fee, each of which shall be payable
monthly on the last day of the month in which Work is to be performed (partial
month fees will be pro-rated accordingly). The Management Fee shall constitute
full payment for the services listed in Exhibit D, all Operator overhead and
profit for the Work and general and administrative costs incurred by the
Operator.
Section 6.4 - Performance Bonuses and Penalties.
As soon as available, and in any event within thirty (30) Days after the end of
each COD Year, Operator shall submit to Owner for its review a computation in
detail sufficient for confirmation of the performance of the Facility and of any
Performance Bonus or Performance Penalty in respect such COD Year.
[XXX] This portion of this exhibit has been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
20
<PAGE> 26
Section 6.5 - Determination of Performance Bonus and Penalty.
During each COD Year, Operator shall have an opportunity to earn a Performance
Bonus, or in the alternative, Operator shall be obligated to pay a Performance
Penalty, which shall be calculated based upon the Facility's performance for
each such COD Year as determined accordance with Exhibit E. Payment of the
Performance Bonus or the Performance Penalty, as the case may be, shall be made
annually no later than forty-five (45) Days after the end of the applicable COD
Year.
Section 6.6 - Disputes.
Should Owner in good faith contest the validity, reasonableness or accuracy of
any statement submitted to it for payment, it shall notify Operator in witting
within fifteen (15) Days of its receipt of such statement, explaining in detail
the reasons for its refusal to honor Operator's request for payment. If Owner
disputes only part of a statement submitted to it for payment, then it shall
pay to Operator the undisputed portion of such statement in accordance with
Section 6.2 and notify Operator in writing of the amount disputed in accordance
with this Section 6.6. All such disputes shall be resolved pursuant to Article
VIII of this Agreement.
Section 6.7 - Exclusion.
Except as may otherwise expressly be provided for in this Agreement, Owner shall
not be liable for any additional costs incurred by Operator, or fees related
thereto, to the extent such costs are incurred by Operator either (i) for Work
performed not consistent with the Standards of Performance; (ii) for Work
performed to remedy a fault or deficiency which was created or aggravated by
Operator's failure to follow the Standards of Performance, or Operator's
negligent acts or omissions or willful misconduct; or (iii) in violation of
Section 5.1.
Section 6.8 - Audit Rights.
Notwithstanding the payment of any amount pursuant to the foregoing provisions,
Owner shall remain entitled to conduct an audit and review of all payments made
to Operator hereunder on a time and material or cost reimbursable basis,
together with any supporting documentation in accordance with the provisions of
Section 6.2 for a period of five (5) years from and after the close of the
Operating Year in the case of payments for Work performed during such Operating
Year. Such audit and review may be conducted by Owner or by an independent
certified public accountant and the party conducting such audit and review shall
be entitled to inspect, copy and audit any of Operator's financial books,
records, accounts, and ledgers relating to the Facility or the Work. Operator
shall cooperate with the auditors and promptly respond to any questions relating
to such audits. Operator shall retain all such information described above for a
period of five (5) years. If, pursuant to such audit and review, it is
determined that any amount previously paid by Operator did not constitute a due
and payable item hereunder, including without limitation, a properly payable
Reimbursable Cost, Owner, at its option, may recover such amount immediately
upon demand, with interest determined in accordance with Section 6.10, from
Operator or deduct or cause to be deducted such amount from any payment that
thereafter may become due to Operator hereunder.
Section 6.9 - Payment of Fines and Penalties.
Payment at any time of any fine or penalties (or settlements in lieu of fines or
penalties) payable to any Governmental Authority, to the extent caused by the
negligent acts or omissions or willful misconduct of Operator, or Operator's
failure to comply with any provision of this Agreement, shall be the
responsibility of Operator and such fines or penalties shall not be considered
Reimbursable Costs or otherwise result in any increase of the costs to be borne
by Owner. Owner shall be responsible for the payment of any other fines or
21
<PAGE> 27
penalties (or settlements in lieu of fines or penalties) payable to any
Governmental Authority as a result of the failure of the Facility to comply with
applicable Laws or Facility Permits.
If either Party receives notice or has knowledge of any violation of any laws or
regulations by the other Party with respect to the matters covered by this
Agreement which could result in such fines, or penalties from a Governmental
Authority, then such knowledgeable Party shall give prompt notice thereof to the
other Party.
Section 6.10 - Interest.
Any amount owed to either Party hereunder by the other Party shall accrue
interest each Day from the date that such amount is due until the date paid at
the Reference Rate per annum, computed and compounded daily.
Section 6.11 - Payment Adjustment.
The Management Fee shall be adjusted annually and to the extent required,
retroactively, effective as of January 1st of any given Operating Year,
including the Operating Year in which the Commencement Date occurs. On such date
each Management Fee shall be adjusted in accordance with the following equation:
Adjusted Management Fee = original Management Fee, multiplied by the ratio of
GDP-IP October Previous Year
----------------------------
GDP-IP October 1994
Where:
"GDP-IP October Previous Year" equals the published index value in
October of the Operating Year immediately preceding the Operating Year for which
the adjustment is due.
"GDP-IP October 1994" equals the published index value for October
1994.
"GDP-IP" means the final published Implicit Price Deflator for Gross
Domestic Product as determined quarterly and reported monthly by the Bureau of
Economic Analysis of the U.S. Department of Commerce in the publication "Survey
of Current Business." In the event this index is discontinued or its basis is
substantially modified, the Parties shall agree on a substitute index.
ARTICLE VII - Insurance
Section 7.1 - General Requirements.
7.1.1 All insurance carried and maintained pursuant to this Agreement shall be
with insurance companies which are authorized to transact insurance business and
cover risks in the State of Wisconsin and which are rated "Excellent" or better
by Best's Insurance Guide and Key Ratings or other insurance companies of
recognized responsibility and satisfactory to the Owner, Lender and (with
respect only to the insurance companies proposed to provide the insurance
required by Section 7.3.1, paragraphs i and ii) Operator, except that Operator
may self-insure the coverages it is required to provide hereunder.
7.1.2 On or before the Commencement Date and annually thereafter, the Parties
shall arrange to furnish each other with an approved certification of all
required insurance and copies of policies, if requested. Such
22
<PAGE> 28
certification shall be executed by each insurer or by an authorized
representative of each insurer. Such certification or notice, as the case may
be, shall identify insurers, the type of insurance, the insurance limits, the
policy term and shall specifically list the special provisions enumerated for
such insurance required by this Article VII.
Section 7.2 - Operator Provided Insurance.
7.2.1 Coverages - Operator shall at all times throughout the term of this
Agreement and any renewal thereof carry and maintain or cause to be maintained,
at its own expense, insurance with coverage as follows:
i. Workers' Compensation and Employer' s Liability Coverage -
Operator shall maintain or cause to be maintained Workers'
Compensation insurance written in accordance with statutory
limits and Employer's Liability in the amount not less than
$10,000,000 per occurrence and in the annual aggregate. The
Employer's Liability coverage shall not contain an
occupational disease exclusion. Such policy or policies shall
contain an all states endorsement or stop gap endorsement and
alternate employer coverage.
ii. Comprehensive Automobile Liability Coverage - Operator shall
maintain or cause to be maintained Comprehensive Automobile
Liability insurance covering all owned, non-owned and hired
vehicles used by Operator or its permissive users in
connection with Work. Such coverage shall be written in an
amount not less than $1,000,000 per occurrence.
iii. Excess (or Umbrella) Liability Coverage - Operator shall
maintain excess (or Umbrella) Liability insurance written on
an occurrence basis providing coverage for a limit of
$9,000,000 per occurrence and annual aggregate in excess of
the insurance required in Section 7.2.1, paragraph ii. The
amounts of insurance required in Section 7.2.1, paragraphs i,
ii, and iii may be satisfied or by any combination thereof, so
long as the total amounts of insurance meet the requirements
set forth in such paragraphs.
iv. Subcontractor Insurance - Operator shall require all of
Operator's subcontractors to obtain, maintain and keep in
force during the time in which they are engaged in performing
services hereunder reasonably adequate coverage in accordance
with Operator's normal practice (but not less than Worker's
Compensation insurance written in accordance with statutory
limits and Employer's Liability, Comprehensive Automobile
Liability and Comprehensive General Liability each with limits
of $1,000,000 per occurrence and in the aggregate) and furnish
Owner with acceptable evidence of such insurance upon its
request.
7.2.2. Deductibles - All deductibles, or self-insured retentions for the
coverages specified in Section 7.2.1 shall be the sole responsibility of
Operator.
7.2.3 Endorsements - Any insurance provided in accordance with Section 7.2.1
shall be endorsed to provide that if such insurance is canceled for any reason
whatsoever, including nonpayment of premium, or any substantial change is made
in the coverage that affects the interest of Owner, Independent Engineer,
Lender, Utility or Steam Purchaser, such cancellation or change shall not be
effective as to Owner until forty-five (45) days after receipt by Owner of
written notice sent by registered mail from such insurer of such cancellation or
change; provided, however, that such forty-five (45) day period shall be reduced
to 10 days in the case where cancellation results from the nonpayment of
premiums. In addition, any insurance provided in accordance with Section 7.2.1
paragraphs ii, iii and iv shall be endorsed to provide that:
23
<PAGE> 29
i. Owner, Independent Engineer, Utility, Steam Purchaser, and
Lender shall be additional insureds, in each case with the understanding that
any obligation imposed upon Operator (including the liability to pay premiums)
shall be the sole obligation of Operator and not that of Owner, Independent
Engineer, Utility, Steam Purchaser or Lender.
ii. The insurer thereunder waives all rights of subrogation
against Owner, Independent Engineer, Utility, Steam Purchaser and Lender and any
other right to deduction due to outstanding premiums, whether by attachment or
otherwise.
iii. Such insurance shall be primary without right of
contribution of any other insurance carried by or on behalf of Owner,
Independent Engineer, Utility, Steam Purchaser or Lender with respect to its
interest as such in the Facility.
iv. Inasmuch as such policies are written to cover more than
one insured, all terms, conditions, insuring agreements and endorsements (other
than the limits of liability) shall operate in the same manner as if there were
a separate policy covering each insured.
Any insurance provided in accordance with Section 7.2.1 paragraph i shall be
endorsed to provide that the insurer thereunder waives all rights of subrogation
against Owner, Independent Engineer, Utility, Steam Purchaser and Lender and any
other right to deduction due to outstanding premiums, whether by attachment or
otherwise.
Section 7.3 - Owner Provided Insurance
7.3.1 Coverages - Owner shall commencing on or before the Commencement Date and
continuing throughout the term of this Agreement and any renewal thereof carry
and maintain or cause to be maintained, at its own expense, insurance with
coverage as follows:
i. Commercial or Comprehensive General Liability
Coverage. - Owner shall maintain or cause to be
maintained Commercial or Comprehensive General
Liability insurance with a combined single limit of
not less than $1,000,000 per occurrence and in the
annual aggregate. Such coverage shall also include
premises/operations, explosion, collapse and
underground hazard, broad form contractual,
products/completed operations, independent
contractors, broad form property damage and personal
injury.
ii. Excess (or Umbrella) Liability Coverage - Owner shall
maintain excess (or Umbrella) Liability insurance
providing coverage for a limit of $9,000,000 per
occurrence and in the annual aggregate in excess of
the insurance required in paragraph i above.
iii. Property and Boiler and Machinery Coverage - Owner
shall maintain at all times Property and Boiler and
Machinery insurance on an "all risk" replacement cost
basis with extended coverages, providing coverage for
the Facility, which insurance shall include coverage
for removal of debris and shall insure the buildings,
structures, boiler and machinery, equipment,
facilities, fixtures and other properties
constituting a part of the Facility in an amount
satisfactory to Owner with a deductible of not
greater than $1,000,000.
24
<PAGE> 30
iv. Subcontractor Insurance - Owner shall require all of
its Subcontractors to obtain, maintain and keep in
force during the time in which they are engaged in
performing services hereunder reasonably adequate
coverage in accordance with Owner's normal practice
and furnish Owner with acceptable evidence of such
insurance upon its request.
7.3.2 Deductibles - All deductibles for the coverages specified in this Section
7.3.1, paragraph i, ii and iii shall be the sole responsibility of Owner, except
that Operator shall be responsible for such deductible or to the extent the
claim arises out of the negligence or willful misconduct of Operator in the
performance of the Work, not to exceed $100,000 per occurrence pursuant to
Section 7.3.1 paragraphs i and ii or $200,000 per occurrence pursuant to Section
7.3.1, paragraph iii. Any such deductible or self-insured retention paid by
Operator shall not be deemed to be a Reimbursable Cost hereunder.
7.3.3 Endorsements - Any insurance provided in accordance with Section 7.3.1
shall be endorsed to provide that:
i. Operator shall be an insured for losses occurring at the
Site in the case of insurance provided in accordance with Section 7.3.1
paragraphs i and ii and an additional insured in the case of insurance provided
in accordance with Section 7.3.1 paragraphs iii and iv, in each case with the
understanding that, except as expressly provided in Section 7.3.2, any
obligation imposed upon Owner (including the liability to pay premiums) shall be
the sole obligation of Owner and not that of Operator.
ii. The insurer thereunder waives all rights, of subrogation
against Operator and Owner and any other right to deduction due to outstanding
premiums, whether by attachment or otherwise.
iii. Such insurance shall be primary without right of
contribution of any other insurance carried by or on behalf of Operator with
respect to its interest as such in the Facility.
iv. If such insurance is canceled for any reason whatsoever,
including nonpayment of premium, or any substantial change is made in the
coverage that affects the interest of Operator and Lender, such cancellation or
change shall not be effective as to Operator until forty-five (45) days after
receipt by Operator of written notice sent by registered mail from such insurer
of such cancellation or change; provided, however, that such forty-five (45) day
period shall be reduced to ten (10) days in the case where cancellation results
from the nonpayment of premiums.
v. Inasmuch as such policies are written to cover more than
one insured, all terms, conditions, insuring agreements and endorsements (other
than the limits of liability) shall operate in the same manner as if there were
a separate policy covering each insured.
vi. If Owner purchases insurance on a claims made basis, such
policies must contain a discovery period that expires five (5) years after the
expiration of the policy or, with Operator's prior written consent which shall
not be unreasonably withheld, Owner will provide an equivalent arrangement to
address claims which occurred during the claims made policy period but are not
reported for a period of five (5) years.
Section 7.4- Optional Insurance Responsibilities.
If requested by Owner in writing, Operator shall assist Owner in obtaining for
its own account the insurance Owner is required to maintain pursuant to Section
7.3.1 paragraphs i and ii above, subject to Owner reimbursing Operator for its
reasonable costs incurred in providing such assistance.
25
<PAGE> 31
ARTICLE VIII - Dispute Resolution
Section 8.1 - Procedure.
In the event a dispute arises between or among Owner and Operator regarding the
application or interpretation of any provision of this Agreement other than
matters which may not be settled without the consent of an insurance company or
a third party to a Project Agreement, the aggrieved Party shall notify the other
Party to this Agreement of the dispute. If the Parties shall have failed to
resolve the dispute within ten (10) Days after delivery of such notice, each
Party shall, within two (2) Days thereafter, nominate a senior member of its
management to meet at the Facility, or at any other mutually agreed location, to
resolve the dispute. Should the Parties be unable to resolve the dispute to
their mutual satisfaction within twenty (20) Days of such nomination, each Party
shall have the right to submit the dispute to arbitration in accordance with
Sections 8.2 through 8.5.
Section 8.2 - Arbitration Procedure.
(a) The Parties agree to settle all controversies and disputes
between them arising out of or relating to this Agreement (including without
limitation the breach, termination or validity thereof) by arbitration in
accordance with the Arbitration Rules of the American Arbitration Association
("AAA"), or successor organization, in effect at the time of the arbitration
("Rules"), except as such Rules may be modified by this Agreement.
(b) A Party desiring to submit a dispute to arbitration
hereunder shall file a Demand for Arbitration with the AAA at its office in
Milwaukee, Wisconsin. A copy of such Demand shall be sent to the other Party at
the same time. The arbitration proceeding shall be conducted by an arbitrator or
a panel of three arbitrators, as provided below. Within ten (10) Days after a
Demand for Arbitration has been made by either Party, the Parties shall either
agree on the appointment of a single arbitrator or each Party shall appoint one
arbitrator. Within twenty (20) Days after the Demand for Arbitration has been
made, the two arbitrators shall choose a third arbitrator who shall act as
chairperson of the arbitral proceedings. If the two arbitrators chosen by the
Parties do not agree upon a third arbitrator within twenty (20) Days after the
filing of the Demand for Arbitration, then upon the application of either Party,
the third arbitrator shall be appointed by the AAA. Should either Party refuse
or neglect to participate in the appointment of the arbitrators within the time
provided, the arbitrator selected by the other Party shall be the sole
arbitrator of the dispute.
(c) Following the appointment of the arbitrators, each Party
shall have the right to mail to the other Party (with a copy to the arbitrators)
a written request for the production of certain identified documents or of all
documents in possession of the other Party relevant to any claims or
counterclaims in said arbitration. Within ten (10) Days after receipt of any
such request, the receiving Party may make written objection to the requesting
Party (with a copy to the arbitrators) to all or part of said request, on the
ground that it is unduly burdensome, that the documents requested are irrelevant
or privileged, or that such documents are equally available to the requesting
Party. The arbitrators shall rule on the validity of any such objection and the
Parties shall produce documents in accordance with such order. The documents
requested shall be delivered within thirty (30) Days of receipt of such request,
unless the arbitrators otherwise direct.
(d) THE SITE OF THE ARBITRATION SHALL BE MILWAUKEE, WISCONSIN,
UNLESS OTHERWISE AGREED TO BY THE PARTIES. The Parties shall diligently and
expeditiously proceed with arbitration. The arbitrators shall be instructed to
render a written decision within forty-five (45) Days after the
26
<PAGE> 32
conclusion of the hearing or the filing of such briefs as may be authorized by
the arbitrators, subject to any reasonable delay due to unforeseen
circumstances.
(e) Except to the extent the Parties' remedies may be limited
by the terms of this Agreement, the arbitrators shall be empowered to award any
remedy available under the laws of the State of New York including, but not
limited to, monetary damages and specific performance. The arbitrators shall not
have the power to amend or add to this Agreement. The award of the arbitrators
shall be in writing with reasons for such award and signed by the arbitrators.
The Parties agree that any award rendered shall be final and binding; provided,
however, the Parties do not hereby waive their rights to modify or vacate an
award pursuant to Sections 10 and 11 of the United States Arbitration Act, 9
U.S.C. ss.ss. 10, 11. Judgment rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
Section 8.3 - Qualifications of Arbitrators; Expenses.
(a) The arbitrators in the arbitration proceeding provided for
in Section 8.2 shall be individuals experienced in the power plant operation and
maintenance industry and competent to pass on the matter presented for
arbitration, but said arbitrators shall have no interest in or prior connection
with Owner, Operator, or any of their respective Affiliates, and shall be
impartial toward each Party at the time of their selection.
(b) Owner and Operator shall share equally the compensation
and expenses of the arbitrators as well as all fees imposed by the AAA
including, but not limited to, transcripts, hearing room rentals, filing fees,
and administrative costs. Owner and Operator shall each be responsible for its
own costs and legal fees, if any. Notwithstanding the foregoing, the arbitrators
shall be empowered to award a Party its costs, expenses and legal fees if the
arbitration proceeding is initiated by the other Party in bad faith.
Section 8.4 - Independent Arbitration Agreement.
This Article VIII constitutes an independent contract to arbitrate all disputes
between the Parties, including, without limitation, disputes regarding contract
formation and whether either Party is entitled to quasi-contractual or quantum
meruit recovery from the other Party.
Section 8.5 - Continuation of Work.
Pending final resolution of any dispute, the Parties shall continue to fulfill
their respective obligations hereunder, including but not limited to payment
obligations. Subject to Sections 2.3 and 3.5(b), the interpretation or decision
of the non-aggrieved Party shall take precedence until such time as the dispute
is resolved pursuant to Section 8.1 or 8.2; provided that, nothing in this
Section shall relieve the non-aggrieved Party from any liability hereunder
resulting from such action to the extent such interpretation or decision is
ultimately determined to be wrong by the Arbitrators.
ARTICLE IX - Commencement and Termination
Section 9.1 - Commencement of Work.
The Operational Phase Services shall commence on the Commencement Date.
Section 9.2 - Term.
Except as may otherwise be noted herein, this Agreement shall remain in full
force and effect for an initial term commencing on the Commencement Date and
ending on September 17, 2004.
27
<PAGE> 33
Section 9.3 - Renewals.
Owner shall have the option to extend the term of this Agreement for up to two
(2) additional seven (7) year terms, provided that, Owner gives written notice
to Operator of such intent no later than one hundred and eighty (180) Days prior
to the expiration of the current term and the Parties mutually agree in writing
as to the terms of such extension.
Section 9.4 - Early Termination.
(a) This Agreement may not be terminated before its expiration
except (i) by mutual written agreement of the Parties or (ii) by Owner pursuant
to Section 9.4(b) or 18.2 or (iii) pursuant to the default provisions expressed
in Article XII.
(b) Owner may, at its option terminate this Agreement by
giving the Operator thirty (30) Days prior notice in the case of clauses (i)
through (iv) below and immediately in the case of clause (v) below. Owner may
terminate this Agreement:
(i) for any reason at the Owner's convenience; or
(ii) at any time, the Facility is unavailable to
generate electricity for any reason other than an event
of Force Majeure or default by Utility for ninety (90) consecutive or
nonconsecutive Days in any three hundred sixty-five (365) Day period; or there
is a failure to maintain for nine (9) consecutive months at least a sixty
percent (60%) Performance Factor (as defined pursuant to Appendix 9, Section (b)
(ii) or (c) of the Power Purchase Agreement), or there is the occurrence of an
event, except if due to an event of Force Majeure, which causes the capacity of
the Facility to fall more than forty percent (40%) below the Committed Capacity
(as defined in the Power Purchase Agreement) for nine (9) months in any
twenty-four (24) month period; or
(iii) Not Used.
(iv) upon damage to, or destruction of, a substantial
portion of the Facility, which damage or destruction cannot reasonably be
expected to be repaired or rebuilt within one (1) calendar year; or
(v) a work stoppage by Operator's on-site personnel
and failure by Operator to provide a complement of workers within ten (10) Days
as necessary to operate the Facility and perform the Work in all material
respects as required by this Agreement.
Section 9.5 - Termination Procedure.
Upon the effective date of termination of this Agreement authorized under
Section 9.4, the Operator shall (a) discontinue the Work, (b) place no further
orders or subcontracts for Materials, Services, or labor, except as authorized
in advance by Owner or required of Operator to avoid giving rise to a default
under this Agreement, (c) make every reasonable effort to obtain cancellation of
affected subcontracts or, at Owner's request, cause the assignment of any such
contracts to Owner or its replacement operator upon terms satisfactory to Owner,
and (d) take such other action as may be reasonably requested by Owner for the
orderly closeout and transition of Operator's operation and maintenance
activities. After deduction of any amounts owed by Operator to Owner, upon
termination pursuant to this Article, Owner shall pay, or cause to be paid, to
Operator (A) the amount, if any, due and payable to Operator pursuant to this
Agreement up to and including
28
<PAGE> 34
the date of termination, and (B) except in the case of a termination of Operator
pursuant to Article XII, all reasonable documented costs incurred by Operator
for its own efforts to implement termination and the resulting reasonable costs
actually incurred for turnover and demobilization, excluding any loss of
anticipated profit. Such payments to Operator shall not duplicate any other
payments hereunder made to Operator. Operator shall use reasonable efforts to
minimize all termination costs. In the case of a termination pursuant to clause
(i) of Section 9.4 (b), Owner shall also pay Operator the applicable termination
fee (the "Termination Fee") as set forth in Exhibit G. Other than as set forth
in this Section 9.5, Owner shall have no liability to Operator for costs,
expenses or losses of any kind or nature incurred by Operator as a result of
such termination. In no event shall the aggregate payments of Owner hereunder
(not including the Termination Fee, if any) exceed the amount due for the
then-current Operating Year, pro-rated for any partial Operating Year. Within
sixty (60) Days following the termination date, Operator shall submit to Owner
its final invoice statement which Owner shall review and make payments on in
accordance with the provisions expressed in Article VI. Upon Operator's receipt
of final payment in full from Owner, this Agreement shall terminate and neither
Party shall have any further obligation to the other Party except with respect
to those certain provisions of this Agreement which by their nature survive.
Section 9.6 - Suspension of Performance.
At any time and from time to time Owner may direct Operator to suspend and
subsequently to resume performance of the Work. Any such direction shall be
promptly confirmed in writing. During any such suspension, Operator and Owner
shall proceed in accordance with provisions of Section 9.5, revised as
applicable to account for the differences between termination and suspension.
Notwithstanding any other provision of this Agreement to the contrary, in the
event of a suspension pursuant to this Section 9.6, Operator shall reduce the
number of Personnel at Owner's request and Owner and Operator shall negotiate in
good faith an equitable reduction in the compensation of Operator, including any
applicable Performance Bonus or Performance Penalty, for the applicable period
of suspension. Owner shall be responsible for all costs and expenses associated
with the remobilization after the suspension.
ARTICLE X - Representations
Section 10.1 - Representations and Warranties.
(a) Each Party represents and warrants to the other Party that: (i)
such Party has the full power and authority to execute, deliver and perform this
Agreement and to carry out the transactions contemplated hereby; (ii) the
execution and delivery of this Agreement by such Party and the carrying out by
such Party of the transactions contemplated hereby have been duly authorized by
all requisite corporate (or, if applicable, partnership) action, and this
Agreement has been duly executed and delivered by such Party and constitutes the
legal, valid and binding obligation of such Party, enforceable against it in
accordance with the terms hereof, subject as to enforceability of remedies to
limitations imposed by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the enforcement of creditors rights
generally and general principles of equity; (iii) no authorization, consent,
approval or order, or notice to or registration, qualification, declaration or
filing with any Governmental Authority is required for the execution, delivery
and performance by such Party of this Agreement or the carrying out by such
Party of the transactions contemplated hereby, other than regulatory and similar
approvals needed with respect to the operation and maintenance of the Facility;
and (iv) none of the execution, delivery and performance by such Party of this
Agreement, the compliance with the terms and provisions hereof, and the carrying
out of the transaction contemplated hereby, conflicts or will conflict with or
result in a breach or violation of any of the terms, conditions, or provisions
of any law, governmental rule or regulation or the charter document (or
partnership
29
<PAGE> 35
agreement, if applicable), as amended, supplemented, or otherwise modified, or
bylaws, as amended, supplemented, or otherwise modified, of such Party or any
applicable order, writ, injunction, judgment or decree of any court or
Governmental Authority against such Party or by which it or any of its
properties is bound, or any loan agreement indenture, mortgage, bond, note,
resolution, contract or other agreement or instrument to which such Party is a
Party or by which it or any of its properties is bound, or constitutes or will
constitute a default thereunder or will result in the imposition of any lien
upon any of its properties.
(b) Operator further represents and warrants to Owner that:
(i) it has experience in the operation and maintenance of gas turbine powered
cogeneration facilities and is fully qualified to operate and maintain the
Facility in accordance with the terms hereof, (ii) it shall not intentionally
take any action that would cause a default under any Project Agreement, and
(iii) there are no legal or arbitral proceedings or any proceedings by or before
any Governmental Authority, now pending or (to the knowledge of Operator)
threatened against Operator or any of its subsidiaries that if adversely
determined, could reasonably be expected to have a material adverse effect on
Operator's ability to perform its obligations under this Agreement.
ARTICLE XI - Confidentiality
Section 11.1 - General.
Each Party agrees to hold in confidence for a period of five (5) years from the
date of disclosure, but in any event for the term of the Loan Agreement, any
confidential information supplied by the other Party or its contractors and
designated in writing as confidential by the supplier thereof, including this
Agreement ("Confidential Information"). Accordingly, it shall not be disclosed
in whole or in part to third parties without the prior written permission of the
other Party, except that Operator agrees that Owner may disclose any
Confidential Information to Lender, potential Lenders and their representatives
as required for the financing of the Facility and to the Owner's partners and
prospective partners, subject to appropriate confidentiality agreement. Operator
further agrees, to the extent requested by the supplier of such information, to
require its subcontractors, vendors, suppliers and employees to enter into
appropriate nondisclosure agreements relative to such Confidential Information,
prior to the receipt thereof.
Section 11.2 - Exceptions
The provisions of this Article shall not apply to information within any one of
the following categories or any combination thereof:
(a) Information that was in the public domain prior to the
receiving Party's receipt or that subsequently becomes part of public domain by
publication or otherwise, except by the receiving Party's wrongful act; or
(b) Information that the receiving Party can show was in its
possession prior to receipt thereof from the disclosing Party; or
(c) Information received by a Party from a third Party who
such Party reasonably determines is under no limitation or restriction regarding
disclosure.
Section 11.3 - Required Disclosure.
Any Party required by law, rule, regulation or order, or in the course of
administrative or judicial proceedings, to disclose information that is
otherwise required to be maintained in confidence pursuant to this Article XI
(collectively, a "Legally Compelled Disclosure") may make disclosure
notwithstanding the provisions of this
30
<PAGE> 36
Article XI; provided, however, that the Party required to make the disclosure
shall immediately notify the other Party of the requirement and the terms
thereof and shall cooperate to the maximum extent practicable to preserve the
confidential nature of the information and, in the case of Legally Compelled
Disclosure, minimize the disclosure. The Party disclosing such information shall
use all reasonable efforts to obtain proprietary or confidential treatment of
such information by the third party to whom the information is disclosed, and in
the case of a Legally Compelled Disclosure, to the extent such remedies are
available, shall seek protective orders, limiting the dissemination and use of
the information. Moreover, in the case of a Legally Compelled Disclosure, this
Agreement does not alter the rights of either Party to object to the rule,
regulation, order or proceedings requiring the disclosure.
Section 11.4 - Return of Confidential Information.
Confidential Information furnished to Operator by Owner hereunder shall be
returned to Owner or its destruction certified before final payment is made to
Operator hereunder; provided that, subject to any restrictions imposed by
Article XI, Operator may retain a copy thereof.
ARTICLE XII - Default
Section 12.1 - Events of Default.
The following occurrences or events, or any of them, by or against either
Operator or Owner shall constitute a default under this Agreement:
(a) A material breach of any of the terms, conditions,
warranties, covenants or representations expressed in this Agreement (other than
a breach described in Sections 12.1(b) through (f) below); or
(b) the filing of a petition commencing a voluntary case under
the Federal Bankruptcy Code or for liquidation, reorganization or any similar
arrangement under federal or state law relating to bankruptcy, insolvency,
winding up or adjustment of debts; or
(c) the admission in writing of its insolvency or inability to
pay its debts generally as they become due or the acquiescence in or consent to
any involuntary case commenced pursuant to Section 12.1(d) or the declaration of
such Party as bankrupt or insolvent under the Federal Bankruptcy Code or any
other federal or state law relating to bankruptcy, insolvency, winding up or
adjustment of debts; or
(d) the filing of a petition against it commencing an
involuntary case under the Federal Bankruptcy Code or proposing the adjudication
of such Party as a debtor or bankrupt or proposing its liquidation or
reorganization pursuant to any federal or state law relating to bankruptcy,
insolvency, winding up or adjustment of debts; or
(e) the dissolution of any Party or failure to maintain such
Party's good standing or qualification to do business in the State of Wisconsin
and state of organization; or
(f) an assignment for the benefit of creditors.
Section 12.2 - Rights Upon Default.
(a) In the event that (1) either Party is in default of this
Agreement pursuant to Section 12.1(a) or 12.1(d) (for filing of an involuntary
petition in bankruptcy) and such default is not cured, or the defaulting
31
<PAGE> 37
Party is not diligently pursuing a cure, within thirty (30) Days following
receipt of notice that a default under this Agreement has occurred, or, if
diligently pursuing a cure, has not cured such default within ninety (90) Days
of such notice; provided that to the extent that the Operator is in default
pursuant to Section 12.1(a) on more than two occasions related to the same
default during any twelve (12) month period it shall not be entitled to either
the 30 or 90 day cure period provided for herein, or (2) either Party is in
default pursuant to Sections 12.1 (b) (for filing a voluntary petition in
bankruptcy), 12.1(c), 12.1(e) or 12.1(f), then the non-defaulting Party may take
any one or more of the following actions: (i) terminate this Agreement
immediately without obligation to or recourse by the defaulting Party and in
accordance with the procedures described in Section 9.5, (ii) exercise any other
right it may have under this Agreement, and/or (iii) pursue any other right or
remedy available to it under Law or equity in accordance with the procedures of
Article VIII subject to the limits set forth in this Agreement.
(b) In the event that Owner so elects to terminate this
Agreement as a result of Operator's default hereunder, and without limiting any
other right or remedy of Owner arising therefrom, Owner may employ any other
person, firm or corporation to perform the Work by whatever method Owner may
deem expedient. Furthermore, Operator shall, at Owner's expense, perform the
following services relative to the Work so affected by its default, regardless
of whether or not Owner elects to terminate this Agreement as a result of such
default:
(i) assist Owner in preparing an inventory of all Materials in
use or in storage at the Facility; and
(ii) assign to Owner such subcontracts and other contractual
agreements relating to Operator's performance of the Work as may be designated
by Owner. Furthermore, Operator shall execute all documents reasonably requested
by Owner and take such other steps as are reasonably requested by Owner that may
be required to assign and vest in Owner or its designee all rights, benefits,
interests and title in connection with such contracts or obligations; and
(iii) assist Owner in training Operator's successor.
ARTICLE XIII - Indemnity
Section 13.1 - Operator's Indemnity.
13.1.1 Indemnity. Operator shall indemnify, hold harmless and defend Owner, the
Project Lender, the Independent Engineer and their Affiliates and their
respective officers, directors, partners, and employees (collectively, the
"Owner's Indemnitees") from and against any and all claims, demands, suits,
legal proceedings, liabilities, judgments, awards, losses, damages, costs or
expenses (including, without limitation, reasonable legal fees and expenses) for
bodily injury to or death of persons or damage to or destruction of third party
tangible property, to the extent caused by or arising out of any negligent act
or omission (whether active or passive), willful misconduct or strict liability
of Operator or of anyone acting under its direction or control or on its behalf
in connection with or incident to the performance of the Work (other than
Owner's Indemnitees).
13.1.2. Nonpayment. Operator agrees to fully indemnify, save harmless and defend
the Owner's Indemnitees from claims, liabilities, expenses (including reasonable
legal fees), penalties, interest, demands and causes of action for nonpayment of
amounts due Operator's subcontractors, or others as a result of
32
<PAGE> 38
furnishing Work which amounts are payable by Operator, provided that, Operator
has been paid in accordance with the provisions of the Agreement, including any
right of Owner to withhold payment under the Agreement.
13.1.3 No Limitation of Indemnity. With respect to any and all claims arising,
directly or indirectly, from the performance of the Operator pursuant to this
Agreement brought against any Owner's Indemnitee, whether brought by any
employee of Operator, any subcontractor of Operator, anyone directly or
indirectly employed by any of them or by anyone for whose acts any of them may
be liable or otherwise, or in the event of any other claim against an Owner's
Indemnitee subject to Section 13.1.1, the indemnification obligation under such
Section shall not be limited in any way by the amount or type of damages,
compensation or benefits payable by or for Operator or any Subcontractor of
Operator or any other Person under worker's compensation acts, disability
benefit acts, nor by the provision of any insurance, whether required to be
provided under the Agreement, or of other employee benefit acts.
Section 13.2 - Owner's Indemnity.
13.2.1 Indemnity. Owner shall indemnify, defend and hold Operator and its
officers, directors, and their Affiliates and their respective officers,
directors, partners, and employees (collectively "Operator's Indemnitees")
harmless from and against any and all claims, demands, suits, legal proceedings,
liabilities, judgments, awards, losses, damages, costs or expenses (including,
without limitation, reasonable legal fees and expenses) for bodily injury to or
death of persons or damage to or destruction of third party tangible property,
to the extent caused by or arising out of any negligent act or omission (whether
active or passive) willful misconduct or strict liability of Owner or its
Subcontractors or anyone acting on Owner's behalf, including, without
limitation, Affiliates of the foregoing (other than Operator's Indemnitees) in
connection with or incident to activities or services on or about the Site.
13.2.2 No Limitation of Indemnity. With respect to any and all claims in
connection with this Project brought against any Operator's Indemnitee, whether
brought by any employee of Owner, any Subcontractor of Owner, anyone directly or
indirectly employed by any of them or by anyone for whose acts any of them may
be liable or otherwise, or in the event of any other claim against an Operator's
Indemnitee subject to Section 13.2.1, the indemnification obligation under such
Section shall not be limited in any way by the amount or type of damages,
compensation or benefits payable by or for Owner or any Subcontractor or any
other Person under worker's compensation acts, disability benefit acts, nor by
the provision of any insurance, whether required to be provided under the
Agreement, or of other employee benefit acts.
Section 13.3 - Survival of Indemnity.
This Article XIII and any other indemnity provided under this Agreement shall
survive the termination or suspension of this Agreement and shall remain in full
force and effect until the later of (i) the time during which a claim or cause
of action may be brought is barred by the applicable statute of limitations and
(ii) the satisfaction or payment of such claim or liability and of all expenses
and charges incurred by Operator or Owner, as the case may be, relating to the
enforcement of this Article XIII, but with respect to Section 13.1 in no event
later than the date of expiration of the insurance required to be provided by
Owner pursuant to Article 7.
Section 13.4 - Litigation.
If any party indemnified pursuant to this Article 13 (each an "Indemnified
Party" collectively "Indemnified Parties") receives notice or has knowledge of
any claim that may reasonably result in a claim for indemnification by such
Indemnified Party against a Party (the "Indemnifying Party") pursuant to this
Article
33
<PAGE> 39
XIII or Article XVII, such Indemnified Party shall, as promptly as possible,
give the Indemnifying Party notice of such claim, including a reasonably
detailed description of the facts and circumstances relating to such claim, and
a complete copy of all notices, pleading and other papers related thereto, and
the basis for its potential claim for indemnification with respect thereto in
reasonable detail and cooperate with the Indemnifying Party in response thereto.
Subject to the limitations on the Indemnifying Party's indemnity obligations
hereunder, the Indemnifying Party shall assume on behalf of the Indemnified
Party, and conduct with due diligence and good faith the defense of, any suit
against one or more of the Indemnified Parties, whether or not the Indemnifying
Party is joined therein; provided, however, that, without relieving the
Indemnifying Party of its obligations hereunder and subject to the Indemnifying
Party's control over the defense and settlement of such suit, the Indemnified
Party may elect to participate in the defense of any such suit, at its own
expense. The Indemnifying Party's indemnity hereunder is for the exclusive
benefit of the Indemnified Parties and their assignees and in no event shall
inure to the benefit of a third party.
ARTICLE XIV - Liability of the Parties
Section 14.1 - Limitation of Liability.
14.1.1 In no event whether as a result of breach of contract, warranty,
indemnity, tort (including negligence), strict liability or otherwise, shall
either Party, including with respect to the Operator its suppliers or
subcontractors of any tier, be liable hereunder for any consequential or
indirect loss or damages, including without limitation, loss of energy, revenue,
costs of capital, loss of other anticipated revenues and profits, loss of good
will, damage to or loss of property or equipment in excess of the obligation
assumed by Operator in Sections 7.2 and 13.1, loss of use of equipment or power
system, increased operating costs or any special or incidental damages. The
foregoing disclaimer shall not excuse Owner from paying Performance Bonuses or
Operator from paying Performance Penalties.
14.1.2 Excluding any liability of Operator for the payment of amounts pursuant
to Sections 13.1.1, 13.1.2, and 7.3.2 as it relates to the payment of
deductibles by Operator for the coverage provided in Section 7.3.1 (i) and (ii),
and excluding any third party liabilities regarding Operator's indemnity as set
forth in Section 17.4, the total aggregate liability of Operator and its
suppliers and subcontractors of any tier with respect to any and all claims
arising out of the performance or non-performance of its obligations under this
Agreement, whether based on contract, warranty, tort (including negligence and
strict liability), or otherwise, shall not exceed, with respect to claims
arising or accruing in any Operating Year, the annual Management Fee for such
Operating Year, provided that if such Operating Year consists of less than three
hundred sixty-five days, such amount will be prorated accordingly.
Section 14.2 - Survival
The Parties further agree that the waivers and disclaimers of liability,
indemnities, releases from liability and limitations on liability expressed in
this Agreement shall survive termination or expiration of this Agreement, and
shall apply at all times (unless otherwise expressly indicated), whether in
contract, equity, tort or otherwise, regardless of the fault, negligence, strict
liability, or breach of warranty of the Operator's Indemnitees or Owner's
Indemnitees, as applicable.
34
<PAGE> 40
Section 14.3 - No Warranties or Guarantees.
EXCEPT AS EXPRESSLY PROVIDED IN TIES AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTIES OR GUARANTEES TO THE OTHER, EITHER EXPRESS OR IMPLIED, WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT, AND BOTH PARTIES DISCLAIM AND WAIVE
ANYIMPLIED WARRANTIES OR WARRANTIES IMPOSED BY LAW INCLUDING BUT NOT LIMITED TO
THE IMPLIED WARRANTIES OF MECHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE XV - Force Majeure
Section 15.1 - Force Majeure; Events Limitation.
Neither Operator nor Owner shall be liable to the other for any failure to
perform pursuant to the terms and conditions of this Agreement to the extent
such performance was prevented by an event of Force Majeure. Force Majeure as
used in this Agreement means any event beyond the reasonable control of the
Party affected and which, with the exercise of due care, such party could not
reasonably have been expected to avoid, including but not limited to acts of
God, explosions or fires, floods, hurricanes, tornadoes, lightning, earthquakes,
drought, epidemics, blight, famine, quarantine, blockade, acts or inactions of
Governmental Authorities, war, insurrection or civil strife, rebellion,
sabotage, strike or labor difficulty (except any such strikes or labor
difficulties involving Operator's Personnel or other employees or any
subcontractor of Operator or their employees); provided that commercial
impracticability shall not constitute an event of Force Majeure; provided
further that a Party shall not be excused from its performance pursuant to this
Article 15.1(i) unless such Party gives notice and full particulars of the same
to the other party as soon as practicable after the occurrence relied on, (ii)
to the extent such failure was caused by its negligence, (iii) to the extent the
event relied upon could have been prevented by reasonable diligence or was
within the reasonable control of such Party, (iv) to the extent of its failure
to use due diligence to remedy the situation and remove the cause of the event
of Force Majeure in an adequate manner and with all reasonable dispatch, (v) for
its obligations to make payments due under this Agreement. The Parties expressly
understand and agree that (a) in the event that any Operator subcontractor is
entitled under the terms of any contract or agreement to force majeure relief
for events or circumstances of a nature or type similar to those specifically
enumerated above on terms broader than those provided above, such broader force
majeure relief shall not constitute Force Majeure for the Operator hereunder
unless such events or circumstances would themselves constitute a Force Majeure
event hereunder if Operator were directly affected thereby; and (b) the
compliance of Operator's subcontractors with the terms of its applicable
subcontract or purchase order shall be within Operator's control. The burden of
proof shall be on the Party seeking to show excuse from performance due to a
Force Majeure event.
ARTICLE XVI - Title, Documents and Data
Section 16.1 - Materials and Equipment.
Title to all Materials (including equipment) and other items purchased or
obtained by Operator on a Reimbursable Cost basis hereunder shall pass
immediately to and vest in Owner upon the passage of title from the vendor or
supplier thereof; provided, however, that such transfer of title shall in no way
affect Operator's obligations as set forth in the other provisions of this
Agreement.
35
<PAGE> 41
Section 16.2- Review by Owner.
All materials and documents required to be submitted for the approval of Owner
shall be prepared and processed in accordance with the requirements and
specifications set forth in the Site Procedures and Annual Operating Plan, as
applicable; provided, however, that Owner's review or approval of materials and
documents submitted by Operator shall not relieve Operator of its responsibility
for the corrections thereof or of its obligations to meet all of the
requirements of this Agreement.
ARTICLE XVII- Hazardous Materials
Section 17.1 - Owner's Indemnity.
Operator makes no representation or warranty concerning the existence or
nonexistence of Hazardous Materials at the Site when the Work commences and
disclaims all responsibility and liability for the excavation, transportation,
storage, handling, removal, treatment or disposal of pre-existing Hazardous
Materials discovered or encountered at the Site. Owner shall indemnify, defend
and hold Operator and its Subcontractors harmless from and against any claim,
suit, loss, ability, fine, or damage (including reasonable attorneys' fees),
including, but not limited to, liability or cost incurred or assessed against
Operator pursuant to 42 USC 9601 et seq., "Comprehensive Environmental Response,
Compensation and Liability Act of 1980" and amendments thereto, 15 USC 2602, et
seq., " The Toxic Substances Control Act" and amendments thereto, 42 USC 6901et
seq., "The Resource Conservation and Recovery Act of 1976" and amendments
thereto, or other applicable Law made or asserted by any Person, including
governmental entities, based on or related to complaints or allegations, whether
or not supported by fact, that soils, leachate, effluent, or other residue
located on, emanating from, or arising from the soils, subsurface or physical
conditions at the Site contain preexisting toxic substances or preexisting
Hazardous Materials. Operator shall provide prompt notice to Owner of any
suspected Hazardous Materials which it finds during performance of Work. Owner
shall be responsible for the prompt determination of the nature of such
Hazardous Materials and shall proceed with due diligence.
Section 17.2 - Collection and Removal.
Operator shall arrange for the proper collection, removal and disposal of any
Hazardous Materials furnished, used, applied, generated or stored at the Site or
emanating from the Site as a result of Work including, but not limited to, used
oils, greases, and solvents from flushing and cleaning processes performed under
this Agreement. All activities in connection with the foregoing shall be
performed in accordance with the Site Procedures. All costs associated with the
transporting and disposing of Hazardous Materials to or from the Site by
Operator in connection with its performance of the Work pursuant to the terms of
this Agreement shall be paid by Owner pursuant to the provisions of Section 6.2.
Section 17.3 - Material Safety Data Sheets.
As required under all applicable Laws, Operator shall provide Material Safety
Data Sheets covering all Hazardous Materials furnished under or otherwise
associated with the Work. Operator shall provide Owner with copies of the
applicable Material Safety Data Sheets or copies of a document certifying that
no Material Safety Data Sheets are required under any applicable Laws and shall
determine whether any substance or material furnished, used, applied, or stored
in connection with the Work is within the provisions of any Laws concerning
Hazardous Materials.
Section 17.4 - Operator's Indemnity.
36
<PAGE> 42
Operator covenants and agrees that Operator will not introduce Hazardous
Materials on the Site or in the Work in violation of any Laws or handle
Hazardous Materials negligently or in violation of Law. Operator shall
indemnify, defend and hold Owner and its partners, officers, directors,
employees, assigns, successors in interest, agents, the Utility and the Steam
Purchasers from and against any claim, suit, loss, cost, liability, fine, or
damage (including reasonable attorneys' fees), including, but not limited to,
liability or cost incurred or assessed against Owner pursuant to 42 USC 9601 et
seq., "Comprehensive Environmental Response, Compensation and Liability Act of
1980" and amendments thereto, 15 USC 2601, et seq., "The Toxic Substances
Control Act" and amendments thereto, 42 USC 6901 et seq., "The Resource
Conservation and Recovery Act of 1976" and amendments thereto, or other Laws,
arising out of Operator's breach of the preceding covenant and agreement. Owner
shall provide prompt notice to Operator of any such indemnification sought from
Operator.
ARTICLE XVIII - Miscellaneous Provisions
Section 18.1 - Entire Agreement.
This Agreement (including all exhibits and schedules thereto) contains the
entire understanding of the Parties with respect to the subject matter hereof
and supersedes any and all prior negotiations, agreements, commitments, and
writings with respect thereto. There are no oral understandings, terms or
conditions and neither Party has relied upon any representation, express or
implied, not contained in this Agreement.
Section 18.2 - Changes to Project Agreements.
Notwithstanding anything to the contrary contained in this Agreement, in the
event (i) any Project Agreement is amended, modified, or supplemented or entered
into subsequent to the Effective Date of this Agreement, and (ii) such Project
Agreement as amended, modified, or supplemented or such new Project Agreement
contains terms that impose upon Operator obligations materially more burdensome
than the obligations imposed upon the Operator absent such amendment,
modification or supplement or new Project Agreement and (iii) the Operator's
obligations under such amendment, modification, supplement or new Project
Agreement cannot be fully compensated as a Reimbursable Cost hereunder, then
Owner and Operator shall negotiate in good faith to provide for the equitable
compensation of Operator on terms reasonably satisfactory to each of Owner and
Operator.
Section 18.3 - Amendments.
No change, amendment or modification of this Agreement shall be valid or binding
upon the Parties hereto unless such change, amendment or modification shall be
in writing and duly executed by both Parties.
Section 18.4 - Joint Effort.
Preparation of this Agreement has been a joint effort of the Parties and the
resulting document shall not be construed more severely against one of the
Parties than against the other.
Section 18.5 - Captions.
The captions contained in this Agreement are for convenience and reference only
and in no way define, describe, extend, or limit the scope or intent of this
Agreement or the intents of any provision contained herein.
Section 18.6 - Notice.
37
<PAGE> 43
Any notice, demand, offer, or other written instrument required or permitted to
be given pursuant to this Agreement shall be in writing signed by the Party
giving such notice and shall be deemed given when delivered to the Party to whom
notice is to be given by personal delivery, first class registered or certified
mail, nationally recognized courier, or telex at the most recent address
specified by such Party to this Section 18.6:
(a) To Owner: LSP-Whitewater Limited Partnership
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attn: General Counsel
Telephone: (704) 525-4897 x 407
Fax: (704) 529-1006
With a copy to: LSP-Whitewater Limited Partnership
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attn: Vice President - Operations
Telephone: (704) 525-4897 x 422
Fax: (704) 527-4413
(b) To Operator: LSP-Whitewater I, Inc.
111 County Highway U
Whitewater, Wisconsin 53190
Attn: Plant Manager
Telephone: 414-472-7040
With a copy to: LSP-Whitewater I, Inc.
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Blvd.
Charlotte, North Carolina 28273
Attn: Vice President - Operations
Telephone: (704) 525-4897 x 422
Fax: (704) 527-4413
cc: General Counsel
Telephone: (704) 525-4897 x 407
Fax: (704) 529-1006
Either Party shall have the right to change the place to which
such notice shall be sent or delivered by similar notice sent in like manner to
the other Party.
Section 18.7 - Effective Date of Notice.
The effective date of any notice issued pursuant to this Agreement shall be the
date of the addressee's receipt of such notice or date of refusal to accept
delivery.
38
<PAGE> 44
Section 18.8 - Partial Invalidity.
The invalidity of one or more of the phrases, sentences, clauses, Sections or
Articles contained in this Agreement shall not affect the validity of the
remaining portion of this Agreement so long as the material purposes of this
Agreement can be determined and effectuated.
Section 18.9 - Assignment.
(a) Neither this Agreement nor any right granted hereunder may
be assigned or otherwise disposed of by Operator and neither shall inure to the
benefit of any trustee in bankruptcy, liquidator, receiver, successor, or
Affiliate of Operator, whether by operation of law or otherwise, without the
express written consent of Owner and, furthermore, any assignment or transfer
without such express written consent shall be null and void and shall constitute
a material breach of this Agreement; provided, however, that Operator may assign
this Agreement without the consent of Owner (i) to the successor entity in
connection with a merger, consolidation or other corporate reorganization of
Operator, (ii) to the purchaser, in connection with the sale of all or
substantially all of the business or assets of the Operator, provided that such
purchaser is at least as experienced in the operation and maintenance of gas
fired combined cycle cogeneration facilities as Operator is as of the date
hereof, or (iii) to an Affiliate of Operator, provided such transfer shall not
in any manner release the Operator from its obligations hereunder; and provided
further that Operator shall provide a guarantee of the performance of such
affiliate satisfactory in form and substance to Owner.
(b) This Agreement shall not be assigned by Owner without the
prior written consent of Operator, which consent shall not be unreasonably
withheld, except that this Agreement may be assigned by Owner without such
consent (i) to the Project Lender as security for Lender's financing of the
Facility and as collateral security to Utility provided that such transfer shall
not in any manner release Owner from its obligations hereunder; (ii) to the
successor of Owner, or to Person acquiring all or a controlling interest in the
business assets of Owner, and (iii) in connection with a sale or transfer of the
Facility. Operator hereby agrees to execute and deliver a reasonably acceptable
form of consent.
Section 18.10 - No Waiver.
Any failure of either Party to enforce any of the provisions of this Agreement
or to require at any time performance by the other Party of any of the
provisions hereof during the pendency of this Agreement shall in no way affect
the validity of this Agreement, or any part hereof, and shall not be deemed a
waiver of the right of either Party thereafter to enforce any and each such
provision.
Section 18.11 - Counterparts.
This Agreement may be executed by the Parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 18.12 - Publicity.
Each Party shall obtain the other Party's prior written approval regarding the
text of any announcement, publication, photograph or other type of communication
concerning the Work prior to the dissemination or release of same by either
Party, which approval shall not be unreasonably withheld.
Section 18.13 - Applicable Law.
This Agreement shall be governed by, construed and enforced in accordance with
the laws of the State of New York, without regard for its principles governing
conflicts of law.
39
<PAGE> 45
Section 18.14 - Successors and Assigns.
This Agreement shall be binding upon the Parties hereto, their successors and
assigns from the Effective Date until such time as all obligations described
herein have been completed in full.
Section 18.15 - Exhibits and Schedules.
All Exhibits and Schedules referenced in this Agreement shall be incorporated
into this Agreement by such reference and shall be deemed to be an integral part
of this Agreement.
Section 18.16 - Third Party Beneficiaries.
This Agreement and each and every provision hereof is for the exclusive benefit
of the Parties hereto and is not for the benefit of any third party.
Section 18.17 - Operator Liens and Encumbrances.
Operator represents and warrants that it shall not encumber the Facility, Site,
or any part thereof as security for any payments owed to it by Owner hereunder
unless Operator has provided Owner and Lender with the lesser of (i) thirty (30)
Days, or (ii) a period equal to one half (1/2) the statutory period under
Wisconsin law for the filing of mechanic's or materialmen's liens prior written
notice of its intent to do so and neither Owner nor Lender shall have made
payment or provided a bond or other reasonably acceptable provision to secure
such payment within said period.
40
<PAGE> 46
Section 18.18 - Effect of Approval Rights.
Operator acknowledges and agrees that any right of Owner to review or approve
any matter under this Agreement, including, without limitation, any such right
provided in Article III is for the exclusive benefit of the Party entitled to
exercise such right and no exercise of or failure to exercise any such right
shall in any way relieve or limit any of Operator's obligations or liabilities
under this Agreement.
IN WITNESS WHEREOF, the Parties hereto have set their hands on
the day and year first above written.
LSP-Whitewater Limited Partnership
By LSP-Whitewater I, Inc.
its general partner
By: /s/ David Pierce
Its: Vice President
LSP-Whitewater I, Inc.
By: /s/ David Pierce
Its: Vice President
41
<PAGE> 47
EXHIBIT A
The Facility is a nominally rated 250 MW combined cycle cogeneration plant
located adjacent to the University of Wisconsin (UWW) in Whitewater, Wisconsin.
The plant configuration is a 1 on 1 501F non-reheat 3 pressure level plant. The
plant will also include duct firing, water injection and steam power
augmentation with a dry low NOx combustion system. When cogenerating, the
Facility shall be designed to deliver 100,000 lb/hr of process steam to UWW at
100 psig 1 degree F. minimum, 20 degree F. maximum superheat, or 190,000 lb/hr
to the greenhouse hot water heating and storage system. Maximum capacity process
steam provided to the steam hosts concurrently will be 190,000 lb/hr. In
addition two auxiliary boilers, each sized to deliver 80,000 lb/hr to the steam
hosts will be used during combined cycle Facility outages. Dual fuel will be
used on the combined cycle plant and auxiliary boilers (fuel oil as backup).
A-1
<PAGE> 48
Exhibit B
Typical List of Site Procedures
1.0 Organization/Management Procedures (including organization chart,
staffing plan, role descriptions, Personnel anticipated education and
experience).
1.1 Standard Facility Organization
1.2 Standards of Conduct
1.3 Training/Qualifications Program
1.4 Hiring/Promotion/Compensation
1.5 Personnel Procedures (including health and drug screening)
1.6 Annual Budgeting/Planning
1.7 Project Commitments Database
1.8 Management Reports
1.9 Government Interface Practices
1.10 Legal/Insurance Program
1.11 Document Control/Records Management and Procedures
2.0 Procurement/Accounting
2.1 Requisitions/Purchasing Procedures
2.2 Accounts Administration
2.3 Financial Practices/Cash Management
3.0 Operations
3.1 Operator Training/Qualifications/Licensing
3.2 Operating Reports (Logs and Records)
3.3 Performance Testing
3.4 Environmental Compliance (Permits)
3.5 Chemistry Program (Process, Description, Testing, Corrective
Action)
3.6 Integrated Startup and Shutdown Procedures (provided by
Contractor)
3.7 Interface procedures with Facility Contract Parties
3.8 Performance Tests
4.0 Maintenance
4.1 Computerized Preventive Maintenance Management Program
4.2 Planning and Execution of Outages
4.3 Stores/Spare Parts Inventory Control
4.4 Maintenance Training/Qualifications
4.5 Tool Control and Issue
4.6 Predictive Maintenance Program
4.7 Preventative Maintenance Procedures
4.8 Configuration Management and Control Procedures
4.9 Spare Parts Forecasting
B-1
<PAGE> 49
5.0 Safety and Security Program and Systems; Compliance Plan
5.1 Switching and Tagging
5.2 Crane Qualifications
5.3 Personnel Protective Equipment Requirements
5.4 Evacuation Plan
5.5 Fire Protection and Prevention Systems/Inspections
5.6 Cutting and Welding Permits
5.7 Emergency Response: Safety and Health Action Plan
5.8 Occupational Injury/Illness Reporting
5.9 Testing and Inspection of Tools and Protective Devices
5.10 Hazardous Material and Waste Handling
5.11 Police/Fire/Emergency Coordinator Interface Procedures
5.12 Site Physical Security Procedures
5.13 Employee Safety Program
5.14 Safety Coordination and Action Plan
5.15 Facility Site Access Procedure
5.16 Subcontractor Safety and Quality Assurance Program
6.0 Quality
6.1 Inspection and Acceptance of Contractor Service
6.2 Equipment Failure Investigation
6.3 Accident Investigation and Reporting
6.4 High Energy Equipment Inspection and Testing
a. Hydrostatic Test Procedures
b. Motor/Cable Megger Testing Procedure
C. Calibration Procedures
6.5 Guidelines for the Optimization of Facility Output and
Efficiency/Results Engineering
7. 0 Notification Procedures
7.1 Accidents/Reporting and Recordkeeping
7.2 Public Relations
7.3 Pickets/Union Incidents
7.4 Hazardous Materials
B-2
<PAGE> 50
Exhibit C
Typical and Annual Operating Phase Budget
[Refer to LSP-Whitewater Power Plant 1999 Operating Budget submitted as part of
Annual Operations Plant 1999 letter dated October 30, 1998 to R.W. Beck (Scott
Reiman) and IBJ Schroder Bank and Trust Company (Robert Radich) from
LSP-Whitewater Limited Partnership (David Pierce)]
C-1
<PAGE> 51
Exhibit D
Services Included with Management Fees
A. Not Used
B. Management Fee Includes:
- -- Cost accounting support
- -- Human Resource support and oversight
- -- Procurement support and parts coordination
- -- Environmental oversight
- -- Payroll and Benefits administration
- -- Maintenance Control Program support
- -- Predictive maintenance analysis, review and reporting
- -- Communication costs from Cogentrix to Site
- -- Brief engineering answers to plant technical inquiries (less than 1
hour)
- -- Operation and maintenance support organization for technical
operational support on an as required basis in Charlotte
- -- Outage planning support
- -- Operability recommendations
- -- Health and safety oversight
- -- Operation and maintenance management support and oversight (travel
included)
- -- Comprehensive Automobile Liability Insurance for vehicles owned by
Operator
D-1
<PAGE> 52
Exhibit E
Performance Bonus and Penalty Determination
1. If one or more of the Monthly Fixed Capacity Payments or the Fixed O&M
Payments or the Fixed Energy Payments (each as defined in the Power
Purchase Agreement) from Utility to Owner for any given COD is reduced
due to an Availability Adjustment Factor that is less than 1.0, as
developed in Appendix 9, Section (b) (iii) or (c) , Table A9 of the
Power Purchase Agreement, Operator shall pay Owner a penalty for such
COD Year equal to fifty percent (50%) of the difference between (i) the
aggregate amount of the applicable payments Owner would have received
during such COD Year if the Availability Adjustment Factor was equal to
1.0 and (ii) the aggregate amount of the applicable payments Owner
received during such COD Year.
2. If one or more of the Monthly Fixed Capacity Payments or the Fixed O&M
Payments or the Fixed Energy Payments (each as defined in the Power
Purchase Agreement) from Utility to Owner for any given COD Year is
increased due to the Availability Adjustment Factor as developed in
Appendix 9, Section (b) (ii) or (c), Table A9 of the Power Purchase
Agreement being greater than 1.00, Operator shall be paid by the Owner
a bonus equal to fifty percent (50%) of the difference between (i) the
aggregate amount of the applicable payments Owner received during such
COD Year and (ii) the aggregate amount of the applicable payments Owner
would have received during such COD Year if the Availability Adjustment
Factor was equal to 1.00.
3. If, in accordance with Article 3(b) of the Steam Supply Agreement,
Owner is required to reimburse Steam Purchaser during any month during
an COD Year, Operator shall pay fifty (50%) percent of the amount of
such reimbursement to Owner.
4. In any given COD Year, the total amounts to be paid to Owner pursuant
to items 1 and 3 above (the "Performance Penalty"), less any amounts
payable to Operator pursuant to item 2 (the "Performance Bonus"), shall
be limited to the amount of the Management Fee payable during
immediately preceding twelve (12) month period.
E-1
<PAGE> 53
Exhibit F
Project Agreements and Project Permits Delivered to Operator
[All permits and project agreements are at the plant site and available to the
Operator.]
F-1
<PAGE> 54
Exhibit G
Termination Fee
AMOUNT
------
Commencing on the Commencement Date
and ending on the last calendar day of
the first Operating Year..................................Yearly Management Fee
During the second
Operating Year ................................80% of the Yearly Management Fee
During the third
Operating Year ................................60% of the Yearly Management Fee
During the fourth
Operating Year ................................40% of the Yearly Management Fee
During the fifth
Operating Year ...............................20% of the Yearly Management Fee
Commencing on the first day of the sixth
Operating Year and thereafter ................10% of the Yearly Management Fee
G-1
<PAGE> 1
EXECUTION COPY
OPERATION AND MAINTENANCE AGREEMENT
by and between
LSP-COTTAGE GROVE, L.P.
as Owner
and
LSP-COTTAGE GROVE, INC.
as Operator
Dated as of April 15, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS ......................................................1
ARTICLE II - SCOPE; PROJECT AGREEMENTS; REPRESENTATIVES.......................6
SECTION 2.1 - SCOPE OF WORK ..................................................6
SECTION 2.2 - EXAMINATION OF PROJECT AGREEMENTS. PROJECT PERMITS AND SITE ....6
SECTION 2.3 - COMPLIANCE WITH PROJECT AGREEMENTS AND PERMITS .................7
SECTION 2.4 - PARTY REPRESENTATIVES ..........................................7
ARTICLE III - OPERATOR RESPONSIBILITIES.......................................7
SECTION 3.1 - INDEPENDENT CONTRACTOR..........................................7
SECTION 3.2 - NOT USED
SECTION 3.3 - SITE PROCEDURES ................................................7
SECTION 3.4 - OPERATIONAL PHASE SERVICES .....................................7
SECTION 3.5 - STANDARDS OF PERFORMANCE .......................................8
SECTION 3.6 - NOT USED
SECTION 3.7 - ANNUAL OPERATING BUDGET AND PLAN; THREE YEAR PROJECTION.........9
SECTION 3.8 - PROCUREMENT OF MATERIALS AND SERVICES .........................10
SECTION 3.9 - INVENTORY .....................................................11
SECTION 3.10 - PERSONNEL.....................................................12
SECTION 3.12 - REPORTS ......................................................12
SECTION 3.13 - EMERGENCY AND OUTAGE PROCEDURES...............................13
SECTION 3.14 - IMPROVEMENTS .................................................13
SECTION 3.15 - ANNUAL REVIEW.................................................14
SECTION 3.16 - NOT USED
SECTION 3.17 - ADMINISTRATION ...............................................14
SECTION 3.18 - TAXES ........................................................14
SECTION 3.19 - FACILITY PERFORMANCE .........................................14
SECTION 3.20 - LOAN AGREEMENT ...............................................14
SECTION 3.21 - FUEL SUPPLY ..................................................15
SECTION 3.22 - SAFETY .......................................................15
SECTION 3.23 - BOOKS AND RECORDS . ..........................................15
SECTION 3.24 - SCHEDULING MAINTENANCE .......................................16
SECTION 3.25 - COOPERATION WITH OTHERS ......................................16
SECTION 3.26 - ACCESS .......................................................16
SECTION 3.27 - OPERATOR LICENSES; PERMITS....................................16
SECTION 3.28 - ENFORCEMENT OF WARRANTIES.....................................16
SECTION 3.29 - COMPLIANCE WITH LAWS..........................................16
SECTION 3.30 - NO LIENS OR ENCUMBRANCES......................................17
SECTION 3.31 - NO ACTION.....................................................17
SECTION 3.32 - LITIGATION; PERMIT LAPSES.....................................17
ARTICLE IV - OWNER RESPONSIBILITIES..........................................17
SECTION 4.1 - FUEL SUPPLY ..................................................17
SECTION 4.2 - REASONABLE ACCESS ............................................17
SECTION 4.3 - ACCOMMODATIONS................................................17
SECTION 4.4 - UTILITIES ....................................................17
SECTION 4.5 - MANUALS AND DRAWINGS .........................................18
SECTION 4.6 - TAXES ........................................................18
SECTION 4.7 - MAINTENANCE OF PERMITS .......................................18
i
<PAGE> 3
TABLE OF CONTENTS
SECTION 4.8 - PAYMENT .......................................................18
ARTICLE V - LIMITATIONS ON AUTHORITY ........................................19
SECTION 5.1 - GENERAL LIMITATIONS ...........................................19
ARTICLE VI - PAYMENT AMOUNT AND TERMS .......................................19
SECTION 6.1 - PAYMENT .......................................................19
SECTION 6.2 - REIMBURSABLE COSTS ............................................20
SECTION 6.3 - FEES ..........................................................21
SECTION 6.4 - PERFORMANCE BONUSES AND PENALTIES .............................21
SECTION 6.5 - DETERMINATION OF PERFORMANCE BONUS AND PENALTY.................21
SECTION 6.6 - DISPUTES.......................................................21
SECTION 6.7 - EXCLUSION......................................................21
SECTION 6.8 - AUDIT RIGHTS...................................................21
SECTION 6.9 - PAYMENT OF FINES AND PENALTIES.................................22
SECTION 6.10 - INTEREST .....................................................22
SECTION 6.11 - PAYMENT ADJUSTMENT ...........................................22
ARTICLE VII - INSURANCE .....................................................22
SECTION 7.1 - GENERAL REQUIREMENTS ..........................................22
SECTION 7.2 - OPERATOR PROVIDED INSURANCE ...................................23
SECTION 7.3 - OWNER PROVIDED INSURANCE ......................................24
SECTION 7.4 - OPTIONAL INSURANCE RESPONSIBILITIES ...........................26
ARTICLE VIII - DISPUTE RESOLUTION ...........................................26
SECTION 8.1 - PROCEDURE. ....................................................26
SECTION 8.2 - ARBITRATION PROCEDURE..........................................26
SECTION 8.3 - QUALIFICATIONS OF ARBITRATORS; EXPENSES .......................27
SECTION 8.4 - INDEPENDENT ARBITRATION AGREEMENT .............................27
SECTION 8.5 - CONTINUATION OF WORK...........................................27
ARTICLE IX - COMMENCEMENT AND TERMINATION ...................................28
SECTION 9.1 - COMMENCEMENT OF WORK ..........................................28
SECTION 9.2 - TERM...........................................................28
SECTION 9.3 - RENEWALS.......................................................28
SECTION 9.4 - EARLY TERMINATION .............................................28
SECTION 9.5 - TERMINATION PROCEDURE .........................................29
SECTION 9.6 - SUSPENSION OF PERFORMANCE. ....................................29
ARTICLE X - REPRESENTATIONS.................................................30
SECTION 10.1 - REPRESENTATIONS AND WARRANTIES ...............................30
ARTICLE XI - CONFIDENTIALITY................................................30
SECTION 11.1 - GENERAL.......................................................30
SECTION 11.2 - EXCEPTIONS....................................................31
SECTION 11.3 - REQUIRED DISCLOSURE. .........................................31
SECTION 11.4 - RETURN OF CONFIDENTIAL INFORMATION ...........................31
ii
<PAGE> 4
TABLE OF CONTENTS
ARTICLE XII - DEFAULT .......................................................31
SECTION 12.1 - EVENTS OF DEFAULT ............................................31
SECTION 12.2 - RIGHTS UPON DEFAULT ..........................................32
ARTICLE XIII - INDEMNITY ....................................................33
SECTION 13.1 - OPERATOR'S INDEMNITY .........................................33
SECTION 13.2 - OWNER'S INDEMNITY.............................................33
SECTION 13.3 - SURVIVAL OF INDEMNITY . ......................................34
SECTION 13.4 - LITIGATION....................................................34
ARTICLE XIV - LIABILITY OF THE PARTIES.......................................34
SECTION 14.1 - LIMITATION OF LIABILITY.......................................34
SECTION 14.2 - SURVIVAL......................................................35
SECTION 14.3 - NO WARRANTIES OR GUARANTEES...................................35
ARTICLE XV - FORCE MAJEURE...................................................35
SECTION 15.1 - FORCE MAJEURE, EVENTS LIMITATION..............................35
ARTICLE XVI - TITLE, DOCUMENTS AND DATA......................................35
SECTION 16.1 - MATERIALS AND EQUIPMENT.......................................36
SECTION 16.2 - REVIEW BY OWNER...............................................36
ARTICLE XVII - HAZARDOUS MATERIALS...........................................36
SECTION 17.1 - OWNER'S INDEMNITY ............................................36
SECTION 17.2 - COLLECTION AND REMOVAL .......................................37
SECTION 17.3 - MATERIAL SAFETY DATA SHEETS ..................................37
SECTION 17.4 - OPERATOR'S INDEMNITY .........................................37
ARTICLE XVIII - MISCELLANEOUS PROVISIONS ....................................37
SECTION 18.1 - ENTIRE AGREEMENT..............................................37
SECTION 18.2 - CHANGES TO PROJECT AGREEMENTS.................................37
SECTION 18.3 - AMENDMENTS....................................................38
SECTION 18.4 - JOINT EFFORT..................................................38
SECTION 18.5 - CAPTIONS......................................................38
SECTION 18.6 - NOTICE........................................................38
SECTION 18.7 - EFFECTIVE DATE OF NOTICE......................................39
SECTION 18.8 - PARTIAL INVALIDITY............................................39
SECTION 18.9 - ASSIGNMENT....................................................39
SECTION 18.10 - NO WAIVER....................................................40
SECTION 18.11 - COUNTERPARTS.................................................40
SECTION 18.12 - PUBLICITY....................................................40
SECTION 18.13 - APPLICABLE LAW...............................................40
SECTION 18.14 - SUCCESSORS AND ASSIGNS......................................40
SECTION 18.15 - EXHIBITS AND SCHEDULES.......................................40
SECTION 18.16 - THIRD PARTY BENEFICIARIES. ..................................39
SECTION 18.17 - OPERATOR LIENS AND ENCUMBRANCES..............................41
SECTION 18.18 - EFFECT OF APPROVAL RIGHTS....................................42
iii
<PAGE> 5
EXHIBITS
A. Description of Facility and Site
B. Typical List of Site Procedures
C. Typical Annual Operating Budget
D. Services Included with Management Fees
E. Performance Bonus and Penalty Determination
F. Project Agreements and Project Permits Delivered to Operator
G. Termination Fee
iv
<PAGE> 6
OPERATION AND MAINTENANCE AGREEMENT
This OPERATION AND MAINTENANCE AGREEMENT dated as of April 15, 1999 (the
"Effective Date"), is by and between LSP-Cottage Grove, L.P., a Delaware limited
partnership ("Owner"), having its principal office at c/o Cogentrix Energy,
Inc., 9405 Arrowpoint Blvd., Charlotte, North Carolina 28273 and LSP-Cottage
Grove, Inc., a Delaware corporation ("Operator"), having its principal office at
c/o Cogentrix Energy, Inc., 9405 Arrowpoint Blvd., Charlotte, North Carolina
28273.
RECITALS:
1. Owner has constructed, owns and operates the Facility (as
hereinafter defined) located in Cottage Grove, Minnesota.
2. Owner has entered into a Construction Contract (as
hereinafter defined) for the design and construction of the Facility.
3. Operator, by itself and through suppliers and
subcontractors, desires to provide certain operation and management services for
the Facility.
4. Operator is knowledgeable in the operation and maintenance
of thermal energy equipment and electrical generation equipment of the types
used at the Facility, and has reviewed certain Project Agreements (as
hereinafter defined) and has determined it is able and willing to perform the
services described herein.
5. Owner desires to engage Operator to perform such work as is
necessary to operate and maintain the Facility in accordance with the terms and
conditions expressed in this Agreement (as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants and promises set
forth herein, IT IS AGREED:
ARTICLE I - Definitions
"Affiliate" means, in relation to any Person, any Person which
directly or indirectly controls, or is under common control with, or is
controlled by such other Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled" and "under common
control with" shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). Notwithstanding the foregoing, no individual shall be deemed to be
an Affiliate of a Person solely by reason of his or her being a director,
committee member, officer or employee of such Person.
"Agreement" means this Operation and Maintenance Agreement
(including all exhibits and schedules attached hereto), as it may be amended,
supplemented, or otherwise modified from time to time.
"Annual Operating Budget" shall have the meaning as set forth
in Section 3.7.
1
<PAGE> 7
"Annual Operating Plan" shall have the meaning as set forth in
Section 3.7.
"COD Year" means the period commencing on October 1, 1998 and
ending on the first anniversary thereof, and each succeeding year thereafter.
"Commencement Date" means April 16, 1999, the date on which
Operator commences to provide services under this Agreement.
"Construction Contract" means the Second Amended and Restated
Turnkey Construction Agreement for the Project dated as of April 11, 1995, by
and between Owner and Contractor for the engineering, procurement, construction
and start-up of the Facility, as amended, supplemented, or otherwise modified
from time to time.
"Contractor" means Westinghouse Electric Corporation, a
Pennsylvania corporation, including its representatives, successors and
permitted assigns acting in its capacity as contractor pursuant to the
Construction Contract.
"Day" shall mean a calendar day, unless otherwise specified.
In the event that any monetary obligation or obligation to deliver any report or
budget falls due on a Saturday, Sunday or legal holiday in the locality where
such Work is being performed, such obligation shall be deemed due on the next
business day thereafter.
"Effective Date" means the date on which this Agreement is
entered into by Owner and Operator, as first above written.
"Emergency" means any event or condition relating to or
affecting the Facility which may result in injury to persons or damage to
property, including, without limitation, any person or property at the Facility.
"Facility" means the dual fuel cogeneration facility and
auxiliary boilers, as constructed on the Site pursuant to the Construction
Contract, including without limitation, all equipment and machinery integral or
related to the operation of the facility, the steam interconnection and delivery
systems described or referred to in the Steam Supply Agreement and the gas
interconnection equipment referred to in the Fuel Supply Agreements (each to the
extent owned by or operated by Owner pursuant to any Project Agreement), and all
other equipment, systems, electric interconnection facilities and facilities
associated therewith.
"Facility Equipment" means all equipment owned or leased by
Owner and used in the operation and maintenance of the Facility.
"Force Majeure" shall have the meaning as set forth in Article
XV.
"Fuel Supply Agreements" means, collectively, all agreements
as shall be in effect from time to time between Owner and any other entity for
the provision, sale, transportation or delivery of fuel to the Facility.
2
<PAGE> 8
"Governmental Authority" means the United States of America,
the State of Minnesota, or any local or special district agency, department,
authority, political subdivision, court, judicial or administrative authority or
instrumentality of either.
"Hazardous Materials" means asbestos or any "hazardous
substance" as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et
seq.), "hazardous wastes" as defined in the Resource Conservation and Recovery
Act, as amended (42 U.S.C. Sections 9601 et seq.), "toxic substances" as defined
in the Toxic Substance Control Act, as amended (15 U.S.C. Section 2601 et seq.),
and in the regulations adopted and publications promulgated pursuant thereto, or
in any other federal, state or local environmental governmental requirements.
"Law(s)" means any constitution, charter, act, statute, law,
ordinance, code, rule, regulation, order, permit, condition, specified standards
or objective criteria contained in any applicable permit, approval, order,
decision, determination or ruling of any Governmental Authority having
jurisdiction, all as in effect from time to time, including without limitation,
environmental laws pertaining to air and water emissions relating to the
Facility and the operation thereof, which standards or criteria must be met in
order for the Facility to be operated lawfully, or other legislative,
administrative or judicial action, final decree, judgment or order of any
Governmental Authority having jurisdiction relating to the Facility.
"Loan Agreement" means the promissory notes, loan agreements,
guarantees, assignments security agreements, mortgages and other agreements
between Owner and any Project Lender for the development, construction and/or
permanent financing or refinancing of the Facility, and any documents relating
thereto, as the same may be amended, supplemented, or otherwise modified from
time to time.
"Major Equipment" means the combustion turbine generator,
steam turbine generator and waste heat recovery boiler.
"Major Maintenance" means the Major Equipment disassembly,
inspections, overhauls, reassembly and significant capital improvements which
require an outage of the Major Equipment.
"Management Fee" means the amount that Owner shall pay to
Operator as provided in Section 6.3(b).
"Materials" means all supplies, spare parts, materials, tools,
consumables, chemicals and equipment (excluding fuel oil and natural gas)
necessary for the operation and maintenance of the Facility.
"Operating Year" means the period commencing on January 1 and
ending on December 31 of each calendar year.
"Operation and Maintenance Manuals" means the operating
manuals for the Facility provided by Contractor pursuant to the Construction
Contract, and the operating data, design drawings, specifications, vendor
manuals, and similar materials provided by Owner to Operator with respect to the
Facility.
"Operational Phase Services" means the services to be
performed by the Operator pursuant to Section 3.4.
3
<PAGE> 9
"Operator" means LSP-Cottage Grove, Inc., its successors
and/or assigns.
"Owner" shall mean LSP-Cottage Grove, L.P., its successors
and/or assigns.
"Party" means Owner or Operator and in the plural, both Owner
and Operator together.
"Performance Bonus" shall have the meaning as set forth in
Exhibit E.
"Performance Penalty" shall have the meaning as set forth in
Exhibit E.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Personnel" means the persons employed by the Operator and
assigned to the Site to operate and maintain the Facility and generally to
perform the Work, as described in Section 3.10.
"Plant Manager" shall mean the individual designated by
Operator and approved by Owner pursuant to Section 3.10 (c) that is empowered by
Operator to direct and manage the Work and with whom Owner may consult at all
reasonable times. Such individual shall not be empowered to execute any
amendments to this Agreement.
"Power Purchase Agreement" means the Power Purchase Agreement
dated as of May 9, 1994, between Utility and Owner, as amended, supplemented, or
otherwise modified from time to time.
"Project" means the Facility, the Site, the Project Permits,
the Project Agreements and other real or personal property interests relating to
the Facility and/or the Site which are owned by Owner or in which Owner has any
rights.
"Project Agreements" means, collectively, the collective
reference to the Construction Contract, the Steam Supply Agreement, the Fuel
Supply Agreements, the Power Purchase Agreement, this Agreement, the Loan
Agreement and any other agreement relating to the Facility or its operation,
maintenance or servicing designated by Owner as a Project Agreement to the
extent Operator has been provided notice and a copy thereof. "Project Agreement"
shall include any amendment, modification, supplement or addition to any Project
Agreement and any new agreements designated by Owner as a Project Agreement,
executed after the date of this Agreement to the extent Operator has been
provided notice and a copy thereof.
"Project Lender" or "Lender" means any bank, financial
institution or other Person providing construction or permanent financing or
refinancing, working capital financing and/or other credit enhancements for the
Facility.
"Project Permits" means any permit, license, exception,
action, order, authorization, assent, consent or approval for the Facility and
any amendments, modifications, supplements or additions thereto, of which
Operator has been provided notice by Owner.
"Prudent Operating Practice" means those practices, methods,
specifications and standards of safety and performance, as the same may change
from time to time, as are commonly used by experienced,
4
<PAGE> 10
knowledgeable and professional firms performing operation and maintenance
services on facilities of the type and size similar to the Facility, which in
the exercise of reasonable judgement and in the light of the facts known at the
time decisions are made, are considered good, safe and prudent practice in
connection with the operation and maintenance of electrical, steam generating
and other related equipment facilities and improvements, with commensurate
standards of safety, performance, dependability, efficiency and economy.
"PURPA" means the Public Utility Regulatory Policies Act of
1978, as the same may be amended, supplemented, or otherwise modified from time
to time.
"Reference Rate" means the interest rate established by The
Chase Manhattan Bank, N.A. from time to time as its "prime rate" plus one
percent (1%).
"Reimbursable Costs" shall have the meaning as set forth in
Section 6.2.
"Service Recipient(s)" means the Utility and the Steam
Purchaser.
"Services" mean those services to be provided by
Subcontractors in connection with Owner's obligations under Section 2.1(c) of
this Agreement.
"Site" means the site where the Facility is located.
"Site Procedure" means those on-Site rules, regulations and
procedures to which Operator shall adhere in the performance of its obligations
pursuant to this Agreement, as prepared or revised and approved pursuant to
Section 3.3.
"Standards of Performance" means the standards for Operator's
performance of the Work as set forth in Section 3.5.
"Steam Purchaser" means Minnesota Mining and Manufacturing
Company ("3M") or its successor and assigns.
"Steam Supply Agreement" means the Amended and Restated Supply
Agreement between Owner and the Steam Purchaser, as amended, supplemented or
otherwise modified from time to time.
"Subcontractor" means a person or entity having a direct
contractual relationship with Owner to provide Materials and Services.
"Termination Fee" shall have the meaning as set forth in
Section 9.5.
"Unscheduled Outage" means an unplanned Facility failure or
other condition that requires either (i) the Facility to be removed from
service, or from a state in which the Facility is available for service but not
in service, or, (ii) the load of the Facility (or the Facility's capacity level)
available for dispatch to be reduced but does not require that the Facility be
removed from service.
"Utility" means Northern States Power Company, a Minnesota
corporation, and such other entities as may enter into power purchase agreements
with Owner, and their successors and/or assigns, each
5
<PAGE> 11
acting pursuant to its agreement with Owner for the purchase and sale of
electrical power generated by the Facility.
"Work" shall have the meaning as set forth in Section 2.1.
ARTICLE II - Scope; Project Agreements; Representatives
Section 2.1 - Scope of Work.
(a) Operator will operate and maintain the Facility and
perform certain other duties, as hereinafter set
forth (the "Work"). Operator shall operate and maintain the Facility in a clean,
safe, efficient and environmentally acceptable manner.
(b) All Work shall be performed in accordance with the
Standards of Performance set forth in Section 3.5.
(c) Owner shall, at its expense during the term of this
Agreement, provide Operator with the information,
services, Materials and authorizations as Operator may reasonably require from
Owner to perform the Work in accordance with this Agreement.
Section 2.2 - Examination of Project Agreements, Project Permits and
Site. Prior to the Effective Date, Owner has provided Operator with copies of
the Project Agreements and Project Permits. Upon execution and/or receipt by
Owner of any new Project Agreements, Project Permits, or any amendments to
Project Agreements or Project Permits previously transmitted to Operator, Owner
shall provide Operator with executed copies thereof. Operator represents that,
prior to signing this Agreement, it has carefully examined the Site and each of
the Project Agreements and the Project Permits, or applications relating
thereto, which it has been provided and has determined the acceptability of each
of the foregoing for the purposes of Operator's performance of its obligations
hereunder. The Parties hereto recognize and agree that this Agreement is
intended, in part, to fulfill Owner's operating and maintenance obligations
under the Project Agreements and, consistent with the Project Permits, to
optimize the operation of the Facility consistent with Owner's objective to
maximize its net profit reasonably attainable from the Service Recipients or
others under such agreements.
Section 2.3 - Compliance with Project Agreements and Permits. Operator
shall abide by all terms and conditions of the Project Agreements and Project
Permits applicable to the operation and maintenance of the Facility in
performing any part of the Work. If Operator's compliance with this Agreement
would cause Owner to be in default or otherwise in breach or violation of any of
its obligations under any Project Agreement or any Project Permit, the
requirements of such agreements or permits shall control Operator's performance
hereunder to the extent necessary to avoid such default, breach or violation,
subject to Operator's obligation to comply with all Laws. Each Party shall
notify the other as soon as it knows or believes that compliance with this
Agreement will result in such a default, breach or violation.
Section 2.4 - Party Representatives. On or before the Commencement
Date, Owner and Operator shall each notify the other in writing of its
designation of an individual to act as its representative with respect to
matters which may arise during the performance of the Work. At any time after
the initial designation by any Party of its representative, such
6
<PAGE> 12
Party may designate a successor representative by similar written notice to the
other Party. The Plant Manager approved pursuant to Section 3.10 (c) shall be
Operator's representative and shall be located at the Site.
ARTICLE III - Operator Responsibilities
Section 3.1 - Independent Contractor. In performing the Work hereunder,
Operator is and shall remain an independent contractor. As such, Operator shall
not be entitled or eligible to participate in any benefits or privileges given
or extended by Owner to its employees and shall be responsible for all employer
tax, withholding, insurance, and other payments and filings required as a result
of the performance of Operator's obligations pursuant to this Agreement. Nothing
contained in this Agreement shall be construed as creating a joint venture or
partnership relationship between Operator and Owner.
Section 3.2 - Not Used.
Section 3.3 - Site Procedures. Operator shall prepare detailed Site
Procedures. Operator shall submit such documents to Owner for review, comment
and approval. Owner's review, comment and approval of any proposed Site
Procedures presented to it by Operator shall not be unreasonably withheld or
delayed. Owner shall notify Operator in writing of its comments or approval of
each Site Procedure within thirty (30) Days following Operator's submittal of
such proposed Site Procedure to Owner. In addition, Owner may require Operator
to prepare additional Site Procedures as Owner deems necessary. Subsequent
modifications to Site Procedures, including any revisions required by Owner's
rejection of such Site Procedures, shall likewise be submitted to Owner for
approval and comment, as applicable, prior to implementation.
Section 3.4 - Operational Phase Services. On and after the Commencement
Date and subject to the approval by Owner of the necessary budget pursuant to
Section 3.7, the Operator shall be responsible for the operation and maintenance
of the Facility, including the following services (the "Operational Phase
Services"). Operator shall:
(a) perform all operation and maintenance of the Facility,
and, in accordance with Section 3.8, arrange for the procurement of all
Materials and Services required to operate and maintain the Facility in
accordance with the provisions of this Agreement (except as expressly reserved
to Owner under Article IV and subject to the limitations on Operator's authority
set forth in Article V);
(b) perform or coordinate and supervise the performance of all
maintenance in such a manner to minimize the loss of electrical or steam output
and damage to the Facility to optimize the operation of the Facility consistent
with the Owner's objective to maximize its net profit. Furthermore, Operator
shall, consistent with the other terms of this Agreement and with such
objective, maintain the Facility to optimize its useful life and to minimize
down-time because of maintenance;
(c) perform the daily administration and coordination of the
Power Purchase Agreement and Steam Supply Agreement including, but not limited
to, daily communication with the Utility and the Steam Purchaser and preparation
of' monthly invoices and supporting data for the Owner's review and submittal
under such agreements;
7
<PAGE> 13
(d) identify the need for, schedule, arrange for the
procurement, coordinate and supervise the Subcontractor's performance of
Services or other work;
(e) perform the daily administration and coordination of the
fuel supply in accordance with Section 3.21;
(f) provide, for submittal by Owner with the appropriate
Person, all reports, data and other information required by the Project Permits
and Project Agreements;
(g) provide the Annual Operating Budget and the Annual
Operating Plan and the Three Year Projection in accordance with Section 3.7;
(h) provide periodic technical and administrative reports in
accordance with Section 3.12;
(i) maintain, update as necessary, and comply with the Site
Procedures;
(j) respond in a timely manner (but in no event shall the time
to make such a response exceed five (5) Days) to written requests by Owner for
information about the Work; and
(k) verify completion of items on "punch list" compiled
pursuant to the Construction Contract.
Section 3.5 - Standards of Performance. Operator shall perform each
item of the Work in a careful, professional, prudent and efficient manner in
accordance with the following requirements (collectively, "Standards of
Performance"):
(a) Prudent Operating Practice;
(b) the terms of the Operation and Maintenance Manuals and
other operating instructions provided by Contractor pursuant to the Construction
Contract or provided by any other vendors, suppliers or contractors (and, with
regard to any Facility Equipment acquired subsequent to the Commencement Date,
in accordance with the operating instructions provided by the respective
equipment suppliers, vendors or manufacturers);
(c) all operational and maintenance obligations imposed on the
Owner pursuant to any Project Agreement;
(d) the requirements of the providers of insurance described
in Article VII, and any and all insurance coverage documents maintained by Owner
for the protection of the Facility and its revenues, copies of which are
provided to Operator;
(e) any and all warranties received from Contractor or any
manufacturer of the Facility Equipment or Materials, which are not part of any
Project Agreements, but which copies have been provided to Operator;
(f) the Project Permits and all applicable Laws (including,
without limitation, the requirements for the continuing status of the Facility
as a "Qualifying Cogeneration Facility" pursuant to PURPA and the regulations
promulgated thereunder);
8
<PAGE> 14
(g) the Site Procedures; and
(h) to operate the Facility consistent with Owner's objective
to maximize its net profits from the operation of the Facility.
In the case of any conflict between any such standards, the most
stringent applicable standard shall govern.
Section 3.6 - Not Used.
Section 3.7 - Annual Operating Budget and Plan; Three Year Projection.
(a) Annual Operating Budget. No later than October 1 of each Operating
Year, Operator shall submit for Owner's review and approval, a proposed budget
on a monthly basis for the Operational Phase Services to be performed in the
next succeeding Operating Year, substantially in the form of Exhibit C (the
"Annual Operating Budget"). The proposed Annual Operating Budget shall be based
on Operator's assessment of such services for such Operating Year and shall
reflect the most economical and reasonable means of performing such activities
in accordance with the Standards of Performance. The proposed Annual Operating
Budget shall include:
(i) the proposed amount to be spent annually for Reimbursable
Costs and the Management Fee then in effect;
(ii) the proposed amounts to be spent for the purchase of
Materials and Services in accordance with Section 3.8, identifying the items to
be purchased; and
(iii) a proposed inventory plan.
Each proposed Annual Operating Budget shall identify and list separately capital
items.
Within thirty (30) Days after Owner receives Operator's proposal for
such Annual Operating Budget, Owner shall notify Operator in writing of Owner's
approval or any proposed changes to the Annual Operating Budget, and projections
reflected therein as Owner may deem necessary or appropriate. Within fifteen
(15) Days following receipt of any such notice of proposed changes from Owner,
Operator shall either confirm to Owner its ability to perform the Work during
such period in accordance with Owner's proposed changes, or object to Owner's
proposed changes, stating in detail the reasons for such objection. Owner and
Operator shall use their best efforts to agree upon an Annual Operating Budget,
which shall be approved in writing by both Parties, which approval shall not be
unreasonably withheld. If Owner and Operator are unable to agree upon an Annual
Operating Budget, Owner and Operator shall present the dispute for dispute
resolution in accordance with Article VIII. Each Annual Operating Budget shall
remain in effect throughout the applicable Operating Year, subject to updating,
revision and amendment as may be proposed by either Party and consented to in
writing by the other Party, which consent may not be unreasonably withheld.
If, during any Operating Year, Operator determines that any category
within an Annual Operating Budget will vary for such Operating Year by more than
ten percent (10%) or twenty thousand dollars ($20,000), whichever is greater,
Operator shall immediately notify Owner and shall follow Owner's instructions
regarding further expenditures for the operation and maintenance of the Facility
pursuant to this
9
<PAGE> 15
Agreement. Until such time as Operator receives such instructions, Operator
shall continue to operate and maintain the Facility according to the terms of
this Agreement as permitted under the Annual Operating Budget then in effect. At
no time, without Owner consent, shall Operator be entitled to make expenditures
in any Annual Operating Budget category which exceed the amount allocated for
such category; provided, however, that the foregoing limitation shall not apply
in the case of Emergencies, which shall be governed by Section 3.13.
(b) Annual Operating Plan. With the Annual Operating Budget
submitted in accordance with this Section 3.7(a), Operator shall submit to Owner
for Owner's approval Operator's proposed operating plan for the next Operating
Year (the "Annual Operating Plan") in a form reasonably acceptable to Owner.
Such plan shall describe in detail acceptable to Owner the annual operation and
maintenance plan for the Facility including, without limitation, a summary of
the items in the Annual Operating Budget, hours of operation, holidays to be
observed, schedule of Services, consumption of fuels, purchased electricity,
data regarding expected environmental performance, projected electricity and
steam generated for sale, and any other matters as Owner may require. All such
items shall be set forth on a monthly basis. The proposed Annual Operating Plan
shall be accompanied by all underlying assumptions necessary for its evaluation.
All actions proposed under the Annual Operating Plan shall comply with the
Standards of Performance. Owner shall indicate in writing any proposed
revisions, corrections, deletions or additions to Operator's proposed Annual
Operating Plan within thirty (30) Days after each such submission. The final
form of the Annual Operating Plan shall be approved in writing by both Parties,
such approval not to be unreasonably withheld. In the event of any disagreement,
the Parties shall promptly meet and resolve in good faith any areas of
disagreement. If Owner and Operator are unable to agree upon an Annual Operating
Plan, Owner and Operator shall present the dispute for dispute resolution in
accordance with Article VIII hereof.
(c) Three Year Projection. In addition, with the Annual
Operating Plan, Operator shall submit to Owner for approval a written proposal
describing in detail reasonably acceptable to Owner a proposed operation and
maintenance plan, including scheduled outages, and budget for the next three (3)
Operating Years, including anticipated Major Maintenance (the "Three Year
Projection"). Owner shall indicate in writing any proposed revisions,
corrections, deletions or additions to Operator's proposed Three Year Projection
within thirty (30) Days after each such submission.
(d) 1999 Budget, Plan and Projection. Owner and Operator agree
that the Annual Operating Budget, the Annual Operating Plan and Three Year
Projection approved pursuant to the Amended and Restated Operation and
Maintenance Agreement dated as of April 11, 1995 between Owner and Westinghouse
Operating Services Company, Inc. shall constitute the Annual Operating Budget,
the Annual Operating Plan and Three Year Projection hereunder for the Operating
Year in which the Commencement Date occurs.
Section 3.8 - Procurement of Materials and Services. Operator
shall arrange for the procurement of Materials and Services (excluding natural
gas and fuel oil) necessary for the operation and maintenance of the Facility
pursuant to the following provisions.
(a) All Materials and Services shall be purchased directly by
Owner from Subcontractors, except as otherwise provided in the Site Procedures
for small local purchases and purchases necessary to handle Emergencies. At any
other time that Operator desires to subcontract directly to obtain materials or
services, Operator shall obtain the prior written approval of Owner. In no event
shall Operator be relieved of
10
<PAGE> 16
any of its obligations under this Agreement or of any of its responsibilities
due to faulty performance of any Work performed by subcontractors.
(b) Operator shall identify Materials and Services needed,
establish technical and commercial requirements, develop qualified bid lists,
request bids/proposals from prospective Subcontractors, evaluate bids/proposals
received and provide a recommendation for award and purchase order to Owner for
approval and execution. In no event shall Operator take title to any Materials.
All purchase orders and bills of lading with respect to Materials shall specify
that Owner shall take title to the Materials directly from Subcontractors.
(c) In evaluating and selecting prospective Subcontractors.
Operator shall make reasonable attempts to optimize Facility costs in
consideration of Facility availability and reliability and to otherwise minimize
procurement costs.
(d) Operator shall receive, inspect, inventory and resolve
defects or deficiencies found in Materials delivered by Subcontractors, and
shall sign all invoices for the Materials indicating Operator's acceptance of
the material as meeting the purchase order. If Operator is unable, using
reasonable efforts, to resolve defects or deficiencies discovered, Operator
shall promptly notify Owner. Operator shall administer on behalf of Owner any
claim or dispute arising under a purchase order. Owner shall provide for direct
payment due each Subcontractor in accordance with the applicable purchase order.
(e) Operator shall be responsible for supervising,
coordinating, and administering all Subcontractors providing Services, including
maintenance or construction services.
Section 3.9 - Inventory.
(a) Operator shall comply with the provisions for maintaining
an inventory of Materials set forth in the Site Procedures.
(b) Operator shall maintain an inventory of Materials adequate
to support the continuous and successful operation of the Facility. The
procurement of such inventory, including replacement Materials, shall be made in
accordance with the provisions of Section 3.8.
(c) Operator shall provide security for such inventory.
Section 3.10 - Personnel
(a) Operator shall employ at the Facility the appropriate
number of properly qualified and trained Personnel to perform the
Operator's obligations under this Agreement as approved under the
Annual Operating Budget.
(b) All Personnel shall be qualified (including, holding all
appropriate valid licenses required by Law) and fully trained for their
respective positions. At least one member of the Personnel shall hold a first
class engineer's license as required under Law. All individuals utilized by
Operator to perform Work shall be employees of the Operator or, subject to
Owners approval, workers or independent contractors under Operator's direction.
Working hours, rates of compensation, and all other matters relating to such
Personnel shall be determined by Operator (subject to Owner's approval with
respect to budget items). Operator shall give preference for employment
interviews to those persons currently employed and licensed to operate the
manufacturing facility of Steam Purchaser in Cottage Grove, Minnesota but shall
be under no obligation to hire such persons.
11
<PAGE> 17
(c) Owner shall approve the selection of the Plant Manager and
Operator shall consult with Owner regarding the selection of all other
Personnel. Owner shall inform Operator of any objection to any Plant Manager
selection as soon as possible, but in no event later than ten (10) Days after
receipt of Operator's Personnel selection. Operator shall retain sole
responsibility and control of labor matters pertaining to the Personnel.
Operator shall provide Owner with such information regarding the selection of
the Personnel, as Owner may reasonably request. With respect to hiring of
Personnel and its employment policy, 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
this Agreement. If in Owner's opinion, the Plant Manager is not adequately
performing the requirements of the job function to the Owner's satisfaction,
including fostering a positive working relationship with the Owner's staff, the
Service Recipients, and other project participants, then upon the request of
Owner, Operator shall replace the Plant Manager, if, within sixty (60) days
following such request, Operator has not modified the Plant Manager's
performance to the satisfaction of Owner. Owner nay also request Operator to
replace any other Personnel, provided, that Owner presents Operator with
reasonable justification therefor, which request shall not be unreasonably
rejected. Operator shall either accept Owner's request or provide Owner with the
reasons for rejection within five (5) Days after receipt of such request. Costs
required to be incurred by Operator as a result of the replacement of such
Personnel pursuant to Owner's exercise of its rights under this Section 3.10(c)
shall be eligible for treatment as Reimbursable Costs, in accordance with the
other requirements of this Agreement.
(d) Either Owner or Operator may request changes to the job
titles, duties and positions of the Personnel described in this Agreement,
subject to the approval of the other Party, which approval shall not be
unreasonably withheld, provided that, such change does not have a material
adverse impact on the other Party.
Section 3.11 - Training Programs.
Operator shall require its Personnel to participate in and satisfactorily
complete the following training programs:
(a) Initial Training. Operator shall insure that the Personnel
are trained in a satisfactory manner so as to enable each of the Personnel to
perform their assigned functions and as required to enable Operator to comply
with its obligations under this Agreement.
(b) Ongoing Training. Operator shall establish and maintain a
regular ongoing training program for the Personnel. This training program shall
be designed to train new Personnel, keep existing Personnel familiar with all
existing Site Procedures and informed of all new revisions thereto. Owner may at
any time, upon reasonable notice, review Operator's regular training program in
order to assess its adequacy and compliance with this Section 3.11.
(c) Operator Training Upon Termination. If this Agreement is
scheduled to terminate for any reason, the Operator will cooperate with Owner
and the replacement operator, at Owner's expense, in training replacement
personnel for the Facility, including permitting such replacement personnel to
participate in the foregoing training program. In addition, Operator will
surrender to Owner all training material created, acquired or provided pursuant
to this Section 3.11, provided that, subject to the requirements of Article XI,
Operator may retain a copy thereof.
12
<PAGE> 18
Section 3.12 - Reports.
Operator shall cooperate with Owner in complying with the reporting requirements
set forth in the Project Agreements and shall, from and after the Commencement
Date, furnish or cause to be furnished to Owner the following reports concerning
the Facility operations:
(a) Monthly Reports. Commencing within ten (10) Days after the
end of each calendar month after the Commencement Date, Operator shall submit:
(i) a progress report, in detail acceptable to Owner, covering all operations
conducted during such calendar month with respect to operations and maintenance
(including without limitation information regarding power generation, heat rates
and fuel consumption), procurement, capital improvements, labor relations,
significant interactions with Utility and Steam Purchaser and governmental
authorities, and other significant matters, which report shall include (with
respect to quantitative items) a comparison of such items to corresponding
values for the then preceding month and year and listing of any significant
operating problems along with remedial actions planned and a brief summary of
major activities planned for the next two reporting periods; and (ii) a
statement setting forth all Reimbursable Costs paid or incurred, which statement
shall itemize in detail acceptable to Owner the computation of such Reimbursable
Costs and shall state whether or not the Facility operations have conformed to
the applicable Annual Operating Plan and Annual Operating Budget during such
reporting period and if not the extent and reasons for such deviation and any
remedial action, if remediable.
(b) Annual Reports. As soon as available, and in any event
within thirty (30) Days after the end of each Operating Year, Operator shall
submit to Owner an annual report certified by the Plant Manager describing in
detail substantially similar to that contained in the monthly reports referred
to in Section 3.12(a) above, all of the Facility operations for such Operating
Year and presenting a comparison of such Facility operations with the Annual
Operating Plan and Annual Operating Budget for such Operating Year and with
those obtained for the preceding Operating Year, if any (the "Annual Report").
Within thirty (30) Days after the submission of each Annual Report, the Plant
Manager shall meet with Owner to review and discuss the report and to report
upon any other aspects of the operations at the Facility that Owner may request.
(c) Fuel Reports. Notwithstanding Owner's obligation to
furnish fuel as set forth in Section 4.1 hereof, within ten (10) Days after the
end of each calendar month, Operator shall prepare and submit to Owner a fuel
report summarizing the amounts and type of fuel delivered in accordance with the
Fuel Supply Agreements and accepted at the Facility and the amounts and type of
such fuel consumed at the Facility during the preceding month. Such report shall
also include a statement of the estimated total inventory of such fuel on hand
at the Facility as of the end of such preceding mouth.
(d) Additional Reports. Operator shall periodically provide
reports to Owner advising Owner of any information Operator becomes aware of
concerning changes in Laws and/or Prudent Operating Practices that it believes
may be material to the operation and maintenance of the Facility.
Section 3.13 - Emergency and Outage Procedures.
In the case of an Unscheduled Outage or Emergency, Operator shall, in
accordance with the requirements of the applicable Site Procedures, notify Owner
of the nature of such Unscheduled Outage or Emergency, the proposed remedial
measures and its probable duration. Operator shall take corrective action
pursuant to Owner's direction only; provided that in the case of an Emergency,
Operator shall act immediately as required to prevent or overcome the threat of
injury to persons or damage to property or to minimize the adverse consequences
thereof pending receipt of instructions by Owner.
13
<PAGE> 19
Section 3.14 - Improvements.
If at any time, Operator believes that certain alterations, additions,
modifications or other changes to the Facility ("Improvements") would improve
the overall operation, output and/or efficiency of the Facility, then Operator
shall advise Owner in writing of such proposed Improvements and, upon the
written approval of Owner, the Operator shall arrange for the procurement and
integration of all such equipment, materials and other resources necessary to
implement such Improvements at the Facility. Except as set forth in the Annual
Operating Plan or Annual Operating Budget, the Operator shall make no
Improvements other than Improvements made in accordance with this Section 3.14.
Section 3.15 - Annual Review.
No later than one hundred twenty (120) Days prior to each Operating Year,
commencing with the first full Operating Year following the Operating Year in
which the Commencement Date occurs, the Operator shall participate in an annual
review. The purpose of the annual review shall be to analyze the past year's
operations and propose changes for the improved quality of the Facility's
operation and maintenance and to review the proposed Annual Operating Plan for
the next Operating Year. To this end, the Operator and Owner shall establish a
standing committee comprised of the Plant Manager and one (1) representative
from each of the Operator and the Owner to monitor and review existing and
proposed activities with respect to the operation and maintenance of the
Facility. Such committee shall meet at least once every year and at such other
times as may be reasonably requested by Owner.
Section 3.16 - Not Used.
Section 3.17 - Administration.
Operator shall administer and be responsible for the cost accounting,
requisitioning, personnel, and payroll functions related to Operator's Personnel
pursuant to this Agreement. Without limiting the foregoing, Operator shall (i)
pay all bills to be paid by Operator in a timely manner, and (ii) forward in a
timely manner to Owner all bills received by Operator that are Owner's
responsibility to pay hereunder, together with Operator's advice as to which are
due, if there are any offsets or credits, and such other matters as reasonably
related thereto.
Section 3.18 - Taxes.
Operator shall pay, subject to Owner's reimbursement in accordance with Section
6.2, all federal, state and local unemployment taxes, Federal Insurance
Contribution Act (FICA) taxes and other taxes which it is obligated to pay with
respect to wages and salaries paid by it to its employees performing the Work
and maintain all appropriate records with respect thereto.
Section 3.19 - Facility Performance.
If any significant deficiency in performance of the Facility occurs, including,
but not limited to, a failure to meet any warranty under the Project Agreements,
or if such a deficiency is projected, then Operator shall notify Owner of such
deficiency or projected deficiency and shall state Operator's opinion as to the
cause of such deficiency or projected deficiency and prepare a report in detail,
as required, together with a plan to remedy the problem. Upon Owner's request,
Operator shall make available such of its Personnel as reasonably necessary to
review and assess the cause of such deficiency with Owner and Contractor and/or
any of their agents.
Section 3.20 - Loan Agreement.
14
<PAGE> 20
Operator acknowledges that Owner has obtained long-term debt and equity
financing for the Facility and that compliance by Owner with the terms and
conditions applicable thereto may require the cooperation of Operator in matters
not now ascertainable. Accordingly, Operator will reasonably cooperate with
Owner, so as to permit Owner to comply with the various requirements relating to
the operation and maintenance of the Facility that are imposed by such Project
Lenders, including, but not limited to, providing any required or reasonably
requested information or reports on the operation and maintenance of the
Facility.
Section 3.21 - Fuel Supply.
(a) Owner shall be responsible for contracting for natural gas
supply and transportation and for supply and delivery of fuel oil. Operator
shall be responsible for day to day communication and coordination with Owner's
fuel supply and transportation Subcontractors.
(b) Operator understands that the primary fuel for the
Facility is to be natural gas supplied' under the Fuel Supply Agreements. Fuel
oil shall be maintained at the Site for use when natural gas is unavailable. In
the event natural gas is unavailable under Owner's Fuel Supply Agreements,
Operator shall immediately notify Owner. Unless otherwise instructed by Owner,
Operator shall use fuel oil as necessary to cause the continued operation of the
Facility if natural gas is unavailable.
(c) Operator shall monitor the fuel requirements of the
Facility and Operator shall be responsible for keeping Owner informed that the
supply of fuel available is adequate to operate the Facility at its optimal
level. Operator shall promptly notify Owner of any use of fuel oil and arrange
for deliveries of fuel oil necessary to maintain the Facility's oil storage
capacity at the level required by Owner.
(d) Operator shall be responsible for receiving the fuel oil
supplied to the Facility and insuring that such deliveries are in compliance
with Owner's purchase orders and applicable Laws.
(e) For any period natural gas is unavailable for the supply
of the Facility's total fuel requirements, Operator shall, if required by a
Project Permit, notify the appropriate agency of the need to use oil as a fuel.
Section 3.22 - Safety.
Operator shall comply with all Site Procedures regarding safety, security and
fire protection to prevent accidents or injuries to persons or damage to
property on or about the Site. Operator shall continuously update the same to
optimize the safe, reliable and efficient operation of the Facility.
Section 3.23 - Books and Records
(a) Operator shall maintain operating logs, records and
reports (in form and substance as required by the Site Procedures) documenting
the operation of the Facility including those logs, records and reports required
by any Project Agreement; maintain current revisions of Facility drawings,
equipment manuals, instruction books, and the Operation and Maintenance Manuals;
maintain accurate cost ledgers and accounting records regarding the Work in
accordance with generally accepted accounting principles for review by Owner.
Operator shall also prepare all reports required for Governmental Authorities,
or by the Project Permits, and provide same to Owner for its review and
submittal. Upon termination of this Agreement, the Operator shall turn over a
copy of all such books, logs, ledgers, manuals, reports and records to Owner.
15
<PAGE> 21
(b) Operator shall establish and maintain an information
system reasonably satisfactory to Owner to provide storage and ready retrieval
of Facility operating data, including such information necessary to verify and
support calculations for preparation of invoices made pursuant to the Power
Purchase and Steam Supply Agreements.
(c) Operator shall prepare and maintain, on a current basis,
proper, accurate, and complete books and records and accounts of all
transactions related to the Facility, including such information necessary to
verify calculations made pursuant to this Agreement.
(d) At all reasonable times Owner shall have access to the
records maintained pursuant to this Section and may audit the record keeping
practices and systems used to generate the data required by this Section 3.23
and shall have the right to determine whether such practices and systems are in
accordance with generally accepted accounting principles and cause Operator to
make such changes as necessary to conform with such principles.
(e) Owner's right of access to the records described in this
Section 3.23 and Operator's obligation to maintain and preserve the same shall
survive for a five (5) year period following the termination of this Agreement.
Section 3.24 - Scheduling Maintenance.
Operator shall arrange and schedule all maintenance for the Facility in
accordance with the Standards of Performance and Project Agreements. Scheduled
outages shall be approved by Owner, such approval not to be unreasonably
withheld. Operator shall coordinate with Owner in scheduling such maintenance
and notify the Service Recipients, as necessary, of Facility conditions as
required by the Project Agreements. Generally, scheduled maintenance will be
performed, to the extent practical, during off-peak hours.
Section 3.25 - Cooperation With Others.
Operator shall cooperate fully with (i) any Subcontractor, including, without
limitation, any entity supplying or transporting fuel (including oil) to the
Facility and (ii) the Service Recipients.
Section 3.26 - Access.
Operator shall allow Owner and such other parties as Owner designates from time
to time, to have full, unrestricted access to the Facility and Site and all
reports, data, information and documents related to the Project in Operator's
possession at the Site at all times, provided, however, such parties must adhere
to all applicable Site Procedures.
Section 3.27 - Operator Licenses; Permits.
Operator shall cause each of the Personnel to procure and maintain their
respective licenses as required to perform the Work and shall assist Owner in
the maintenance of the Project Permits and procurement of any revisions,
waivers, or additional permits necessary or desirable for the operation of the
Facility as contemplated hereunder. Operator shall prepare all operating and
other reports for Owner's review and submittal to maintain the Project Permits.
Section 3.28 - Enforcement of Warranties.
Operator shall preserve and maintain warranties or guarantees of which Owner is
beneficiary regarding the Facility, Materials or any component thereof and shall
notify Owner of any claims which Owner may have under such warranties or
guarantees of which Operator becomes aware during the performance of Work.
16
<PAGE> 22
Operator shall manage and operate the Facility consistent with the conditions
applicable to all such warranties and guarantees so as to preserve the
effectiveness thereof and shall take no action which may adversely affect any
claim under any such warranty or guarantee without the express written consent
of the Owner.
Section 3.29 - Compliance with Laws.
Operator shall at all times operate and maintain the Facility such that it
complies in every material respect with all applicable Laws and Project Permits.
Operator shall notify Owner of any deficiencies or compliance requirements of
such Laws and Project Permits and changes in Laws or requirements of any
Governmental Authority relevant to the Project of which Operator is aware.
Section 3.30 - No Liens or Encumbrances.
Operator shall keep and maintain the Facility free and clear of all liens and
encumbrances resulting from acts or omissions of Operator or its subcontractors
or work done at the request of Operator or its subcontractors to the extent
Owner has paid Operator for the Work.
Section 3.31 - No Action.
Operator shall not intentionally take any action or intentionally fail to take
any action that would (i) relieve Contractor from any obligation or liability
under the Construction Contract, (ii) give rise to any claim by Contractor
against Owner or Operator or (iii) otherwise cause a default (or a condition
which with passage of time, notice or both, would be a default) under any
Project Agreement or a violation of any applicable Law or Project Permit.
Section 3.32 - Litigation; Permit Lapses.
Upon obtaining notice or knowledge thereof, Operator shall submit prompt written
notice to Owner of: (i) any litigation, or material claim, dispute or action,
threatened in writing or filed, concerning the Facility, the Site, the Project
Agreements, or the Work; (ii) any written refusal or threatened refusal to
grant, renew or extend or any pending or written threatened action that might
affect the granting, renewal or extension of, any license, permit, approval,
authorization or consent concerning the Facility or the Work; and (iii) any
dispute with any Governmental Authority concerning the Facility or the Work, any
Project Permit or any dispute with respect to any Project Agreement.
ARTICLE IV - Owner Responsibilities
Section 4.1 - Fuel Supply.
Owner shall cause natural gas and fuel oil to be provided for use at the
Facility, in such quantities as contemplated pursuant to the Project Agreements
and as reasonably requested by Operator pursuant to Section 3.21. Owner shall be
responsible for the placing of all natural gas and fuel oil contracts or
agreements based on the information to be provided by Operator under this
Agreement. Owner shall be responsible for making direct payment on invoices for
natural gas and fuel oil to the applicable suppliers.
Section 4.2 - Reasonable Access.
Owner shall provide and grant to Operator right of access to the Facility and
the Site throughout the term of this Agreement. As reasonably requested by
Operator, Owner shall provide Operator with reasonable access to any information
in its possession relating to the physical characteristics of the Facility or to
any of the Facility Equipment.
17
<PAGE> 23
Section 4.3 - Accommodations.
Owner shall provide for and make available to Operator such office space,
storage facilities, unloading areas, rest rooms and office equipment facilities
as Operator may reasonably require and are reasonably practicable at the
Facility, as constructed pursuant to the Construction Contract.
Section 4.4 - Utilities.
Owner shall provide for and make available to Operator sufficient quantities of
electricity and other utilities as Operator may reasonably request for (a) the
operation and maintenance of the Facility and (b) the health and safety of its
employees.
Section 4.5 - Manuals and Drawings.
Owner shall provide Operator with all operation and maintenance manuals and all
drawings, specifications, diagrams, and other information which Owner has or may
obtain with respect to the Facility including any of the same that Contractor is
obligated to provide to Owner pursuant to the Construction Contract. Should any
such information be classified as confidential or proprietary, then Owner shall
use reasonable efforts to obtain all necessary authorizations, releases,
acknowledgments, or other approvals to provide Operator access to and use of
such information. Operator, in turn, shall comply with all resulting
requirements for protecting the confidential or proprietary nature of such
information, including without limitation, any such requirements contained in
any Project Agreement following receipt of such requirements.
Section 4.6 - Taxes.
Owner shall pay (or reimburse Operator) for any present or future duty or tax
(other than income taxes of Operator) which may be assessed against it and/or
Operator, upon reasonable notice from Operator, relative to the operation and
maintenance of the Facility. Operator shall promptly furnish any such bills it
receives to Owner. If Owner is exempt from the payment of any applicable sales
and/or use taxes or has a direct payment permit with respect to such taxes, then
Owner shall provide Operator with a copy of the certificate or permit, duly
executed and issued by the appropriate governmental authority, or an opinion of
counsel regarding such exemption in lieu of such certificate or permit.
Section 4.7 - Maintenance of Permits.
Owner shall pay for and maintain, with the cooperation of the Operator, any and
all certificates, permits, governmental fees, licenses, and inspections
necessary for the continuous operation of the Facility (except any of the same
required to be obtained and maintained by Operator or the Personnel pursuant to
Section 3.27 of this Agreement), including any required renewals of the Project
Permits.
Section 4.8 - Payment.
Owner shall make payments to Operator pursuant to Article VI.
ARTICLE V - Limitations on Authority
Section 5.1 - General Limitations.
Notwithstanding any provision in this Agreement to the contrary, unless
previously expressly approved in (i) the Annual Operating Plan or the Annual
Operating Budget; or (ii) otherwise approved in writing by Owner, Operator or
any agent, representative or contractor of Operator shall not:
18
<PAGE> 24
(a) Disposition of Assets. Sell, lease, pledge, mortgage,
convey, or make any license, exchange or other transfer or disposition of any
property or any interest therein comprising any part of the Project;
(b) Contract. Make, enter into, execute, amend, terminate,
suspend, modify or supplement or give or accept waivers under any contract or
agreement on behalf of or in the name of Owner;
(c) Expenditures. Make or commit to any expenditure, incur any
obligation or liability or acquire on a Reimbursable Cost basis any Materials,
assets or other items, or consent or agree to do any of the foregoing; provided
that in the event of an Emergency affecting the safety or protection of Persons
or endangering the Facility or property located at the Facility, Operator,
without approval from Owner, shall be authorized to take all reasonable actions
to prevent such threatened damage, injury or loss in accordance with Sections
3.8 and 3.13;
(d) Other Actions. Take or agree to take any other action that
materially varies with the applicable Annual Operating Plan or Annual Operating
Budget or with any Project Agreement or fail to take any action required by the
Annual Operating Plan, Annual Operating Budget or any Project Agreement;
(e) Lawsuits and Settlement. Settle, compromise, assign,
pledge, transfer, release or consent to the compromise, assignment, pledge,
transfer or release of, any claim, suit, debt, demand or judgment against or due
by, Owner or Operator, the cost of which, in the case of Operator, would be
Reimbursable Costs hereunder, or submit any such claim, dispute or controversy
to arbitration or judicial process, or stipulate in respect thereof to a
judgment, or consent to do the same or commence any litigation, action,
arbitration, or other proceeding on behalf of Owner; provided, however, that
Owner shall not unreasonably withhold its approval of any settlement,
compromise, arbitration or litigation of any claim, suit, demand, debt or
judgment involving a liability or potential liability only against Operator;
(f) Project Agreements. Initiate or respond to any complaint
or dispute resolution under or negotiate with any party to any Project
Agreement, except as expressly authorized in writing by Owner.
ARTICLE VI - Payment Amount and Terms
Section 6.1 - Payment.
As the sole and exclusive compensation and reimbursement to Operator for the
performance of the Work hereunder, Owner shall pay Operator, in the manner and
at the times specified in this Article VI, all Reimbursable Costs, the
Management Fee and, to the extent earned by Operator, the Performance Bonus. In
the event that Operator fails to achieve certain performance requirements,
Operator shall pay to Owner the Performance Penalties as further described
herein.
Section 6.2 - Reimbursable Costs.
(a) Covered Expenditures. Subject to the limitations on
expenditures set forth elsewhere in this Agreement, Owner shall reimburse
Operator for the following costs incurred by Operator in performing the Work,
each as properly incurred by Operator pursuant to this Agreement and documented
by written invoice or receipt provided to Owner (the "Reimbursable Costs"): (i)
the actual payroll cost for the Personnel involved in the performance of the
Work, including overtime, plus the actual cost of associated payroll taxes,
unemployment and disability insurance, worker's compensation, vacation,
holidays, fringe benefits and other
19
<PAGE> 25
statutory compensation; (ii) relocation and recruitment costs of salaried
employees, and recruitment costs (but not relocation costs) of non-salaried
employees as approved in advance by Owner; (iii) the actual costs of Operator's
subcontractors approved as provided herein; (iv) the actual cost of insurance
paid by Operator to provide the coverages set forth in Section 7.1 (except for
payments for deductibles to be paid by Operator pursuant to Section 7.4); (v)
upon Owner's request and subject to Owner's prior approval, other services
provided (other than the Work) at a mutually agreed upon price, terms and
conditions; and (vi) any other cost designated as a Reimbursable Cost pursuant
to the terms of this Agreement. Owner shall pay Reimbursable Costs as follows:
(b) Payments. Operator shall submit a statement to Owner at
the end of each month itemizing the total Reimbursable Costs incurred during
such month. Upon the approval of such statement and subject to Section 6.6,
Owner shall make payment to Operator due for such month within thirty (30) Days
from the date of such invoice statement. No Reimbursable Costs shall be invoiced
by Operator unless they were incurred in accordance with the applicable Annual
Operating Budget, as amended, supplemented, or otherwise modified from time to
time. If at any time during the performance of the Work after the Commencement
Date, Operator becomes aware that for any monthly period Reimbursable Costs
exceed or could be reasonably anticipated to exceed the amount provided therefor
in the Annual Operating Budget, Operator shall promptly notify Owner of such
budget overrun and shall not, without the written approval of Owner amending
such Annual Operating Budget or authorizing such expenditure, perform any
further Work that will result in or increase such budget overrun, except in the
case of an Emergency as provided in Section 3.13.
(c) Direct Payments.
(i) For each item of Material and rendition of
Services, Operator shall promptly notify Owner in writing that a payment is due
to a Subcontractor pursuant to a purchase order issued by Owner. The written
notification shall be certified by the Operator as pertaining to work that has
been duly performed in accordance with the applicable purchase order, and shall
be accompanied by an invoice, bill of sale or other appropriate documentation
evidencing the payment due. Upon receipt of such written notification, Owner
shall cause such payment to be made in a timely manner directly to said
Subcontractor in accordance with the purchase order.
(ii) All payments due from Owner to Subcontractors (the
"Direct Payments") in a given month shall be separately itemized in the invoice
statements required pursuant to Section 6.2(a), provided, however, that Direct
Payments shall not be included in the amount of the Reimbursable Costs.
(iii) In no event shall any separate or additional
compensation be payable by Owner to Operator in connection with Operator's
performance under this Section.
Section 6.3- Fees.
(a) Not Used.
(b) Management Fee. Owner shall pay to Operator an annual
Management Fee of [XXX] for each Operating Year, adjusted as set forth in
Section 6.11, commencing on the Commencement Date and continuing for each
Operating Year thereafter. Each annual Management Fee shall be earned in monthly
increments of one-twelfth (1/12) of such Fee, each of which shall
[XXX] This portion of this exhibit has been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
20
<PAGE> 26
be payable monthly on the last day of the month in which Work is to be performed
(partial month fees will be pro-rated accordingly). The Management Fee shall
constitute full payment for the services listed in Exhibit D, all Operator
overhead and profit for the Work and general and administrative costs incurred
by the Operator.
Section 6.4 - Performance Bonuses and Penalties.
As soon as available, and in any event within thirty (30) Days after the end of
each COD Year, Operator shall submit to Owner for its review a computation in
detail sufficient for confirmation of the performance of the Facility and of any
Performance Bonus or Performance Penalty in respect such COD Year.
Section 6.5 - Determination of Performance Bonus and Penalty.
During each COD Year, Operator shall have an opportunity to earn a Performance
Bonus, or in the alternative, Operator shall be obligated to pay a Performance
Penalty, which shall be calculated based upon the Facility's performance for
each such COD Year as determined accordance with Exhibit E. Payment of the
Performance Bonus or the Performance Penalty, as the case may be, shall be made
annually no later than forty-five (45) Days after the end of the applicable COD
Year.
Section 6.6 - Disputes.
Should Owner in good faith contest the validity, reasonableness or accuracy of
any statement submitted to it for payment, it shall notify Operator in witting
within fifteen (15) Days of its receipt of such statement, explaining in detail
the reasons for its refusal to honor Operator's request for payment. If Owner
disputes only part of a statement submitted to it for payment, then it shall
pay to Operator the undisputed portion of such statement in accordance with
Section 6.2 and notify Operator in writing of the amount disputed in accordance
with this Section 6.6. All such disputes shall be resolved pursuant to Article
VIII of this Agreement.
Section 6.7 - Exclusion.
Except as may otherwise expressly be provided for in this Agreement, Owner shall
not be liable for any additional costs incurred by Operator, or fees related
thereto, to the extent such costs are incurred by Operator either (i) for Work
performed not consistent with the Standards of Performance; (ii) for Work
performed to remedy a fault or deficiency which was created or aggravated by
Operator's failure to follow the Standards of Performance, or Operator's
negligent acts or omissions or willful misconduct; or (iii) in violation of
Section 5.1.
Section 6.8 - Audit Rights.
Notwithstanding the payment of any amount pursuant to the foregoing provisions,
Owner shall remain entitled to conduct an audit and review of all payments made
to Operator hereunder on a time and material or cost reimbursable basis,
together with any supporting documentation in accordance with the provisions of
Section 6.2 for a period of five (5) years from and after the close of the
Operating Year in the case of payments for Work performed during such Operating
Year. Such audit and review may be conducted by Owner or by an independent
certified public accountant and the party conducting such audit and review shall
be entitled to inspect, copy and audit any of Operator's financial books,
records, accounts, and ledgers relating to the Facility or the Work. Operator
shall cooperate with the auditors and promptly respond to any questions relating
to such audits. Operator shall retain all such information described above for a
period of five (5) years. If, pursuant to such audit and review, it is
determined that any amount previously paid by Operator did not constitute a due
and payable item hereunder, including without limitation, a properly payable
Reimbursable Cost, Owner, at its option, may recover such amount immediately
upon demand, with interest determined in accordance with Section 6.10, from
Operator or deduct or cause to be deducted such amount from any payment that
thereafter may become due to Operator hereunder.
21
<PAGE> 27
Section 6.9 - Payment of Fines and Penalties.
Payment at any time of any fine or penalties (or settlements in lieu of fines or
penalties) payable to any Governmental Authority, to the extent caused by the
negligent acts or omissions or willful misconduct of Operator, or Operator's
failure to comply with any provision of this Agreement, shall be the
responsibility of Operator and such fines or penalties shall not be considered
Reimbursable Costs or otherwise result in any increase of the costs to be borne
by Owner. Owner shall be responsible for the payment of any other fines or
penalties (or settlements in lieu of fines or penalties) payable to any
Governmental Authority as a result of the failure of the Facility to comply with
applicable Laws or Facility Permits.
If either Party receives notice or has knowledge of any violation of any laws or
regulations by the other Party with respect to the matters covered by this
Agreement which could result in such fines, or penalties from a Governmental
Authority, then such knowledgeable Party shall give prompt notice thereof to the
other Party.
Section 6.10 - Interest.
Any amount owed to either Party hereunder by the other Party shall accrue
interest each Day from the date that such amount is due until the date paid at
the Reference Rate per annum, computed and compounded daily.
Section 6.11 - Payment Adjustment.
The Management Fee shall be adjusted annually, and to the extent required,
retroactively, effective as of January 1st of any given Operating Year,
including the Operating Year in which the Commencement Date occurs. On such date
each Management Fee shall be adjusted in accordance with the following equation:
Adjusted Management Fee = original Management Fee, multiplied by the ratio of
GDP-IP October Previous Year
----------------------------
GDP-IP October 1994
Where:
"GDP-IP October Previous Year" equals the published index value in
October of the Operating Year immediately preceding the Operating Year for which
the adjustment is due.
"GDP-IP October 1994" equals the published index value for October
1994.
"GDP-IP" means the final published Implicit Price Deflator for Gross
Domestic Product as determined quarterly and reported monthly by the Bureau of
Economic Analysis of the U.S. Department of Commerce in the publication "Survey
of Current Business." In the event this index is discontinued or its basis is
substantially modified, the Parties shall agree on a substitute index.
ARTICLE VII - Insurance
Section 7.1 - General Requirements.
7.1.1 All insurance carried and maintained pursuant to this Agreement shall be
with insurance companies which are authorized to transact insurance business and
cover risks in the State of Minnesota and which are rated "Excellent" or better
by Best's Insurance Guide and Key Ratings or other insurance companies of
recognized responsibility and satisfactory to the Owner, Lender and (with
respect only to the insurance
22
<PAGE> 28
companies proposed to provide the insurance required by Section 7.3.1,
paragraphs i and ii) Operator, except that Operator may self-insure the
coverages it is required to provide hereunder.
7.1.2 On or before the Commencement Date and annually thereafter, the Parties
shall arrange to furnish each other with an approved certification of all
required insurance and copies of policies, if requested. Such certification
shall be executed by each insurer or by an authorized representative of each
insurer. Such certification or notice, as the case may be, shall identify
insurers, the type of insurance, the insurance limits, the policy term and shall
specifically list the special provisions enumerated for such insurance required
by this Article VII.
Section 7.2 - Operator Provided Insurance.
7.2.1 Coverages - Operator shall at all times throughout the term of this
Agreement and any renewal thereof carry and maintain or cause to be maintained,
at its own expense, insurance with coverage as follows:
i. Workers' Compensation and Employer' s Liability Coverage -
Operator shall maintain or cause to be maintained Workers'
Compensation insurance written in accordance with statutory
limits and Employer's Liability in the amount not less than
$10,000,000 per occurrence and in the annual aggregate. The
Employer's Liability coverage shall not contain an
occupational disease exclusion. Such policy or policies shall
contain an all states endorsement or stop gap endorsement and
alternate employer coverage.
ii. Comprehensive Automobile Liability Coverage - Operator shall
maintain or cause to be maintained Comprehensive Automobile
Liability insurance covering all owned, non-owned and hired
vehicles used by Operator or its permissive users in
connection with Work. Such coverage shall be written in an
amount not less than $1,000,000 per occurrence.
iii. Excess (or Umbrella) Liability Coverage - Operator shall
maintain excess (or Umbrella) Liability insurance written on
an occurrence basis providing coverage for a limit of
$9,000,000 per occurrence and annual aggregate in excess of
the insurance required in Section 7.2.1, paragraph ii. The
amounts of insurance required in Section 7.2.1, paragraphs i,
ii, and iii may be satisfied by purchasing coverages in the
amounts specified or by any combination thereof, so long as
the total amounts of insurance meet the requirements set forth
in such paragraphs.
iv. Subcontractor Insurance - Operator shall require all of
Operator's subcontractors to obtain, maintain and keep in
force during the time in which they are engaged in performing
services hereunder reasonably adequate coverage in accordance
with Operator's normal practice (but not less than Worker's
Compensation insurance written in accordance with statutory
limits and Employer's Liability, Comprehensive Automobile
Liability and Comprehensive General Liability each with limits
of $1,000,000 per occurrence and in the aggregate) and furnish
Owner with acceptable evidence of such insurance upon its
request.
7.2.2. Deductibles - All deductibles, or self-insured retentions for the
coverages specified in Section 7.2.1 shall be the sole responsibility of
Operator.
7.2.3 Endorsements - Any insurance provided in accordance with Section 7.2.1
shall be endorsed to provide that if such insurance is canceled for any reason
whatsoever, including nonpayment of premium, or any substantial change is made
in the coverage that affects the interest of Owner, Independent Engineer,
23
<PAGE> 29
Lender, Utility or Steam Purchaser, such cancellation or change shall not be
effective as to Owner until forty-five (45) days after receipt by Owner of
written notice sent by registered mail from such insurer of such cancellation or
change; provided, however, that such forty-five (45) day period shall be reduced
to 10 days in the case where cancellation results from the nonpayment of
premiums. In addition, any insurance provided in accordance with Section 7.2.1
paragraphs ii, iii and iv shall be endorsed to provide that:
i. Owner, Independent Engineer, Utility, Steam Purchaser, and Lender
shall be additional insureds, in each case with the understanding that any
obligation imposed upon Operator (including the liability to pay premiums) shall
be the sole obligation of Operator and not that of Owner, Independent Engineer,
Utility, Steam Purchaser or Lender.
ii. The insurer thereunder waives all rights of subrogation against
Owner, Independent Engineer, Utility, Steam Purchaser and Lender and any other
right to deduction due to outstanding premiums, whether by attachment or
otherwise.
iii. Such insurance shall be primary without right of contribution of
any other insurance carried by or on behalf of Owner, Independent Engineer,
Utility, Steam Purchaser or Lender with respect to its interest as such in the
Facility.
iv. Inasmuch as such policies are written to cover more than one
insured, all terms, conditions, insuring agreements and endorsements (other than
the limits of liability) shall operate in the same manner as if there were a
separate policy covering each insured.
Any insurance provided in accordance with Section 7.2.1 paragraph i shall be
endorsed to provide that the insurer thereunder waives all rights of subrogation
against Owner, Independent Engineer, Utility, Steam Purchaser and Lender and any
other right to deduction due to outstanding premiums, whether by attachment or
otherwise.
Section 7.3 - Owner Provided Insurance
7.3.1 Coverages - Owner shall commencing on or before the Commencement Date and
continuing throughout the term of this Agreement and any renewal thereof carry
and maintain or cause to be maintained, at its own expense, insurance with
coverage as follows:
i. Commercial or Comprehensive General Liability Coverage. -
Owner shall maintain or cause to be maintained Commercial or
Comprehensive General Liability insurance with a combined
single limit of not less than $1,000,000 per occurrence and in
the annual aggregate. Such coverage shall also include
premises/operations, explosion, collapse and underground
hazard, broad form contractual, products/completed operations,
independent contractors, broad form property damage and
personal injury.
ii. Excess (or Umbrella) Liability Coverage - Owner shall maintain
excess (or Umbrella) Liability insurance providing coverage
for a limit of $9,000,000 per occurrence and in the annual
aggregate in excess of the insurance required in paragraph i
above.
iii. Property and Boiler and Machinery Coverage - Owner shall
maintain at all times Property and Boiler and Machinery
insurance on an "all risk" replacement cost basis with
extended coverages, providing coverage for the Facility, which
insurance shall include
24
<PAGE> 30
coverage for removal of debris and shall insure the buildings,
structures, boiler and machinery, equipment, facilities,
fixtures and other properties constituting a part of the
Facility in an amount satisfactory to Owner with a deductible
of not greater than $1,000,000.
iv. Subcontractor Insurance - Owner shall require all of its
Subcontractors to obtain, maintain and keep in force during
the time in which they are engaged in performing services
hereunder reasonably adequate coverage in accordance with
Owner's normal practice and furnish Owner with acceptable
evidence of such insurance upon its request.
7.3.2 Deductibles - All deductibles for the coverages specified in this Section
7.3.1, paragraph i, ii and iii shall be the sole responsibility of Owner, except
that Operator shall be responsible for such deductible or to the extent the
claim arises out of the negligence or willful misconduct of Operator in the
performance of the Work, not to exceed $100,000 per occurrence pursuant to
Section 7.3.1 paragraphs i and ii or $200,000 per occurrence pursuant to Section
7.3.1, paragraph iii. Any such deductible or self-insured retention paid by
Operator shall not be deemed to be a Reimbursable Cost hereunder.
7.3.3 Endorsements - Any insurance provided in accordance with Section 7.3.1
shall be endorsed to provide that:
i. Operator shall be an insured for losses occurring at the
Site in the case of insurance provided in accordance with Section 7.3.1
paragraphs i and ii and an additional insured in the case of insurance provided
in accordance with Section 7.3.1 paragraphs iii and iv, in each case with the
understanding that, except as expressly provided in Section 7.3.2, any
obligation imposed upon Owner (including the liability to pay premiums) shall be
the sole obligation of Owner and not that of Operator.
ii. The insurer thereunder waives all rights, of subrogation
against Operator and Owner and any other right to deduction due to outstanding
premiums, whether by attachment or otherwise.
iii. Such insurance shall be primary without right of
contribution of any other insurance carried by or on behalf of Operator with
respect to its interest as such in the Facility.
iv. If such insurance is canceled for any reason whatsoever,
including nonpayment of premium, or any substantial change is made in the
coverage that affects the interest of Operator and Lender, such cancellation or
change shall not be effective as to Operator until forty-five (45) days after
receipt by Operator of written notice sent by registered mail from such insurer
of such cancellation or change; provided, however, that such forty-five (45) day
period shall be reduced to ten (10) days in the case where cancellation results
from the nonpayment of premiums.
v. Inasmuch as such policies are written to cover more than
one insured, all terms, conditions, insuring agreements and endorsements (other
than the limits of liability) shall operate in the same manner as if there were
a separate policy covering each insured.
vi. If Owner purchases insurance on a claims made basis, such
policies must contain a discovery period that expires five (5) years after the
expiration of the policy or, with Operator's prior written consent which shall
not be unreasonably withheld, Owner will provide an equivalent arrangement to
address claims which occurred during the claims made policy period but are not
reported for a period of five (5) years.
25
<PAGE> 31
Section 7.4- Optional Insurance Responsibilities
If requested by Owner in writing, Operator shall assist Owner in obtaining for
its own account the insurance Owner is required to maintain pursuant to Section
7.3.1 paragraphs I and ii above, subject to Owner reimbursing Operator for its
reasonable costs incurred in providing such assistance.
ARTICLE VIII - Dispute Resolution
Section 8.1 - Procedure.
In the event a dispute arises between or among Owner and Operator regarding the
application or interpretation of any provision of this Agreement other than
matters which may not be settled without the consent of an insurance company or
a third party to a Project Agreement, the aggrieved Party shall notify the other
Party to this Agreement of the dispute. If the Parties shall have failed to
resolve the dispute within ten (10) Days after delivery of such notice, each
Party shall, within two (2) Days thereafter, nominate a senior member of its
management to meet at the Facility, or at any other mutually agreed location, to
resolve the dispute. Should the Parties be unable to resolve the dispute to
their mutual satisfaction within twenty (20) Days of such nomination, each Party
shall have the right to submit the dispute to arbitration in accordance with
Sections 8.2 through 8.5.
Section 8.2 - Arbitration Procedure.
(a) The Parties agree to settle all controversies and disputes
between them arising out of or relating to this Agreement (including without
limitation the breach, termination or validity thereof) by arbitration in
accordance with the Arbitration Rules of the American Arbitration Association
("AAA"), or successor organization, in effect at the time of the arbitration
("Rules"), except as such Rules may be modified by this Agreement.
(b) A Party desiring to submit a dispute to arbitration
hereunder shall file a Demand for Arbitration with the AAA at its office in
Minneapolis, Minnesota. A copy of such Demand shall be sent to the other Party
at the same time. The arbitration proceeding shall be conducted by an arbitrator
or a panel of three arbitrators, as provided below. Within ten (10) Days after a
Demand for Arbitration has been made by either Party, the Parties shall either
agree on the appointment of a single arbitrator or each Party shall appoint one
arbitrator. Within twenty (20) Days after the Demand for Arbitration has been
made, the two arbitrators shall choose a third arbitrator who shall act as
chairperson of the arbitral proceedings. If the two arbitrators chosen by the
Parties do not agree upon a third arbitrator within twenty (20) Days after the
filing of the Demand for Arbitration, then upon the application of either Party,
the third arbitrator shall be appointed by the AAA. Should either Party refuse
or neglect to participate in the appointment of the arbitrators within the time
provided, the arbitrator selected by the other Party shall be the sole
arbitrator of the dispute.
(c) Following the appointment of the arbitrators, each Party
shall have the right to mail to the other Party (with a copy to the arbitrators)
a written request for the production of certain identified documents or of all
documents in possession of the other Party relevant to any claims or
counterclaims in said arbitration. Within ten (10) Days after receipt of any
such request, the receiving Party may make written objection to the requesting
Party (with a copy to the arbitrators) to all or part of said request, on the
ground that it is unduly burdensome, that the documents requested are irrelevant
or privileged, or that such documents are equally available to the requesting
Party. The arbitrators shall rule on the validity of any such objection and the
Parties shall produce documents in accordance with such order. The documents
requested shall be delivered within thirty (30) Days of receipt of such request,
unless the arbitrators otherwise direct.
26
<PAGE> 32
(d) THE SITE OF THE ARBITRATION SHALL BE MINNEAPOLIS,
MINNESOTA, UNLESS OTHERWISE AGREED TO BY THE PARTIES. The Parties shall
diligently and expeditiously proceed with arbitration. The arbitrators shall be
instructed to render a written decision within forty-five (45) Days after the
conclusion of the hearing or the filing of such briefs as may be authorized by
the arbitrators, subject to any reasonable delay due to unforeseen
circumstances.
(e) Except to the extent the Parties' remedies may be limited
by the terms of this Agreement, the arbitrators shall be empowered to award any
remedy available under the laws of the State of New York including, but not
limited to, monetary damages and specific performance. The arbitrators shall not
have the power to amend or add to this Agreement. The award of the arbitrators
shall be in writing with reasons for such award and signed by the arbitrators.
The Parties agree that any award rendered shall be final and binding; provided,
however, the Parties do not hereby waive their rights to modify or vacate an
award pursuant to Sections 10 and 11 of the United States Arbitration Act, 9
U.S.C. ss.ss. 10, 11. Judgment rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
Section 8.3 - Qualifications of Arbitrators; Expenses.
(a) The arbitrators in the arbitration proceeding provided for
in Section 8.2 shall be individuals experienced in the power plant operation and
maintenance industry and competent to pass on the matter presented for
arbitration, but said arbitrators shall have no interest in or prior connection
with Owner, Operator, or any of their respective Affiliates, and shall be
impartial toward each Party at the time of their selection.
(b) Owner and Operator shall share equally the compensation
and expenses of the arbitrators as well as all fees imposed by the AAA
including, but not limited to, transcripts, hearing room rentals, filing fees,
and administrative costs. Owner and Operator shall each be responsible for its
own costs and legal fees, if any. Notwithstanding the foregoing, the arbitrators
shall be empowered to award a Party its costs, expenses and legal fees if the
arbitration proceeding is initiated by the other Party in bad faith.
Section 8.4 - Independent Arbitration Agreement.
This Article VIII constitutes an independent contract to arbitrate all disputes
between the Parties, including, without limitation, disputes regarding contract
formation and whether either Party is entitled to quasi-contractual or quantum
meruit recovery from the other Party.
Section 8.5 - Continuation of Work.
Pending final resolution of any dispute, the Parties shall continue to fulfill
their respective obligations hereunder, including but not limited to payment
obligations. Subject to Sections 2.3 and 3.5(b), the interpretation or decision
of the non-aggrieved Party shall take precedence until such time as the dispute
is resolved pursuant to Section 8.1 or 8.2; provided that, nothing in this
Section shall relieve the non-aggrieved Party from any liability hereunder
resulting from such action to the extent such interpretation or decision is
ultimately determined to be wrong by the Arbitrators.
ARTICLE IX - Commencement and Termination
Section 9.1 - Commencement of Work.
The Operational Phase Services shall commence on the Commencement Date.
27
<PAGE> 33
Section 9.2 - Term.
Except as may otherwise be noted herein, this Agreement shall remain in full
force and effect for an initial term commencing on the Commencement Date and
ending on September 30, 2004.
Section 9.3 - Renewals.
Owner shall have the option to extend the term of this Agreement for up to two
(2) additional seven (7) year terms, provided that, Owner gives written notice
to Operator of such intent no later than one hundred and eighty (180) Days prior
to the expiration of the current term and the Parties mutually agree in writing
as to the terms of such extension.
Section 9.4 - Early Termination.
(a) This Agreement may not be terminated before its expiration
except (i) by mutual written agreement of the Parties or (ii) by Owner pursuant
to Section 9.4(b) or 18.2 or (iii) pursuant to the default provisions expressed
in Article XII.
(b) Owner may, at its option terminate this Agreement by
giving the Operator thirty (30) Days prior notice in the case of clauses (i)
through (iv) below and immediately in the case of clause (v) below. Owner may
terminate this Agreement:
(i) for any reason at the Owner's convenience; or
(ii) at any time, the Facility is unavailable to
generate electricity for any reason other than an event of Force Majeure or
default by Utility for ninety (90) consecutive or nonconsecutive Days in any
three hundred sixty-five (365) Day period; or there is a failure to maintain for
nine (9) consecutive months at least a sixty percent (60%) Monthly Availability
or Monthly On Peak Availability (both as defined in the Power Purchase
Agreement), or there is the occurrence of an event, except if due to an event of
Force Majeure, which causes the Capacity (as defined in the Power Purchase
Agreement) of the Facility to fall more than forty percent (40%) below the
Committed Capacity (as defined in the Power Purchase Agreement) for nine (9)
months in any twenty-four (24) month period; or
(iii) Not Used.
(iv) upon damage to, or destruction of, a substantial
portion of the Facility, which damage or destruction cannot reasonably be
expected to be repaired or rebuilt within one (1) calendar year; or
(v) a work stoppage by Operator's on-site personnel
and failure by Operator to provide a complement of workers within ten (10) Days
as necessary to operate the Facility and perform the Work in all material
respects as required by this Agreement.
Section 9.5 - Termination Procedure.
Upon the effective date of termination of this Agreement authorized under
Section 9.4, the Operator shall (a) discontinue the Work, (b) place no further
orders or subcontracts for Materials, Services, or labor, except as authorized
in advance by Owner or required of Operator to avoid giving rise to a default
under this Agreement, (c) make every reasonable effort to obtain cancellation of
affected subcontracts or, at Owner's request, cause the assignment of any such
contracts to Owner or its replacement operator upon terms
28
<PAGE> 34
satisfactory to Owner, and (d) take such other action as may be reasonably
requested by Owner for the orderly closeout and transition of Operator's
operation and maintenance activities. After deduction of any amounts owed by
Operator to Owner, upon termination pursuant to this Article, Owner shall pay,
or cause to be paid, to Operator (A) the amount, if any, due and payable to
Operator pursuant to this Agreement up to and including the date of termination,
and (B) except in the case of a termination of Operator pursuant to Article XII,
all reasonable documented costs incurred by Operator for its own efforts to
implement termination and the resulting reasonable costs actually incurred for
turnover and demobilization, excluding any loss of anticipated profit. Such
payments to Operator shall not duplicate any other payments hereunder made to
Operator. Operator shall use reasonable efforts to minimize all termination
costs. In the case of a termination pursuant to clause (i) of Section 9.4 (b),
Owner shall also pay Operator the applicable termination fee (the "Termination
Fee") as set forth in Exhibit G. Other than as set forth in this Section 9.5,
Owner shall have no liability to Operator for costs, expenses or losses of any
kind or nature incurred by Operator as a result of such termination. In no event
shall the aggregate payments of Owner hereunder (not including the Termination
Fee, if any) exceed the amount due for the then-current Operating Year,
pro-rated for any partial Operating Year. Within sixty (60) Days following the
termination date, Operator shall submit to Owner its final invoice statement
which Owner shall review and make payments on in accordance with the provisions
expressed in Article VI. Upon Operator's receipt of final payment in full from
Owner, this Agreement shall terminate and neither Party shall have any further
obligation to the other Party except with respect to those certain provisions of
this Agreement which by their nature survive.
Section 9.6 - Suspension of Performance.
At any time and from time to time Owner may direct Operator to suspend and
subsequently to resume performance of the Work. Any such direction shall be
promptly confirmed in writing. During any such suspension, Operator and Owner
shall proceed in accordance with provisions of Section 9.5, revised as
applicable to account for the differences between termination and suspension.
Notwithstanding any other provision of this Agreement to the contrary, in the
event of a suspension pursuant to this Section 9.6, Operator shall reduce the
number of Personnel at Owner's request and Owner and Operator shall negotiate in
good faith an equitable reduction in the compensation of Operator, including any
applicable Performance Bonus or Performance Penalty, for the applicable period
of suspension. Owner shall be responsible for all costs and expenses associated
with the remobilization after the suspension.
ARTICLE X - Representations
Section 10.1 - Representations and Warranties.
(a) Each Party represents and warrants to the other Party that: (i) such
Party has the full power and authority to execute, deliver and perform this
Agreement and to carry out the transactions contemplated hereby; (ii) the
execution and delivery of this Agreement by such Party and the carrying out by
such Party of the transactions contemplated hereby have been duly authorized by
all requisite corporate (or, if applicable, partnership) action, and this
Agreement has been duly executed and delivered by such Party and constitutes the
legal, valid and binding obligation of such Party, enforceable against it in
accordance with the terms hereof, subject as to enforceability of remedies to
limitations imposed by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the enforcement of creditors rights
generally and general principles of equity; (iii) no authorization, consent,
approval or order, or notice to or registration, qualification, declaration or
filing with any Governmental Authority is required for the execution, delivery
and performance by such Party of this Agreement or the carrying out by such
Party of the transactions contemplated hereby, other than regulatory and similar
approvals needed with respect to the operation and
29
<PAGE> 35
maintenance of the Facility; and (iv) none of the execution, delivery and
performance by such Party of this Agreement, the compliance with the terms and
provisions hereof, and the carrying out of the transaction contemplated hereby,
conflicts or will conflict with or result in a breach or violation of any of the
terms, conditions, or provisions of any law, governmental rule or regulation or
the charter document (or partnership agreement, if applicable), as amended,
supplemented, or otherwise modified, or bylaws, as amended, supplemented, or
otherwise modified, of such Party or any applicable order, writ, injunction,
judgment or decree of any court or Governmental Authority against such Party or
by which it or any of its properties is bound, or any loan agreement indenture,
mortgage, bond, note, resolution, contract or other agreement or instrument to
which such Party is a Party or by which it or any of its properties is bound, or
constitutes or will constitute a default thereunder or will result in the
imposition of any lien upon any of its properties.
(b) Operator further represents and warrants to Owner that:
(i) it has experience in the operation and maintenance of gas turbine powered
cogeneration facilities and is fully qualified to operate and maintain the
Facility in accordance with the terms hereof, (ii) it shall not intentionally
take any action that would cause a default under any Project Agreement, and
(iii) there are no legal or arbitral proceedings or any proceedings by or before
any Governmental Authority, now pending or (to the knowledge of Operator)
threatened against Operator or any of its subsidiaries that if adversely
determined, could reasonably be expected to have a material adverse effect on
Operator's ability to perform its obligations under this Agreement.
ARTICLE XI - Confidentiality
Section 11.1 - General.
Each Party agrees to hold in confidence for a period of five (5) years from the
date of disclosure, but in any event for the term of the Loan Agreement, any
confidential information supplied by the other Party or its contractors and
designated in writing as confidential by the supplier thereof, including this
Agreement ("Confidential Information"). Accordingly, it shall not be disclosed
in whole or in part to third parties without the prior written permission of the
other Party, except that Operator agrees that Owner may disclose any
Confidential Information to Lender, potential Lenders and their representatives
as required for the financing of the Facility and to the Owner's partners and
prospective partners, subject to appropriate confidentiality agreement. Operator
further agrees, to the extent requested by the supplier of such information, to
require its subcontractors, vendors, suppliers and employees to enter into
appropriate nondisclosure agreements relative to such Confidential Information,
prior to the receipt thereof.
Section 11.2 - Exceptions
The provisions of this Article shall not apply to information within any one of
the following categories or any combination thereof:
(a) Information that was in the public domain prior to the
receiving Party's receipt or that subsequently becomes part of public domain by
publication or otherwise, except by the receiving Party's wrongful act; or
(b) Information that the receiving Party can show was in its
possession prior to receipt thereof from the disclosing Party; or
(c) Information received by a Party from a third Party who
such Party reasonably determines is under no limitation or restriction regarding
disclosure.
30
<PAGE> 36
Section 11.3 - Required Disclosure.
Any Party required by law, rule, regulation or order, or in the course of
administrative or judicial proceedings, to disclose information that is
otherwise required to be maintained in confidence pursuant to this Article XI
(collectively, a "Legally Compelled Disclosure") may make disclosure
notwithstanding the provisions of this Article XI; provided, however, that the
Party required to make the disclosure shall immediately notify the other Party
of the requirement and the terms thereof and shall cooperate to the maximum
extent practicable to preserve the confidential nature of the information and,
in the case of Legally Compelled Disclosure, minimize the disclosure. The Party
disclosing such information shall use all reasonable efforts to obtain
proprietary or confidential treatment of such information by the third party to
whom the information is disclosed, and in the case of a Legally Compelled
Disclosure, to the extent such remedies are available, shall seek protective
orders, limiting the dissemination and use of the information. Moreover, in the
case of a Legally Compelled Disclosure, this Agreement does not alter the rights
of either Party to object to the rule, regulation, order or proceedings
requiring the disclosure.
Section 11.4 - Return of Confidential Information.
Confidential Information furnished to Operator by Owner hereunder shall be
returned to Owner or its destruction certified before final payment is made to
Operator hereunder; provided that, subject to any restrictions imposed by
Article XI, Operator may retain a copy thereof.
ARTICLE XII - Default
Section 12.1 - Events of Default.
The following occurrences or events, or any of them, by or against either
Operator or Owner shall constitute a default under this Agreement:
(a) A material breach of any of the terms, conditions,
warranties, covenants or representations expressed in this Agreement (other than
a breach described in Sections 12.1(b) through (f) below); or
(b) the filing of a petition commencing a voluntary case under
the Federal Bankruptcy Code or for liquidation, reorganization or any similar
arrangement under federal or state law relating to bankruptcy, insolvency,
winding up or adjustment of debts; or
(c) the admission in writing of its insolvency or inability to
pay its debts generally as they become due or the acquiescence in or consent to
any involuntary case commenced pursuant to Section 12.1(d) or the declaration of
such Party as bankrupt or insolvent under the Federal Bankruptcy Code or any
other federal or state law relating to bankruptcy, insolvency, winding up or
adjustment of debts; or
(d) the filing of a petition against it commencing an
involuntary case under the Federal Bankruptcy Code or proposing the adjudication
of such Party as a debtor or bankrupt or proposing its liquidation or
reorganization pursuant to any federal or state law relating to bankruptcy,
insolvency, winding up or adjustment of debts; or
(e) the dissolution of any Party or failure to maintain such
Party's good standing or qualification to do business in the State of Minnesota
and state of organization; or
31
<PAGE> 37
(f) an assignment for the benefit of creditors.
Section 12.2 - Rights Upon Default.
(a) In the event that (1) either Party is in default of this
Agreement pursuant to Section 12.1(a) or 12.1(d) (for filing of an involuntary
petition in bankruptcy) and such default is not cured, or the defaulting Party
is not diligently pursuing a cure, within thirty (30) Days following receipt of
notice that a default under this Agreement has occurred, or, if diligently
pursuing a cure, has not cured such default within ninety (90) Days of such
notice; provided that to the extent that the Operator is in default pursuant to
Section 12.1(a) on more than two occasions related to the same default during
any twelve (12) month period it shall not be entitled to either the 30 or 90 day
cure period provided for herein, or (2) either Party is in default pursuant to
Sections 12.1 (b) (for filing a voluntary petition in bankruptcy), 12.1(c),
12.1(e) or 12.1(f), then the non-defaulting Party may take any one or more of
the following actions: (i) terminate this Agreement immediately without
obligation to or recourse by the defaulting Party and in accordance with the
procedures described in Section 9.5, (ii) exercise any other right it may have
under this Agreement, and/or (iii) pursue any other right or remedy available to
it under Law or equity in accordance with the procedures of Article VIII subject
to the limits set forth in this Agreement.
(b) In the event that Owner so elects to terminate this
Agreement as a result of Operator's default hereunder, and without limiting any
other right or remedy of Owner arising therefrom, Owner may employ any other
person, firm or corporation to perform the Work by whatever method Owner may
deem expedient. Furthermore, Operator shall, at Owner's expense, perform the
following services relative to the Work so affected by its default, regardless
of whether or not Owner elects to terminate this Agreement as a result of such
default:
(i) assist Owner in preparing an inventory of all Materials in
use or in storage at the Facility; and
(ii) assign to Owner such subcontracts and other contractual
agreements relating to Operator's performance of the Work as may be designated
by Owner. Furthermore, Operator shall execute all documents reasonably requested
by Owner and take such other steps as are reasonably requested by Owner that may
be required to assign and vest in Owner or its designee all rights, benefits,
interests and title in connection with such contracts or obligations; and
(iii) assist Owner in training Operator's successor.
ARTICLE XIII - Indemnity
Section 13.1 - Operator's Indemnity.
13.1.1 Indemnity. Operator shall indemnify, hold harmless and defend Owner, the
Project Lender, the Independent Engineer and their Affiliates and their
respective officers, directors, partners, and employees (collectively, the
"Owner's Indemnitees") from and against any and all claims, demands, suits,
legal proceedings, liabilities, judgments, awards, losses, damages, costs or
expenses (including, without limitation, reasonable legal fees and expenses) for
bodily injury to or death of persons or damage to or destruction of third party
tangible property, to the extent caused by or arising out of any negligent act
or omission (whether active or passive), willful misconduct or strict liability
of Operator or of anyone acting under its direction or
32
<PAGE> 38
control or on its behalf in connection with or incident to the performance of
the Work (other than Owner's Indemnitees).
13.1.2. Nonpayment. Operator agrees to fully indemnify, save harmless and defend
the Owner's Indemnitees from claims, liabilities, expenses (including reasonable
legal fees), penalties, interest, demands and causes of action for nonpayment of
amounts due Operator's subcontractors, or others as a result of furnishing Work
which amounts are payable by Operator, provided that, Operator has been paid in
accordance with the provisions of the Agreement, including any right of Owner to
withhold payment under the Agreement.
13.1.3 No Limitation of Indemnity. With respect to any and all claims arising,
directly or indirectly, from the performance of the Operator pursuant to this
Agreement brought against any Owner's Indemnitee, whether brought by any
employee of Operator, any subcontractor of Operator, anyone directly or
indirectly employed by any of them or by anyone for whose acts any of them may
be liable or otherwise, or in the event of any other claim against an Owner's
Indemnitee subject to Section 13.1.1, the indemnification obligation under such
Section shall not be limited in any way by the amount or type of damages,
compensation or benefits payable by or for Operator or any Subcontractor of
Operator or any other Person under worker's compensation acts, disability
benefit acts, nor by the provision of any insurance, whether required to be
provided under the Agreement, or of other employee benefit acts.
Section 13.2 - Owner's Indemnity.
13.2.1 Indemnity. Owner shall indemnify, defend and hold Operator and its
officers, directors, and their Affiliates and their respective officers,
directors, partners, and employees (collectively "Operator's Indemnitees")
harmless from and against any and all claims, demands, suits, legal proceedings,
liabilities, judgments, awards, losses, damages, costs or expenses (including,
without limitation, reasonable legal fees and expenses) for bodily injury to or
death of persons or damage to or destruction of third party tangible property,
to the extent caused by or arising out of any negligent act or omission (whether
active or passive) willful misconduct or strict liability of Owner or its
Subcontractors or anyone acting on Owner's behalf, including, without
limitation, Affiliates of the foregoing (other than Operator's Indemnitees) in
connection with or incident to activities or services on or about the Site.
13.2.2 No Limitation of Indemnity. With respect to any and all claims in
connection with this Project brought against any Operator's Indemnitee, whether
brought by any employee of Owner, any Subcontractor of Owner, anyone directly
or indirectly employed by any of them or by anyone for whose acts any of them
may be liable or otherwise, or in the event of any other claim against an
Operator's Indemnitee subject to Section 13.2.1, the indemnification obligation
under such Section shall not be limited in any way by the amount or type of
damages, compensation or benefits payable by or for Owner or any Subcontractor
or any other Person under worker's compensation acts, disability benefit acts,
nor by the provision of any insurance, whether required to be provided under
the Agreement, or of other employee benefit acts.
Section 13.3 - Survival of Indemnity.
This Article XIII and any other indemnity provided under this Agreement shall
survive the termination or suspension of this Agreement and shall remain in full
force and effect until the later of (i) the time during which a claim or cause
of action may be brought is barred by the applicable statute of limitations and
(ii) the satisfaction or payment of such claim or liability and of all expenses
and charges incurred by Operator or Owner, as the case may be, relating to the
enforcement of this Article XIII, but with respect to Section 13.1 in
33
<PAGE> 39
no event later than the date of expiration of the insurance required to be
provided by Owner pursuant to Article 7.
Section 13.4 - Litigation.
If any party indemnified pursuant to this Article 13 (each an "Indemnified
Party" collectively "Indemnified Parties") receives notice or has knowledge of
any claim that may reasonably result in a claim for indemnification by such
Indemnified Party against a Party (the "Indemnifying Party") pursuant to this
Article XIII or Article XVII, such Indemnified Party shall, as promptly as
possible, give the Indemnifying Party notice of such claim, including a
reasonably detailed description of the facts and circumstances relating to such
claim, and a complete copy of all notices, pleading and other papers related
thereto, and the basis for its potential claim for indemnification with respect
thereto in reasonable detail and cooperate with the Indemnifying Party in
response thereto.
Subject to the limitations on the Indemnifying Party's indemnity obligations
hereunder, the Indemnifying Party shall assume on behalf of the Indemnified
Party, and conduct with due diligence and good faith the defense of, any suit
against one or more of the Indemnified Parties, whether or not the Indemnifying
Party is joined therein; provided, however, that, without relieving the
Indemnifying Party of its obligations hereunder and subject to the Indemnifying
Party's control over the defense and settlement of such suit, the Indemnified
Party may elect to participate in the defense of any such suit, at its own
expense. The Indemnifying Party's indemnity hereunder is for the exclusive
benefit of the Indemnified Parties and their assignees and in no event shall
inure to the benefit of a third party.
ARTICLE XIV - Liability of the Parties
Section 14.1 - Limitation of Liability.
14.1.1 In no event whether as a result of breach of contract, warranty,
indemnity, tort (including negligence), strict liability or otherwise, shall
either Party, including with respect to the Operator its suppliers or
subcontractors of any tier, be liable hereunder for any consequential or
indirect loss or damages, including without limitation, loss of energy, revenue,
costs of capital, loss of other anticipated revenues and profits, loss of good
will, damage to or loss of property or equipment in excess of the obligation
assumed by Operator in Sections 7.2 and 13.1, loss of use of equipment or power
system, increased operating costs or any special or incidental damages. The
foregoing disclaimer shall not excuse Owner from paying Performance Bonuses or
Operator from paying Performance Penalties.
14.1.2 Excluding any liability of Operator for the payment of amounts pursuant
to Sections 13.1.1, 13.1.2, and 7.3.2 as it relates to the payment of
deductibles by Operator for the coverage provided in Section 7.3.1 (i) and (ii),
and excluding any third party liabilities regarding Operator's indemnity as set
forth in Section 17.4, the total aggregate liability of Operator and its
suppliers and subcontractors of any tier with respect to any and all claims
arising out of the performance or non-performance of its obligations under this
Agreement, whether based on contract, warranty, tort (including negligence and
strict liability), or otherwise, shall not exceed, with respect to claims
arising or accruing in any Operating Year, the annual Management Fee for such
Operating Year, provided that if such Operating Year consists of less than three
hundred sixty-five days, such amount will be prorated accordingly.
Section 14.2 - Survival
The Parties further agree that the waivers and disclaimers of liability,
indemnities, releases from liability and limitations on liability expressed in
this Agreement shall survive termination or expiration of this Agreement,
34
<PAGE> 40
and shall apply at all times (unless otherwise expressly indicated), whether in
contract, equity, tort or otherwise, regardless of the fault, negligence, strict
liability, or breach of warranty of the Operator's Indemnitees or Owner's
Indemnitees, as applicable.
Section 14.3 - No Warranties or Guarantees.
EXCEPT AS EXPRESSLY PROVIDED IN TIES AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTIES OR GUARANTEES TO THE OTHER, EITHER EXPRESS OR IMPLIED, WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT, AND BOTH PARTIES DISCLAIM AND WAIVE ANY
IMPLIED WARRANTIES OR WARRANTIES IMPOSED BY LAW INCLUDING BUT NOT LIMITED TO THE
IMPLIED WARRANTIES OF MECHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE XV - Force Majeure
Section 15.1 - Force Majeure; Events Limitation.
Neither Operator nor Owner shall be liable to the other for any failure to
perform pursuant to the terms and conditions of this Agreement to the extent
such performance was prevented by an event of Force Majeure. Force Majeure as
used in this Agreement means any event beyond the reasonable control of the
Party affected and which, with the exercise of due care, such party could not
reasonably have been expected to avoid, including but not limited to acts of
God, explosions or fires, floods, hurricanes, tornadoes, lightning, earthquakes,
drought, epidemics, blight, famine, quarantine, blockade, acts or inactions of
Governmental Authorities, war, insurrection or civil strife, rebellion,
sabotage, strike or labor difficulty (except any such strikes or labor
difficulties involving Operator's Personnel or other employees or any
subcontractor of Operator or their employees); provided that commercial
impracticability shall not constitute an event of Force Majeure; provided
further that a Party shall not be excused from its performance pursuant to this
Article 15.1(i) unless such Party gives notice and full particulars of the same
to the other party as soon as practicable after the occurrence relied on, (ii)
to the extent such failure was caused by its negligence, (iii) to the extent the
event relied upon could have been prevented by reasonable diligence or was
within the reasonable control of such Party, (iv) to the extent of its failure
to use due diligence to remedy the situation and remove the cause of the event
of Force Majeure in an adequate manner and with all reasonable dispatch, (v) for
its obligations to make payments due under this Agreement. The Parties expressly
understand and agree that (a) in the event that any Operator subcontractor is
entitled under the terms of any contract or agreement to force majeure relief
for events or circumstances of a nature or type similar to those specifically
enumerated above on terms broader than those provided above, such broader force
majeure relief shall not constitute Force Majeure for the Operator hereunder
unless such events or circumstances would themselves constitute a Force Majeure
event hereunder if Operator were directly affected thereby; and (b) the
compliance of Operator's subcontractors with the terms of its applicable
subcontract or purchase order shall be within Operator's control. The burden of
proof shall be on the Party seeking to show excuse from performance due to a
Force Majeure event.
ARTICLE XVI - Title, Documents and Data
Section 16.1 - Materials and Equipment.
Title to all Materials (including equipment) and other items purchased or
obtained by Operator on a Reimbursable Cost basis hereunder shall pass
immediately to and vest in Owner upon the passage of title from
35
<PAGE> 41
the vendor or supplier thereof; provided, however, that such transfer of title
shall in no way affect Operator's obligations as set forth in the other
provisions of this Agreement.
Section 16.2- Review by Owner.
All materials and documents required to be submitted for the approval of Owner
shall be prepared and processed in accordance with the requirements and
specifications set forth in the Site Procedures and Annual Operating Plan, as
applicable; provided, however, that Owner's review or approval of materials and
documents submitted by Operator shall not relieve Operator of its responsibility
for the corrections thereof or of its obligations to meet all of the
requirements of this Agreement.
ARTICLE XVII- Hazardous Materials
Section 17.1 - Owner's Indemnity.
Operator makes no representation or warranty concerning the existence or
nonexistence of Hazardous Materials at the Site when the Work commences and
disclaims all responsibility and liability for the excavation, transportation,
storage, handling, removal, treatment or disposal of pre-existing Hazardous
Materials discovered or encountered at the Site. Owner shall indemnify, defend
and hold Operator and its Subcontractors harmless from and against any claim,
suit, loss, cost, liability, fine, or damage (including reasonable attorneys'
fees), including, but not limited to, liability or cost incurred or assessed
against Operator pursuant to 42 USC 9601 et seq., "Comprehensive Environmental
Response, Compensation and Liability Act of 1980" and amendments thereto, 15 USC
2602, et seq., " The Toxic Substances Control Act" and amendments thereto, 42
USC 6901et seq., "The Resource Conservation and Recovery Act of 1976" and
amendments thereto, or other applicable Law made or asserted by any Person,
including governmental entities, based on or related to complaints or
allegations, whether or not supported by fact, that soils, leachate, effluent,
or other residue located on, emanating from, or arising from the soils,
subsurface or physical conditions at the Site contain preexisting toxic
substances or preexisting Hazardous Materials. Operator shall provide prompt
notice to Owner of any suspected Hazardous Materials which it finds during
performance of Work. Owner shall be responsible for the prompt determination of
the nature of such Hazardous Materials and shall proceed with due diligence.
Section 17.2 - Collection and Removal.
Operator shall arrange for the proper collection, removal and disposal of any
Hazardous Materials furnished, used, applied, generated or stored at the Site or
emanating from the Site as a result of Work including, but not limited to, used
oils, greases, and solvents from flushing and cleaning processes performed under
this Agreement. All activities in connection with the foregoing shall be
performed in accordance with the Site Procedures. All costs associated with the
transporting and disposing of Hazardous Materials to or from the Site by
Operator in connection with its performance of the Work pursuant to the terms of
this Agreement shall be paid by Owner pursuant to the provisions of Section 6.2.
Section 17.3 - Material Safety Data Sheets.
As required under all applicable Laws, Operator shall provide Material Safety
Data Sheets covering all Hazardous Materials furnished under or otherwise
associated with the Work. Operator shall provide Owner with copies of the
applicable Material Safety Data Sheets or copies of a document certifying that
no Material Safety Data Sheets are required under any applicable Laws and shall
determine whether any substance or material furnished, used, applied, or stored
in connection with the Work is within the provisions of any Laws concerning
Hazardous Materials.
36
<PAGE> 42
Section 17.4 - Operator's Indemnity.
Operator covenants and agrees that Operator will not introduce Hazardous
Materials on the Site or in the Work in violation of any Laws or handle
Hazardous Materials negligently or in violation of Law. Operator shall
indemnify, defend and hold Owner and its partners, officers, directors,
employees, assigns, successors in interest, agents, the Utility and the Steam
Purchaser from and against any claim, suit, loss, cost, liability, fine, or
damage (including reasonable attorneys' fees), including, but not limited to,
liability or cost incurred or assessed against Owner pursuant to 42 USC 9601 et
seq., "Comprehensive Environmental Response, Compensation and Liability Act of
1980" and amendments thereto, 15 USC 2601, et seq., "The Toxic Substances
Control Act" and amendments thereto, 42 USC 6901 et seq., "The Resource
Conservation and Recovery Act of 1976" and amendments thereto, or other Laws,
arising out of Operator's breach of the preceding covenant and agreement. Owner
shall provide prompt notice to Operator of any such indemnification sought from
Operator.
ARTICLE XVIII - Miscellaneous Provisions
Section 18.1 - Entire Agreement.
This Agreement (including all exhibits and schedules thereto) contains the
entire understanding of the Parties with respect to the subject matter hereof
and supersedes any and all prior negotiations, agreements, commitments, and
writings with respect thereto. There are no oral understandings, terms or
conditions and neither Party has relied upon any representation, express or
implied, not contained in this Agreement.
Section 18.2 - Changes to Project Agreements.
Notwithstanding anything to the contrary contained in this Agreement, in the
event (i) any Project Agreement is amended, modified, or supplemented or entered
into subsequent to the Effective Date of this Agreement, and (ii) such Project
Agreement as amended, modified, or supplemented or such new Project Agreement
contains terms that impose upon Operator obligations materially more burdensome
than the obligations imposed upon the Operator absent such amendment,
modification or supplement or new Project Agreement and (iii) the Operator's
obligations under such amendment, modification, supplement or new Project
Agreement cannot be fully compensated as a Reimbursable Cost hereunder, then
Owner and Operator shall negotiate in good faith to provide for the equitable
compensation of Operator on terms reasonably satisfactory to each of Owner and
Operator.
Section 18.3 - Amendments.
No change, amendment or modification of this Agreement shall be valid or binding
upon the Parties hereto unless such change, amendment or modification shall be
in writing and duly executed by both Parties.
Section 18.4 - Joint Effort.
Preparation of this Agreement has been a joint effort of the Parties and the
resulting document shall not be construed more severely against one of the
Parties than against the other.
Section 18.5 - Captions.
The captions contained in this Agreement are for convenience and reference only
and in no way define, describe, extend, or limit the scope or intent of this
Agreement or the intents of any provision contained herein.
37
<PAGE> 43
Section 18.6 - Notice.
Any notice, demand, offer, or other written instrument required or permitted to
be given pursuant to this Agreement shall be in writing signed by the Party
giving such notice and shall be deemed given when delivered to the Party to whom
notice is to be given by personal delivery, first class registered or certified
mail, nationally recognized courier, or telex at the most recent address
specified by such Party to this Section 18.6:
(a) To Owner: LSP-Cottage Grove, L.P.
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attn: General Counsel
Telephone: (704) 525-4897 x 407
Fax: (704) 529-1006
With a copy to: LSP-Cottage Grove, L.P.
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attn: Vice President - Operations
Telephone: (704) 525-4897 x 422
Fax: (704) 527-4413
(b) To Operator: LSP-Cottage Grove, Inc.
9525 105th Street
Cottage Grove, Minnesota 55016
Attn: Plant Manager
Telephone: (651) 459-8339
Fax: (651) 458-8437
With a copy to: LSP-Cottage Grove, Inc.
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Blvd.
Charlotte, North Carolina 28273
Attn: Vice President - Operations
Telephone: (704) 525-4897 x 422
Fax: (704) 527-4413
cc: General Counsel
Telephone: (704) 525-4897 x 407
Fax: (704) 529-1006
Either Party shall have the right to change the place to which
such notice shall be sent or delivered by similar notice sent in like manner to
the other Party.
38
<PAGE> 44
Section 18.7 - Effective Date of Notice.
The effective date of any notice issued pursuant to this Agreement shall be the
date of the addressee's receipt of such notice or date of refusal to accept
delivery.
Section 18.8 - Partial Invalidity.
The invalidity of one or more of the phrases, sentences, clauses, Sections or
Articles contained in this Agreement shall not affect the validity of the
remaining portion of this Agreement so long as the material purposes of this
Agreement can be determined and effectuated.
Section 18.9 - Assignment
(a) Neither this Agreement nor any right granted hereunder may
be assigned or otherwise disposed of by Operator and neither shall inure to the
benefit of any trustee in bankruptcy, liquidator, receiver, successor, or
Affiliate of Operator, whether by operation of law or otherwise, without the
express written consent of Owner and, furthermore, any assignment or transfer
without such express written consent shall be null and void and shall constitute
a material breach of this Agreement; provided, however, that Operator may assign
this Agreement without the consent of Owner (i) to the successor entity in
connection with a merger, consolidation or other corporate reorganization of
Operator, (ii) to the purchaser, in connection with the sale of all or
substantially all of the business or assets of the Operator, provided that such
purchaser is at least as experienced in the operation and maintenance of gas
fired combined cycle cogeneration facilities as Operator is as of the date
hereof, or (iii) to an Affiliate of Operator, provided such transfer shall not
in any manner release the Operator from its obligations hereunder; and provided
further that Operator shall provide a guarantee of the performance of such
affiliate satisfactory in form and substance to Owner.
(b) This Agreement shall not be assigned by Owner without the
prior written consent of Operator, which consent shall not be unreasonably
withheld, except that this Agreement may be assigned by Owner without such
consent (i) to the Project Lender as security for Lender's financing of the
Facility and as collateral security to Utility provided that such transfer shall
not in any manner release Owner from its obligations hereunder; (ii) to the
successor of Owner, or to Person acquiring all or a controlling interest in the
business assets of Owner, and (iii) in connection with a sale or transfer of the
Facility. Operator hereby agrees to execute and deliver a reasonably acceptable
form of consent.
Section 18.10 - No Waiver.
Any failure of either Party to enforce any of the provisions of this Agreement
or to require at any time performance by the other Party of any of the
provisions hereof during the pendency of this Agreement shall in no way affect
the validity of this Agreement, or any part hereof, and shall not be deemed a
waiver of the right of either Party thereafter to enforce any and each such
provision.
Section 18.11 - Counterparts.
This Agreement may be executed by the Parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 18.12 - Publicity.
Each Party shall obtain the other Party's prior written approval regarding the
text of any announcement, publication, photograph or other type of communication
concerning the Work prior to the dissemination or release of same by either
Party, which approval shall not be unreasonably withheld.
39
<PAGE> 45
Section 18.13 - Applicable Law.
This Agreement shall be governed by, construed and enforced in accordance with
the laws of the State of New York, without regard for its principles governing
conflicts of law.
Section 18.14 - Successors and Assigns.
This Agreement shall be binding upon the Parties hereto, their successors and
assigns from the Effective Date until such time as all obligations described
herein have been completed in full.
Section 18.15 - Exhibits and Schedules.
All Exhibits and Schedules referenced in this Agreement shall be incorporated
into this Agreement by such reference and shall be deemed to be an integral part
of this Agreement.
Section 18.16 - Third Party Beneficiaries.
This Agreement and each and every provision hereof is for the exclusive benefit
of the Parties hereto and is not for the benefit of any third party.
Section 18.17 - Operator Liens and Encumbrances.
Operator represents and warrants that it shall not encumber the Facility, Site,
or any part thereof as security for any payments owed to it by Owner hereunder
unless Operator has provided Owner and Lender with the lesser of (i) thirty (30)
Days, or (ii) a period equal to one half (1/2) the statutory period under
Minnesota law for the filing of mechanic's or materialmen's liens prior written
notice of its intent to do so and neither Owner nor Lender shall have made
payment or provided a bond or other reasonably acceptable provision to secure
such payment within said period.
40
<PAGE> 46
Section 18.18 - Effect of Approval Rights.
Operator acknowledges and agrees that any right of Owner to review or approve
any matter under this Agreement, including, without limitation, any such right
provided in Article III is for the exclusive benefit of the Party entitled to
exercise such right and no exercise of or failure to exercise any such right
shall in any way relieve or limit any of Operator's obligations or liabilities
under this Agreement.
IN WITNESS WHEREOF, the Parties hereto have set their hands on
the day and year first above written.
LSP-Cottage Grove, L.P.
By LSP-Cottage Grove, Inc.
its general partner
By: /s/ David Pierce
Its: Vice President
LSP-Cottage Grove, Inc.
By: /s/ David Pierce
Its: Vice President
41
<PAGE> 47
EXHIBIT A
The Facility is a nominally rated 250 MW combined cycle cogeneration plant
located adjacent to the 3M Chemolite Center in Cottage Grove, Washington County,
Minnesota. The plant configuration is a 1 on 1 501F non-reheat 3 pressure level
plant. The plant will also include duct firing, water injection and steam power
augmentation with a dry low NOx combustion system. When cogenerating, the
Facility shall be designed to deliver 190,000 lb/hr of process steam to the
thermal host at 240 psia, 1 degree F. superheat minimum. The plant also
includes two auxiliary boilers rated at 80,000 lb/hr. The plant will be dual
fuel capable. The primary fuel is gas and the backup is fuel oil.
A-1
<PAGE> 48
Exhibit B
Typical List of Site Procedures
1.0 Organization/Management Procedures (including organization chart,
staffing plan, role descriptions, Personnel anticipated education and
experience).
1.1 Standard Facility Organization
1.2 Standards of Conduct
1.3 Training/Qualifications Program
1.4 Hiring/Promotion/Compensation
1.5 Personnel Procedures (including health and drug screening)
1.6 Annual Budgeting/Planning
1.7 Project Commitments Database
1.8 Management Reports
1.9 Government Interface Practices
1.10 Legal/Insurance Program
1.11 Document Control/Records Management and Procedures
2.0 Procurement/Accounting
2.1 Requisitions/Purchasing Procedures
2.2 Accounts Administration
2.3 Financial Practices/Cash Management
3.0 Operations
3.1 Operator Training/Qualifications/Licensing
3.2 Operating Reports (Logs and Records)
3.3 Performance Testing
3.4 Environmental Compliance (Permits)
3.5 Chemistry Program (Process, Description, Testing, Corrective
Action)
3.6 Integrated Startup and Shutdown Procedures (provided by
Contractor)
3.7 Interface procedures with Facility Contract Parties
3.8 Performance Tests
4.0 Maintenance
4.1 Computerized Preventive Maintenance Management Program
4.2 Planning and Execution of Outages
4.3 Stores/Spare Parts Inventory Control
4.4 Maintenance Training/Qualifications
4.5 Tool Control and Issue
4.6 Predictive Maintenance Program
4.7 Preventative Maintenance Procedures
4.8 Configuration Management and Control Procedures
4.9 Spare Parts Forecasting
B-1
<PAGE> 49
5.0 Safety and Security Program and Systems; Compliance Plan
5.1 Switching and Tagging
5.2 Crane Qualifications
5.3 Personnel Protective Equipment Requirements
5.4 Evacuation Plan
5.5 Fire Protection and Prevention Systems/Inspections
5.6 Cutting and Welding Permits
5.7 Emergency Response: Safety and Health Action Plan
5.8 Occupational Injury/Illness Reporting
5.9 Testing and Inspection of Tools and Protective Devices
5.10 Hazardous Material and Waste Handling
5.11 Police/Fire/Emergency Coordinator Interface Procedures
5.12 Site Physical Security Procedures
5.13 Employee Safety Program
5.14 Safety Coordination and Action Plan
5.15 Facility Site Access Procedure
5.16 Subcontractor Safety and Quality Assurance Program
6.0 Quality
6.1 Inspection and Acceptance of Contractor Service
6.2 Equipment Failure Investigation
6.3 Accident Investigation and Reporting
6.4 High Energy Equipment Inspection and Testing
a. Hydrostatic Test Procedures
b. Motor/Cable Megger Testing Procedure
C. Calibration Procedures
6.5 Guidelines for the Optimization of Facility Output and
Efficiency/Results Engineering
7.0 Notification Procedures
7.1 Accidents/Reporting and Recordkeeping
7.2 Public Relations
7.3 Pickets/Union Incidents
7.4 Hazardous Materials
B-2
<PAGE> 50
Exhibit C
Typical and Annual Operating Phase Budget
[Refer to LSP-Cottage Grove Power Plant 1999 Operating Budget submitted as part
of Annual Operations Plant 1999 letter dated October 30, 1998 to R.W. Beck
(Scott Reiman) and IBJ Schroder Bank and Trust Company (Robert Radich) from
LSP-Cottage Grove, L.P.
(David Pierce)]
C-1
<PAGE> 51
Exhibit D
Services Included with Management Fees
A. Not Used
B. Management Fee Includes:
- -- Cost accounting support
- -- Human Resource support and oversight
- -- Procurement support and parts coordination
- -- Environmental oversight
- -- Payroll and Benefits administration
- -- Maintenance Control Program support
- -- Predictive maintenance analysis, review and reporting
- -- Communication costs from Cogentrix to Site
- -- Brief engineering answers to plant technical inquiries (less than 1
hour)
- -- Operation and maintenance support organization for technical
operational support on an as required basis in Charlotte
- -- Outage planning support
- -- Operability recommendations
- -- Health and safety oversight
- -- Operation and maintenance management support and oversight (travel
included)
- -- Comprehensive Automobile Liability Insurance for vehicles owned by
Operator
D-1
<PAGE> 52
Exhibit E
Performance Bonus and Penalty Determination
1. If any Monthly Capacity Payment (as defined in the Power Purchase
Agreement) from Utility to Owner during any given COD Year is reduced
under Appendix A, Section 1 G of the Power Purchase Agreement due to an
adjustment factor RAF or ROAF of less than 1.0, Operator shall pay
Owner a penalty for such COD Year equal to fifty percent (50%) of the
difference between (i) the aggregate amount of Monthly Capacity
Payments Owner would have received with respect to such COD Year if the
adjustment factors were equal to 1.0 and (ii) the aggregate amount of
Monthly Capacity Payment Owner received during such COD Year.
2. If the Monthly Capacity Payment from Utility to Owner for any given COD
Year is increased under Appendix A, Section 1 H of the Power Purchase
Agreement due to the bonus factor BF1 being greater than 1.00, Operator
shall be paid by the Owner a bonus equal to fifty percent (50%) of the
difference between (i) the aggregate amount of Monthly Capacity
Payments Owner received during such COD Year and (ii) the aggregate
amount of Monthly Capacity Payments Owner would have received during
such COD Year if BF1 were equal to 1.00.
3. If, in accordance with Article 3(b) of the Steam Supply Agreement,
Owner is required to reimburse Steam Purchaser during any month during
a COD Year, Operator shall pay fifty (50%) percent of the amount of
such reimbursement to Owner.
4. In any given COD Year, the total amounts to be paid to Owner pursuant
to items 1 and 3 above (the "Performance Penalty"), less any amounts
payable to Operator pursuant to item 2 (the "Performance Bonus"), shall
be limited to the amount of the Management Fee payable during the
immediately preceding twelve (12) month period.
E-1
<PAGE> 53
Exhibit F
Project Agreements and Project Permits Delivered to Operator
[All permits and project agreements are at the plant site and available to the
Operator.]
F-1
<PAGE> 54
Exhibit G
Termination Fee
AMOUNT
------
Commencing on the Commencement Date
and ending on the last calendar day of
the first Operating Year..................................Yearly Management Fee
During the second
Operating Year ................................80% of the Yearly Management Fee
During the third
Operating Year ................................60% of the Yearly Management Fee
During the fourth
Operating Year ................................40% of the Yearly Management Fee
During the fifth
Operating Year ...............................20% of the Yearly Management Fee
Commencing on the first day of the sixth
Operating Year and thereafter ................10% of the Yearly Management Fee
G-1
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LS POWER FUNDING CORPORATION AS OF AND FOR THE 3 MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 6,472
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,473
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 338,473
<CURRENT-LIABILITIES> 6,472
<BONDS> 332,000
0
0
<COMMON> 0
<OTHER-SE> 1
<TOTAL-LIABILITY-AND-EQUITY> 338,473
<SALES> 0
<TOTAL-REVENUES> 6,472
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,472
<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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LSP-COTTAGE GROVE, L.P. AS OF AND FOR THE 3 MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,632
<SECURITIES> 0
<RECEIVABLES> 5,312
<ALLOWANCES> 0
<INVENTORY> 929
<CURRENT-ASSETS> 21,110
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 269,711
<CURRENT-LIABILITIES> 10,611
<BONDS> 155,000
0
0
<COMMON> 0
<OTHER-SE> 104,100
<TOTAL-LIABILITY-AND-EQUITY> 269,711
<SALES> 0
<TOTAL-REVENUES> 12,415
<CGS> 0
<TOTAL-COSTS> 7,203
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,096
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,116
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LSP-WHITEWATER LIMITED PARTNERSHIP AS OF AND FOR THE 3
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,039
<SECURITIES> 0
<RECEIVABLES> 6,038
<ALLOWANCES> 0
<INVENTORY> 1,009
<CURRENT-ASSETS> 21,873
<PP&E> 8,697
<DEPRECIATION> 632
<TOTAL-ASSETS> 306,267
<CURRENT-LIABILITIES> 12,913
<BONDS> 177,000
0
0
<COMMON> 0
<OTHER-SE> 116,354
<TOTAL-LIABILITY-AND-EQUITY> 306,267
<SALES> 0
<TOTAL-REVENUES> 12,760
<CGS> 0
<TOTAL-COSTS> 6,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,533
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,239
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
