-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IzuUZ2OdqUy1KuDNjWSHJ+QMsYJXgSWFZlfzCFmW8/jilHq276bOp1kCj4W654Sn mGps2E46BykSYD6wD3X8qw== 0000930835-97-000006.txt : 19970401 0000930835-97-000006.hdr.sgml : 19970401 ACCESSION NUMBER: 0000930835-97-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDISON MISSION ENERGY CENTRAL INDEX KEY: 0000930835 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 954031807 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-24890 FILM NUMBER: 97570016 BUSINESS ADDRESS: STREET 1: 18101 VON KARMAN AVE STREET 2: STE 1700 CITY: IRVINE STATE: CA ZIP: 92715 BUSINESS PHONE: 7147525588 MAIL ADDRESS: STREET 1: 18101 VON KARMAN AVE STREET 2: STE 1700 CITY: IRVINE STATE: CA ZIP: 92715 FORMER COMPANY: FORMER CONFORMED NAME: MISSION ENERGY CO DATE OF NAME CHANGE: 19941003 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission File Number 1-13434 EDISON MISSION ENERGY (Exact name of registrant as specified in its charter) CALIFORNIA 95-4031807 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 18101 VON KARMAN AVENUE IRVINE, CALIFORNIA 92612 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 752-5588 --------------------------- Securities registered pursuant to Section 12(b) of the Act: 9-7/8% CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES A * NEW YORK STOCK EXCHANGE --------------------------------------- ----------------------- (Title of Class) (name of each exchange on which registered) 8-1/2% CUMULATIVE MONTHLY NEW YORK STOCK EXCHANGE ----------------------- INCOME PREFERRED SECURITIES, SERIES B * (name of each exchange on --------------------------------------- (Title of Class) which registered) Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, NO PAR VALUE -------------------------- (Title of Class) ___________________________ * Issued by Mission Capital, L.P., a limited partnership in which Edison Mission Energy is the sole general partner. The payments of distributions on the preferred securities and payments on liquidation or redemption are guaranteed by Edison Mission Energy. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X . ---- Aggregate market value of the registrant's Common Stock held by non- affiliates of the registrant as of March 28, 1997: $0. Number of shares outstanding of the registrant's Common Stock as of March 28, 1997: 100 shares (all shares held by an affiliate of the registrant).
TABLE OF CONTENTS Item Page - ---- ---- PART I 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 25 PART II 5. Market for Registrant's Common Equity and Related Shareholder Matters 25 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 27 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 28 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 37 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 37 PART III 10. Directors and Executive Officers of the Registrant . . . . . . . . . . 70 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 75 12. Security Ownership of Certain Beneficial Owners and Management . . . . 83 13. Certain Relationships and Related Transactions . . . . . . . . . . . . 84 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . 84 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
PART I ITEM 1. BUSINESS THE COMPANY - ----------- Edison Mission Energy (EME), through its subsidiaries, is engaged in the business of developing, acquiring, owning and operating independent electric power generation facilities. EME is a wholly owned subsidiary of The Mission Group, which is a wholly owned, non-utility subsidiary of Edison International. Edison International is also the parent holding company of Southern California Edison Company (SCE), one of the largest electric utilities in the United States. EME was formed in 1986 with two domestic operating projects. Currently, EME owns interests in 28 domestic and 24 international operating electrical power generation facilities with an aggregate generating capacity of 7,549 megawatts (MW), of which EME's share is approximately 4,706 MW. Two international projects totaling 1,742 MW of generating capacity (of which EME's anticipated share is approximately 743 MW) are currently in the construction stage. At December 31, 1996, the Company had consolidated assets of $5.2 billion and total shareholder's equity of $1 billion. EME is incorporated under the laws of the State of California. Its headquarters and principal executive offices are located at 18101 Von Karman Avenue, Suite 1700, Irvine, California 92612, and its telephone number is (714) 752-5588. Unless indicated otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to EME shall be deemed to include EME, its subsidiaries and the partnerships or limited liability entities through which EME and its partners own and manage their project investments. SEGMENT INFORMATION - ------------------- EME operates in only one industry segment: independent electric power generation. DESCRIPTION OF BUSINESS - ----------------------- GENERAL OVERVIEW EME is one of the leading independent producers of electricity worldwide. Through its subsidiaries, EME is engaged in the business of developing, acquiring, owning and operating independent electric power generation facilities. EME was formed in 1986 with two domestic operating projects. Currently, EME owns interests in 28 domestic and 24 international operating electrical power generation facilities. Until the enactment of the Public Utility Regulatory Policies Act of 1978 (PURPA), utilities were the only producers of bulk electric power intended for sale to third parties in the United States. PURPA encouraged the development of independent power by removing regulatory constraints relating to the production and sale of electric energy by certain non-utilities and requiring electric utilities to buy electricity from certain types of non-utility power producers (qualifying facilities or QFs) under certain conditions. The passage of the Energy Policy Act of 1992 (the Energy Policy Act) further encouraged the development of independent power by significantly expanding the options available to independent power producers (IPPs) with respect to their regulatory status and by liberalizing transmission access. As a result, a significant market for electric power produced by IPPs, such as EME, has developed in the United States since the enactment of PURPA. The movement toward privatization of existing power generation capacity in many foreign countries and the growing need for new capacity in developing countries have also led to the development of significant new markets for IPPs outside the United States. EME believes that it is well-positioned to continue to realize opportunities in these new foreign markets. See "--Strategy" below. STRATEGY EME's business strategy is to play an active role, as a long-term owner, in all phases of power generation, from planning and development through construction and commercial operation. EME believes that such involvement allows EME to better ensure, through the use of its experienced personnel, that its projects are well-planned, structured and managed. In making investment decisions, EME evaluates potential project returns against rate of return guidelines. EME establishes these guidelines by identifying a base rate of return and adjusting the base rate by potential risk factors, such as risks associated with anticipated project reliability, project location and stage of project development. EME endeavors to mitigate project development risk by (i) selecting partners with complementary skills and local experience, (ii) structuring investments through subsidiaries, (iii) managing up-front development costs and (iv) linking revenue and expense components where appropriate. Many of EME's projects are operated by its subsidiaries or affiliates (e.g., Edison Mission Operation and Maintenance, Inc. - Edison Mission O&M), which seeks to preserve and enhance the value of EME's investments. In response to increasing globalization of the independent power market, EME has organized its operations and development activities into three geographic divisions: (i) Americas, (ii) Asia Pacific and (iii) Europe, Central Asia, Middle East and Africa. Each division is served by one or more teams consisting of business development, operations, finance and legal personnel, and each team is responsible for all the activities of EME within a particular geographic region. Also, EME has mobilized personnel from outside a particular region when needed in order to assist in the development of certain projects. Set forth below is a brief discussion of the current strategy for each of the three regions and a summary of certain of EME's projects that are currently in the construction, development, pre-finance or early operations stage in each of the regions. While EME anticipates the successful completion of these projects, no assurance can be given that any of these projects, or any other projects currently in the construction stage, development or pre-finance stage, will be successfully completed or financed or that the expected MW capacity (and EME's anticipated share thereof) will be achieved. See"--Project Development-- Certain Considerations Associated with Project Development, Finance and Operation". Americas The Americas division is comprised of the U.S./Canada and Latin America region headquartered in Irvine, California. The strategy for the U.S./Canada and Latin America region is to (i) manage certain operating independent power projects located throughout the United States, (ii) pursue the acquisition of existing generating assets from utilities, industrial companies and other IPPs and (iii) pursue the development of new power projects throughout the region. EME has 28 operating projects in this region. For further information regarding EME's 28 domestic operating projects, see"--EME's Operating Power Generation Facilities--Description of Domestic Operating Projects." Asia Pacific The Asia Pacific division is headquartered in Singapore with additional offices located in Australia and Indonesia. Among the three geographic divisions, the countries covered by the Asia Pacific division are expected to experience the fastest electric demand growth. Most governments in the region do not have the capability or resources to finance and develop new generating capacity and are looking to the private sector to meet a portion of the need for new power generation facilities. The strategy for this region is to (i) pursue projects in countries where there exists strong political commitment and the structural framework necessary for private power, (ii) seek opportunities to employ indigenous fuels and (iii) seek strategic, complementary alliances with partners who bring value to the project by providing fuel, equipment and construction services. EME's activity in the Asia Pacific region commenced in December 1992 with the acquisition of a 51% interest in the Loy Yang B Power Station, Australia's first electric privatization effort. The remaining 49% of the power station is owned by the State of Victoria. The first of two 500-MW units at Loy Yang B began commercial operations in October 1993. Unit 2 commenced commercial operations in October 1996. An EME affiliate provides operation and maintenance services for both units. In April 1995, EME and its partners, Mitsui & Co. Ltd., General Electric Corporation and P.T. Batu Hitam Perkasa, an Indonesian limited liability company, commenced construction of the $2.5 billion Paiton project, a 1,230-MW coal-fired power plant in East Java, Indonesia. The project will consist of two units, each of which is expected to have a capacity of 615 MW. Construction of the plant continues on schedule, with commercial operation expected in early 1999. In January 1996, EME purchased an additional 7.5% interest in the Paiton project from a subsidiary of General Electric Corporation, thereby increasing its ownership interest to 40%. Kwinana is a $108 million 116-MW gas-fired cogeneration project located at the British Petroleum Kwinana refinery near Perth, Australia. The project, which is 100% owned by EME, began commercial operations in December 1996. The project supplies electricity to Western Power (formerly the State Electricity Commission of Western Australia) and both electricity and steam to the British Petroleum Kwinana refinery. In June 1995, EME (40% ownership), along with its partners, Siam City Cement (30% ownership) and Lanna Lignite (30% ownership), submitted a bid to develop a 734-MW coal-fired power generation project at Kui Buri in Thailand in response to a request for proposals from the Electricity Generating Authority of Thailand (EGAT). In December 1996, the project was selected by EGAT. Negotiation of the power purchase agreement and other project documents is currently underway, with commercial operations expected to commence in 2001. In January 1997, the San Pascual project, a consortium including EME (37.5% ownership), Texaco Inc. (37.5% ownership), Caltex (10% ownership) and others (15% ownership), was awarded a contract to develop a 304-MW low-sulfur residual fuel oil cogeneration project in the Philippines. Commercial operations are expected to commence in 2001. Asia Pacific regional management is also considering other opportunities in this region. Europe, Central Asia, Middle East and Africa The European organization is headquartered in London, England with additional offices located in Barcelona, Spain and Rome, Italy. The London office was established in 1989, concurrent with the privatization of the power industry in the United Kingdom. The territorial scope of the region includes Europe, Africa, the Middle East, India and Pakistan. The region is characterized by a blend of both mature and less developed markets. The regional strategy is to pursue the development and acquisition of medium to large scale power and cogeneration facilities with diversified fuel sources and generation technology. EME's operating projects in the region are the First Hydro project located in North Wales, the Roosecote project in northwest England, the Derwent project located in Derby, England and the Iberian Hy-Power projects (which consist of 18 small, hydroelectric facilities) in Spain. Iberian Hy-Power I was acquired in December 1992, and Iberian Hy-Power II was acquired in August 1993. In January 1996, EME purchased the remaining equity stake in Iberian Hy-Power Amsterdam B.V., increasing its ownership percentage to approximately 100% (minority interests are owned in three of the projects by third parties). In December 1995, First Hydro Finance Plc (First Hydro Finance), an indirect subsidiary of EME, purchased all of the outstanding shares of First Hydro Company (First Hydro, formerly First Hydro Limited) for approximately $1 billion (653 million pounds sterling). First Hydro's principal assets consist of two pumped-storage electric power stations located in North Wales at Dinorwig and Ffestiniog, which have a combined capacity of 2,088 MW. The Dinorwig station, which was commissioned in 1983, comprises six units totaling 1,728 MW. The Ffestiniog station was commissioned in 1963 and comprises four units totaling 360 MW. First Hydro is an independent generating company with three main sources of revenues: (i) selling power into the electricity trading market or "pool" in England and Wales, (ii) providing system support services to The National Grid Company plc, and (iii) selling its installed capacity forward by entering into "contracts for differences" with large electricity suppliers. In June 1995, EME (49% ownership) and its partner, ISAB S.p.A. (51% ownership), signed a twenty-year power purchase contract with ENEL S.p.A., Italy's state electricity corporation, pursuant to which ENEL S.p.A. will purchase 507 MW of output from the 512-MW ISAB power project, which is located near Siracusa in Sicily, Italy. The project will employ gasification technology to convert heavy oil residues from the ISAB refinery in Priolo Gargallo into clean-burning syngas that will be used to generate electricity in a combustion turbine. The approximately 2 trillion lira ($1.3 billion) project financial closing was completed in April 1996 with construction commencing in July 1996. Commercial operation is expected in late 1999. In February 1995, EME (80% ownership) signed a shareholders agreement to develop the $180 million Doga Enerji A.S. project in Esenyurt, near Istanbul, Turkey. The 180-MW combined cycle gas-fired cogeneration facility is expected to commence commercial operations in 1998. PROJECT DEVELOPMENT The development of power generation projects involves numerous elements, including evaluating and selecting development opportunities, designing and engineering the project, obtaining power sales agreements and, in some cases, steam sales agreements, acquiring necessary land rights, permits and fuel resources, obtaining financing and managing construction. EME initially evaluates and selects potential development projects based on a variety of factors, including whether a project is based on a proven technology, the strength of the potential partners in the project, the feasibility of the project, the likelihood of obtaining a power sales agreement, the probability of obtaining required licenses and permits and the projected economic return from the project. During the development process, EME monitors the viability of the project and makes business judgments concerning expenditures for both internal and external development costs. Completion of the financing arrangements for a project is generally an indication that business development activities are substantially complete. Although EME has in the past been successful in developing projects with long-term contracts and arranging for necessary permits and approvals, there can be no assurance that EME will continue to be successful in doing so in the future. EME believes that future market conditions for independent power, particularly in the United States, may become increasingly characterized by shorter-term power sales agreements or spot sales arrangements. Under such circumstances, EME may be required to take on increased market or "merchant" risk and, accordingly, may not be able to achieve the same degree of leverage from project finance lenders. Project Type The selection of power generation technology for a particular project is influenced by various factors, including regulatory requirements, availability of fuel and anticipated economic advantages for a particular application. The principal technology used in EME's operating projects has been gas-fired combustion turbine technology, predominately through an application known as "cogeneration". Cogeneration facilities sequentially produce two or more useful forms of energy (e.g., electricity and steam) from a single primary source of fuel (e.g., natural gas or coal). Many of EME's cogeneration projects are located near large industrial steam users or in oil fields that inject steam underground to enhance recovery of heavy oil. The regulatory advantages for cogeneration facilities under PURPA have become less significant because of expanded project options made available to IPPs under the Energy Policy Act. Accordingly, although cogeneration applications may hold advantages in specific circumstances, EME expects that the majority of its future projects will generate power without selling steam to industrial users. EME also has interests in projects that use renewable resources such as geothermal and hydroelectric energy. EME's geothermal projects use technologies that convert the heat from geothermal fluids and underground steam into electricity. EME's hydroelectric projects, excluding First Hydro, use "run-of- the-river" technology to generate electricity. The First Hydro project utilizes pumped-storage stations which consume electricity when it is comparatively less expensive in order to pump water up for storage in an upper reservoir. Water is then allowed to flow back through turbines in order to generate electricity when its market value is higher. This type of generation is characterized by its speed of response, its ability to work efficiently at wide variations of load and the basic reliance of revenue on the difference between the peak and trough prices of electricity during the day. Recent international development efforts include large scale, coal-fired projects that will shift EME's portfolio to a greater mix of coal-fired generation technology. In the United States, EME has developed coal and waste coal-fired projects that employ both traditional stoker technology as well as circulating fluidized bed technology. Power and Steam Sales Contracts The electrical power generated by EME's operating projects in the U.S. is generally sold to domestic electric utilities pursuant to long-term (typically, 15 to 30 year) power sales contracts. The electrical power generated overseas, excluding the U.K., is sold primarily under long-term power sales contracts to electric utilities located in the country where the power is generated. A project's revenue from a power sales contract usually consists of two components: energy payments and capacity payments. Energy payments are generally based on actual deliveries of electric energy (e.g., kilowatt-hours) to the purchasing utility. Energy payment rates are usually indexed to certain variable costs that the purchasing utility avoids by purchasing such electric energy directly as opposed to operating its own power plant(s) to produce the same amount of electric energy. The variable components typically include the fuel cost and certain operation and maintenance expenses. These costs may be indexed to the utility's cost of fuel and/or certain inflation indices. Energy payments may also be time-differentiated to provide relatively higher payments for electric energy delivered during periods of peak electricity demand. Capacity payments are generally based on a project s proven capability to deliver reliable electric energy, whether or not the plant is called on to operate. Capacity payment rates are usually associated with certain fixed costs that the purchasing utility avoids by having the independent power producer build and maintain the availability of a power plant. To receive capacity payments, there are typically minimum performance standards that must be met and often there is a performance range that further influences the amount of capacity payments. EME's power sales contracts are typically negotiated during the planning stage of a project. In negotiating the power sales contracts, EME attempts to secure long-term contracts that are expected to result in consistent cash flow under a wide range of economic and operating circumstances. To accomplish this, EME structures the revenue provisions of the power sales contract so that changes in the cost components of a facility (e.g., fuel costs) will correspond to, as effectively as possible, similar changes in the revenue components of the contract. In addition to entering into a power sales agreement, EME must make arrangements to interconnect its project to a local utility's electric system. The arrangement is typically evidenced through an interconnection agreement that sets forth the provisions for construction, payment and technical requirements for the interconnection facilities. In some cases, the project will interconnect with a utility system that is not the ultimate purchaser of electric power. In such circumstances, the project must arrange for the local utility to transmit or "wheel" its power to the ultimate purchaser. Projects in the U.K. sell their electrical energy and capacity through a centralized electricity pool, which establishes a half-hourly clearing price (also referred to as the "pool price"). The half-hourly pool price is extremely volatile and can vary by as much as a factor of ten or more over the course of a few hours, due to the large differentials in demand according to the time of day. First Hydro mitigates a portion of the market risk of the pool by entering into contracts for differences (electricity rate swap agreements), related to either the selling or purchasing price of power, whereby a contract specifies a price at which the electricity will be traded, and the parties to the agreement make payments, calculated based on the difference between the price in the contract and the half-hourly pool clearing price for the element of power under contract. These contracts can be sold in two structures: one-way contracts, the most commonly used by First Hydro, where a specified monthly amount is received in advance and difference payments are made when the pool price is above the price specified in the contract, and two-way contracts, where the counter party pays First Hydro when the pool price is below that in the contract instead of a specified monthly amount. These contracts act as a means of stabilizing production revenues or purchasing costs by removing an element of First Hydro's net exposure to pool price volatility. The Roosecote project has avoided the pool price volatility by entering into a long-term power sales contract that provides for contract pricing. The Roosecote project's power sales contract provides for the escalation of capacity payments according to an inflation index for the U.K. Steam produced from EME's cogeneration facilities is sold to industrial steam users, such as petroleum refineries or companies involved in the enhanced recovery of oil through steam flooding of oil fields, under long-term steam sales contracts. Steam sales contracts typically require the purchaser to take at least the minimum amount of steam necessary for the project to retain its QF status under PURPA. Steam payments are generally based on formulas that reflect the cost of water, fuel and capital. In some cases, EME has provided steam purchasers with discounts from their previous cost for producing such steam and/or partially indexed steam payments to other indices including certain oil prices. Fuel Supply Contracts EME seeks to enter into long-term fuel supply and transportation agreements. Market prices for oil, gas and coal historically have fluctuated significantly. EME believes, however, that its financial condition will not be substantially adversely affected by such fluctuations because its long-term contracts to sell power and steam typically are structured so that fluctuations in fuel costs will produce similar fluctuations in electric energy and/or steam revenues. The degree of linkage between such revenues and expenses varies from project to project, but generally permits the projects to operate profitably under a wide array of potential price fluctuation scenarios. Project Financing Each power generation project developed by EME requires a substantial capital investment. The permanent project financing for a project is often arranged immediately prior to or during the early stages of construction of the project. With limited exceptions, such debt financing is for approximately 60 to 80% of each project's costs and is expected to be structured, on a basis that is nonrecourse to EME and its other projects. In addition, the collateral security for each project's financing generally has been limited to the physical assets, contracts and cash flow of that project. In general, each of EME's direct or indirect subsidiaries is organized as a legal entity separate and apart from EME and its other subsidiaries. Any asset of any such subsidiary may not be available to satisfy the obligations of EME or any of its other such subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements of such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to EME or affiliates thereof. The ability to arrange for financing and the cost of such financing are dependent upon numerous factors, including general economic and capital market conditions, conditions in energy markets, regulatory developments, credit availability from banks or other lenders, investor confidence in the industry, EME and other project participants, the continued success of EME's current projects, and provisions of tax and securities laws that are conducive to raising capital. To obtain project financing, EME and its partners are sometimes required to provide certain guarantees and warranties to lenders, particularly with respect to construction financing. However, because permanent financing is usually arranged on a nonrecourse basis, EME's liability is generally substantially reduced when construction has been completed and the project has passed all acceptance tests. EME's financial exposure in any project is generally limited by contractual arrangement to its equity commitment, which is usually about 20 to 40% of EME's share of the aggregate project cost. In addition, the project loan agreements are generally structured so that a default under one project loan agreement will have no effect on the loan agreements of other EME projects. Permits and Approvals Because the process for obtaining initial environmental, siting and other governmental permits and approvals is complicated and lengthy (often taking a year or longer), EME seeks to obtain all permits, licenses and other approvals required for the construction and operation of the project, including siting, construction and environmental permits, rights-of-way and planning approvals, early in the development process. See "Certain Regulatory Matters--General". Construction and Implementation In the project implementation stage, EME provides project and construction management and start-up and testing services. The detailed engineering and construction of the projects typically are done by outside contractors under fixed-price, "turnkey" contracts. Under such contracts, the contractor generally is required to pay liquidated damages to EME in the event of cost overruns or schedule delays or if the facility fails to meet certain capacity, efficiency and emission standards. As a project goes into operation, EME generally provides operation and maintenance services to the project through Edison Mission O&M or contracts for services with another operation and maintenance contractor. The day-to-day operation of each project is generally managed by an executive director. Management committees comprised of the project partners generally meet monthly or quarterly to review and manage the operating performance of each project. Certain Considerations Associated with Project Development, Finance and Operation Independent power projects are necessarily subject to a variety of commercial, financial and other risks, including those described below. By managing, or participating in the management of each project in which it invests, EME seeks to hedge, insure against or otherwise manage these risks. EME attempts to minimize the financial risk in the development of a project by securing a favorable long-term power sales agreement, obtaining all required governmental permits and approvals and arranging adequate financing prior to the commencement of construction. However, the development of a power project may require EME to expend significant sums for preliminary engineering, permitting and legal and other expenses before it can determine whether a project is feasible, economically attractive or financeable. Power sales agreements often enable the utility to terminate such agreement, or to retain security posted by the developer as liquidated damages, in the event that a project fails to achieve commercial operation or certain operating levels by specified dates or fails to meet other significant contractual requirements. Furthermore, utility regulators or other parties may attempt to abrogate or amend contracts under which a project is entitled to receive material revenues or other benefits. If such events were to occur, the default provisions in a financing agreement could be triggered (rendering such project debt immediately due and payable) and, as a result, EME could lose its interest in the project. Although contractual and regulatory risks cannot be eliminated, EME believes that it has relevant experience in developing contracts and mitigating regulatory concerns. Certain geographic areas in which EME operates and is developing projects are subject to frequent earthquakes of low intensity, and earthquakes of greater intensity are possible. EME's existing power generation facilities are built to withstand earthquakes of relatively significant intensity and EME believes it maintains adequate insurance protection for such occurrences and other catastrophic events. The operation of a project involves many risks, including start-up problems, the breakdown or failure of equipment or processes, performance below expected levels of output and the inability to meet expected efficiency standards. EME takes steps to mitigate these risks by obtaining equipment and plant warranties and arranging for insurance that it believes is adequate. Nonetheless, these measures may not be adequate to cover lost revenues or increased expenses and, as a result, a project may be unable to fund principal and interest payments under its financing obligations and may operate at a loss. A default under such a financing obligation could result in EME losing its interest in such power generation facility. EME believes, however, that it will continue to maintain a successful record of plant performance and operation. EME's operations are conducted through its subsidiaries and EME's cash flow is dependent upon the operating revenues of its subsidiaries and the ability of those subsidiaries to pay cash dividends or make distributions to EME. Financing agreements for EME's subsidiaries and affiliates generally place certain limitations on the ability of those subsidiaries and affiliates to pay dividends, make distributions or otherwise transfer funds to EME. In addition, financing agreements for EME's subsidiaries and affiliates, although generally nonrecourse to EME, contain certain representations, warranties, covenants and other agreements that, if not met, could lead to a default under such financing. After a default under a project financing, project lenders may exercise certain rights and remedies typically granted to secured parties, including the ability to take control of the project's collateral assets. The financing and development of international projects entail additional political and financial risks including uncertainties associated with privatization efforts, currency exchange rates, currency repatriation, political instability and other issues that have the potential to cause delays or impairment of value to the project being developed for which EME may not be fully capable of insuring against. The uncertainty of the legal structure in certain foreign countries in which EME may develop or acquire projects could make it more difficult to enforce its rights under agreements relating to such projects. In addition, the laws and regulations of certain countries may limit the ability of EME to hold a majority interest in some of the projects that it may develop or acquire. Although the risks of participation in international markets are significant, EME targets relatively higher rates of return on its international investments and mitigates risk by seeking complementary alliances with well-established partners and hedging foreign exchange exposure where it deems appropriate. OPERATION AND MAINTENANCE SERVICES Certain EME subsidiaries provide specialized operating, maintenance, testing and start-up services for EME-owned projects. At December 31, 1996, Edison Mission O&M or affiliates had a total of 661 employees and operated 37 of EME's projects totaling 5,161 MW of capacity. The projects that Edison Mission O&M operates have achieved an average 97% capacity factor during 1996. Capacity factor is a measure of the total electric energy actually delivered by a project as a percentage of the electric energy that would have been delivered if the project operated continuously at its design or capacity rating. EME'S OPERATING POWER GENERATION FACILITIES Domestic Overview EME currently owns interests in 28 domestic operating projects in nine states. These operating projects consist of 18 natural gas cogeneration projects, one coal cogeneration project, one waste coal project, five geothermal projects and three gas-fired EWG (as defined herein) projects. All of EME's domestic cogeneration and geothermal projects, as well as the waste coal project, are qualifying facilities under PURPA. EME's domestic operating projects have total generating capacity of 3,825 MW, of which EME's net ownership share is 1,662 MW. Each of EME's projects generally relies on one power sales contract with a single electric utility customer for the majority, and in some cases all, of its power sales revenues over the life of the power sales contract. The primary power sales contracts for eight of EME's operating projects are with SCE. EME's share of revenues from these projects accounted for 17% and 29% of EME's consolidated revenues in 1996 and 1995, respectively. The failure of SCE to fulfill its contractual obligations could have a substantial negative impact on a primary source of EME's revenues. Under the terms of an agreement between SCE and the Office of Ratepayer Advocates (ORA), the consumer advocacy branch of the California Public Utility Commission (CPUC), SCE is prohibited from entering into future power sales contracts with EME or its affiliates without ORA and CPUC consent. The terms of the agreement, however, do not affect the terms of the existing power sales contracts between EME and SCE. EME's geothermal projects have power sales agreements that provide for energy payments that escalate at predetermined rates during the first 10 years of plant operation. After the initial 10-year period, the energy payments will be based on rates published monthly by the purchasing utility that reflect its cost for natural gas and/or oil. Based on current forecasts of natural gas and oil prices, EME expects the energy payment rate to drop substantially after the initial 10-year period, as experienced by one project. Accordingly, cash distributions received from these projects are recorded as reductions in the equity investments. Future cash distributions are estimated to be sufficient to recover the remaining geothermal investment balances. In April 1996, CalEnergy Company, Inc., EME's partner in four operating geothermal projects in California, purchased all of the stock of four wholly owned subsidiaries of EME, which held 50% interests in these projects. The purchase price of $70 million resulted in a pre-tax gain of $20 million. There will be no impact on EME's future revenues as EME discontinued recognizing earnings from these projects during 1993. Fuel supply for EME's projects generally is arranged through third-party suppliers and transporters. The March Point 1 and March Point 2 projects are currently the only projects that receive fuel from oil and gas properties in which EME has an ownership interest. Under a 15-year arrangement, B.C. Star Partners (B.C. Star, 50%-owned by EME) provides five million cubic feet per day of gas to the March Point 1 and March Point 2 projects through gas marketing intermediaries. This volume of gas represents approximately 15% of the projects total fuel requirement. On March 4, 1997, EME entered into an agreement to sell its ownership interest in B.C. Star. This transaction is expected to close on or about April 30, 1997. See "--Oil and Gas Investments". Description of Domestic Operating Projects EME has ownership interests in the following domestic operating projects:
ELECTRIC PRIMARY OPERATION/ CAPACITY ELECTRIC TYPE OF OWNERSHIP ACQUISITION PROJECT LOCATION (in MW) PURCHASER FACILITY INTEREST DATE ------- -------- -------- ------------ ----------- --------- ----------- Aidlin Cloverdale, California 20 PG&E Geothermal 5% 1990 American Bituminous Grant Town, West Virginia 80 MPC Waste Coal 50% 1993 Auburndale Polk County, Florida 150 FPC Cogeneration 50% 1994 Bayonne Bayonne, New Jersey 165 JCP&L/PSE&G Cogeneration 0.38% 1989 Beowawe North Central, Nevada 15 SCE Geothermal 50% 1985 Brooklyn Navy Yard Brooklyn, New York 286 CE Cogeneration 50% 1996 Coalinga Coalinga, California 38 PG&E Cogeneration 50% 1991 Commonwealth Atlantic Chesapeake, Virginia 340 VEPCO EWG 50% 1992 GEO East Mesa Holtville, California 40 SCE Geothermal 50% 1989 Gordonsville Gordonsville, Virginia 240 VEPCO EWG 50% 1994 Harbor Wilmington, California 80 SCE Cogeneration 30% 1989 Hazleton Hazleton, Pennsylvania 131 --- Cogeneration 11.25% 1989 Hopewell Hopewell, Virginia 356 VEPCO Cogeneration 25% 1990 James River Hopewell, Virginia 110 VEPCO Cogeneration 50% 1987 Kern River Oildale, California 300 SCE Cogeneration 50% 1985 Lost Hills Lost Hills, California 10 PG&E Cogeneration 46.85% 1989 March Point 1 Anacortes, Washington 80 PSE Cogeneration 50% 1991 March Point 2 Anacortes, Washington 60 PSE Cogeneration 50% 1993 Mid-Set Fellows, California 38 PG&E Cogeneration 50% 1989 Midway-Sunset Fellows, California 225 SCE Cogeneration 50% 1989 Nevada Sun-Peak Las Vegas, Nevada 210 NVP EWG 50% 1991 Saguaro Henderson, Nevada 90 NVP Cogeneration 50% 1991 Salinas River San Ardo, California 38 PG&E Cogeneration 50% 1991 Sargent Canyon San Ardo, California 38 PG&E Cogeneration 50% 1991 Sycamore Oildale, California 300 SCE Cogeneration 50% 1988 Watson Carson, California 385 SCE Cogeneration 49% 1988 Consists of two projects on the same site. Operated by Edison Mission O&M. Electric purchaser abbreviations are as follows: CE Consolidated Edison Company of New York, Inc. PG&E Pacific Gas & Electric Company FPC Florida Power Corporation PSE Puget Sound Energy JCP&L Jersey Central Power & Light Company PSE&G Public Service Electric & Gas Company MPC Monongahela Power Company SCE Southern California Edison Company NVP Nevada Power Company VEPCO Virginia Electric & Power Company All of the cogeneration projects are gas-fired facilities, except for the James River project, which uses coal.
International Overview EME owns interests in 24 operating projects outside the United States. The total generating capacity of such facilities is 3,724 MW, of which EME's net ownership share is 3,044 MW. Description of International Operating Projects EME has ownership interests in the following international operating projects:
ELECTRIC PRIMARY OPERATION/ CAPACITY ELECTRIC OWNERSHIP ACQUISITION PROJECT LOCATION (IN MW) PURCHASER INTEREST DATE ------- -------- -------- ------------- --------- ----------- Alos Spain 5 FECSA 100% 1993 Bocos Spain 2 FECSA 100% 1993 Castellas Spain 2 FECSA 100% 1993 Derwent England 214 SE 33% 1995 Dinorwig Wales 1,728 Pool 100% 1995 Ffestiniog Wales 360 Pool 100% 1995 Gelsa Spain 7 FECSA 100% 1993 Kwinana Australia 116 WP 100% 1996 La Flecha Spain 3 FECSA 100% 1993 La Ribera Spain 4 FECSA 100% 1993 Logrono Spain 4 FECSA 100% 1993 Loy Yang B Unit 1 & Unit 2 Australia 1,000 SECV 51% 1993, 1996 Mendavia Spain 6 FECSA 100% 1993 Menuza Spain 16 FECSA 90.1% 1992 Monasterio Spain 2 FECSA 100% 1993 Olvera Spain 2 FECSA 100% 1992 Quintana Spain 1 FECSA 100% 1993 Roosecote England 220 NORWEB 80% 1992 Sardon Bajo Spain 2 FECSA 100% 1993 Sastago I Spain 3 FECSA 90.1% 1992 Sastago II Spain 17 FECSA 90.1% 1992 Sossis Spain 4 FECSA 100% 1992 Toro Spain 5 FECSA 100% 1993 Tudela Spain 1 FECSA 100% 1993 Operated by Edison Mission O&M Electric purchaser abbreviations are as follows: FECSA Fuerzas Electricas de Cataluma, S.A. Pool Electricity trading market for England & Wales NORWEB North Western Electricity Board SE Southern Electric plc. SECV State Electricity Commission of Victoria WP Western Power Sells to the pool with a long-term contract with NORWEB Sells to the pool with a long-term contract with SE
OIL AND GAS INVESTMENTS In 1988, EME formed a wholly owned subsidiary, the Mission Energy Fuel Company, to develop and invest in fuel interests. Since that time, EME has invested in a number of oil and gas properties and a production company. Oil and gas produced from the properties are generally sold at spot or short-term market prices. Four Star As of December 31, 1996, EME owned 46.85% of the stock of Four Star Oil & Gas Company (Four Star), a subsidiary of Texaco Inc. The underlying value of Four Star is attributable to production of oil and gas from nine producing properties. EME's proportionate interest in net quantities of proved reserves at December 31, 1996 totaled 182 billion cubic feet of natural gas and 23.7 million barrels of oil. In July 1994, Four Star purchased certain gas properties in the San Juan Basin from Texaco Exploration and Production, Inc., a wholly owned subsidiary of Texaco Inc., for $143 million. The purchase of the gas properties was initially funded by a loan guaranteed by Texaco Inc. The proceeds from a $330 million financing by Four Star in September 1994 were used to repay the loan and provide dividends to Texaco Inc. and EME totaling $187 million (EME's share $51.2 million). EME applied a portion of its dividend towards the purchase of an additional 12.6% interest in Four Star. During 1995, EME and/or Four Star entered into a series of transactions which resulted in a net increase in EME's ownership of Four Star by 2.47%. During 1996, EME purchased additional shares of stock of Four Star increasing its ownership by 4.38%. B.C. Star B.C. Star was formed in 1991 when a subsidiary of EME and a subsidiary of Texaco Inc. each purchased a 50% partnership interest in certain proved producing properties from Esso Resources Canada Limited. These properties are geographically concentrated in the northeast region of British Columbia and enjoy proximity and direct pipeline access to the Pacific Northwest and California. Texaco Canada Petroleum Inc. operates the majority of B.C. Star's properties. EME's proportionate interest in net quantities of proved reserves at December 31, 1996 totaled 105.5 billion cubic feet of natural gas and 1.8 million barrels of oil. On March 4, 1997, EME entered into an agreement to sell its ownership interest in B.C. Star to Remington Energy Ltd. for approximately $71 million. The transaction is expected to close on or about April 30, 1997. EME expects to record an after-tax gain upon the closing of the transaction in the second quarter of 1997. COMPETITION EME competes with many other companies, including multinational development groups, equipment suppliers and other IPPs (including affiliates of utilities), in obtaining long-term contracts to sell electric power and steam, and with electric utilities in obtaining the right to install new generating capacity. Over the past decade, obtaining a power sales contract with a utility has generally become a progressively more difficult, expensive and competitive process. Many power sales contracts are now awarded by competitive bidding, which both increases the costs of obtaining such contracts and decreases the chances of obtaining such contracts. As a result of competition, it may be difficult to obtain a power sales agreement for a proposed project, and the prices offered in new power sales agreements for both electric capacity and energy may be less than the prices in prior agreements. EME evaluates each potential project in an effort to determine when the probability of success is high enough to justify expenditures in developing a proposal or bid for the project. Amendments to the Public Utility Holding Company Act of 1935 (PUHCA) made by the Energy Policy Act have increased the number of competitors in the domestic independent power industry by reducing certain restrictions applicable to projects that are not QFs under PURPA. Proposals to permit "retail wheeling" of power could also lead to increased competition in the independent power market. See "Certain Regulatory Matters--Retail Competition" . TAX SHARING AGREEMENTS EME is included in the consolidated federal income tax and state franchise tax returns of Edison International. EME calculates its currently payable tax liability on a separate company basis under a tax sharing agreement with The Mission Group, which in turn has a tax sharing agreement with Edison International. The Mission Group receives payment from Edison International for tax benefits and pays Edison International for tax liabilities. The Mission Group similarly pays EME for tax benefits and EME pays The Mission Group for tax liabilities. EMPLOYEES AND OFFICES At February 28, 1997, EME employed 939 people, all of whom were full-time employees and approximately 177 and 141 of whom were covered by a collective bargaining agreement in Wales and Australia, respectively. EME has never experienced a work stoppage, strike or labor dispute. EME believes its relations with its employees to be good. EME leases its corporate headquarters in Irvine, California and its principal regional offices in London, Melbourne and Singapore. It also leases other smaller offices in the United States and certain foreign countries. CERTAIN REGULATORY MATTERS - -------------------------- GENERAL EME's domestic projects are subject to energy, environmental and other governmental laws and regulations at the federal, state and local levels in connection with the development, ownership and operation of its projects. Federal laws and regulations govern, among other things, transactions by and with utility companies, the operations of a project and the ownership of a project. Under certain circumstances where exclusive federal jurisdiction is not applicable or specific exemptions are otherwise unavailable, state utility regulatory commissions may have broad jurisdiction over non-utility owned electric power plants. Energy-producing projects are also subject to federal, state and local laws and regulations that govern the geographical location, zoning, land use and operation of a project. Federal, state and local environmental requirements generally require that a wide variety of permits and other approvals be obtained before the commencement of construction or operation of an energy-producing facility and that the facility then operate in compliance with such permits and approvals. While EME believes the requisite approvals for its existing projects have been obtained and that its business is operated in substantial compliance with applicable laws, EME remains subject to a varied and complex body of laws and regulations that both public officials and private parties may seek to enforce. There can be no assurance that future developments will not have a material adverse effect on EME's business or results of operations, nor can there be any assurance that EME will be able to obtain and comply with all necessary licenses, permits and approvals for proposed projects. In addition, regulatory compliance for the construction of new facilities is a costly and time consuming process. Intricate and changing environmental and other regulatory requirements may necessitate substantial expenditures and may create a significant risk of expensive delays or significant loss of value in a project if the project is unable to function as planned due to changing requirements or local opposition. Each of EME's international projects will be (or, to the extent that such projects are already in operation or under construction, currently are) subject to the energy and environmental laws and regulations of the foreign jurisdiction in which it is located. The degree of regulation will vary according to each country and may be materially different from the regulatory regime in the United States. U.S. FEDERAL ENERGY REGULATION The enactment of PURPA in 1978 and the adoption of regulations thereunder by the Federal Energy Regulatory Commission (FERC) provided incentives for the development of cogeneration facilities and small power production facilities (those utilizing alternative or renewable fuels). The passage of the Energy Policy Act in 1992 further encouraged independent power production by providing certain exemptions from PUHCA (but not from the Federal Power Act (FPA) or state regulation) for exempt wholesale generators (EWGs) and foreign utility companies (FUCOs). A domestic electricity generating project must be a QF under FERC regulations in order to take advantage of certain rate and regulatory incentives provided by PURPA. Subject to certain exceptions, PURPA exempts owners of QFs from PUHCA, exempts QFs from most provisions of the FPA and, except under certain limited circumstances, state laws concerning rate or financial regulation. In order to be a QF, a cogeneration facility must (i) sequentially produce both useful thermal (e.g., steam) and electric energy, (ii) meet certain operating standards and energy efficiency standards when oil or natural gas is used as a fuel source and (iii) not be controlled, or more than 50% owned by, an electric utility, electric utility holding company or an affiliate thereof. A non-cogeneration facility may also be a QF if it produces power from renewable energy (e.g., geothermal energy) or a waste source of fuel (e.g., waste coal). Before 1990, non-cogeneration QFs were subject to 30-MW or 80-MW size limits, depending upon their fuel source. In 1990, these limits were lifted for solar, wind, waste, and geothermal QFs, provided that applications for or notices of QF status were filed with FERC for such facilities on or before December 31, 1994, and provided, in the case of new facilities, the construction of such facilities commenced on or before December 31, 1999. Amendments made to PUHCA by the Energy Policy Act provide that owners or operators of EWGs and FUCOs will not be considered "electric utility companies" under PUHCA. An EWG is an entity determined by the FERC to be exclusively engaged, directly or indirectly, in the business of owning and/or operating certain eligible facilities and selling electric energy at wholesale (or, if located in a foreign country, at wholesale or retail). A FUCO is, in general, an entity located outside the United States that owns or operates facilities used for the generation, distribution or transmission of electric energy for sale or the distribution at retail of natural or manufactured gas, but derives none of its income, directly or indirectly, from such activities within the United States. The exemptions from federal and state regulation afforded to QFs, and the exemptions from PUHCA afforded to EWGs and FUCOs, are important to EME and to its competitors. Under present federal law, EME is not and will not be subject to regulation as a holding company under PUHCA as long as the projects in which it has an interest are QFs, EWGs or FUCOs (or are subject to another exemption from regulation). Of the projects that EME currently owns, operates or has an investment in, 25 projects have been certified as QFs by the FERC, three projects have been certified as EWGs and 15 projects are FUCOs. Most of the U.S. projects currently in the planning or development stage are expected to be QFs and the international projects are expected to be FUCOs. To the extent that any of EME's projects in the development stage will not be QFs or FUCOs, EME expects to qualify those projects as EWGs. See "PUHCA". PURPA PURPA provides two primary benefits to QFs. First, QFs are relieved of compliance with extensive federal and state regulations that control the development, financial structure and operation of an energy-producing project and the prices and terms on which wholesale energy may be sold by the project. Second, FERC regulations promulgated under PURPA require that electric utilities purchase electricity generated by QFs at a price based on the purchasing utility's "avoided cost," and that the utility sell back-up power to the QF on a non-discriminatory basis. The term "avoided cost" is defined by PURPA as the "incremental cost to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source." FERC regulations also permit QFs and utilities to negotiate agreements for utility purchases of power at prices lower than the utility's avoided costs. While public utilities are not explicitly required by PURPA to enter into long-term contracts, it has been common for long-term contracts to be negotiated in order, among other things, to facilitate project financing of independent power facilities and to reflect the deferral by the utility of capital costs for new plant additions. However, increasing competition and power brokering may result in a trend toward shorter term power contracts that would place greater risk on the project owner. EME endeavors to develop its QF projects, monitor regulatory compliance by such projects and choose its customers in a manner that minimizes the risks of losing such projects' QF status. However, certain factors necessary to maintain QF status are subject to the risk of events outside EME's control. For example, loss of a thermal energy customer or failure of a thermal energy customer to take required amounts of thermal energy from a cogeneration facility that is a QF could cause the facility to fail requirements regarding the level of useful thermal energy output. Upon the occurrence of such an event, EME would seek to replace the thermal energy customer or find another use for the thermal energy that meets PURPA's requirements, but no assurance can be given that this would be possible. If one of the projects in which EME has an interest were to lose its status as a QF, the project would no longer be entitled to the QF-related exemptions from regulation under PUHCA and the FPA. This could subject the project to rate regulation as a public utility under the FPA and could result in EME inadvertently becoming a public utility holding company by owning more than 10% of the voting securities of, or controlling, a facility that would no longer be exempt from PUHCA. Loss of QF status may also trigger defaults under covenants to maintain QF status in the project's power sales agreements, steam sales agreements and financing agreements and result in termination, penalties or acceleration of indebtedness under such agreements. Such loss of QF status may be on a retroactive or a prospective basis. If a power purchaser ceased taking and paying for electricity or sought to obtain refunds of past amounts paid due to the loss of QF status, there can be no assurance that the costs incurred in connection with the project could be recovered through sales to other purchasers. Moreover, EME's business and financial condition could be adversely affected if regulations or legislation were modified or enacted that changed the standards for achieving QF status or that eliminated or reduced the benefits currently enjoyed by QFs. If a project were to lose its QF status, EME could attempt to avoid holding company status on a prospective basis by qualifying the project as an EWG. However, assuming this changed status would be permissible under the terms of the applicable power sales agreement, rate approval from the FERC would be required. In addition, the project would be required to cease selling electricity to any retail customers (in order to qualify for EWG status) and could become subject to state regulation of sales of thermal energy. Loss of QF status on a retroactive basis could lead to, among other things, fines and penalties being levied against EME and its subsidiaries, or claims by the utility customer for refund of payments previously made. Loss of QF status by one project could also, because of PURPA ownership restrictions, adversely affect the QF status of other projects having one or more of the same partners. In addition, pursuant to Section 26(b) of PUHCA, any project contracts that are entered into in violation of PUHCA are subject to possible voidability by the courts should a lawsuit to void the contract be filed. The Energy Policy Act The passage of the Energy Policy Act in 1992 significantly expanded the options available to IPPs with respect to their regulatory status. The Energy Policy Act created a new class of power producer, the EWG, that (like a QF) is not considered an electric utility company under PUHCA. EWGs may own facilities of any size, use any fuel source and may be owned by utilities or non-utilities. Thus, in addition to QF status, an IPP now can also apply to the FERC to be granted status as an EWG. EWGs, however, are not exempt from regulation by the FERC or state public utility commissions. The effect of such amendments is to enhance the development of non-QFs that do not have to meet the fuel, production and ownership requirements of PURPA. EME believes that the amendments benefit EME by expanding its ability to own and operate facilities that do not qualify for QF status, but may also result in increased competition because utilities and other companies (e.g., equipment suppliers) may now develop facilities that are not subject to the constraints of PUHCA. The Energy Policy Act also expanded FERC authority to order utilities to grant transmission access to QFs and EWGs and lifts restrictions on ownership of foreign utilities by U.S. companies. Pursuant to the Energy Policy Act, FUCOs are also considered not to be electric utility companies under PUHCA. PUHCA Under PUHCA, any corporation, partnership or other entity or organized group that owns, controls or holds with power to vote 10% or more of the outstanding voting securities of a "public-utility company" or a company that is a "holding company" of a public utility company, is subject to registration with the Securities and Exchange Commission (SEC) and regulation under PUHCA, unless eligible for an exemption or unless an appropriate application is filed with, and an order is granted by, the SEC declaring it not to be a holding company. A registered public utility holding company regulated under PUHCA is required to limit its utility operations to a single integrated utility system and to divest any other operations not functionally related to the operation of that utility system. Approval by the SEC is required for major financial commitments and other business dealings of the regulated holding company or its subsidiaries. As noted above, however, regulations have been adopted under PURPA and the Energy Policy Act providing that QFs, EWGs and FUCOs are not public utility companies. Accordingly, EME is not regulated as a "holding company" under PUHCA because the power generation facilities owned by EME or in which EME has investments are either QFs, EWGs or FUCOs. All international projects and certain U.S. projects that EME is currently developing will be non-QF independent power projects. EME intends for each such project to qualify as an EWG or as a FUCO. Loss of EWG or FUCO status (like loss of QF status, as discussed above) could also result in EME becoming subject to registration and regulation as a public utility holding company under PUHCA and could trigger defaults under covenants in project agreements. Loss of EWG or FUCO status on a retroactive basis could lead to, among other things, fines and penalties and could cause certain project contracts to be voidable. Natural Gas Act Twenty-one of the domestic operating facilities that EME owns, operates or has investments in are fueled by natural gas. Pursuant to the Natural Gas Act, the FERC has jurisdiction over the sale, transportation and storage of natural gas in interstate commerce. With respect to most transactions that do not involve the construction of pipeline facilities, regulatory authorization can be obtained on a self-implementing basis. However, pipeline rates for such services are subject to continuing FERC oversight. Order No. 636, issued by the FERC in April 1992 (and affirmed in Orders 636A and 636B issued, respectively, in August and November 1992), mandated the restructuring of interstate natural gas pipeline sales and transportation services and changed the terms and conditions under which interstate pipelines provide transportation services, as well as the rates pipelines may charge for such services. The restructuring required by the rule included (i) the separation (unbundling) of a pipeline's sales, transportation and storage services, (ii) the implementation of a straight fixed-variable rate design methodology under which all of a pipeline's fixed costs are recovered through its reservation charge, (iii) the implementation of a capacity releasing mechanism under which holders of firm transportation capacity on pipelines can release that capacity for resale by the pipeline, and (iv) the opportunity for pipelines to recover 100% of their prudently incurred costs (transition costs) associated with implementing the restructuring mandated by the rule. FPA The FPA grants the FERC exclusive ratemaking jurisdiction over wholesale sales of electricity in interstate commerce, including ongoing as well as initial rate jurisdiction, which enables the FERC to revoke or modify previously approved rates. Such rates may be based on a cost-of-service approach or may, in competitive markets, be market-based. While qualifying facilities under PURPA generally are exempt from the ratemaking and certain other provisions of the FPA, EWGs and other non-QF independent power projects are subject to the FPA and to FERC ratemaking jurisdiction, which may limit their flexibility in negotiations with power purchasers. However, since such projects would not be bound by PURPA's thermal energy use requirement, they have greater latitude in site selection and facility size. Currently, only three of EME's operating projects, Nevada Sun-Peak, Brooklyn Navy Yard and Commonwealth Atlantic, are subject to FERC rate-making regulation under the FPA. EME's future domestic non-QF independent power projects will also be subject to FERC jurisdiction on rates. STATE ENERGY REGULATION State public utility commissions (PUCs) have broad jurisdiction over non-QF independent power projects (including EWGs), which are considered public utilities in many states. Such jurisdiction often includes the issuance of certificates of public convenience and necessity (CPCNs) to construct a facility as well as regulation of organizational, accounting, financial and other corporate matters on an ongoing basis. QFs may also be required to obtain CPCNs in some states. Although the FERC generally has exclusive jurisdiction over the rates charged by a non-QF independent power project to its wholesale customers, PUCs have the ability, in practice, to influence the establishment of such rates by asserting jurisdiction over the purchasing utility s ability to pass-through the resulting cost of purchased power to its retail customers. PUCs also have the authority to determine avoided cost for QFs. In addition, states may assert jurisdiction over the siting and construction of independent power projects and, among other things, the issuance of securities, related party transactions and the sale or other transfer of assets by these facilities. The actual scope of jurisdiction over independent power projects by state PUCs varies from state to state. In addition, state PUCs may seek to modify, suspend or terminate a QF's power sales contract under certain circumstances. This could occur if the state PUC determined that the pricing mechanism of the power sales contract is unfairly high in light of the current prevailing market cost of power for the utility purchasing the power. In such instance, the state PUC may attempt to alter the terms of the power sales contract to reflect more accurately market conditions for the prevailing cost of power. While EME believes that such attempts are not common and that the state PUCs may not have any jurisdiction to modify the terms of the wholesale power sales, there can be no assurance that the power sales contracts of its projects will not be subject to adverse regulatory actions. The CPUC has authorized the electric utilities in California to "monitor" compliance by QFs with PURPA rules and regulation. However, the United States Court of Appeals for the Ninth Circuit recently found in 1994 that a CPUC program was preempted by PURPA insofar as it authorized utilities to determine that a QF was not in compliance with PURPA rules and regulations, to then pay a reduced avoided cost rate and to take other action contrary to a facility's status as a QF. The court did, however, uphold reasonable monitoring of QF operating data. Other states, such as New York, have also instituted QF monitoring programs. EME buys and transports the natural gas used at its domestic facilities through local distribution companies (LDCs). State PUCs have jurisdiction over the transportation of natural gas by LDCs. Each state's regulatory laws are somewhat different; however, all generally require the LDC to obtain approval from the PUC for the construction of facilities and transportation services if the LDC's generally applicable tariffs do not cover the proposed transaction. LDC rates are usually subject to continuing PUC oversight. TRANSMISSION OF WHOLESALE POWER Projects that sell power to wholesale purchasers other than the local utility to which the project is interconnected require the transmission of electricity over power lines owned by others (wheeling). The prices and other terms and conditions of transmission contracts are regulated by FERC, when the entity providing the wheeling service is a jurisdictional public utility under the FPA. Until 1992, FERC's ability to compel wheeling was very limited, and the availability of voluntary wheeling service could be a significant factor in determining whether a site was viable for project development. FERC's authority under the FPA to require electric utilities to provide transmission service on a case-by-case basis to QFs, EWGs, and other power generators was expanded substantially by the Energy Policy Act. Furthermore, in 1996 FERC issued a rulemaking order, Order 888, in which FERC asserted the power, under its authority to eliminate undue discrimination in transmission, to compel all jurisdictional public utilities under the FPA to file open access transmission tariffs consistent with a pro forma tariff drafted by FERC. Although the pro forma tariff does not cover the pricing of transmission service, Order 888 is expected to improve transmission access for independent power producers such as EME. RETAIL COMPETITION In response to pressure from retail electric customers, particularly large industrial users, the state commissions or state legislatures of most states are considering, or have considered, whether to open the retail electric power market to competition. Retail competition is possible when a customer's local utility agrees, or is required, to "unbundle" its distribution service (e.g., the delivery of electric power through its local distribution lines) from its transmission and generation service (e.g., the provision of electric power from the utility's generating facilities or wholesale power purchases). A few state commissions and legislatures have already issued orders or passed legislation requiring utilities to begin to offer unbundled retail distribution service (retail wheeling) beginning as soon as 1998. Other states are expected to move toward retail competition in 1997. The competitive pricing environment that will result from retail competition may cause utilities to experience revenue shortfalls and deteriorating creditworthiness. However, EME expects that most, if not all, state plans will insure that utilities receive sufficient revenues, through a distribution surcharge if necessary, to pay their obligations under existing long-term power purchase contracts with QFs and EWGs. On the other hand, QFs and EWGs may be subject to pressure to lower their contract prices in an effort to reduce the "stranded investment" costs of their utility customers. EME believes that, as a predominately low cost producer of electricity, it will ultimately benefit from any increased competition that may arise from the opening of the retail market. Although EME's EWGs are forbidden under PUHCA from selling electric power at retail, its QFs will be permitted to market power directly to large industrial users that could not previously be served, because of local franchise laws or the inability to obtain retail wheeling. EME also believes it will be an attractive supplier to power marketers serving the newly- open retail markets. ENVIRONMENTAL REGULATION The construction and operation of power projects are subject to environmental regulation by federal, state and local authorities in the United States and regulatory authorities with jurisdiction over the projects located outside the United States. EME believes that it is in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect its financial condition or results of operations. EME conducted a review of some of its sites in 1995 and does not believe that a material liability exists as of December 31, 1996. However, possible future developments, such as more stringent environmental laws and regulations, could affect the costs and the manner in which EME conducts its business. There can be no assurance that in such event EME would be able to recover such increased costs from its customers or that its financial position and results of operations would not be materially adversely affected. Typically, environmental laws require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction and operation of a project. Meeting all of the necessary requirements can delay or sometimes prevent the completion of a proposed project as well as require extensive modifications to existing projects, which may involve significant capital expenditures. In 1990, Congress passed amendments (the 1990 Amendments) to the Clean Air Act that greatly expand the scope of federal regulations in several significant respects. Certain EME projects are anticipated to make capital expenditures of approximately $23.5 million ($11.75 million is EME's share) from 1997 through 1999 in order to comply with the 1990 Amendments. Provisions related to nonattainment, air toxins, permitting, enforcement and "acid rain" may affect EME's projects; however, final details of all these programs have not been issued by the United States Environmental Protection Agency and state agencies. The Comprehensive Environmental Response, Compensation, and Liability Act (Superfund) requires the cleanup of sites from which there has been a release or threatened release of hazardous substances. At the present time, EME is not aware of any Superfund liability; however, there can be no assurance that EME will not incur such liability in the future. FOREIGN AND DOMESTIC OPERATIONS - ------------------------------- A summary of EME's operations by geographic area including operating revenues, net income (loss) and identifiable assets is incorporated herein by reference from note 15 (Geographic Areas--Financial Data) of Notes to the Consolidated Financial Statements. ITEM 2. PROPERTIES EME leases its principal office in Irvine, California. This lease is approximately 89,500 square feet contained on five floors. The term of the lease for approximately 65,500 square feet expires on December 31, 2002 with two five- year options to extend. The term of the lease for the balance of approximately 24,000 square feet expires on December 31, 2002 with no options to extend. EME also leases office space in Fairfax, Virginia which is not material. Subsidiaries of EME also lease office space in Barcelona, Spain; Esenyurt, Turkey; Jakarta, Indonesia; London, England; Melbourne, Australia; Rome, Italy; and Singapore, none of which are material. The following table shows the material properties owned or leased by EME, its subsidiaries, or partnerships. Each property represents at least five percent of EME's income before tax or is one in which EME has an investment balance greater than $50 million. All of these properties are subject to mortgages or other liens or encumbrances granted to the lenders providing financing for the plant or project. DESCRIPTION OF PROPERTIES
INTEREST PLANT OR PROJECT LOCATION IN LAND PLANT DESCRIPTION ---------------- -------- -------- ----------------- Brooklyn Navy Yard Brooklyn, New York Leased Natural gas-turbine cogeneration facility First Hydro Dinorwig, Wales Owned Pumped-storage electric power facility First Hydro Ffestiniog, Wales Owned Pumped-storage electric power facility Kern River Oildale, California Leased Natural gas-turbine cogeneration facility Loy Yang B Unit 1 and 2 Victoria, Australia Owned Coal-fired power facility March Point 1 and 2 Anacortes, Washington Leased Natural gas-turbine cogeneration facility Midway-Sunset Fellows, California Leased Natural gas-turbine cogeneration facility Paiton East Java, Indonesia Leased Coal-fired power facility under construction Roosecote Barrow-in-Furness, Cumbria, UK Owned Combined cycle generation technology Sycamore Oildale, California Leased Natural gas-turbine cogeneration facility Watson Carson, California Leased Natural gas-turbine cogeneration facility
ITEM 3. LEGAL PROCEEDINGS PMNC Litigation -In February 1997, a civil action was commenced in the --------------- Superior Court of the State of California, Orange County, entitled The Parsons ----------- Corporation and PMNC v. Brooklyn Navy Yard Cogeneration Partners, L.P., Mission - ------------------------------------------------------------------------------- Energy New York, Inc. and B-41 Associates. L.P., Case No. 774980, in which - ----------------------------------------------- plaintiffs assert general monetary claims under the Construction Turnkey Agreement in the amount of $136,800,000. Brooklyn Navy Yard has also filed an action entitled Brooklyn Navy Yard Cogeneration Partners, L.P. v. PMNC, Parsons --------------------------------------------------------------- Main of New York, Inc., Nab Construction Corporation, L.K. Comstock & Co., Inc. - ------------------------------------------------------------------------------- and The Parsons Corporation, in the Supreme Court of the State of New York, - --------------------------- Kings County, Index No. 5966/97 asserting general monetary claims in excess of $13,000,000 under the Construction Turnkey Agreement. EME believes that the outcome of this litigation will not have a material adverse effect on its consolidated financial position or results of operations. EME experiences other routine litigation in the normal course of its business. None of such pending litigation is expected to have a material adverse effect on the consolidated financial position or results of operations of EME. See "Certain Regulatory Matters--Environmental Regulation". ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Inapplicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS All of the outstanding Common Stock of EME is, as of the date hereof, owned by The Mission Group, which is a wholly owned subsidiary of Edison International. There is no market for the Common Stock. Dividends of the Common Stock will be paid when declared by the Board of Directors of EME. In 1996, EME made a dividend payment of $150 million to The Mission Group. At present, EME has no plans to pay a dividend on the Common Stock. In November 1994, Mission Capital, L.P. (Mission Capital), a limited partnership of which EME is the sole general partner, issued 3.5 million 9-7/8% Cumulative Monthly Income Preferred Securities, Series A (the Preferred Securities) and EME issued $90,206,186 of 9-7/8% junior subordinated deferrable interest debentures due 2024 (the Debentures) pursuant to a subordinated indenture dated as of November 30, 1994 (the Subordinated Indenture) between EME and The First National Bank of Chicago, as trustee. During August 1995, Mission Capital issued 2.5 million 8-1/2% Cumulative Monthly Income Preferred Securities, Series B (the Preferred Securities) and EME issued $64,432,990 of 8- 1/2% junior subordinated deferrable interest debentures due 2025 pursuant to the Subordinated Indenture. EME issued a guarantee (the Guarantee) in favor of the holders of the Preferred Securities, which guarantees the payments of distributions declared on the Preferred Securities, payments upon a liquidation of Mission Capital and payments on redemption with respect to any Preferred Securities called for redemption by Mission Capital. So long as any Preferred Securities remain outstanding, EME will not be able to declare or pay, directly or indirectly, any dividend on, or purchase, acquire or make a distribution or liquidation payment with respect to, any of its Common Stock if at such time (i) EME shall be in default with respect to its payment obligations under the Guarantee, (ii) there shall have occurred any event of default under the Subordinated Indenture, or (iii) EME shall have given notice of its selection of an extended interest payment period as provided in the Indenture and such period, or any extension thereof, shall be continuing. ITEM 6. SELECTED FINANCIAL DATA
(IN MILLIONS) YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- INCOME STATEMENT DATA Operating revenues $843.6 $467.3 $380.6 $290.5 $183.1 Operating expense 476.5 264.0 199.9 258.7 60.6 ------ ------ ------ ------ ------ Income from operations 367.1 203.3 180.7 31.8 122.5 Interest expense (164.2) (93.1) (89.0) (33.5) (5.7) Interest and other income 40.7 33.1 38.8 4.7 12.0 Minority interest (69.5) (48.3) (46.1) (11.4) -- ------ ------ ------ ------ ------ Income (loss) before income taxes 174.1 95.0 84.4 (8.4) 128.8 Provision (credit) for income taxes 82.0 31.0 29.4 (4.2) 39.5 ------ ------ ------ ------ ------ Income (loss) before cumulative effect of change in accounting principle 92.1 64.0 55.0 (4.2) 89.3 Cumulative effect on prior periods of change in accounting for income taxes -- -- -- 6.5 -- ------ ------ ------ ------ ------ Net income $ 92.1 $ 64.0 $ 55.0 $ 2.3 $ 89.3 ====== ====== ====== ====== ====== (IN MILLIONS) DECEMBER 31, ------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- BALANCE SHEET DATA Assets $5,152.5 $4,374.0 $2,842.9 $2,286.1 $2,387.6 Current liabilities 270.9 199.8 170.9 116.3 186.7 Long-term obligations 2,419.9 1,839.0 1,159.0 962.6 866.0 Shareholder's equity 1,019.9 1,028.5 622.2 551.3 710.3 (IN MILLIONS) YEARS ENDED DECEMBER 31, ------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- PROPORTIONATE DATA (UNAUDITED) Operating revenues $1,261.8 $865.4 $733.0 $712.8 $625.5 Operating expense 912.4 650.3 552.5 667.5 474.1 -------- ------ ------ ------ ------ Income from operations 349.4 215.1 180.5 45.3 151.4 Interest expense (212.8) (160.9) (138.5) (69.8) (46.9) Interest and other income 44.2 42.1 45.7 16.1 24.3 -------- ------ ------ ------ ------ Income (loss) before income taxes 180.8 96.3 87.7 (8.4) 128.8 Provision (credit) for income taxes 88.7 32.3 32.7 (4.2) 39.5 -------- ------ ------ ------ ------ Income (loss) before cumulative effect of change in accounting principle 92.1 64.0 55.0 (4.2) 89.3 Cumulative effect on prior periods of change in accounting for income taxes -- -- -- 6.5 -- -------- ------ ------ ------ ------ Net income $ 92.1 $ 64.0 $ 55.0 $ 2.3 $ 89.3 ======== ====== ====== ====== ====== Operating cash flow $ 493.7 $326.5 $264.9 $202.9 $197.3 ======== ====== ====== ====== ====== For the year ended December 31, 1993, operating expenses include special charges of $98.4 million. Special charges include (1) costs (unreimbursed development expenses and capitalized interest) associated with the termination of negotiations for the Carbon II project in Mexico of $28.0 million; (2) a reserve of $52.4 million, which reflects the reduced value of investments in five geothermal power plants due to lower gas price forecasts; and (3) a reserve of $18.0 million for project development and other costs. Reflects EME's pro rata ownership interest in its energy projects and oil and gas investments. While pro rata or proportionate accounting is not in accordance with generally accepted accounting principles, except in certain industries, it is presented to provide a better understanding and assessment of EME's consolidated financial statements. A discussion of EME's operations on a proportionate basis is included in Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition. Income from operations plus depreciation, amortization and other non-cash charges.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This Annual Report on Form 10-K includes certain forward-looking statements, the realization of which may be affected by certain important factors discussed in Management's Discussion and Analysis of Results of Operations and Financial Condition thereunder and elsewhere herein. GENERAL - ------- Edison Mission Energy (EME) is one of the leading independent producers of electricity worldwide. Through its subsidiaries, EME is engaged in the business of developing, acquiring, owning and operating independent electric power generation facilities. EME's investments include 54 projects totaling 9,291 megawatts (MW) of generation capacity, of which 7,549 are in operation and 1,742 are under construction. EME's operating revenues are derived primarily from electric revenues and equity in income from energy projects. Electric revenues accounted for 77%, 64% and 54% of total operating revenues during 1996, 1995 and 1994, respectively. Operating revenues also include equity in income from oil and gas investments and revenue attributable to operation and maintenance services. Electric revenues are derived from consolidated results of operations of five international entities. Equity in income from energy projects relates to EME's ownership interest of 50% or less in projects. The equity method of accounting is generally used to account for the operating results of entities over which a company has a significant influence but in which it does not have a controlling interest. With respect to entities accounted for under the equity method, EME recognizes its proportional share of the income or loss of such entities. Equity in income from oil and gas investments is EME's proportional interest in the net income derived from investments in certain fuel interests. ACQUISITIONS - ------------ In December 1995, First Hydro Finance Plc (First Hydro Finance), an indirect subsidiary of EME, purchased all of the outstanding shares of First Hydro Company (First Hydro), formerly First Hydro Limited, for approximately $1 billion (653 million pounds sterling). First Hydro's principal assets consist of two pumped-storage electric power stations located in North Wales at Dinorwig and Ffestiniog, which have a combined capacity of 2,088 MW. This acquisition was funded through a combination of (i) a $621 million (400 million pounds sterling) credit facility with a bank and (ii) a $455 million (295.3 million pounds sterling) equity investment funded from a combination of a $350 million capital contribution from Edison International (EME's parent company), and from EME's working capital and credit lines. In January 1996, the 400 million pounds sterling credit facility was canceled upon repayment of all outstanding principal and accrued interest with proceeds from the issuance of 400 million pounds sterling of 9% Guaranteed Secured Bonds due on July 31, 2021. The acquisition has been accounted for utilizing the purchase method, whereby the cost of the acquisition was allocated to the assets acquired and the liabilities assumed based upon their respective fair values. The excess of the cost over the fair value of the net assets acquired was allocated to goodwill. The consolidated statement of income for 1995 includes operating results of the acquired business beginning in December 1995. In January 1996, EME purchased the remaining 66% of Iberian Hy-Power Amsterdam B.V. (Iberian Hy-Power) for approximately $20 million increasing its ownership to 100%. Iberian Hy-Power owns interests in 18 run-of-the-river hydroelectric facilities in Spain totaling 86 MW. RESULTS OF OPERATIONS - --------------------- Operating Revenues Operating revenues increased significantly in 1996 and 1995, resulting primarily from increases in electric revenues primarily due to (1) the acquisition of First Hydro in December 1995 combined with its strong operating performance since acquisition, (2) the start of commercial operation of Loy Yang B Unit 2 in October 1996 and the Kwinana project in December 1996, both of which were previously under construction, and (3) the increase in ownership of Iberian Hy-Power from 34% to 100% in January 1996. There were no comparable revenues for First Hydro for the first 11 months of 1995 and no comparable electric revenues for Iberian Hy-Power, Loy Yang B Unit 2 and Kwinana for fiscal year 1995. The 1995 increase in electric revenues over 1994 was primarily due to the acquisition of First Hydro and a $42.1 million increase in revenues from the Roosecote project, which was operational for the full year in 1995. Equity in income from energy projects in 1996 rose slightly over 1995, compared with a 7% decrease in 1995 from 1994. The 1995 decrease resulted from one-time reductions in fuel transportation charges for several domestic projects in 1994 and lower electric and steam revenues for several domestic projects in 1995 attributable to lower fuel prices upon which the revenues are based. Equity in income from oil and gas investments increased substantially in 1996 compared with 1995, primarily due to higher oil and gas prices and increased gas production. Operation and maintenance services revenues increased both in 1996 and 1995 due to increases in the number of operating projects under contract. A significant number of EME's domestic projects are located on the West Coast. These projects generally have power sales contracts that provide for higher payments during the summer months. Both First Hydro and Iberian Hy-Power provide for higher electric revenues during the winter months. In addition, First Hydro experienced higher energy sales in 1996 due to higher capacity prices resulting from narrowing of the margin between the demand and available generation forecast over the summer months and increased utilization. Unusual weather conditions and unanticipated facility maintenance may have an effect on future quarterly revenues. Operating Expenses Total operating expenses increased $212.4 million in 1996 and $64.1 million in 1995. The 1996 increase resulted from higher fuel expense, plant operations and depreciation and amortization resulting from no comparable expenses for First Hydro for the first 11 months of 1995 and no comparable expenses for Iberian Hy-Power, Loy Yang B Unit 2 and Kwinana for fiscal year 1995. The 1995 increase resulted from higher fuel and plant operating expenses at the Roosecote project, which was operational for the full year in 1995, and the addition of operations related to First Hydro in December 1995. Fuel and plant operations expense increased $140.4 million in 1996 and $41.9 million in 1995, and depreciation and amortization expense increased $44.3 million in 1996 and $5.6 million in 1995. Administrative and general expenses increased $26.6 million in 1996 and $12.8 million in 1995 primarily due to continued worldwide development. The 1996 increase is also attributable to an increase of approximately $18 million in compensation expense as a result of charges related to EME's phantom stock plan and to a voluntary retirement offer for non-union employees. Operation and maintenance services expense increased in 1996 and 1995 due to the increased number of operating projects during those periods. Other Income (Expense) Interest and other income decreased $9.3 million in 1996 from 1995, compared with a decrease of $4.7 million in 1995 from 1994. The 1996 decrease was primarily due to income recognized in August 1995 for reimbursement of certain 1994 development expenses not previously recognized in settlement of EME's remaining investment in Minera Carbonifera Rio Escondido. The decrease in 1995 was principally due to insurance proceeds received from the business interruption claim related to a transformer failure at the Roosecote project in 1994. During the second quarter of 1996, CalEnergy Company, Inc., EME's partner in four operating geothermal projects in California, purchased all of the stock of four wholly owned subsidiaries of EME, which held 50% interests in these projects. The purchase price of $70 million resulted in a pre-tax gain of $20 million. There will be no impact on EME's future revenues as EME discontinued recognizing earnings from these projects during 1993. Interest incurred increased $65.8 million in 1996 and $7 million in 1995. The 1996 increase was due primarily to a full year's inclusion of interest on the debt related to the First Hydro acquisition and debt related to Iberian Hy- Power. Higher interest incurred in 1995 was associated with higher project debt levels. Capitalized interest decreased slightly in 1996 from 1995, compared with an increase of $12.2 million in 1995 over 1994. The 1996 decrease is due to lower amounts capitalized on construction projects primarily related to the completion of construction and resultant commercial operation of Loy Yang B Unit 2 in October 1996. The 1995 increase was due to higher amounts capitalized on construction projects principally related to Loy Yang B Unit 2. Dividends on preferred securities increased $3 million in 1996 and $9.4 million in 1995. The significant increase in 1995 is due to the issuance of Series A preferred securities during the fourth quarter of 1994 and the issuance of Series B preferred securities during the third quarter of 1995. The increase in 1996 was due to the inclusion of a full year of dividends on the Series B preferred securities. Minority interest expense increased $21.2 million in 1996 over 1995, compared with an increase of $2.2 million in 1995 over 1994. The 1996 increase is due to Loy Yang B Unit 2 commencing commercial operation in October 1996. Provision for Income Taxes EME had an effective tax provision rate of 47.1%, 32.6% and 34.8% in 1996, 1995 and 1994, respectively. The increase in the 1996 effective tax rate was primarily due to higher international earnings taxed at higher tax rates and expenditures not deductible in foreign jurisdictions. The decrease in the 1995 effective tax rate was primarily due to a larger dividends received deduction in 1995. The dividends received deduction represents dividend income from unconsolidated entities that is not subject to tax because taxes have already been provided at the entity level. PROPORTIONATE RESULTS OF OPERATION - ----------------------------------- Because significant investments of EME are not consolidated, EME believes that the discussion set forth below of certain proportionate data facilitates an understanding and assessment of its results of operations. Proportionate accounting reflects EME's pro rata ownership interest in its energy projects and oil and gas investments. Except for certain industries, proportionate accounting is not in accordance with generally accepted accounting principles. Operating revenues increased in 1996 and 1995, resulting primarily from increases in electric revenues primarily due to (1) the acquisition of First Hydro in December 1995 combined with its strong operating performance since acquisition, (2) the start of commercial operations of Loy Yang B Unit 2 in October 1996 and the Kwinana project in December 1996, both of which were previously under construction, and (3) the increase in ownership of Iberian Hy- Power from 34% to 100% in January 1996. The 1995 increase was a result of the addition of the First Hydro project and increased revenues at the Roosecote project, which was operational for the full year in 1995. The 1996 increase in operating expenses resulted from higher fuel expense, plant operations and depreciation and amortization resulting from no comparable expenses for First Hydro for the first 11 months of 1995 and no comparable expenses for Iberian Hy- Power, Loy Yang B Unit 2 and Kwinana for fiscal year 1995. The 1995 increase in operating expenses was primarily due to higher fuel and plant operations expenses at the Roosecote project and the addition of operations at the First Hydro project. Interest expense increased in 1996 and 1995, principally a result of higher project debt levels. Interest and other income increased in 1996 over 1995, compared with a decrease in 1995 from 1994. The 1996 increase is primarily due to a pre-tax gain of $20 million on the sale of EME's interest in four operating geothermal projects (discussed above) partially offset by income recognized in 1995 for reimbursement of certain 1994 development expenses not previously recognized in settlement of EME's remaining investment in Minera Carbonifera Rio Escondido. The decrease in 1995 was principally due to insurance proceeds from the business interruption claim related to the transformer failure at the Roosecote project in 1994. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash provided by operating activities is derived primarily from distributions from energy projects and dividends from investments in oil and gas. For the year ended December 31, 1996, net cash provided by operating activities increased $144.6 million over 1995, compared with a slight decrease of $2 million in 1995 from 1994. The 1996 improvement primarily reflects higher net income, increased dividends from oil and gas investments and improved accounts receivable collections principally attributable to First Hydro. Dividends from investments in oil and gas rose $31.1 million in 1996 over 1995, and decreased $38.1 million in 1995 from 1994. The 1996 increase was principally due to increased dividends paid by Four Star Oil & Gas Company (Four Star) as a result of higher earnings in 1996. The 1995 decrease was primarily the result of special one-time dividends paid by Four Star in 1994, which were not paid out of current year operating cash flow. In 1994, Four Star paid a $51.2 million dividend to EME from the proceeds received from a $330 million project financing. A portion of the financing proceeds was also utilized by Four Star to purchase certain gas properties from Texaco Exploration and Production, Inc. for $143 million. Net cash provided by financing activities significantly decreased during 1996 from 1995, compared with a substantial increase during 1995 over 1994. The 1996 decrease was primarily attributable to (1) a reduction in net borrowings under EME's $500 million revolving credit facility in 1996, (2) a dividend paid to Edison International of $150 million in 1996 compared with a $350 million capital contribution received from Edison International in 1995 (pursuant to the acquisition of First Hydro) and (3) proceeds of $62.5 million received in 1995 from the issuance of Series B Preferred Securities. In addition, EME issued 400 million pounds sterling of 9% Guaranteed Secured Bonds (U.S. $603.8 million) in January 1996. The net proceeds received were used to repay the borrowings under the 400 million pounds sterling credit facility entered into by First Hydro Finance in December 1995 in connection with the First Hydro acquisition. The 1995 increase was principally due to the $350 million capital contribution received from Edison International and the issuance of debt related to the First Hydro acquisition. On December 20, 1996, Edison Mission Energy Funding Corp., 99% owned by Broad Street Contract Services, Inc. and 1% owned by EME, completed a sale of $450 million of senior notes and bonds to institutional investors pursuant to the Rule 144A exemption under the U.S. Securities Act of 1933 for non-public sales. The senior notes and bonds are secured by the pledge of (i) notes issued by four EME subsidiaries that own interests in four California cogeneration projects: the Kern River project (300 MW), the Midway-Sunset project (225 MW), the Sycamore project (300 MW) and the Watson project (385 MW), (ii) 99% of the capital stock of Edison Mission Energy Funding Corp. and (iii) a guarantee issued by the four EME subsidiaries. The financing structure was designed to pool and cross-collateralize available cash flow to the four EME subsidiaries from the four projects thus providing for repayment of the senior notes and bonds with available cash flow from the four projects. The obligations of the four EME subsidiaries are non-recourse to EME. The $450 million of securities issued by Edison Mission Energy Funding Corp. consist of $260 million of Series A Notes and $190 million of Series B Bonds which mature in September 2003 and September 2008, respectively. The Series A Notes and Series B Bonds bear an interest rate of 6.77% and 7.33%, respectively, and were rated BBB by Standard & Poor's Corporation and Baa1 by Moody's Investors Services, Inc. The principal and interest payments under the notes issued by the four EME subsidiaries are identical in terms as the Series A Notes and Series B Bonds. The net proceeds from the sale of securities were used by EME to repay borrowings under its $500 million revolving credit facility, retire EME's 200 million Australian dollar credit facility, defease other project debt and for other general corporate purposes. Net cash used in investing activities significantly decreased in 1996 from 1995, compared with an increase in 1995 over 1994. The decrease in 1996 and the increase in 1995 were principally due to the purchase of First Hydro for approximately $1 billion in December 1995. Proceeds of $70 million received from the sale of four of EME's operating geothermal facilities in April 1996 also contributed to the decline in 1996. EME invested $119.4 million, $192.8 million and $138.8 million in 1996, 1995 and 1994, respectively, in new plant and equipment principally related to Loy Yang B Unit 2 and the Kwinana project. At December 31, 1996, EME had cash and cash equivalents of $383.6 million and had available $430 million of borrowing capacity under a $500 million revolving credit facility that expires in 2001. The credit facility provides credit available in the form of cash advances or letters of credit, and bears interest on advances under the London Interbank Offered Rate plus the applicable margin as determined by EME's long-term debt ratings (0.275% margin at December 31, 1996), the Base Rate (substantially similar to what is commonly known as the "prime" rate, which was 8.25% at December 31, 1996), or on a competitive auction basis. This borrowing capacity under the revolving credit facility will be reduced by borrowings for firm commitments to contribute project equity and to fund capital expenditures of its project facilities. FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) -------- -------------- -------------------- Paiton (i) 223 ISAB (ii) 244 billion Italian Lira 161 Kwinana (iii) 31 million Australian Dollar 24
(i) Paiton is a 1,230-MW coal-fired power plant under construction in East Java, Indonesia. A wholly owned subsidiary of EME owns a 40% interest. Equity contributions are currently being made and will continue until commercial operation, which is currently scheduled for early 1999. (ii) ISAB is a 512-MW gas-fired power plant under construction near Siracusa in Sicily, Italy. A wholly owned subsidiary of EME owns a 49% interest. Equity will be contributed at commercial operation which is currently scheduled for late 1999. (iii) Kwinana is a 116-MW gas-fired cogeneration power plant near Perth, Australia. Two wholly owned subsidiaries of EME own a 100% interest. Kwinana began commercial operation in December 1996. Equity was contributed on January 31, 1997. Firm commitments to contribute project equity could be accelerated due to certain events of default as defined in the non-recourse project financing facilities. Management has no reason to believe that these events of default will occur to require acceleration of the firm commitments. CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) -------- -------------- -------------------- Brooklyn Navy Yard (i) 294 Paiton (ii) 141 Kwinana 3 million Australian Dollar 3 Loy Yang B 5 million Australian Dollar 4 All Other 19
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in Brooklyn, New York. A wholly owned subsidiary of EME owns 50% of the project, but funded all of the required equity during construction. Estimated total cost is $485 million of which $442 million has been spent through December 31, 1996. In December 1995, a tax-exempt bond financing for the project in the amount of $254 million was obtained through the New York City Industrial Development Agency (NYCIDA). EME has guaranteed the obligations of the project pursuant to the financing as well as an indemnity agreement on behalf of NYCIDA in the amount of $40 million. In the fourth quarter of 1996, EME executed a new Energy Sales Agreement with Consolidated Edison Company of New York, which has contracted to buy most of the project's power and steam, and began selling power and steam under that agreement on November 1. The contractor has recently asserted general monetary claims under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. (BNY) and has served a Complaint for damages in the amount of $136.8 million against BNY. BNY has asserted general monetary claims against the contractor. EME believes that the outcome of this litigation will not have a material adverse effect on its consolidated financial position or results of operations. (ii) Contingent obligations to contribute additional project equity to the Paiton project would be based on events principally related to capital cost overruns during the plant construction. Management has no reason to believe that these contingent obligations or any other contingent obligations to contribute project equity will be required. OTHER COMMITMENTS AND CONTINGENCIES Certain of EME's subsidiaries entered into indemnification agreements whereby the subsidiaries agreed to repay capacity payments to the projects' power purchasers, in the event the projects unilaterally terminate their performance or reduce their electric power producing capability during the term of the power contract. Obligations under these indemnification agreements as of December 31, 1996, if required, would be $248 million. Management has no reason to believe that the projects will either terminate their performance or reduce their electric power producing capability during the term of the power contracts. Certain EME subsidiaries are required to fund capital expenditures of project facilities, which are estimated to be $47 million at December 31, 1996 (principally related to the Brooklyn Navy Yard project). EME and its subsidiaries may incur additional obligations to make equity and other contributions to projects in the future. EME believes that it will have sufficient liquidity on both a short and long-term basis to fund pre-financing project development costs, make equity contributions to partnerships, pay corporate debt obligations and pay other administrative and general expenses as they are incurred from (1) distributions from energy projects and dividends from investments in oil and gas, (2) proceeds from the repayment of loans to energy projects, (3) funds available from EME's revolving credit facility and (4) additional corporate borrowings. CHANGES IN INTEREST RATES, CHANGES IN ELECTRICITY POOL PRICING, FOREIGN CURRENCY FLUCTUATIONS AND OTHER CONTRACTUAL OBLIGATIONS Changes in interest rates, changes in electricity pool pricing in the U.K., and fluctuations in foreign currency exchange rates can have a significant impact on EME's results of operations. Interest rate changes affect the cost of capital needed to construct and finance projects. EME has mitigated the risk of interest rate fluctuations by arranging for fixed rate financing or variable rate financing with interest rate swaps or other hedging mechanisms for the majority of its project financing. Interest expense was increased by $6.2 million, $6.5 million and $7.9 million for the years 1996, 1995 and 1994, respectively, as a result of interest rate hedging mechanisms. EME has entered into several interest rate swap agreements whereby the maturity date of the swaps occurs prior to the final maturity of the underlying debt. EME does not believe that interest rate fluctuations will have a materially adverse effect on financial position or results of operations. Projects in the U.K. sell their electrical energy and capacity through a centralized electricity pool, which establishes a half-hourly clearing price (also referred to as the "pool price") for electrical energy. The half-hourly pool price is extremely volatile and can vary by as much as a factor of 10 or more over the course of a few hours, due to the large differentials in demand according to the time of day. First Hydro mitigates a portion of the market risk of the pool by entering into contracts for differences (electricity rate swap agreements), related to either the selling or purchasing price of power, whereby a contract specifies a price at which the electricity will be traded, and the parties to the agreement make payments, calculated based on the difference between the price in the contract and the half-hourly pool clearing price for the element of power under contract. These contracts can be sold in two structures: one-way contracts, the most commonly used by First Hydro, where a specified monthly amount is received in advance and difference payments are made when the pool price is above the price specified in the contract, and two- way contracts, where the counter party pays First Hydro when the pool price is below that in the contract instead of a specified monthly amount. These contracts act as a means of stabilizing production revenues or purchasing costs by removing an element of First Hydro's net exposure to pool price volatility. First Hydro electric revenues were decreased by $4.5 million for the year ended December 31, 1996 and $29 million in December 1995, as a result of electricity rate swap agreements. Fluctuations in foreign currency exchange rates can affect, on a U.S. dollar equivalent basis, the amount of EME's equity contributions to, and distributions from, its foreign projects. As EME continues to expand into foreign markets, fluctuations in foreign currency exchange rates can be expected to have a greater impact on EME's results of operations in the future. At times, EME has hedged a portion of its current exposure to fluctuations in foreign exchange rates where it deems appropriate through financial derivatives, offsetting obligations denominated in foreign currencies, and indexing underlying project agreements to U.S. dollars or other indices reasonably expected to correlate with foreign exchange movements. In addition, EME has used statistical forecasting techniques to help assess foreign exchange risk and the probabilities of various outcomes. There can be no assurance, however, that fluctuations in exchange rates will be fully offset by hedges or that currency movements and the relationship between certain macro economic variables will behave in a manner that is consistent with historical or forecasted relationships. Foreign exchange considerations for certain major international projects are discussed below. The First Hydro project in the U.K. has been financed in the local currency (pound sterling) thereby hedging the majority of the acquisition cost against foreign exchange fluctuations. Furthermore, EME has evaluated the return on the remaining equity portion of the investment with regard to the likelihood of various foreign exchange scenarios. These analyses use market derived volatilities, statistical correlations between certain variables, and long-term forecasts to predict ranges of expected returns. Management has determined that the investment return for First Hydro is adequately insulated from a broad range of foreign exchange scenarios at this time. The Paiton project's power sales contract provides for payments denominated in Rupiah that are adjusted to account for exchange rate fluctuations between the Rupiah and U.S. dollar. Both capacity and energy payments have a Rupiah component and U.S. dollar component. Each component is adjusted annually beginning in 1999 (when the project becomes fully operational) based on changes in the Indonesian and U.S. consumer price indices after 1997. In December 1996, EME repaid a 200 million Australian dollar loan that was originally structured to hedge a portion of the foreign exchange risk associated with EME's equity investment in the Loy Yang B project in Australia. The decision to repay the loan was based on management's view that the cost of the hedge was high relative to the current volatility of the Australian dollar and the sensitivity of EME's investment returns to likely and less likely fluctuations. EME will continue to monitor its foreign exchange exposure and analyze the effectiveness and efficiency of hedging strategies in the future. The electric power generated by EME's operating projects that are generally sold to a limited number of electric utilities pursuant to long-term (typically, 15 to 30 year) power sales contracts are expected to result in consistent cash flow under a wide range of economic and operating circumstances. To accomplish this, EME structures its long-term contracts so that fluctuations in fuel costs will produce similar fluctuations in electric and/or steam revenues and by entering into long-term fuel supply and transportation agreements. ENVIRONMENTAL MATTERS OR REGULATIONS EME is subject to environmental regulation by federal, state and local authorities in the U.S. and foreign regulatory authorities with jurisdiction over projects located outside the U.S. EME believes that it is in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect its financial position or results of operations. EME completed a review of some of its sites in 1995 and does not believe that a material liability exists as of December 31, 1996. The implementation of Clean Air Act Amendments is expected to result in increased operating expenses; however, these increased operating expenses are not expected to have a material impact on EME's financial position or results of operations. PROPOSED NEW ACCOUNTING STANDARD During 1996, the Financial Accounting Standards Board issued an exposure draft, that would establish accounting standards for the recognition and measurement of closure and removal obligations. The exposure draft would require the estimated present value of an obligation to be recorded as a liability, along with a corresponding increase in the plant asset accounts when the obligation is incurred. Management has commenced a review of the potential impact of this exposure draft and will conclude such review during 1997. Based on information obtained to date, management does not expect the impact of this proposed new accounting standard to have a material impact on EME's financial position or results of operations. RECENT DEVELOPMENTS On March 4, 1997, EME entered into an agreement to sell its ownership interest in B.C. Star Partners (B.C. Star) to Remington Energy Ltd. for approximately $71 million. B.C. Star, an oil and gas partnership between Texaco Canada Petroleum Inc. and Mission Energy Canada Corporation, a wholly owned subsidiary of EME, operates 11 producing properties in British Columbia, Canada, with current production of approximately 60 million cubic feet per day of natural gas and 1,000 barrels per day of oil and natural gas liquids. The transaction is expected to close on or about April 30, 1997. EME expects to record an after-tax gain upon the closing of the transaction in the second quarter of 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements: Report of Independent Accountants. Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994. Consolidated Balance Sheets at December 31, 1996 and 1995. Consolidated Statements of Shareholder's Equity for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. EDISON MISSION ENERGY AND SUBSIDIARIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Edison Mission Energy: We have audited the accompanying consolidated balance sheets of Edison Mission Energy (a California corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholder's equity and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Edison Mission Energy and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP Orange County, California March 14, 1997 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
Years Ended December 31, -------------------------------------------- 1996 1995 1994 ---------- ---------- ---------- OPERATING REVENUES: Electric revenues $650,838 $297,200 $206,990 Equity in income from energy projects 128,823 125,880 135,794 Equity in income from oil and gas 25,090 9,939 10,206 Operation and maintenance services 38,867 34,327 27,609 --------- --------- --------- Total operating revenues 843,618 467,346 380,599 --------- --------- --------- OPERATING EXPENSES: Fuel 137,151 79,162 54,840 Plant operations 124,451 42,078 24,515 Operation and maintenance services 28,065 26,845 22,999 Depreciation and amortization 89,853 45,589 39,946 Administrative and general 96,954 70,354 57,585 --------- --------- --------- Total operating expenses 476,474 264,028 199,885 --------- --------- --------- Income from operations 367,144 203,318 180,714 --------- --------- --------- OTHER INCOME (EXPENSE): Interest and other income 20,766 30,034 34,779 Gain on sale of interest in energy projects 19,986 3,144 4,107 Interest expense (151,139) (83,050) (88,285) Dividends on preferred securities (13,100) (10,095) (744) Minority interest (69,547) (48,343) (46,158) --------- --------- --------- Total other income (expense) (193,034) (108,310) (96,301) --------- --------- --------- Income before income taxes 174,110 95,008 84,413 Provision for income taxes 82,045 31,000 29,369 --------- --------- --------- NET INCOME $ 92,065 $ 64,008 $ 55,044 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
December 31, ------------------------------- 1996 1995 ----------- ---------- ASSETS Current Assets Cash and cash equivalents $ 383,634 $ 137,540 Accounts receivable - trade 71,046 88,988 Accounts receivable - affiliates 10,798 10,348 Prepaid expenses and other 13,747 13,268 ---------- ---------- Total current assets 479,225 250,144 ---------- ---------- Investments Energy projects 794,646 723,935 Oil and gas 121,237 156,905 ---------- ---------- Total investments 915,883 880,840 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT 3,401,006 2,845,422 Less accumulated depreciation and amortization 152,458 83,275 ---------- ---------- Net property, plant and equipment 3,248,548 2,762,147 ---------- ---------- OTHER ASSETS Long-term receivables 91,567 86,030 Goodwill 334,481 311,942 Deferred financing costs and other 82,768 82,933 ---------- ---------- Total other assets 508,816 480,905 ---------- ---------- TOTAL ASSETS $5,152,472 $4,374,036 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
December 31, ------------------------------- 1996 1995 ---------- ---------- LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable - affiliates $ 35,996 $ 11,500 Accounts payable and accrued liabilities 118,824 137,623 Interest payable 35,076 13,641 Current maturities of long-term obligations 80,994 37,009 ---------- ---------- Total current liabilities 270,890 199,773 ---------- ---------- LONG-TERM OBLIGATIONS NET OF CURRENT MATURITIES 2,419,890 1,839,003 ---------- ---------- LONG-TERM DEFERRED LIABILITIES Deferred taxes and tax credits 545,449 502,611 Other 39,049 23,958 ---------- ---------- Total long-term deferred liabilities 584,498 526,569 ---------- ---------- Total liabilities 3,275,278 2,565,345 ---------- ---------- MINORITY INTERESTS 707,289 630,154 ---------- ---------- COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITY OF PARTNERSHIP HOLDING SOLELY PARENT DEBENTURES 150,000 150,000 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 6, 11 and 12) SHAREHOLDER'S EQUITY Common stock, no par value; 10,000 shares authorized; 100 shares issued and outstanding 64,130 64,130 Additional paid-in capital 629,289 629,289 Retained earnings 262,594 320,529 Cumulative translation adjustments 63,892 14,589 ---------- ---------- Total shareholder's equity 1,019,905 1,028,537 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,152,472 $4,374,036 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (IN THOUSANDS)
Additional Cumulative Common Paid-in Retained Translation Shareholder's Stock Capital Earnings Adjustments Equity ------ -------- -------- ----------- ------------ BALANCE AT DECEMBER 31, 1993 $64,130 $285,789 $203,165 $ (1,794) $ 551,290 Net income -- -- 55,044 -- 55,044 Non-cash dividends -- -- (1,688) -- (1,688) Translation adjustments -- -- -- 17,601 17,601 ------- -------- -------- ---------- ----------- BALANCE AT DECEMBER 31, 1994 64,130 285,789 256,521 15,807 622,247 Net income -- -- 64,008 -- 64,008 Cash contributions -- 350,000 -- -- 350,000 Issuances of stock by a subsidiary -- (6,500) -- -- (6,500) Translation adjustments -- -- -- (1,218) (1,218) ------- -------- --------- ---------- ----------- BALANCE AT DECEMBER 31, 1995 64,130 629,289 320,529 14,589 1,028,537 Net income -- -- 92,065 -- 92,065 Cash dividends -- -- (150,000) -- (150,000) Translation adjustments -- -- -- 49,303 49,303 ------- -------- --------- ---------- ----------- BALANCE AT DECEMBER 31, 1996 $64,130 $629,289 $262,594 $63,892 $1,019,905 ======= ======== ========= ========== =========== The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, ----------------------------------------- 1996 1995 1994 -------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 92,065 $ 64,008 $ 55,044 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income from energy projects (128,823) (125,880) (135,794) Equity in income from oil and gas (25,090) (9,939) (10,206) Distributions from energy projects 125,717 158,226 145,688 Dividends from oil and gas 50,576 19,500 57,642 Depreciation and amortization 89,853 45,589 39,946 Deferred tax provision (credit) 3,378 (4,559) (16,770) Gain on sale of interest in energy projects (19,986) (3,144) (4,107) Decrease (increase) in accounts receivable 31,356 (9,662) (2,187) Decrease (increase) in prepaid expenses and other 4,193 190 (11,115) Increase in interest payable 18,635 3,293 7,168 Increase (decrease) in accounts payable and accrued liabilites 10,869 (10,692) 12,717 Other, net 41,723 22,920 13,865 --------- --------- --------- Net cash provided by operating activities 294,466 149,850 151,891 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowing on long-term obligations 188,482 770,320 357,987 Payments on long-term obligations (871,734) (67,643) (269,372) Issuance of Guaranteed Secured Bonds 603,840 -- -- Issuance of debt securities 414,275 -- -- Issuance of preferred securities -- 62,500 87,500 Cash dividend to parent (150,000) -- -- Capital contribution from parent -- 350,000 -- --------- ---------- --------- Net cash provided by financing activities 184,863 1,115,177 176,115 --------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Investments in energy projects (78,575) (98,403) (22,611) Loans to energy projects (106,443) (243,894) (124,023) Payments for common stock of acquired companies (34,640) (1,042,591) (29,724) Capital expenditures (119,407) (192,808) (138,757) Proceeds from energy projects loan repayments 32,067 375,330 6,838 Proceeds from sale of interest in energy projects 70,000 12,457 10,596 Other, net (9,321) (1,358) (18,749) --------- ----------- --------- Net cash used in investing activities (246,319) (1,191,267) (316,430) --------- ----------- --------- Effect of exchange rate changes on cash 13,084 (365) 1,325 --------- ----------- --------- Net increase in cash and cash equivalents 246,094 73,395 12,901 Cash and cash equivalents at beginning of period 137,540 64,145 51,244 --------- ----------- --------- Cash and cash equivalents at end of period $ 383,634 $ 137,540 $ 64,145 =========== ============ ============= The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) NOTE 1. ORGANIZATION - -------------------- Edison Mission Energy (EME) is a wholly owned subsidiary of The Mission Group (TMG), a wholly owned, non-utility subsidiary of Edison International, the parent holding company of Southern California Edison Company (Edison). EME is engaged in the business of developing, acquiring, owning and operating independent electric power generation facilities. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Consolidations The consolidated financial statements include EME and its majority owned subsidiaries, partnerships and a joint venture. At December 31, 1996, EME indirectly owned 51% of the Loy Yang B joint venture, which owns the Loy Yang B project, and 80% of the stock of Lakeland Power Limited, which owns the Roosecote project. All significant intercompany transactions have been eliminated. Certain prior year reclassifications have been made to conform to the current year financial statement presentation. Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Investments Cash equivalents include time deposits and other investments totaling $240 million at December 31, 1996, with maturities of three months or less. All investments are classified as available-for-sale. Investments in energy projects and oil and gas that are 50% or less owned are accounted for by the equity method. The majority of energy projects and all investments in oil and gas are accounted for under the equity method at December 31, 1996. Property, Plant and Equipment Property, plant and equipment, including leasehold improvements and construction in progress, are capitalized at cost and are principally comprised of five energy entities' plants and related facilities. Depreciation and amortization are computed by using the straight-line method over the useful life of the property, plant and equipment and over the lease term for leasehold improvements. Useful lives for property, plant and equipment are as follows: Furniture and office equipment 3 - 10 years Building, plant and equipment 25 - 50 years Civil works 60 - 80 years Capitalized leased equipment 10 - 30 years Leasehold improvements Life of lease Goodwill Goodwill represents the cost incurred in connection with the purchase of First Hydro Company (First Hydro) in excess of the fair value of the net assets acquired in December 1995. This amount is being amortized over 40 years on a straight-line basis. Accumulated amortization was $9.3 million and $0.7 million at December 31, 1996 and 1995, respectively. Impairment of Investments and Long-Lived Assets EME periodically evaluates the potential impairment of its investments in projects and other long-lived assets (including goodwill) based on a review of estimated future cash flows expected to be generated. If the carrying amount of the investment or asset exceeds the amount of the expected future cash flows, an impairment loss is recognized accordingly. Effective January 1, 1996, EME adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires, among other things, that an impairment loss shall only be recognized when the carrying amount of a long-lived asset exceeds the expected future cash flows (undiscounted and without interest charges) and that, when appropriate, the amount of loss to be recognized shall be measured as the amount by which the carrying value exceeds the fair value of the asset. The adoption of this statement did not have a material adverse effect on the consolidated financial position or results of operations of EME. Capitalized Interest Interest incurred on funds borrowed by EME to finance project construction is capitalized. Capitalization of interest is discontinued when the projects are completed and deemed operational. Such capitalized interest is included in investment in energy projects and property, plant and equipment. Capitalized interest is amortized over the depreciation period of the major plant and facilities for the respective project.
Years Ended December 31, ------------------------------------- 1996 1995 1994 ------ ------ ------ Interest incurred $207.2 $141.4 $134.4 Interest capitalized (56.1) (58.3) (46.1) ------- ------- ------- $151.1 $ 83.1 $ 88.3 ======= ======= =======
Income Taxes EME is included in the consolidated federal income tax and combined state franchise tax returns of Edison International. EME calculates its income tax provision on a separate company basis under a tax sharing arrangement with TMG, which in turn has an agreement with Edison International. Tax benefits generated by EME and used in the Edison International consolidated tax return are recognized by EME without regard to separate company limitations. EME accounts for income taxes using the asset-and-liability method, wherein deferred tax assets and liabilities are recognized for future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities using enacted rates. Investment and energy tax credits are deferred and amortized over the term of the power-purchase agreement of the respective project and production tax credits and certain other allowances are accounted for by the flow-through method. Income tax accounting policies are discussed further in Note 8. Project Development Costs EME capitalizes only the direct costs incurred in developing new projects. These costs consist of professional fees, salaries, permits, bids and other directly related development costs incurred by EME before a partnership or joint venture is formed to develop the project. The capitalized costs are amortized over the life of operational projects or charged to expense if management determines the costs to be unrecoverable. Deferred Financing Costs Bank, legal and other direct costs incurred in connection with obtaining financing are deferred and amortized as interest expense on a basis which approximates the effective interest rate method over the term of the related debt. Accumulated amortization amounted to $6.9 million in 1996 and $2.5 million in 1995. Financial Instruments EME enters into interest rate swap and cap agreements to manage its interest rate exposure. The related net interest rate differentials to be paid or received are recorded currently as adjustments to interest expense. In addition, EME enters into electricity rate swap agreements to manage its exposure to the U.K. market (pool) price volatility. The related price differentials to be paid or received are currently recorded as adjustments to electric revenues. Translation of Foreign Financial Statements Assets and liabilities of most foreign operations are translated at current rates of exchange and the income statements are translated at the average rates of exchange for the year. Gains or losses resulting from foreign currency transactions are normally included in other income in the consolidated statements of income. Foreign currency transaction gains and losses were immaterial for 1996 and 1995. Foreign currency transaction gains amounted to $7.8 million for 1994. Gains or losses from translation of foreign currency financial statements are included in shareholder's equity. Stock-based Compensation EME measures compensation expense relative to stock-based compensation by the intrinsic-value method. NOTE 3. ACQUISITIONS - --------------------- In December 1995, First Hydro Finance Plc (First Hydro Finance), an indirect subsidiary of EME, purchased all of the outstanding shares of First Hydro, formerly First Hydro Limited, for approximately $1 billion (653 million pounds sterling). First Hydro's principal assets consist of two pumped-storage electric power stations located in North Wales at Dinorwig and Ffestiniog, which have a combined capacity of 2,088 MW. This acquisition was funded through a combination of (i) a $621 million (400 million pounds sterling) credit facility with a bank (see Note 6) and (ii) a $455 million (295.3 million pounds sterling) equity investment funded from a combination of a $350 million capital contribution from Edison International, and from EME's working capital and credit lines. The acquisition has been accounted for utilizing the purchase method, whereby the cost of the acquisition was allocated to the assets acquired and the liabilities assumed based upon their respective fair values. The consolidated statement of income for 1995 includes operating results of the acquired business beginning in December 1995. The following unaudited pro forma summary presents the consolidated results of operations as if the acquisition of First Hydro had occurred at the beginning of the periods presented, after giving effect to certain adjustments, including the depreciation and amortization of the assets acquired based on the fair values, interest expense on acquisition debt and related income tax adjustments. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of 1995 or 1994 or of the results which may occur in the future.
(Unaudited) Years Ended December 31, ---------------------------- 1995 1994 ------ ------ Operating revenue $690.4 $595.8 Net income 80.8 63.8
The table below summarizes additional stock acquisitions by EME or its wholly owned subsidiaries during 1994, 1995 and 1996.
Percentage Purchase Date Acquired By Acquisition Acquired Price - ---------------- ---------------------- ------------------------------- ---------- -------- Energy Projects August 8, 1995 MEC Indo Coal B.V. P.T. Adaro Indonesia 10.0% $19.0 January 23, 1996 MEC International B.V. Iberian Hy-Power Amsterdam B.V. 66.0% 19.5 January 31, 1996 MEC Indonesia B.V. P.T. Paiton Energy Company 7.5% 10.2 Oil and Gas September 30, 1994 Mission Energy Oil & Gas Four Star Oil & Gas Company 12.6% 29.7 Company (MEO&GC) (Four Star) January 1, 1995 MEO&GC Four Star 6.0% 8.8 August 1, 1996 MEO&GC Four Star 4.4% 4.9
NOTE 4. INVESTMENTS - -------------------- Investments in Energy Projects Investments in energy projects, generally 50% or less owned partnerships and corporations, accounted for by the equity method are as follows:
December 31, ----------------------------- 1996 1995 -------- ------- Domestic energy projects Equity investment $419.6 $481.3 Notes receivable 202.6 141.5 ------ ------ Subtotal 622.2 622.8 International energy projects: Equity investment and advances 172.4 101.1 ------ ------ Total $794.6 $723.9 ====== ======
EME's subsidiaries have provided loans or advances related to certain projects. One loan totaled $153.9 million and bears interest at a 10% rate. Another loan amounting to $26.3 million, comprising promissory notes bearing interest at 5% payable semiannually, is due in April 2008. Loans to three other domestic projects amounted to $22.4 million at December 31, 1996, and bear interest at variable rates (8.25% to 12.5%). The following table presents summarized financial information of the investments in energy projects, accounted for by the equity method:
Years Ended December 31, ----------------------------------------- 1996 1995 1994 -------- -------- -------- Revenue $1,383.3 $1,128.9 $1,092.1 Expenses 1,083.1 862.4 811.4 -------- -------- -------- Net income $ 300.2 $ 266.5 $ 280.7 ======== ======== ========
December 31, ----------------------------- 1996 1995 -------- ------- Current assets $ 480.0 $ 448.8 Noncurrent assets 3,653.9 3,647.8 -------- -------- Total assets $4,133.9 $4,096.6 ======== ======== Current liabilities $ 614.0 $ 448.7 Noncurrent liabilities 2,341.7 2,349.0 Equity 1,178.2 1,298.9 -------- -------- Total liabilities and equity $4,133.9 $4,096.6 ======== ========
The majority of noncurrent liabilities are comprised of project financing arrangements that are non-recourse to EME. The following table presents, as of December 31, 1996, the energy projects accounted for by the equity method that represent at least five percent (5%) of EME's income before tax or in which EME has an investment balance greater than $50 million.
Energy Project Location Investment Operating Status -------------- -------- ---------- ---------------- Brooklyn Navy Yard Brooklyn, NY $175.5 Operating cogeneration facility Watson Carson, CA 127.4 Operating cogeneration facility Paiton East Java, Indonesia 121.8 Coal-fired facility under construction Sycamore Bakersfield, CA 60.4 Operating cogeneration facility Kern River Bakersfield, CA 52.5 Operating cogeneration facility Midway-Sunset Fellows, CA 37.2 Operating cogeneration facility March Point 1 & 2 Anacortes, WA 9.8 Operating cogeneration facility
Investments in Oil and Gas At December 31, 1996, EME had one 46.85% owned and two 50% owned investments in oil and gas. These investments are accounted for utilizing the equity method. The difference between the carrying value of one oil and gas investment and the underlying equity in the net assets amounted to $49.9 million at December 31, 1996. The difference is being amortized on a unit of production basis over the life of the reserves. The following table presents summarized financial information of the investments in oil and gas:
Years Ended December 31, ------------------------------------- 1996 1995 1994 ------ ------ ------ Operating revenue $313.7 $230.5 $223.6 Operating expenses 222.3 187.5 172.2 ------ ------ ------ Operating income 91.4 43.0 51.4 Provision for income taxes 17.2 2.9 10.7 ------ ------ ------ Net income (before non-operating items) 74.2 40.1 40.7 Non-operating expense, net (12.0) (12.5) (4.0) ------ ------ ------ Net income $ 62.2 $ 27.6 $ 36.7 ====== ====== ======
December 31, ---------------------------- 1996 1995 ------ ------ Current assets $109.1 $114.0 Noncurrent assets 526.8 627.8 ------ ------ Total assets $635.9 $741.8 ====== ====== Current liabilities $ 46.2 $ 39.9 Noncurrent liabilities 336.2 347.6 Deferred income taxes 59.0 76.3 Equity 194.5 278.0 ------ ------ Total liabilities and equity $635.9 $741.8 ====== ======
The undistributed earnings of investments accounted for by the equity method were $138.9 million in 1996 and $118.8 million in 1995. Long-Term Receivables At December 31, 1996, long-term receivables include notes receivable totaling $86 million from EME's former partner in the Carbon II power plant. These notes are secured with shares of stock of its former partner (and certain subsidiaries) in the Carbon II power plant and Micare mines in Mexico. Interest on these notes is payable quarterly at LIBOR plus 2% (7.6% at December 31, 1996), with principal due in November 1999. NOTE 5. PROPERTY, PLANT AND EQUIPMENT - -------------------------------------- Property, plant and equipment consist of the following:
December 31, ------------------------------ 1996 1995 --------- --------- Buildings, plant and equipment $ 2,198.9 $ 889.9 Civil works 996.0 912.3 Construction in progress 0.6 857.9 Capitalized leased equipment 205.5 185.3 --------- --------- 3,401.0 2,845.4 Less accumulated depreciation and amortization 152.5 83.3 --------- --------- $ 3,248.5 $ 2,762.1 ========= =========
NOTE 6. FINANCIAL INSTRUMENTS - ------------------------------ Long-Term Obligations Long-term obligations include both corporate debt and non-recourse project debt, whereby lenders are generally relying on specific project assets to repay such obligations. Long-term obligations consist of the following:
December 31, ------------------------- 1996 1995 -------- ------- EME (parent only): Senior Notes, net: due 1999 (7.75%) $ 99.7 $ 99.6 due 2002 (8.125%) 99.1 99.0 200 million Australian dollar Credit Facility due 2001 (offshore Australian dollar deposit rate +.05%) (7.875% at 12/31/95) -- 148.6 $500 million revolving line of credit due 2001 (LIBOR + 0.4%) (6.025% at 12/31/95) -- 55.0 Edison Mission Energy Funding Corp.: Series A Notes, net due 1997-2003 (6.77%) 258.4 -- Series B Bonds, net due 2004-2008 (7.33%) 188.7 -- First Hydro Finance: 400 million pounds sterling Credit Facility due 1999 (sterling LIBOR +.25 to .85%) (6.813% to 7.413% at 12/31/95) -- 621.4 400 million pounds sterling Guaranteed Secured Bonds (9%) due 2021 684.9 -- Iberian Hy-Power project: Project credit facilities due 2003 (MIBOR + 1.5 to 2%) (7.836% to 8.336% at 12/31/96) 85.7 -- Loy Yang B project: Latrobe Project Facilities Agreement due 2008 (BER + 1.75 to 1.95%) (7.737% to 7.937% at 12/31/96) 744.6 568.9 Roosecote project: Capital lease obligation (see Note 12) 90.3 98.0 Term Loan and Guarantee Facility due 2005 (sterling LIBOR + 0.7%) (7.247% at 12/31/96) 58.0 45.3 Kwinana project: Kwinana Bank Debt due 2011 (BER + 1.3 to 1.5%) (7.287% to 7.487% at 12/31/96) 104.2 67.3 Other long-term obligations 87.3 72.9 -------- -------- Subtotal 2,500.9 1,876.0 Current maturities of long-term obligations (81.0) (37.0) -------- -------- Total $2,419.9 $1,839.0 ======== ======== At December 31, 1996, EME had available $430 million of borrowing capacity and approximately $70 million letters of credit issued under the $500 million revolving credit facility.
On December 20, 1996, Edison Mission Energy Funding Corp., 99% owned by Broad Street Contract Services, Inc. and 1% owned by EME, completed a sale of $450 million of senior notes and bonds to institutional investors pursuant to the Rule 144A exemption under the U.S. Securities Act of 1933 for non-public sales. The senior notes and bonds are secured by the pledge of (i) notes issued by four EME subsidiaries that own interests in four California cogeneration projects: the Kern River project (300 MW), the Midway-Sunset project (225 MW), the Sycamore project (300 MW) and the Watson project (385 MW), (ii) 99% of the capital stock of Edison Mission Energy Funding Corp. and (iii) a guarantee issued by the four EME subsidiaries. The financing structure was designed to pool and cross-collateralize available cash flow to the four EME subsidiaries from the four projects thus providing for repayment of the senior notes and bonds with available cash flow from the four projects. The obligations of the four EME subsidiaries are non-recourse to EME. The $450 million of securities issued by Edison Mission Energy Funding Corp. consist of $260 million of Series A Notes and $190 million of Series B Bonds which mature in September 2003 and September 2008, respectively. The Series A Notes and Series B Bonds bear an interest rate of 6.77% and 7.33%, respectively. The principal and interest payments under the notes issued by the four EME subsidiaries are identical in terms as the Series A Notes and Series B Bonds. The net proceeds from the sale of securities were used by EME to repay borrowings under its $500 million revolving credit facility, retire EME's 200 million Australian dollar credit facility, defease other project debt and for other general corporate purposes. In connection with the First Hydro acquisition, First Hydro Finance entered into a $621 million (400 million pounds sterling) credit facility with a bank in December 1995. EME issued two letters of credit totaling $43.5 million (28 million pounds sterling) under its corporate credit facility to meet conditions precedent to the initial borrowing comprised of a $24.9 million (16 million pounds sterling) interest reserve letter of credit (Debt Service Letter of Credit) and a $18.6 million (12 million pounds sterling) revenue support letter of credit due to expire in five years. In January 1996, First Hydro Finance issued 400 million pounds sterling of 9% Guaranteed Secured Bonds (Bonds) at par due on July 31, 2021. First Hydro Finance will commence funding a redemption reserve for principal repayment beginning in 2017 with interest payments due on a semi-annual basis beginning July 1996. The Bonds are secured by the two pumped-storage electric power stations located in North Wales. The net proceeds of $604 million (396 million pounds sterling) received, along with other funds held by First Hydro Finance, were used to repay the borrowings under the 400 million pounds sterling credit facility. At such time, the Debt Service Letter of Credit was retired. Concurrently, EME issued another letter of credit in the amount of $30.8 million (18 million pounds sterling) to meet a requirement for six months of interest in a bond interest reserve account. Annual maturities on long-term debt at December 31, 1996, for the next five years, excluding capital leases (see Note 12) are summarized as follows: 1997 - $61.5 million; 1998 - $87.2 million; 1999 - $166 million; 2000 - $80.2 million; 2001 - $99.9 million. The Latrobe Project Facilities Agreement is secured by the assets of the Latrobe Power Partnership, which owns 51% of the Loy Yang B joint venture. The "BER" referred to above is the Bill Exchange Rate, which is the bid rate for 'bills of exchange' accepted by banks in Australia. Certain cash balances are restricted from being used to make loans and advances or to pay dividends to EME by the amount required for debt payments, letter of credit expenses and permitted project costs. The total restricted cash was $17.8 million at December 31, 1996 and $16 million at December 31, 1995. Debt service reserves classified in Other Assets (including reserves for interest on annual lease payments) were $13.2 million at December 31, 1996, and $24.2 million at December 31, 1995. Each of EME's direct or indirect subsidiaries is organized as a legal entity separate and apart from EME and its other subsidiaries. Any asset of any such subsidiary may not be available to satisfy the obligations of EME or any of its other such subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements of such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to EME or affiliates thereof. Other Financial Instruments Projects in the U.K. sell their electrical energy and capacity through a centralized electricity pool, which establishes a half-hourly clearing price for electrical energy. The half-hourly pool price is extremely volatile and can vary by as much as a factor of 10 or more over the course of a few hours, due to the large differentials in demand according to the time of day. First Hydro mitigates a portion of the market risk of the pool by entering into contracts for differences (electricity rate swap agreements), related to either the selling or purchasing price of power, whereby a contract specifies a price at which the electricity will be traded, and the parties to the agreement make payments, calculated based on the difference between the price in the contract and the half-hourly pool clearing price for the element of power under contract. These contracts can be sold in two structures: one-way contracts, the most commonly used by First Hydro, where a specified monthly amount is received in advance and difference payments are made when the pool price is above the price specified in the contract, and two-way contracts, where the counter party pays First Hydro when the pool price is below that in the contract instead of a specified monthly amount. These contracts act as a means of stabilizing production revenues or purchasing costs by removing an element of First Hydro's net exposure to pool price volatility. The Roosecote project has avoided the pool price volatility by entering into a long-term power sales contract that provides for contract pricing. EME's risk management policy allows for the use of these contracts and other derivative financial instruments to limit financial exposure on its investments and to manage exposure to fluctuations in interest rates, foreign exchange rates and energy prices but prohibits the use of these instruments for speculative investment purposes. EME does not hold or issue financial instruments for trading purposes. EME had the following derivative financial instruments at December 31, 1996 and 1995, except where noted:
Category Contract Amount/Terms Purpose -------- --------------------- ------- INTEREST RATE SWAPS EME (parent only): $200 million expiring in 1999 ($100 Convert fixed-rate debt of 7.75% million) and 2002 ($100 million) and 8.125% to a floating rate, such floating rate capped at 9.0% $45 million expiring in 1999, Convert fixed-rate debt of 9.875% corresponding preferred securities due to a floating rate 2024 $75 million expired in August 1996 Change interest rate exposure to a fixed rate of 7.98% Iberian Hy-Power project: 10.9 billion Spanish pesetas (U.S. $83.6 Change floating rate debt to million) expiring 1998-2003 fixed rates ranging from 8.4% to 11.38% Roosecote project: 45 million pounds sterling (12/31/96) Change floating-rate debt to a (U.S. $77 million); 51 million pounds fixed rate of 12.4% sterling (12/31/95) (U.S. $79 million) expiring in 1997, corresponding debt due 2005 Kwinana project: 41.9 million Australian dollars (12/31/96) Change floating-rate debt to a (U.S. $33 million); 33.6 million fixed rate of 10.98% Australian dollars (12/31/95) (U.S. $25 million) expiring in 2007 INTEREST RATE CAP Kwinana project: 57.5 million Australian dollars (12/31/95) Change interest rate exposure to (US $42.7 million) expired in November a fixed rate of 11.25% 1996 ELECTRICITY RATE SWAPS First Hydro project: Approximately 1,735 MW of electrical Change the variable market generation under selling pricing contracts electricity sales rates to fixed (12/31/96); 1,500 MW (12/31/95) expiring rates at various dates through 2000 Approximately 416 MW of electricity under purchasing pricing contracts (12/31/96) Change the variable market expiring March 1997 electricity rates to fixed rates
Fair values of financial instruments were:
December 31, ------------------------------------------------------------ 1996 1995 --------------------------- -------------------------- Instrument Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- -------- ----- Long-term receivables $ 91.6 $ 99.9 $ 86.0 $ 90.3 Electricity rate swap agreements -- 26.8 -- 22.1 Long-term obligations 2,419.9 2,434.4 1,839.0 1,863.0 Interest rate swap/cap agreements $ -- $ (17.6) $ -- $ (10.3)
The fair values for long-term receivables, interest rate swap agreements, the interest rate cap agreement and long-term obligations are based primarily on quoted market prices. The carrying amounts reported for cash equivalents approximate fair value due to their short maturities. The fair value of the electricity rate swap agreements entered into by First Hydro has been estimated by discounting the future cash flows on the difference between the average aggregate contract price per MW and a forecasted market price per MW, multiplied by the amount of MW sales remaining under contract. Credit Risk EME's financial instruments and power sales contracts involve elements of credit risk. Credit risk relates to the risk of loss that EME would incur as a result of nonperformance by counter parties pursuant to the terms of their contractual obligations. The counter parties to financial instruments and contracts consist of a number of major financial institutions and domestic and foreign utilities. EME attempts to mitigate this risk by entering into contracts with counter parties that have a strong capacity to meet their contractual obligations and by monitoring the credit quality of these financial institutions and utilities. In addition, EME enters into contracts whereby the structure of the contracts minimizes its credit exposure. Accordingly, EME does not anticipate any material impact to its financial position or results of operations as a result of counter party nonperformance. The electric power generated by EME's operating projects that are generally sold to a limited number of electric utilities pursuant to long-term (typically, 15 to 30 year) power sales contracts (see Note 13) are expected to result in consistent cash flow under a wide range of economic and operating circumstances. To accomplish this, EME structures its long-term contracts so that fluctuations in fuel costs will produce similar fluctuations in electric and/or steam revenues and by entering into long-term fuel supply and transportation agreements. In addition, EME has plants located in different geographic areas in order to mitigate the effects of regional markets, economic downturns or unusual weather conditions. NOTE 7. COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITY OF PARTNERSHIP HOLDING - -------------------------------------------------------------------------------- SOLELY PARENT DEBENTURES - ------------------------ During November 1994, Mission Capital, L.P., a limited partnership in which EME is the sole general partner and a wholly owned subsidiary of EME is the limited partner, issued 3.5 million of 9-7/8% Cumulative Monthly Income Preferred Securities, Series A, at a price of $25 per security. These securities are redeemable at the option of Mission Capital, L.P. in whole or in part beginning November 1999 with mandatory redemption in 2024 at a redemption price of $25 per security plus accrued and unpaid distributions. During August 1995, Mission Capital, L.P., issued 2.5 million of 8-1/2% Cumulative Monthly Income Preferred Securities, Series B, at a price of $25 per security. These securities are redeemable at the option of Mission Capital, L.P. in whole or in part beginning August 2000 with mandatory redemption in 2025 at a redemption price of $25 per security plus accrued and unpaid distributions. NOTE 8. INCOME TAXES - --------------------- Current and Deferred Taxes Income tax expense includes the current tax liability from operations and the change in deferred income taxes during the year. The components of the net accumulated deferred income tax liability were:
December 31, ------------------------ 1996 1995 ------ ------ Deferred tax assets: Reserves and other items not currently deductible $ 64.5 $ 73.2 Loss carryforwards 129.9 88.7 Dividends in excess of equity earnings 22.6 13.5 Other 10.0 6.8 ------ ------ Total 227.0 182.2 ------ ------ Deferred tax liabilities: Basis differences 741.3 631.6 Tax credits, net 30.7 43.8 Other 0.4 9.4 ------ ------ Total 772.4 684.8 ------ ------ Deferred taxes and tax credits, net $545.4 $502.6 ====== ======
Loss carryforwards, primarily Australian, total $381 million at December 31, 1996, with no expiration date. The components of income before income taxes are as follows:
Years Ended December 31, ------------------------------------ 1996 1995 1994 ------ ------ ----- U.S. $ 40.6 $50.6 $78.7 Foreign 133.5 44.4 5.7 ------ ----- ----- Total $174.1 $95.0 $84.4 ====== ===== =====
The provision for income taxes is comprised of the following:
Years Ended December 31, ------------------------------------ 1996 1995 1994 ------ ------ ----- Current Federal $33.1 $23.9 $36.9 State 6.7 4.5 6.7 Foreign 38.8 7.2 2.5 ------ ------ ------ Total current 78.6 35.6 46.1 ------ ------ ------ Deferred Federal (17.9) (13.0) (12.8) State 0.4 (2.4) (5.7) Foreign 20.9 10.8 1.8 ------ ------ ------ Total deferred 3.4 (4.6) (16.7) ------ ------ ------ Provision for income taxes $82.0 $31.0 $29.4 ====== ====== ======
The components of the deferred tax provision (credit), which arise from tax credits and timing differences between financial and tax reporting, are presented below:
Years Ended December 31, ----------------------------------- 1996 1995 1994 ------ ------ ----- Basis differences $55.3 $ 47.1 $ 40.6 Loss carryforwards (41.2) (23.4) (36.8) State tax deduction (2.9) 2.1 2.1 Reserves and other items not currently deductible 8.7 (24.1) (13.9) Elimination of book income (10.0) (6.8) (1.8) Dividends in excess of equity earnings (9.2) (0.5) (6.9) Other 2.7 1.0 -- ------ ------- ------- Total deferred provision (credit) $ 3.4 $ (4.6) $(16.7) ====== ======= =======
Variations from the 35% federal statutory rate are as follows:
Years Ended December 31, -------------------------------------- 1996 1995 1994 ------- ------ ------ Expected provision for federal income taxes $60.9 $33.2 $29.5 Increase (decrease) in the provision for taxes resulting from: State tax - net of federal deduction 4.4 1.4 0.6 Dividends received deduction (7.9) (4.0) (2.1) Amortization of tax credits (8.6) (1.6) (1.6) Production tax credits -- (1.0) (1.0) Taxes on foreign operations at different rates 17.3 2.5 2.3 Book and tax basis differences 15.4 -- -- Other 0.5 0.5 1.7 ------ ------ ------ Total provision for income taxes $82.0 $31.0 $29.4 ====== ====== ====== Effective tax rate 47.1% 32.6% 34.8% ===== ===== =====
NOTE 9. EMPLOYEE BENEFIT PLANS - ------------------------------- U.S. employees of EME are eligible for various benefit plans of Edison International. Certain EME Australian and U.K. subsidiaries also participate in defined benefit pension plans. Pension Plans The noncontributory, defined benefit pension plans, administered by trustees, cover employees who fulfill minimum service requirements. Benefits are based on years of credited service and average base salary. Annual contributions meet the minimum legal funding requirements and do not exceed the maximum deductible for income taxes. Prior service costs from pension plan amendments are funded over 30 and 15 years for the U.S. plan and Australian plan, respectively. There are no prior service costs included in the U.K. plan. Plan assets are primarily U.S., U.K. and Australian common stock, corporate and government bonds and short-term investments. In 1996, EME offered special benefits to its non-union employees in connection with its special voluntary early retirement program. The special termination benefit was a lump-sum payment to be made upon termination, payable in addition to the employee's regular plan benefits or increased monthly plan benefits. The special termination benefit was paid directly from the employer's assets and plan assets. Funded status of pension plans:
December 31, -------------------------------------------- 1996 1995 1996 1995 ------ ------ ------ ------ U.S. Plan Non U.S. Plans ------------------- ------------------- Actuarial present value of benefit obligations: Vested benefits $ 7.4 $ 6.6 $20.9 $ 1.1 Nonvested benefits 1.7 3.0 0.8 0.4 ------- ------- ------ ------- Accumulated benefit obligation 9.1 9.6 21.7 1.5 Value of projected future compensation levels 5.6 7.0 2.0 0.6 ------- ------- ------ ------- Projected benefit obligation $14.7 $16.6 $23.7 $ 2.1 ======= ======= ====== ======= Fair value of plan assets $ 4.9 $14.1 $24.1 $ 2.2 ======= ======= ====== ======= Assets (less than) in excess of projected benefit obligations (9.8) (2.5) 0.4 0.1 Unrecognized net loss (gain) 5.4 (1.0) (0.3) -- Unrecognized prior service cost 0.6 -- -- -- Unrecognized net obligation 1.5 1.6 -- -- ------- ------- -------- ------- Pension (liability) asset $(2.3) $(1.9) $ 0.1 $ 0.1 ======== ======== ======== ======= Discount rate 7.75% 7.25% 6.5% - 8.0% 7.5% Rate of increase in future compensation 5.5% 5.0% 4.5% - 5.5% 5.5% Expected long-term rate of return on plan assets 8.0% 8.0% 8.5% - 9.0% 9.0%
Components of pension expense were:
Years Ended December 31, ----------------------------------------------------- 1996 1995 1994 1996 1995 ---- ---- ---- ---- ---- U.S. Plan Non U.S. Plans ----------------------------- ---------------- Service cost for benefits earned $ 2.0 $ 2.3 $ 1.8 $ 1.2 $ 0.5 Interest cost on projected benefit obligation 1.5 1.1 1.0 1.5 0.1 Actual return on plan assets (1.7) (0.8) (0.1) (1.5) (0.2) Net amortization and deferral 0.9 0.1 (0.4) (0.1) 0.1 ------- ------ ------ ------- ------ Pension expense 2.7 2.7 2.3 1.1 0.5 Special termination benefits 0.9 -- -- -- -- ------- ------ ------- ------- ------ Net pension expense $ 3.6 $ 2.7 $ 2.3 $ 1.1 $ 0.5 ======= ====== ======= ======= ======
In 1995, First Hydro employees were included as part of The National Grid Company plc (NGC) defined benefit pension plan (Electricity Supply Pension Scheme), administered by a trustee, which provides pension and other related benefits. Effective April 1, 1996, First Hydro employees were transferred into the First Hydro Group of the Electricity Supply Pension Scheme. An actuarial valuation for the U.K. plan, separate from NGC, was first completed for the 1996 year and, therefore, comparative amounts for prior periods were not included in the tables above. Pension expense totaled $0.1 million for December 1995. An actuarial valuation for the Australian plan was first completed for the 1995 year and, therefore, comparative amounts for 1994 were not included in the tables above. Contributions by the Australian subsidiaries were $0.6 million in 1994. In addition to the defined benefit plans described above, certain U.K. subsidiaries of EME sponsor a defined contribution plan. Annual contributions are based on eight percent of covered employees' salaries. Contribution expense for the subsidiaries totaled approximately $0.2 million in 1996 and 1995 and $0.1 million in 1994. Postretirement Benefits Other Than Pensions U.S. employees retiring at or after age 55 who have at least 10 years of service, are eligible for postretirement health care, dental, life insurance and other benefits. Health care benefits are subject to deductibles, copayment provisions and other limitations. The components of postretirement benefits other than pension expense were:
Years Ended December 31, -------------------------- 1996 1995 --------- -------- Service costs for benefits earned $1.2 $1.2 Interest cost on benefit obligation 0.7 0.6 Amortization of transition obligation 0.2 0.2 ---- ---- Net expense 2.1 2.0 Special termination benefits 0.5 -- ---- ---- Total expense $2.6 $2.0 ==== ====
A reconciliation of the plan's funded status with the recorded liability is presented below:
December 31, ----------------------- 1996 1995 ---- ---- Accumulated benefit obligation $11.4 $ 8.4 ===== ===== Fair value of plan assets $ -- $ -- ===== ===== Accumulated benefit obligation in excess of plan assets $11.4 $ 8.4 Unrecognized transition obligation (2.2) (2.5) Unrecognized net loss (4.1) (1.1) ------ ------ Recorded liability $ 5.1 $ 4.8 ====== ====== Discount rate 7.75% 7.5%
The assumed rate of future increases in the per capita cost of health care benefits is 10% for 1997, gradually decreasing to 5% for 2003 and beyond. Employee Stock Plans - -------------------- A 401(k) plan is maintained to supplement eligible U.S. employees' retirement income. The plan received EME contributions of $0.7 million in 1996 and 1995 and $0.6 million in 1994. NOTE 10. STOCK COMPENSATION PLANS - ---------------------------------- Under Edison International Officer's Long-Term Incentive Compensation Plan (LTIP), shares of Edison International common stock were reserved for potential issuance to key EME employees in various forms, including the exercise of stock options. Under these programs, there are currently outstanding to officers and senior managers of EME, options on 328,226 shares of Edison International Common Stock of which 57,900 and 31,700 were granted in 1996 and 1995, respectively. Options on Edison International stock include a dividend equivalent feature. The dividend equivalents may be applied against the grant price at the time of exercise. Compensation expense recorded under the stock-compensation program was $0.7 million, $0.3 million and $(0.3) million for 1996, 1995 and 1994, respectively. A decline during 1994 in the market value of the underlying shares optioned resulted in the recapture of previously recognized expense. The weighted-average fair value of options granted during 1996 and 1995 was $6.27 per share option and $6.92 per share option, respectively. The weighted- average remaining life of options outstanding as of December 31, 1996 and 1995, was seven years. The fair value for each option granted during 1996 and 1995, reflecting the basis for the pro forma disclosures, was determined on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used in determining fair value through the model:
1996 1995 ------- ------- Expected Life 7 years 8 years Risk-free Interest Rate 5.51% 7.93% Expected Volatility 17% 17%
The recognition of dividend equivalents results in no dividends assumed for purposes of fair-value determination. Stock-based compensation expense under the "fair-value" method of accounting prescribed by SFAS No. 123 would have resulted in no material change to EME's reported net income for 1996 and 1995, but is not necessarily indicative of future income statement effects. Phantom Stock Options EME, as a part of the LTIP, issued "phantom stock" option performance awards to key employees commencing in 1994. Each phantom stock option may be exercised to realize any appreciation in the deemed value of one hypothetical share of EME stock over its exercise price. Exercise prices for EME phantom stock are escalated on an annually-compounded basis over the grant price by 12%. The deemed value of the phantom stock is recalculated annually as determined by a formula linked to the value of its portfolio of investments less general and administrative costs. The options have a 10-year term with one-third of the total award vesting in each of the first three years of the award term. Compensation expense recorded with respect to phantom stock options was $16.1 million and $0.8 million in 1996 and 1995, respectively. No compensation expense was recorded in 1994. NOTE 11. COMMITMENTS AND CONTINGENCIES - ---------------------------------------- Firm Commitments to Contribute Project Equity
Projects Local Currency U.S. Currency -------- -------------- ------------- Paiton (i) $223 ISAB (ii) 244 billion Italian Lira 161 Kwinana (iii) 31 million Australian Dollar 24
(i) Paiton is a 1,230-MW coal-fired power plant under construction in East Java, Indonesia. A wholly owned subsidiary of EME owns a 40% interest. Equity contributions are currently being made and will continue until commercial operation, which is currently scheduled for early 1999. (ii) ISAB is a 512-MW gas-fired power plant under construction near Siracusa in Sicily, Italy. A wholly owned subsidiary of EME owns a 49% interest. Equity will be contributed at commercial operation which is currently scheduled for late 1999. (iii) Kwinana is a 116-MW gas-fired cogeneration power plant near Perth, Australia. Two wholly owned subsidiaries of EME own a 100% interest. Kwinana began commercial operation in December 1996. Equity was contributed on January 31, 1997. Firm commitments to contribute project equity could be accelerated due to certain events of default as defined in the non-recourse project financing facilities. Management has no reason to believe that these events of default will occur to require acceleration of the firm commitments. Contingent Obligations to Contribute Project Equity
Projects Local Currency U.S. Currency -------- -------------- ------------- Brooklyn Navy Yard (i) $294 Paiton (ii) 141 Kwinana 3 million Australian Dollar 3 Loy Yang B 5 million Australian Dollar 4 All Other 19
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in Brooklyn, New York. A wholly owned subsidiary of EME owns 50% of the project, but funded all of the required equity during construction. Estimated total cost is $485 million of which $442 million has been spent through December 31, 1996. In December 1995, a tax-exempt bond financing for the project in the amount of $254 million was obtained through the New York City Industrial Development Agency (NYCIDA). EME has guaranteed the obligations of the project pursuant to the financing as well as an indemnity agreement on behalf of NYCIDA in the amount of $40 million. In the fourth quarter of 1996, EME executed a new Energy Sales Agreement with Consolidated Edison Company of New York, which has contracted to buy most of the project's power and steam, and began selling power and steam under that agreement on November 1. The contractor has recently asserted general monetary claims under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. (BNY) and has served a Complaint for damages in the amount of $136.8 million against BNY. BNY has asserted general monetary claims against the contractor. EME believes that the outcome of this litigation will not have a material adverse effect on its consolidated financial position or results of operations. (ii) Contingent obligations to contribute additional project equity to the Paiton project would be based on events principally related to capital cost overruns during the plant construction. Management has no reason to believe that these contingent obligations or any other contingent obligations to contribute project equity will be required. Other Commitments and Contingencies Certain of EME's subsidiaries entered into indemnification agreements whereby the subsidiaries agreed to repay capacity payments to the projects' power purchasers, in the event the projects unilaterally terminate their performance or reduce their electric power producing capability during the term of the power contract. Obligations under these indemnification agreements as of December 31, 1996, if required, would be $248 million. Management has no reason to believe that the projects will either terminate their performance or reduce their electric power producing capability during the term of the power contracts. Certain EME subsidiaries are required to fund capital expenditures of project facilities, which are estimated to be $47 million at December 31, 1996 (principally related to the Brooklyn Navy Yard project). Litigation EME is routinely involved in litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management, based on advice of counsel, does not believe that the final outcome of any pending litigation will have a material adverse effect on EME's financial position or results of operations. Environmental Matters or Regulations EME is subject to environmental regulation by federal, state and local authorities in the U.S. and foreign regulatory authorities with jurisdiction over projects located outside the U.S. EME believes that it is in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect its financial position or results of operations. EME completed a review of some of its sites in 1995 and does not believe that a material liability exists as of December 31, 1996. The implementation of Clean Air Act Amendments is expected to result in increased operating expenses; however, these increased operating expenses are not expected to have a material impact on EME's financial position or results of operations. NOTE 12. LEASE COMMITMENTS - ---------------------------- EME leases office space, property and equipment under noncancelable lease agreements that expire in various years through 2063. The capital lease obligation is primarily for a project located in the U.K. A group of banks provides a guarantee on the performance of the capital lease obligation under a term loan and guarantee facility agreement. The facility agreement provides for an aggregate of $196.5 million in a guarantee to the lessor and in loans to the project. As of December 31, 1996, the loan obligation stands at $58 million, which is secured by the plant assets of $20.8 million owned by the project and a debt service reserve of $7.5 million. Future minimum payments for operating and capital leases at December 31, 1996, are:
Year Ending December 31: Operating Capital Leases Leases -------- ------- 1997 $ 5.4 $ 28.3 1998 5.1 28.3 1999 4.2 28.2 2000 3.7 28.1 2001 3.6 0.2 Thereafter 24.6 0.7 ----- ------ Total future commitments $46.6 113.8 ===== Amount representing interest (9.65%) 23.1 ------ Net Commitments $ 90.7 ======
Operating lease expense amounted to $6.3 million in 1996 and $3.9 million in 1995 and 1994. NOTE 13. RELATED PARTY TRANSACTIONS - ------------------------------------- Certain administrative services such as payroll and employee benefit programs, all performed by Edison International or Edison employees, are shared among all affiliates of Edison International and the costs of these corporate support services are allocated to all affiliates, including EME. Costs are allocated based on one of the following formulas: percentage of time worked, equity in investment and advances, number of employees, or multi-factor (operating revenues, operating expenses, total assets and number of employees). In addition, services of Edison International or Edison employees are sometimes directly requested by EME and such services are performed for EME's benefit. Labor and expenses of these directly requested services are specifically identified and billed at cost. Management believes the allocation methodologies utilized are reasonable. EME made reimbursements for the cost of these programs and other services, which amounted to $18.3 million, $15.9 million and $11.5 million in 1996, 1995 and 1994, respectively. EME records accruals for tax liabilities and/or tax benefits which are settled quarterly according to a series of tax sharing agreements as described in Note 2. EME recognized tax liabilities under these agreements of $39.8 million for 1996, $28.4 million for 1995, and $43.6 million for 1994 (see Note 8). Certain EME subsidiaries have ownership in partnerships that sell electricity generated by their project facilities to Edison and others under the terms of long-term power-purchase agreements. Sales by such partnerships to Edison under these agreements amounted to $517.1 million in 1996, $657.3 million in 1995, and $678.5 million in 1994. NOTE 14. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION - -----------------------------------------------------------
Years Ended December 31, ----------------------------------- 1996 1995 1994 ----- ------ ------ Cash paid: Interest (net of amount capitalized) $131.5 $ 76.4 $87.3 Income taxes $ 45.9 $ 41.6 $52.4 ====== ====== ===== Years Ended December 31, ----------------------------------- 1996 1995 1994 ------ -------- ----- Details of companies acquired: Fair value of assets acquired $152.7 $1,761.1 $29.7 Liabilities assumed 118.1 718.5 -- ------ -------- ------ Net cash paid for acquisitions $ 34.6 $1,042.6 $29.7 ====== ======== ======
Non-Cash Investing and Financing Activities The amount of construction in progress financed by the minority owner in the Loy Yang B joint venture was $32.7 million in 1996, $77.4 million in 1995 and $95.4 million in 1994. NOTE 15. GEOGRAPHIC AREAS - FINANCIAL DATA - ------------------------------------------- EME operates predominately in one industry segment: independent electric power generation. Electric power and steam generated domestically is sold primarily under long-term contracts to electric utilities located in the U.S. Excluding the U.K., electric power and steam generated overseas (principally Australia), is sold primarily under long-term contracts to electric utilities located in the country where the power is generated. Projects located in the U.K. sell their energy and capacity production through a centralized electricity pool located in the U.K. These projects enter into short- and/or long-term contracts to hedge against the volatility of price fluctuations in the pool.
Asia Corporate/ U.S. Pacific Europe Other Total ----- ------- ------ ----------- ------- 1996 ---- Electric & operating revenues $ 16.8 $ 245.1 $ 427.8 $ -- $ 689.7 Equity in income (loss) from investments 153.3 3.0 2.0 (4.4) 153.9 ------ -------- -------- -------- -------- Total operating revenues $170.1 $ 248.1 $ 429.8 $ (4.4) $ 843.6 ====== ======== ======== ======== ======== Net income (loss) $ 68.2 $ 22.5 $ 28.8 $ (27.4) $ 92.1 ====== ======== ======== ======== ======== Identifiable assets $239.5 $1,512.7 $2,397.1 $ 87.3 $4,236.6 Equity investments and advances 709.2 141.3 30.8 34.6 915.9 ------ -------- -------- -------- -------- Total assets $948.7 $1,654.0 $2,427.9 $ 121.9 $5,152.5 ====== ======== ======== ======== ======== 1995 ---- Electric & operating revenues $ 13.9 $ 170.8 $ 146.8 $ -- $ 331.5 Equity in income (loss) from investments 143.1 -- (2.7) (4.6) 135.8 ------ -------- --------- --------- -------- Total operating revenues $157.0 $ 170.8 $ 144.1 $ (4.6) $ 467.3 ====== ======== ========= ========= ======== Net income (loss) $ 57.0 $ 15.8 $ 7.9 $ (16.7) $ 64.0 ====== ======== ========= ========= ======== Identifiable assets $112.9 $1,302.7 $1,988.6 $ 89.0 $3,493.2 Equity investments and advances 729.4 69.0 31.8 50.6 880.8 ------ -------- -------- --------- -------- Total assets $842.3 $1,371.7 $2,020.4 $ 139.6 $4,374.0 ====== ======== ======== ========= ======== 1994 ---- Electric & operating revenues $ 15.4 $ 158.4 $ 60.8 $ -- $ 234.6 Equity in income from investments 142.0 -- 0.7 3.3 146.0 ------- --------- -------- --------- -------- Total operating revenues $ 157.4 $ 158.4 $ 61.5 $ 3.3 $ 380.6 ======= ========= ======== ========= ======== Net income (loss) $ 67.8 $ (4.9) $ 2.4 $ (10.3) $ 55.0 ======= ========= ======== ========= ======== Identifiable assets $ 100.7 $1,418.8 $ 258.3 $ 86.5 $1,864.3 Equity investments and advances 873.1 17.5 28.4 59.6 978.6 ------- --------- -------- --------- -------- Total assets $ 973.8 $1,436.3 $ 286.7 $ 146.1 $2,842.9 ======= ========= ======== ========= ======== Includes corporate net interest expense and Mexico and Canada investments.
NOTE 16. SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND GAS PRODUCING - ---------------------------------------------------------------------- ACTIVITIES (UNAUDITED) - ---------------------- This section provides information required by Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities." All of EME's oil and gas operations are carried on by investees accounted for by the equity method. These investees all follow the successful efforts method of accounting. EME's proportionate interest in net quantities of proved reserves at December 31, 1996, 1995 and 1994, and results of operations for the years then ended related to equity method investees are shown in the following tables:
Oil Natural Gas Million of Barrels Billion of Cubic Feet ---------------------------- --------------------------- U.S. Canada Total U.S. Canada Total Proved developed and 1996 23.7 1.8 25.5 182.0 105.5 287.5 undeveloped reserves 1995 23.1 2.0 25.1 180.6 118.5 299.1 1994 22.0 1.9 23.9 229.9 124.0 353.9 Costs incurred in oil and 1996 $ 13.4 $ 4.2 $ 17.6 gas property acquisition 1995 37.2 6.5 43.7 exploration, and 1994 50.4 16.7 67.1 development activities Aggregate amounts of 1996 $206.6 $ 42.4 $249.0 capitalized costs 1995 202.1 46.6 248.7 (including construction in 1994 229.5 49.0 278.5 progress) for proved and unproved properties Results of operations 1996 $ 39.2 $ (2.6) $ 36.6 1995 16.7 (2.5) 14.2 1994 9.5 2.8 12.3 Standardized measure of 1996 $435.8 $ 63.6 $499.4 discounted future net cash 1995 246.5 33.4 279.9 flows 1994 203.1 39.3 242.4
The increase in 1996 in U.S. results of operations and total standardized measure resulted primarily from higher oil and gas prices in 1996. The decrease in 1995 in U.S. gas reserves was primarily the result of revisions to previous estimates. NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED) - ----------------------------------------------
1996 First Second Third Fourth Total ------ ------ --------- ---------- ------ Operating Revenues $190.7 $184.3 $212.0 $256.6 $843.6 Income from operations 85.2 73.3 107.5 101.1 367.1 Net income 22.0 31.0 31.0 8.1 92.1 1995 First Second Third Fourth Total ------ ------ --------- ------ ----- Operating Revenues $ 90.4 $108.2 $147.3 $121.4 $467.3 Income from operations 36.6 47.6 86.3 32.8 203.3 Net income 7.5 14.5 38.9 3.1 64.0 Includes a $15.5 million gain on the sale of four operating geothermal facilities. Reflects EME's seasonal pattern, in which the majority of earnings from domestic projects are recorded in the third quarter of each year. Includes operating revenues and income for Loy Yang B Unit 2 and the Kwinana project which both commenced operations in the fourth quarter of 1996.
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT POSITIONS WITH EME The following table sets forth the names and ages of, the positions held with EME by, and the terms of office of, the directors and executive officers of EME as of March 1, 1997.
DIRECTOR POSITION HELD CONTINUOUSLY TERM CONTINUOUSLY TERM NAME, POSITION AND AGE SINCE EXPIRES SINCE EXPIRES - ---------------------- ------------------- ------- ------------------ ------- John E. Bryson, 53 . . . . . . . . . . . . . . . . . . . . . . . . . . 1990 1997 -- -- Chairman of the Board Bryant C. Danner, 59 . . . . . . . . . . . . . . . . . . . . . . . . . 1993 1997 -- -- Director Robert M. Edgell, 50 . . . . . . . . . . . . . . . . . . . . . . . . . 1993 1997 1988 1997 Director, Executive Vice President and Division President of EME, Asia Pacific Alan J. Fohrer, 46 . . . . . . . . . . . . . . . . . . . . . . . . . . 1992 1997 -- -- Vice Chairman of the Board Edward R. Muller, 44 . . . . . . . . . . . . . . . . . . . . . . . . . 1993 1997 1993 1997 Director, President and Chief Executive Officer S. Linn Williams, 50 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997 Senior Vice President and General Counsel James V. Iaco, Jr, 52. . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997 Senior Vice President and Chief Financial Officer S. Daniel Melita, 45 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1993 1997 Senior Vice President and Division President of EME, Europe, Central Asia, Middle East and Africa Georgia R. Nelson, 47 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1996 1997 Senior Vice President, Operations and Division President of EME, Americas Robert E. Driscoll, 47 . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1995 1997 Vice President and Division Senior Vice President, Asia Pacific Lynn M. Gardner, 43 . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1995 1997 Vice President, Administration Paul R. Gillespie, 49 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1996 1997 Vice President, Tax Herbert A. Glaser, 40 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1996 1997 Vice President and Associate General Counsel Walter L. Halander, 53 . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1992 1997 Vice President and Chief Administrative Officer, Asia Pacific Gregory C. Hoppe, 47 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1986 1997 Vice President and Director, Australia Mark E. Irwin, 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1995 1997 Vice President, Fuels and U.S. Assets Thomas E. Legro, 45 . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997 Vice President and Controller Patricia A. Lyman, 47 . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1987 1997 Vice President, Assistant General Counsel, and Assistant Secretary Paul L. Multari, 41 . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997 Vice President and General Manager, Edison Mission Operation & Maintenance, Inc. Kevin M. Smith, 38 . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1994 1997 Vice President and Treasurer John J. Vella, 45 . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1993 1997 Vice President, Construction and Technical Services
BUSINESS EXPERIENCE Set forth below is a description of the principal business experience during the past five years of each of the individuals named above and the name of each public company in which any director named above is a director. MR. BRYSON has been Chairman and Chief Executive Officer of Edison International and SCE since 1990. Edison International is the parent and SCE is an affiliate of EME. From 1988 until 1990, Mr. Bryson was Executive Vice President and Chief Financial Officer of Edison International and SCE. Since May 1993, Mr. Bryson has been Chairman of the Board of EME. Mr. Bryson is a director of The Boeing Company, The Times Mirror Company, the Council on Foreign Relations and Chairman of the California Business Roundtable. MR. DANNER has been Executive Vice President and General Counsel of Edison International and SCE since June 1995. Mr. Danner was Senior Vice President and General Counsel of Edison International and SCE from July 1992 until May 1995. From 1970 until 1992, Mr. Danner was a partner with the law firm of Latham & Watkins. MR. EDGELL has been Executive Vice President of EME since April 1988. Mr. Edgell was named Division President of EME's Asia Pacific region in January 1995. MR. FOHRER has been Vice Chairman of the Board of EME since May 1993. Mr. Fohrer has been Executive Vice President and Chief Financial Officer of Edison International and SCE since June 1995. Effective February 1996 and June 1995, Mr. Fohrer also served as Treasurer of SCE and Edison International, respectively, until August 1996. Mr. Fohrer was Senior Vice President, Treasurer and Chief Financial Officer of Edison International, and Senior Vice President and Chief Financial Officer of SCE from January 1993 until May 1995. Mr. Fohrer was interim Chief Executive Officer of EME between May 1993 and August 1993. From 1991 until 1993, Mr. Fohrer was Vice President, Treasurer and Chief Financial Officer of Edison International and SCE. From 1987 until 1991, Mr. Fohrer was Assistant Treasurer and Manager of Cost Control of SCE. MR. MULLER has been President and Chief Executive Officer of EME since August 1993. Prior to joining EME, Mr. Muller served as vice president, chief administrative officer, general counsel and secretary of Whittaker Corporation, an aerospace firm, from 1988 until 1992 and as vice president, chief financial officer, general counsel and secretary of Whittaker Corporation from 1992 until 1993. From 1991 until 1993, Mr. Muller also served as vice president, secretary and general counsel of BioWhittaker, Inc., a biotechnology company. Mr. Muller is a director of Whittaker Corporation, Oasis Residential, Inc. and Global Marine Inc. MR. WILLIAMS has been Senior Vice President and General Counsel of EME since November 1994. From 1985 through 1989 and 1992-1993, Mr. Williams was a partner with the law firm of Gibson, Dunn and Crutcher. From 1989-1991, Mr. Williams served as Deputy United States Trade Representative (with Rank of Ambassador). From 1993-1994, Mr. Williams was a partner with the law firm of Jones, Day, Reavis and Pogue. MR. IACO has been Senior Vice President and Chief Financial Officer of EME since January 1994. From November 1991 until September 1992 and from September 1993 until December 1993, Mr. Iaco was self-employed and provided consulting services, specializing in restructuring, finance, crisis management and other management services. From October 1992 until September 1993, Mr. Iaco served as senior vice president and chief financial officer of Phoenix Distributors, Inc., a distributor of industrial gas and welding supplies. From November 1990 until October 1991, Mr. Iaco served as senior vice president and chief financial officer of Intermark, Inc., a company engaged primarily in real estate development, manufacturing and retail operations. From 1989 until 1990, Mr. Iaco served as senior vice president, chief financial officer and treasurer of MAXXAM Inc., a company engaged in aluminum production, forest products operations and real estate development. MR. MELITA has been Senior Vice President of EME since November 1993. Mr. Melita was named Division President of EME's Europe, Central Asia, Middle East and Africa region in January 1995. From August 1992 until 1993, Mr. Melita served as Vice President-European Operations of EME. From 1989 until 1992, Mr. Melita served as vice president-international operations of EBASCO Overseas Corporation, an engineering and construction company. MS. NELSON has been Senior Vice President, Worldwide Operations and Division President of EME's Americas region since January 1996. Prior to joining EME, Ms. Nelson served as Senior Vice President of SCE from June 1995 until December 1995 and Vice President of SCE from March 1993 until June 1995. From 1992 to 1993, Ms. Nelson served as a Special Assistant to the Chairman of Edison International. From 1989 to 1992, Ms. Nelson served as Manager of Procurement and Material Management for SCE. Ms. Nelson is a director of CalMat Company. MR. DRISCOLL has been Vice President and Division Senior Vice President of EME's Asia Pacific region since July 1995. Prior to joining EME, Mr. Driscoll served as a member of the U.S. - ASEAN Council for Business and Technology, Inc., a national business association promoting expanded trade and investment between certain Southern Asian Nations and the United States. He served in this capacity form 1989 to 1995. From 1975 to 1989, Mr. Driscoll served as executive vice president of the Fund for Multinational Management Education, an organization involved in public policy analysis. MS. GARDNER has been Vice President - Administration of EME since May 1995. Prior to joining EME, Ms. Gardner served as Special Assistant to the Chairman of Edison International from 1994 to 1995. In 1994, Ms. Gardner was SCE's Senior Legal Counsel for labor and employment matters. Between 1991 and 1993, she served as Generating Station Manager of the Long Beach and Huntington Beach generating stations. Between 1984 to 1991, Ms. Gardner practiced labor and employment law in SCE's Law Department. MR. GILLESPIE has been Vice President of Tax of EME since April 1996. Prior to joining EME, Mr. Gillespie was Senior Tax Counsel, Federal Appeals and Litigation for Mobil Corporation from January to April 1996. From July 1991 to December 1995, Mr. Gillespie was Manager of Tax Planning at Mobil Corporation. From October 1986 to July 1991, Mr. Gillespie was Director of Taxes at Alcon Laboratories. MR. GLASER has been Vice President and Associate General Counsel of EME since September 1996. From January 1996 to August 1996, Mr. Glaser was Counsel with the law firm of McDermott, Will & Emery. From 1994 to 1996, Mr. Glaser was Counsel with the law firm of King & Spaulding. From 1990 to 1994, Mr. Glaser served as Associated General Counsel for the Overseas Private Investment Corporation. MR. HALANDER was named Vice President and Chief Administrative Officer of EME's Asia Pacific region in March 1995. From May 1991 until March 1995, Mr. Halander served as Vice President, Administration of EME. From November 1986 until March 1991, Mr. Halander served as Vice President, Controller and Secretary of Mission Power Engineering Company. Mr. Halander has been President of Mission Power Engineering Company since March 1991. MR. HOPPE has been Vice President of EME since April 1986. Mr. Hoppe has also served as Director, Australia since October 1992. MR. IRWIN has been Vice President - Fuels, U.S. Assets of EME since July 1995. From 1993 to 1995, Mr. Irwin served as Manager of Asset Management. From 1990 to 1993, Mr. Irwin served as Manager, Acquisitions. MR. LEGRO has been Vice President of EME since December 1994 and Controller of EME since December 1993. From 1990 until 1993, Mr. Legro served as Manager of Financial Planning and Analysis for EME. From 1989 until 1990, Mr. Legro served as Controller for British Petroleum Advanced Materials International, a division of BP Chemicals. MS. LYMAN has been Vice President, Assistant General Counsel and Assistant Secretary of EME since November 1992. Ms. Lyman also served as Director of Legal Affairs of EME's Asia Pacific region from November 1992 until January 1995. Since April 1991, Ms. Lyman has served as Assistant General Counsel and Assistant Secretary of EME. MR. MULTARI has been Vice President of EME since August 1994 and Vice President and General Manager of Edison Mission Operation & Maintenance, Inc. since September 1992. From 1987 until 1992, Mr. Multari served as Manager of Operations for Edison Mission Operation & Maintenance, Inc. MR. SMITH has been Vice President of EME since December 1994 and Treasurer of EME since September 1992. From 1988 until 1992, he served as Manager of Corporate Finance for EME. MR. VELLA has been Vice President of EME since March 1993 and Vice President, Construction and Technical Services since March 1997. From 1973 until 1993, Mr. Vella served as manager of business development and senior regional representative of Bechtel Corporation, an engineering and construction business, as well as general manager of Bechtel de Mexico, S.A. de C.V., one of Bechtel's subsidiaries. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table provides information concerning compensation paid by EME to each of the named executive officers during the years 1996, 1995 and 1994 for services rendered by such persons in all capacities to EME and its subsidiaries. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------------------ ------ OTHER ANNUAL SECURITIES ALL OTHER SALARY BONUS COMPENSATION UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#) ($) --------------------------- ---- ------ ----- ------------ -------------- ------------ Edward R. Muller 1996 370,000 444,000 2,621 41,000 23,148 President & Chief Executive 1995 335,000 331,700 2,646 53,190 17,521 Officer 1994 310,000 200,000 1,789 31,920 2,325 Robert M. Edgell 1996 292,000 275,000 133 25,700 88,071 Executive Vice President 1995 252,000 250,000 700 30,770 8,492 1994 236,000 120,000 516 14,520 4,130 S. Linn Williams 1996 275,000 220,000 734 20,100 13,148 Senior Vice President 1995 250,000 180,000 1,028 24,390 141 and General Counsel 1994 34,532 25,000 0 0 0 Georgia R. Nelson 1996 270,000 190,000 1,337 23,700 14,446 Senior Vice President, Operations James V. Iaco, Jr. 1996 250,000 200,000 2,906 19,800 10,416 Senior Vice President and 1995 190,000 140,000 2,223 19,710 0 Chief Financial Officer 1994 164,455 75,000 2,531 9,340 0 Ms. Nelson was appointed Senior Vice President, Operations and Division President of EME, Americas in January 1996. Mr. Williams was appointed Senior Vice President and General Counsel of EME in November 1994. No Stock Appreciation Rights (SARs) were granted. Amounts shown are comprised of Edison International stock options and EME "phantom stock" options. For 1996, Mr. Muller, Mr. Edgell, Mr. Williams, Ms. Nelson and Mr. Iaco received 10,200; 6,600; 5,400; 9,000; and 5,100 Edison International stock options, respectively; and 30,800; 19,100; 14,700; 14,700; and 14,700 EME phantom stock options, respectively. For 1995, Mr. Muller, Mr. Edgell, Mr. Williams and Mr. Iaco received 10,000; 5,200; 4,500; and 3,800 Edison International stock options, respectively; and 43,190; 25,570; 19,890; and 15,910 EME phantom stock options, respectively. For 1994, Mr. Muller, Mr. Edgell, Mr. Williams and Mr. Iaco received 14,100; 3,300; 0; and 2,300 Edison International stock options, respectively; and 17,820; 11,220; 0; and 7,040 EME phantom stock options, respectively. Each Edison International stock option gives the named executive officer the right to purchase one share of Edison International common stock, and each EME phantom stock option may be exercised to realize any appreciation in the deemed value of one hypothetical share of EME stock over annually escalated exercise prices, on the terms described in the notes to the Option Grants in the 1996 Option Grant Table below. Includes the following company contributions to the Stock Savings Plus Plan (SSPP) and a supplemental defined contribution plan for eligible participants who are affected by participation limits of the SSPP imposed on higher-paid individuals by federal tax law: For 1996, Mr. Muller, $11,455; Mr. Edgell, $4,500; Mr. Williams, $6,301; Ms. Nelson, $7,913; and Mr. Iaco, $6,077. For 1995, Mr. Muller, $15,988; Mr. Edgell, $8,220; Mr. Williams, $0; and Mr. Iaco, $0. For 1994, Mr. Muller, $2,325; Mr. Edgell, $4,130; Mr. Williams, $0; and Mr. Iaco, $0. Also includes the following amounts of interest accrued on deferred compensation of the named individuals, which is considered under the rules of the Securities and Exchange Commission to be at an above-market rate: For 1996, Mr. Muller, $1,508; Mr. Edgell, $239; Mr. Williams, $926; Ms. Nelson, $1,882; and Mr. Iaco, $139. For 1995, Mr. Muller, $1,533; Mr. Edgell $272; Mr. Williams, $141; and Mr. Iaco, $0. For 1994, Mr. Muller, $0; Mr. Edgell, $0; Mr. Williams, $0; and Mr. Iaco, $0. Dividend equivalents related to 10,000 Edison International options granted to Mr. Muller on January 3, 1994, pursuant to his employment agreement, accrue unconditionally. Includes an overseas service allowance of $75,832. For each employee serving in an overseas site, the allowance calculation depends on base pay, family size and location.
EXECUTIVE STOCK OPTIONS The following table sets forth certain information concerning Edison International stock options and EME phantom stock options granted pursuant to the Edison International Officer Long-Term Incentive Compensation Plan (LTIP) to the executive officers named in the Summary Compensation Table above during 1996.
OPTION GRANTS IN 1996 Individual Grants ----------------------------------------------------------------------------- Exercise Options Percent of Total or Base Grant Date Granted Options Granted to Price Expiration Present Name (#) Employees in 1996 ($/Sh) Date Value($) - ------------------ -------- ------------------- --------- ------------ -------- Edward R. Muller Edison International 10,200 18% 17.6250 01/02/2006 50,592 EME 30,800 12% 77.0300 01/02/2006 210,672 Robert M. Edgell Edison International 6,600 11% 17.6250 01/02/2006 32,736 EME 19,100 7% 77.0300 01/02/2006 130,644 S. Linn Williams Edison International 5,400 9% 17.6250 01/02/2006 26,784 EME 14,700 6% 77.0300 01/02/2006 100,548 Georgia R. Nelson Edison International 9,000 16% 17.6250 01/02/2006 44,640 EME 14,700 6% 77.0300 01/02/2006 100,548 James V. Iaco, Jr. Edison International 5,100 9% 17.6250 01/02/2006 25,296 EME 14,700 6% 77.0300 01/02/2006 100,548 No SARs were granted. This table reflects all awards made under the LTIP ("LTIP Options") during 1996. In addition to Edison International stock options, it includes EME "phantom stock" options. Each Edison International option represents the right to purchase one share of common stock of Edison International. The Edison International stock options include dividend equivalents which will be credited following the first three years of the option term if certain Edison International performance criteria discussed below are met. Dividend equivalents accumulate without interest and are payable in cash (or applicable to the exercise price) only upon the exercise of the related stock option. They are forfeited if and when the related option is forfeited. Dividend equivalents linked to Edison International performance are measured by Edison International Common Stock total shareholder return. If the average quarterly percentile ranking is less than the 60th percentile of that of the companies comprising the Dow Jones Electric Utilities Group Index, the dividend equivalents are reduced; if the Edison International total shareholder return ranking is less than the 25th percentile, the dividend equivalents are canceled. For rankings between the 60th and 25th percentiles, the dividend equivalents are prorated. The total shareholder return is measured at the end of the initial three-year period and will set the percentage payable for the entire term. If less than 100% of the dividend equivalents are earned, the unearned portion may be restored later in the option term if Edison International's cumulative total shareholder return ranking for the option term attains at least the 60th percentile. The terms and conditions of the 1994 and 1995 options are similar to 1996 except as follows. For 1994 options, the total shareholder return measure is phased in over a three-year period, after which a rolling three-year average will be used. Each EME phantom stock option represents a right to exercise an option on one hypothetical share of EME stock. The deemed value of the stock is determined by a formula linked to project values, which are determined annually, and is based on 10 million total shares. The exercise price is the base value of the stock on the date of grant escalated at 12% per year, compounded annually. If the deemed value of a share of EME stock exceeds the exercise price for any subsequent year, the executive may exercise his option right with respect to any portion of his vested units during the 60-day exercise window in the second quarter of the following year and be paid in cash the difference between the exercise price and the deemed value of the shares. The number of units awarded to each Executive Officer was ascertained by dividing the calculated value of an EME phantom option into the present value target for the EME component of the Executive Officer's LTIP award as determined with reference to the Compensation and Executive Personnel Committees' survey discussed in their report below. The LTIP Options become exercisable in three equal installments beginning on the first anniversary of their date of grant. Each option has a term of 10 years, subject to earlier expiration upon termination of employment as described below. The options are not transferable except upon death. If an executive retires, dies, or is permanently and totally disabled during the three-year vesting period, the unvested LTIP Options will vest and be exercisable to the extent of 1/36 of the grant for each full month of service during the vesting period. Unvested LTIP Options of any person who has served in the past on the Edison International or SCE Management Committee will vest and be exercisable upon the member's retirement, death, or permanent and total disability. None of the named officers have served on either of the two committees. Upon retirement, death or permanent and total disability, the vested LTIP Options may continue to be exercised within their original term by the recipient or beneficiary. If an executive is terminated other than by retirement, death or permanent and total disability, LTIP Options which had vested as of the prior anniversary date of the grant are forfeited unless exercised within 180 days of the date of termination in the case of Edison International options, or during the next 60-day exercise window in the case of EME phantom stock options. All unvested LTIP Options are forfeited on the date of termination. Appropriate and proportionate adjustments may be made by the Compensation and Executive Personnel Committee to outstanding Edison International options to reflect any impact resulting from various corporate events such as reorganizations, stock splits and so forth. If Edison International is not the surviving corporation in such a reorganization, all LTIP Options then outstanding will become vested and be exercisable unless provisions are made as part of the transaction to continue the LTIP or to assume or substitute stock options of the successor corporation with appropriate adjustments as to the number and price of the options. The Edison International Compensation and Executive Personnel Committee administers the LTIP and has sole discretion to determine all terms and conditions of any grant, subject to plan limits. In addition, with the consent of the executive, the Compensation and Executive Personnel Committee may amend the terms of any agreement, including the price of any option, the post-termination term, and the vesting schedule. The Compensation and Executive Personnel Committee may substitute cash equivalent in value to the LTIP Options. The expiration date of the LTIP Options is January 2, 2006; however, the final 60-day exercise period of EME phantom stock options will occur during the second quarter of that year. The LTIP Options are subject to earlier expiration upon termination of employment as described in footnote above. The grant date present value of each Edison International stock option was calculated as the sum of (i) the option value and (ii) the dividend equivalent value. The option value was calculated to be approximately $1.71 per option share using the Black-Scholes stock option pricing model. For purposes of this calculation, it was assumed that options would be outstanding for an average of seven years prior to exercise, the volatility rate was assumed to be 17%, the risk-free rate of return was assumed to be 5.51%, the historic average dividend yield was assumed to be 6.54% and the stock price and exercise price were $17.6250. The grant date value of the dividend equivalent rights included with respect to each Edison International stock option was determined by (i) adding the dividends (without reinvestment) that would be received on a number of shares of Edison International common stock equal to the number of shares subject to the option for a period of seven years from the date on which the option was granted, based on the annual dividend rate at grant of $1.00 per share and (ii) discounting that amount to its present value assuming a discount rate of 11.6%, which was Edison's authorized return on common equity in 1996. This calculation does not reflect any reduction in value for the risk that Edison International performance measures may not be met. The value of an EME option was calculated to be $6.84 using the Black-Scholes stock option pricing model assuming an average exercise period of seven years, a volatility rate of 20.35%, a risk-free rate of return of 5.99%, a dividend yield of 0% and an exercise price of $170.29. These assumptions are based on average values of a group of peer companies adjusted for differences in capital structure. The actual value that an executive may realize will depend on various factors on the date the option is exercised, so there is no assurance the value realized by an executive will be at or near the grant date value estimated by the Black-Scholes model. The estimated values under that model are based on certain assumptions and are not a prediction as to future stock price.
The following table sets forth certain information with respect to the exercise during 1996 by the executive officers named in the Summary Compensation Table above of options to purchase shares of common stock of Edison International and exercise hypothetical shares of stock of EME and option values as of December 31, 1996. AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED UNEXERCISED IN-THE- OPTIONS AT FISCAL MONEY OPTIONS AT YEAR-END (#) FISCAL YEAR-END($) ----------------- ---------------------- SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE ---- --------------- ----------------- ------------- ------------- Edward R. Muller Edison International -- -- 32,732/21,568 42,589/72,714 EME -- -- 26,276/65,534 353,221/565,468 Robert M. Edgell Edison International -- -- 36,683/11,167 183,616/36,265 EME -- -- 16,003/39,887 212,654/336,543 S. Linn Williams Edison International -- -- 1,500/8,400 8,156/29,138 EME -- -- 6,630/27,960 119,380/238,760 Georgia R. Nelson Edison International -- -- 24,933/35,267 86,434/146,199 EME -- -- 0/14,700 0/0 James V. Iaco, Jr. Edison International -- -- 2,799/8,401 9,306/27,103 EME -- -- 9,996/27,654 132,622/209,561 Edison International options are treated as "in-the-money" if the fair market value of the underlying shares at December 31, 1996, exceeded the exercise price with respect thereto reduced by the amount credited to the named executive officer's dividend equivalent account with respect thereto. EME phantom stock options are considered "in-the-money" if the deemed value of EME phantom stock, which is determined annually by a formula linked to project values, exceeds prescribed exercise prices. The deemed value at year-end is not available until the second quarter of the following year. Therefore, amounts shown reflect the deemed value at fiscal year-end for 1995, the most recent data available.
RETIREMENT BENEFITS ------------------- The following table sets forth estimated gross annual benefits payable upon retirement at age 65 to the executive officers named in the Summary Compensation Table above in the remuneration and years of service classifications indicated.
PENSION PLAN TABLE YEARS OF SERVICE ------------------------------------------------------------------------------------- REMUNERATION 10 15 20 25 30 35 40 ------------ ------ ------ ------ ------ ------ ------ ------ $ 100,000 $ 25,000 $ 33,750 $ 42,500 $ 51,250 $ 60,000 $ 65,000 $ 70,000 150,000 37,500 50,625 63,750 76,875 90,000 97,500 105,000 200,000 50,000 67,500 85,000 102,500 120,000 130,000 140,000 250,000 62,500 84,375 106,250 128,125 150,000 162,500 175,000 300,000 75,000 101,250 127,500 153,750 180,000 195,000 210,000 350,000 87,500 118,125 148,750 179,375 210,000 227,500 245,000 400,000 100,000 135,000 170,000 205,000 240,000 260,000 280,000 450,000 112,500 151,875 191,250 230,625 270,000 292,500 315,000 500,000 125,000 168,750 212,500 256,250 300,000 325,000 350,000 550,000 137,500 185,625 233,750 281,875 330,000 357,500 385,000 600,000 150,000 202,500 255,000 307,500 360,000 390,000 420,000 Estimates are based on the provisions of the retirement plans currently covering EME's executive officers (the "Retirement Plans"), with the following assumptions: (i) the Retirement Plans will continue to be maintained, (ii) optional forms of payment that reduce benefit amounts have not been selected, and (iii) any benefits in excess of limits contained in the Internal Revenue Code of 1986 (the "Code") and any incremental retirement benefits attributable to consideration of the annual bonus or participation in EME's deferred compensation plans will be paid out of the general assets of EME under an executive retirement plan (an "ERP"). Amounts in the pension table include neither the Income Continuation Plan nor the Survivor Income/Retirement Income plans, which provide postretirement death benefits and supplemental retirement income benefits. These plans are discussed in "Other Retirement Benefits".
The Retirement Plans and ERP provide monthly benefits at normal retirement age (65 years) based on a unit benefit for each year of service plus a benefit determined by a percentage ("Service Percentage") of the executive's average highest 36 consecutive months of regular salary and, in the case of the ERP, the average highest three bonuses in the last five years prior to attaining age 65. The Service Percentage is based on 1-3/4% per year for the first 30 years of service (52-1/2% upon completion of 30 years' service) and 1% for each year in excess of 30. Individuals hired prior to September 1, 1978 are grandfathered into the benefit provisions of the Retirement Plans and ERP as they were then constituted. These grandfathering provisions may provide slightly higher benefits for individuals who have less than 22.7 years of service. Executives with the rank of Senior Vice President (or higher) accrue an additional 0.75 service percentage for each year of service up to ten years. The actual benefit determined by the Service Percentage would take into account the unit benefit and be offset by up to 40% of the executive's primary Social Security benefits. For management and administrative employees in service on or after January 1, 1988, accrual of years of credited service occurs without regard to attainment of age 65. Effective January 1, 1995, a special provision was added to the Retirement Plan for non-represented employees who were: (a) in service for at least one day during the period from January 1, 1995 through December 31, 1996, (b) were born before January 1, 1952, (c) complete at least 20 years of service on or before December 31, 2001, and (d) terminate service on or after age 50 but before age 55. An eligible employee can leave EME after age 50 and before age 55, and begin to receive retirement benefits as if they retired from active service, any time after age 55. The service and salary used to calculate this provision stops as of December 1, 1996. For an eligible employee who continues with EME beyond December 31, 1996, service and salary beyond December 31, 1996, are only used to calculate the Retirement Plan's regular provisions. In addition, periods during which participants receive benefits under EME's long-term disability plan also count for credit under the Retirement Plans and ERP. The normal form of benefit is a life annuity with a 50% survivor benefit following the death of the participant. Retirement benefits are reduced for retirement prior to age 61. The amounts shown in the Pension Plan Table above do not reflect reductions in retirement benefits due to the Social Security offset or early retirement. Mr. Edgell has elected to retain coverage under a previous benefit program. This program provided, among other benefits, the post-retirement benefits discussed in the following section. The ERP benefits provided in the previous program are less than the benefits shown in the pension table. To determine these reduced benefits, multiply the dollar amounts shown in each column by the following factors: 10 years of service--70%, 15 years--78%, 20 years--82%, 25 years--85%, 30 years--88%, 35 years--88%, and 40 years--89%. At December 31, 1996, Mr. Muller had completed 3 years of service; Mr. Edgell, 26 years; Mr. Williams, 2 years; Ms. Nelson, 26 years; Mr. Iaco, 2 years. OTHER RETIREMENT BENEFITS Additional post-retirement benefits are provided pursuant to the Income Continuation Plan and the Survivor Income/Retirement Income Plan under the Executive Supplemental Benefit Program. The Income Continuation Plan provides a post-retirement survivor benefit payable to the beneficiary of the executive officer following his or her death. The benefit is approximately 24% of final compensation (salary at retirement and the average of the three highest bonuses paid in the five years prior to retirement) payable for ten years certain. If a named executive officer's final annual compensation were $600,000 (the highest compensation level in the Pension Plan Table above), the beneficiary's estimated annual survivor benefit would be approximately $144,000. Mr. Edgell has elected coverage under this program. The Survivor Income/Retirement Income Plan provides a post-retirement survivor benefit payable to the beneficiary of the executive officer following his or her death. The benefit is 25% of final compensation (salary at retirement and the average of the three highest bonuses paid in the five years prior to retirement) payable for ten years certain. At retirement, an executive officer has the right to elect the Retirement Income benefit in lieu of the Survivor Income benefit. The Retirement Income benefit is 10% of final compensation (salary at retirement and the average of the three highest bonuses paid in the five years prior to retirement) payable to the executive officer for ten years certain immediately following retirement. If a named executive officer's final annual compensation were $600,000 (the highest compensation level in the Pension Plan Table above), the beneficiary's estimated annual survivor benefit would be approximately $150,000. If a named executive officer were to elect the Retirement Income benefit in lieu of Survivor Income and had final annual compensation of approximately $600,000 (the highest compensation level in the Pension Plan Table above), the named executive officer's estimated annual benefit would be approximately $60,000. Mr. Edgell has elected coverage under this program. The 1985 Deferred Compensation Plan provides a post-retirement survivor benefit. This plan allowed eligible participants in September 1985 to elect voluntarily to defer until retirement a portion of annual salary and annual bonuses otherwise earned and payable for the period October 1985 through January 1990. The post-retirement survivor benefit is 50% of the annual deferred compensation payable from the participant's account. Survivor benefit payments begin following completion of the participant's deferred compensation payments. If the named beneficiary is the executive's spouse, then survivor benefits are paid as a life annuity, five years certain; the benefit amount will be reduced actuarially if the spouse is more than five years younger than the executive at the time of the executive's death. If the beneficiary is not the spouse, then benefits are paid for five years only. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT CERTAIN BENEFICIAL OWNERS - -------------------------- Set forth below is certain information regarding each person who is known to EME to be the beneficial owner of more than five percent of EME's common stock.
Title of Class Name and Address of Amount and Nature of Percent of -------------- Beneficial Owner Beneficial Ownership Class ------------------- -------------------- ---------- Common Stock, no par value The Mission Group 100 shares held directly and with 100% 18101 Von Karman Avenue, exclusive voting and investment power Suite 1700 Irvine, California 92612
MANAGEMENT - ---------- Set forth below is certain information about the beneficial ownership in equity securities of Edison International by all directors of EME, the executive owners of EME named in the Summary Compensation Table in Item 6 below and all directors and executive officers of EME as a group.
Amount and Nature of Company and Beneficial Ownership as of Name Class of Stock December 31, 1996 ---- -------------------- ------------------------------------- John E. Bryson Edison International Common Stock 378,578 Bryant C. Danner Edison International Common Stock 101,606 Robert M. Edgell Edison International Common Stock 54,601 Alan J. Fohrer Edison International Common Stock 103,027 Edward R. Muller Edison International Common Stock 45,966 Mission Capital Preferred Securities 1,370 S. Linn Williams Edison International Common Stock 4,830 Georgia R. Nelson Edison International Common Stock 56,466 James V. Iaco, Jr. Edison International Common Stock 6,533 Mission Capital Preferred Securities 5,900 All directors and executive officers as a group Edison International Common Stock 842,919 Mission Capital Preferred Securities 8,250 Unless otherwise indicated, each named person has voting and investment power over the listed shares and such voting and investment power is exercised solely by the named person or shared with a spouse. No named person or group owns more than 1% of the outstanding shares of the class. Includes the following number of Edison International shares owned under the SSPP: Mr. Bryson, 12,912 shares; Mr. Danner, 1,474 shares; Mr. Edgell, 12,885 shares; Mr. Fohrer, 11,761 shares; Mr. Muller, 0 shares; Mr. Williams, 30 shares; Ms. Nelson, 13,066 shares; Mr. Iaco, 0 shares; and all directors and executive officers as a group, 93,508 shares. Each such person and group may be deemed to share voting power with the trustee appointed under the SSPP. Includes the following number of Edison International shares with respect to which the right exists to acquire beneficial ownership within 60 days through the exercise of options granted under an employee benefit plan known as the 1987 Long-Term Incentive Compensation Plan as amended and restated by the Edison International Officer Long-Term Incentive Compensation Plan effective April 16, 1992: Mr. Bryson, 353,466 shares; Mr. Danner, 98,132 shares; Mr. Edgell, 41,716 shares; Mr. Fohrer, 90,766 shares; Mr. Muller, 44,166 shares; Mr. Williams, 4,800 shares; Ms. Nelson, 43,400 shares; Mr. Iaco, 6,533 shares; and all directors and executive officers as a group, 732,911 shares. Includes Edison International shares held in own name by Mr. Fohrer, 500 shares; spouse's name by Mr Bryson, 200 shares; held with another person by Mr. Bryson, 6,000 shares; held as trustee by Mr. Bryson, 6,000 shares; held as custodian by Mr. Muller, 400 shares; and held in broker's name by Mr. Danner, 2,000 shares, and Mr. Muller, 1,400 shares. Includes the following number of shares of Monthly Income Preferred Securities of Mission Capital, a limited partnership of which EME is the sole general partner: Mr. Muller, 280 shares held in spouse's name and 290 shares held in custodial names; Mr. Iaco, 750 shares held in spouse's name; all directors and executive officers as a group, 1,030 shares held in spouses'names and 670 shares held in custodial names.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In April 1994, EME made a loan to S. Daniel Melita, Senior Vice President of EME, in the amount of $150,000 in exchange for a note executed by Mr. Melita and payable to EME at seven percent (7%) annual interest. The entire note, together with accrued interest, was paid in December 1996. The largest aggregate amount of indebtedness outstanding under the loan during 1996 was $171,000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) LIST OF FINANCIAL STATEMENTS See Index to Consolidated Financial Statements at Item 8 of this report. (2) LIST OF FINANCIAL STATEMENT SCHEDULES The following item is filed as a part of this report pursuant to Item 14(d) of Form 10-K: The Cogeneration Group Combined Financial Statements as of December 31, 1996, 1995 and 1994 Schedules pursuant to Item 8 of Form 10-K are omitted because the required information is either presented in the financial statements or notes thereto, or is not applicable, required or material. (3) LIST OF EXHIBITS (A)
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 Agreement for the sale and purchase of shares in First Hydro Limited, dated December 21, 1995 between PSB Holding Limited and First Hydro Finance Plc, incorporated by reference to Exhibit 2.1 to EME's Current Report on Form 8-K, No. 1-13434 dated January 4, 1996. 3.1 Amended and Restated Articles of Incorporation of EME incorporated by reference to Exhibit 3.1 to EME's Current Report on Form 8-K, No. 1-13434 dated January 30, 1996. Originally filed with EME's Registration Statement on Form 10 to the Securities and Exchange Commission on September 30, 1994 and amended by Amendment No. 1 thereto dated November 19, 1994 and Amendment No. 2 thereto dated November 21, 1994 (as so amended, the "Form 10"). 3.2 By-Laws of EME, incorporated by reference to Exhibit 3.2 to EME's Form 10. 4.1 Copy of the Global Debenture representing EME's 9-7/8% Junior Subordinated Deferrable Interest Debentures, Series A, Due 2024. 4.2 Conformed copy of the Indenture dated as of November 30, 1994 between EME and The First National Bank of Chicago, as trustee. 4.2.1 First Supplemental Indenture dated as of November 30, 1994 to Indenture dated as of November 30, 1994 between EME and The First National Bank of Chicago, as trustee. 10.1 Power Purchase Contract between Southern California Edison Company and Magma Electric Company, dated March 1, 1984, incorporated by reference to Exhibit 10.1 to EME's Form 10. 10.1.1 Amendment No. 1 to Power Purchase Contract between Southern California Edison Company and Magma Electric Company, dated May 10, 1984, incorporated by reference to Exhibit 10.1.1 to EME's Form 10. 10.2 Power Purchase Contract between Southern California Edison Company and Champlin Petroleum Company, dated March 8, 1985, incorporated by reference to Exhibit 10.2 to EME's Form 10. 10.2.1 Amendment to Power Purchase Contract between Southern California Edison Company and Champlin Petroleum Company, dated July 29, 1985, incorporated by reference to Exhibit 10.2.1 to EME's Form 10. 10.2.2 Amendment No. 2 to Power Purchase Contract between Southern California Edison Company and Champlin Petroleum Company, dated October 29, 1985, incorporated by reference to Exhibit 10.2.2 to EME's Form 10. 10.3 Power Purchase Contract between Southern California Edison Company and Magma Electric Company, dated February 8, 1984, incorporated by reference to Exhibit 10.3 to EME's Form 10. 10.4 Power Purchase Contract between Southern California Edison Company and Imperial Energy Company, dated February 22, 1984, incorporated by reference to Exhibit 10.4 to EME's Form 10. 10.4.1 Amendment to Power Purchase Contract between Southern California Edison Company and Imperial Energy Company, dated November 13, 1984, incorporated by reference to Exhibit 10.4.1 to EME's Form 10. 10.5 Power Purchase Contract between Southern California Edison Company and Magma Electric Company, dated June 15, 1984, incorporated by reference to Exhibit 10.5 to EME's Form 10.
Exhibit No. Description ----------- ----------- 10.5.1 Amendment to Power Purchase Contract between Southern California Edison Company and Magma Electric Company, dated April 10, 1986, incorporated by reference to Exhibit 10.5.1 to EME's Form 10. 10.5.2 Amendment No. 2 to Power Purchase Contract between Southern California Edison Company and Magma Electric Company, dated April 10, 1986, incorporated by reference to Exhibit 10.5.2 to EME's Form 10. 10.6 Power Purchase Contract between Southern California Edison Company and Imperial Energy Company Niland No. 2, dated April 16, 1985, incorporated by reference to Exhibit 10.6 to EME's Form 10. 10.6.1 Amendment No. 1 to Power Purchase Contract between Southern California Edison Company and Magma Power Company, dated April 10, 1986, incorporated by reference to Exhibit 10.6.1 to EME's Form 10. 10.7 Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated November 9, 1984, incorporated by reference to Exhibit 10.7 to EME's Form 10. 10.7.1 Amendment No. 1 to Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated March 29, 1985, incorporated by reference to Exhibit 10.7.1 to EME's Form 10. 10.7.2 Amendment No. 2 to Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated November 21, 1985, incorporated by reference to Exhibit 10.7.2 to EME's Form 10. 10.7.3 Amendment No. 3 to Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated November 21, 1985, incorporated by reference to Exhibit 10.7.3 to EME's Form 10. 10.7.4 Amendment No. 4 to Power Purchase Contract between Southern California Edison Company and Beowawe Geothermal Power Company, dated December 27, 1985, incorporated by reference to Exhibit 10.7.4 to EME's Form 10. 10.7.5 Amendment No. 5 to Power Purchase Contract between Southern California Edison Company and Beowawe Geothermal Power Company, dated March 21, 1986, incorporated by reference to Exhibit 10.7.5 to EME's Form 10. 10.8 Power Purchase Contract between Southern California Edison Company and Arco Petroleum Products Company (Watson Refinery), incorporated by reference to Exhibit 10.8 to EME's Form 10. 10.9 Power Supply Agreement between State Electricity Commission of Victoria, Loy Yang B Power Station Pty. Ltd. and the Company Australia Pty. Ltd., as managing partner of the Latrobe Power Partnership, dated December 31, 1992, incorporated by reference to Exhibit 10.9 to EME's Form 10. 10.10 Power Purchase Agreement between P.T. Paiton Energy Company as Seller and Perusahaan Umum Listrik Negara as Buyer, dated February 12, 1994, incorporated by reference to Exhibit 10.10 to EME's Form 10. 10.11 Amended and Restated Power Purchase Contract between Southern California Energy Company and Midway- Sunset Cogeneration Company, dated May 5, 1988, incorporated by reference to Exhibit 10.11 to EME's Form 10. 10.12 Parallel Generation Agreement between Kern River Cogeneration Company and Southern California Energy Company, dated January 6, 1984, incorporated by reference to Exhibit 10.12 to EME's Form 10.
Exhibit No. Description ----------- ----------- 10.13 Parallel Generation Agreement between Kern River Cogeneration (Sycamore Project) Company and Southern California Energy Company, dated December 18, 1984, incorporated by reference to Exhibit 10.13 to EME's Form 10. 10.14 Amendment No. 2 to Power Purchase Agreement between Southern California Energy Company and Vulcan/BN Geothermal Power Company, dated April 1, 1986, incorporated by reference to Exhibit 10.14 to EME's Form 10. 10.15 U.S. $325 million Bank of Montreal Revolver, dated October 29, 1993, incorporated by reference to Exhibit 10.15 to EME's Form 10. 10.15.1 U.S. $400 million Bank of America National Trust and Savings Association Credit Agreement, dated October 27, 1994, incorporated by reference to Exhibit 10.15.1 to EME's Form 10. 10.15.2 Conformed copy of the Amended and Restated U.S. $400 million Bank of America National Trust and Savings Association Credit Agreement, dated as of November 17, 1994, incorporated by reference to Exhibit 10.15.2 to EME's Annual Report on Form 10-K for the year ended December 31, 1994. 10.15.3 Conformed copy of the Second Amended and Restated U.S. $400 million Bank of America National Trust and Savings Association Credit Agreement, dated as of October 11, 1996.* 10.16 Amended and Restated Ground Lease Agreement between Texaco Refining and Marketing Inc. and March Point Cogeneration Company, dated August 21, 1992, incorporated by reference to Exhibit 10.16 to EME's Form 10. 10.16.1 Amendment No. 1 to Amended and Restated Ground Lease Agreement between Texaco Refining and Marketing Inc. and March Point Cogeneration Company, dated August 21, 1992, incorporated by reference to Exhibit 10.16 to EME's Form 10. 10.17 Memorandum of Agreement between Atlantic Richfield Company and Products Cogeneration Company, dated September 17, 1987, incorporated by reference to Exhibit 10.17 to EME's Form 10. 10.18 Memorandum of Ground Lease between Texaco Producing Inc. and Sycamore Cogeneration Company, dated January 19, 1987, incorporated by reference to Exhibit 10.18 to EME's Form 10. 10.19 Amended and Restated Memorandum of Ground Lease between Getty Oil Company and Kern River Cogeneration Company, dated November 14, 1984, incorporated by reference to Exhibit 10.19 to EME's Form 10. 10.20 Memorandum of Lease between Sun Operating Limited Partnership and Midway-Sunset Cogeneration Company, incorporated by reference to Exhibit 10.20 to EME's Form 10. 10.21 Executive Supplemental Benefit Program, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.22 1981 Deferred Compensation Agreement, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.23 1985 Deferred Compensation Agreement for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.24 1987 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.25 1988 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313).
Exhibit No. Description ----------- ----------- 10.26 1989 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936). 10.27 1990 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936). 10.28 Annual Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936). 10.29 Executive Retirement Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.30 Long-Term Incentive Plan for Executive Officers, incorporated by reference to the Registration Statement (File No. 33-19541) under which SCEcorp registered securities to be offered pursuant to the Plan under the Securities Act of 1933. 10.31 Estate and Financial Planning Program for Executive Officers, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936). 10.32 Letter Agreement with Edward R. Muller, incorporated by reference to Exhibit 10.32 to EME's Form 10. 10.33 Agreement with James S. Pignatelli, incorporated by reference to Exhibit 10.33 to EME's Form 10. 10.34 Conformed copy of the Guarantee Agreement dated as of November 30, 1994, incorporated by reference to Exhibit 10.34 to EME's Form 10. 10.35 Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated as of December 18, 1989, incorporated by reference to Exhibit 10.35 to EME's Annual Report on Form 10-K for the year ended December 31, 1994. 10.35.1 First Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated November 1, 1991, incorporated by reference to Exhibit 10.35.1 to EME's Annual Report on Form 10-K for the year ended December 31, 1994. 10.35.2 Second Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated June 3, 1994, incorporated by reference to Exhibit 10.35.2 to EME's Annual Report on Form 10-K for the year ended December 31, 1994. 10.35.3 Third Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated December 12, 1994, incorporated by reference to Exhibit 10.35.3 to EME's Annual Report on Form 10-K for the year ended December 31, 1994. 10.36 Conformed copy of A$200 million Bank of America National Trust and Savings Association Credit Agreement dated November 22, 1994, incorporated by reference to Exhibit 10.36 to EME's Annual Report on Form 10-K for the year ended December 31, 1994. 10.36.1 Conformed copy of the Amended and Restated A$200 million Bank of America National Trust and Savings Associated Credit Agreement dated December 12, 1994, incorporated by reference to Exhibit 10.36.1 to EME's Annual Report on Form 10-K for the year ended December 31, 1994. 10.36.2 Conformed copy of First Amendment to Amended and Restated A$200 million Bank of America National Trust and Savings Associated Credit Agreement dated June 7, 1995, incorporated by reference to Exhibit 10.36.2 to EME's Form 10-Q for the quarter ended September 30, 1995. 10.37 Amended and Restated Limited Partnership Agreement of Mission Capital, L.P. dated as of November 30, 1994, incorporated by reference to Exhibit 10.37 to EME's Annual Report on Form 10-K for the year ended December 31, 1994.
Exhibit No. Description ----------- ----------- 10.38 Action of General Partner of Mission Capital, L.P. creating the 9-7/8% Cumulative Monthly Income Preferred Securities, Series A, dated as of November 30, 1994, incorporated by reference to Exhibit 10.38 to EME's Annual Report on Form 10-K for the year ended December 31, 1994. 10.39 Action of General Partner of Mission Capital, L.P. creating the 8-1/2% Cumulative Monthly Income Preferred Securities, Series B, dated as of August 8, 1995, incorporated by reference to Exhibit 10.39 to EME's Form 10-Q for the quarter ended June 30, 1995. 10.40 Power Purchase Contract between ISAB Energy, S.r.l. as Seller and Enel, S.p.A. as Buyer, dated June 9, 1995, incorporated by reference to Exhibit 10.40 to EME's Form 10-Q for the quarter ended June 30, 1995. 10.41 400 million sterling pounds Barclays Bank Plc Credit Agreement, dated December 18, 1995, incorporated by reference to Exhibit 10.41 to EME's Current Report on Form 8-K, No. 1-13434. 10.42 Guarantee by EME dated December 1, 1995 supporting Letter of Credit issued by Bank of America National Trust and Savings Association to secure payment of bonds issued pursuant to the Brooklyn Navy Yard project tax-exempt bond financing, incorporated by reference to Exhibit 10.42 to EME's Annual Report on Form 10-K for the year ended December 31, 1995. 10.43 Guarantee by EME dated December 1, 1995 supporting Letter of Credit issued by Bank of America National Trust and Savings Association to secure Brooklyn Navy Yard's indemnity to the New York City Industrial Development Agency pursuant to the Brooklyn Navy Yard project tax-exempt bond financing, incorporated by reference to Exhibit 10.43 to EME's Annual Report on Form 10-K for the year ended December 31, 1995. 10.44 Guarantee by EME dated December 20, 1996 in favor of The Fuji Bank, Limited, Los Angeles Agency, to secure Camino Energy Company's payments pursuant to Camino Energy Company's Credit Agreement and Defeasance Agreement.* 21 List of Subsidiaries.* 27 Financial Data Schedule.* --------------- *Filed herewith
(B) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of 1996. (C) EXHIBITS The Exhibits filed with this report are listed in Item 14(a)(3) above. (D) FINANCIAL STATEMENT SCHEDULES The financial statement schedules filed with this report are listed in Section 14(a)(2) above. Financial information for the Cogeneration Group for the years ended December 31, 1996, 1995 and 1994. The financial statements of the Cogeneration Group present the combination of those entities that are 50% or less owned by EME and that met the requirements of Rule 3-09 of Regulation S-X in 1995 and 1994. There were no entities which were 50% or less owned by EME that met the requirements of Rule 3-09 of Regulation S-X in 1996. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Edison Mission Energy: We have audited the accompanying combined balance sheets of Kern River Cogeneration Company (a general partnership between Getty Energy Company and Southern Sierra Energy Company), Sycamore Cogeneration Company (a general partnership between Texaco Cogeneration Company and Western Sierra Energy Company) and Watson Cogeneration Company (a general partnership between Camino Energy Company and Products Cogeneration Company), (collectively the Cogeneration Group) as of December 31, 1995, and the related combined statements of income, partners' equity and cash flows for the years ended December 31, 1995 and 1994. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of The Cogeneration Group as of December 31, 1995, and the results of its operations and its cash flows for the years ended December 31, 1995 and 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California March 15, 1996 THE COGENERATION GROUP COMBINED STATEMENTS OF INCOME (IN THOUSANDS)
Years Ended December 31, ------------------------------------------------- 1996 1995 1994 ----------- ---------- --------- (Unaudited) Operating Revenue Sales of energy to SCE $347,537 $318,964 $348,458 Sales of energy to TEPI 9,406 8,405 8,873 Sales of energy to ARCO Products 23,631 19,249 31,849 Sales of steam to TEPI 72,038 64,150 71,861 Sales of steam to ARCO Products 43,121 35,018 24,002 -------- -------- -------- Total operating revenues 495,733 445,786 485,043 -------- -------- -------- OPERATING EXPENSES Fuel 234,509 181,219 209,594 Plant operations 56,662 62,657 58,871 Depreciation and amortization 24,151 24,661 24,510 Administrative and general 5,733 6,824 7,555 -------- -------- -------- Total operating expenses 321,055 275,361 300,530 -------- -------- -------- Income from operations 174,678 170,425 184,513 -------- -------- -------- OTHER INCOME (EXPENSE) Interest and other income 2,031 2,706 2,968 Interest expense (5,673) (9,454) (9,498) -------- -------- -------- Total other income (expense) (3,642) (6,748) (6,530) -------- -------- -------- NET INCOME $171,036 $163,677 $177,983 ======== ======== ======== The accompanying notes are an integral part of these combined financial statements.
THE COGENERATION GROUP COMBINED BALANCE SHEETS (IN THOUSANDS)
December 31, -------------------------------- 1996 1995 ----------- --------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 48,334 $ 19,836 Trade receivables - affiliates 57,051 50,274 Other receivables 825 422 Inventories 16,632 17,809 Prepaid expenses and other assets 3,009 2,187 -------- -------- Total current assets 125,851 90,528 -------- -------- PROPERTY, PLANT AND EQUIPMENT 652,534 641,063 Less accumulated depreciation and amortization 236,517 215,820 -------- -------- Net property, plant and equipment 416,017 425,243 -------- -------- OTHER ASSETS Emission credits, net 19,584 21,678 Intangible assets, net 23,950 25,077 Other 890 1,807 -------- -------- Total other assets 44,424 48,562 -------- -------- TOTAL ASSETS $586,292 $564,333 ======== ======== The accompanying notes are an integral part of these combined financial statements.
THE COGENERATION GROUP COMBINED BALANCE SHEETS (IN THOUSANDS)
December 31, -------------------------------- 1996 1995 ----------- --------- (Unaudited) LIABILITIES AND PARTNERS' EQUITY CURRENT LIABILITIES Accounts payable - affiliates $ 46,680 $ 27,683 Accounts payable and accrued liabilities 32,077 16,645 Current maturities of loans payable 13,404 24,951 -------- -------- Total current liabilities 92,161 69,279 -------- -------- LOANS PAYABLE, net of current maturities 69,370 82,774 -------- -------- MAINTENANCE ACCRUAL 9,160 12,115 -------- -------- Total liabilities 170,691 164,168 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 7) PARTNERS' EQUITY 415,601 400,165 -------- -------- TOTAL LIABILITIES AND PARTNERS' EQUITY $586,292 $564,333 ======== ======== The accompanying notes are an integral part of these combined financial statements.
THE COGENERATION GROUP COMBINED STATEMENTS OF PARTNERS' EQUITY (IN THOUSANDS)
Company Texaco ARCO Total Affiliates Affiliates Affiliates Equity ---------- ---------- ---------- ------ Balances at December 31, 1993 $194,622 $ 84,125 $115,007 $393,754 Cash distributions (86,549) (48,550) (39,550) (174,649) Net income 88,383 58,554 31,046 177,983 --------- --------- --------- --------- Balances at December 31, 1994 196,456 94,129 106,503 397,088 Cash distributions (79,550) (42,800) (38,250) (160,600) Net income 81,182 49,010 33,485 163,677 --------- --------- --------- --------- Balances at December 31, 1995 198,088 100,339 101,738 400,165 Cash distributions (Unaudited) (77,060) (40,800) (37,740) (155,600) Net income (Unaudited) 84,865 52,845 33,326 171,036 --------- --------- --------- --------- Balances at December 31, 1996 (Unaudited) $205,893 $112,384 $ 97,324 $415,601 ========= ========= ========= ========= The accompanying notes are an integral part of these combined financial statements.
THE COGENERATION GROUP COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, ------------------------------------------- 1996 1995 1994 ----------- --------- --------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $171,036 $163,677 $177,983 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,151 24,661 24,510 Loss on disposal of assets -- -- 1,742 (Increase) decrease in receivables (7,180) 5,595 (3,166) Decrease (increase) in inventories 1,177 (1,519) 1,621 Increase (decrease) in payables 27,800 (1,053) (5,233) Increase in maintenance accrual 3,673 5,456 2,218 Other, net (1,630) (411) 3,287 --------- --------- --------- Net cash provided by operating activities 219,027 196,406 202,962 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (11,512) (7,386) (5,040) --------- --------- --------- Net cash used in investing activities (11,512) (7,386) (5,040) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from escrow account 1,534 1,488 1,488 Loan repayments (24,951) (25,100) (25,100) Distribution to partners (155,600) (160,600) (174,649) --------- --------- --------- Net cash used in financing activities (179,017) (184,212) (198,261) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 28,498 4,808 (339) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,836 15,028 15,367 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 48,334 $ 19,836 $ 15,028 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 5,997 $ 9,553 $ 9,494 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES Additions to property, plant and equipment received in settlement of certain receivables $ -- $ -- $ 778 ========= ========= ========= The accompanying notes are an integral part of these combined financial statements.
THE COGENERATION GROUP NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996 (UNAUDITED), 1995 AND 1994 NOTE 1. GENERAL - ---------------- Principles of Combination Edison Mission Energy (EME), a wholly owned subsidiary of The Mission Group, a wholly owned non-utility subsidiary of Edison International, the parent holding company of Southern California Edison Company (SCE), has a general partnership interest in Kern River Cogeneration Company (Kern River), Sycamore Cogeneration Company (Sycamore) and Watson Cogeneration Company (Watson) (jointly referred to herein as the Group). SSEC, WSEC and CEC (as defined below) are separate legal entities from EME. The accompanying combined financial statements have been prepared for purposes of EME complying with certain requirements of the Securities and Exchange Commission. Kern River is a general partnership between Getty Energy Company (GEC), a wholly owned subsidiary of Texaco Inc. (Texaco), and Southern Sierra Energy Company (SSEC), a wholly owned subsidiary of EME. Kern River owns and operates a 300-MW natural gas-fired cogeneration facility located near Bakersfield, California, which sells electricity to SCE and which sells electricity and steam to Texaco Exploration and Production Inc. (TEPI), a wholly owned subsidiary of Texaco, for use in TEPI's enhanced oil recovery operations in the Kern River Oil Field. Partnership income (loss) is allocated equally to the partners. Sycamore is a general partnership between Texaco Cogeneration Company (TCC), a wholly owned subsidiary of Texaco, and Western Sierra Energy Company (WSEC), a wholly owned subsidiary of EME. Sycamore owns and operates a 300-MW natural gas-fired cogeneration facility located near Bakersfield, California, which sells electricity to SCE and which sells steam to TEPI for use in TEPI's enhanced oil recovery operations in the Kern River Oil Field. Partnership income (loss) is allocated equally to the partners. Watson is a general partnership between Products Cogeneration Company (PCC), a wholly owned subsidiary of Atlantic Richfield Company (ARCO) and Camino Energy Company (CEC), a wholly owned subsidiary of EME. PCC and CEC own 51 percent and 49 percent, respectively. Effective January 1997, PCC only owns two percent with 49% held by Carson Cogeneration Company, a subsidiary of ARCO. Watson owns and operates a 385-MW natural gas-fired cogeneration facility located in Carson, California, which sells electricity to SCE and which sells electricity and steam to ARCO Products Company (ARCO Products) for use at ARCO Products' refinery. Partnership income (loss) is allocated based upon the partners' respective ownership percentage. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Basis of Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories Inventories are comprised of materials and supplies, and are stated at their lower of average cost or market. Property, Plant and Equipment All costs, including interest and field overhead expenses, incurred during construction and the precommission phase of the facilities were capitalized as part of the cost of the facilities. Revenue earned during the precommission phase was offset against the costs of the facilities. The facilities and related equipment are being depreciated on a straight-line basis over approximately 30 years, which is the estimated useful lives of the facilities. Emission Credits Two of the Group's facilities were required to obtain assignments of emission offset credits in order to be certified by the California Energy Commission. These credits were required to meet the current environmental regulations as they relate to the emissions being produced from the operation of these facilities. The cost of these emission credits are stated net of accumulated amortization of $21.1 million and $19.1 million at December 31, 1996 and 1995, respectively (see Note 5). The emission credits are being amortized on a straight-line basis over 21 years. Intangible Assets Intangible assets are stated net of accumulated amortization of $11.9 million and $10.7 million at December 31, 1996 and 1995, respectively, and consist of outside boundary limit facilities, refinery infrastructure, environment permits and land use, as outlined in the various partnership agreements, contributed to the Group. All of the intangible assets relate to the operations of the various facilities, and as a result, are being amortized on a straight-line basis over the estimated useful life of the facilities. Statements of Cash Flows For purposes of reporting cash flows, the Group considers short-term temporary cash investments with an original maturity of three months or less to be cash equivalents. Maintenance Accruals The Group performs scheduled inspections and major overhauls periodically over the life of their combustion turbines. Generally, expenses for these events are accrued for on a straight-line basis over the expected operating-hour interval between each like maintenance event. Expenditures for minor maintenance, repairs and renewals are charged to expense as incurred. Expenditures for additions and improvements are capitalized. The accruals for repair and maintenance events are based on management's estimates of what these events will cost at the time the events occur. Due to fluctuations in prices and changes in the timing of the scheduled events, the estimated costs of these events can differ from actual costs incurred. Fair Value of Financial Instruments The carrying amount of the short-term investments approximates fair value due to the short maturity of such investments. The estimated fair value of loans payable is discussed in Note 4. Impairment of Investments and Long-Lived Assets Effective January 1, 1996, the Group adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires, among other things, that an impairment loss shall only be recognized when the carrying amount of a long-lived asset exceeds the expected future cash flows (undiscounted and without interest charges) and that, when appropriate, the amount of loss to be recognized shall be measured as the amount by which the carrying value exceeds the fair value of the asset. The adoption of this pronouncement did not have an impact on the Group's financial statements. Reclassifications Certain prior year amounts have been reclassified to conform with current year presentation. NOTE 3. PROPERTY, PLANT AND EQUIPMENT - -------------------------------------- Plant and equipment consists of the following:
December 31, ------------------------------ 1996 1995 ----------- -------- (unaudited) (in millions) Plant and equipment Power plant facilities $644.8 $633.4 Building, furniture and office equipment 7.7 7.6 ------ ------ 652.5 641.0 Less - Accumulated depreciation and amortization 236.5 215.8 ------ ------ $416.0 $425.2 ====== ======
NOTE 4. LOANS PAYABLE - ----------------------
December 31, ------------------------------- 1996 1995 ----------- --------- (unaudited) (in millions) Watson project: Note payable to ARCO (5% at 12/31/96) (9.125% at 12/31/95) $27.4 $27.4 Note payable to Camino (5% at 12/31/96) (9.125% at 12/31/95) 26.3 26.3 Sycamore project: $175 million Loan and Credit Agreement due 1999 (Eurodollar rate + 0.625%) (6.2% at 12/31/96) (6.7% at 12/31/95) 29.1 42.4 Kern River project: $150 million Loan and Credit Agreement due 1996 (Eurodollar rate + 0.625%) (6.7% at 12/31/95) -- 11.6 ----- ----- Subtotal 82.8 107.7 Current maturities of loans payable (13.4) (24.9) ----- ----- Total $69.4 $82.8 ===== =====
The above agreements for the Sycamore and Kern River projects are secured by certain assets of the Group, and place certain restrictions on capital distributions. In addition, these agreements require the Group to maintain escrow deposits based upon outstanding loan amounts. Based upon borrowing rates currently available to the Group for long-term debt with similar terms and maturity, the fair value of the amounts outstanding under these agreements approximates the carrying value. The fair value of the two Watson project notes was approximately $53 million at December 31, 1996 and 1995. In February 1996, the interest rates on the two Waston project notes were reduced to 5% and the maturity dates extended to April 2008. Annual maturities on the loans payable at December 31, 1996 are as follows (dollars in millions): YEAR -------- 1997 $13.4 1998 13.4 1999 2.2 2000 -- 2001 -- Thereafter 53.8 ----- Total $82.8 ===== NOTE 5. RELATED-PARTY TRANSACTIONS/CONTRACTUAL OBLIGATIONS - ----------------------------------------------------------- Operating and Other Costs The amounts incurred by EME, Texaco and their respective affiliates for operating and other costs charged to the Group, which are not disclosed elsewhere, were as follows:
(in millions) 1996 1995 1994 ------- ------ ------ (unaudited) Texaco and affiliates $4.6 $4.5 $4.6 EME and affiliates 2.4 2.8 2.8
Emission Credits Certain affiliates of Texaco assigned their rights to certain emission offset credits to certain of the Group for a period of 21 years. These emission offset credits were earned by the Texaco affiliates by reducing specified emissions at other of their operations. Such credits are used by the Group to allow certain of the Group's facilities to produce a specified level of defined emissions to meet certain air quality guidelines. The credits were required by those facilities in order to be certified by the California Energy Commission and are required to be maintained throughout the period of operations of those facilities. The credits were reflected as a capital contribution by such entities at the fair market value of $40.8 million. Fuels Management Agreement Certain of the Group are party to agreements with Texaco Natural Gas, Inc. (TNGI), whereby TNGI is to procure and manage all fuel-gas supplies and transportation for two of the facilities (except fuel-gas supplies procured and delivered under tariff-gas contracts, provided under an excepted contract or otherwise excluded from these agreements by the mutual consent of the partners). The original termination date of the agreements with TNGI was December 31, 1995. TNGI received a fixed service fee of $.0075 per MMBtu of fuel gas supplied to certain of the Group, and a variable incentive fee based on the utility fuel cost applicable to such Group. The agreements include a minimum annual fee of $.015 per MMBtu of fuel gas utilized if the total of the fixed service fee and variable incentive fee is less than the minimum annual fee. The amounts incurred under these agreements were $118.5 million and $131.7 million, which included fees earned by TNGI of $3.7 million and $2.4 million, for the two years ended December 31, 1995 and 1994, respectively. As of January 1, 1996, the Amended and Restated Fuel Management Agreement, terminating on April 11, 2007, was entered into such that TNGI will receive a fixed service fee of $.0375 per MMBtu of fuel supplied to certain of the Group. The amount incurred under the amended agreements was $147.7 million, which included fees earned by TNGI of $2.6 million, for the year ended December 31, 1996. Certain of the Group received a non-recurring refund in 1994 from TNGI for amounts previously paid under the original agreement. The refund of $15.3 million reduced plant and other operating expenses in 1994. One of the Group has entered into a fuel (refinery gas and butane) purchase agreement with a subsidiary of ARCO. Such Group's purchases under this agreement amounted to $38.4 million, $24.2 million and $25.5 million for the three years ended December 31, 1996, 1995 and 1994, respectively. Operation and Maintenance Agreement Two of the Group have agreements with Edison Mission Operation & Maintenance, Inc. (EMOM), a wholly owned subsidiary of EME, whereby EMOM shall perform all operation and maintenance activities necessary for the production of electricity and steam by such Group facilities. The agreements will continue until terminated by either party. EMOM is paid for all costs incurred in connection with operating and maintaining the facility. EMOM may also earn incentive compensation as set forth in the agreements. The amounts incurred by the Group under these agreements were $6 million, $6.2 million and $5.9 million which included incentive compensation earned by EMOM of $0.9 million for each of the three years ended December 31, 1996, 1995 and 1994, respectively. One of the Group has an agreement with a subsidiary of ARCO, whereby such subsidiary shall perform all operation and maintenance activities necessary for the production of electricity and steam by such Group's facility. The agreement will continue until termination of the Power Purchase Agreement in April 2008. The ARCO subsidiary is reimbursed for all costs incurred in connection with operating and maintaining the facility. The amounts incurred under this agreement were $4.9 million, $5.4 million and $5.6 million for the three years ended December 31, 1996, 1995 and 1994, respectively. Additionally, ARCO provides other ancillary services under a service contract for a fee. Total service fees earned by ARCO were $1.3 million, $1.3 million and $1.2 million for the three years ended December 31, 1996, 1995 and 1994, respectively. Steam Purchase and Sale Agreements Certain of the Group have agreements with TEPI for the sale of steam generated by such Group's facilities. The agreements terminate 20 years from the date of the first sale of steam thereunder. TEPI pays such Group a steam fuel charge based upon the quantity and quality of steam delivered during the month, which is priced at the lesser of the current Southern California Gas Company Border Gas Price, or the weighted average posted price of Kern River Crude, less any severance, excise or windfall profit taxes, and a processing charge per MMBtu as defined in the agreements. The quantity of steam sold under this contract is expected to be sufficient for such Group to maintain qualifying facility status. Total sales of steam under these agreements amounted to approximately $72 million, $64.2 million and $71.9 million for the three years ended December 31, 1996, 1995 and 1994, respectively. These agreements have been amended whereby such Group will reduce steam prices beginning in 1999 and to a limited extent in 1997. The amount of future reductions in annual revenues could total approximately $25 million. Additionally, one of the Group has contracted to sell steam and power generated by its facility to the ARCO subsidiary's Los Angeles refinery under separate agreements. Total sales under these contracts amounted to approximately $66.8 million, $54.3 million and $55.9 million for the three years ended December 31, 1996, 1995 and 1994 respectively. Power Purchase Agreements One of the Group has an agreement with TEPI for the sale of contract capacity and net energy. This agreement will remain in effect until August 19, 2005. The amounts paid for the contract capacity and net energy are based on the same terms as provided for in the agreements with SCE (discussed below). Total sales of power under the agreement with TEPI amounted to approximately $9.4 million, $8.4 million and $8.9 million for the three years ended December 31, 1996, 1995 and 1994, respectively. The Group has agreements with SCE for the sale of contract capacity and net energy generated by the facilities. These agreements will remain in effect 20 years from the Firm Operation Date of the relevant facility. SCE pays the Group for energy based upon the price of SCE's Avoided Fuel Cost, the quantity of kilowatts delivered, the contracted heat rate allocated to on-peak, mid-peak and off-peak hours and a factor as defined in the agreements to account for system line loss at the point of delivery. SCE also pays the Group for firm capacity based upon a contracted amount per kilowatt year. Total sales of energy under these agreements amounted to $347.5 million, $319 million and $348.5 million for the three years ended December 31, 1996, 1995 and 1994, respectively. As discussed above, the electric power generated by the Group is primarily sold to SCE pursuant to long-term power sales contracts. When negotiating power sales contracts, EME negotiates contracts which are expected to result in consistent cash flow under a wide range of economic and operating circumstances. To accomplish this end, EME structures its long-term contracts so that fluctuations in fuel costs will produce similar fluctuations in electric revenues and by entering into long-term fuel supply and transportation agreements. In addition, the operation of the facilities involves many risks including the breakdown or failure of equipment or processes, performance below expected levels of output, interruptions in fuel supply, pipeline disruptions, disruptions in the supply of electrical energy, violation of permit requirements, operator error, the inability to meet expected efficiency standards and catastrophic events. The occurrence of any of these events could result in extended unavailability under the power sales contracts which may entitle the purchaser thereunder to terminate the relevant power sales contracts. Natural Gas Supply and Transportation Agreements The Group purchases gas on the spot market. As such, the Group may be exposed, in the short-term, to fluctuations in the price of natural gas. Fluctuations in the prices paid for gas are implicitly tied to the revenues received for either power or steam under the agreements. NOTE 6. INCOME TAXES - --------------------- Income taxes are not recorded by the Group because the net income or loss allocated to the partners is included in their respective income tax returns. NOTE 7. COMMITMENTS AND CONTINGENCIES - -------------------------------------- Future Obligations Pursuant to amendments made in 1990 to the Federal Clean Air Act and the California Clean Air Act, the Group is required to reduce its nitrogen oxide (NOx) emissions. To fulfill these requirements certain of the Group are scheduled to retrofit their combustion turbines to employ a Dry-Lo NOx (DLN) technology. The retrofitting on the combustion turbines is planned to coincide with maintenance overhauls scheduled through 1999. Such Group's management estimates that the total cost of the DLN conversions will be $82.9 million. As of December 31, 1996, the Group has incurred and capitalized $16 million of costs related to the DLN conversions. It is further anticipated that operating cash flows will be used to fund the DLN conversions. Ship-or-Pay Pursuant to the Master Agreement, entered into as of December 1, 1994, certain of the Group executed a Security of Supply Agreement with an affiliated partnership of EME and Texaco. Such Group has agreed to accept and underwrite, on a pro-rata basis, a portion of Texaco's commitment pursuant to the transportation agreement (the Transportation Agreement) between Texaco, the Mojave Pipeline Company (Mojave) and the El Paso Pipeline Company (El Paso), dated February 15, 1989 and extending through April 1, 2008. The Company has agreed that Mojave and El Paso shall be the exclusive means of delivery for certain of the Group of the lesser of 75% of the annual total natural gas fuel requirements for such Group and 52,012,500 MMBtu per year. Except upon the occurrence of certain permissible events, two of the Group are subject to certain terms and conditions, whereby failure to transport the required quantity of natural gas on the Mojave Pipeline will result in the Group paying $0.33 per deficit MMBtu. Such Group will share any ship-or-pay liabilities on a pro-rata basis (as defined in the Transportation Agreement) with the affiliated partnership. For each of the years in the three-year period ended December 31, 1996, the transportation quantities required under the Transportation Agreement were met. It is the opinion of the relevant Group's management that these commitments will continue to be met based upon current projections for the operations of such Group's facilities. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EDISON MISSION ENERGY (Registrant) By: James V. Iaco, Jr. ------------------------------------------------------------- JAMES V. IACO, JR., SENIOR VICE PRESIDENT and CHIEF FINANCIAL OFFICER Date: March 28, 1997 ------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date Principal Executive Officer: Edward R. Muller President and Chief Executive Officer March 28, 1997 Controller or Principal Accounting Officer: Thomas E. Legro Vice President and Controller March 28, 1997 Majority of Board of Directors: John E. Bryson Chairman of the Board March 28, 1997 Alan J. Fohrer Vice Chairman of the Board March 28, 1997 Robert M. Edgell Director March 28, 1997 Bryant C. Danner Director March 28, 1997 EX-10.15.3 2 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 11, 1996 among EDISON MISSION ENERGY and CERTAIN COMMERCIAL LENDING INSTITUTIONS, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as the Administrative Agent, Syndication Agent and Money Market Loan Agent for the Lenders Arranged by BA SECURITIES, INC. - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
Page I DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . 1 1.1. Defined Terms. . . . . . . . . . . . . . . . . . . 1 1.2. Use of Defined Terms . . . . . . . . . . . . . . . 21 1.3. Cross-References . . . . . . . . . . . . . . . . . 21 1.4. Accounting and Financial Determinations. . . . . . 21 II REVOLVING LOAN COMMITMENT, BORROWING PROCEDURES AND NOTES. . . 21 2.1. Revolving Loan Commitment. . . . . . . . . . . . . 21 2.1.1. Revolving Loan Commitment. . . . . . . . . . . . . 21 2.1.2. Lenders Not Required To Make Loans . . . . . . . . 22 2.2. Reduction of Revolving Loan Commitment Amount. . . 22 2.3. Borrowing Procedure. . . . . . . . . . . . . . . . 22 2.4. Continuation and Conversion Elections. . . . . . . 23 2.5. Funding. . . . . . . . . . . . . . . . . . . . . . 24 2.6. Notes. . . . . . . . . . . . . . . . . . . . . . . 24 2.7. Increase in Revolving Loan Commitment Amount . . . 24 2.8. Money Market Borrowings. . . . . . . . . . . . . . 26 2.9. Utilization of Revolving Commitments in Offshore Currencies . . . . . . . . . . . . . . . . . . . . 31 2.10. Currency Exchange Fluctuations . . . . . . . . . . 32 2.11. Judgment Currency. . . . . . . . . . . . . . . . . 32 III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES . . . . . . . . . . 33 3.1. Repayments and Prepayments . . . . . . . . . . . . 33 3.1.1. Payment Terms. . . . . . . . . . . . . . . . . . . 33 3.2. Interest Provisions. . . . . . . . . . . . . . . . 34 3.2.1. Rates. . . . . . . . . . . . . . . . . . . . . . . 34 3.2.2. Post-Maturity Rates. . . . . . . . . . . . . . . . 35 3.2.3. Payment Dates. . . . . . . . . . . . . . . . . . . 36 3.2.4. Interest Rate Determination. . . . . . . . . . . . 36 3.3. Fees . . . . . . . . . . . . . . . . . . . . . . . 36 3.3.1. Facility Fee . . . . . . . . . . . . . . . . . . . 36 3.3.2. Agent's Fee. . . . . . . . . . . . . . . . . . . . 37 IV CERTAIN LIBO RATE AND OTHER PROVISIONS . . . . . . . . . . . . 37 4.1. LIBO Rate Lending Unlawful . . . . . . . . . . . . 37 4.2. Inability to Determine Rates . . . . . . . . . . . 37 4.3. Increased LIBO Rate Loan and Offshore Currency Loan Costs.. . . . . . . . . . . . . . . . . . . . 38 4.4. Obligation to Mitigate . . . . . . . . . . . . . . 38 4.5. Funding Losses . . . . . . . . . . . . . . . . . . 39 4.6. Increased Capital Costs. . . . . . . . . . . . . . 40 4.7. Taxes. . . . . . . . . . . . . . . . . . . . . . . 40 4.8. Payments, Computations.. . . . . . . . . . . . . . 42 4.9. Sharing of Payments. . . . . . . . . . . . . . . . 42 4.10. Setoff . . . . . . . . . . . . . . . . . . . . . . 43 4.11. Use of Proceeds. . . . . . . . . . . . . . . . . . 44 V THE LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . 44 5.1. The Letter of Credit Commitment. . . . . . . . . . 44 5.1.1. Issuance, Amendment and Renewal of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 45 5.1.2. Risk Participations, Drawings and Reimbursements . . . . . . . . . . . . . . . . . . 48 5.1.3. Repayment of Participations. . . . . . . . . . . . 50 5.1.4. Role of the Issuing Bank . . . . . . . . . . . . . 50 5.1.5. Obligations Absolute . . . . . . . . . . . . . . . 51 5.2. Cash Collateral Pledge . . . . . . . . . . . . . . 52 5.3. Letter of Credit Fees. . . . . . . . . . . . . . . 53 5.4. Issuance of Letters of Credit in Offshore Currencies . . . . . . . . . . . . . . . . . . . . 53 5.5. Uniform Customs and Practice . . . . . . . . . . . 54 5.6. Additional and Successor Issuing Bank. . . . . . . 54 VI CONDITIONS TO CREDIT EXTENSIONS. . . . . . . . . . . . . . . . 54 6.1. Conditions to Effectiveness. . . . . . . . . . . . 54 6.1.1. Resolutions. . . . . . . . . . . . . . . . . . . . 54 6.1.2. Delivery of Notes. . . . . . . . . . . . . . . . . 55 6.1.3. Opinions of Counsel. . . . . . . . . . . . . . . . 55 6.1.4. Closing Fees, Expenses.. . . . . . . . . . . . . . 55 6.1.5. Condition to Initial Credit Extension. . . . . . . 55 6.2. All Credit Extensions. . . . . . . . . . . . . . . 55 6.2.1. Representations and Warranties, No Default.. . . . 55 6.2.2. Borrowing Request. . . . . . . . . . . . . . . . . 56 6.2.3. Satisfactory Legal Form. . . . . . . . . . . . . . 56 VII REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 56 7.1. Organization; Power. . . . . . . . . . . . . . . . 56 7.2. Due Authorization; Non-Contravention.. . . . . . . 56 7.3. Government Approval; Regulation. . . . . . . . . . 57 7.4. Validity.. . . . . . . . . . . . . . . . . . . . . 57 7.5. Financial Information. . . . . . . . . . . . . . . 57 7.6. No Material Adverse Change . . . . . . . . . . . . 57 7.7. Litigation.. . . . . . . . . . . . . . . . . . . . 57 7.8. Ownership of Properties. . . . . . . . . . . . . . 58 7.9. Taxes. . . . . . . . . . . . . . . . . . . . . . . 58 7.10. Pension and Welfare Plans. . . . . . . . . . . . . 58 7.11. Environmental Warranties . . . . . . . . . . . . . 58 7.12. Regulations G, T, U and X. . . . . . . . . . . . . 59 7.13. Accuracy of Information. . . . . . . . . . . . . . 59 7.14. The Obligations. . . . . . . . . . . . . . . . . . 60 VIII COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.1. Affirmative Covenants. . . . . . . . . . . . . . . 60 8.1.1. Financial Information, Reports, Notices. . . . . . 60 8.1.2. Compliance with Laws.. . . . . . . . . . . . . . . 62 8.1.3. Maintenance of Properties. . . . . . . . . . . . . 62 8.1.4. Insurance. . . . . . . . . . . . . . . . . . . . . 62 8.1.5. Books and Records. . . . . . . . . . . . . . . . . 63 8.1.6. Environmental Covenant . . . . . . . . . . . . . . 63 8.2. Negative Covenants . . . . . . . . . . . . . . . . 64 8.2.1. Restrictions on Secured Indebtedness . . . . . . . 64 8.2.2. [Reserved] . . . . . . . . . . . . . . . . . . . . 64 8.2.3. Liens. . . . . . . . . . . . . . . . . . . . . . . 64 8.2.4. Financial Condition. . . . . . . . . . . . . . . . 65 8.2.5. Investments. . . . . . . . . . . . . . . . . . . . 65 8.2.6. Consolidation, Merger. . . . . . . . . . . . . . . 66 8.2.7. Asset Dispositions.. . . . . . . . . . . . . . . . 67 8.2.8. Transactions with Affiliates . . . . . . . . . . . 67 8.2.9. Restrictive Agreements.. . . . . . . . . . . . . . 67 8.3. ERISA. . . . . . . . . . . . . . . . . . . . . . . 68 IX EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 68 9.1. Listing of Events of Default . . . . . . . . . . . 68 9.1.1. Non-Payment of Obligations . . . . . . . . . . . . 68 9.1.2. Breach of Warranty . . . . . . . . . . . . . . . . 68 9.1.3. Non-Performance of Certain Covenants and Obligations. . . . . . . . . . . . . . . . . . . . 68 9.1.4. Non-Performance of Other Covenants and Obligations. . . . . . . . . . . . . . . . . . . . 69 9.1.5. Default on Other Indebtedness. . . . . . . . . . . 69 9.1.6. Judgments. . . . . . . . . . . . . . . . . . . . . 69 9.1.7. Pension Plans. . . . . . . . . . . . . . . . . . . 70 9.1.8. Control of the Borrower. . . . . . . . . . . . . . 70 9.1.9. Bankruptcy, Insolvency.. . . . . . . . . . . . . . 70 9.2. Action if Bankruptcy . . . . . . . . . . . . . . . 71 9.3. Action if Other Event of Default . . . . . . . . . 71 9.4. Rescission of Declaration. . . . . . . . . . . . . 72 X THE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 72 10.1. Actions. . . . . . . . . . . . . . . . . . . . . . 72 10.2. Funding Reliance.. . . . . . . . . . . . . . . . . 73 10.3. Exculpation. . . . . . . . . . . . . . . . . . . . 74 10.4. Successor. . . . . . . . . . . . . . . . . . . . . 74 10.5. Loans by BofA. . . . . . . . . . . . . . . . . . . 75 10.6. Reliance by Agent. . . . . . . . . . . . . . . . . 75 10.7. Notice of Default. . . . . . . . . . . . . . . . . 75 10.8. Credit Decisions . . . . . . . . . . . . . . . . . 76 10.9. Copies.. . . . . . . . . . . . . . . . . . . . . . 76 XI MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . 76 11.1. Waivers, Amendments. . . . . . . . . . . . . . . . 76 11.2. Notices. . . . . . . . . . . . . . . . . . . . . . 77 11.3. Payment of Costs and Expenses. . . . . . . . . . . 78 11.4. Indemnification. . . . . . . . . . . . . . . . . . 78 11.5. Survival . . . . . . . . . . . . . . . . . . . . . 80 11.6. Severability . . . . . . . . . . . . . . . . . . . 80 11.7. Headings . . . . . . . . . . . . . . . . . . . . . 80 11.8. Execution in Counterparts, Effectiveness.. . . . . 80 11.9. Governing Law; Entire Agreement. . . . . . . . . . 80 11.10. Successors and Assigns . . . . . . . . . . . . . . 80 11.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes. . . . . . . . . 81 11.11.1. Assignments . . . . . . . . . . . . . . . . . . 81 11.11.2. Participations. . . . . . . . . . . . . . . . . 82 11.12. Other Transactions . . . . . . . . . . . . . . . . 83 11.13. Forum Selection and Consent to Jurisdiction. . . . 83 11.14. Waiver of Jury Trial . . . . . . . . . . . . . . . 84 11.15. Non-Recourse Persons . . . . . . . . . . . . . . . 84 EXHIBITS - -------- A-1 - Revolving Note A-2 - Money Market Note B-1 - Borrowing Request B-2 - L/C Application C - Continuation/Conversion Notice D - Lender Assignment Agreement E - Opinion of Counsel to Borrower F - Certificate of Borrower G - Money Market Quote Request H - Invitation for Money Market Quotes I - Money Market Quote J - Notice of Money Market Borrowing SCHEDULES - --------- 2.1 - Revolving Loan Commitments 2.9 - Agreed Alternative Currencies 11.2 - Addresses for Notices and Lending Offices
SECOND AMENDED AND RESTATED CREDIT AGREEMENT -------------------------------------------- THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 11, 1996, among EDISON MISSION ENERGY, a California corporation (the "Borrower"), the various financial -------- institutions as are or may become parties hereto (collectively, the "Lenders"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ------- ASSOCIATION, ("Agent"), as agent for the Lenders. ----- RECITALS -------- A. The Agent, the Lenders, the Issuing Bank and the Borrower are party to an Amended and Restated Credit Agreement dated as of November 17, 1994 pursuant to which the Lenders and the Issuing Bank agreed to provide a letter of credit and revolving multicurrency facility (the "Existing Credit Agreement"). B. The Lenders are willing, on the terms and subject to the conditions hereinafter set forth, to refinance the Existing Credit Agreement and to increase the Revolving Loan Commitments and make Revolving Loans to the Borrower and to purchase risk participations in Letters of Credit issued by the Issuing Bank (all as hereinafter defined); and C. The proceeds of such Revolving Loans will be used for general corporate purposes of the Borrower; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms ------------- (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Absolute Rate Auction" means a solicitation of Money --------------------- Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.8. ----------- "Affiliate" of any Person means any other Person which, --------- directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Pension Plan or Welfare Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent" means BofA in its capacity as administrative ----- agent, syndication agent and money market loan agent for the Lenders hereunder, and includes each other Person as shall have subsequently been appointed as the successor Agent pursuant to Section 10.4. - ------------ "Agent-Related Persons" means BofA and any successor --------------------- agent arising under Section 10.4 and any successor Issuing Bank ------------ hereunder, together with their respective Affiliates (including, in the case of BofA, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Agreed Alternative Currency" shall mean the --------------------------- eurocurrencies listed on Schedule 2.9, as amended from time to time, pursuant to the procedures specified in Section 2.9. ----------- "Agreement" means, on any date, this Second Amended and --------- Restated Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Base Rate" means, on any date and with ------------------- respect to all Base Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest in effect for such day as publicly announced from time to time by BofA in San Francisco California, as its "reference rate." The "reference rate" is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate, or (b) the Federal Funds Rate most recently determined by the Agent plus 1/2 of 1%. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by the Agent in connection with extensions of credit. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate. "Applicable Currency" means, as to any particular ------------------- payment or Loan or L/C Obligation, Dollars or the Offshore Currency in which it is denominated or is payable, and, if no Applicable Currency is specified, shall mean Dollars. "Applicable Margin" means the following basis points ----------------- per annum depending on the level indicated:
Pricing Level 1 2 3 4 5 Libo Margin 17.50 18.50 24.00 30.00 42.50 Base Rate Margin 0.00 0.00 0.0 0.00 0.00 Facility Fee 7.50 9.00 11.00 15.00 20.00 Financial L/C Fee 17.50 18.50 24.00 30.00 42.50 Performance L/C Fee 5.00 4.75 6.50 7.50 11.25
"Level 1": The Applicable Margin shall be ------- determined at Level 1 so long as the Borrower's Debt Rating is A3 or better by Moody's and A- or better by S&P. "Level 2": The Applicable Margin shall be ------- determined at Level 2 so long as the Borrower's Debt Rating is Baa1 by Moody's or BBB+ by S&P. "Level 3": The Applicable Margin shall be ------- determined at Level 3 so long as the Borrower's Debt Rating is Baa2 by Moody's or BBB by S&P. "Level 4": The Applicable Margin shall be ------- determined at Level 4 so long as the Borrower's Debt Rating is Baa3 by Moody's or BBB- by S&P. "Level 5": The Applicable Margin shall be ------- determined at Level 5 so long as the Borrower's debt rating is lower than Baa3 by Moody's or BBB- by S&P. In the event that the Debt Rating established by Moody's is at a different Level than the Debt Rating established by S&P's, the higher Debt Rating shall apply and the Level associated with such higher rating shall be the Applicable Margin, except that, in the event that the difference is greater than one rating Level, the average of the two Debt Ratings by Moody's and by S&P shall apply to determine the Applicable Margin; provided, however, that both Debt Ratings set -------- ------- forth in Level 1 must be in effect for Level 1 to apply and if either of the Debt Ratings set forth in Level 5 is in effect, Level 5 applies. Changes in the Level for determining the Applicable Margin resulting from a change in rating(s) shall become effective on the day such change in the ratings is announced by the relevant rating agency. In the event that the Borrower does not maintain a Debt Rating with both Moody's and S&P, the Borrower may, with the reasonable consent of Required Lenders, select Duff & Phelps, Fitch Investor Services Inc. or another reputable rating agency to replace Moody's or S&P, and such replacement agency and the Debt Rating established by such agency shall be used thereafter in the calculation of Applicable Margin in the same fashion as the agency which no longer maintains such Debt Rating. From the date which the Debt Rating of Moody's or S&P ceases to be current until the date which is 120 days thereafter, the Applicable Margin shall be determined by reference to the Debt Ratings of Moody's and S&P most recently in effect. In the event that such replacement agency has not established a Debt Rating within 120 days after the Debt Rating of Moody's or S&P ceases to be current, then, until such time as such Debt Rating is established, the Applicable Margin shall be determined at one Level lower than the Level otherwise established based on the remaining Debt Rating. "Arranger" means BA Securities, Inc. -------- "Augmenting Lender" has the meaning set forth in ----------------- Section 2.7(c). "Authorized Representative" means, relative to the ------------------------- Borrower, those of its officers and employees whose signatures and incumbency shall have been certified to the Agent and the Lenders pursuant to Section 6.1.1. ------------- "BBAIRS" has the meaning set forth in Section 3.2.1. ------ "Base Rate Loan" means a Loan bearing interest at a -------------- fluctuating rate determined by reference to the Alternate Base Rate. "BofA" is defined in the preamble. ---- -------- "Borrower" is defined in the preamble. -------- -------- "Borrowing" means (i) Revolving Loans of the same type --------- and in the same Applicable Currency and, in the case of LIBO Rate Loans having the same Interest Period, made by all Lenders on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1, (ii) Revolving Loans made in ----------- accordance with Section 5.1.2, and (iii) Money Market Loans of the same type and Interest Period made by one or more Lenders on the same Business Day and pursuant to a Money Market Quote Request in accordance with Section 2.8. ----------- "Borrowing Request" means a loan request and ----------------- certificate duly executed by an Authorized Representative of the Borrower, substantially in the form of Exhibit B-1 hereto, with ----------- respect to Loans, and means an L/C Application duly executed by an Authorized Representative of the Borrower, substantially in the form of Exhibit B-2 hereto, with respect to Letters of ----------- Credit. "Business Day" means ------------ (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York or San Francisco, California or Tokyo, Japan; and (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans or Money Market LIBOR Loans, any day on which dealings in Dollars are carried on in the London interbank market; and (c) relative to the making, continuing, prepaying or repaying of, and calculations pertaining to, any Offshore Currency Loan, a day on which commercial banks are open for foreign exchange business in London, England, and on which dealings in the relevant Offshore Currency are carried on in the applicable offshore foreign exchange interbank market in which disbursement of or payment in such Offshore Currency will be made or received hereunder. "Capitalized Lease Liabilities" of any Person means all ----------------------------- monetary obligations of such Person under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Cash Collateralize" means to pledge and deposit with ------------------ or deliver to the Agent, for the ratable benefit of the Agent, the Issuing Bank and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Agent and the Issuing Bank. The Borrower hereby grants the Agent, for the benefit of the Agent, the Issuing Bank and the Lenders, a security interest in all such cash and deposit account balances. Cash collateral shall be maintained in blocked, interest bearing deposit or investment accounts at the Agent, under the sole dominion and control of the Agent, subject to investment instructions from the Borrower, if applicable, and mutually agreeable documentation. "Cash Equivalent Investment" means, at any time: -------------------------- (a) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States Government or an agency thereof; or (b) other investments in securities or bank instruments in each case of investment grade and with maturities of less than 366 days; or (c) other securities as to which the Borrower has demonstrated, to the satisfaction of the Agent, adequate liquidity through secondary markets or deposit agreements. "CERCLIS" means the Comprehensive Environmental ------- Response Compensation Liability Information System List. "Change in Control" means the failure of Edison ----------------- International to own, directly or indirectly, at least 50.1% of the outstanding shares of voting stock of the Borrower (or any successor pursuant to Section 8.2.6(c)) on a fully diluted basis. ---------------- "Co-Agents" means Bank of Montreal, Credit Lyonnais, --------- New York Branch, The Industrial Bank of Japan, The Long-Term Credit Bank of Japan, NationsBank of Texas, N.A., Societe Generale and Swiss Bank Corporation. "Code" means the Internal Revenue Code of 1986, as ---- amended, reformed or otherwise modified from time to time. "Commitment Termination Event" means ---------------------------- (a) the occurrence of any Default described in clauses (a) through (e) of Section 9.1.9 with respect ----------- --- ------------- to the Borrower; or (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of the Loans to be due and payable pursuant to Section 9.3, or ----------- (ii) in the absence of such declaration, the giving of notice by the Agent pursuant to Section 9.3, acting at the direction of the ----------- Required Lenders, to the Borrower that the Commitments have been terminated. "Committed Loan" means a Loan made pursuant to Section -------------- ------- 2.1. - --- "Computation Date" has the meaning set forth in Section ---------------- ------- 2.9(a). - ------ "Contingent Liability" means any agreement, undertaking -------------------- or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby; provided, however, that if the maximum amount ----------------- of the debt, obligation or other liability guaranteed thereby has not been established, the amount of such Contingent Liability shall be the maximum reasonably anticipated amount of the debt, obligation or other liability; provided, further, however, that -------- ------- any agreement to limit the maximum amount of such Person's obligation under such Contingent Liability shall not, of and by itself, be deemed to establish the maximum reasonably anticipated amount of such debt, obligation or other liability. "Continuation/Conversion Notice" means a notice of ------------------------------ continuation or conversion and certificate duly executed by an Authorized Representative of the Borrower, substantially in the form of Exhibit C hereto. --------- "Controlled Group" means all members of a controlled ---------------- group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Credit Extension" means and includes (a) any Borrowing ---------------- and (b) any Issuance of, or participation in, any Letters of Credit. "Debt Rating" means a rating of the Borrower's long- ----------- term debt which is not secured or supported by a guarantee, letter of credit or other form of credit enhancement. If Moody's or S&P shall have changed its system of classifications after the date hereof, the Borrower's Debt Rating shall be considered to be at or above a specified level if it is at or above the new rating which most closely corresponds to the specified level under the old rating system. "Default" means any Event of Default or any condition, ------- occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Dollar" and the sign "$" mean lawful money of the ------ - United States. "Dollar Equivalent" means, at any time, (a) as to any ----------------- amount denominated in Dollars, the amount thereof at such time, and (b) as to any amount denominated in any other Offshore Currency, the equivalent amount in Dollars as determined by the Agent at such time on the basis of the Spot Rate for the purchase of Dollars with such Offshore Currency on the most recent Computation Date, as defined in and provided for in Section 2.9(a). ------- - ------ "Domestic Office" means, relative to any Lender, the --------------- office of such Lender designated on Schedule 11.2 or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. A Lender may have separate Domestic Offices for purposes of making, maintaining or continuing, as the case may be, Base Rate Loans. "Edison International" means Edison International, a -------------------- California corporation. "Effective Date" means the date this Agreement becomes -------------- effective pursuant to Section 11.8. ------------ "Eligible Assignee" means (i) a commercial bank ----------------- organized or licensed under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $250,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $250,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; and (iii) a Person that is primarily engaged in the business of commercial banking and that is (A) a Subsidiary of a Lender, (B) a Subsidiary of a Person of which a Lender is a Subsidiary, or (C) a Person of which a Lender is a Subsidiary. "Environmental Laws" means all applicable federal, ------------------ state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to Hazardous Materials and/or to public health and safety and protection of the environment, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the Resource Conservation and Recovery Act, as amended. "ERISA" means the Employee Retirement Income Security ----- Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Event of Default" is defined in Section 9.1. ---------------- ----------- "Federal Funds Rate" means, for any period, a ------------------ fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from not less than three of the Co-Agents (or if quotations are unavailable from any of them, up to three federal funds brokers of recognized standing selected by the Agent). "Financial Letter of Credit" means a standby or direct -------------------------- pay Letter of Credit supporting indebtedness owing to third parties, which may include workers' compensation requirements. "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- "Fiscal Year" means any period of twelve consecutive ----------- calendar months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the ---- "1988 Fiscal Year") refer to the Fiscal Year ending on December 31 occurring during such calendar year. "F.R.S. Board" means the Board of Governors of the ------------ Federal Reserve System or any successor thereto. "FX Trading Office" means the Foreign Exchange Trading ----------------- Center #5193, San Francisco, California, of BofA, or such other of BofA's offices as BofA may designate from time to time. "GAAP" is defined in Section 1.4. ---- ----------- "Government Approval" is defined in Section 7.3. ------------------- ----------- "Hazardous Material" means ------------------ (a) any "hazardous substance", as defined by any Environmental Law; (b) any "hazardous waste", as defined by any Environmental Law; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "herein", "hereof", "hereto", "hereunder" and similar ------ ------ ------ --------- terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "including" means including without limiting the --------- generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not ------- ------- be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Indebtedness" of any Person means, without ------------ duplication: (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services which purchase price is due more than six months from the date of incurrence of the obligation in respect thereof or is evidenced by a note or other instrument; (c) all reimbursement obligations with respect to surety bonds, letters of credit (to the extent not collateralized with cash or Cash Equivalent Investments), bankers' acceptances and similar instruments (in each case, whether or not matured); (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all Capitalized Lease Liabilities; (g) all net obligations with respect to sales of foreign exchange options; (h) all indebtedness referred to in paragraphs (a) through (g) above secured by (or for -------------------------- which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and, without duplication, (i) all Contingent Liabilities. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Interest Period" means, --------------- (a) relative to any LIBO Rate Loans, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4 ----------- --- and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), in either case as the Borrower may select in its relevant notice pursuant to Section 2.3 or 2.4; provided, however, that: ----------- --- -------- ------- (i) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than ten different dates or such other larger number of dates and on such terms as may be agreed to by the Borrower and the Agent; (ii) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the same duration; (iii) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless, if such Interest Period applies to LIBO Rate Loans, such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (iv) no Interest Period may end later than the date set forth in clause (a) of the definition ---------- of "Revolving Loan Commitment Termination Date". ------------------------------------------ (b) with respect to each Money Market LIBOR Loan Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than seven (7) days or more than six months) as the Borrower may elect in accordance with Section 2.8; provided that: ----------- -------- (i) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; and (ii) any Interest Period which would otherwise end after the date set forth in clause (a) of the definition of "Revolving Loan Commitment Termination Date" shall end on the date set forth in clause (a) of the definition of "Revolving Loan Commitment Termination Date." (c) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than seven (7) days or more than six months) as the Borrower may elect in accordance with Section 2.8; provided that: ----------- -------- (i) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day; and (ii) any Interest Period which would otherwise end after the date set forth in clause (a) of the definition of "Revolving Loan Commitment Termination Date" shall end on the date set forth in clause (a) of the definition of "Revolving Loan Commitment Termination Date." "Investment" means, relative to any Person, ---------- (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business); (b) any Contingent Liability of such Person; and (c) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property. "Invitation for Money Market Quotes" is defined in ---------------------------------- Section 2.8. - ----------- "Issuance Date" has the meaning specified in Section ------------- ------- 5.1(a). - ------ "Issue" means, with respect to any Letter of Credit, to ----- issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," ------ "Issuing" and "Issuance" have corresponding meanings. ------- -------- "Issuing Bank" means BofA in its capacity as issuer of ------------ one or more Letters of Credit hereunder, together with any additional or successor letter of credit issuer appointed pursuant to Section 5.6 hereof. "L/C Advance" means each Lender's participation in any ----------- L/C Borrowing in accordance with its Percentage. "L/C Application" means an application form for --------------- issuances of Financial Letters of Credit or Performance Letters of Credit or for amendment thereof as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request, in the form of Exhibit B-2. "L/C Borrowing" means an extension of credit resulting ------------- from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made nor converted into a Borrowing of Revolving Loans under Section 5.1.2(c). ---------------- "L/C Commitment" means the commitment of the Issuing -------------- Bank to Issue, and the commitment of the Lenders severally to participate in Letters of Credit from time to time Issued or outstanding under Article V; provided that the L/C Commitment is --------- -------- a part of the Revolving Loan Commitments, rather than a separate, independent commitment. "L/C Obligations" means at any time the sum of (a) the --------------- aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. "L/C Related Documents" means the Letters of Credit, --------------------- the L/C Applications and any other document relating to any Letter of Credit, including any of the Issuing Bank's standard form documents for letter of credit issuances. "Letters of Credit" means any Financial Letters of ----------------- Credit or Performance Letters of Credit Issued by the Issuing Bank pursuant to Article V. "Lender Assignment Agreement" means a Lender Assignment --------------------------- Agreement substantially in the form of Exhibit D hereto. --------- "Lenders" is defined in the preamble. ------- -------- "LIBO Rate" is defined in Section 3.2.1. --------- ------------- "LIBO Rate Loan" means a Loan bearing interest, at all -------------- times during an Interest Period applicable to such Loan in the Applicable Currency, at a fixed rate of interest determined by reference to the LIBO Rate. "LIBOR Auction" means a solicitation of Money Market ------------- Quotes setting forth Money Market Margins based on the LIBO Rate pursuant to Section 2.8. ----------- "LIBOR Office" means, relative to any Lender, the ------------ office of such Lender designated as such on Schedule 11.2 or designated in the Lender Assignment Agreement or such other office of a Lender as designated from time to time by notice from such Lender to the Borrower and the Agent pursuant to Section 4.4, whether or not outside the United States, which - ----------- shall be making or maintaining LIBO Rate Loans and Money Market LIBOR Loans of such Lender hereunder. "LIBO Rate (Reserve Adjusted)" means, relative to any ---------------------------- Loan to be made as a Money Market LIBOR Loan or to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ----------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans and Money Market LIBOR Loans will be determined by the Agent on the basis of the LIBOR Reserve Percentage in effect on, and the applicable rates furnished to and received by the Agent, two Business Days before the first day of such Interest Period. "LIBOR Reserve Percentage" means, relative to any ------------------------ Interest Period for LIBO Rate Loans and Money Market LIBOR Loans, the reserve percentage (expressed as a decimal) equal to the aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Lien" means any security interest, mortgage, pledge, ---- hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property, in each case of any kind, to secure payment of a debt or performance of an obligation. "Loan" means, as the context may require, either a ---- Revolving Loan, an L/C Borrowing or a Money Market Loan of any type. "Loan Document" means this Agreement, the Notes, the ------------- L/C Related Documents and the other agreements, documents and instruments delivered in connection with this Agreement and the Notes including, without limitation, the fee letter referred to in Section 3.3.2; each Borrowing Request; each ------------- Continuation/Conversion Notice; each Money Market Quote Request; each Invitation for Money Market Quotes; and each Notice of Money Market Borrowing. "Material Adverse Effect" means a material adverse ----------------------- change in, or material adverse effect on the financial condition, operations, assets, business or properties of the Borrower which would reasonably be expected to affect the Borrower's ability to perform the Obligations. "Money Market Absolute Rate" is defined in Section -------------------------- ------- 2.8(d)(ii)(D). - ------------- "Money Market Absolute Rate Loan" means a loan to be ------------------------------- made by a Lender pursuant to an Absolute Rate Auction. "Money Market LIBOR Loan" means a loan to be made by a ----------------------- Lender pursuant to a LIBOR Auction. "Money Market Loan" means a Money Market LIBOR Loan or ----------------- a Money Market Absolute Rate Loan. "Money Market Margin" is defined in Section ------------------- ------- 2.8(d)(ii)(C). - ------------- "Money Market Note" means a promissory note of the ----------------- Borrower payable to any Lender, in the form of Exhibit A-2 hereto ----------- (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Money Market Loans, and also means all other promissory notes accepted from time to time in substitution or renewal thereof. "Money Market Quote" means an offer by a Lender to make ------------------ a Money Market Loan in accordance with Section 2.8. ----------- "Money Market Quote Request" means a request by the -------------------------- Borrower to the Agent to conduct an Absolute Rate Auction or a LIBOR Auction pursuant to Section 2.8. ----------- "Moody's" means Moody's Investors Service, Inc. ------- "Net Tangible Assets" means, as of the date of any ------------------- determination thereof, the total amount of all assets of the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP), less the sum of (a) the consolidated ---- current liabilities of the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) and (b) assets properly classified as "intangible assets" in accordance with GAAP. "Non-Recourse Debt" means Indebtedness which the ----------------- Borrower is not directly or indirectly obligated to repay. "Non-Recourse Persons" means the Affiliates of the -------------------- Borrower, including The Mission Group, Edison International and Southern California Edison Company, and the officers, directors, employees, shareholders, agents, Authorized Representatives and other controlling persons of the Borrower or any of its Affiliates, provided that in no event shall the Borrower be -------- deemed to be a Non-Recourse Person. "Note" means, as the context may require, a Revolving ---- Note or a Money Market Note. "Notice of Money Market Borrowing" is defined in -------------------------------- Section 2.8(f). - -------------- "Obligations" means all obligations (monetary or ----------- otherwise) of the Borrower arising under or in connection with this Agreement, the Notes and each other Loan Document. "Offshore Currency" means at any time Australian ----------------- dollars, Belgian francs, Canadian dollars, Dutch guilders, English pounds sterling, French francs, Italian lira, Deutsche marks, Japanese yen, Swiss francs, United States dollars, Spanish pesetas and any Agreed Alternative Currency. "Offshore Currency Loan" means any LIBO Rate Loan ---------------------- denominated in an Offshore Currency. "Organic Document" means, relative to the Borrower, its ---------------- certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Participant" is defined in Section 11.11.2. ----------- --------------- "Partnership" means a general partnership, limited ----------- partnership, joint venture or similar entity in which the Borrower or a Subsidiary is a partner, joint venturer or equity participant. "PBGC" means the Pension Benefit Guaranty Corporation ---- and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is ------------ defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Lender, the ---------- percentage set forth on Schedule 2.1 opposite its name or set forth in the Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11. ------------- "Performance Letter of Credit" means a standby Letter ---------------------------- of Credit used directly or indirectly to cover bid, performance, advance and retention obligations, including, without limitation, Letters of Credit issued in favor of sureties who in connection therewith cover bid, performance and retention obligations. "Person" means any natural person, corporation, ------ partnership, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Quarterly Payment Date" means the last day of each ---------------------- March, June, September, and December or, if any such day is not a Business Day, the next succeeding Business Day. "Required Lenders" means, at any time, Lenders holding ---------------- at least 66-2/3% of the then aggregate outstanding principal amount of the Notes (excluding Money Market Notes) then held by the Lenders, or, if no such principal amount is then outstanding, Lenders having at least 66-2/3% of the Revolving Loan Commitment Amount. "Revolving Loan" means Loans made by the Lenders to the -------------- Borrower pursuant to Section 2.1, and includes Base Rate Loans ----------- and LIBO Rate Loans. "Revolving Loan Commitment" means, relative to any ------------------------- Lender, such Lender's obligation to make Revolving Loans pursuant to Section 2.1.1 and to purchase risk participations in Letters ------------- of Credit Issued by the Issuing Bank pursuant to Section 5.1.2. ------------- "Revolving Loan Commitment Amount" means, on any date, -------------------------------- $500,000,000, as such amount may be reduced from time to time pursuant to Section 2.2 or increased from time to time pursuant ----------- to Section 2.7. ----------- "Revolving Loan Commitment Termination Date" means the ------------------------------------------ earliest of (a) October 10, 2001; (b) the date on which the Revolving Loan Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; or ----------- (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (a), (b) or ----------- --- (c), the Revolving Loan Commitments shall terminate automatically - --- and without any further action. "Revolving Note" means a promissory note of the -------------- Borrower payable to any Lender, in the form of Exhibit A-1 hereto ----------- (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Revolving Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "S&P" means Standard & Poor's Rating Group. --- "Same Day Funds" means (i) with respect to -------------- disbursements and payments in Dollars, immediately available funds, and (ii) with respect to disbursements and payments in any other Offshore Currency, same day or other funds as may be determined by the Agent to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Offshore Currency. "Spot Rate" for a currency means the rate quoted by --------- BofA as the spot rate for the purchase by BofA of such currency with another currency through its FX Trading Office at approximately 8:00 a.m. (San Francisco time) on the date as of which the foreign exchange computation is made. "Subordinated Debt" means all unsecured Indebtedness of ----------------- the Borrower for money borrowed which is subordinated, upon terms (including the terms applicable to the payment, prepayment, redemption, purchase or defeasance thereof) satisfactory to the Agent and the Required Lenders, in right of payment to the payment in full in cash of all Obligations. "Subsidiary" means, with respect to any Person, any ---------- corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "Tangible Net Worth" means the net worth of the ------------------ Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) after subtracting therefrom the aggregate amount of any intangible assets of the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP), including goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks and brand names. "Taxes" is defined in Section 4.7. ----- ----------- "type" means, relative to any Revolving Loan, the ---- portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan or, relative to any Money Market Loan, its status as a Money Market Absolute Rate Loan or a Money Market LIBOR Loan. "UCP" has the meaning specified in Section 5.5. --- ----------- "United States" or "U.S." means the United States of ------------- ---- America, its fifty States and the District of Columbia. "Welfare Plan" means a "welfare plan", as such term is ------------ defined in Section 3(l) of ERISA. SECTION 1.2. Use of Defined Terms. Unless otherwise -------------------- defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each Note, Borrowing Request, Continuation/ Conversion Notice, Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise ---------------- specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. --------------------------------------- Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder (including under Section 8.2.4) shall be made, and all financial ------------- statements required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles in effect in the United States ("GAAP") ---- applied in the preparation of the financial statements referred to in Section 7.5, except that quarterly financial statements are ----------- not required to contain footnotes. ARTICLE II REVOLVING LOAN COMMITMENT, BORROWING PROCEDURES AND NOTES SECTION 2.1. Revolving Loan Commitment. On the terms ------------------------- and subject to the conditions of this Agreement (including Article VI), each Lender severally agrees to make Revolving Loans - ---------- pursuant to the Revolving Loan Commitment described in this Section 2.1. - ----------- SECTION 2.1.1. Revolving Loan Commitment. From time to ------------------------- time on any Business Day occurring prior to the Revolving Loan Commitment Termination Date, each Lender will make Revolving Loans (relative to such Lender, its "Revolving Loans") to the --------------- Borrower equal to such Lender's Percentage of the aggregate Dollar Equivalent amount of the Borrowing of Revolving Loans requested or deemed to be requested by the Borrower to be made on such day, including, without limitation, pursuant to Section 5.1.2(b). The commitment of each Lender described in this Section 2.1.1 is herein referred to as its "Revolving Loan - ------------- -------------- Commitment". On the terms and subject to the conditions hereof, - ---------- the Borrower may from time to time borrow, prepay, in whole or in part, and reborrow Revolving Loans. SECTION 2.1.2. Lenders Not Required To Make Loans. No ---------------------------------- Lender shall be required to make (a) any Revolving Loan if, after giving effect thereto, (i) the aggregate outstanding principal Dollar Equivalent amount of all Revolving Loans, all L/C Obligations and all Money Market Loans of all Lenders would exceed the Revolving Loan Commitment Amount, or (ii) the aggregate outstanding principal Dollar Equivalent amount of all Revolving Loans and of all L/C Obligations of such Lender would exceed such Lender's Percentage of the Revolving Loan Commitment Amount; or (b) any Money Market Loan if, after giving effect thereto, the aggregate outstanding principal Dollar Equivalent amount of all Revolving Loans and all Money Market Loans and L/C Obligations of all Lenders would exceed the Revolving Loan Commitment Amount. SECTION 2.2. Reduction of Revolving Loan Commitment -------------------------------------- Amount. The Borrower may, from time to time on any Business Day - ------ occurring after the Effective Date, voluntarily reduce the Revolving Loan Commitment Amount without premium or penalty (subject, however, to Section 4.5); provided, however, that all ----------- -------- ------- such reductions shall require at least three Business Days' prior notice to the Agent and be permanent, and any partial reduction of the Revolving Loan Commitment Amount shall be in a minimum amount of $10,000,000 and in an integral multiple of $1,000,000 and, provided, further, that the Revolving Loan Commitment Amount may not be reduced to an amount less than the aggregate amount of outstanding Revolving Loans, Money Market Loans, and L/C Obligations. SECTION 2.3. Borrowing Procedure. By delivering a ------------------- Borrowing Request to the Agent on or before 10:00 a.m., San Francisco time (as to Base Rate Loans) or 11:00 a.m., San Francisco time (as to LIBO Rate Loans), on a Business Day, and subject to Schedule 2.9 with respect to Agreed Alternative Currencies, the Borrower may from time to time irrevocably request, (i) on not less than five Business Days' notice in the case of LIBO Rate Loans denominated in an Offshore Currency other than Dollars, (ii) on not less than three Business Days' notice in the case of Dollar LIBO Rate Loans, and (iii) on the same Business Day in the case of Base Rate Loans denominated in Dollars, that a Borrowing of Revolving Loans in the Applicable Currency be made in a minimum Dollar Equivalent amount of $10,000,000 and an integral multiple of $1,000,000, or in the unused amount of the Revolving Loan Commitment Amount. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the same type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 11:00 a.m. (San Francisco time) on the Business Day such Revolving Loans are to be made, each Lender shall deposit with the Agent Same Day Funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. SECTION 2.4. Continuation and Conversion Elections. ------------------------------------- By delivering a Continuation/Conversion Notice to the Agent on or before 10:00 a.m., San Francisco time (as to Base Rate Loans) or 11:00 a.m., San Francisco time (as to LIBO Rate Loans), on a Business Day, and subject to Schedule 2.9 with respect to Agreed Alternative Currencies, the Borrower may from time to time irrevocably elect that all, or any portion in an aggregate minimum amount of $10,000,000 and an integral multiple of $1,000,000, of any Loans be (i) on not less than five Business Days' notice, converted into, or continued as, LIBO Rate Loans denominated in an Offshore Currency other than Dollars, (ii) on not less than three Business Days' notice, converted into, or continued as, Dollar LIBO Rate Loans, or (iii) on the same Business Day, be converted into, or continued as a Base Rate Loan denominated in Dollars. In the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan denominated in Dollars; provided, however, that (i) each -------- ------- such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Lenders, and (ii) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. Each delivery of a Continuation/Conversion Notice shall constitute a certification and warranty by the Borrower that on the date of delivery of such notice no Default has occurred and is continuing. If prior to the time of such continuation or conversion any matter certified to by the Borrower by reason of the immediately preceding sentence will not be true and correct at such time if then made, the Borrower will immediately so notify the Agent. Except to the extent, if any, that prior to the time of such continuation or conversion the Agent shall have received written notice to the contrary from the Borrower, such certification and warranty shall be deemed to be made at the date of such continuation or conversion as if then made. SECTION 2.5. Funding. Each Lender may, if it so ------- elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, -------- however, that such LIBO Rate Loan shall nonetheless be deemed to - ------- have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Sections 4.1, 4.2, 4.3, ------------ --- --- 4.4, or 4.5, it shall be conclusively assumed that each Lender - --- --- elected to fund all LIBO Rate Loans by purchasing Applicable Currency deposits in its LIBOR Office's interbank eurodollar market. SECTION 2.6. Notes. Each Lender's Revolving Loans ----- shall be evidenced by a Revolving Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Percentage of the original Revolving Loan Commitment Amount. Each Lender's Money Market Loans shall be evidenced by a Money Market Note payable to the order of such Lender in a maximum principal amount equal to an amount to be agreed upon from time to time between the Borrower and each Lender and recorded by the Agent. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the ----- ---- date of the outstanding principal of, the Applicable Currency of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall be binding on the Borrower absent clear and convincing evidence to the contrary; provided, however, that the failure of any Lender to make any - -------- ------- such notations shall not limit or otherwise affect any Obligations of the Borrower. SECTION 2.7. Increase in Revolving Loan Commitment ------------------------------------- Amount. (a) The Borrower may from time to time, by notice to - ------ the Agent (which shall promptly deliver a copy to each of the Lenders), request that the Revolving Loan Commitment Amount be increased by an amount that is not less than $50,000,000 and will not result in the Revolving Loan Commitment Amount exceeding $600,000,000. Each such notice shall set forth the requested amount of the increase in the Revolving Loan Commitment Amount and the date on which such increase is to become effective (which shall be not fewer than 30 days after the date the Agent receives such notice (the "Receipt Date")), and shall offer each Lender the opportunity to increase its Revolving Loan Commitment by its Percentage of the requested increase in the Revolving Loan Commitment Amount. (b) Each Lender shall, by notice to the Borrower and the Agent given not more than 15 days after the Receipt Date, either agree to increase its Revolving Loan Commitment by all or a portion of the offered amount or decline to increase its Revolving Loan Commitment (and any Lender that does not deliver such a notice within such period of 15 days shall be deemed to have declined to increase its Revolving Loan Commitment). (c) In the event that, by the 15th day after Receipt Date, all Lenders have not agreed to increase their Revolving Loan Commitment by their Percentage thereof, the Borrower shall have the right to arrange for one or more banks (any such bank being called an "Augmenting Lender"), which may include any Lender, to extend Revolving Loan Commitments or increase their existing Revolving Loan Commitments in an aggregate amount equal to the unsubscribed amount, provided that each Augmenting Lender, if not already a Lender hereunder, shall be subject to the approval of the Borrower and the Agent (which approval shall not be unreasonably withheld) and shall execute all such documentation as the Agent shall specify to evidence its status as a Lender hereunder; provided, further, that, after giving -------- ------- effect to such increase, no Lender or Augmenting Lender shall hold more than 20% of the Revolving Loan Commitment Amount. If (and only if) Lenders (including Augmenting Lenders) shall have agreed to increase their Commitments or to extend new Commitments in an aggregate amount not less than $50,000,000, shall such increases and such new Commitments become effective on the date specified in subsection (e) below. (d) Any increase in the Revolving Loan Commitment Amount (or in the Revolving Loan Commitment of any Lender) shall become effective under this Section 2.7 upon satisfaction of the following conditions: (i) all conditions set forth in Sections 6.1.1(a) and (b), 6.1.2, 6.2.1 and 6.2.3 shall be satisfied (with all references in such Section to the initial Credit Extension being deemed to be references to such increase) and the Agent shall have received a certificate with respect to Section 6.2.1 to that effect dated such date and executed by an Authorized Representative; and (ii) if the Percentages of the Lenders would change because of such increase (by reason of not all Lenders increasing their respective Commitments on a pro rata basis) and any LIBO Rate Loans are outstanding, all LIBO Rate Loans shall have been paid or prepaid effective as of the date the Revolving Loan Commitment Amount is to be increased (and the Borrower shall pay to any Lender, in accordance with Section 4.5, any amounts of the type referred to in Section 4.5 as they relate to any such prepayment). (e) Upon satisfaction of all applicable conditions set forth in subsection (d) above, the Revolving Loan Commitment Amount shall be deemed increased, with no further action required on the part of any party, as of the date specified in the Borrower's original notice requesting such increase, or, in the case that subsection (d)(ii) is applicable, on such other date selected, with the consent of the Borrower and all Lenders, so as to minimize or eliminate amounts payable pursuant to Section 4.5. In connection with such increase, the Agent shall distribute a new Schedule 2.1, which shall be deemed to amend and restate the existing Schedule 2.1. SECTION 2.8. Money Market Borrowings. ----------------------- (a) Money Market Option. In addition to ------------------- requesting that Loans be made pursuant to Section 2.1, ----------- the Borrower may, as set forth in this Section, request the Lenders to make offers to make Money Market Loans in any Offshore Currency to the Borrower. The Lenders may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the -------------------------- Borrower wishes to request offers to make Money Market Loans under this Section, it shall notify the Agent by telephone, and transmit to the Agent promptly by facsimile transmission, a Money Market Quote Request substantially in the form of Exhibit G hereto so as to --------- be received no later than 11:00 a.m. (San Francisco time) on or before (x) the fifth Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified the Lenders not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed day of Borrowing, which shall be a Business Day, (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000 and the Offshore Currency of such Borrowing, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Business Days of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly ---------------------------------- upon receipt of a Money Market Quote Request, the Agent shall send to the Lenders by facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit H hereto, which shall constitute an --------- invitation by the Borrower to each Lender to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market --------------------------------------- Quotes. ------ (i) Each Lender may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection ---------- (d) and must be submitted to the Agent by --- facsimile transmission at its offices specified in or pursuant to Section 11.2 not later than (x) ------------ noon (San Francisco time) on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 7:30 a.m. (San Francisco time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified the Lenders not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided -------- that Money Market Quotes submitted by the Agent (or any Affiliate of the Agent) in the capacity of a Lender may be submitted, and may only be submitted, if the Agent or such Affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 15 minutes prior to the deadline for the other Lenders, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Lenders, in the case of an Absolute Rate Auction. Subject to Articles VI and IX, any Money Market Quote so made ----------- -- shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit I hereto and --------- shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount and Offshore Currency of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than, equal to or less than the Commitment of the quoting Lender, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Lender may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable LIBO Rate (Reserve Adjusted) (the "Money Market ------------ Margin") offered for each such Money Market ------ Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered -------------------------- for each such Money Market Loan, and (E) the identity of the quoting Lender. A Money Market Quote may set forth up to three separate offers by the quoting Lender with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit I hereto or does not specify all --------- of the information required by Section ------- 2.8(d)(ii); ---------- (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in Section 2.8(d)(i). ----------------- (e) Notice to Borrower. The Agent shall promptly ------------------ notify the Borrower of the terms (x) of any Money Market Quote submitted by a Lender that is in accordance with subsection (d) and (y) of any Money -------------- Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Lender with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins, or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later --------------------------------- than (x) 11:00 a.m. (San Francisco time) on the third Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 8:30 a.m. (San Francisco time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified the Lenders not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to Section 2.8(e). In the case of -------------- acceptance, such notice (a "Notice of Money Market ---------------------- Borrowing") shall be in substantially the form of --------- Exhibit J hereto and shall specify the aggregate --------- principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: -------- (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $10,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in Section 2.8(d)(iii) or that ------------------- otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by ------------------- two or more Lenders with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Lenders as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. (h) Money Market Loans shall reduce availability under the Revolving Loan Commitment Amount by the amount of such Loans during the period which they are outstanding; provided, however, that the making of a -------- ------- Money Market Loan by a Lender shall not reduce such Lender's Revolving Loan Commitment. SECTION 2.9. Utilization of Revolving Commitments in Offshore Currencies. --------------------------------------- - ------------------- (a) The Agent will determine the Dollar Equivalent amount with respect to any (i) Borrowing comprised of Offshore Currency Loans as of the date of the requested Borrowing, (ii) outstanding Offshore Currency Loans as of the last Business Day of each month, (iii) outstanding Offshore Currency Loans as of any date they are to be redenominated as set forth in this Section 2.9 or Section 4.1, (iv) Issuances of ----------- ----------- Letters of Credit in Offshore Currencies as of the requested Issuance Date, (v) unreimbursed drawing on the date that it is converted to a Revolving Loan pursuant to Section 5.1.2(b), and (vi) outstanding L/C Obligations as of the last Business Day of each month (each such date a "Computation Date"). ---------------- (b) The Borrower shall be entitled to request that Revolving Loans hereunder also be permitted to be made in any other lawful currency constituting a eurocurrency, in addition to the eurocurrencies specified in the definition of "Offshore Currency" herein, that, in the opinion of all Lenders, is at such time, freely traded in the offshore interbank foreign exchange markets and is freely transferable and freely convertible into Dollars (an "Agreed Alternative Currency"). The --------------------------- Borrower may deliver to the Agent from time to time a request for designation of Agreed Alternative Currencies. Upon receipt of any such request, the Agent will promptly notify the Lenders thereof, and each Lender will use its best efforts to respond to such request within ten Business Days of receipt thereof. Each Lender may reject or accept such request in its sole discretion, and may specify any restrictions which may apply thereto, including, without limitation, the duration of the period, if any, for which the Borrower shall be entitled to request that Revolving Loans be made in such eurocurrency. The Agent will promptly notify the Borrower of the acceptance or rejection of any such request, and, if accepted by all of the Lenders, will circulate to each party to this Credit Agreement a revised Schedule 2.9, setting forth the Agreed Alternative Currency, the requirements for the submission of Notices of Borrowing and Notices of Conversion/Continuation, if different from the provisions of Section 2.3 or 2.4, and any other restrictions, if any. (c) Notwithstanding anything herein to the contrary, during the existence of a Default or an Event of Default, upon the request of the Required Lenders, all or any part of any outstanding Offshore Currency Loans shall be redenominated and converted into Base Rate Loans in Dollars with effect from the last day of the Interest Period with respect to any such Offshore Currency Loans. The Agent will promptly notify the Borrower of any such redenomination and conversion request. SECTION 2.10. Currency Exchange Fluctuations. Subject ------------------------------ to Section 4.5, if on any Computation Date the Agent shall have ----------- determined that the aggregate Dollar Equivalent principal amount of all Loans and all L/C Obligations then outstanding exceeds the Revolving Loan Commitment Amount, due to a change in applicable rates of exchange between Dollars and Offshore Currencies, then ---- the Agent shall give notice to the Borrower that a prepayment is required under this Section 2.10, and the Borrower agrees ------------ thereupon promptly to make prepayments of Loans or Cash Collateralize L/C Obligations such that, after giving effect to such prepayment or Cash Collateralization, the aggregate Dollar Equivalent amount of all Loans and L/C Obligations does not exceed the Revolving Loan Commitment Amount. SECTION 2.11. Judgment Currency. If for the purposes ----------------- of obtaining judgment in any court it is necessary to convert a sum due from the Borrower hereunder or under any of the Notes in any Applicable Currency into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the Applicable Currency with such other currency at the Agent's lending office on the Business Day preceding that on which final, non-appealable judgment is given. The obligations of the Borrower in respect of any sum due to any Lender or the Agent hereunder or under any Note shall, notwithstanding any judgment in currency other than the Applicable Currency, be discharged only to the extent that on the Business Day following receipt by such Lender or the Agent (as the case may be) of any sum adjudged to be so due in such other currency such Lender or the Agent (as the case may be) may in accordance with normal, reasonable banking procedures purchase the Applicable Currency with such other currency. If the amount of the Applicable Currency so purchased is less than the sum originally due to such Lender or the Agent, as the case may be, in the Applicable Currency, the Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Agent, as the case may be, against such loss and if the amount of the Applicable Currency so purchased exceeds (a) the sum originally due to any Lender or the Agent, as the case may be, in the Applicable Currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender, such Lender or the Agent, as the case may be, agrees to remit such excess to the Borrower. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments. The -------------------------- Borrower shall repay in full the unpaid principal amount of each Loan in the Applicable Currency on the Revolving Loan Commitment Termination Date. SECTION 3.1.1. Payment Terms. Prior to the Revolving ------------- Loan Commitment Termination Date, the Borrower (a) may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, without premium or penalty, of the outstanding principal amount of any Revolving Loans in the Applicable Currency; provided, however, that -------- ------- (i) any such prepayment shall be made pro --- rata among Loans of the same type and, if ---- applicable, having the same Interest Period of all Lenders; (ii) any such prepayment of any LIBO Rate Loan made on any day other than the last day of the Interest Period for such Loan shall be subject to the provisions of Section 4.5; ----------- (iii) all such voluntary prepayments of Revolving Loans shall require at least three but no more than seven Business Days' prior written notice to the Agent; and (iv) all such voluntary partial prepayments of Revolving Loans shall be in an aggregate minimum amount of $5,000,000 and an integral multiple of $1,000,000. (b) shall, on each date when any reduction in the Revolving Loan Commitment Amount shall become effective, make a mandatory prepayment of all Revolving Loans and/or Cash Collateralize the Letters of Credit, equal to the excess, if any, of the aggregate, outstanding principal amount of all Revolving Loans, all L/C Obligations and all Money Market Loans over the Revolving Loan Commitment Amount as so reduced; (c) shall, on each date when a prepayment is required pursuant to Section 2.10, make a mandatory prepayment of Loans, and/or Cash Collateralize the Letters of Credit, in an amount equal to the excess of the aggregate outstanding principal amount of all Revolving Loans, all L/C Obligations and all Money Market Loans over the Revolving Loan Commitment Amount; and (d) shall, immediately upon any acceleration of any Loans pursuant to Section 9.2 or Section 9.3, repay ----------- ----------- all Loans, and Cash Collateralize all Letters of Credit, unless, pursuant to Section 9.3, only a portion ----------- of all Loans is so accelerated. Each prepayment of any Loans made pursuant to this Section 3.1.1 ------------- shall be without premium or penalty, except as may be required by Section 4.5. No voluntary prepayment of principal of any - ----------- Revolving Loans shall cause a reduction in the Revolving Loan Commitment Amount. Money Market Loans may not be voluntarily prepaid under any circumstances. SECTION 3.2. Interest Provisions. Interest on the ------------------- outstanding principal amount of Loans shall accrue and be payable in accordance with this Section 3.2. ----------- SECTION 3.2.1. Rates. Pursuant to an appropriately ----- delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at a rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the Alternate Base Rate from time to time in effect; (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate for such Interest Period plus the Applicable Margin; and (c) on that portion maintained as a Money Market Loan, during each Interest Period applicable thereto, equal to (i) in the case of a Money Market Absolute Rate Loan, the Money Market Absolute Rate, or (ii) in the case of a Money Market LIBOR Loan, the sum of the LIBO Rate plus the Money Market Margin. "LIBO Rate" means, for each Interest Period for each --------- LIBO Rate Loan and Money Market LIBOR Loan in the Applicable Currency, and subject to Schedule 2.9 with respect to Agreed Alternative Currencies, the interest rate per annum (rounded, if necessary, to the nearest whole multiple of 1/100 of 1%) determined by the Agent as of 11:00 A.M. (London time) on such Business Day, with respect to Loans denominated in pounds Sterling, or two Business Days with respect to Loans denominated in any other Applicable Currency, before the first day of such Interest Period quoted as the British Bankers' Association Interest Settlement Rate ("BBAIRS") for such date, provided that -------- if quotations are not given by BBAIRS for periods comparable to such Interest Period, the LIBO Rate shall be the interest rate per annum at which Applicable Currency deposits in immediately available funds are offered to the Agent in the London interbank market at approximately 11:00 A.M. (London time) on such Business Day, with respect to Loans denominated in pounds Sterling, or two Business Days with respect to Loans denominated in any other Applicable Currency, before the first day of such Interest Period, for a period comparable to such Interest Period, and in an amount substantially equal to the amount of the proposed LIBO Rate Loan or Money Market LIBOR Loan. Notwithstanding any other provision hereof, at such time as there shall exist for any Lender a LIBOR Reserve Percentage which is greater than zero, the LIBO Rate used in the determination of LIBO Rate Loans and Money Market LIBOR Loans made by such Lender shall be the LIBO Rate (Reserve Adjusted). All LIBO Rate Loans and Money Market LIBOR Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan and Money Market LIBOR Loan. SECTION 3.2.2. Post-Maturity Rates. After the date any ------------------- principal amount of any Loan is due and payable (whether on the Revolving Loan Commitment Termination Date, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Alternate Base Rate plus a margin of 1% until such amount is paid in full. SECTION 3.2.3. Payment Dates. Interest accrued on each ------------- Loan shall be payable in the Applicable Currency of the respective Loan, without duplication: (a) on the Revolving Loan Commitment Termination Date; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan (other than a Base Rate Loan); (c) on the date of any payment of principal on any Money Market Loan; (d) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the date of the initial Borrowing hereunder; (e) with respect to LIBO Rate Loans and Money Market LIBOR Loans, the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on the day three months after such Loan is made or continued); and (f) on that portion of any Loans which is accelerated pursuant to Section 9.2 or Section 9.3, ----------- ----------- immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Revolving Loan Commitment Termination Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.2.4. Interest Rate Determination. The Agent --------------------------- shall determine the interest rate applicable to Revolving Loans and shall give prompt notice to the Borrower and the Lenders of such determination, and its determination thereof shall be conclusive in the absence of manifest error. SECTION 3.3. Fees. The Borrower agrees to pay the ---- fees set forth in this Section 3.3. ----------- SECTION 3.3.1. Facility Fee. The Borrower agrees to ------------ pay to the Agent, for the ratable account of each Lender, a facility fee at the rate per annum based on the Borrower's Debt Rating determined as provided in the definition of "Applicable Margin" on the Revolving Loan Commitment Amount. Such fee shall be payable pro rata for the period since either the Effective Date or the last Quarterly Payment Date, whichever is applicable, by the Borrower in arrears on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on the Revolving Loan Commitment Termination Date. SECTION 3.3.2. Agent's Fee. To the Agent and the ----------- Arranger for their own accounts, the fees, as agreed to in the letter dated September 12, 1996 between the Agent, the Arranger and the Borrower. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO Rate Lending Unlawful. If any -------------------------- Lender shall reasonably determine (which determination shall, upon notice thereof to the Borrower and the Agent, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law, rule or regulation makes it unlawful, or any central bank or other governmental authority or comparable agency asserts that it is unlawful, for such Lender to make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make, continue, maintain or convert any such Loans shall, unless replaced by Money Market Absolute Rate Loans, upon such determination, forthwith be suspended until such Lender shall notify the Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans of such Lender shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. In the case of Offshore Currency Loans, the Borrowing shall be in an aggregate amount equal to the Dollar Equivalent amount of the Offshore Currency Loan, and shall be redenominated and converted into Revolving Loans in Dollars as of the last day of the related Interest Period for such Offshore Currency Loan, subject to the provisions of Section 2.4 hereof. SECTION 4.2. Inability to Determine Rates or Make or --------------------------------------- Continue Offshore Currency Loans. - -------------------------------- (a) If the Agent shall have determined that by reason of circumstances affecting the Agent's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans of such type in an Offshore Currency, then, upon notice from the Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue any Loans as, or - ----------- ----------- to convert any Loans into, LIBO Rate Loans in such Offshore Currency shall forthwith be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (b) If any Lender shall reasonably determine that by reason of circumstances affecting such Lender's relevant market, that such Lender cannot make, continue or convert Revolving Loans in any Offshore Currency, it shall promptly, but not more than one Business Day after receipt of a Notice of Borrowing or Continuation/Conversion, notify the Agent thereof, whereupon, upon notice from the Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.3 or ----------- Section 2.4 to make, continue or convert any Loans in such - ----------- Offshore Currency shall forthwith be suspended until the Agent shall have received notice from such Lender, and notified the Borrower and the Lenders, that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased LIBO Rate Loan and Offshore ------------------------------------- Currency Loan Costs. If after the date hereof, the adoption of - ------------------- any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its LIBOR office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall increase the cost to such Lender of, or result in any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans or Offshore Currency Loans, then the Borrower agrees to pay to the Agent for the account of each Lender the amount of any such increase or reduction. Such Lender shall promptly notify the Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within ten Business Days of its receipt of such notice, and such notice shall be binding on the Borrower absent clear and convincing evidence to the contrary. SECTION 4.4. Obligation to Mitigate. Each Lender ---------------------- agrees that as promptly as practicable after it becomes aware of the occurrence of an event that would entitle it to give notice pursuant to Section 4.1, 4.3 or 4.6, and in any event if so ----------------------- requested by the Borrower, each Lender shall use reasonable efforts to make, fund or maintain its affected Loans through another lending office if as a result thereof the increased costs would be avoided or materially reduced or the illegality would thereby cease to exist and if, in the reasonable opinion of such Lender, the making, funding or maintaining of such Loans through such other lending office would not in any material respect be disadvantageous to such Lender, contrary to such Lender's normal banking practices or violate any applicable law or regulation. No change by a Lender in its Domestic Office or LIBOR Office made for such Lender's convenience shall result in any increased cost to the Borrower. The Borrower shall not be obligated to compensate any Lender for the amount of any additional amount pursuant to Section 4.1, 4.3 or 4.6 accruing prior to the date ----------------------- which is 90 days before the date on which such Lender first notifies the Borrower that it intends to claim such compensation; it being understood that the calculation of the actual amounts may not be possible within such period and that such Lender may provide such calculation as soon as reasonably practicable thereafter without affecting or limiting the Borrower's payment obligation thereunder. If any Lender demands compensation pursuant to Section 4.1, 4.3 or 4.6 with respect to any LIBO Rate ----------------------- Loan, the Borrower may, at any time upon at least one Business Day's prior notice to such Lender through the Agent, elect to convert such Loan into a Base Rate Loan. Thereafter, unless and until such Lender notifies the Borrower that the circumstances giving rise to such notice no longer apply, all such LIBO Rate Loans by such Lender shall bear interest as Base Rate Loans, notwithstanding any prior election by the Borrower to the contrary. If such Lender notifies the Borrower that the circumstances giving rise to such notice no longer apply, the Borrower may elect that the principal amount of each such Loan again bear interest as LIBO Rate Loans in accordance with this Agreement, on the first day of the next succeeding Interest Period applicable to the related LIBO Rate Loans of other Lenders. Additionally, the Borrower may, at its option, upon at least five Business Days' prior notice to such Lender, elect to prepay in full, without premium or penalty, such Lender's affected LIBO Rate Loans. If the Borrower elects to prepay any Loans pursuant to this Section 4.4, the Borrower shall pay within ----------- ten Business Days' after written demand any additional increased costs of such Lender accruing for the period prior to such date of prepayment. If such conversion or prepayment is made on a day other than the last day of the current Interest Period for such affected LIBO Rate Loans, such Lender shall be entitled to make a request for, and the Borrower shall pay, compensation under Section 4.5. - ----------- SECTION 4.5. Funding Losses. In the event any Lender -------------- shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1 or otherwise; ------- --- (b) Borrower's failure to borrow any LIBO Rate Loans or Money Market LIBOR Loans in accordance with the Borrowing Request or Notice of Money Market Borrowing therefor; or (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor, then, upon the written notice of such Lender to the Borrower (with a copy to the Agent), the Borrower shall, within five Business Days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall be binding on the Borrower absent clear and convincing evidence to the contrary. SECTION 4.6. Increased Capital Costs. If after the ----------------------- date hereof any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any applicable law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects the amount of capital required to be maintained by any Lender, and such Lender reasonably determines that the rate of return on its capital as a consequence of the Letters of Credit, its Revolving Loan Commitment or the Loans made by such Lender is reduced to a level below that which such Lender could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall be binding on the Borrower absent clear and convincing evidence to the contrary. SECTION 4.7. Taxes. All payments by the Borrower of ----- principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income, receipts, net worth or shareholders' capital (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from ----- any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) within 30 days after such payment forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (c) pay to the Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Agent or any Lender with respect to any payment received by the Agent or such Lender hereunder, the Agent or such Lender may pay such Taxes and, upon receipt of notice from the Agent or such Lender within thirty (30) days after such payment, the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses which are not attributable solely to the actions or inactions of the Agent or such Lender) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent, for the account of the respective Lenders, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.7, a distribution hereunder by the ----------- Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. Each Lender that is organized under the laws of a jurisdiction other than the United States shall, prior to the due date of any payments under the Notes, execute and deliver to the Borrower and the Agent, on or about the first scheduled payment date in each Fiscal Year, one or more (as the Borrower or the Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Lender is exempt from withholding or deduction of Taxes. Except with respect to liabilities arising from a change in laws after the date hereof, no Lender shall be entitled to receive additional amounts in respect of United States federal income tax if such forms are inaccurate or not applicable as of the Effective Date, or have not otherwise been provided to the Borrower. SECTION 4.8. Payments, Computations. Unless ---------------------- otherwise expressly provided, all payments by the Borrower pursuant to this Agreement, the Notes or any other Loan Document shall be made by the Borrower to the Agent for the pro rata --- ---- account of the Lenders entitled to receive such payment. All such payments required to be made to the Agent shall be made, without setoff, deduction or counterclaim, not later than 11:00 a.m., San Francisco time, on the date due, in Same Day Funds, to such account as the Agent shall specify from time to time by notice to the Borrower; provided that such payment shall -------- be deemed made timely if made by wire transfer and by such time as an Authorized Representative has advised the Agent of the applicable Federal Reserve System wire transfer confirmation number. Funds received after that time shall be deemed to have been received by the Agent on the next succeeding Business Day. The Agent shall promptly remit in Same Day Funds to each Lender its share, if any, of such payments received by the Agent for the account of such Lender. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan, 365 days or, if appropriate, 366 days). Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause ------ (a)(iii) or (b)(i) of the definition of the term "Interest - -------- ------ -------- Period" with respect to LIBO Rate Loans) be made on the next - ------ succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.9. Sharing of Payments. If any Lender ------------------- shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Committed Loan or any L/C Obligation (other than pursuant to the terms of Sections 4.3, 4.4, 4.5, 4.6, and 4.7) in excess of ------------ --- --- --- --- its pro rata share of payments then or therewith obtained by all --- ---- Lenders holding Loans of such type, such Lender shall purchase from the other Lenders such participations in Committed Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of -------- ------- the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to - -- (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 4.9 may, to the fullest extent ----------- permitted by law, exercise all its rights of payment (including pursuant to Section 4.10) with respect to such participation as ------------ fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 4.9 ----------- applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.9 to share in the benefits of any recovery on such - ----------- secured claim. SECTION 4.10. Setoff. Each Lender shall, upon the ------ occurrence of any Event of Default described in clauses (a) or ----------- (b) and, upon the occurrence of any Default described in clauses - --- ------- (c) through (d) of Section 9.1.9 with respect to the Borrower or, - --- --- ------------- with the consent of the Required Lenders, upon the occurrence and continuance beyond the expiration of the applicable grace period, if any, of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Lender a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Lender or any bank controlling such Lender; provided, however, that any such appropriation and application - -------- ------- shall be subject to the provisions of Section 4.9. Each Lender ----------- agrees promptly to notify the Borrower and the Agent after any such setoff and application made by such Lender; provided, -------- however, that the failure to give such notice shall not affect - ------- the validity of such setoff and application. The rights of each Lender under this Section 4.10 are in addition to other rights ------------ and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. SECTION 4.11. Use of Proceeds. The Borrower shall --------------- apply the proceeds of each Borrowing for general corporate purposes; without limiting the foregoing, no proceeds of any Loan will be used to acquire any "margin stock", as defined in F.R.S. Board Regulation U. ARTICLE V THE LETTERS OF CREDIT SECTION 5.1. The Letter of Credit Commitment. (a) On ------------------------------- the terms and conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time on any Business Day during the period from the Effective Date to the Revolving Loan Commitment Termination Date to Issue Letters of Credit for the account of the Borrower, and to amend or renew Letters of Credit previously issued by it, in accordance with Section 5.1.1, and (B) to honor ------------- drafts under the Letters of Credit; and (ii) the Lenders severally agree to participate in Letters of Credit Issued for the account of the Borrower; provided, that the Issuing Bank -------- shall not be obligated to Issue, and no Lender shall be obligated to participate in, any Letter of Credit if as of the date of Issuance of such Letter of Credit (the "Issuance Date") (1) the ------------- Dollar Equivalent of all L/C Obligations plus the Dollar Equivalent of all Loans exceeds the Revolving Loan Commitment Amount, or (2) the participation of any Lender in the Dollar Equivalent of all L/C Obligations plus the Dollar Equivalent of the Revolving Loans of such Lender exceeds such Lender's Revolving Loan Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Issuing Bank is under no obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any governmental authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from Issuing such Letter of Credit, or any requirement of law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which the Issuing Bank in good faith deems material to it; (ii) the Issuing Bank has received written notice from any Lender, the Agent or the Borrower, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in Section 6.2 is not then satisfied; ------- --- (iii) the expiry date of any requested Letter of Credit is after the Revolving Loan Commitment Termination Date; (iv) any requested Letter of Credit is not in form and substance acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Bank in its sole discretion; (v) any standby Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person; or (vi) such Letter of Credit is in a face amount less than the Dollar Equivalent of $1,000,000 or denominated in a currency other than Dollars or an Offshore Currency. SECTION 5.1.1. Issuance, Amendment and Renewal of ---------------------------------- Letters of Credit. (a) Each Letter of Credit shall be Issued - ----------------- upon the irrevocable written request of the Borrower received by the Issuing Bank (with a copy sent by the Borrower to the Agent) at least five Business Days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of Issuance. Each such request for Issuance of a Letter of Credit shall be by facsimile, promptly confirmed in writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the proposed date of Issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount and currency of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) any documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Issuing Bank may require. The Agent shall promptly notify the Lenders of the receipt by it of any L/C Application. (b) At least two Business Days prior to the Issuance of any Letter of Credit, the Issuing Bank will confirm with the Agent (by telephone or in writing) that the Agent has received a copy of the L/C Application from the Borrower and, if not, the Issuing Bank will provide the Agent with a copy thereof. On or before the Business Day immediately preceding the date the Issuing Bank is to issue a requested Letter of Credit, the Agent will confirm to the Issuing Bank that (A) such issuance is then permitted under Section 5.1; and (B) all conditions specified in ----------- Section 6.2 are then satisfied. If the Agent shall have directed - ----------- the Issuing Bank to issue such Letter of Credit, then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue a Letter of Credit for the account of the Borrower in accordance with the Issuing Bank's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Revolving Loan Commitment Termination Date, the Issuing Bank will, upon the written request of the Borrower received by the Issuing Bank (with a copy sent by the Borrower to the Agent) at least four Business Days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, promptly confirmed in writing, made in the form of an L/C Application and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation to amend any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit; or (C) the conditions of Section 5.1(b) shall not have been met. On or before the -------------- Business Day immediately preceding the date the Issuing Bank is to amend a Letter of Credit, the Agent will confirm to the Issuing Bank that (A) such amendment is then permitted under Section 5.1; and (B) all conditions specified in Section 6.2 are - ----------- ----------- then satisfied. The Agent shall promptly notify the Lenders of the receipt by it of any L/C Application. (d) The Issuing Bank and the Lenders agree that, while a Letter of Credit is outstanding and prior to the Revolving Loan Commitment Termination Date, at the option of the Borrower and upon the written request of the Borrower received by the Issuing Bank (with a copy sent by the Borrower to the Agent) at least four Business Days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of notification of renewal, the Issuing Bank shall be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made by facsimile, promptly confirmed in writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of the Letter of Credit; and (iv) such other matters as the Issuing Bank may require. The Agent shall promptly notify the Lenders of the receipt by it of any L/C Application. The Issuing Bank shall be under no obligation so to renew any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed renewal of the Letter of Credit; or (C) the conditions of Section 5.1(b) shall not have -------------- been met. On or before the Business Day immediately preceding the date the Issuing Bank is to renew a Letter of Credit, the Agent will confirm to the Issuing Bank that (A) such renewal is then permitted under Section 5.1; and (B) all conditions ----------- specified in Section 6.2 are then satisfied. If any outstanding ----------- Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed, and if at the time of renewal the Issuing Bank would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this Section 5.1.1(d) upon the request of the ---------------- Borrower but the Issuing Bank shall not have received any L/C Application from the Borrower with respect to such renewal or other written direction by the Borrower with respect thereto, the Issuing Bank shall nonetheless be permitted to allow such Letter of Credit to renew, and the Borrower and the Lenders hereby authorize such renewal, and, accordingly, the Issuing Bank shall be deemed to have received an L/C Application from the Borrower requesting such renewal. (e) The Issuing Bank may, at its election (or as required by the Agent at the direction of the Required Lenders), deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than the Revolving Loan Commitment Termination Date. (f) This Agreement shall control in the event of any conflict with any L/C Related Document (other than any Letter of Credit). (g) The Issuing Bank will also deliver to the Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. SECTION 5.1.2. Risk Participations, Drawings and Reimbursements. --------------------------------- - -------------- (a) Immediately upon the Issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Percentage of such Lender, times (ii) the maximum Dollar Equivalent amount available to be drawn under such Letter of Credit and the Dollar Equivalent amount of such drawing, respectively. For purposes of Section 2.1, each Issuance of a ----------- Letter of Credit shall be deemed to utilize the Revolving Loan Commitment of each Lender by an amount equal to the Dollar Equivalent amount of such participation. (b) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly notify the Borrower. The Borrower shall reimburse the Issuing Bank prior to 10:00 a.m. (San Francisco time), on each date that any amount is paid by the Issuing Bank under any Letter of Credit (each such date, an "Honor Date"), in the Applicable Currency and in an amount equal ---------- to the amount so paid by the Issuing Bank. In the event the Borrower fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 10:00 a.m. (San Francisco time) on the Honor Date, the Issuing Bank will promptly notify the Agent and the Agent will promptly notify each Lender thereof, and the Borrower shall be deemed to have requested that Base Rate Loans be made by the Lenders to be disbursed on the Honor Date under such Letter of Credit. Any notice given by the Issuing Bank or the Agent pursuant to this Section 5.1.2(b) may ---------------- be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (c) Each Lender shall upon any notice pursuant to Section 5.1.2(b) make available to the Agent for the account of - ---------------- the relevant Issuing Bank an amount in Dollars and in Same Day Funds equal to its Percentage of the Dollar Equivalent amount of the drawing, whereupon the participating Lenders shall (subject to Section 5.1.2(e)) each be deemed to have made a Revolving Loan ---------------- consisting of a Base Rate Loan to the Borrower in that amount. If any Lender so notified fails to make available to the Agent for the account of the Issuing Bank the amount of such Lender's Percentage of the amount of the drawing by no later than 12:00 noon (San Francisco time) on the Honor Date, then interest shall accrue on such Lender's obligation to make such payment, from the Honor Date to the date such Lender makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Agent will promptly give notice of the occurrence of the Honor Date, but failure of the Agent to give any such notice on the Honor Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligations under this Section 5.1.2. ------- - ----- (d) With respect to any unreimbursed drawing that is not converted into Revolving Loans in whole or in part, for any reason whatsoever, the Borrower shall be deemed to have incurred from the Issuing Bank an L/C Borrowing in the Dollar Equivalent amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Alternate Base Rate plus 1% per annum, and each Lender's payment to the Issuing Bank pursuant to Section 5.1.2 shall be deemed payment in respect of ------------- its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 5.1.2. ------------- (e) Each Lender's obligation in accordance with this Agreement to make the Revolving Loans or L/C Advances, as contemplated by this Section 5.1.2, as a result of a drawing ------------- under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Bank and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Bank, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided, -------- however, that each Lender's obligation to make Revolving Loans under this Section 5.1.2 is subject to the conditions set forth ------------- in Section 5.1.1. ------------- SECTION 5.1.3. Repayment of Participations. (a) Upon --------------------------- (and only upon) receipt by the Agent for the account of the Issuing Bank of immediately available funds from the Borrower (i) in reimbursement of any payment made by the Issuing Bank under the Letter of Credit with respect to which any Lender has paid the Agent for the account of the Issuing Bank for such Lender's participation in the Letter of Credit pursuant to Section ------- 5.1.2(a) or (ii) in payment of interest thereon, the Agent will - -------- pay to each Lender, in the same funds as those received by the Agent for the account of the Issuing Bank, the amount of such Lender's Percentage of such funds, and the Issuing Bank shall receive the amount of the Percentage of such funds of any Lender that did not so pay the Agent for the account of the Issuing Bank. (b) If the Agent or the Issuing Bank is required at any time to return to the Borrower, or to a trustee, receiver, liquidator, custodian, or any official in any insolvency proceeding, any portion of the payments made by the Borrower to the Agent for the account of the Issuing Bank pursuant to Section ------- 5.1.2(a) in reimbursement of a payment made under the Letter of - -------- Credit or interest or fee thereon, each Lender shall, on demand of the Agent, forthwith return to the Agent or the Issuing Bank the amount of its Percentage of any amounts so returned by the Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Lender to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. SECTION 5.1.4. Role of the Issuing Bank. (a) Each ------------------------ Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft and certificates if expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Agent-Related Person nor any of the respective correspondents, participants or assignees of the Issuing Bank shall be liable to any Lender for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders (including the Required Lenders, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any L/C Related Document. (c) The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this -------- assumption is not intended to, and shall not, preclude the Borrower pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Agent-Related Person, nor any of the respective correspondents, participants or assignees of the Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 5.1.5; provided, however, ------------- -------- anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against the Issuing Bank, and the Issuing Bank may be liable to the Borrower, for such damages suffered by the Borrower which the Borrower proves were caused by the Issuing Bank's willful misconduct or gross negligence or the Issuing Bank's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. SECTION 5.1.5. Obligations Absolute. The obligations -------------------- of the Borrower under this Agreement and any L/C Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any L/C Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Issuing Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any insolvency proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Borrower in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. SECTION 5.2. Cash Collateral Pledge. Upon (i) the ---------------------- request of the Agent, (A) if the Issuing Bank has honored any full or partial drawing request on any Letter of Credit and such drawing has resulted in an L/C Borrowing hereunder, or (B) if, as of the Revolving Loan Commitment Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (ii) the occurrence of the circumstances requiring the Borrower to Cash Collateralize Letters of Credit, then, the Borrower shall immediately Cash Collateralize the L/C Obligations in an amount equal to such L/C Obligations in the Applicable Currency, and the Borrower hereby grants to the Agent, for the ratable benefit of the Lenders, a security interest in such cash collateral. SECTION 5.3. Letter of Credit Fees. The Borrower --------------------- shall pay to the Agent for the ratable account of each of the Lenders a letter of credit fee with respect to the Letters of Credit at the rate per annum based on the Borrower's Debt Rating determined as provided in the definition of "Applicable Margin" for Financial Letters of Credit or Performance Letters of Credit, as applicable, of the average daily maximum Dollar Equivalent amount available to be drawn of the outstanding Letters of Credit, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon Letters of Credit outstanding for that quarter as calculated by the Agent. Such letter of credit fees shall be due and payable in Dollars quarterly in arrears on the last Business Day of each calendar quarter during which Letters of Credit are outstanding, commencing on the first such quarterly date to occur after the Effective Date, through the Revolving Loan Commitment Termination Date (or such later date upon which the outstanding Letters of Credit shall expire), with the final payment to be made on the Revolving Loan Commitment Termination Date (or such later expiration date). SECTION 5.4. Issuance of Letters of Credit in Offshore Currencies. -------------------------------- - ------------------- (a) The Issuing Bank shall be under no obligation to Issue any Letter of Credit denominated in an Offshore Currency if the Agent has received notice from any of the Lenders by 2:00 p.m. (San Francisco time) four Business Days prior to the day of such Issuance that the Issuing Bank cannot Issue, or any Lender cannot purchase a participation in, such Letter of Credit in the requested Offshore Currency, in which event the Agent will give notice to the Borrower no later than 9:00 a.m. (San Francisco time) on the third Business Day prior to the requested date of such Issuance that the Issuance in the requested Offshore Currency is not then available, and notice thereof also will be given promptly by the Agent to the Issuing Bank and the Lenders. If the Agent shall have so notified the Borrower, the request for such Letter of Credit shall be deemed withdrawn. (b) The Borrower shall be entitled to request that Letters of Credit hereunder also be permitted to be Issued in any Agreed Alternative Currency. The Borrower shall deliver to the Agent any request for designation of an Agreed Alternative Currency by not later than 9:00 a.m. (San Francisco time) at least ten Business Days in advance of the date of any Letter of Credit proposed to be Issued in such Agreed Alternate Currency. Upon receipt of any such request the Agent will promptly notify the Lenders thereof, and each Lender will use its best efforts to respond to such request within two Business Days of receipt thereof. Each Lender may reject or accept such request in its sole discretion. The Agent will promptly notify the Borrower of the acceptance or rejection of any such request. SECTION 5.5. Uniform Customs and Practice. The ---------------------------- Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce ("UCP") most recently at --- the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. SECTION 5.6. Additional and Successor Issuing Banks. -------------------------------------- If (i) the credit rating on the unsecured long term indebtedness of the Issuing Bank has been materially lowered, suspended or withdrawn by the applicable rating agencies or (ii) the Issuing Bank shall reasonably request, the Borrower may, with the written consent of the Agent and the Required Banks, appoint an additional Bank or Banks to act as Issuing Bank. Each additional or successor Issuing Bank shall execute an instrument of assumption in form and substance satisfactory to the Borrower, the Agent and the Lenders, whereupon such Bank shall be deemed an Issuing Bank for all purposes whatsoever pursuant to this Agreement, and with all the rights, powers, obligations, privileges and duties inuring thereto. ARTICLE VI CONDITIONS TO CREDIT EXTENSIONS SECTION 6.1. Conditions to Effectiveness. This --------------------------- Agreement shall become effective upon the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 6.1. ----------- SECTION 6.1.1. Resolutions. The Agent shall have ----------- received from the Borrower a certificate, substantially in the form of Exhibit F hereto, dated the Effective Date, of its Secretary or Assistant Secretary as to (a) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to be executed by it; (b) the incumbency and signatures of those of its officers and representatives authorized to act with respect to this Agreement, the Notes and each other Loan Document executed by it; and (c) the Borrower's articles of incorporation and by-laws, upon which certificate each Lender may conclusively rely until it shall have received a further certificate of the Secretary of the Borrower canceling or amending such prior certificate. SECTION 6.1.2. Delivery of Notes. The Agent shall have ----------------- received, for the account of each Lender, its Notes duly executed and delivered by the Borrower. SECTION 6.1.3. Opinions of Counsel. The Agent shall ------------------- have received opinions, dated the Effective Date and addressed to the Agent and all Lenders, from the Assistant General Counsel of the Borrower, substantially in the form of Exhibit E hereto and --------- given upon the express instruction of the Borrower. SECTION 6.1.4. Closing Fees, Expenses. The Agent shall ---------------------- have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 11.3, if invoiced at least ------------ ---- three Business Days before closing. SECTION 6.1.5. Condition to Initial Credit Extension. ------------------------------------- The obligation of each Lender to make the initial Credit Extension shall be subject to the receipt by the Agent of satisfactory assurances as to the provision for the repayment in full of all obligations under the Existing Credit Agreement, and termination thereof. SECTION 6.2. All Credit Extensions. The obligation --------------------- of each Lender to make any Credit Extension (including the initial Credit Extension) shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 6.2. ----------- SECTION 6.2.1. Representations and Warranties, No ------------------------------ Default. Both before and after giving effect to any Credit - ------- Extension (but, if any Default of the nature referred to in Section 9.1.5 shall have occurred with respect to any other - ------------- Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds of such Borrowing) the following statements shall be true and correct: (a) the representations and warranties set forth in Article VII shall be true and correct in all ----------- material respects with the same effect as if then made (unless stated to relate solely to an early date, in which case such representations and warranties shall be true and correct as of such earlier date); and (b) no Default shall have then occurred and be continuing. SECTION 6.2.2. Borrowing Request. The Agent shall have ----------------- received a Borrowing Request for such Borrowing. Each of the delivery of a Borrowing Request and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing (both immediately before and after giving effect to such Borrowing and the application of the proceeds thereof) the statements made in Section 6.2.1 are true and correct. ------------- SECTION 6.2.3. Satisfactory Legal Form. All documents ----------------------- executed or submitted pursuant hereto by or on behalf of the Borrower shall be satisfactory in form and substance to the Agent and its counsel. ARTICLE VII REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agent to enter into this Agreement and to make Loans hereunder, the Borrower represents and warrants unto the Agent and each Lender as set forth in this Article VII. ----------- SECTION 7.1. Organization; Power. The Borrower is a ------------------- corporation validly organized and existing and in good standing under the laws of the State of its incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification, and has all requisite corporate power and authority and holds all material requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement, the Notes and each other Loan Document and to conduct its business substantially as currently conducted by it. SECTION 7.2. Due Authorization; Non-Contravention. ------------------------------------ The execution, delivery and performance by the Borrower of this Agreement, the Notes and each other Loan Document are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene the Borrower's Organic Documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Borrower; or (c) result in, or require the creation or imposition of, any Lien on any of the Borrower's properties. SECTION 7.3. Government Approval; Regulation. The ------------------------------- Borrower is not subject to any regulation as an "investment company" subject to the Investment Company Act of 1940, as amended, or as a "public utility holding company" subject to the Public Utility Holding Company Act of 1935, as amended. The Borrower is not otherwise subject to any regulation as a "public utility" under any other applicable law, rule or regulation, which would have a Material Adverse Effect. No authorization, consent, approval, license, exemption of or filing or registration with any court or governmental authority or regulatory body ("Government Approval") is required for the ------------------- Borrower to execute and perform its obligations under the Loan Documents, except for those which have been duly obtained or effected. No material Governmental Approval is required for the Borrower to carry on its business, except for those which have been duly obtained or effected. SECTION 7.4. Validity. This Agreement constitutes, -------- and the Notes and each other Loan Document will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms (except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity). SECTION 7.5. Financial Information. The balance --------------------- sheets of the Borrower as at December 31, 1995, and the related statements of income and cash flows of the Borrower, copies of which have been furnished to the Agent, have been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of the Borrower and its Subsidiaries as at the dates thereof and the results of their operations for the periods then ended. SECTION 7.6. No Material Adverse Change. Since the -------------------------- date of the financial statements described in Section 7.5, there ----------- has not occurred any event or condition having a Material Adverse Effect. SECTION 7.7. Litigation. There is no pending or, to ---------- the knowledge of the Borrower, threatened litigation, action, proceeding, or labor controversy affecting the Borrower, or any of its properties, businesses, assets or revenues, which (taking into account any insurance proceeds payable under a policy where the insurer has accepted coverage without any reservations) has a Material Adverse Effect or which purports to adversely affect the legality, validity or enforceability of this Agreement or any other Loan Document. SECTION 7.8. Ownership of Properties. The Borrower ----------------------- owns good and marketable title to all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges or claims (including infringement claims with respect to patents, trademarks, copyrights and the like) except as permitted pursuant to Section 8.2.3. ------------- SECTION 7.9. Taxes. The Borrower has filed all tax ----- returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 7.10. Pension and Welfare Plans. During the ------------------------- twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Borrowing hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by the Borrower or any member of the Controlled Group of any material liability (other than liabilities incurred in the ordinary course of maintaining the Pension Plan), fine or penalty. Neither the Borrower nor any member of the Controlled Group has any contingent liability with respect to any post-retirement benefit under a Welfare Plan which could reasonably be expected to have a Material Adverse Effect, other than liability for continuation coverage described in Part 6 of Title I of ERISA. SECTION 7.11. Environmental Warranties. ------------------------ (a) All facilities and property owned or leased by the Borrower or any of its Subsidiaries or Partnerships have been, and continue to be, owned or leased by the Borrower and its Subsidiaries in compliance with all Environmental Laws, except where the failure so to comply would not have, or be reasonably expected to have, a Material Adverse Effect; (b) there are no pending or, to the knowledge of the Borrower, threatened (i) claims, complaints, notices or requests for information received by the Borrower from governmental authorities with respect to any alleged violation by the Borrower of any Environmental Law, or (ii) complaints, notices or inquiries to the Borrower from governmental authorities regarding potential liability under any Environmental Law; (c) there have been no Releases (as defined under any Environmental Law) of Hazardous Materials at, on or under any property now or previously owned or leased by the Borrower that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; (d) the Borrower has obtained and is in compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary for the Borrower's business, except where the failure to obtain, maintain or comply with such permits, certificates, approvals, licenses or other authorizations would not have, or be reasonably expected to have, a Material Adverse Effect; (e) no property now or previously owned or leased by the Borrower is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to any Environmental Law, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; and (f) no conditions exist at, on or under any property now or previously owned or leased by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law which liability would have, or may reasonably be expected to have, a Material Adverse Effect. SECTION 7.12. Regulations G, T, U and X. The Borrower ------------------------- is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loans will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation G, T, U or X. Terms for which meanings are provided in F.R.S. Board Regulation G, T, U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 7.13. Accuracy of Information. All factual ----------------------- information heretofore or contemporaneously furnished by the Borrower in writing to the Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such written factual information hereafter furnished by the Borrower in writing to the Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the Agent and such Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading; provided, however, that as to such information prepared by a - -------- ------- person other than the Borrower (other than information furnished pursuant to Section 8.1.1), such representation and warranty is ------------- made only to the actual knowledge of the Borrower. SECTION 7.14. The Obligations. The Obligations are --------------- senior, unsecured Indebtedness of the Borrower ranking at least pari passu with all other senior, unsecured Indebtedness of the - ---------- Borrower. ARTICLE VIII COVENANTS SECTION 8.1. Affirmative Covenants. The Borrower --------------------- agrees with the Agent and each Lender that, until all Revolving Loan Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 8.1. ----------- SECTION 8.1.1. Financial Information, Reports, Notices. --------------------------------------- The Borrower will furnish, or will cause to be furnished, to the Agent copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by the controller, treasurer or chief financial officer of the Borrower; (b) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Borrower, a copy of the annual audit report for such Fiscal Year for the Borrower and its Subsidiaries, including therein consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, and accompanied by the opinion of Arthur Andersen & Co. or other independent public accountants of recognized national standing selected by the Borrower which report shall state that such consolidated financial statements present fairly in all material respects the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior periods; (c) as soon as available and in any event within 45 days after the end of each Fiscal Quarter, a certificate, executed by the controller, treasurer or chief financial officer of the Borrower, showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Agent) compliance with the financial covenants set forth in Section 8.2.4; ------------- (d) as soon as possible and in any event within five Business Days after any Authorized Representative obtains knowledge of the occurrence of each Default, a statement of the controller, treasurer or chief financial officer of the Borrower setting forth details of such Default and the action which the Borrower has taken and proposes to take with respect thereto; (e) as soon as possible and in any event within five Business Days after (x) the occurrence of any material adverse development with respect to any litigation, action, proceeding, or labor controversy of the type described in Section 7.7 or (y) the ----------- commencement of any labor controversy, litigation, action, proceeding of the type described in Section 7.7, notice thereof and, upon request of the ----------- Agent, copies of all non-privileged documentation relating thereto; (f) promptly after the sending or filing thereof, copies of all reports and registration statements which the Borrower files with the Securities and Exchange Commission or any national securities exchange; (g) immediately upon becoming aware of the institution of any steps by the Borrower or any other Person to terminate any Pension Plan (other than a standard termination under ERISA Section 4041(b)), or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower or any member of the Controlled Group of any material liability (other than liabilities incurred in the ordinary course of maintaining the Pension Plan), fine or penalty, or any increase in the contingent liability of the Borrower with respect to any post-retirement Welfare Plan benefit which has a Material Adverse Effect, notice thereof and copies of all documentation relating thereto; (h) as soon as known, any changes in Borrower's Debt Rating by Moody's or S&P or any other rating agency which maintains a Debt Rating on the Borrower which is used in the determination of the "Applicable Margin"; and (i) such other information respecting the condition or operations, financial or otherwise, of the Borrower as any Lender through the Agent may from time to time reasonably request. SECTION 8.1.2. Compliance with Laws. The Borrower will -------------------- comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include (without limitation) the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 8.1.3. Maintenance of Properties. The Borrower ------------------------- will, and will use reasonable efforts to cause each of its Subsidiaries and Partnerships to, maintain, preserve, protect and keep its properties in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times unless the Borrower determines in good faith that the continued maintenance of any of its properties is no longer economically desirable and except where the failure so to do would not have a Material Adverse Effect. SECTION 8.1.4. Insurance. The Borrower will maintain --------- or cause to be maintained with responsible insurance companies insurance with respect to its properties and business against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses. SECTION 8.1.5. Books and Records. The Borrower will, ----------------- and will cause each of its active Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions and permit the Agent and each Lender or any of their respective representatives, at reasonable times and intervals, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant. The Borrower will at any reasonable time and from time to time upon reasonable prior notice, permit the Agent and the Lenders or any of their respective agents or representatives to examine and make copies of and abstracts from the records and books of account of the Borrower; provided that by virtue of this subsection the Borrower -------- shall not be deemed to have waived any right to confidential treatment of the information so obtained, subject to the provisions of applicable law or court order. SECTION 8.1.6. Environmental Covenant. The Borrower ---------------------- will, and will use best efforts to cause each of its Subsidiaries and Partnerships to, (a) use and operate all of its facilities and properties in compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws, in each case where the failure to do so may reasonably be expected to have a Material Adverse Effect; (b) promptly cure and have dismissed with prejudice to the reasonable satisfaction of the Agent any actions and proceedings relating to compliance with Environmental Laws where such action or proceeding may reasonably be expected to have a Material Adverse Effect; provided that the Borrower or such Subsidiary -------- or Partnership may postpone such cure and dismissal during any period in which it is diligently pursuing any available appeals in such action or proceeding so long as such postponement would not be reasonably likely to have a Material Adverse Effect; and (c) provide such non-privileged information as the Agent may reasonably request from time to time to evidence compliance with this Section 8.1.6. ------------- SECTION 8.2. Negative Covenants. The Borrower agrees ------------------ with the Agent and each Lender that, until all Revolving Loan Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 8.2. ----------- SECTION 8.2.1. Restrictions on Secured Indebtedness. ------------------------------------ The Borrower will not create, incur, assume or suffer to exist any secured Indebtedness other than: (a) Capitalized Lease Liabilities and other secured Indebtedness of any kind whatsoever (including, without limitation, Indebtedness secured by a pledge of the stock of a Subsidiary not otherwise permitted under clause (b) of this Section 8.2.1) at any time ---------- ------------- outstanding not exceeding an aggregate principal amount equal to 10% of Net Tangible Assets, subject to Section 8.2.3(g) hereof, and ------- -------- (b) Indebtedness with respect to which the Borrower has pledged the stock of a Subsidiary in order to secure initial project financing obtained or being obtained after the Effective Date hereof by such Subsidiary (or the Partnership in which such Subsidiary is a partner) if such Indebtedness, as to the Borrower, is Non-Recourse Debt. SECTION 8.2.2. [Reserved]. ---------- SECTION 8.2.3. Liens. The Borrower will not create, ----- incur, assume or suffer to exist any Lien upon any of its property, revenues or assets, whether now owned or hereafter acquired, except: (a) Liens granted to secure payment of Indebtedness of the type permitted and described in clause (b) of Section 8.2.1; ---------- ------------- (b) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (c) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (d) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; (e) judgment Liens in existence less than 30 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies; (f) Liens upon any property at any time directly owned by the Borrower to secure any Indebtedness of the nature described in clause (a) of Section 8.2.1 in ---------- ------------- excess of the amount otherwise permitted thereby, provided that the Obligations shall be equally and -------- ratably secured with any and all such Indebtedness and with any other indebtedness similarly entitled to be equally and ratably secured; and (g) any Lien existing on the property of the Borrower on the Effective Date. In the event that the Borrower shall propose to create, incur, assume or suffer to exist any Lien upon any property at any time directly owned by it to secure any Indebtedness as contemplated by subdivision (g) above, the Borrower will give ----------- prior written notice thereof to the Agent, who shall give notice to the Lenders, and the Borrower will, prior to or simultaneously with the creation of such Lien, effectively secure the Obligations equally and ratably with such Indebtedness. SECTION 8.2.4. Financial Condition. The Borrower will ------------------- not permit its Tangible Net Worth to be less than $400,000,000 plus 25% of the Borrower's and its Subsidiaries' consolidated net income earned (without subtracting net losses) in each Fiscal Quarter commencing with the quarter ending after September 30, 1992. SECTION 8.2.5. Investments. The Borrower will not, and ----------- will not permit any of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Investments existing on the Effective Date; (b) Cash Equivalent Investments; (c) without duplication, Investments permitted as Indebtedness pursuant to Section 8.2.1; ------------- (d) otherwise in the ordinary course of business; and (e) Investments permitted pursuant to Section 8.2.6(b); ------- -------- provided, however, that - -------- ------- (f) any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent Investment" may continue to be held ---- --------------------- notwithstanding that such Investment if made thereafter would not comply with such requirements. SECTION 8.2.6. Consolidation, Merger. The Borrower --------------------- will not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) except (a) any such Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Borrower or any other Subsidiary; and (b) so long as no Default (by reason of the violation of Section 8.2.4) has occurred and is ------------- continuing or would occur after giving effect thereto, the Borrower or any of its Subsidiaries may purchase all or substantially all of the assets of any Person, or (in the case of any such Subsidiary) acquire such person by merger; and (c) provided that no Default has occurred and is continuing or would occur after giving effect thereto (including, without limitation, a Change in Control), the Borrower may consolidate with or merge into any other Person, or convey, transfer or lease its properties and assets substantially as an entirety to any person, or permit any Person to merge into or consolidate with the Borrower if the Borrower is the surviving corporation or the surviving corporation or purchaser or lessee is a corporation incorporated under the laws of the United States of America or Canada and assumes the Obligations; provided, however, that no -------- ------- Default or Event of Default shall have occurred after giving effect thereto. SECTION 8.2.7. Asset Dispositions. The Borrower will ------------------ not, and will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other rights with respect to, all or any substantial part of its assets (including accounts receivable and capital stock of Subsidiaries) to any Person, unless (a) such sale, transfer, lease, contribution or conveyance is in the ordinary course of its business; or (b) the net book value of such assets, together with the net book value of all other assets sold, transferred, leased, contributed or conveyed otherwise than in the ordinary course of business by the Borrower or any of its Subsidiaries pursuant to this Section 8.2.7(b) during the most recent 12-month period ---------------- since the Effective Date, does not exceed 10% of Net Tangible Assets computed as of the end of the most recent quarter preceding such sale; provided, however, -------- ------- that any such sales shall be disregarded for purposes of the 10% limitation of this Section 8.2.7(b) if the ---------------- proceeds are invested in assets in similar or related lines of business of the Borrower, and provided -------- further, that the Borrower may sell or otherwise ------- dispose of assets in excess of such 10% if the proceeds from such sales or dispositions, which are not so reinvested, are retained by the Borrower as cash or Cash Equivalent Investments. SECTION 8.2.8. Transactions with Affiliates. The ---------------------------- Borrower will not enter into, or cause, suffer or permit to exist any arrangement or contract with any of its Affiliates unless such arrangement or contract is fair and equitable to the Borrower and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Borrower with a Person which is not one of its Affiliates. SECTION 8.2.9. Restrictive Agreements. The Borrower ---------------------- will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding this Agreement, any other Loan Document and any agreement governing any Indebtedness permitted by clause (b) of Section 8.2.1 as to the assets financed with the ---------- ------------- proceeds of such Indebtedness) prohibiting (a) the ability of the Borrower to amend or otherwise modify this Agreement or any other Loan Document; or (b) the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower where such prohibition or restriction has a Material Adverse Effect. SECTION 8.3. ERISA. The Borrower will not engage in ----- any prohibited transactions under Section 406 of ERISA or under Section 4975 of the Internal Revenue Code, which would subject the Borrower to any tax, penalty or other liabilities having a Material Adverse Effect. ARTICLE IX EVENTS OF DEFAULT SECTION 9.1. Listing of Events of Default. Each of ---------------------------- the following events or occurrences described in this Section 9.1 ----------- shall constitute an "Event of Default". ---------------- SECTION 9.1.1. Non-Payment of Obligations. The -------------------------- Borrower shall default in the payment or mandatory prepayment when due of any principal of or interest on any Loan or L/C Obligation, or Borrower shall fail to Cash Collateralize L/C Obligations when required to do so or the Borrower shall default (and such default shall continue unremedied for a period of five days after demand) in the payment when due of any facility fee or of any other Obligation. SECTION 9.1.2. Breach of Warranty. Any representation ------------------ or warranty of the Borrower made or deemed to be restated or remade hereunder or in any other Loan Document or any other writing or certificate furnished by or on behalf of the Borrower to the Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article VI) is or shall be ---------- incorrect when made or deemed made in any material respect. SECTION 9.1.3. Non-Performance of Certain Covenants and ---------------------------------------- Obligations. The Borrower shall default in the due performance - ----------- and observance of any of its obligations under Section 8.2 (other than Sections 8.2.4 and 8.2.8). ----------- -------------- ----- SECTION 9.1.4. Non-Performance of Other Covenants and -------------------------------------- Obligations. The Borrower shall default in the due performance - ----------- and observance of any other covenant or agreement contained herein or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after written notice thereof shall have been given to the Borrower by the Agent. SECTION 9.1.5. Default on Other Indebtedness. A ----------------------------- default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than (x) Indebtedness described in ---------- Section 9.1.1 or (y) Non-Recourse Debt inclusive of Indebtedness - ------------- --------- pertaining to the equity financing facility associated at any time, now or hereafter, with the 1,000 megawatt brown coal fired power station located approximately 100 miles southwest of Melbourne, Australia, in which the Borrower owns an indirect interest, known as the Loy Yang B Project but only so long as (i) the existing support arrangements from Edison International referred to as the Loy Yang B Support Arrangements remain in full force and effect or (ii) Edison International, in the reasonable discretion and judgment of the Agent, has a fully enforceable commitment and unconditional agreement to make equity contributions to Borrower sufficient to reimburse all drawings under the equity financing facility supporting the Loy Yang B Project) of the Borrower having a principal amount, individually or in the aggregate, in excess of $20,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 9.1.6. Judgments. Any judgment or order for --------- the payment of money in excess of $20,000,000 (taking into account any insurance proceeds payable under a policy where the insurer has accepted coverage without reservation) shall be rendered against the Borrower and either (a) enforcement proceedings shall have been commenced by any creditor upon such judgment or order; or (b) there shall be any period of fifteen (15) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. SECTION 9.1.7. Pension Plans. Any of the following ------------- events shall occur with respect to any Pension Plan: (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $20,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. SECTION 9.1.8. Control of the Borrower. Any Change in ----------------------- Control shall occur. SECTION 9.1.9. Bankruptcy, Insolvency. The Borrower ---------------------- shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or a substantial portion of its property, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or for a substantial part of its property, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days, provided that nothing in this Agreement -------- or the Loan Documents shall prohibit or restrict any right the Agent or any Lender may have under applicable law to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend its rights under the Loan Documents (and the Borrower shall not object to any such appearance); (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower, and, if any such case or proceeding is not commenced by the Borrower, such case or proceeding shall be consented to or acquiesced in by the Borrower or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that nothing -------- in this Agreement or the Loan Documents shall prohibit or restrict any right the Agent or any Lender may have under applicable law to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend its rights under the Loan Documents (and the Borrower shall not object to any such appearance); or (e) take any corporate action authorizing, or in furtherance of, any of the foregoing. SECTION 9.2. Action if Bankruptcy. If any Event of -------------------- Default described in clauses (a) through (d) of Section 9.1.9 ----------- --- ------------- shall occur with respect to the Borrower, the Revolving Loan Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans, all other Obligations shall automatically be and become immediately due and payable, without notice or demand, and the Borrower shall immediately, without notice or demand, Cash Collateralize the L/C Obligations. SECTION 9.3. Action if Other Event of Default. If -------------------------------- any Event of Default (other than any Event of Default described in clauses (a) through (d) of Section 9.1.9) shall occur for any ----------- --- ------------- reason, whether voluntary or involuntary, and be continuing, the Agent, upon the direction of the Required Lenders, shall by written notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans, the L/C Obligations and other Obligations to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate and the Borrower shall Cash Collateralize the L/C Obligations. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. SECTION 9.4. Rescission of Declaration. Any ------------------------- declaration made pursuant to Section 9.3 may, should the Required ----------- Lenders in their sole and absolute discretion so elect, be rescinded by written notice to the Borrower at any time after the principal of the Loans and the Notes shall have become due and payable, but before any judgment or decree for the payment of the monies so due, or any part thereof, shall have been entered; provided that the Borrower shall have paid all arrears of - -------- interest upon the Loans and the Notes and all other amounts then owed to the Agent and the Lenders including all costs, expenses and liabilities incurred by the Agent and the Lenders in respect of such declaration and all consequences thereof (except that principal of the Loans and the Notes which by such declaration shall have become payable) and every other Event of Default shall have been made good, waived or cured; provided that no such -------- rescission or annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereon. ARTICLE X THE AGENT SECTION 10.1. Actions. (a) Each Lender hereby ------- appoints BofA as its Agent under and for purposes of this Agreement, the Notes and each other Loan Document. Each Lender authorizes the Agent to act on behalf of such Lender under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Agent (with respect to which the Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Agent-Related Persons pro rata according to such Lender's --- ---- Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Agent-Related Persons in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, and as to which the Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for -------- ------- the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the Agent-Related Person's gross negligence or wilful misconduct. No Agent-Related Persons shall be required to take any action hereunder, under the Notes or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, the Notes or any other Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of the Agent shall be or become, in its determination, inadequate, the Agent-Related Person may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. The Co-Agents shall have no rights, duties or obligations under this Agreement in their capacities as Co-Agents. (c) The Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit Issued by it and the documents associated therewith until such time and except for so long as the Agent may agree at the request of the Required Lenders to act for such Issuing Bank with respect thereto; provided, however, that the Issuing Bank shall have all of the - -------- ------- benefits and immunities (i) provided to the Agent in this Article X with respect to any acts taken or omissions suffered by - --------- the Issuing Bank in connection with Letters of Credit Issued by it or proposed to be Issued by it and the L/C Related Documents as fully as if the term "Agent", as used in this Article X, --------- included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. SECTION 10.2. Funding Reliance. Unless the Agent ---------------- shall have been notified by telephone, confirmed in writing, by any Lender by 8:30 a.m., San Francisco time, on the day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Agent may assume that such Lender has made such amount available to the Agent and, in reliance upon such assumption, may, but shall not be required to, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Agent, such Lender and the Borrower severally agree to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Agent made such amount available to the Borrower to the date such amount is repaid to the Agent, at the interest rate applicable at the time to Loans comprising such Borrowing; provided, that if -------- such Lender makes available the amount which is its Percentage of such Borrowing on or before the next Business Day following the day when due, the interest rate payable on such amount shall be the Federal Funds Rate. SECTION 10.3. Exculpation. No Agent-Related Person ----------- shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by the Agent shall not obligate it to make any further inquiry or to take any action. Each Agent-Related Person shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Agent believes to be genuine and to have been presented by a proper Person. SECTION 10.4. Successor. The Agent may resign as such --------- at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Agent at any time shall resign, the Required Lenders may, within ten (10) days after such notice and with the consent of the Borrower (not to be unreasonably withheld), appoint another Lender as a successor Agent which shall thereupon become the Agent hereunder. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, after notice to and consultation with the Borrower, appoint a successor Agent, which shall be one of the Lenders or an Eligible Assignee, and shall have a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After the effective date of any retiring Agent's resignation hereunder as the Agent, the provisions of (a) this Article X shall inure to its benefit as --------- to any actions taken or omitted to be taken by it while it was the Agent under this Agreement; and (b) Section 11.3 and Section ------------ ------- 11.4 shall continue to inure to its benefit. - ---- SECTION 10.5. Loans by BofA. BofA shall have the same ------------- rights and powers with respect to (x) the Loans made by it or any of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not the Agent. BofA and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if BofA were not the Agent hereunder. SECTION 10.6. Reliance by Agent. (a) The Agent shall ----------------- be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in Section 6.1, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender. SECTION 10.7. Notice of Default. The Agent shall not ----------------- be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Lenders, unless the Agent shall have received written notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Agent will notify the Lenders of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Article IX; provided, however, that -------- ------- unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders. SECTION 10.8. Credit Decisions. Each Lender ---------------- acknowledges that it has, independently of the Agent-Related Person and each other Lender, and based on such Lender's review of the financial information of the Borrower, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 10.9. Copies. The Agent shall give prompt ------ notice to each Lender of each notice or request required or permitted to be given to the Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Agent from the Borrower for distribution to the Lenders by the Agent in accordance with the terms of this Agreement. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. Waivers, Amendments. The provisions of ------------------- this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no -------- ------- such amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action, including, without limitation, any amendment of Schedule 2.9, be taken by all the Lenders ------------ or by the Required Lenders shall be effective unless consented to by each Lender; (b) modify this Section 11.1, change the ------------ definition of "Required Lenders", increase any ---------------- Revolving Loan Commitment Amount or the Percentage of any Lender, reduce or change the date for payment of any fees described in Article III (other than the fees ----------- described in Section 3.3.2), or extend any Revolving ------------- Loan Commitment Termination Date shall be made without the consent of each Lender and each holder of a Note; (c) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal of or interest on any Loan (or reduce the principal amount of or rate of interest on any Loan) shall be made without the consent of the holder of that Note evidencing such Loan; or (d) affect the interests, rights or obligations of the Agent qua the Agent or the Issuing Bank qua the --- --- Issuing Bank shall be made without consent of the Agent or the Issuing Bank, respectively. No failure or delay on the part of the Agent, any Lender or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent, any Lender or the holder of any Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 11.2. Notices. All notices and other ------- communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address or facsimile number set forth on Schedule 11.2 or set forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a written notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid shall be effective five Business Days after being sent or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted (if confirmed). SECTION 11.3. Payment of Costs and Expenses. The ----------------------------- Borrower agrees to pay promptly on demand all reasonable expenses of the Arranger and the Agent (including in its capacity as Issuing Bank, and including the reasonable fees and out-of-pocket expenses of counsel to the Agent, including the allocated cost of inhouse counsel and staff, and of local counsel, if any, who may be retained by counsel to the Agent) in connection with (a) the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, and (b) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document; provided, however, that the -------- ------- Borrower shall have no obligation to pay for the cost of the documentation of transfers or participations as provided in Section 11.11. ------------- The Borrower further agrees to pay upon demand, and to save the Agent, the Issuing Bank and the Lenders harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Agreement, the borrowings hereunder, or the issuance of the Notes or any other Loan Documents. The Borrower also agrees to reimburse the Agent, the Issuing Bank and each Lender, as applicable, promptly upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses, including non-duplicative allocated costs of in-house counsel) incurred by (x) the Agent, the Issuing Bank in connection with the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) by the Agent, the Issuing Bank and each Lender in connection with the enforcement of any Obligations after an Event of Default. SECTION 11.4. Indemnification. In consideration of --------------- the execution and delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent, the Issuing Bank and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") ------------------- free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified ----------- Liabilities"), incurred by the Indemnified Parties or any of them - ----------- as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article VI not to fund any Borrowing); ---------- (c) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material, where such claim or liability arises out of the relationship of the parties under this Agreement; or (d) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, where such claim or liability arises out of the relationship of the parties under this Agreement; except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's (i) gross negligence or wilful misconduct or (ii) in the case of Indemnified Liabilities described in Section 11.4(c) and 11.4(d), to the extent of any --------------- ------- non-compliance with Environmental Laws. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 11.5. Survival. The obligations of the -------- Borrower under Sections 4.3, 4.5, 4.6, 4.7, 11.3 and 11.4, and ------------ --- --- --- ---- ---- the obligations of the Lenders under Section 10.1, shall in each ------------ case survive any termination of this Agreement, the payment in full of all Obligations and the termination of all Commitments. The representations and warranties made by the Borrower in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 11.6. Severability. Any provision of this ------------ Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 11.7. Headings. The various headings of this -------- Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 11.8. Execution in Counterparts, ------------------------- Effectiveness. This Agreement may be executed by the parties - ------------- hereto in several counterparts, each of which shall be executed by the Borrower and the Agent and be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Agent) shall have been received by the Agent and notice thereof shall have been given by the Agent to the Borrower and each Lender. SECTION 11.9. Governing Law; Entire Agreement. THIS ------------------------------- AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. This Agreement, the Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 11.10. Successors and Assigns. This Agreement ---------------------- shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: - -------- ------- (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Agent and all Lenders; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 11.11. ------------- SECTION 11.11. Sale and Transfer of Loans and Notes; ------------------------------------ Participations in Loans and Notes. Each Lender may assign, or - --------------------------------- sell participations in, its Loans and Commitments to one or more other Persons in accordance with this Section 11.11. ------------- SECTION 11.11.1. Assignments. Any Lender, ----------- (a) with the written consents of the Borrower and the Agent (which consents shall not be unreasonably delayed or withheld), and with the written consent of the Issuing Bank, may at any time assign and delegate to one or more Eligible Assignees, and (b) with the written consent of the Issuing Bank and with notice to the Borrower and the Agent, but without the consent of the Borrower or the Agent, may assign and delegate to any of its Affiliates or to any other Lender (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all --------------- or any fraction of such Lender's total Committed Loans and Commitments (which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Lender's Committed Loans and Commitments) in a minimum aggregate amount of $10,000,000; provided, however, that any such Assignee -------- ------- Lender will comply, if applicable, with the provisions contained in the penultimate sentence of Section 4.7 and further, provided, ----------- ------- -------- however, that, the Borrower and the Agent shall be entitled to - ------- continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (c) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Agent by such Lender and such Assignee Lender, (d) such Assignee Lender shall have executed and delivered to the Borrower and the Agent a Lender Assignment Agreement, accepted by the Agent, and (e) the processing fees described below shall have been paid. From and after the date that the Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Agent has received an executed Lender Assignment Agreement, the Borrower shall execute and deliver to the Agent (for delivery to the relevant Assignee Lender) new Notes evidencing such Assignee Lender's assigned Loans and Commitments and, if the assignor Lender has retained Loans and Commitments hereunder, replacement Notes in the principal amount of the Loans and Commitments retained by the assignor Lender hereunder (such Notes to be in exchange for, but not in payment of, those Notes then held by such assignor Lender). Each such Note shall be dated the date of the predecessor Notes. The assignor Lender shall mark the predecessor Notes "exchanged" and deliver them to the Borrower. Accrued interest on that part of the predecessor Notes evidenced by the new Notes, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Notes evidenced by the replacement Notes shall be paid to the assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Notes and in this Agreement. Such assignor Lender or such Assignee Lender must also pay a processing fee to the Agent upon delivery of any Lender Assignment Agreement in the amount of $2,500. Any attempted assignment and delegation not made in accordance with this Section 11.11.1 shall be null and void. Notwithstanding any - --------------- other provision of this Agreement, nothing contained in this Agreement shall prevent any Lender from pledging or assigning its interest in any Note to the Federal Reserve Bank in accordance with applicable law; provided, however, that no such pledge or -------- ------- assignment shall affect the nature of the Borrower's obligations under this Agreement or such Note. SECTION 11.11.2. Participations. Any Lender may at -------------- any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of the ----------- Loans, Commitments, or other interests of such Lender hereunder; provided, however, that - -------- ------- (a) no participation contemplated in this Section 11.11.2 shall relieve such Lender from its --------------- Commitments or its other obligations hereunder or under any other Loan Document, (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations, (c) the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents, (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in clause (b) or (c) of Section 11.1, and ---------- --- ------------ (e) the Borrower shall not be required to pay any amount under Sections 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, ------------ --- --- --- --- --- 4.9, 11.3 and 11.4, that is greater than the amount --- ---- ---- which it would have been required to pay had no participating interest been sold. SECTION 11.12. Other Transactions. Nothing contained ------------------ herein shall preclude the Agent or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 11.13. Forum Selection and Consent to ------------------------------ Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, - ------------ UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE ISSUING BANK, THE LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT -------- ------- AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 11.14. Waiver of Jury Trial. THE AGENT, THE -------------------- ISSUING BANK, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 11.15. Non-Recourse Persons. The Lenders -------------------- acknowledge that no Non-Recourse Person shall have any responsibility or liability for the Obligations. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. EDISON MISSION ENERGY By: Kevin M. Smith ---------------- Title: V.P. and Treasurer ------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: David Price ------------- Title: Vice President ---------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank By: Robert Eaton -------------- Title: Vice President ---------------- LENDERS ------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender By: Robert Eaton -------------- Title: Vice President ---------------- BANK OF MONTREAL By: Warren R. Wimmer ------------------ Title: Director ---------- THE BANK OF NOVA SCOTIA By: John A. Quick --------------- Title: Officer --------- THE CHASE MANHATTAN BANK By: Thomas L. Casey ----------------- Title: Vice President ---------------- CITICORP USA, INC. By: James J. Sheridan ------------------- Title: ---------------- CREDIT LYONNAIS, NEW YORK BRANCH By: Richard Garcia ---------------- Title: Senior Vice President ----------------------- INTENTIONALLY LEFT BLANK CREDIT SUISSE By: Mark A. Sampson ----------------- Title: Associate ----------- By: Marilou Palenzuela -------------------- Title: Member of Senior Management ----------------------------- WELLS FARGO BANK, N.A. By: Daniel H. Hom --------------- Title: Vice President ---------------- THE FUJI BANK, LIMITED, LOS ANGELES AGENCY By: Nobuhiro Umemura ------------------ Title: Joint General Manager --------------------- THE INDUSTRIAL BANK OF JAPAN, LTD., LOS ANGELES AGENCY By: H. W. Jack ------------ Title: Senior Deputy General Manager ------------------------------- KREDIETBANK N.V. By: Robert Snauffer ----------------- Title: Vice President ---------------- By: Thomas R. Lalli ----------------- Title: Vice President ---------------- THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY By: Motokazu Uematsu ------------------ Title: Deputy General Manager ------------------------ THE SANWA BANK, LIMITED, LOS ANGELES BRANCH By: Virginia Hart --------------- Title: Vice President ---------------- SOCIETE GENERALE, LOS ANGELES BRANCH By: George Chen ------------- Title: Vice President ---------------- THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH By: Goro Hirai ------------ Title: Joint General Manager ----------------------- SWISS BANK CORPORATION By: Thomas R. Salzano ------------------- Title: Associate Director Banking Finance Support, N.A. ----------------------------- By: Teresa A. Portola ------------------- Title: Associate Director -------------------- NATIONSBANK OF TEXAS, N.A. By: Curtis L. Anderson -------------------- Title: Senior Vice President ----------------------- UNION BANK OF SWITZERLAND, NEW YORK BRANCH By: Andrew M. Merrill ------------------- Title: Vice President ---------------- By: David F. Mikula ----------------- Title: Vice President ---------------- SCHEDULE 2.1 REVOLVING LOAN COMMITMENTS --------------------------
Revolving Loan Lender Commitment Percentage ------ ---------- ---------- Bank of America National Trust and Savings Association $ 42,500,000 8.5% Bank of Montreal 37,500,000 7.5% Credit Lyonnais, New York Branch 37,500,000 7.5% The Fuji Bank, Limited, Los Angeles Agency 37,500,000 7.5% The Industrial Bank of Japan, Ltd., Los Angeles Agency 37,500,000 7.5% The Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency 37,500,000 7.5% Societe Generale, Los Angeles Branch 37,500,000 7.5% Swiss Bank Corporation 37,500,000 7.5% NationsBank of Texas, N.A. 37,500,000 7.5% The Bank of Nova Scotia 17,500,000 3.5% The Chase Manhattan Bank 17,500,000 3.5% Citicorp USA, Inc. 17,500,000 3.5% Credit Suisse 17,500,000 3.5% Wells Fargo Bank, N.A. 17,500,000 3.5% Kredietbank N.V. 17,500,000 3.5% The Sanwa Bank, Limited, Los Angeles Branch 17,500,000 3.5% The Sumitomo Bank, Limited, Los Angeles Branch 17,500,000 3.5% Union Bank of Switzerland, New York Branch 17,500,000 3.5% ------------ ---- Total $500,000,000 100.0% ============ ======
SCHEDULE 2.9 AGREED ALTERNATIVE CURRENCIES ----------------------------- Notice of Borrowing or Notice of Continuation/ Interest Rate to Currency Conversion to be delivered by1 be Set as of2 - -------- --------------------------------- ---------------- - -------------- 1 Unless otherwise indicated, all times are Los Angeles time five Business Days prior to requested borrowing or conversion/continuation. 2 Unless otherwise indicated, all times are London time three Business Days prior to requested borrowing or conversion/continuation. SCHEDULE 11.2 ADDRESSES FOR NOTICES AND LENDING OFFICES ----------------------------------------- BORROWER - -------- EDISON MISSION ENERGY 18101 Von Karman Avenue Suite 1700 Irvine, CA 92715-1007 Attention: Kevin M. Smith Treasurer Telephone: (714) 752-5588, Ext. 2116 Facsimile: (714) 752-5624 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as Agent Notices of Borrowing, Notices of Conversion/ Continuation, copies of L/C Applications: Agency Administrative Services #5596 1455 Market Street, 13th Floor San Francisco, CA 94103 Attention: Jon Kubukawa Agency Officer Telephone: (415) 436-4016 Facsimile: (415) 436-2700 Other Notices: Bank of America National Trust and Savings Association Agency Management #10831 1455 Market Street, 12th Floor San Francisco, CA 94103 Attention: David Price Vice President Telephone: (415) 436-3496 Facsimile: (415) 436-3425 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as Issuing Bank Bank of America National Trust and Savings Association International Trade Banking Division #5655 33 South Beaudry Avenue, 19th Floor Los Angeles, California 90017 Telephone: (213) 345-6631 Facsimile: (213) 345-6694 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as a Bank Domestic and Offshore Lending Office: 1850 Gateway Boulevard, Fourth Floor Concord, California 94520 Attention: Anne Stader Account Administrator Telephone: (510) 675-7368 Facsimile: (510) 675-7531 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Bank of America National Trust and Savings Association 555 Flower Street, 10th Floor Los Angeles, California 90071 Attention: Robert Eaton Vice President Credit Products #3283 Telephone: (213) 228-5599 Facsimile: (213) 228-4062 BANK OF MONTREAL - ---------------- Domestic and Offshore Lending Office: 601 S. Figueroa Street, Suite 4900 Los Angeles, CA 90017 Attention: Warren Wimmer Director Telephone: (213) 239-0633 Facsimile: (213) 239-0680 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Bank of Montreal 601 S. Figueroa Street, Suite 4900 Los Angeles, CA 90017 Attention: Warren Wimmer Director Telephone: (213) 239-0633 Facsimile: (213) 239-0680 THE BANK OF NOVA SCOTIA - ----------------------- Domestic and Offshore Lending Office: 580 California Street, 48th Floor San Francisco, CA 94104 Attention: John Quick Senior Relationship Manager Telephone: (415) 986-1100 Facsimile: (415) 397-0791 THE CHASE MANHATTAN BANK - ------------------------ Domestic and Offshore Lending Office: 1 Chase Manhattan Plaza, 3rd Floor New York, NY 10081 Attention: Tom Casey Telephone: (212) 552-7518 Facsimile: (212) 552-6276 CITICORP USA, INC. - ------------------ Domestic and Offshore Lending Office: 399 Park Avenue, 4th Floor, Suite 220 New York, NY 10043 Attention: Sandip Seh Telephone: (212) 559-1275 Facsimile: (212) 793-6130 CREDIT LYONNAIS, NEW YORK BRANCH - -------------------------------- Domestic and Offshore Lending Office: 4301 Avenue of the Americas New York, NY 10019 Attention: Bob Colvin Telephone: (212) 261-7882 Facsimile: (212) 261-3421 CREDIT SUISSE - ------------- Domestic and Offshore Lending Office: 633 West Fifth Street, 64th Floor Los Angeles, CA 90071 Attention: Marc Sampson Telephone: (213) 955-8284 Facsimile: (213) 955-8245 THE FUJI BANK, LIMITED, LOS ANGELES AGENCY - ------------------------------------------ Domestic and Offshore Lending Office: 333 South Hope Street, Suite 3900 Los Angeles, CA 90071 Attention: Jonathan Bigelow Vice President and Manager Telephone: (213) 253-4144 Facsimile: (213) 253-4198 THE INDUSTRIAL BANK OF JAPAN, LTD., - ----------------------------------- LOS ANGELES AGENCY - -------------------- Domestic and Offshore Lending Office: 350 South Grand Avenue, Suite 1500 Los Angeles, CA 90071 Attention: June Minamizono Telephone: (213) 893-6497 Facsimile: (213) 688-7486 KREDIETBANK N.V. - ---------------- Domestic and Offshore Lending Office: 550 South Hope Street, Suite 1775 Los Angeles, CA 90071 Attention: Roxanne Cheng Telephone: (213) 624-0401 Facsimile: (213) 629-5801 With a copy to: - --------------- Kredietbank N.V. New York Branch 125 West 55th Street, 10th Floor New York, NY 10009 Attention: Michael Curran Telephone: (212) 541-0708 Facsimile: (212) 956-5580 THE LONG-TERM CREDIT BANK OF JAPAN, LTD., - ----------------------------------------- LOS ANGELES AGENCY - -------------------- Domestic and Offshore Lending Office: Los Angeles Agency, Suite 3000 350 South Grand Avenue Los Angeles, CA 90071 Attention: Ken Nakagawa Telephone: (213) 689-5244 Facsimile: (213) 626-1067 With a copy to: - --------------- Los Angeles Agency, Suite 3000 350 South Grand Avenue Los Angeles, CA 90071 Attention: Tadashi Onada Vice President Telephone: (213) 689-6345 Facsimile: (213) 892-1683 NATIONSBANK OF TEXAS, N.A. - -------------------------- Domestic and Offshore Lending Office: 64th Floor (75202), Utility Finance Division 901 Main Street Dallas, TX 75202-3714 Attention: Jeff A. Forbis Senior Vice President Telephone: (214) 508-1453 Facsimile: (214) 508-3943 THE SANWA BANK, LIMITED, LOS ANGELES BRANCH - ------------------------------------------- Domestic and Offshore Lending Office: 601 South Figueroa Street Mail Code W5-4 Los Angeles, CA 90017 Attention: Virginia Hart Vice President Telephone: (213) 896-7469 Facsimile: (213) 623-4912 SOCIETE GENERALE, LOS ANGELES BRANCH - ------------------------------------ Domestic and Offshore Lending Office: 2029 Century Park East, Suite 2900 Los Angeles, CA 90067 Attention: George Chen Vice President Telephone: (310) 788-7105 Facsimile: (310) 551-1537 THE SUMITOMO BANK LIMITED, LOS ANGELES AGENCY - --------------------------------------------- Domestic and Offshore Lending Office: Los Angeles Branch, Suite 2600 777 S. Figueroa Street Los Angeles, CA 90017-3138 Attention: Alan L. Hills Vice President Telephone: (213) 955-0816 Facsimile: (213) 623-6832 SWISS BANK CORPORATION - ---------------------- Domestic and Offshore Lending Office: 222 Broadway New York, NY 10038 Attention: Darryl Monascebian Telephone: (212) 335-1873 Facsimile: (212) 335-1126 UNION BANK OF SWITZERLAND, NEW YORK BRANCH - ------------------------------------------ Domestic and Offshore Lending Office: 299 Park Avenue, 40th Floor New York, NY 10171-0026 Attention: Andrew Merrill Vice President Telephone: (212) 821-5543 Facsimile: (212) 821-3878 WELLS FARGO BANK, N.A. - ---------------------- Domestic and Offshore Lending Office: 707 Wilshire Blvd., 16th Floor Los Angeles, CA 90017 Attention: Daniel H. Hom Vice President Telephone: (213) 614-3368 Facsimile: (213) 614-2569 707 Wilshire Blvd., 16th Floor Los Angeles, CA 90017 Attention: Matthew Frey Assistant Vice President Telephone: (213) 614-5038 Facsimile: (213) 614-2569 EXHIBIT A-1 SECOND AMENDED AND RESTATED --------------------------- REVOLVING NOTE -------------- $___________ October 11, 1996 FOR VALUE RECEIVED, the undersigned, EDISON MISSION ENERGY, a California corporation (the "Borrower"), promises to -------- pay to the order of ______________________ (the "Lender") on ------ _________, 19__ the principal sum of __________________ DOLLARS ($___________) or, if less, the aggregate unpaid principal amount of all Revolving Loans shown on the schedule attached hereto (and any continuation thereof) made by the Lender pursuant to that certain Second Amended and Restated Credit Agreement, dated as of October 11, 1996 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Borrower, Bank of America ---------------- National Trust and Savings Association, as Agent and Issuing Bank, and the various financial institutions (including the Lender) as are, or may from time to time become, parties thereto. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Credit Agreement. Payments of both principal and interest are to be made in Applicable Currency in same day or immediately available funds to the account designated by the Agent pursuant to the Credit Agreement. This Note is one of the Revolving Notes referred to in, and evidences Indebtedness incurred under, the Credit Agreement, to which reference is made for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the Indebtedness evidenced by this Note and on which such Indebtedness may be declared to be immediately due and payable. This Note amends and restates the Revolving Credit Note dated as of November 17, 1994 executed by Borrower in favor of the Bank in connection with that certain Amended and Restated Credit Agreement, dated as of November 17, 1994, among the Borrower, the Agent, the Issuing Bank and the lenders party thereto, and amounts outstanding under such Revolving Credit Note are deemed outstanding and owing under this Note. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. If any payment on this Revolving Note becomes due and payable on a date which is not a Business Day, such payment shall be made on the next succeeding Business Day. THIS NOTE HAS BEEN DELIVERED IN LOS ANGELES, CALIFORNIA AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. EDISON MISSION ENERGY By_____________________________ Title: REVOLVING LOANS AND PRINCIPAL PAYMENTS Type Amount Amount of Outstanding Nota- of of End of Prin. or Principal tion Loan Loan Interest Int. Paid Balance Made Date Made Made Period This Date This Date By - ---- ---- ---- -------- --------- --------- ----- EXHIBIT A-2 SECOND AMENDED AND RESTATED --------------------------- MONEY MARKET NOTE ----------------- $___________ October 11, 1996 FOR VALUE RECEIVED, the undersigned, EDISON MISSION ENERGY, a California corporation (the "Borrower"), promises to pay to the -------- order of ______________________ (the "Lender") on _________, 19__ ------ the principal sum of __________________ DOLLARS ($___________) or, if less, the aggregate unpaid principal amount of all Money Market Loans shown on the schedule attached hereto (and any continuation thereof) made by the Lender pursuant to that certain Second Amended and Restated Credit Agreement, dated as of October 11, 1996 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Borrower, Bank of America ---------------- National Trust and Savings Association, as Agent and Issuing Bank, and the various financial institutions (including the Lender) as are, or may from time to time become, parties thereto. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Credit Agreement. Payments of both principal and interest are to be made in Applicable Currency in same day or immediately available funds to the account designated by the Agent pursuant to the Credit Agreement. This Note is one of the Money Market Notes referred to in, and evidences Indebtedness incurred under, the Credit Agreement, to which reference is made for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the Indebtedness evidenced by this Note and on which such Indebtedness may be declared to be immediately due and payable. This Note amends and restates the Money Market Note dated as of November 17, 1994 executed by Borrower in favor of the Bank in connection with that certain Amended and Restated Credit Agreement, dated as of November 17, 1994, among the Borrower, the Agent, the Issuing Bank and the lenders party thereto, and amounts outstanding under such Money Market Note are deemed outstanding and owing under this Note. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. If any payment on this Money Market Note becomes due and payable on a date which is not a Business Day, such payment shall be made on the next succeeding Business Day. THIS NOTE HAS BEEN DELIVERED IN LOS ANGELES, CALIFORNIA AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. EDISON MISSION ENERGY By_____________________________ Title: MONEY MARKET LOANS AND PRINCIPAL PAYMENTS Type Amount Amount of Outstanding Nota- of of End of Prin. or Principal tion Loan Loan Interest Int. Paid Balance Made Date Made Made Period This Date This Date By - ---- ---- ---- -------- --------- ----------- ------ EXHIBIT B-1 BORROWING REQUEST ----------------- Bank of America National Trust and Savings Association, Agent Agency Administrative Services #5596 1455 Market Street, 13th Floor San Francisco, CA 94103 Attention: Jon Kubukawa Agency Officer EDISON MISSION ENERGY --------------------- Gentlemen and Ladies: This Borrowing Request is delivered to you pursuant to Sections 2.3 and 6.2.2 of the Second Amended and Restated Credit - ------------ ----- Agreement, dated as of October 11, 1996 (together with all amendments, if any, from time to time made thereto, the "Credit ------ Agreement"), among EDISON MISSION ENERGY, a California - --------- corporation (the "Borrower"), certain financial institutions, -------- Bank of America National Trust and Savings Association as Issuing Bank, and Bank of America National Trust and Savings Association (the "Agent"). Unless otherwise defined herein or the context ----- otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Borrower hereby requests that a Revolving Loan be made in [insert Applicable Currency] the aggregate principal amount of [___________] on __________, 19___ as a [LIBO Rate Loan having an Interest Period of _______ months] [Base Rate Loan]. Please wire transfer the proceeds of the Borrowing to the accounts of the following persons at the financial institutions indicated respectively: Amount to be Person to be Paid Name, Address -------------------------- Transferred Name Account No. of Transferee Lender - ----------- ---- ----------- -------------------- [ ] [$]_________________________________ ____________________ ____________________ Attention: _________ [ ] [$]______________________________________________________ ____________________ Attention: _________ Balance of The Borrower ___________ ____________________ such proceeds ____________________ Attention: _________ The Borrower has caused this Borrowing Request to be executed and delivered by its duly Authorized Representative this ___ day of ___________, 19___. EDISON MISSION ENERGY By------------------------------- Title: EXHIBIT B-2 FORM OF LETTER OF CREDIT APPLICATION EXHIBIT C CONTINUATION/CONVERSION NOTICE ------------------------------ Bank of America National Trust and Savings Association, Agent Agency Administrative Services #5596 1455 Market Street, 13th Floor San Francisco, CA 94103 Attention: Jon Kubukawa Agency Officer EDISON MISSION ENERGY --------------------- Gentlemen and Ladies: This Continuation/Conversion Notice is delivered to you pursuant to Section 2.4 of the Second Amended and Restated Credit ----------- Agreement, dated as of October 11, 1996 (together with all amendments, if any, from time to time made thereto, the "Credit ------ Agreement"), among EDISON MISSION ENERGY, a California - --------- corporation (the "Borrower"), certain financial institutions, -------- Bank of America National Trust and Savings Association as Issuing Bank, and Bank of America National Trust and Savings Association, (the "Agent"). Unless otherwise defined herein or the context ----- otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Borrower hereby requests that on ____________, 19___, (1) $___________ of the presently outstanding principal amount of the Revolving Loans originally made on __________, 19___ [insert Applicable Currency], (2) and all presently being maintained as 1[Base Rate Loans] [LIBO Rate Loans], (3) be [converted into] [continued as], (4) 2[LIBO Rate Loans having an Interest Period of ______ months] [Base Rate Loans]. - -------------- 1 Select appropriate interest rate option. 2 Insert appropriate interest rate option. (5) in the Offshore Currency of _____________ [insert Applicable Currency]. The Borrower has caused this Continuation/Conversion Notice to be executed and delivered by its Authorized Representative this ___ day of _________, 19___. EDISON MISSION ENERGY By --------------------------------- Title: EXHIBIT D LENDER ASSIGNMENT AGREEMENT --------------------------- To: EDISON MISSION ENERGY To: Bank of America National Trust and Savings Association, as the Agent EDISON MISSION ENERGY --------------------- Gentlemen and Ladies: We refer to clause (d) of Section 11.11.1 of the Second ---------- --------------- Amended and Restated Credit Agreement, dated as of October 11, 1996 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit ------ Agreement"), among EDISON MISSION ENERGY, a California - --------- corporation (the "Borrower"), the various financial institutions -------- (the "Lenders") as are, or shall from time to time become, ------- parties thereto, Bank of America National Trust and Savings Association as Issuing Bank, and Bank of America National Trust and Savings Association, as agent (the "Agent") for the Lenders. ----- Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. This agreement is delivered to you pursuant to clause (d) of ---------- Section 11.11.1 of the Credit Agreement and also constitutes - --------------- notice to each of you, pursuant to clause (c) of Section 11.11.1 ---------- --------------- of the Credit Agreement, of the assignment and delegation to _______________ (the "Assignee") of ___% of the Loans, L/C -------- Obligations, and Revolving Loan Commitments of _____________ (the "Assignor") outstanding under the Credit Agreement on the date -------- hereof. After giving effect to the foregoing assignment and delegation, the Assignor's and the Assignee's Percentages for the purposes of the Credit Agreement are set forth on Schedule 2.1. [Add paragraph dealing with accrued interest and fees with respect to Loans assigned.] The Assignee hereby acknowledges and confirms that it has received a copy of the Credit Agreement and the exhibits related thereto, together with copies of the documents which were required to be delivered under the Credit Agreement as a condition to the making of the Loans thereunder. The Assignee further confirms and agrees that in becoming a Lender and in making its Commitments and Loans under the Credit Agreement, such actions have and will be made without recourse to, or representation or warranty by the Agent. Except as otherwise provided in the Credit Agreement, effective as of the date of acceptance hereof by the Agent (1) the Assignee (a) shall be deemed automatically to have become a party to the Credit Agreement, have all the rights and obligations of a "Lender" under the Credit Agreement and the other Loan Documents as if it were an original signatory thereto to the extent specified in the second paragraph hereof; and (b) agrees to be bound by the terms and conditions set forth in the Credit Agreement and the other Loan Documents as if it were an original signatory thereto; and (2) the Assignor shall be released from its obligations under the Credit Agreement and the other Loan Documents to the extent specified in the second paragraph hereof. The Assignor and the Assignee hereby agree that the [Assignor] [Assignee] will pay to the Agent the processing fee referred to in Section 11.11.1 of the Credit Agreement upon the --------------- delivery hereof. The Assignee hereby advises each of you of the following administrative details with respect to the assigned Loans and Commitments and requests the Agent to acknowledge receipt of this document: 1. Address for Notices: Institution Name: Attention: Domestic Office: Telephone: Facsimile: Telex (Answerback): LIBOR Office: Telephone: Facsimile: Telex (Answerback): 2. Payment Instructions: The Assignee agrees to furnish the tax form required by the second to last sentence of Section 4.7 (if so required) of the ----------- Credit Agreement no later than the date of acceptance hereof by the Agent. This Agreement may be executed by the Assignor and Assignee in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Adjusted Percentage [ASSIGNOR] - ------------------- Revolving Loan Commitment and Revolving Loans: __% L/C Obligations __% By:_______________________ Title: Percentage [ASSIGNEE] - ---------- Revolving Loan Commitment and Revolving Loans: __% L/C Obligations __% By:_______________________ Title: Accepted and Acknowledged this __ day of _______, 19__ __________________________, as Agent By:________________________ Title: EXHIBIT E OPINION OF COUNSEL TO THE BORROWER ---------------------------------- [Letterhead of Assistant General Counsel] October 11, 1996 The Lenders under the Credit Agreement Ladies and Gentlemen: This letter is furnished to you pursuant to Section 6.1.3 ------------- of the Second Amended and Restated Credit Agreement, dated October 11, 1996 (the "Credit Agreement"), between EDISON MISSION ---------------- ENERGY, a California corporation (the "Borrower"), certain -------- institutional lenders and BofA, as agent for such lenders (the "Agent") and Issuing Bank. Terms defined in the Credit Agreement ----- are used herein as therein defined. I am the Assistant General Counsel of the Borrower and, in that capacity, am familiar with the business and affairs of the Borrower; I am, or attorneys acting under my direction are, familiar with the proceedings taken by the Borrower in connection with the preparation, negotiation, execution and delivery of, and the initial borrowing made under, the Credit Agreement. In that connection, I or attorneys working in Borrower's legal department who are members of the bar of the State of California have examined: 1. the Credit Agreement; 2. the Articles of Incorporation of the Borrower and all amendments thereto (the "Charter"); ------- 3. the by-laws of the Borrower and all amendments thereto (the "By-laws"); ------- 4. the other documents furnished by the Borrower pursuant to Section 6.1 of the Credit Agreement; ----------- 5. a certificate of the Secretary of State of California attesting to the due incorporation, continued corporate existence and good standing of the Borrower in that state. I, or attorneys working in Borrower's legal department who are members of the bar of the State of California under my supervision, have also examined the originals, or copies certified to my or their satisfaction, of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower, and agreements, instruments and other documents, as I or they have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, I or they have, when relevant facts were not independently established by me, relied, to the extent I deemed appropriate, upon certificates of the Borrower or its officers, or of public officials. For purposes of this opinion, I have assumed, with your consent, the genuineness of all signatures (other than the signatures of officers or Authorized Representatives of the Borrower), the authenticity of all documents submitted to me as originals, and the conformity to authentic original documents of all documents submitted to me as certified, conformed or photostatic copies. I have further assumed, with your consent, the due authorization, execution and delivery of all such documents by all parties to such documents other than the Borrower, including documents to which the Borrower is not a party, and the legality, validity, and enforceability of such documents as to and against such other parties and that all parties other than the Borrower are duly organized, validly existing and in good standing. Where a particular opinion is rendered to my knowledge or awareness or similar words, it also includes the knowledge or awareness of attorneys working under my supervision. I am a member of the bar of the State of California and am therefore rendering this opinion only with respect to the laws of the State of California and the Federal laws of the United States of America as in effect on the date hereof. Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion: 1. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of California. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (a) the Charter or the By-laws; (b) any law, rule or regulation applicable to the Borrower (including, without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System); or (c) to my knowledge, any contractual or legal restriction binding on or affecting the Borrower. The Credit Agreement and the Notes have been duly executed and delivered on behalf of the Borrower. 3. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other person, including the U.S. Securities and Exchange Commission, is required for the due execution, delivery and performance by the Borrower of the Credit Agreement or the Notes. 4. The Credit Agreement and the Notes are legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. 5. To the best of my knowledge, there is no pending or threatened action or proceeding against the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator which purport to affect the legality, validity, binding effect or enforceability of the Credit Agreement or the Notes. 6. The Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7. The Borrower is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or a "subsidiary company" of any "holding company" that is required to register as such under said Act. 8. The Borrower is not engaged in the business of extending credit for the purpose of buying or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System). The opinions set forth above are subject to the following qualifications: (a) My opinions above are subject to the effect of any applicable bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent transfer or similar law affecting creditors' rights generally. (b) My opinions above are subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law). (c) My opinions are subject to the effect of California court decisions and statutes which require parties to any contract to make determinations thereunder on a reasonable basis in good faith. This opinion letter is being furnished to the Agent and the Lenders for their use and the use of its and their counsel. No other use or distribution of this opinion letter may be made without my prior written consent. Very truly yours, and Assistant General Counsel EXHIBIT F CERTIFICATE OF EDISON MISSION ENERGY ------------------------------------ I, the undersigned, [Assistant] Secretary of Edison Mission Energy, a California corporation (the "Borrower"), DO HEREBY -------- CERTIFY that: 1. This Certificate is furnished pursuant to Section 6.1.1 ------------- of that certain Second Amended and Restated Credit Agreement, dated as of October 11, 1996 (the "Credit Agreement"), among the ---------------- Borrower, certain financial institutions, Bank of America National Trust and Savings Association as Issuing Bank and Bank of America National Trust and Savings Association (the "Agent"). Unless otherwise defined herein, capitalized terms used in this Certificate have the meanings assigned to such terms in the Credit Agreement. 12. There have been no amendments to the Articles of Incorporation of the Borrower since _______, 19__. 3. Attached hereto as Exhibit I is a true, correct and complete copy of the by-laws of the Borrower as in effect on the date hereof. 4. Attached hereto as Exhibit II is a true, correct and complete copy of resolutions duly adopted at a meeting of the Board of Directors of the Borrower, convened and held on the ___ day of ____________, 19__ , which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect, and the Credit Agreement, the Notes and the other Loan Documents to which the Borrower is a party are in substantially the forms of those documents submitted to and approved by the Board of Directors of the Borrower at such meeting. 5. The persons named in Exhibit III attached hereto have been duly elected, have duly qualified as and at all times since ____________, 19__ (to and including the date hereof), have been officers of the Borrower holding the respective offices set forth - ------------------ 1 Insert the date of the Secretary of State's Certificate (attached to which is a copy of the Articles of Incorporation of the Borrower) furnished to the Agent at the execution of the Credit Agreement. therein opposite their names, and the signatures set forth therein opposite their names are their genuine signatures. 6. I know of no proceeding for the dissolution or liquidation of the Borrower or threatening its existence. WITNESS my hand and seal of the Borrower this 11th day of October, 1996. ----------------------------------- [Assistant Secretary] [Affix Corporate Seal] I, the undersigned, [Vice] President of the Borrower, DO HEREBY CERTIFY that: 1. ___________________ is [a] the duly elected and qualified [Assistant] Secretary of the Borrower and the signature above is his genuine signature. 2. The representations and warranties on the part of the Borrower contained in the Credit Agreement are as true and correct at and as of the date hereof as though made on and as of the date hereof. 3. No Default has occurred and is continuing, or would result from the consummation of the initial borrowing on this date. WITNESS my hand on this 11th day of October, 1996. ----------------------------------- [Vice] President EXHIBIT 1 TO CERTIFICATE [Copy of the by-laws of Edison Mission Energy] EXHIBIT 3 TO CERTIFICATE Name of Officers ---------------- and Authorized -------------- Representatives Office Signature --------------- ------ --------- ------------------- --------------- --------------------- ------------------- --------------- --------------------- ------------------- --------------- --------------------- ------------------- --------------- --------------------- ------------------- --------------- --------------------- EXHIBIT G FORM OF MONEY MARKET QUOTE REQUEST ---------------------------------- ______________, 199_ To: Bank of America National Trust and Savings Association ("Agent") From: Edison Mission Energy Re: Second Amended and Restated Credit Agreement (the "Credit Agreement") dated as of October 11, 1996 among the Borrower, the Lenders listed on the signature pages thereof, Bank of America National Trust and Savings Association as Issuing Bank and the Agent We hereby give notice pursuant to Section 2.8 of the ----------- Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: ______________ Principal Amount* Interest Period - ---------------- --------------- $ Such Money Market Quotes should offer a Money Market [LIBO] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. EDISON MISSION ENERGY By--------------------------------- Title: ____________________ * Amount must be $10,000,000 or a larger multiple of $1,000,000. EXHIBIT H FORM OF INVITATION FOR MONEY MARKET QUOTES ------------------------------------------ To: [Name of Bank] Re: Invitation for Money Market Quotes to Edison Mission Energy (the "Borrower") Pursuant to Section 2.8 of the Second Amended and ----------- Restated Credit Agreement dated as of October 11, 1996 among the Borrower, the Lenders parties thereto and the undersigned, Bank of America National Trust and Savings Association as Issuing Bank and Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: ______________ Offshore Principal Amount Currency Interest Period - --------- ------ -------- --------------- $ Such Money Market Quotes should offer a Money Market [LIBO] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [____ P.M.] [____ A.M.] (San Francisco time) on [date]. Bank of America National Trust and Savings Association, Agent By---------------------------- Authorized Officer EXHIBIT I FORM OF MONEY MARKET QUOTE -------------------------- Bank of America National Trust and Savings Association, as Agent Re: Money Market Quote to Edison Mission Energy (the "Borrower") In response to your invitation on behalf of the Borrower dated ____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Lender: __________________________ 2. Person to contact at Quoting Lender: ______________________ 3. Date of Borrowing: ______________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Offshore Principal Interest Money Market Amount** Currency Period*** [LIBO****] [Absolute Rate*****] ------------ -------- ------------- -------------- ------------------------ $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $______________.]** ____________________ * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount of the Lender is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. (notes continued on following page) We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Second Amended and Restated Credit Agreement dated as of October 11, 1996, among the Borrower, the Lenders listed on the signature pages thereof and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF LENDER] Dated:__________ By:--------------------------- Authorized Officer ____________________ *** Not less than 7 days or not more than six months, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/[10,000]th of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/[10,000]th of 1%). EXHIBIT J NOTICE OF MONEY MARKET BORROWING -------------------------------- TO: Bank of America National Trust and Savings Association (the "Agent") FROM: Edison Mission Energy (the "Borrower") RE: Acceptance of Offers to Make Money Market Loans Pursuant to Section 2.8 of the Second Amended and ----------- Restated Credit Agreement dated as of October 11, 1996, among the Borrower, the Lenders parties thereto, Bank of America National Trust and Savings Association as Issuing Bank and the Agent, we hereby accept the offers made by the following Lenders to make Money Market Loans on the Date of Borrowing specified below to the extent set forth below. Name of [Money Market Date of Offeror Principal Interest Margin] Borrowing Bank Amount Currency Period [Absolute Rate] --------- ------- --------- -------- -------- --------------- Any offer made by any Lender to make Money Market Loans on the Date of Borrowing set forth above is, to the extent not accepted above, hereby rejected. EDISON MISSION ENERGY By--------------------------------- Authorized Representative EX-10.44 3 GUARANTY -------- The undersigned, EDISON MISSION ENERGY, a California corporation ("Guarantor"), is executing this Guaranty in favor of THE FUJI BANK, LIMITED, --------- LOS ANGELES AGENCY, as Agent for the equal and ratable benefit of the parties listed in Schedule A hereto (in such capacity, together with its successors and ---------- assigns in such capacity, the "Agent" and, collectively with the other parties ----- listed on Schedule A, the "Beneficiaries") to induce the Beneficiaries to enter ------------- into that certain Defeasance Agreement of even date herewith (the "Defeasance ---------- Agreement") with Camino Energy Company (the "Borrower"), a wholly owned - --------- -------- subsidiary of Guarantor. The Banks, the Security Representative, the Fronting Bank (as each such party is identified on Schedule A), the Agent and the Borrower are each party to a Project Loan and Credit Agreement dated as of August 27, 1987, as amended to the date hereof (the "Credit Agreement"), ---------------- pursuant to which the Banks and the Fronting Bank made a credit facility available to the Borrower in the original maximum amount of $140,000,000 to finance the Borrower's obligations relating to a cogeneration facility in Carson, California (the "Project"). The only remaining extensions of credit ------- outstanding under such credit facility as of the date hereof are direct-pay letters of credit ("LOCs") issued by the Fronting Bank and participated in by ---- the Banks, which LOCs provide credit enhancement and liquidity support for medium-term notes ("Medium-Term Notes") issued by the Borrower. The Borrower ----------------- now wishes to refinance its obligations with respect to the Project and to defease the outstanding Medium-Term Notes, the aggregate principal amount of which is $30,000,000. Pursuant to the Defeasance Agreement, the Borrower has agreed to deposit funds into various accounts ("Defeasance Accounts") maintained ------------------- by the Depositary (as identified on Schedule A) to defease its respective obligations to each of the Beneficiaries. The Beneficiaries are willing to enter into the Defeasance Agreement on the condition that Guarantor unconditionally guaranty the Borrower's obligations thereunder until the Beneficiaries are able to obtain assurance that amounts deposited by the Borrower into the Defeasance Accounts would not be subject to recovery by the Borrower's estate in the event of the Borrower's bankruptcy, insolvency, reorganization or other like proceeding. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Defeasance Agreement (including the cross-reference therein to terms defined in the Credit Agreement). 1. Guaranty. Guarantor unconditionally and irrevocably -------- guarantees to the Agent, for the equal and ratable benefit of the Beneficiaries, the full and punctual payment and performance of the Borrower's obligations to make irrevocable and indefeasible payments (in cash and/or securities) to the Depositary for deposit into the Defeasance Accounts pursuant to the Credit Agreement and Defeasance Agreement. In the event the Borrower, any trustee in bankruptcy for the Borrower or any other Person shall take any action seeking to avoid or challenge the transfer by the Borrower of any cash or securities delivered by the Borrower to the Depositary pursuant to the Defeasance Agreement (any such action shall be referred to as a "Challenge" and the property subject to such --------- Challenge shall be referred to as the "Challenged Assets"), ----------------- Guarantor shall forthwith deliver cash and/or securities to the Agent (which shall in turn forthwith deliver the same to the Depositary for deposit into the appropriate Defeasance Accounts in accordance with the terms of the Defeasance Agreement) of such value and of such maturities so as to satisfy the Borrower's obligations under the Defeasance Agreement (including, without limitation, the obligation to obtain a certificate of the Accountant pursuant to Section 2(c), 3(c), 4(c), 5(c), 6(c) and/or 7(c) of the Defeasance Agreement, as applicable) without including the Challenged Assets as available to satisfy the Borrower's obligations. Such obligations of Guarantor are referred to in this Guaranty as the "Shortfall" and will be payable by Guarantor to the --------- Agent immediately upon demand in the event of any Challenge. 2. Termination of Guaranty. This Guaranty and the ----------------------- obligations of Guarantor hereunder shall terminate on the date which is the later of: (a) the date on which the Agent shall -------- receive, in form and substance satisfactory to the Agent, (i) a certificate of an authorized officer of each of Guarantor and the Borrower, dated as of a date not earlier than one hundred (100) days after the Defeasance Date, that no voluntary or involuntary bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like filing has been made with respect to the Borrower and that no action by any Person seeking to avoid or challenge the transfer by the Borrower of any cash or securities delivered by the Borrower to the Depository has occurred; and (ii) a certified national bankruptcy filing search by a nationally recognized search service acceptable to the Agent, dated as of a date not earlier than one hundred (100) days after the Defeasance Date, showing that no voluntary or involuntary bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like filing has been made with respect to the Borrower; and (b) the date on which Guarantor shall have --- fully and indefeasibly satisfied any and all of its obligations hereunder that may have arisen on or prior to the date specified in Section 2(a). 3. Rights of Beneficiaries. Guarantor authorizes the ----------------------- Beneficiaries at any time in their discretion to alter any of the terms of the Defeasance Agreement, the Credit Agreement, the Facility Agreement, the Depositary Agreement or any other Operative Agreement in accordance with the terms thereof, to take and hold any security for the obligations thereunder and to accept additional or substituted security, to subordinate, compromise or release any security, to release the Borrower from its liability for all or any part of such obligations, to release, substitute or add any one or more guarantors or endorsers, and to assign to their successors and assigns under the Defeasance Agreement, the Credit Agreement, the Facility Agreement, the Depositary Agreement or any other Operative Document this Guaranty in whole or in part. The Beneficiaries may take any of the foregoing actions upon any terms and conditions as the Beneficiaries may elect, without giving notice to Guarantor or obtaining the consent of Guarantor and without affecting the liability of Guarantor hereunder. 4. Independent Obligation. Guarantor's obligation to pay ---------------------- the Shortfall under this Guaranty is independent of the obligations of the Borrower. Agent may bring a separate action against Guarantor without first proceeding against the Borrower or any other Person or any security held by the Agent and without pursuing any other remedy. 5. Obligations Absolute. The obligations of Guarantor -------------------- hereunder shall be absolute, unconditional and continuing and shall remain in full force and effect until terminated in accordance with Section 2 and without regard to, and shall not be affected or impaired by the following, any of which may occur without the consent of, or notice to, Guarantor, nor shall any of the following give Guarantor any recourse or right of action against the Agent or any other Beneficiary: (a) any lack of validity or enforceability of, or any release or discharge of the Borrower or any other guarantor from liability under, the Defeasance Agreement or any other Operative Agreement; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations guaranteed hereunder or any other amendment or waiver of, or any consent to departure from, the Defeasance Agreement or any other Operative Agreement; (c) any subordination, compromise, exchange, release, nonperfection or liquidation of any collateral, or any release, amendment or waiver of, or consent to departure from, any other guaranty, for any or all of the obligations guaranteed hereunder; (d) any express or implied amendment, modification, renewal, addition, supplement, extension (including, without limitation, extensions beyond the original term) or acceleration of the obligations guaranteed hereunder, the Defeasance Agreement or any other Operative Agreement; (e) any exercise or nonexercise by the Agent or any other Beneficiary of any right or privilege under this Guaranty, the Defeasance Agreement or any of the other Operative Agreements; (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Guarantor, the Borrower, or any other guarantor of the obligations guaranteed hereunder or any action taken with respect to this Guaranty by any trustee, receiver or court in an such proceeding, whether or not Guarantor shall have had notice or knowledge of any of the foregoing; (g) any assignment or other transfer by the Agent, in whole or in part, of the obligations guaranteed hereunder or this Guaranty, the Defeasance Agreement or any of the other Operative Agreements; (h) any acceptance of partial performance of the obligations guaranteed hereunder; (i) any consent to the transfer of, or any bid or purchase at sale of, any collateral for the obligations guaranteed hereunder; (j) the failure of any party or parties to execute this Guaranty or any other document relating to the obligations guaranteed hereunder; or (k) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower, Guarantor or any other guarantor of the obligations guaranteed hereunder. 6. Waivers of Defenses. To the extent permitted by law, ------------------- Guarantor hereby waives and relinquishes all rights and remedies accorded by applicable law to sureties or guarantors and agrees not to assert or take advantage of any such rights or remedies, including without limitation (a) any right to require the Agent to proceed against the Borrower or any other Person or to proceed against or exhaust any security held by the Agent at any time or to pursue any other remedy in the Agent's power before proceeding against Guarantor, (b) the defense of the statute of limitations in any action hereunder or in any action for the collection or performance of the obligations hereby guaranteed, (c) any defense that may arise by reason of the incapacity, lack of authority or disability of the Borrower or any other Person, (d) demand, presentment, protest and notice of any kind, including without limitation notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non- action on the part of the Borrower, the Agent, any endorser or creditor of the Borrower or Guarantor or on the part of any other Person under this or any other instrument in connection with any obligation or evidence of indebtedness held by the Agent as collateral or in connection with the obligation hereby guaranteed, (e) any defense based upon an election of remedies by the Agent, including without limitation an election to proceed by non-judicial rather than judicial foreclosure, which destroys or otherwise impairs the subrogation rights of Guarantor, the right of Guarantor to proceed against the Borrower for reimbursement, or both, (f) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal, (g) any duty on the part of the Agent to disclose to Guarantor any facts the Agent may now or hereafter know about the Borrower, regardless of whether the Agent has reason to believe that any such facts materially increase the risk beyond that which Guarantor intends to assume, or has reason to believe that such facts are unknown to Guarantor, or has a reasonable opportunity to communicate such facts to Guarantor, (h) any defense arising under Section 364 of the Federal Bankruptcy Code and (i) any claims of any nature whatsoever against the Agent or the other Beneficiaries arising out of or related to the sale or transfer of any collateral or the resolution or settlement of any dispute arising under any Operative Agreement, notwithstanding that such sale or transfer or resolution or settlement occurred at such time or in such a manner as to directly or indirectly increase the amount of the Shortfall obligation to be paid by the Guarantor hereunder. Without limiting the generality of the foregoing, Guarantor hereby expressly waives, to the extent permitted by applicable law, any and all benefits which might otherwise be available to Guarantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845 through 2847, 2849, 2850, 2899 and 3433, and California Code of Civil Procedure Sections 580a, 580b, 580d and 726. 7. No Dissolution or Transfer of the Borrower. Guarantor ------------------------------------------ hereby (i) agrees that, so long as any amounts remain owing under the Credit Agreement or the other Operative Agreements, it will not take any action or cause the Borrower to take any action to file for bankruptcy, reorganization, composition, adjustment, dissolution or liquidation or to sell or transfer any stock of the Borrower and (ii) confirms and agrees that all payment obligations of the Borrower to Guarantor shall be subject to the provisions of Exhibit 7 to the Credit Agreement --------- (including, without limitation, any obligation to pay principal and interest on any loans made to the Borrower by Guarantor). 8. Borrower's Financial Condition. Guarantor assumes full ------------------------------ responsibility for keeping fully informed of the financial condition of the Borrower and all other circumstances affecting the Borrower's ability to perform its obligations to the Beneficiaries, and agrees that the Beneficiaries will have no duty to report to Guarantor any information which the Beneficiaries receive about the Borrower's financial condition or any circumstances bearing on its ability to perform its obligations to the Beneficiaries. 9. Impairment of Subrogation Rights. Upon a default of the -------------------------------- Borrower, the Agent may elect to nonjudicially or judicially foreclose against any real or personal property security it holds for the Shortfall, or any other of the Obligations owing to the Beneficiaries by the Borrower, or any part thereof, or to exercise any other remedy against the Borrower or any security. No such action by the Agent will release or limit the liability of Guarantor to the Beneficiaries, even if the effect of that action is to deprive Guarantor of the right to collect reimbursement from the Borrower for any sums paid hereunder. 10. Right of Setoff. In the event Guarantor fails to pay --------------- the Shortfall within three (3) Business Days after receipt by Guarantor of the Agent's demand, in addition to all rights of setoff or lien against any moneys, securities or other property of Guarantor given to the Beneficiaries by law, the Beneficiaries shall have a right of setoff against all moneys, securities and other property of Guarantor now or hereafter in the possession of or on deposit with the Beneficiaries, whether held in a general or special account or deposit, or for safekeeping or otherwise; and every such right of setoff may be exercised without demand upon or notice to Guarantor. No right of setoff shall be deemed to have been waived by any act or conduct on the part of any of the Beneficiaries, or by any neglect to exercise such right of setoff, or by any delay in doing so; and every right of setoff shall continue in full force and effect until specifically waived or released by an instrument in writing executed by the Beneficiaries. 11. Default. The Agent may declare Guarantor in default ------- under this Guaranty if Guarantor breaches any of its covenants, agreements or undertakings contained hereunder, fails to pay the Shortfall within three (3) Business Days of Guarantor's receipt of demand therefor or Guarantor shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action to authorize any of the foregoing or an involuntary case or other proceeding shall be commenced against Guarantor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of Guarantor or any substantial part of its property and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) days; or an order for relief shall be entered against Guarantor under the federal bankruptcy laws as now or hereafter in effect. 12. Due Authority. Guarantor represents and warrants that ------------- it has the corporate power to enter into this Guaranty and has taken all necessary action to authorize the execution, delivery and performance of this Guaranty. Any authorization, consent or approval of any governmental body required for the valid execution, delivery and performance by Guarantor of this Guaranty has been obtained and is in full force and effect. 13. Enforceable Agreement. Guarantor represents and --------------------- warrants that this Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable in accordance with its terms (except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights generally and subject to general equitable principles). 14. No Violation. Guarantor represents and warrants that ------------ the execution, delivery and performance of this Guaranty will not violate any law, rule or regulation or any order, judgment or decree applicable to it or any agreement binding upon it. 15. Financial Condition. Guarantor represents and warrants ------------------- that the balance sheet of Guarantor as at September 30, 1996 and the related consolidated statements of income, retained earnings and changes in financial position of Guarantor for the quarter ended on said date, and the audited balance sheet of Guarantor as at December 31, 1995 with the opinion thereon of Arthur Andersen LLP and the related consolidated statements of income, retained earnings and changes in financial position of Guarantor for the fiscal year ended on such date, heretofore furnished to the Agent are complete and correct and fairly present the financial condition of Guarantor as at said dates and the results of its operations for the quarter and fiscal year ended on said dates (subject, in the case of such financial statements as at September 30, 1996, to normal year- end audit adjustments), all in accordance with generally accepted accounting principles applied on a consistent basis. Guarantor had on said dates no material contingent liabilities, liabilities for taxes, unusual forward or long- term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheets and financial reports as at said dates. Since September 30, 1996, there has been no change in the financial condition or operations, or the prospects or business taken on a whole, of Guarantor from that set forth in said financial statements as at said date, which could reasonably be expected to have a material adverse effect on Guarantor's ability to perform its obligations hereunder. 16. Costs and Expenses. Guarantor agrees to pay the Agent's ------------------ reasonable out-of-pocket costs and expenses, including but not limited to legal fees and disbursements, incurred in any effort to collect or enforce payment of the Shortfall or this Guaranty, whether or not any lawsuit is filed. Until paid to the Agent, such sums will bear interest at the then Applicable Rate plus two percentage points per annum. 17. Delay; Cumulative Remedies. No delay or failure by the -------------------------- Agent to exercise any right or remedy against the Borrower or Guarantor will be construed as a waiver of that right or remedy. To the extent permitted by applicable law, all remedies of the Agent against the Borrower and Guarantor are cumulative. 18. Miscellaneous. The invalidity or unenforceability of any ------------- one or more provisions of this Guaranty will not affect any other proven. This Guaranty will be governed by California law (without reference to choice-of-law principles), and may be amended only by a written instrument executed by Guarantor and the Agent. The provisions of this Guaranty will bind and benfit the successors and assigns of Guarantor and the Beneficiaries. Whenever the context requires, all terms used in the singular will be construed in the plural and vice versa, and each gender will include each other gender. The term "Borrower" will mean both the named Borrower and any other person or entity at any time assuming or otherwise becoming primarily liable for payment of all or any part of the Borrower's obligations under the Defeasance Agreement and the other Operative Agreements. Dated as of December 20, 1996. EDISON MISSION ENERGY, a California corporation By: Kevin M. Smith ------------------------------ Title: V.P. and Treasurer ------------------------------ SCHEDULE A ---------- TO GUARANTY ----------- List of Beneficiaries --------------------- The "Agent," the "Security Representative" and the "Fronting Bank": - ------------------------------------------------------------------ The Fuji Bank, Limited Los Angeles Agency 333 South Hope Avenue Suite 3900 Los Angeles, California 90071 Attention: Jonathan Bigelow The "Banks": - ----------- The Fuji Bank, Limited Los Angeles Agency 333 South Hope Avenue Suite 3900 Los Angeles, California 90071 Attention: Jonathan Bigelow ABN AMRO Bank N.V. Los Angeles International Branch 300 South Grand Avenue Suite 1115 Los Angeles, California 90071 Attention: Heather Brandt Commerzbank Aktiengesellschaft Los Angeles Branch 660 South Figueroa Street Suite 1450 Los Angeles, California 90017 Attention: Steven Larsen Istituto Bancario San Paolo di Torino 444 South Flower Street 45th Floor Los Angeles, California 90071 Attention:: Annette Bergsten Banca CRT S.p.A. New York Branch c/o 515 South Flower Street Suite 1690 Los Angeles, California 90071 Attention: Robert Ferrol The "Depositary": - ---------------- The Fuji Bank and Trust Company Two World Trade Center 81st Floor New York, New York 10048 EX-21 4 EXHIBIT 21 EDISON MISSION ENERGY SUBSIDIARIES AND PARTNERSHIPS ----------------------------- As of March 13, 1997 Domestic - -------- Aguila Energy Company (LP) American Bituminous Power Partners, L.P. (Delaware limited partnership) American Kiln Partners, Limited Partnership (Delaware Limited partnership) Anacapa Energy Company (GP) Salinas River Cogeneration Company (Partnership) Arrowhead Energy Company Crown Energy, L.P. (New Jersey partnership) Crown Vista Urban Renewal Corporation (New Jersey corporation) Balboa Energy Company (GP) Smithtown Cogeneration, L.P. (Delaware Partnership) Bergen Point Energy Company (GP) TEVCO/Mission Bayonne Partnership (Delaware general partnership) Blue Ridge Energy Company (GP) Bretton Woods Cogeneration, L.P. (Delaware limited partnership) Bretton Woods Energy Company (GP & LP) Bretton Woods Cogeneration, L.P. (Delaware limited partnership) Camino Energy Company (GP) Watson Cogeneration Company (Partnership) Capistrano Cogeneration Company (GP) James River Cogeneration Company (North Carolina Partnership) Centerport Energy Company (GP & LP) Riverhead Cogeneration I, L.P. (Delaware Partnership) Chesapeake Bay Energy Company (formerly Woodland Energy Company) (GP) Delaware Clean Energy Project (Delaware General Partnership) Chester Energy Company Holds option to purchase piece of property (vacant land) located in or near Richmond/ Chesapeake, Virginia Clayville Energy Company Oconee Energy, L.P. (Delaware limited partnership) Colonial Energy Company (formerly Hentland Farm Energy Company)-Inactive Coronado Energy Company Oconee Energy, L.P. Crescent Valley Energy Company (GP) Beowawe Geothermal Power Company (California general partnership) Delaware Energy Conservers, Inc. (Delaware corporation) (inactive) Del Mar Energy Company (GP) Mid-Set Cogeneration Company (Partnership) Desert Sunrise Energy Company (Nevada Corporation)-Inactive Devereaux Energy Company (LP) Auburndale Power Partners, Limited Partnership (Delaware limited partnership) East Maine Energy Company (Inactive) Eastern Sierra Energy Company (GP & LP) Saguaro Power Company, A Limited Partnership (Partnership) Edison Mission Energy Funding Corp. (Delaware corporation) Edison Mission Operation & Maintenance, Inc. Mission Operations de Mexico, S.A. de C.V. El Dorado Energy Company (GP) Auburndale Power Partners, Limited Partnership (Delaware limited partnership) EMP, Inc. (Oregon Corporation) (GP & LP) GEO East Mesa Limited Partnership (Partnership) GEO East Mesa Electric Co. (Nevada corporation) Four Counties Gas Company (Inactive) Hanover Energy Company Chickahominy River Energy Corp. Commonwealth Atlantic Limited Partnership (Delaware Partnership) Holtsville Energy Company (GP & LP) Brookhaven Cogeneration, L.P. (Delaware Partnership) Indian Bay Energy Company (GP & LP) Riverhead Cogeneration III, L.P. (Delaware Partnership) Jefferson Energy Company (GP & LP) (Inactive) Kings Canyon Energy Company (Inactive) Kingspark Energy Company (GP & LP) Smithtown Cogeneration, L.P. (Delaware Partnership) Laguna Energy Company (Inactive) La Jolla Energy Company (Inactive) Lake Grove Energy Company (Inactive) Lakeview Energy Company Georgia Peakers, L.P. (Delaware partnership) Lehigh River Energy Company (GP) TEVCO/Mission Assets Partnership (Delaware Partnership) Continental Energy Associates Limited Partnership) (Massachusetts partnership) Longview Cogeneration Company (formerly Columbia River Cogeneration Company and prior to that, formerly Cabrillo Energy Company) Madera Energy Company (GP) Brookhaven Cogeneration , L.P. (Delaware Partnership) Madison Energy Company (formerly Sunshine Generators, Inc.) (LP) Gordonsville Energy L. P. (Delaware partnership) Mission Capital, L.P. (Delaware limited partnership) Mission/Eagle Energy Company Crown Energy, L.P. Crown Vista Urban Renewal Corporation (New Jersey Corporation) Mission Energy Construction Services, Inc. (formerly Glenwood Springs Property, Inc.) Mission Energy Fuel Company Mission Energy Oil and Gas Company Four Star Oil & Gas Company Mission Energy Petroleum Company Pocono Fuels Company (Inactive) Southern Sierra Gas Company TM Star Fuel Company (California general partnership) Mission Energy Holdings, Inc. Mission Capital, L.P. (Delaware limited partnership) Mission Energy Holdings International, Inc. (formerly Patapsco Energy Company) (Owns 100% of MEC International B.V.) Mission Energy Indonesia (formerly Chula Energy Company) Mission Energy Mexico (Inactive) Mission Energy New York, Inc. (formerly, Allegheny Energy Company) (GP & LP) Brooklyn Navy Yard Cogeneration Partners, L.P. (Delaware Partnership) Mission Energy Wales Company (formerly San Jacinto Energy Company) Mission Energy Westside, Inc. (formerly Sun Coast Energy Company) Mission Operations de Mexico, S.A. de C.V. Mission Triple Cycle Systems Company (GP) Triple Cycle Partnership (Texas general partnership) Northern Sierra Energy Company (GP) Sobel Cogeneration Company (California general partnership) North Jackson Energy Company (Inactive) Ortega Energy Company Panther Timber Company (GP) American Kiln Partners, Limited Partnership (Delaware limited partnership) Paradise Energy Company Vista Energy L.P. Crown Vista Urban Renewal Corporation (New Jersey corporation) Pleasant Valley Energy Company (GP) American Bituminous Power Partners, L.P. (Delaware Partnership) Prince George Energy Company (LP) Hopewell Cogeneration Limited Partnership (Delaware partnership) Hopewell Cogeneration Inc. (Delaware corporation) Hopewell Cogeneration Limited Partnership (Delaware partnership) Quartz Peak Energy Company (LP) Nevada Sun-Peak Limited Partnership (Nevada partnership) Rapidan Energy Company (GP) Gordonsville Energy, L.P. (Delaware Partnership) Reeves Bay Energy Company (GP & LP) North Shore Energy, L.P. (Delaware Partnership) Northville Energy Corporation (New York corporation) Ridgecrest Energy Company (GP) Riverhead Cogeneration I, L.P. (Delaware Partnership) Rio Escondido Energy Company Riverport Energy Company (GP & LP) Riverhead Cogeneration II, L.P. (Delaware Partnership) San Gabriel Energy Company (Inactive) San Joaquin Energy Company (GP) Midway-Sunset Cogeneration Company, L.P. (Partnership) San Juan Energy Company (GP) March Point Cogeneration Company (Partnership) San Pedro Energy Company (GP) Riverhead Cogeneration II, L.P. (Delaware Partnership) Santa Ana Energy Company (GP) Riverhead Cogeneration III, L.P. (Delaware Partnership) Santa Clara Energy Company (GP) North Shore Energy, L.P. (Delaware Partnership) Northville Energy Corporation (New York corporation) Silverado Energy Company (GP) Coalinga Cogeneration Company (Partnership) Silver Springs Energy Company Georgia Peaker, L.P. (Delaware limited partnership) Sonoma Geothermal Company (GP & LP) Geothermal Energy Partners Ltd. (California partnership) South Coast Energy Company (GP) Harbor Cogeneration Company (Partnership) Southern Sierra Energy Company (GP) Kern River Cogeneration Company (California general partnership) Thorofare Energy Company Crown Energy L.P. Crown Vista Urban Renewal Corporation (New Jersey corporation) Viejo Energy Company (GP) Sargent Canyon Cogeneration Company (Partnership) Vista Energy Company (New Jersey Corporation) (GP & LP) Vista Energy, L.P. (New Jersey limited partnership) Crown Vista Urban Renewal Corporation (New Jersey corporation) Western Sierra Energy Company (GP) Sycamore Cogeneration Company (California general partnership) International - ------------- Edison Mission Energy Asia Company (formerly Asia Power Development Company) (Cayman Island) Mission China Holdings (Cayman Island) Mission Ningbo Holdings Company (Cayman Islands) Edison Mission Energy Asia Pte. Ltd. (formerly Mission Energy Asia Pte. Ltd.) (Singapore) Edison Mission Energy Asia Pacific Pte. Ltd. (Singapore) Edison Mission Energy Fuel Pte. Ltd. (Singapore) P.T. Edison Mission Operation and Maintenance Indonesia Edison Mission Energy International B.V. (formerly MEC Mission B.V.) (Netherlands) Edison Mission Energy Holdings Pty Ltd (Australia) (formerly Mission Energy Holdings Pty Ltd) Edison Mission Operation & Maintenance Kwinana Pty Ltd (formerly Mission Operations (Kwinana) Pty Ltd (Australia) Edison Mission Operation & Maintenance Loy Yang Pty. Ltd. (formerly Mission Energy Management Australia Pty. Ltd.) (Australia) Mission Energy Development Australia Pty. Ltd. Mission Energy Holdings Superannuation Fund Pty Ltd. Mission Energy (Kwinana) Pty Ltd Kwinana Power Partnership (Australian G.P.) Edison Mission Energy International B.V. (formerly MEC Mission B.V.) (Netherlands) Hydro Energy B.V. (Netherlands company) Edison Mission Energy Espana (formerly Energias Hidraulicas, S.A.) (Spain corporation) Saltos del Porma, S.A. Iberica de Energias, S.A. (Spain corporation) Electrometalurgica del Ebro, S.A. (Spain corporation) Monasterio de Rueda, S.L. (inactive) Iberian Hy-Power Amsterdam, B.V. (Netherlands Antilles corporation) Aprohiso S.A. (Spain corporation) (Inactive) Hidroelectrica de Olvera, S.A. (Spain corporation) Hidroelectrica del Sossis, S.A. (Spain corporation) Saltos del Porma, S.A. (Spain corporation) Latrobe Power Pty Ltd (Australian corporation) Mission Victoria Partnership (an Australian partnership) Latrobe Power Partnership (Australian partnership) Loy Yang B Joint Venture (Australia) Loy Yang Holdings Pty Ltd (Australia) Edison Mission Energy Australia Ltd (formerly Mission Energy Australia Ltd (an Australian public company) Mission Energy Ventures Australia Pty. Ltd. (Australia company) MEC Colombia B.V. (Netherlands) MEC Esenyurt B.V. (Netherlands) Doga Enerji Uretim Sanayi ve Ticaret A.S. (Turkish corporation) MEC IES B.V. (Netherlands) formerly MEC ESA B.V. ISAB Energy Services s.r.l. (Operator of ISAB ) MEC India B.V. (Netherlands) Edison Mission Energy Power (Mauritius corporation) MEC Indo Coal B.V. (Netherlands) P.T. Adaro Indonesia (Indonesia) MEC Indonesia B.V. (Netherlands) P.T. Paiton Energy Company (Indonesia) MEC International Holdings B.V.(Netherlands) MEC Laguna Power B.V. (Netherlands company) Gulf Power Generation Co. Ltd. (Bangkok corporation) MEC Perth B.V. (Netherlands) Kwinana Power Partnership (Australian GP) MEC Priolo B.V. (Netherlands) ISAB Energy S.r.l. MEC San Pascual B.V. (Netherlands) San Pascual Cogeneration Company International B.V. MEC Turkey B.V. (Netherlands) MEC Wales B.V. (Netherlands) First Hydro Holdings Company First Hydro Finance plc First Hydro Company Mission Hydro Limited Partnership Mission Energy Italia s.r.l. (Rep. office in Italy) P.T. Mission Operation and Maintenance Indonesia (Indonesian company) Mission Energy Canada Corporation (British Columbia company) B.C. Star Partners (British Columbia partnership) The Mission Interface Partnership (Province of Ontario general partnership) Mission Energy Company (UK) Limited (UK private limited company) Derwent Cogeneration Limited (UK private limited company) Edison Mission Energy Limited (UK private limited company) Mission Energy Services Limited (UK private limited company) Mission (No. 2) Limited (UK private limited company) Pride Hold Ltd. (UK corporation) Lakeland Power Development Company (UK corporation) Lakeland Power Ltd. (UK corporation) P.T. Mission Operation and Maintenance Indonesia (Indonesia company) Traralgon Power Pty Ltd (Australia) EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EDISON MISSION ENERGY AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 DEC-31-1996 383,634 0 71,046 0 0 479,225 3,401,006 152,458 5,152,472 270,890 2,419,890 150,000 0 64,130 955,775 5,152,472 0 689,705 0 289,667 0 0 164,239 174,110 82,045 92,065 0 0 0 92,065 0 0
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