-----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, Wykn9m4ENcabZKWasi29AWDsIB8hPXeZ6BdwBbIQI+hbCqMuNwlO8uy9w+t+Kz3p j+5FoVRHA7ysmU07IBSfhg== 0001017062-99-001901.txt : 19991115 0001017062-99-001901.hdr.sgml : 19991115 ACCESSION NUMBER: 0001017062-99-001901 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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-Q SEC ACT: SEC FILE NUMBER: 000-24890 FILM NUMBER: 99749966 BUSINESS ADDRESS: STREET 1: 18101 VON KARMAN AVE STREET 2: STE 1700 CITY: IRVINE STATE: CA ZIP: 92612 BUSINESS PHONE: 9497525588 MAIL ADDRESS: STREET 1: 18101 VON KARMAN AVE STREET 2: STE 1700 CITY: IRVINE STATE: CA ZIP: 92612 FORMER COMPANY: FORMER CONFORMED NAME: MISSION ENERGY CO DATE OF NAME CHANGE: 19941003 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ------------------ Commission File Number 1-13434 Edison Mission Energy (Exact name of registrant as specified in its charter) California 95-4031807 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 18101 Von Karman Avenue Irvine, California 92612 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (949) 752-5588 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 [_] Number of shares outstanding of the registrant's Common Stock as of November 11, 1999: 100 shares (all shares held by an affiliate of the registrant). TABLE OF CONTENTS Item Page - ---- ---- PART I - Financial Information 1. Financial Statements.............................................. 1 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 18 PART II - Other Information 1. Legal Proceedings................................................. 30 6. Exhibits and Reports on Form 8-K.................................. 31 PART III Signatures........................................................ 32 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands)
(Unaudited) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------- ---------------------------------------- 1999 1998 1999 1998 ----------------- ------------------ ------------------- ------------------ Operating Revenues Electric revenues $ 434,534 $ 132,398 $ 850,059 $ 475,597 Equity in income from energy projects 82,672 81,174 178,671 146,966 Equity in income from oil and gas 9,486 3,155 19,246 13,582 Operation and maintenance services 10,416 10,755 28,260 30,557 --------- --------- ---------- --------- Total operating revenues 537,108 227,482 1,076,236 666,702 --------- --------- ---------- --------- Operating Expenses Fuel 116,700 36,817 244,347 126,529 Plant operations 94,201 30,855 175,590 93,324 Operation and maintenance services 7,102 7,725 21,115 22,004 Depreciation and amortization 58,338 20,773 118,081 65,933 Administrative and general 38,059 27,928 107,123 85,090 --------- --------- ---------- --------- Total operating expenses 314,400 124,098 666,256 392,880 --------- --------- ---------- --------- Income from operations 222,708 103,384 409,980 273,822 --------- --------- ---------- --------- Other Income (Expense) Interest and other income (expense) (2,290) 9,483 18,294 32,254 Interest expense (107,472) (46,930) (230,864) (137,815) Dividends on preferred securities (7,010) (3,304) (14,388) (9,905) --------- --------- ---------- --------- Total other income (expense) (116,772) (40,751) (226,958) (115,466) --------- --------- ---------- --------- Income before income taxes 105,936 62,633 183,022 158,356 Provision for income taxes 19,331 17,855 33,006 57,290 --------- --------- ---------- --------- Income before change in accounting principle $ 86,605 $ 44,778 $ 150,016 $ 101,066 Cumulative effect on prior years of change in accounting for start-up costs - - (13,840) - --------- --------- ---------- --------- Net Income $ 86,605 $ 44,778 $ 136,176 $ 101,066 ========= ========= ========== ========= The accompanying notes are an integral part of these consolidated financial statements.
1 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands)
(Unaudited) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------------- 1999 1998 1999 1998 --------- -------- --------- --------- Net Income $ 86,605 $44,778 $136,176 $101,066 Other comprehensive income, net of tax: Foreign currency translation adjustments, net of income tax benefit (expense) of $(2,171) and $(272) for the three months and $623 and $(1,172) for the nine months ended September 30, 1999 and 1998, respectively 47,311 6,895 5,654 7,633 -------- ------- -------- -------- Comprehensive Income $133,916 $51,673 $141,830 $108,699 ======== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited) September 30, December 31, 1999 1998 ---------------- --------------- Assets Current Assets Cash and cash equivalents $ 450,777 $ 459,178 Accounts receivable - trade 153,810 74,403 Accounts receivable - affiliates 25,994 13,871 Inventory 182,052 13,000 Prepaid expenses and other 67,960 46,864 ----------- ---------- Total current assets 880,593 607,316 ----------- ---------- Investments Energy projects 1,903,208 1,163,597 Oil and gas 69,851 62,949 ----------- ---------- Total investments 1,973,059 1,226,546 ----------- ---------- Property, Plant and Equipment 8,279,324 3,125,747 Less accumulated depreciation and amortization 366,721 250,934 ----------- ---------- Net property, plant and equipment 7,912,603 2,874,813 ----------- ---------- Other Assets Goodwill 298,662 308,051 Restricted cash and other 124,167 141,390 ----------- ---------- Total other assets 422,829 449,441 ----------- ---------- Total Assets $11,189,084 $5,158,116 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited) September 30, December 31, 1999 1998 -------------------- -------------------- Liabilities and Shareholder's Equity Current Liabilities Accounts payable - affiliates $ 14,124 $ 8,339 Accounts payable and accrued liabilities 296,673 99,062 Accrued incentive compensation 142,800 112,652 Interest payable 94,045 56,708 Short-term obligations 489,474 - Current maturities of long-term obligations 255,891 194,586 ----------- ---------- Total current liabilities 1,293,007 471,347 ----------- ---------- Long-Term Obligations Net of Current Maturities 5,104,988 2,396,360 ----------- ---------- Long-Term Deferred Liabilities Deferred taxes and tax credits 1,491,091 613,009 Deferred revenue 531,330 490,471 Other 177,822 79,369 ----------- ---------- Total long-term deferred liabilities 2,200,243 1,182,849 ----------- ---------- Total Liabilities 8,598,238 4,050,556 ----------- ---------- Preferred Securities of Subsidiaries: Company-obligated mandatorily redeemable security of partnership holding solely parent debentures 150,000 150,000 ----------- ---------- Subject to mandatory redemption 157,536 - ----------- ---------- Not subject to mandatory redemption 118,054 - ----------- ---------- Commitments and Contingencies (Note 6) 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 1,695,406 629,406 Retained earnings 370,387 234,345 Accumulated other comprehensive income 35,333 29,679 ----------- ---------- Total Shareholder's Equity 2,165,256 957,560 ----------- ---------- Total Liabilities and Shareholder's Equity $11,189,084 $5,158,116 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 4 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
(Unaudited) Nine Months Ended September 30, -------------------------------------- 1999 1998 ------------------ ----------------- Cash Flows From Operating Activities Net income $ 136,176 $ 101,066 Adjustments to reconcile net income to net cash provided by operating activities Equity in income from energy projects (178,671) (146,966) Equity in income from oil and gas (19,246) (13,582) Distributions from energy projects 108,363 97,452 Distributions from oil and gas 7,613 19,537 Depreciation and amortization 118,081 65,933 Deferred taxes and tax credits 13,596 44,447 Cumulative effect on prior years of change in accounting for start-up costs 13,840 - (Increase) decrease in accounts receivable (91,960) 33,838 (Increase) decrease in inventory (35,212) 193 Increase in prepaid expenses and other (691) (182) Increase (decrease) in accounts payable and accrued liabilities 232,509 (7,039) Increase (decrease) in interest payable 37,337 (11,320) Other, net 27,232 (10,885) ---------- --------- Net cash provided by operating activities 368,967 172,492 ---------- --------- Cash Flows From Financing Activities Borrowings on long-term obligations 2,831,975 66,016 Payments on long-term obligations (181,447) (72,224) Short-term financing, net 485,045 - Capital contribution from parent 1,066,000 - Issuance of preferred securities 277,632 - ---------- --------- Net cash provided by (used in) financing activities 4,479,205 (6,208) ---------- --------- Cash Flows From Investing Activities Investments in energy projects (32,789) (9,450) Loans to energy projects (44,442) (42,289) Purchase of generating stations (3,959,011) - Purchase of common stock of acquired companies (635,301) (4,109) Capital expenditures (196,388) (62,725) Decrease in restricted cash 30,654 34,169 Other, net (22,376) 1,527 ---------- --------- Net cash used in investing activities (4,859,653) (82,877) ---------- --------- Effect of exchange rate changes on cash 3,080 (716) ---------- --------- Net increase (decrease) in cash and cash equivalents (8,401) 82,691 Cash and cash equivalents at beginning of period 459,178 585,883 ---------- --------- Cash and cash equivalents at end of period $ 450,777 $ 668,574 ========== =========
The accompanying notes are an integral part of these consolidated financial statements. 5 EDISON MISSION ENERGY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 NOTE 1. GENERAL All adjustments, including recurring accruals, have been made that are necessary to present fairly the consolidated financial position and results of operations for the periods covered by this report. The results of operations for the nine months ended September 30, 1999, are not necessarily indicative of the operating results for the full year. Edison Mission Energy's (EME) significant accounting policies are described in Note 2 to EME's Consolidated Financial Statements as of December 31, 1998 and 1997, included in its 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1999. EME follows the same accounting policies for interim reporting purposes, with the exception of the American Institute of Certified Public Accountants Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities", which became effective in January 1999. SOP 98-5 requires that certain costs related to start-up activities be expensed as incurred and that certain previously capitalized costs be expensed and reported as a cumulative change in accounting principle. This quarterly report should be read in connection with such financial statements. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. NOTE 2. INVENTORY Inventory is stated at the lower of weighted average cost or market. Inventory at September 30, 1999 and December 31, 1998 consisted of the following:
(In thousands) 1999 1998 -------- ------- Coal and fuel oil $126,007 $ -- Spare parts, materials and supplies 56,045 13,000 -------- ------- Total $182,052 $13,000 ======== =======
6 NOTE 3. INVESTMENTS The following table presents summarized financial information of the investments in energy projects and oil and gas accounted for by the equity method:
(In thousands) (Unaudited) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ----------------------- 1999 1998 1999 1998 --------- ---------- ---------- --------- Energy Projects Operating Revenues $743,765 $478,516 $1,506,356 $1,200,618 Income from Operations 243,649 188,294 485,750 343,069 Net Income 180,482 162,535 378,985 265,549 Oil and Gas Operating Revenues $108,232 $ 49,232 $ 201,769 $ 155,180 Income from Operations 29,807 8,430 53,094 37,112 Net Income 18,920 6,664 38,164 27,770
NOTE 4. ACQUISITIONS On March 18, 1999, EME Homer City Generation L.P. (EME Homer City), an indirect, wholly owned affiliate of EME, completed a transaction with GPU, Inc., New York State Electric & Gas Corporation and their respective affiliates to acquire the 1,884-megawatt (MW) Homer City Electric Generating Station and certain facilities and other assets associated therewith (collectively, Homer City). Consideration for Homer City consisted of a cash payment of approximately $1.8 billion, which was partially financed by $1.5 billion of new loans, combined with corporate revolver borrowings and cash (see Note 5). On May 14, 1999, Edison Mission Energy Taupo Ltd. (EME Taupo), an indirect, wholly owned affiliate of EME, completed a transaction with the New Zealand government to acquire 40% of the shares of Contact Energy Ltd. (Contact). The remaining 60% of Contact Energy's shares were sold in a public offering resulting in widespread ownership among the citizens of New Zealand and offshore investors. These shares are publicly traded on stock exchanges in New Zealand and Australia. Contact owns and operates hydroelectric, geothermal and natural gas-fired power generating plants primarily in New Zealand with a total current generating capacity of 1,930 MW. Consideration for Contact consisted of a cash payment of approximately $635 million (1.2 billion New Zealand dollars), which was financed by $120 million of preferred stock issued by Edison Mission Energy Global Management, Inc., an indirect, wholly owned affiliate of EME, a $214 million (400 million New Zealand dollars) credit facility issued 7 by EME Taupo, a $300 million equity contribution from Edison International and cash (see Note 5). On July 19, 1999, Edison First Power Limited (EFPL), an indirect, wholly owned affiliate of EME, completed a transaction with PowerGen UK plc, to acquire the Ferrybridge and Fiddler's Ferry coal-fired electric generating plants (Ferrybridge and Fiddler's Ferry) located in the United Kingdom. Ferrybridge, located in West Yorkshire, and Fiddler's Ferry, located in Warrington, each have a generating capacity of approximately 2,000 megawatts. In connection with the acquisition, EFPL has committed to certain construction costs arising from plant modification totaling $142 million and has executed a multi-year coal supply agreement. Consideration for the acquisition of Ferrybridge and Fiddler's Ferry consisted of approximately $2.0 billion (1.3 billion pounds Sterling) for the two plants. The purchase price may be increased up to additional $33.8 million in the event that the environmental authority in the United Kingdom allows for an increase in emissions from the plants. The acquisition was funded primarily with a combination of net proceeds from the Edison First Power Limited Guaranteed Secured Variable Rate Bonds (Edison First Power Bonds) issued on July 19, 1999 and due 2019, cash and a $500 million equity contribution from Edison International. The Edison First Power Bonds were issued to a special purpose entity formed by Merrill Lynch International (MLI SPE). MLI SPE sold the variable rate coupons portion of the bonds to a special purpose entity that borrowed $1.3 billion (830 million pounds Sterling) under a Term Loan Facility to finance the purchase (see Note 5). These acquisitions were accounted for utilizing the purchase method. EME's consolidated statement of income for the three and nine months ended September 30, 1999 reflects the operations of Homer City beginning March 18, 1999, Contact beginning May 1, 1999, and Ferrybridge and Fiddler's Ferry beginning July 19, 1999. NOTE 5. FINANCIAL INSTRUMENTS AND EQUITY CONTRIBUTIONS EME Financings and Edison International Equity Contributions In March 1999, EME entered into a $700 million, 364-day interest only revolving credit facility, structured on a recourse, unsecured basis. In May 1999, Edison Mission Energy Global Management, Inc. (EME Global) issued $120 million of Flexible Money Market Cumulative Preferred Stock. The stock issuance consists of (1) 600 Series A Shares and (2) 600 Series B Shares, both with liquidation preference of $100,000 per share and a dividend rate of 5.74% until May 2004. EME entered into a Support Agreement that requires EME to make capital contributions to EME Global in order for it to maintain a positive net worth and to provide sufficient funds for payment of declared dividends on preferred stock and any 8 redemption price in respect of the preferred stock. EME's maximum obligation would be limited to either (1) an amount equal to twice the sum of (a) the liquidation preference of the preferred stock (currently approximately $240 million) and (b) the liquidation preference on all outstanding preferred stock of EME Global without any precedence over the preferred stock (currently zero) or (2) the amount that EME could lawfully distribute to Edison International under the General Corporation Law of the State of California. In June 1999, EME issued $600 million, 7.73% Senior Notes due 2009. The Notes are senior unsecured obligations of EME, which will be used for general corporate purposes. For the year ended September 30, 1999, EME has received $1.1 billion in equity contributions from Edison International. The contributions were used to finance acquisitions and to pay down EME's short-term obligations. Financing of Homer City In March 1999, Edison Mission Holdings Co. (EM Holdings), parent company of EME Homer City, closed a $1.1 billion financing. The EM Holdings financing consists of (1) an $800 million, 364-day interest only term loan, (2) a $250 million, five-year interest only construction term loan and (3) a $50 million, five-year interest only revolving loan. These loans are structured on a limited- recourse basis, in which the lenders look primarily to the cash generated by EM Holdings and its subsidiaries to repay the debt and have taken a security interest in the assets of EM Holdings and its subsidiaries. The proceeds of EM Holdings' $800 million loan and EME's $700 million loan (described above), combined with cash and corporate revolver borrowings totaling approximately $300 million were used to finance the acquisition of Homer City. In May 1999, EM Holdings completed an $830 million bond financing. The financing consists of (1) $300 million, 8.137% Senior Secured Bonds due 2019 and (2) $530 million, 8.734% Senior Secured Bonds due 2026. These bonds are non- recourse to EME apart from the Credit Support Guarantee and Debt Service Reserve Guarantee entered into by EME. The Credit Support Guarantee requires EME to guarantee the payment and performance of the obligations of EM Holdings to the bond holders, banks and other secured parties which financed the acquisition of Homer City in an aggregate amount not to exceed approximately $42 million. This guarantee is to remain in place until December 31, 2001. In addition, to satisfy the requirements under the EM Holdings financing to have a Debt Service Reserve Requirement in an amount equal to six months' debt service projected to be due following the payment of a distribution, EME agreed to guarantee the payment and performance of the obligations of EM Holdings in the amount of approximately $35 million pursuant to the Debt Service Reserve Guarantee. The proceeds of the $830 million bonds were used primarily to repay EM Holdings' $800 million, 364-day interest only term loan. 9 Financing of Contact Energy The acquisition of Contact was financed by borrowings under the $214 million (400 million New Zealand dollars) credit facility, issuance of $120 million of EME Global preferred stock (described above), cash and a $300 million equity contribution from Edison International. From June through September 30, 1999, EME Taupo issued $158 million (305 million New Zealand dollars) of Retail Redeemable Preference Shares, the proceeds of which were used to repay a portion of the EME Taupo $214 million credit facility. EME entered into two Deeds of Covenant comprised of a Facility Agreement and a Subscription Agreement. The Facility Agreement requires EME to provide funds to EME Taupo (1) of up to $13 million New Zealand dollars annually in order for EME Taupo to meet its interest and dividend payment obligations to Credit Suisse First Boston and (2) to ensure that EME satisfies certain financial ratios. The Subscription Agreement requires EME to provide funds to the Preferred Stock Subscriber to compensate for any shortfall in attaching tax imputation credits to the dividends on the preferred stock. Financing of Ferrybridge and Fiddler's Ferry In July 1999, Edison First Power Limited issued Edison First Power Bonds due 2019. The bonds are guaranteed by Maplekey UK Limited, a wholly-owned subsidiary of EME. The Edison First Power Bonds were issued to a special purpose entity formed by Merrill Lynch International (MLI SPE). MLI SPE sold the variable rate coupons portion of the bonds to a special purpose entity that borrowed $1.3 billion (830 million pounds Sterling) under a Term Loan Facility to finance the purchase. The Term Loan Facility accrues interest at LIBOR plus 1.50 to 1.90 and is repaid in semi-annual installments over a 12 year period beginning December 1999. EME has consolidated the Term Loan Facility under Emerging Issues Task Force D-14, "Transactions Involving Special Purpose Entities". EME has entered into various undertakings to support financial commitments of its affiliates related to the acquisition of Ferrybridge and Fiddler's Ferry, including (1) a guaranty of EFPL's Purchase Price Adjustment obligation of up to $33.8 million in the event that the environmental authority in the United Kingdom allows for an increase in emissions from the plants; (2) a guaranty of a letter of credit facility of $228.8 million entered into by EME Finance UK Limited (EME Finance), an indirect, wholly-owned affiliate of EME, to support EFPL's commitments: (a) to make certain construction costs arising from plant modifications, and (b) under a multi-year coal supply agreement; and (3) issuance of a $85.4 million letter of credit under its corporate revolving credit line to serve as a debt service reserve account to support debt service payments under the Guaranteed Secured Variable Rate Bonds due 2019. 10 NOTE 6. COMMITMENTS AND CONTINGENCIES Firm Commitments for Asset Purchases
Projects U.S. ($ in millions) - -------- -------------------- Commonwealth Edison Co. (i) $ 5,000
(i) A wholly owned subsidiary of EME executed an Asset Sale Agreement to purchase the fossil-fuel generating assets of Commonwealth Edison Co., totaling 9,510 MW located in the midwestern United States. The closing of the transaction is subject to receipt of various state and federal regulatory approvals and is expected to be completed by year end 1999. Firm Commitments to Contribute Project Equity
Projects Local Currency U.S. ($ in millions) - --------- -------------- -------------------- ISAB (i) 244 billion Italian Lira $ 135 EcoElectrica (ii) 34 Tri Energy (iii) 25
(i) ISAB is a 512-MW integrated gasification combined cycle power plant under construction near Siracusa in Sicily, Italy. A wholly owned subsidiary of EME owns a 49% interest. Equity will be contributed at commercial operation, which is currently scheduled for late 1999. (ii) EcoElectrica is a 540-MW liquefied natural gas combined-cycle cogeneration facility under construction in Penuelas, Puerto Rico. A wholly owned subsidiary of EME owns a 50% interest. Equity will be contributed at commercial operation, which is currently scheduled for late 1999. (iii) Tri Energy is a 700-MW gas-fired power plant under construction in the Ratchaburi Province, Thailand. A wholly owned subsidiary of EME owns a 25% interest. Equity will be contributed at commercial operation, which is currently scheduled for mid-2000. 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. 11 Contingent Obligations to Contribute Project Equity
Projects U.S. ($ in millions) - -------- -------------------- Paiton (i) $ 141 Tri Energy (ii) 20 Doga (ii) 7 All Other 17
(i) Contingent obligations to contribute additional project equity (Contingent Equity) would be based on events principally related to insufficient cash flow to cover interest on project debt and operating expenses, project cost overruns during the plant construction, certain partner obligations or events of default. In any and all circumstances, EME's obligation to contribute Contingent Equity will not exceed $141 million. As more fully described below under the caption "Other Commitments and Contingencies", PT Persahaan Listrik Negara (PLN), the main source of revenue for the project, has failed to pay the project in respect of its last five invoices and paid only a portion of another invoice. In addition, as more fully described below under the caption "Litigation", PLN has filed a lawsuit, which is currently suspended, contesting the validity of its agreement to purchase electricity from the project. In response to PLN's failure to pay, Paiton entered into an interim agreement (the "Interim Agreement") with its lenders which modified the Contingent Equity provisions of the Paiton debt documents during the agreed interim period, which extends from October 15, 1999 through July 31, 2000. The Interim Agreement provides, among other things, that Contingent Equity from EME and the other Paiton shareholders shall be contributed from time to time as needed to enable Paiton to pay "Interim Project Costs". Interim Project Costs include interest on project debt and operating costs which become due and payable during the term of the Interim Agreement and other costs related to the construction of the project, provided that in the latter case no more than an aggregate of $30 million of Contingent Equity can be used for this purpose. The Interim Agreement provides that a portion of unfunded Contingent Equity in the original amount of $206 million (of which EME's current unfunded share is $85 million) will become due and payable by the shareholders in the event that certain events of default (other than those specifically waived pursuant to the Interim Agreement) occur. The Interim Agreement further provides that all unfunded Contingent Equity in the original amount of $300 million (of which EME's current unfunded share is $124 million) will become due and payable by the shareholders in the event that Paiton fails to make any interest payment during the pendency of the Interim Agreement. To date, Paiton's shareholders have contributed to Paiton $36 million of Contingent Equity (of which EME's share is $17 million). The Contractor and Paiton continue to discuss the final amount to be paid the Contractor. Items claimed by the Contractor include retention, costs relating to a dispute involving a slope adjacent to the Paiton site and other cost overruns related to 12 delays in the completion of the construction of the project. Paiton has counterclaims against Contractor for deficiencies which would be offset against the amount owing the Contractor. As these discussions continue, it is not possible to say with certainty the final amount which will be owing the Contractor by Paiton. As noted above, however, the shareholders' obligation to contribute Contingent Equity to Paiton to enable it to pay Contractor for the finally agreed amount is limited to $30 million. Paiton's obligations to the Contractor may exceed this amount. The shortfall, if any, will be considered as part of the renegotiation of the PPA and the Project's debt agreements, as more fully discussed under the caption, "Other Commitments and Contingencies." EME's Contingent Equity obligations for the Paiton project are to be cancelled (if unused) as of the later of the date of term financing by the Export-Import Bank of the United States and August 1, 2000. Term financing by the Export-Import Bank of the United States is the subject of a comprehensive set of conditions. The obligation of the Export-Import Bank of the United States to provide term financing was initially scheduled to terminate on October 15, 1999. The conditions to the term financing were not satisfied by such date and the Export-Import Bank of the United States agreed to extend the term financing commitment until December 15, 1999. Based on present projections, the Project does not expect to complete the conditions by December 15, 1999, and is seeking a further extension of the time to achieve term completion. As of the date hereof, the Project does not have any commitment from the Lenders as to such further extension. (ii) Contingent obligations to contribute additional equity to the project would be based on events principally related to capital cost overruns during plant construction, certain EME or partner obligations or events of default. Other than as noted above, management is not aware, at this time, of any other contingent obligations or obligations to contribute project equity. 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 September 30, 1999, if payment were required, would be $233 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. Paiton is a 1,230-MW coal-fired power plant in operation in East Java, Indonesia. A wholly owned subsidiary of EME owns a 40% interest and has a $388 million investment at September 30, 1999. The tariff is higher in the early years and steps down over time. The tariff for the Paiton project includes infrastructure to be used in common by other 13 units at the Paiton complex. The plant's output is fully contracted with the state-owned electricity company, PT Perusahaan Listrik Negara (PLN). Payments are in Indonesian Rupiah, with the portion of such payments intended to cover non-Rupiah project costs (including returns to investors) indexed to the Indonesian Rupiah/U.S. dollar exchange rate established at the time of the Power Purchase Agreement (PPA) in February 1994. The project received substantial finance and insurance support from the Export-Import Bank of the United States, The Export-Import Bank of Japan, the U.S. Overseas Private Investment Corporation and the Ministry of International Trade and Industry of Japan. PLN's payment obligations are supported by the Government of Indonesia. The projected rate of growth of the Indonesian economy and the exchange rate of Indonesian Rupiah into U.S. dollars have deteriorated significantly since the Paiton project was contracted, approved and financed. The Paiton project's senior debt ratings have been reduced from investment grade to speculative grade based on the rating agencies' perceived increased risk that PLN might not be able to honor the electricity sales contract with Paiton. The Government of Indonesia has arranged to reschedule sovereign debt owed to foreign governments and has entered into discussions about rescheduling sovereign debt owed to private lenders. Certain events (including those discussed in the paragraph below) which, with the passage of time or upon notice, may mature into defaults of the Project's debt agreements have occurred. On October 15, 1999, the Project entered into an interim agreement with its lenders pursuant to which the Lenders waived such defaults until July 31, 2000. However, such waiver may expire on an earlier date if additional defaults (other than those specifically waived) or certain other specified events occur. In May 1999, Paiton notified PLN that Unit 7 of Paiton achieved Commercial Operation under terms of the PPA and that Unit 8 of Paiton achieved Commercial Operation under the terms of the PPA in July 1999. Because of the economic downturn, PLN is experiencing low electricity demand and PLN has therefore dispatched the Paiton plant to zero; however, under the terms of the PPA, PLN is required to continue to pay for capacity and fixed operating costs once each unit and the Plant achieve Commercial Operation. An invoice for these charges for May in the amount of $7.8 million was submitted to PLN. The project and PLN met to review the invoice and a partial payment of $2.5 million was subsequently received. The primary reason for the payment shortage was the use of an arbitrary Indonesian Rupiah/U.S. dollar exchange rate of 2,450 Indonesian Rupiah to one U.S. dollar by PLN. The use of this exchange rate is not in agreement with the Power Purchase Agreement, but is the exchange rate on which PLN payments to other independent power producers in Indonesia have been based. Invoices for capacity charges and fixed operating costs for June, July, August and September in an aggregate amount of $164.1 million were later submitted to PLN. PLN has yet to make any payments in respect of such latter invoices. In addition, as more fully described below under the caption "Litigation", PLN has filed a lawsuit contesting the validity of its agreement to purchase electricity from the Project. The lawsuit is currently suspended and the Project and PLN have commenced discussions to renegotiate the PPA, however, it is not yet known what form the renegotiation may take. Any material modifications of the PPA could also require a renegotiation of the Paiton project's debt agreements. The impact of any such renegotiations with PLN, the Government of Indonesia or the project's creditors on EME's expected return on its investment in Paiton is uncertain at 14 this time, however, management believes that it will ultimately recover its investment in the project. Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in Brooklyn, New York. A wholly owned subsidiary of EME owns 50% of the project. In February 1997, the construction contractor asserted general monetary claims under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. (BNY) for damages in the amount of $136.8 million. BNY has asserted general monetary claims against the contractor. In connection with a $407 million non-recourse project refinancing in 1997, EME agreed to indemnify BNY and its partner from all claims and costs arising from or in connection with the contractor litigation, which indemnity has been assigned to the lenders. EME believes that the outcome of this litigation will not have a material adverse effect on its financial position or results of operations. Litigation On October 7, 1999, PLN announced that it had filed a lawsuit in the Central Jakarta District Court against the Paiton project company seeking to annul the PPA, notwithstanding that the Paiton project company continued to seek a negotiated basis on which to operate the plant for an interim period during which the parties could discuss longer term remedies for the effect on the project of the current financial crisis affecting Indonesia. The terms of the PPA provide that any disputes with respect thereto must be submitted to arbitration in Stockholm, Sweden and cannot be brought in the courts of any country. Accordingly, immediately following the filing of PLN's lawsuit, the Paiton project company commenced an arbitration in accordance with the terms of the PPA in order to confirm the validity of the agreement and to protect the interests of the Paiton project company shareholders, lenders and other credit support providers. In accordance with Indonesian procedures applicable to PLN's lawsuit, the Paiton project company was served with PLN's complaint on October 22, 1999. In its complaint, PLN has generally alleged that the PPA was the result of corruption, cronyism and nepotism and is "one-sided and against the public interest". The first court hearing was held on October 25, at which procedural matters were discussed, including the possibility of the court granting a stay of up to thirty days to give the parties time to reach an out of court settlement. On November 1, a second hearing was held at which the court granted a fourteen day suspension of the proceedings until November 15, 1999, to allow the parties to pursue a negotiated settlement. The Paiton project company agreed to suspend any proceedings in the arbitration initiated by the Paiton project company for an equivalent period. The Paiton project company intends to contest the jurisdiction of the Indonesian courts, based on the PPA's provision for binding arbitration, and otherwise will vigorously contest the allegations made in PLN's complaint. 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. 15 Environmental Matters EME is subject to environmental regulation by federal, state and local authorities in the U.S. and foreign regulatory authorities with jurisdiction over projects located outside the U.S. EME believes that it is in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect its financial position or results of operations. EME completed a partial review of its sites in 1995 and does not believe that a material liability exists as of September 30, 1999. The implementation of Clean Air Act Amendments is expected to result in increased operating expenses; however, these expenses are not expected to have a material impact on EME's financial position or results of operations. NOTE 7. BUSINESS SEGMENTS EME operates predominately in one line of business, electric power generation, with reportable segments organized by geographic region: Americas, Asia Pacific, and Europe, Central Asia, Middle East and Africa. EME's plants are located in different geographic areas, which mitigates the effects of regional markets, economic downturns or unusual weather conditions. These regions take advantage of the increasing globalization of the independent power market. Intercompany transactions have been eliminated in the following segment information. 16
Europe, (In millions) Central Asia, Three Months Ended Asia Middle East Corporate/ September 30, 1999 Americas Pacific and Africa Other(i) Total ------------------ ------------- --------------- ---------------- ---------------- ------------- Operating revenues $ 253.8 $ 57.7 $ 225.6 $ -- $ 537.1 Net income (loss) 75.2 (2.6) 31.3 (17.3) 86.6 Total assets 3,318.5 3,289.7 4,580.9 -- 11,189.1 September 30, 1998 ------------------ Operating revenues $ 92.5 $ 50.8 $ 84.2 $ -- $ 227.5 Net income (loss) 27.4 2.2 20.4 (5.2) 44.8 Total assets 950.7 1,625.1 2,459.0 -- 5,034.8 Europe, (In millions) Central Asia, Nine Months Ended Asia Middle East Corporate/ September 30, 1999 Americas Pacific and Africa Other(i) Total ------------------ ------------- -------------- ---------------- --------------- ------------- Operating revenues $ 461.0 $ 164.0 $ 451.2 $ -- $ 1,076.2 Net income (loss) 121.9 (15.3) 62.8 (33.2) 136.2 Total assets 3,318.5 3,289.7 4,580.9 -- 11,189.1 September 30, 1998 ------------------ Operating revenues $ 180.8 $ 158.1 $ 327.8 $ -- $ 666.7 Net income (loss) 59.9 (1.6) 59.4 (16.6) 101.1 Total assets 950.7 1,625.1 2,459.0 -- 5,034.8
(i) Includes corporate net interest expense. NOTE 8. SUBSEQUENT EVENTS During October 1999, EME completed the acquisition of the remaining 20 percent of the 220 MW natural gas-fired Roosecote project located in England. Consideration for the remaining 20% consisted of a cash payment of approximately $16.0 million (9.6 million pounds Sterling). The acquisition was funded with existing cash. On November 1, 1999, EME completed the sale of a portion of its interest in Four Star Oil & Gas Company (Four Star) to a company that it holds a 50% interest. Net proceeds from the sale of a portion of this investment were $20.5 million. EME expects to record a pre-tax gain on sale of its investment of approximately six million dollars. EME's net ownership interest in Four Star was reduced from 50% to 34% as a result of the transaction. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q includes certain forward-looking statements, the realization of which may be affected by certain important factors discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" thereunder and elsewhere herein. GENERAL - ------- Edison Mission Energy (EME) is a leading global power producer. Through its subsidiaries, EME is engaged in the business of developing, acquiring, owning and operating electric power generation facilities worldwide. EME's current investments include 64 projects totaling 18,936 megawatts (MW) of generation capacity, of which 16,443 are in operation and 2,493 are under construction. In addition, 12 operating projects totaling 9,510 MW of generating capacity are pending acquisition. EME's operating revenues are derived primarily from electric revenues and equity in income from energy projects. 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 one domestic and several international entities. Equity in income from energy projects relates to EME's ownership interest of 50% or less voting stock in projects. The equity method of accounting is generally used to account for the operating results of entities over which EME has a significant influence but in which it does not have a controlling interest. With respect to entities accounted for under the equity method, EME recognizes its proportional share of the income or loss of such entities. ACQUISITIONS - ------------ On March 18, 1999, EME Homer City Generation L.P. (EME Homer City), an indirect, wholly owned affiliate of EME, completed a transaction with GPU, Inc., New York State Electric & Gas Corporation and their respective affiliates to acquire the 1,884-MW Homer City Electric Generating Station and certain facilities and other assets associated therewith (collectively, Homer City). Consideration for Homer City consisted of a cash payment of approximately $1.8 billion, which was partially financed by $1.5 billion of new loans, combined with corporate revolver borrowings and cash. On May 14, 1999, Edison Mission Energy Taupo Ltd. (EME Taupo), an indirect, wholly owned affiliate of EME, completed a transaction with the New Zealand government to acquire 40% of the shares of Contact Energy Ltd. (Contact). The remaining 60% of Contact Energy's shares were sold in a public offering resulting in widespread ownership among the citizens of New Zealand and offshore investors. These 18 shares are publicly traded on stock exchanges in New Zealand and Australia. Contact owns and operates hydroelectric, geothermal and natural gas-fired power generating plants primarily in New Zealand with a total current generating capacity of 1,930 MW. Consideration for Contact consisted of a cash payment of approximately $635 million (1.2 billion New Zealand dollars), which was financed by $120 million of preferred stock issued by Edison Mission Energy Global Management, Inc., a $214 million (400 million New Zealand dollars) credit facility issued by EME Taupo, a $300 million equity contribution from Edison International and cash. On July 19, 1999, Edison First Power Limited (EFPL), an indirect, wholly owned subsidiary of EME, completed a transaction with PowerGen UK plc, to acquire the Ferrybridge and Fiddler's Ferry coal-fired electric generating plants (Ferrybridge and Fiddler's Ferry) located in the United Kingdom. Ferrybridge, located in West Yorkshire, and Fiddler's Ferry, located in Warrington, each have a generating capacity of approximately 2,000 megawatts. In connection with the acquisition, EFPL has committed to certain construction costs arising from plant modification totaling $142 million and has executed a multi-year coal supply agreement. Consideration for Ferrybridge and Fiddler's Ferry consisted of approximately $2.0 billion (1.3 billion pounds Sterling) for the two plants. The purchase price may be increased up to additional $33.8 million in the event that the environmental authority in the United Kingdom allows for an increase in emissions from the plants. The acquisition was funded primarily with a combination of net proceeds from the Edison First Power Limited Guaranteed Secured Variable Rate Bonds (Edison First Power Bonds) issued on July 19, 1999 and due 2019, cash and a $500 million equity contribution from Edison International. The Edison First Power Bonds were issued to a special purpose entity formed by Merrill Lynch International (MLI SPE). MLI SPE sold the variable rate coupons portion of the bonds to a special purpose entity that borrowed $1.3 billion (830 million pounds Sterling) under a Term Loan Facility to finance the purchase. These acquisitions were accounted for utilizing the purchase method. EME's consolidated statement of income for the three and nine months ended September 30, 1999 reflects the operations of Homer City beginning March 18, 1999, Contact beginning May 1, 1999, and Ferrybridge and Fiddler's Ferry beginning July 19, 1999. RESULTS OF OPERATIONS - --------------------- OPERATING REVENUES Operating revenues increased $309.6 million and $409.5 million for the third quarter and nine months ended September 30, 1999, respectively, compared with the corresponding periods of 1998, resulting primarily from increases in electric revenues and equity in income from energy projects. Electric revenues increased $302.1 million and $374.5 million for the third quarter and nine months ended September 30, 1999, respectively, compared with the corresponding periods of 1998, primarily due to revenues from Homer City acquired in March 1999 and Ferrybridge and Fiddler's Ferry acquired in July 1999. Equity in income from energy projects increased $31.7 19 million during the nine months ended September 30, 1999, compared with the corresponding period of 1998. The increase for the nine month period was primarily the result of higher revenues from several cogeneration projects due to a final settlement on energy pricing for prior years and a gain on sale of a power sales agreement. Due to warmer weather during the summer months, electric revenues generated from Homer City is principally higher during the third quarter of each year. In addition, EME's third quarter revenues from energy projects are materially higher than other quarters of the year due to a significant number of EME's domestic energy projects located on the West Coast which generally have power sales contracts that provide for higher payments during summer months. OPERATING EXPENSE Operating expenses increased $190.3 million and $273.4 million for the third quarter and nine months ended September 30, 1999, respectively, compared with the same prior year periods. These increases are due to higher fuel, plant operations, depreciation and amortization and administrative and general expenses. The increases in fuel expense, plant operations and depreciation and amortization are primarily the result of expenses at Homer City acquired in March 1999 and Ferrybridge and Fiddler's Ferry acquired in July 1999. The administrative and general expense increase is primarily related to increased project development/acquisition costs. OTHER INCOME (EXPENSE) Interest expense increased $60.5 million and $93 million for the third quarter and nine months ended September 30, 1999, respectively, compared with the same prior year periods. The increase was primarily the result of additional debt financing of the Homer City and Ferrybridge and Fiddler's Ferry acquisitions. PROVISION FOR INCOME TAXES EME recorded an effective tax provision rate of 18% for the nine months ended September 30, 1999, compared with a 36% rate for the same prior year period. The decrease in the 1999 effective tax rate was primarily due to lower foreign income taxes that result from the permanent reinvestment of earnings from foreign affiliates located in different foreign tax jurisdictions. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE In April 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98- 5, "Reporting on the Costs of Start-Up Activities", which became effective in January 1999. The Statement requires that certain costs related to start-up activities be expensed as incurred and that certain previously capitalized costs be expensed and reported as a cumulative change in accounting principle. The impact of adopting SOP 98-5 on EME's net income was $13.8 million, after-tax. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 1999, net cash provided by operating activities increased to $369 million from $172.5 million for the same period in 1998. The increase in working capital was primarily due to increased accounts payable and accrued liabilities related to the Company's acquisitions of Ferrybridge and Fiddler's Ferry and Homer City and commercial operations of Doga. 20 Net working capital at September 30, 1999 was ($412.4) million compared to $136 million at December 31, 1998. Net working capital decreased primarily as a result of utilizing short-term capacity under a commercial paper facility to finance a portion of the Homer City project. The Company expects to re-finance the short-term borrowings during the next year with a combination of new or extended short-term borrowings and issuance of long-term EME debt. At September 30, 1999, EME had cash and cash equivalents of $450.8 million and had available $353 million of borrowing capacity under a $500 million revolving credit facility that expires in 2001 and $266 million of borrowing capacity under a $700 million commercial paper facility that expires in 2000. This borrowing capacity under the revolving credit facility may be reduced by borrowings for firm commitments to contribute project equity and to fund capital expenditures and construction costs of its project facilities. Net cash provided by financing activities totaled $4,479.2 million during the first nine months of 1999, compared to $6.2 million used in 1998 for the same prior year period. The 1999 increase is primarily due to financing of $1.3 billion (830 million pounds Sterling) related to the Ferrybridge and Fiddler's Ferry project, the Edison Mission Holding Co., parent company of EME Homer City, $830 million senior secured bonds, EME financing of $700 million, EME Senior Notes of $600 million, borrowings of $59 million under Edison Mission Energy Taupo Limited (EME Taupo) credit facility, Edison International $1,066 million equity contribution, Edison Mission Energy Global Management, Inc. $120 million Flexible Money Market Cumulative Preferred Stock and EME Taupo $158 million Retail Redeemable Preference Shares. Net cash used in investing activities increased to $4,859.7 million for the nine months ended September 30, 1999 from $82.9 million for the nine months ended September 30, 1998. The increase is primarily due to the purchase of Ferrybridge and Fiddler's Ferry, Homer City and Contact. Firm Commitments for Asset Purchases
Projects U.S. ($ in millions) - -------- -------------------- Commonwealth Edison Co. (i) $ 5,000
(i) A wholly owned subsidiary of EME executed an Asset Sale Agreement to purchase the fossil-fuel generating assets of Commonwealth Edison Co., totaling 9,510 MW located in the midwestern United States. The closing of the transaction is subject to receipt of various state and federal regulatory approvals and is expected to be completed by year end 1999. 21 Firm Commitments to Contribute Project Equity
Projects Local Currency U.S. ($ in millions) - -------- -------------- -------------------- ISAB (i) 244 billion Italian Lira $135 EcoElectrica (ii) 34 Tri Energy (iii) 25
(i) ISAB is a 512-MW integrated gasification combined cycle power plant under construction near Siracusa in Sicily, Italy. A wholly owned subsidiary of EME owns a 49% interest. Equity will be contributed at commercial operation, which is currently scheduled for late 1999. (ii) EcoElectrica is a 540-MW liquefied natural gas combined-cycle cogeneration facility under construction in Penuelas, Puerto Rico. A wholly owned subsidiary of EME owns a 50% interest. Equity will be contributed at commercial operation, which is currently scheduled for late 1999. (iii) Tri Energy is a 700-MW gas-fired power plant under construction in the Ratchaburi Province, Thailand. A wholly owned subsidiary of EME owns a 25% interest. Equity will be contributed at commercial operation, which is currently scheduled for mid-2000. Firm commitments to contribute project equity could be accelerated due to certain events of default as defined in the non-recourse project financing facilities. Management has no reason to believe that these events of default will occur to require acceleration of the firm commitments. Contingent Obligations to Contribute Project Equity
Projects U.S. ($ in millions) - ------------------ -------------------- Paiton (i) $141 Tri Energy (ii) 20 Doga (ii) 7 All Other 17
(i) Contingent obligations to contribute additional project equity (Contingent Equity) would be based on events principally related to insufficient cash flow to cover interest on project debt and operating expenses, project cost overruns during the plant construction, certain partner obligations or events of default. In any and all circumstances, EME's obligation to contribute Contingent Equity will not exceed $141 million. As more fully described below under the caption "Other Commitments and Contingencies", PT Persahaan Listrik Negara (PLN), the main source of revenue for the project, has failed to pay the project in respect of its last five invoices and paid only a portion of another invoice. In addition, 22 PLN has filed a lawsuit, which is currently suspended, contesting the validity of its agreement to purchase electricity from the project. In response to PLN's failure to pay, Paiton entered into an interim agreement (the "Interim Agreement") with its lenders which modified the Contingent Equity provisions of the Paiton debt documents during the agreed interim period, which extends from October 15, 1999 through July 31, 2000. The Interim Agreement provides, among other things, that Contingent Equity from EME and the other Paiton shareholders shall be contributed from time to time as needed to enable Paiton to pay "Interim Project Costs". Interim Project Costs include interest on project debt and operating costs which become due and payable during the term of the Interim Agreement and other costs related to the construction of the project, provided that in the latter case no more than an aggregate of $30 million of Contingent Equity can be used for this purpose. The Interim Agreement provides that a portion of unfunded Contingent Equity in the original amount of $206 million (of which EME's current unfunded share is $85 million) will become due and payable by the shareholders in the event that certain events of default (other than those specifically waived pursuant to the Interim Agreement) occur. The Interim Agreement further provides that all unfunded Contingent Equity in the original amount of $300 million (of which EME's current unfunded share is $124 million) will become due and payable by the shareholders in the event that Paiton fails to make any interest payment during the pendency of the Interim Agreement. To date, Paiton's shareholders have contributed to Paiton $36 million of Contingent Equity (of which EME's share is $17 million). The Contractor and Paiton continue to discuss the final amount to be paid the Contractor. Items claimed by the Contractor include retention, costs relating to a dispute involving a slope adjacent to the Paiton site and other cost overruns related to delays in the completion of the construction of the project. Paiton has counterclaims against Contractor for deficiencies which would be offset against the amount owing the Contractor. As these discussions continue, it is not possible to say with certainty the final amount which will be owing the Contractor by Paiton. As noted above, however, the shareholders' obligation to contribute Contingent Equity to Paiton to enable it to pay Contractor for the finally agreed amount is limited to $30 million. Paiton's obligations to the Contractor may exceed this amount. The shortfall, if any, will be considered as part of the renegotiation of the PPA and the Project's debt agreements, as more fully discussed under the caption, "Other Commitments and Contingencies." EME's Contingent Equity obligations for the Paiton project are to be cancelled (if unused) as of the later of the date of term financing by the Export-Import Bank of the United States and August 1, 2000. Term financing by the Export-Import Bank of the United States is the subject of a comprehensive set of conditions. The obligation of the Export-Import Bank of the United States to provide term financing was initially scheduled to terminate on October 15, 1999. The conditions to the term financing were not satisfied by such date and the Export-Import Bank of the United States agreed to extend the term financing commitment until December 15, 1999. Based on 23 present projections, the Project does not expect to complete the conditions by December 15, 1999, and is seeking a further extension of the time to achieve term completion. As of the date hereof, the Project does not have any commitment from the Lenders as to such further extension. (ii) Contingent obligations to contribute additional equity to the project would be based on events principally related to capital cost overruns during plant construction, certain EME or partner obligations or events of default. Other than as noted above, management is not aware, at this time, of any other contingent obligations or obligations to contribute project equity. 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 September 30, 1999, if payment were required, would be $233 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. Paiton is a 1,230-MW coal-fired power plant in operation in East Java, Indonesia. A wholly owned subsidiary of EME owns a 40% interest and has a $388 million investment at September 30, 1999. The tariff is higher in the early years and steps down over time. The tariff for the Paiton project includes infrastructure to be used in common by other units at the Paiton complex. The plant's output is fully contracted with the state-owned electricity company, PT Perusahaan Listrik Negara (PLN). Payments are in Indonesian Rupiah, with the portion of such payments intended to cover non-Rupiah project costs (including returns to investors) indexed to the Indonesian Rupiah/U.S. dollar exchange rate established at the time of the Power Purchase Agreement (PPA) in February 1994. The project received substantial finance and insurance support from the Export- Import Bank of the United States, The Export-Import Bank of Japan, the U.S. Overseas Private Investment Corporation and the Ministry of International Trade and Industry of Japan. PLN's payment obligations are supported by the Government of Indonesia. The projected rate of growth of the Indonesian economy and the exchange rate of Indonesian Rupiah into U.S. dollars have deteriorated significantly since the Paiton project was contracted, approved and financed. The Paiton project's senior debt ratings have been reduced from investment grade to speculative grade based on the rating agencies' perceived increased risk that PLN might not be able to honor the electricity sales contract with Paiton. The Government of Indonesia has arranged to reschedule sovereign debt owed to foreign governments and has entered into discussions about rescheduling sovereign debt owed to private lenders. Certain events (including those discussed in the paragraph below) which, with the passage of time or upon notice, may mature into defaults of the Project's debt agreements have occurred. On October 15, 1999, the Project entered into an interim 24 agreement with its lenders pursuant to which the Lenders waived such defaults until July 31, 2000. However, such waiver may expire on an earlier date if additional defaults (other than those specifically waived) or certain other specified events occur. In May 1999, Paiton notified PLN that Unit 7 of Paiton achieved Commercial Operation under terms of the PPA and that Unit 8 of Paiton achieved Commercial Operation under the terms of the PPA in July 1999. Because of the economic downturn, PLN is experiencing low electricity demand and PLN has therefore dispatched the Paiton plant to zero; however, under the terms of the PPA, PLN is required to continue to pay for capacity and fixed operating costs once each unit and the Plant achieve Commercial Operation. An invoice for these charges for May in the amount of $7.8 million was submitted to PLN. The project and PLN met to review the invoice and a partial payment of $2.5 million was subsequently received. The primary reason for the payment shortage was the use of an arbitrary Indonesian Rupiah/U.S. dollar exchange rate of 2,450 Indonesian Rupiah to one U.S. dollar by PLN. The use of this exchange rate is not in agreement with the Power Purchase Agreement, but is the exchange rate on which PLN payments to other independent power producers in Indonesia have been based. Invoices for capacity charges and fixed operating costs for June, July, August and September in an aggregate amount of $164.1 million were later submitted to PLN. PLN has yet to make any payments in respect of such latter invoices. In addition, PLN has filed a lawsuit contesting the validity of its agreement to purchase electricity from the Project. The lawsuit is currently suspended and the Project and PLN have commenced discussions to renegotiate the PPA, however, it is not yet known what form the renegotiation may take. any material modifications of the PPA could also require a renegotiation of the Paiton project's debt agreements. The impact of any such renegotiations with PLN, the Government of Indonesia or the project's creditors on EME's expected return on its investment in Paiton is uncertain at this time, however, management believes that it will ultimately recover its investment in the project. Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in Brooklyn, New York. A wholly owned subsidiary of EME owns 50% of the project. In February 1997, the construction contractor asserted general monetary claims under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. (BNY) for damages in the amount of $136.8 million. BNY has asserted general monetary claims against the contractor. In connection with a $407 million non- recourse project refinancing in 1997, EME agreed to indemnify BNY and its partner from all claims and costs arising from or in connection with the contractor litigation, which indemnity has been assigned to the lenders. EME believes that the outcome of this litigation will not have a material adverse effect on its financial position or results of operations. 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 25 repayment of loans to energy projects and (3) funds available from EME's revolving credit facility. CHANGES IN INTEREST RATES, CHANGES IN ELECTRICITY POOL PRICING, FOREIGN CURRENCY FLUCTUATIONS AND OTHER CONTRACTUAL OBLIGATIONS Changes in interest rates, changes in electricity pool pricing and fluctuations in foreign currency exchange rates can have a significant impact on EME's results of operations. Interest rate changes affect the cost of capital needed to construct and finance projects. EME has mitigated a portion of 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 included $19.1 million and $15.6 million for the nine months ended September 30, 1999, and 1998, respectively, as a result of interest rate swap and collar agreements. EME has entered into several interest rate swap and collar agreements whereby the maturity date of the swaps and collars occurs prior to the final maturity of the underlying debt. EME does not believe that interest rate fluctuations will have a material adverse effect on its financial position or results of operations. Projects in the U.K. sell their electric energy and capacity through a centralized electricity pool, which establishes a half-hourly clearing price (also referred to as the "pool price") for electric energy. The pool price is extremely volatile and can vary by as much as a factor of ten or more over the course of a few hours, due to the large differentials in demand according to the time of day. First Hydro and Ferrybridge and Fiddler's Ferry mitigate 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 pool price for the element of power under contract. These contracts are sold in various structures. These contracts act as a means of stabilizing production revenues or purchasing costs by removing an element of their net exposure to pool price volatility. On July 29, 1998, the Director General of Electricity Supply proposed to the Minister for Science, Energy and Industry that the current structure of contracts-for-differences and compulsory trading via the pool at half-hourly clearing prices bid a day ahead be abolished. He proposed in its place, among other things, the establishment of voluntary forwards and futures markets, organized by independent market operators and evolving in response to demand; a short-term bilateral market operating from 24 to 4-hours before a trading period; a balancing market to enable the system operator to balance generation and demand and resolve any transmission constraints; a settlement process for recovering imbalances between contracted and metered volumes with stronger incentives for being in balance; and a Balancing and Settlement Code Panel to oversee governance of the short-term bilateral and balancing markets. The Minister for Science, Energy and Industry has recommended that the proposal be implemented by April 2000. Further definition of the proposal will be required before the effects of the changes can be evaluated. Implementation of the proposal may also require legislation. 26 Electric power generated at Homer City is sold under bilateral arrangements with domestic utilities and power marketers under short-term contracts (two years or less) or to the Pennsylvania-New Jersey-Maryland Power Interconnection (PJM) or the New York Power Pool (NYPP). The PJM pool has a market which establishes an hourly clearing price. Homer City is situated in the PJM Control Area and is physically connected to high-voltage transmission lines serving both the PJM and NYPP markets. Power can also be transmitted to the midwestern United States. EME has developed risk management policies and procedures which, among other matters, address credit risk. It is EME's policy to sell to investment grade counterparties or counterparties that have an investment grade guarantor. EME intends on hedging a portion of the electric output of the plant in order to lock in desirable outcomes. It plans to manage the "spark spread" or margin, that is the spread between electric prices and fuel prices when deemed appropriate. It plans to use forward contracts, swaps, futures, or options contracts to achieve those objectives. Loy Yang B sells its electric energy through a centralized electricity pool (the National Electricity Market) which provides for a system of generator bidding, central dispatch and a settlements system based on a clearing market for each half-hour of every day. The Victorian Power Exchange, operator and administrator of the pool, determines a system marginal price each half-hour. To mitigate exposure to price volatility of the electricity traded into the pool, Loy Yang B has entered into a number of financial hedges. From May 8, 1997 to December 31, 2000, approximately 53% to 64% of the plant output sold is hedged under "Vesting Contracts" with the remainder of the plant capacity hedged under the "State Hedge" described below. Vesting Contracts were put into place by the State Government of Victoria, Australia (State), between each generator and each distributor, prior to the privatization of electric power distributors in order to provide more predictable pricing for those electricity customers that were unable to choose their electricity retailer. Vesting Contracts set base strike prices at which the electricity will be traded, and the parties to the agreement make payments, calculated based on the difference between the price in the contract and the half-hourly pool clearing price for the element of power under contract. These contracts are sold in various structures. These contracts are accounted for as electricity rate swap agreements. The State Hedge is a long-term contractual arrangement based upon a fixed price commencing May 8, 1997, and terminating October 31, 2016. The State guarantees SECV's obligations under the State Hedge. EME's electric revenues were decreased by $3.4 million for the nine months ended September 30, 1999, compared to an increase of $87.6 million for the nine- month period ended September 30, 1998, as a result of electricity rate swap agreements and other hedging activities. The electric power generated by EME's domestic operating projects, excluding Homer City, is generally sold to electric utilities pursuant to long- term (typically, 15 to 30-year) power sales contracts and is expected to result in consistent cash flow under a wide range of economic and operating circumstances. To accomplish this, EME structured its power sales contracts so that fluctuations in fuel costs would produce 27 similar fluctuations in electric and/or steam revenues and entered into long- term fuel supply and transportation 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 consistent with historical or forecasted relationships. ENVIRONMENTAL MATTERS EME is subject to environmental regulation by federal, state and local authorities in the U.S. and foreign regulatory authorities with jurisdiction over projects located outside the U.S. EME believes that it is in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect its financial position or results of operations. EME completed a partial review of its sites in 1995 and does not believe that a material liability exists as of September 30, 1999. The implementation of Clean Air Act Amendments is expected to result in increased operating expenses; however, these expenses are not expected to have a material impact on EME's financial position or results of operations. YEAR 2000 ISSUE EME has a comprehensive program in place to remediate potential Year 2000 impacts from critical systems. EME divided its Year 2000 Issue activities into five phases: inventory, impact assessment, remediation, documentation and certification. A critical system was defined as those applications and systems, including embedded processor technology, which if not appropriately remediated might have had a significant impact on customers, the revenue stream, regulatory compliance, or the health and safety of personnel. With respect to critical systems, EME has achieved Year 2000 readiness as of July 1999. Assurances from third party operated plants have been received indicating aggressive Year 2000 remediation programs. Monitoring of these efforts is ongoing. Plants under construction have obtained assurances from new construction and development contractors, who have been requested to ensure this is part of their goals. General warranty of plants would likely include any equipment issues that may arise regarding Year 2000 in the current year. 28 The other essential component of the EME Year 2000 readiness program was to identify and assess vendor products and business partners for Year 2000 readiness. EME put a process in place to identify and contact vendors and business partners to determine their Year 2000 status, and has evaluated the responses. EME's general policy requires that all newly purchased products be Year 2000 ready or otherwise designed to allow EME to determine whether such products present Year 2000 issues. Plant contingency plans have been developed and reviewed for any significant issues and to schedule appropriate testing and/or training. Such contingency plans include developing strategies for dealing with Year 2000- related processing failures or malfunctions due to EME's internal systems or from external parties. EME's contingency plans evaluate reasonably likely worst case scenarios or conditions. EME does not expect the Year 2000 issue to have a material adverse effect on its results of operations or financial position. However, if not effectively remediated, negative effects from Year 2000 issues, including those related to external systems, vendors, business partners, the independent system operator, the power exchange or customers, could cause results to differ. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", which, as amended, will be effective in January 2001. The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. A derivative's gains and losses for qualifying hedges offset related results on the hedged item in the income statement and a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The impact of adopting Statement 133 on EME's financial statements has not been quantified at this time. ACQUISITIONS PENDING In March 1999, EME entered into agreements to acquire the fossil-fuel generating assets of Commonwealth Edison Co. (ComEd), totaling 9,510 MW. EME will operate the plants, which are located in the midwestern United States. The closing of the transaction is subject to various state and federal regulatory approvals and is expected to be completed by year end 1999. EME plans to finance the approximately $5 billion acquisition with a combination of debt secured by the project, corporate debt, cash and funding from Edison International. In connection with the acquisition, it is expected that a subsidiary of EME will enter into transaction contracts with ComEd, whereby ComEd will retain power purchase agreements with EME, enabling ComEd access to certain amounts of plant output for the next five years to serve its customers. 29 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS P. T. Perusahaan Listrik Negara - One of EME's subsidiaries, MEC Indonesia, ------------------------------- B.V. (MEC Indonesia), owns a 40% interest in P. T. Paiton Energy, (formerly known as Paiton Energy Company), an Indonesian limited liability company ("PE"). PE constructed a 1,230 MW coal-fired power project in East Java, Indonesia (the "Paiton Project"). The Paiton Project has achieved commercial operation. In 1994, PE entered into a Power Purchase Agreement ("PPA") with Indonesia's state- owned electricity company, P. T. Perusahaan Listrik Negara ("PLN"), pursuant to which PLN is obligated to purchase the capacity and energy of the Paiton Project. On October 7, 1999, PLN announced that it had filed a lawsuit in the Central Jakarta District Court against PE seeking to annul the PPA, notwithstanding that PE continued to seek a negotiated basis on which to operate the plant for an interim period during which the parties could discuss longer term remedies for the effect on the project of the current financial crisis affecting Indonesia. The terms of the PPA provide that any disputes with respect thereto must be submitted to arbitration in Stockholm, Sweden and cannot be brought in the courts of any country. Accordingly, immediately following the filing of PLN's lawsuit, PE commenced an arbitration in accordance with the terms of the PPA in order to confirm the validity of the agreement and to protect the interests of PE's shareholders, lenders and other credit support providers. In accordance with Indonesian procedures applicable to PLN's lawsuit, PE was served with PLN's complaint on October 22, 1999. In its complaint, PLN has generally alleged that the PPA was the result of corruption, cronyism and nepotism and is "one-sided and against the public interest". The first court hearing was held on October 25, at which procedural matters were discussed, including the possibility of the court granting a stay of up to thirty days to give the parties time to reach an out of court settlement. On November 1, a second hearing was held at which the court granted a fourteen day suspension of the proceedings until November 15, 1999, to allow the parties to pursue a negotiated settlement. PE agreed to suspend any proceedings in the arbitration initiated by PE for an equivalent period. PE intends to contest the jurisdiction of the Indonesian courts, based on the PPA's provision for binding arbitration, and otherwise will vigorously contest the allegations made in PLN's complaint. 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description ----------- ----------- 10.64 Coal and Capex Facility Agreement, dated July 16, 1999 between EME Finance UK Limited; Barclays Capital and Credit Suisse First Boston; The Financial Institutions named as Banks; and Barclays Bank PLC as Facility Agent. 10.65 Guarantee by EME dated July 16, 1999 supporting the Coal and Capex Facility Agreement (Facility Agreement) issued by Barclays Bank PLC to secure EME Finance UK Limited obligations pursuant to the Facility Agreement. 27 Financial Data Schedule
(b) Reports on Form 8-K The registrant filed the following reports on Form 8-K during the quarter ended September 30, 1999.
Date of Report Date Filed Item Reported -------------- ---------- ------------- July 19, 1999 August 2, 1999 2 July 19, 1999 September 30, 1999 7
31 SIGNATURES Pursuant to the requirements 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) Date: November 11, 1999 /s/ KEVIN M. SMITH - ----------------------- ------------------------- KEVIN M. SMITH Senior Vice President and Chief Financial Officer 32 EX-10.64 2 COAL AND CAPEX FACILITY AGREEMENT EXHIBIT 10.64 CONFORMED COPY Dated 16 July 1999 EME FINANCE UK LIMITED as Borrower BARCLAYS CAPITAL and CREDIT SUISSE FIRST BOSTON as Arrangers THE FINANCIAL INSTITUTIONS named as Banks and BARCLAYS BANK PLC as Facility Agent ____________________________________ COAL AND CAPEX FACILITY ___________________________________ Shearman & Sterling London TABLE OF CONTENTS 1. INTERPRETATION........................................................ 1 2. THE FACILITIES........................................................ 14 3. PARTICIPATION OF BANKS................................................ 16 4. CONDITIONS PRECEDENT.................................................. 16 5. DRAWDOWN.............................................................. 17 6. INTEREST.............................................................. 20 7. REPAYMENT AND CASH COLLATERAL......................................... 22 8. PREPAYMENT............................................................ 22 9. CANCELLATION.......................................................... 23 10. FEES.................................................................. 23 11. TAXES AND OTHER DEDUCTIONS............................................ 24 12. CHANGE IN CIRCUMSTANCES............................................... 27 13. PAYMENTS.............................................................. 31 14. REPRESENTATIONS AND WARRANTIES........................................ 32 15. POSITIVE COVENANTS.................................................... 34 16. NEGATIVE COVENANTS.................................................... 36 17. EVENTS OF DEFAULT..................................................... 37 18. THE FACILITY AGENT.................................................... 40 19. ASSIGNMENTS AND TRANSFERS............................................. 45 20. PRO RATA PAYMENTS, RECEIPTS AND SET OFF............................... 48 21. NOTICES, CONFIDENTIALITY AND CERTIFICATES............................. 50 22. AMENDMENTS, WAIVERS AND CONSENTS...................................... 52 23. INDEMNITIES........................................................... 53 24. PARTIAL INVALIDITY.................................................... 56 25. GOVERNING LAW......................................................... 56 26. COUNTERPARTS.......................................................... 56
THIS FACILITY AGREEMENT is made on 16 July, 1999 BETWEEN: (1) EME FINANCE UK LIMITED (the "Borrower"); (2) BARCLAYS CAPITAL and CREDIT SUISSE FIRST BOSTON as arrangers (the "Arrangers"); (3) THE FINANCIAL INSTITUTIONS listed in Schedule 1 as original banks (the "Original Banks"); and (4) BARCLAYS BANK PLC as Facility Agent. IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions In this Agreement, unless the context otherwise requires the following expressions shall have the following meanings: "Additional Costs Rate" means, in relation to an Advance or unpaid sum: (a) the cash ratio and special deposit requirements of the Bank of England and/or the banking supervision or other costs imposed by the Financial Services Authority, as determined in accordance with Schedule 4 (Additional Costs Rate); and (b) any reserve asset requirements of the European Central Bank. "Advance" means a Coal Advance or a Capex Advance. "Affiliate" of a person means any subsidiary or holding company of that person, or any subsidiary of any such holding company. 1 "Applicable Margin" means the rate calculated in accordance with Clause 6.6 (Margin). "Arrangers' Fee Letter" means the letter from the Arrangers to the Borrower dated on or about the date of this Agreement setting out details of certain fees payable by the Borrower to the Arrangers referred to in Clause 10.3 (Arrangement Fees). "Authorisation" includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration, notarisation or enrolment by or with any Competent Authority or any other relevant person. "Availability Period" means the period commencing on the date of this Agreement and ending on the Final Repayment Date for the Coal Facility or the Capex Facility, as the case may be. "Available Capex Amount" means, as at any date: (a) Capital Costs incurred up to that date; less (b) Capex Drawings on that date. "Available Coal Amount" means, as at any date: (a) the Stockpile Increase; less (b) Coal Drawings, on that date. "Available Commitments" 2 means, at any time, the Total Commitments under the Coal Facility or the Capex Facility less the aggregate principal amount of the outstanding Advances (including Deemed Advances) under the relevant Facility, at that time. "Bank" means the Original Banks and any Transferee to whom rights and/or obligations are assigned or transferred in accordance with Clause 19 (Assignments and Transfers) (until, in each case, its entire participation in the Facility has been assigned or transferred to a Transferee in accordance with Clause 19 (Assignments and Transfers)) (collectively the "Banks"). "Business Day" means a day, excluding Saturdays and Sundays, on which commercial banks and foreign exchange markets are generally open for business in London. "Capex Advance" means the principal amount of each advance made or to be made (including each Deemed Advance) under the Capex Facility in each case as from time to time reduced by repayment or prepayment or consolidated in accordance with Clause 6.1(e) (Interest Periods). "Capex Drawings" means, as at any date, the aggregate principal amount of Capex Advances made on or before that date (whether or not repaid or prepaid). "Capex Facility" means the (Pound Sterling)223,000,000 sterling letter of credit and loan facility to be made available to the Borrower by the Banks pursuant to Clause 2.2 (Capex Facility). "Capex Letter of Credit" means a letter of credit to be issued by the Banks to the Project Company during the L/C Availability Period in the form, or substantially in the form, of Schedule 6 (Letters of Credit). "Capex Utilisation" 3 means a drawing under the Capex Letter of Credit. "Capital Costs" means the costs incurred by the Project Company after the date of the Agreement: (a) in developing and constructing the Capital Investments including: (i) fees and costs of the Project Company's engineering, legal and other advisers engaged in respect of the design, construction and commissioning of, and contracts for, the Capital Investments and application for relevant authorisations; (ii) fees, costs and expenses payable in relation to any relevant authorisations; and (iii) fees, costs and expenses incurred in testing and commissioning the Capital Investments; (b) in paying legal, accounting, technical and other professional fees and related disbursements incurred by the Project Company in connection with the negotiation and entry into all of the documents and contracts which relate to the Capital Investments, but excluding any amounts payable to the Guarantor or any Affiliate of the Guarantor or the Project Company. "Capital Investments" means the rebuilding of one of the stacks at the power station known as Ferrybridge "C", Yorkshire and the fitting of appropriate emission abatement equipment to the Power Stations as set out in the Project Company's capital expenditure programme in the agreed form. "Cash Collateral" means, at any time, the amount (if any) provided to the Facility Agent by the Borrower as cash collateral for contingent liabilities under either Letter of Credit. "Coal" means coal purchased by the Project Company under the Coal Supply Agreements. 4 "Coal Advance" means the principal amount of each advance (including each Deemed Advance) made or to be made under the Coal Facility in each case as from time to time reduced by repayment or prepayment or consolidated in accordance with Clause 6.1(e) (Interest Periods). "Coal Drawings" means, as at any date, the aggregate principal amount of Coal Advances made on or before that date (whether or not repaid or prepaid). "Coal Facility" means the (Pound Sterling)136,200,000 sterling letter of credit and loan facility to be made available to the Borrower by the Banks pursuant to Clause 2.1 (Coal Facility). "Coal Letter of Credit" means a letter of credit to be issued by the Banks to the Project Company during the L/C Availability Period in the form, or substantially in the form, of Schedule 6 (Letters of Credit). "Coal Supply Agreements" means each of the coal supply agreements dated 30 April 1999 and made between the Project Company and PowerGen UK plc as amended by a deed of amendment dated on or about the date of this Agreement. "Coal Utilisation" means a drawing under the Coal Letter of Credit. "Commitment" means: 5 (a) in relation to an Original Bank, the amount in Sterling set opposite its name in Schedule 1 under the heading "Coal Commitment", in the case of the Coal Facility, or under the heading "Capex Commitment", in the case of the Capex Facility and, in each case, the amount of any other Bank's Commitment relating to the relevant Facility acquired by it under Clause 19 (Assignments and Transfers); and (b) in relation to a Bank which becomes a Bank after the date of this Agreement, the amount of any other Bank's Commitment relating to the relevant Facility acquired by it under Clause 19 (Assignments and Transfers), to the extent not cancelled, reduced or transferred under this Agreement. "Competent Authority" means any local, national or supranational agency, authority, department, inspectorate, minister, official, court, tribunal or public or statutory person (whether autonomous or not) of the United Kingdom or the European Community. "Deemed Advance" means the Advance deemed to be made in the amount of, and on the date of, any Utilisation. "Drawdown Date" means, in relation to an Advance, the date for the making of the Advance as specified by the Borrower in the relevant Request or, in relation to a Deemed Advance, the date of the corresponding Utilisation. "Event of Default" means any of the events specified in Clause 17.1 (Events of Default). "Facilities" means the Coal Facility and the Capex Facility. "Facility Agent" means Barclays Bank PLC acting in its capacity as facility agent for the Banks or such other agent for the Banks as shall be appointed pursuant to Clause 18.9 (Resignation of Facility Agent). 6 "Facility Agent's Fee Letter" means the letter from the Facility Agent to the Borrower dated on or about the date of this Agreement setting out details of certain fees payable by the Borrower to the Facility Agent referred to in Clause 10.2 (Agency Fees). "Final Repayment Date" means: (a) in the case of the Coal Facility, the date falling 54 months after the date of this Agreement; and (b) in the case of the Capex Facility, the date falling 60 months after the date of this Agreement. "Finance Documents" means: (a) this Agreement; (b) the Coal Letter of Credit; (c) the Capex Letter of Credit; (d) the Facility Agent's Fee Letter; (e) the Arrangers' Fee Letter; (f) the Guarantee; (g) each Transfer Certificate; and (h) any other document designated as such by the Facility Agent and the Borrower. "Finance Parties" means the Arrangers, the Facility Agent and each Bank. 7 "Guarantee" means a guarantee in the agreed form, given, or to be given, by the Guarantor in favour of the Facility Agent. "Guarantor" means Edison Mission Energy, a company incorporated in the State of California. "Indebtedness" has the meaning given to it in the Guarantee. "Information Memorandum" means the information memorandum relating to this Agreement to be distributed by the Arrangers at the request of the Borrower. "Interest Period" means a period by reference to which interest is calculated and is payable on an Advance or overdue sum. "Issue Date" means, in relation to a Letter of Credit the date of issue of that Letter of Credit. "L/C Availability Period" means the period commencing on the date of this Agreement and ending 7 days after the date of this Agreement. "L/C Exposure" means, at any time, the maximum amount of the Coal Letter of Credit or Capex Letter of Credit at that time less the Coal Drawings or Capex Drawings, as the case may be, at that time. "L/C Proportion" 8 means, for any Bank, the proportion borne from time to time by the relevant Available Commitment of such Bank to the total of the relevant Available Commitments for all the Banks. "L/C Request" means a request for a drawing under the Coal Letter of Credit or the Capex Letter of Credit. "Lending Office" means, in relation to a Bank, the office through which it is acting for the purposes of this Agreement. "Letters of Credit" means the Coal Letter of Credit and the Capex Letter of Credit. "LIBOR" means, in relation to an Advance or unpaid sum, the rate per annum of the offered quotation for deposits in sterling in an amount equal or comparable to such Advance or unpaid sum for the duration of the relevant Interest Period which appears on page 3750 of the Telerate Service at or about 11.00 a.m. on the applicable Rate Fixing Day or, if no such offered quotation appears on that page, then: (a) the arithmetic mean (rounded up, if necessary, to the nearest four decimal places) of the respective rates (as quoted to the Facility Agent at its request) offered by the Reference Banks to leading banks in the London interbank market at or about 11.00 a.m. on the applicable Rate Fixing Day for deposits in the relevant currency in an amount equal or comparable to such Advance or unpaid sum for the duration of the relevant Interest Period; or (b) if any Reference Bank does not provide a quote as contemplated by paragraph (a) above, the relevant arithmetic mean determined on the basis of the quotations supplied by the remaining Reference Banks; or (c) if no (or only one) Reference Bank supplies a quote as contemplated by paragraph (a), above the provisions of Clause 12.4 (Change in Market Conditions) shall apply. 9 "Majority Banks" means, at any time: (a) Banks whose Commitments aggregate more than 66 2/3 per cent. of the Total Commitments; or (b) if the Total Commitments have been reduced to zero, Banks whose Commitments aggregated more than 66 2/3 per cent. of the Total Commitments immediately before the reduction. "Obligors" means the Borrower and the Guarantor. "Party" means a party to this Agreement. "Potential Event of Default" means any event which, with the giving of notice, passage of time or satisfaction of any condition, in each case as specified in Clause 17 (Events of Default) would constitute an Event of Default. "Power Stations" means the power stations known as Ferrybridge C, Yorkshire and Fiddler's Ferry, Cheshire. "Project Company" means Edison First Power Limited. "Qualifying Person" has the meaning given to it in Clause 11.7 (Exceptions). "Rate Fixing Day" means, in relation to an Advance, the first day of an Interest Period relating thereto. "Reference Banks" 10 means the principal London offices of Barclays Bank PLC, The Royal Bank of Scotland plc and Bayerische Hypo-und Vereinsbank AG or, if any such Bank ceases to be a Reference Bank, such other Bank as the Facility Agent shall select after consultation with the Borrower. "Relevant Tax" means any Tax imposed by any Competent Authority of a jurisdiction in which the Borrower is incorporated, or resident, or from or through which it makes any payments under the Finance Documents. "Request" means a notice requesting a Letter of Credit or an Advance in the form set out in Schedule 3 (Form of Request). "Senior Creditors' Security Trustee" means Barclays Bank PLC in its capacity as such or any successor under an intercreditor agreement dated on or about the date of this Agreement. "Stockpile Increase" means, as at any date: (a) the total cost of Coal purchased by the Project Company; less (b) the total cost of Coal consumed or sold, and paid for, by the Project Company (on the assumption that Coal is consumed on a first in, first out basis), from the date of this Agreement to the date of calculation. "Tax" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding in the nature of tax whatsoever called and whether imposed, levied, collected, withheld or assessed (and any penalty or interest payable in connection with any failure to pay or any delay in paying the same). "Taxes Act" means the Income and Corporation Taxes Act 1988. 11 "Total Commitments" means the aggregate, from time to time, of the Commitments under the Coal Facility or the Capex Facility, as the case may be. "Transfer Certificate" means a certificate substantially in the form set out in Schedule 5 (Form of Transfer Certificate). "Transfer Date" means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in such Transfer Certificate. "Transferee" means a person to whom a Bank seeks to transfer all or part of its rights, benefits and obligations hereunder. "UK GAAP" means generally accepted accounting principles and practices in the United Kingdom. "Utilisation" means a Coal Utilisation or a Capex Utilisation. 1.2 Construction Any reference in this Agreement to: an "agency" of a state is a reference to any political sub-division thereof, and any ministry, department or authority thereof and any company or corporation which is controlled by one or more of such agencies; an "asset" of any person means all or any part of its business, undertaking, property, assets, revenues (including any right to receive revenues) and uncalled capital, wherever situated; a figure being "indexed" means adjusted to reflect the change in the Retail Prices Index as published for the month in which the Capex Letter of Credit and the Coal Letter of Credit are issued to the published Retail Prices Index immediately prior to the relevant calculation hereunder; 12 a "holding company" of a company or corporation shall be construed as a reference to any company or corporation of which the first mentioned company or corporation is a subsidiary. "includes" or "including" shall be construed without limitation; "in the agreed form" means in the form agreed between the Facility Agent and the Borrower and initialled by or on behalf of each of them for the purposes of identification; a "month" means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month provided that if: (a) any such period would otherwise end on a day which is not a Business Day, it shall end on the next Business Day in the same calendar month or, if none, on the preceding Business Day; and (b) a period starts on the last Business Day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that later month, (and references to "months" shall be construed accordingly); a "person" shall be construed as a reference to any person, firm, company, corporation, government, state, agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing; a "subsidiary" of a person shall be construed as a reference to any person (a) which is controlled, directly or indirectly, by the first-mentioned person, (b) more than half the issued share capital of which is beneficially owned, directly or indirectly, by the first-mentioned person, or (c) which is a subsidiary of another subsidiary of the first-mentioned person; "Tax on overall net income" of a person shall be construed as a reference to Tax (other than Tax deducted or withheld from any payment) imposed on that person by the jurisdiction in which its principal office (and/or, in the case of a Bank, its Lending Office) is located by reference to (a) the net income, profits or gains of that person worldwide or (b) such of its net income, profits or gains as arise in or relate to that jurisdiction; the "winding-up", "dissolution" or "administration" of a company shall be construed so as to include any equivalent or analogous proceedings under the laws of any relevant jurisdiction in which such company is incorporated or any relevant jurisdiction in which such company carries on business. 1.3 References to documents and statutes Save where the contrary is indicated, any reference in this Agreement to: 13 (a) any Finance Document or any other agreement or document shall be construed as a reference to such Finance Document or other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented; and (b) a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted and all instruments, orders, regulations, by-laws, permissions and directions at any time made thereunder. (c) the Facility Agent or the Senior Creditors' Security Trustee is a reference to the department, unit or persons within the Facility Agent or Senior Creditors' Security Trustee who are carrying out the functions of the Facility Agent or Senior Creditors' Security Trustee, as the case may be, and have day to day responsibility for these functions. 1.4 Time Save where the contrary is indicated, any reference in this Agreement to a time of day shall be construed as a reference to London time. 1.5 Change of Currency Any references in this Agreement to a Business Day, the convention for the calculation of the number of days in a year for interest calculation purposes or other convention (whether for the calculation of interest, determination of payment dates or otherwise) will, with effect from and after the first day on which the UK becomes a participating member state in the euro currency, to the extent that the Facility Agent specifies to be necessary after consultation with the Borrower, be amended to comply with any generally accepted conventions and market practice applicable to euro- denominated obligations in the London interbank market. 1.6 Barclays Capital Any reference in this Agreement to Barclays Capital shall be a reference to the investment banking division of Barclays Bank PLC. 2. THE FACILITIES 2.1 Coal Facility (a) The Banks agree, on the terms and subject to the conditions of this Agreement, to issue the Coal Letter of Credit during the L/C Availability Period and to make available Coal Advances to the Borrower during the Availability Period. 14 (b) The aggregate amount of all outstanding Coal Advances shall not exceed the Total Commitments under the Coal Facility. (c) No Bank is obliged to lend if it would cause the aggregate amount of its participations in the Coal Advances to exceed its Commitment under the Coal Facility. 2.2 Capex Facility (a) The Banks agree, on the terms and subject to the conditions of this Agreement, to issue the Capex Letter of Credit during the L/C Availability Period and to make available Capex Advances to the Borrower during the Availability Period. (b) The aggregate amount of all outstanding Capex Advances shall not exceed the Total Commitments under the Capex Facility. (c) No Bank is obliged to lend if it would cause the aggregate amount of its participations in the Capex Advances to exceed its Commitment under the Capex Facility. 2.3 Purpose (a) Each Coal Advance or Coal Utilisation shall be paid by the Banks to the Project Company or at the Project Company's direction either: (i) to fund amounts payable under the Coal Supply Agreements which have become due and payable from time to time; (ii) to reimburse the Project Company from time to time for amounts paid under the Coal Supply Agreement. (b) Each Capex Advance or Capex Utilisation shall be paid by the Banks to the Project Company or at the Project Company's direction either: (i) to meet the obligations of the Project Company in relation to Capital Costs where funds in the revenues account of the Project Company are insufficient to pay such costs; or (ii) to reimburse the Project Company from time to time for amounts in relation to Capital Costs paid by it. (c) No Finance Party shall be obliged to enquire as to the use or application of amounts raised under the Finance Documents. 15 2.4 Direction to Facility Agent The Borrower irrevocably authorises the Facility Agent to pay the proceeds of each Advance to the Project Company. 3. PARTICIPATION OF BANKS 3.1 Basis of Participation (a) Each Bank hereby authorises the Facility Agent to sign the Coal Letter of Credit and the Capex Letter of Credit on its behalf. (b) Subject to the other provisions of this Agreement, each Bank will participate in each Advance and each Utilisation in the proportion which its Commitment under the relevant Facility bears to the Total Commitments under the relevant Facility as at the Drawdown Date for that Advance or the date of that Utilisation. 3.2 Lending Office Each Bank will participate in each Advance and each Utilisation through its Lending Office. If any Bank changes its Lending Office for the purpose of this Agreement, that Bank will notify the Facility Agent, the Borrower and the Senior Creditors' Security Trustee promptly of such change. 3.3 Rights and Obligations of Finance Parties The rights and obligations of each of the Finance Parties under the Finance Documents are several and the total amounts outstanding at any time under the Finance Documents constitute separate and independent debts. Failure of a Finance Party to observe and perform its obligations under any Finance Document shall neither: (a) result in any other Finance Party incurring any liability whatsoever; nor (b) relieve the Borrower or any other Finance Party from their respective obligations under the Finance Documents. 3.4 Banks' Acknowledgement Each Bank acknowledges that no Non-Recourse Person (as defined in the Guarantee) shall have any responsibility or liability for the Obligations (as defined in the Guarantee). 4. CONDITIONS PRECEDENT 16 4.1 Initial conditions precedent (a) The Banks shall not be under any obligation to issue either Letter of Credit nor to make any Advance available to the Borrower under this Agreement unless the Facility Agent has received each of the documents specified in Schedule 2 (Conditions Precedent) in form and substance satisfactory to the Facility Agent. (b) When the Facility Agent is satisfied that the conditions specified in this Clause 4.1 have been fulfilled, it will promptly notify the Borrower, the Senior Creditors' Security Trustee and the Banks. 5. DRAWDOWN 5.1 Delivery of Requests In order to request the issue of a Letter of Credit or to borrow an Advance, the Borrower must deliver to the Facility Agent a duly completed Request: (a) in the case of the issue of the Letter of Credit, on the proposed Issue Date; and (b) in the case of an Advance, not later than l0.00 a.m. on the proposed Drawdown Date. 5.2 Completion of Requests A Request will not be regarded as being duly completed unless it specifies: (a) in the case of each Letter of Credit: (i) the proposed Issue Date (which must be a Business Day falling within the L/C Availability Period); (ii) the amount of the Letter of Credit (which must not exceed the Available Commitments under the Coal Facility or the Capex Facility, as the case may be); and (iii) the termination date of the Letter of Credit (which must be a Business Day and no later than the Final Repayment Date for the Coal Facility or the Capex Facility, as the case may be); and (b) in the case of an Advance: 17 (i) the proposed Drawdown Date (which must be a Business Day falling within the Availability Period for the Coal Facility or the Capex Facility, as the case may be); (ii) the amount of the Advance requested, which must be a minimum of (Pound Sterling)5,000,000 in the case of a Coal Advance and (Pound Sterling)10,000,000 in the case of a Capex Advance and a multiple of (Pound Sterling)1,000,000 in the case of a Coal Advance and (Pound Sterling)5,000,000 in the case of a Capex Advance and must not exceed the lower of: (A) the Available Commitments for the Coal Facility or the Capex Facility, as the case may be); and (B) the Available Capex Amount or the Available Coal Amount, as the case may be; and (iii) the first Interest Period for the Advance (which must comply with Clause 6.1(b) (Interest Periods)). 5.3 Accompanying documents (a) In the case of a Coal Advance (other than a Deemed Advance), the Request must be accompanied by: (i) a certificate signed by a Director of the Project Company certifying the aggregate expenditure on Coal since the date of this Agreement; and (ii) a certificate signed by a Director of the Project Company certifying the aggregate cost of Coal consumed or sold, and paid for, by the Project Company (on the assumption that Coal is consumed on a first in, first out basis) since the date of this Agreement. (b) In the case of a Capex Advance (other than a Deemed Advance), the Request must be accompanied by a certificate signed by a Director of the Project Company certifying the Capital Costs incurred since the date of this Agreement. 5.4 Request Irrevocable A Request once given may not be withdrawn or revoked. 5.5 Notice to the Banks of proposed Letter of Credit and Advances The Facility Agent will promptly give each Bank details of each Request received and of the amount of the Bank's participation in the relevant Letter of Credit or Advance. 18 5.6 Making of Advances and Utilisations (a) Subject to the provisions of this Agreement, each Bank will make available to the Facility Agent its participation in any Advance properly requested under this Agreement on the relevant Drawdown Date. (b) Without prejudice to their obligations under (c) below, the Banks shall be under no obligation to make any Advance available to the Borrower unless, on both the date of the Request and the relevant Drawdown Date: (i) the representations set out in Clause 14 (Representations and Warranties) stipulated as being repeated on that date are true and accurate in each case by reference to the facts and circumstances then subsisting, and will remain true and accurate immediately after the Advance is made; and (ii) no Event of Default or Potential Event of Default has occurred and is continuing or will occur as a result of making the Advance. (c) Each of the Banks agrees that it will make each Utilisation available: (i) in accordance with the terms of the Letter of Credit; and (ii) regardless of whether the representations set out in Clause 14 (Representations and Warranties) are true and accurate as at the date of the Request and of the relevant Utilisation or whether an Event of Default or Potential Event of Default has occurred and is continuing or will occur as a result of making the Utilisation. 5.7 Number of Advances No more than five Advances (excluding Deemed Advances) may be outstanding under each Facility at any time. 5.8 Utilisations On the date of each Utilisation, a Deemed Advance shall be deemed to have been made to the Borrower under the Coal Facility or the Capex Facility, as the case may be (with a first Interest Period ending on the next succeeding date for the payment of interest in relation to a Coal Advance or a Capex Advance, as the case may be) and the Available Commitments under the Coal Facility or the Capex Facility, as the case may be, shall automatically be reduced accordingly. 19 6. INTEREST 6.1 Interest Periods (a) Interest shall be calculated and payable on each Advance by reference to Interest Periods. (b) The period for which an Advance is outstanding shall be divided into successive Interest Periods, each of which (other than the first, which shall begin on the day such Advance is made) shall start on the last day of the preceding such period. (c) The duration of each Interest Period shall be one, three or six months, or such other period as the Facility Agent may from time to time agree (with the consent of all the Banks where the period is more than six months), as specified in the relevant Request (for the first Interest Period relating to an Advance) or as the Borrower may by notice to the Facility Agent not later than 10.00 a.m. on the first day of an Interest Period select (in the case of each other Interest Period relating to an Advance). If the Borrower fails to give notice of its selection, such Interest Period shall be three months or a shorter period ending on the Final Repayment Date for the relevant Facility. (d) Each Interest Period must end on or before the Final Repayment Date for the Coal Facility or the Capex Facility, as the case may be. (e) If Interest Periods for more than one Advance end on the same day, all such Advances will be consolidated and treated as one Advance at close of business on that day. 6.2 Interest Rate The rate of interest applicable to an Advance for an Interest Period shall be the rate per annum determined by the Facility Agent to be the sum of: (a) the Additional Costs Rate; (b) the Applicable Margin; and (c) the applicable LIBOR, for that Advance for that Interest Period. Interest will accrue daily and will be calculated on the basis of a 365 day year. 20 6.3 Notification of Terms and Rates The Facility Agent shall promptly notify the Borrower and the Banks of the duration of each Interest Period and the rate of interest applicable to such Interest Period. 6.4 Payment of Interest On the last day of an Interest Period (and, if such Interest Period is longer than 6 months, on the last day of each 6 monthly interval during that Interest Period), the Borrower shall pay the unpaid interest accrued on the Advance to which such Interest Period relates. 6.5 Default Interest If the Borrower fails to pay any sum (including any sum payable pursuant to this Clause 6.5) under any Finance Document on its due date (an "unpaid sum"), the Borrower will pay default interest on such unpaid sum from its due date to the date of actual payment (as well after as before judgment) at a rate determined by the Facility Agent to be 1 per cent. per annum above: (a) where the unpaid sum is principal which has fallen due prior to the last day of the relevant Interest Period, the rate applicable to such principal immediately prior to the date it so fell due (but only for the period from such due date to the last day of the relevant Interest Period); or (b) in any other case (including principal falling within paragraph (a) above after the relevant Interest Period), the rate which would be payable if the unpaid sum was an Advance made for a period equal to the period of non-payment divided into successive periods of such duration of 3 months or less as shall be selected by the Facility Agent (each a "Default Interest Period"). Default interest will be payable on demand by the Facility Agent and will be compounded at the end of each Default Interest Period. 6.6 Margin The Applicable Margin for any Advance and any Interest Period shall be the rate set out in column 3 which corresponds to the lowest credit rating of the Guarantor from either Standard & Poor's Rating Services (as set out in column 1) or Moody's Investor Services, Inc. (as set out in column 2) for each day of the Interest Period. Any change in the Applicable Margin shall have immediate effect on the interest rate applicable to Advances and the Facility Agent shall promptly notify the Borrower and the Banks thereof. 21
Column 1 Column 2 Column 3 - -------- -------- -------- GuarantorAs credit rating from Standard GuarantorAs credit rating from Applicable Margin & Poor's Rating Services Moody's Investor Services, Inc. A- or above A3 or above 0.75 per cent. per annum BBB+ Baa1 0.875 per cent. per annum BBB Baa2 1.000 per cent. per annum BBB- Baa3 1.250 per cent. per annum Lower than BBB- Lower than Baa3 2.250 per cent. per annum
7. REPAYMENT AND CASH COLLATERAL (a) Any Coal Advances remaining outstanding on the Final Repayment Date for the Coal Facility or Capex Advances remaining outstanding on the Final Repayment Date for the Capex Facility, as the case may be, shall be repaid in full by the Borrower on that date. (b) Cash Collateral required under Clause 12.1 (Illegality) or Clause 12.2 (Increased Costs) or Clause 17.12 (c) (Cancellation and repayment) will be provided by the Borrower on such terms as the Majority Banks, acting reasonably, may specify. 8. PREPAYMENT 8.1 Prepayment (a) The Borrower may prepay an Advance or any part thereof at any time provided that the Facility Agent has received not less than 5 Business Days' notice from the Borrower of the proposed date and amount of the prepayment. (b) Any partial prepayment of an Advance will be in a minimum amount of (Pound Sterling)5,000,000 and an integral multiple of (Pound Sterling)1,000,000. (c) The Borrower may prepay any Bank's participation in the Advance at any time provided that the Facility Agent has received not less than 10 days notice from the Borrower of the proposed date of the prepayment if: (i) the Borrower is obliged or will become obliged to make any additional payments under Clause 11.2 (Grossing-up of Payments) in respect of payments to that Bank; or 22 (ii) that Bank has notified the Borrower that Clause 12.2 (Increased Costs) applies or will apply to that Bank. (d) Each prepayment will be made together with accrued interest on the Advance to be prepaid and any amount payable under Clause 23.4 (General Indemnity). (e) Any notice of prepayment under this Agreement is irrevocable. The Facility Agent shall notify the Banks promptly of receipt of any such notice. 9. CANCELLATION (a) The Total Commitments for each Facility will be cancelled on the Final Repayment Date for the Coal Facility or the Capex Facility, as the case may be. (b) Before the first Issue Date, the Borrower may cancel the Total Commitments for each Facility in whole (but not in part) by giving a notice in writing to the Facility Agent, not less than 2 Business Days' prior to the proposed date of cancellation. (c) The Total Commitments for a Facility will be cancelled in an amount equal to the amount of, and at the same time as, any reduction in the L/C Exposure of the Letter of Credit issued under that Facility, which reduction is requested by the Project Company. (d) No amount of the Total Commitments cancelled under this Agreement may subsequently be reinstated. (e) Any notice of cancellation under this Agreement is irrevocable. The Facility Agent shall notify the Banks promptly of receipt of any such notice. 10. FEES 10.1 Letter of Credit Commission (a) The Borrower shall pay to the Facility Agent for the account of each Bank, Letter of Credit commission on the Coal Letter of Credit and on the Capex Letter of Credit in sterling computed at the rate of the Applicable Margin for each day during the calculation period on the L/C Exposure for each Letter of Credit until the Final Repayment Date for the Coal Facility or the Capex Facility, as the case may be. 23 (b) Accrued Letter of Credit commission is payable for each Letter of Credit quarterly in arrear from its Issue Date to the Final Repayment Date for the Coal Facility or the Capex Facility, as the case may be, or on any earlier date on which the L/C Exposure under the relevant Letter of Credit is reduced to zero. 10.2 Agency Fees The Borrower will pay to the Facility Agent for its own account agency fees at the times and otherwise as specified in the Facility Agent's Fee Letter. 10.3 Arrangement Fees The Borrower will pay to the Arrangers on the date of signing of this Agreement the fee specified in the Arrangers' Fee Letter. 10.4 VAT All fees payable under the Finance Documents are exclusive of any value added tax or other similar Tax chargeable upon or in connection with such fees. If any value added tax or other similar Tax is or becomes properly chargeable such Tax will be added to the fee concerned at the appropriate rate and will be paid by the Borrower at the same time as the fee itself is paid (subject to being provided with a valid Tax invoice for such Tax). 11. TAXES AND OTHER DEDUCTIONS 11.1 Payments to be free and clear All sums payable by the Borrower under this Agreement shall be paid (a) free of any restriction or condition (b) free and clear of and (except to the extent required by law) without any deduction or withholding for or on account of any Tax and (c) without deduction or withholding (except to the extent required by law) on account of any other amount whether by way of set-off, counter-claim or otherwise. 11.2 Grossing-up of Payments If the Borrower or any other person is required by law to make any deduction or withholding on account of any Relevant Tax or other amount from any sum paid or payable by the Borrower to any Finance Party under the Finance Documents: (a) the Borrower shall notify the Facility Agent of any such requirement or any change in any such requirement as soon as the Borrower becomes aware of it; 24 (b) the Borrower shall pay any such Relevant Tax or other amount before the date on which penalties attach thereto, such payment to be made for its own account unless that liability is imposed on any other party in which case it shall be made on behalf of and in the name of that party; (c) the sum payable by the Borrower in respect of which the relevant deduction or withholding of Relevant Tax is required shall be increased to the extent necessary to ensure that, after the making of that deduction or withholding, that Finance Party receives on the due date and retains (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been required or made; and (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Relevant Tax or other amount which it is required by paragraph (b) above to pay, the Borrower shall deliver to the Facility Agent evidence satisfactory to the other affected parties of such deduction or withholding and of the remittance of such payment to the relevant taxing or other authority. 11.3 Indemnity Without prejudice to Clauses 11.1 (Payments to be free and clear) and 11.2 (Grossing-up of Payments), if any Finance Party (or any person on its behalf) is required to make any payment on account of any Relevant Tax as a direct result of the failure of the Borrower to comply with its obligations under Clause 11.2 (Grossing-up of Payments) or any liability in respect of any such Relevant Tax is assessed, levied, imposed or claimed against any Finance Party (or any person on its behalf), the Borrower shall, on demand by the Facility Agent, forthwith indemnify that Finance Party (or such person) against such payment or liability, and any costs, charges and expenses (including, without limitation, penalties) payable or incurred in connection therewith. 11.4 Tax Credits If and to the extent that any of the Finance Parties is able, in its sole opinion, to apply or otherwise take advantage of any offsetting tax credit or other similar tax benefit arising out of or in conjunction with any deduction, withholding or payment which gives rise to an obligation on the Borrower to pay any additional amount pursuant to Clause 11.2 (Grossing-up of Payments) or 11.3 (Indemnity) that Finance Party shall, to the extent that in its sole opinion it can do so without prejudice to the retention of the amount of such credit or benefit and without any other adverse tax consequences for that Finance Party, reimburse to the Borrower, at such time as such tax credit or benefit shall have actually been received by that Finance Party such amount as that Finance Party shall, in its sole opinion, have determined to be attributable to the relevant deduction, withholding or 25 payment and as will leave it in no better or worse position in respect of its worldwide tax liabilities than it would have been in if the payment of such additional amount had not been required. Such reimbursement (if any) shall be conclusive evidence of the amount due to the Borrower, and shall be accepted by the Borrower, in full and final settlement of any claim for reimbursement under this Clause 11.4. 11.5 Tax Affairs Nothing herein contained shall oblige any of the Finance Parties to disclose to the Borrower or any other person any information regarding its tax affairs or tax computations or interfere with the right of any Finance Party to arrange its tax affairs in whatsoever manner it thinks fit and, in particular, no Finance Party shall be under any obligation to claim relief from its corporate profits or similar tax liability in credits or deductions available to it (and, if it does claim, the extent, order and manner in which it does so shall be at its absolute discretion). 11.6 Collecting Agent Rules Each Bank represents to the Facility Agent that, on the date it becomes a party to this Agreement, it is: (a) either: (i) not resident in the United Kingdom for United Kingdom tax purposes; or (ii) a bank as defined in Section 840A of the Taxes Act and resident in the United Kingdom; and (b) beneficially entitled to the principal and interest payable by the Facility Agent to it under this Agreement; and, if it is able to make these representations on the date on which it becomes party to this Agreement, shall forthwith notify the Facility Agent if either representation ceases to be correct. 11.7 Exceptions No additional amount will be payable to a Finance Party under Clause 11.2 (Grossing-up of Payments) as a result of any deduction or withholding or payment of United Kingdom Taxes to the extent that at the time such payment falls due such Finance Party is not a Qualifying Person and such payment would not have fallen due had such Finance Party been a Qualifying Person unless the reason such Finance Party is not a Qualifying Person is a change (after the date of this 26 Agreement or in the case of a Finance Party which became a party to this Agreement after the date of this Agreement the date on which it became a party) in any law or directive or in the interpretation or application thereof or in any practice or concession of the United Kingdom Inland Revenue. For this purpose "Qualifying Person" means at any time: (a) a bank as defined in the Section 840A of the Taxes Act for the purposes of Section 349 of the Taxes Act which is within the charge to United Kingdom corporation tax as regards any interest payable or paid to it under this Agreement; or (b) (in the case of a person which has its Lending Office outside the United Kingdom) a person to whom payments under the Finance Documents may be made without deduction or withholding for or on account of United Kingdom Taxes by reason of an applicable taxation treaty between the United Kingdom and the country in which that person is, or is treated as, resident or carrying on business and pursuant to which there is a valid and extant claim of such person. 11.8 Treaty Claims Each Finance Party which is a Qualifying Person by virtue of paragraph (b) of the definition thereof shall as soon as reasonably practicable make the necessary claim under the relevant double taxation treaty for exemption from United Kingdom Taxes and shall take all other steps as may be necessary to facilitate the obtaining of a direction from the Inland Revenue that payments may be made to that Finance Party by the Borrower without withholding or deduction in respect of such Taxes. 12. CHANGE IN CIRCUMSTANCES 12.1 Illegality If at any time, as a result of the introduction of or any change in, or in the interpretation or application or administration of any law or (whether or not having the force of law but, if not having the force of law, being one with which it is the practice of banks in the relevant jurisdiction to comply) any directive of any agency of any state, it is or will become unlawful or contrary to any such directive for any Bank to allow all or part of its Commitment to remain outstanding and/or to make, fund or allow to remain outstanding all or part of its share of any Advance or Utilisation and/or to carry out all or any of its other obligations under this Agreement: (a) upon that Bank notifying the Borrower, its Commitment shall be cancelled; 27 (b) the Borrower shall provide Cash Collateral for that Bank's L/C Proportion of the L/C Exposure under the Coal Letter of Credit and the Capex Letter of Credit or procure that the contingent liability of that Bank under that Letter of Credit is reduced by such an amount to the satisfaction of the Facility Agent; and (c) the Borrower shall prepay that Bank's portion of each such Advance as that Bank shall certify to be necessary to comply with the relevant law or directive, with accrued interest thereon and any other sum then due to that Bank under this Agreement on the last day of the then current Interest Period for that Advance or such earlier date as that Bank shall certify to be necessary to comply with the relevant law or directive. 12.2 Increased Costs (a) If, as a result of the introduction of or any change in, or in the interpretation or application or administration of, any law or (whether or not having the force of law but, if not having the force of law, being one with which it is the practice of banks in the relevant jurisdiction to comply) any directive of any agency of any state including, any law or directive relating to taxation, reserve asset, special deposit, cash ratio, liquidity or capital adequacy requirements or other forms of banking, fiscal, monetary, or regulatory controls (and including any change in the risk weighting applied to any amount): (i) the cost to any Bank of maintaining all or any part of its Commitment and/or of making, maintaining or funding all or any part of its share of any Advance or Letter of Credit or overdue sum is increased; and/or (ii) any sum received or receivable by any Finance Party under the Finance Documents or the effective return to it under the Finance Documents is reduced; and/or (iii) any Finance Party makes any payment or foregoes any interest or other return on or calculated by reference to the amount of any sum received or receivable by it under the Finance Documents; the Borrower shall indemnify that Finance Party against that increased cost, reduction, payment or foregone interest or other return and, accordingly, shall from time to time on demand (whenever made) pay to the Facility Agent for its own account or for the account of that Finance Party the amount certified by it to be necessary so to indemnify it. 28 (b) The Borrower will not be obliged to compensate any Finance Party pursuant to paragraph (a) above in respect of any increased cost, reduction, payment, foregone interest or other return: (i) compensated for by payment of the Additional Costs Rate; (ii) attributable to a change in the Tax on the overall net income of that Finance Party or compensated for under Clause 11 (Taxes and other Deductions); or (iii) attributable to a breach of, or default in compliance with, any law or directive by that Finance Party. (c) To the extent that any holding company of any Finance Party suffers a cost which would have been recoverable by that Finance Party under this Clause 12.2 had that cost been imposed on that Finance Party, that Finance Party shall be entitled to recover that amount under this Clause 12.2 on behalf of the relevant holding company. (d) If the Borrower is required to compensate any Finance Party pursuant to paragraph (a) above in respect of any increased cost, reduction, payment, forgone interest or other return then it may: (i) prepay that Bank's portion of any Advance upon not less than 10 days' notice with accrued interest thereon and any other sum then due to that Bank under this Agreement; and (ii) provide Cash Collateral for that Bank's L/C Proportion of the L/C Exposure under the Coal Letter of Credit or the Capex Letter of Credit or procure that the contingent liability of that Bank under that Letter of Credit is reduced by such an amount to the satisfaction of the Facility Agent. 12.3 Mitigation If in respect of any Bank, circumstances arise which would, or would upon the giving of notice, result in: (a) an obligation to make any payment or the cancellation of its Commitment under Clause 11 (Taxes and Other Deductions); or (b) an obligation to provide Cash Collateral or to make payment or the cancellation of its Commitment under Clause 12.1 (Illegality); or 29 (c) a demand for compensation under Clause 12.2 (Increased Costs); then, without in any way limiting, reducing or otherwise qualifying the obligations of the Borrower under those Clauses, upon the request of the Borrower, such Bank, in consultation with the Facility Agent and the Borrower, shall take such reasonable steps as may be open to it (including the transfer by the relevant Bank of its Commitment and participations in outstanding Advances to a bank or financial institution acceptable to the Borrower) to mitigate the effects of such circumstances, on terms mutually acceptable to the Facility Agent, that Bank and the Borrower, provided that the Bank concerned will not be obliged to take any action if to do so would or might in the opinion of the Bank have an adverse effect upon its business, operations or financial condition or cause it to incur liabilities or obligations (including tax liabilities) which, in its opinion, are material or cause it to incur any costs or expenses for which it has not been indemnified to its satisfaction by the Borrower. 12.4 Change in Market Conditions (a) If in relation to any Interest Period: (i) no or only one Reference Bank supplies a quotation in accordance with the definition of LIBOR; or (ii) on the basis of notifications from Banks whose Commitments exceed 50% of the Total Commitments under the Coal Facility or the Capex Facility, as the case may be, the Facility Agent determines that (a) matching deposits are not available in the London Inter-Bank Market at or about 11 a.m. on the Rate Fixing Day for that Interest Period in sufficient amounts to fund their respective shares of the amount to which that Interest Period relates during that Interest Period or (b) the quotations supplied do not accurately reflect the cost to the Banks of obtaining such deposits, the Facility Agent shall promptly notify the Borrower and the Banks. (b) The Facility Agent (on behalf of and after consultation with the Banks) shall then negotiate with the Borrower with a view to agreeing an alternative basis for calculating the interest payable on the Advance(s) to which that Interest Period relates. Any alternative basis agreed in writing by the Facility Agent (on behalf of and with the consent of all the Banks) and the Borrower within 10 Business Days of the Facility Agent's notification of the event in question shall take effect in accordance with its terms. If an alternative basis is not so agreed, each Bank's share of such Advance(s) shall during that Interest Period bear interest at the rate per annum equal to the sum of (i) the Applicable Margin and (ii) the cost to that Bank (as certified by it to the Borrower within 10 Business Days of the end of that 10 Business Day period and expressed as a rate per annum) of funding its share during that 30 Interest Period by whatever means that Bank determines (acting reasonably) to be most appropriate (which shall include Additional Costs). 13. PAYMENTS 13.1 By Banks (a) On each date on which an Advance or Utilisation is to be made, each Bank shall make its share of that Advance or Utilisation available to the Facility Agent in the place for payment to the Borrower by payment in Sterling and in immediately available cleared funds to such account as the Facility Agent shall specify. (b) The Facility Agent shall make the amounts so made available to it available to the Borrower, the Project Company or such other person as specified in the relevant Request or L/C Request before close of business in the place of payment on that date by payment in the same currency and funds as received by the Facility Agent to such account of the Borrower , the Project Company or other person as shall have been specified in the Request or L/C Request. If any Bank makes its share of any Advance or Utilisation available to the Facility Agent later than required by paragraph (a) above, the Facility Agent shall make that share available to the Borrower, the Project Company or other person as soon as practicable thereafter. 13.2 By the Borrower (a) On each date on which any sum is due from the Borrower, it shall make that sum available to the Facility Agent in the place for payment by payment in the currency in which that sum is due and in immediately available cleared funds to such account as the Facility Agent shall specify. (b) The Facility Agent shall make available to each Finance Party before close of business in that place on that date its pro rata share (if any) of any sum so made available to the Facility Agent in the same currency and funds as received by the Facility Agent to such account of that Finance Party with such bank in that place as it shall have specified to the Facility Agent. If any sum is made available to the Facility Agent later than required by paragraph (a) above, the Facility Agent shall make each Bank's share (if any) available to it as soon as practicable thereafter. 13.3 Refunding of Payments The Facility Agent shall not be obliged to make available to any person any sum which it is expecting to receive for the account of that person until it has been able to establish that 31 it has received that sum. However, it may do so if it wishes. If and to the extent that it does so but it transpires that it had not then received the sum which it paid out: (a) the person to whom the Facility Agent made that sum available shall on request refund it to the Facility Agent; and (b) the person by whom that sum should have been made available or, if that person fails to do so the person to whom that sum should have been made available, shall on request pay to the Facility Agent the amount (as certified by the Facility Agent) which will indemnify the Facility Agent against any funding or other cost, loss, expense or liability sustained or incurred by it as a result of paying out that sum before receiving it. 13.4 Non-Business Days (a) If an Interest Period would otherwise end on a day which is not a Business Day, it shall instead end on the succeeding Business Day or, if that Business Day falls in a new calendar month, the preceding Business Day. (b) Subject to paragraph (a) above, any payment to be made by the Borrower on a day which is not a Business Day shall instead be due on the next Business Day. 14. REPRESENTATIONS AND WARRANTIES 14.1 Representations and Warranties The Borrower, having made all reasonable enquiries, makes the representations and warranties set out in this Clause 14 to each of the Finance Parties. 14.2 Due incorporation (a) It is a limited liability company, duly incorporated and validly existing under the laws of the jurisdiction of its incorporation. (b) It has the power to own its assets and carry on its business as it is being conducted. 14.3 Due execution (a) It has the power to execute, deliver and perform, and has taken all necessary action to authorise the execution, delivery and performance of its obligations under, each Finance Document to which it is a party. 32 (b) No limitation on its powers to borrow or give guarantees or security will be exceeded as a result of borrowings or creation of security under the Finance Documents. 14.4 Valid obligations Subject to the reservations in the legal opinions to be provided pursuant to Clause 4.1(a) (Initial Conditions Precedent), each Finance Document to which it is or will be a party constitutes its valid, legally binding and enforceable obligations. 14.5 Authorisations All Authorisations required to be obtained by it in connection with the entry into, performance, validity and enforceability of the Finance Documents and the transactions contemplated by the Finance Documents have been obtained or effected and are in full force and effect. 14.6 Pari passu ranking Its obligations under the Finance Documents will be direct, general and unconditional obligations and, to the extent not secured, rank at least pari passu with all its other present and future unsecured and unsubordinated obligations, with the exception of any obligations which are mandatorily preferred by law and not by contract. 14.7 No conflict with other documents The execution and delivery of, the performance of its obligations under, and compliance with the provisions of, the Finance Documents to which it is a party do not and will not: (a) contravene any existing applicable law, statute, rule or regulation or judicial or official order, decree or Authorisation to which it is subject; or (b) conflict with any provision of its memorandum and articles of association; or (c) conflict with, or result in any breach of any of the terms of, or constitute a default under, any agreement or other instrument to which it is a party or is subject or by which it or any of its property is bound. 14.8 No insolvency or creditors' process It has not taken any steps and is not aware of any steps having been or are being taken for its winding-up, dissolution, administration or reorganisation or similar event or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer 33 of it or any or all of its assets or revenues and no petition, execution, attachment or any similar process has been levied or enforced against its assets or revenues. 14.9 No prior business The Borrower is a single purpose vehicle and it has not previously conducted any business, entered into any contracts, given any security, incurred any liabilities or acquired any assets. 14.10 Application of Advances and Utilisations The proceeds of each Advance and each Utilisation will be applied for the purpose set out in Clause 2.3 (Purpose). 14.11 Times for making Representations and Warranties The representations and warranties set out in this Clause 14 are made by the Borrower on the date of this Agreement. The representations in Clauses 14.2 (Due Incorporation) to 14.4 (Valid Obligations) (inclusive) and Clause 14.10 (Application of Advances and Utilisations) are deemed to be repeated by the Borrower on the date of a Request and the first day of each Interest Period with reference to the facts and circumstances then existing. 15. POSITIVE COVENANTS 15.1 Positive covenants The Borrower undertakes with the Finance Parties, that, except with the prior written consent of the Facility Agent, it shall comply with the covenants set out in this Clause 15. 15.2 Authorisations The Borrower shall obtain, or cause to be obtained, maintain and comply with the terms of any Authorisations required by it, and promptly following a request by the Facility Agent to do so, supply certified copies of material Authorisations to the Facility Agent, to authorise or in connection with: (a) the execution, delivery, validity, enforceability or admissibility in evidence of each Finance Document to which it is a party; (b) the performance by it of its obligations and the enforcement of its rights under each Finance Document to which it is a party. 34 15.3 Compliance with laws The Borrower shall, in all material respects do, or cause to be done, all acts and things which may from time to time be required under any applicable law or regulation for the due performance of all of its obligations under each Finance Document to which it is a party. 15.4 Pari passu ranking The Borrower will ensure that its obligations under each of the Finance Documents are direct, general and unconditional obligations and to the extent not secured, rank and will at all times rank at least pari passu in right and priority of payment with all its other present and future unsecured and unsubordinated indebtedness (actual or contingent) with the exception of any obligations which are mandatorily preferred by law and not by contract. 15.5 Financial information (a) The Borrower shall supply in sufficient copies for each of the Banks, to the Facility Agent as soon as the same become available, but in any event within 120 days after the end of each of its financial years (beginning with the current financial year), a copy of its audited, financial statements for such financial year together with the Auditors' report and management letter accompanying such financial statements (the "Audited Accounts"). (b) The Borrower shall procure that the financial statements delivered pursuant to paragraph (a) above shall include such financial statements as are required by the Companies Act 1985 and UK GAAP and save as stated in the notes thereto, were prepared and audited in accordance with UK GAAP consistently applied and together with those notes, give a true and fair view of its state of affairs, profits and financial condition as at that date and for the financial year then ended. 15.6 Notification of Events of Default The Borrower will notify the Facility Agent of the occurrence of any Event of Default or Potential Event of Default promptly upon becoming aware of it, together with details of what action (if any) is being taken or proposed to be taken to remedy the Event of Default or Potential Event of Default. 15.7 Further information 35 The Borrower shall promptly supply to the Facility Agent on request such information in relation to its business, financial condition and operations as the Facility Agent may reasonably request. 15.8 Notification of other events As soon as practicable after becoming aware of the occurrence of the same, the Borrower will inform the Facility Agent in writing of: (a) the commencement, or threat of commencement, of any material legal or administrative proceedings against the Borrower or the Guarantor; (b) the receipt of any adverse legal, Tax or governmental regulatory notice which is significant; together with, in each case, where appropriate, details of the proposed response or remedial action (including regular updates of the remedial action, as reasonably requested by the Facility Agent). 15.9 Taxes The Borrower shall promptly pay all Taxes when due, unless and to the extent that the Taxes are being contested in good faith by the Borrower. 15.10 Special purpose vehicle Save with the consent of the Majority Banks (such consent not to be unreasonably withheld), the Borrower shall remain a special purpose vehicle and shall not conduct any business, enter into any contracts, give any security, incur any liabilities or acquire any assets other than in relation to the Finance Documents and anything incidental thereto. 16. NEGATIVE COVENANTS 16.1 Negative covenants The Borrower undertakes with the Finance Parties that, except with the prior written consent of the Facility Agent, it shall comply with the covenants set out in this Clause 16. 16.2 Amendments to Memorandum and Articles of Association The Borrower will not amend or permit any amendment to or variation of its Articles of Association and/or its Memorandum of Association except for an amendment or variation which does not adversely affect the interests of the Finance Parties and which is promptly notified to the Facility Agent. 36 16.3 Restriction on mergers The Borrower will maintain its corporate existence and will not enter into any amalgamation, demerger, merger or reconstruction. 17. EVENTS OF DEFAULT 17.1 Events of Default Each of the events or circumstances as set out in this Clause 17 is an Event of Default. 17.2 Non-Payment of Obligations An Obligor shall default in the payment when due under any Finance Document (and such default shall continue unremedied for a period of five Business Days). 17.3 Breach of Warranty Any representation or warranty of an Obligor made or deemed to be restated or remade in any Finance Document or any other writing or certificate furnished by or on behalf of an Obligor to the Facility Agent or any Bank for the purposes of or in connection with any Finance Document is or shall be incorrect when made or deemed made in any material respect. 17.4 Non-Performance of Certain Covenants and Obligations The Guarantor shall default in the due performance and observance of any of its obligations under Clause 4.2 (Negative Covenants) of the Guarantee (other than Clauses 4.2.3 (Financial Condition) and 4.2.7 (Transactions with Affiliates)). 17.5 Non-Performance of Other Covenants and Obligations An Obligor shall default in the due performance and observance of any covenant or agreement (other than those where such default is an Event of Default under Clause 17.4 (Non-Performance of Certain Covenants and Obligations)) contained in any Finance Document and such default shall continue unremedied for a period of 30 days after written notice thereof shall have been given to the relevant Obligor by the Facility Agent. 17.6 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 of an Obligor 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 37 due and payable prior to its expressed maturity, in either case, such default having a principal amount, individually or in the aggregate, in excess of US$20,000,000 (other than Indebtedness described in Clause 17.2 (Non-Payment of Obligations) above). 17.7 Judgments Any judgment or order for the payment of money in excess of US$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 an Obligor 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. 17.8 Pension Plans Any of the following events shall occur with respect to any Pension Plan (as that term is defined in the Guarantee): (a) the institution of any steps by an Obligor, any member of its Controlled Group (as that term is defined in the Guarantee) or any other Person to terminate a Pension plan if, as a result of such termination, the Guarantor 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 US$20,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien (as that term is defined in the Guarantee) under Section 302(f) of ERISA (as that term is defined in the Guarantee). 17.9 Control of an Obligor (a) Any Change in Control (as that term is defined in the Guarantee) shall occur; or (b) The Borrower is not or ceases to be the wholly owned subsidiary of the Guarantor. 17.10 Bankruptcy, Insolvency An Obligor shall: 38 (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, administrator, administrative receiver, liquidator, sequestrator or other custodian for that Obligor 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, administrator, administrative receiver, liquidator, sequestrator or other custodian for that Obligor or for a substantial part of its property, and such trustee, receiver, administrator, administrative receiver, liquidator, sequestrator or other custodian shall not be discharged within 60 days, provided that nothing in the Finance Documents shall prohibit or restrict any right the Facility Agent or any Bank 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 right under the Finance Documents (and that Obligor shall not object to any such appearance); (d) permit or suffer to exist the commencement of any bankruptcy, reorganisation, debt arrangement, administration or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of that Obligor and, if any such case or proceeding is not commenced by that Obligor, such case or proceeding shall be consented to or acquiesced in by that Obligor or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that nothing in the Finance Documents shall prohibit or restrict any right the Facility Agent or any Bank 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 Finance Documents (and that Obligor shall not object to any such appearance); or (e) take any corporate action authorising, or in furtherance of, any of the foregoing. 17.11 Guarantee (a) The Guarantee is not or ceases to be, for any reason, the valid, legally binding and enforceable obligation of the Guarantor; or (b) This Agreement is not or ceases to be, for any reason, the valid, legally binding and enforceable obligation of the Borrower. 17.12 Cancellation and repayment At any time after the occurrence of an Event of Default (and whilst the same is continuing) the Facility Agent may, and will if so directed by the Majority Banks, by written notice to the 39 Borrower do all or any of the following in addition and without prejudice to any other rights or remedies which it or any other Finance Party may have under this Agreement or any of the other Finance Documents: (a) declare all Advances, accrued interest thereon and any other sum then payable under this Agreement and any of the other Bank Finance Documents to be immediately due and payable, whereupon such amounts shall become so due and payable; and/or (b) declare all Advances to be payable on demand whereupon the same shall become payable on demand; and/or (c) require the Borrower to provide Cash Collateral for the L/C Exposure of each Letter of Credit (less the aggregate of any remaining Cash Collateral provided under Clause 12.1 (Illegality) or Clause 12.2 (Increased Costs)) whereupon the Borrower shall provide such Cash Collateral. 18. THE FACILITY AGENT 18.1 Authorisation (a) Each Bank hereby appoints and authorises the Facility Agent to take such action as agent on its behalf and to exercise such powers and discretions under the Finance Documents as are delegated to the Facility Agent by the terms of the Finance Documents together with such other powers and discretions as are reasonably incidental thereto. (b) The Facility Agent will act solely as agent for the Banks in carrying out its functions as agent under the Finance Documents. The Facility Agent shall not have, nor be deemed to have, assumed any obligations to, or trust or fiduciary relationship with, the other Finance Parties or the Obligors other than those for which specific provision is made by the Finance Documents. 18.2 Facility Agent's Duties The Facility Agent shall: (a) promptly send to each Bank each notice received by it from an Obligor under any of the Finance Documents except in the case of any notice relating to a particular Bank which shall be sent to that Bank only; (b) (subject to those provisions of the Finance Documents which require the consent of all the Banks) act in accordance with any instructions from the Majority Banks or, if so instructed 40 by the Majority Banks, refrain from exercising a right, power or discretion vested in it under any of the Finance Documents; (c) have only those duties, obligations and responsibilities expressly specified in the Finance Documents; and (d) without prejudice to Clause 18.7 (Information) promptly notify each Bank if it becomes aware of the occurrence of any Event of Default or Potential Event of Default. 18.3 Facility Agent's Rights The Facility Agent may: (a) perform any of its duties, obligations and responsibilities under this Agreement or any of the other Finance Documents by or through its personnel or agents; (b) refrain from exercising any right, power or discretion vested in it under the Finance Documents until it has received instructions from the Majority Banks as to whether (and, if it is to be, the way in which) it is to be exercised and shall in all cases be fully protected when acting, or (if so instructed) refraining from acting, in accordance with instructions from the Majority Banks; (c) treat (i) the Bank which makes available any portion of an Advance as the person entitled to repayment of that portion unless the Facility Agent has received a Transfer Certificate in relation to all or part of it in accordance with Clause 18 (Assignments and Transfers); and (ii) the office notified to the Facility Agent on or before the date of this Agreement (or, in the case of a Transferee, specified at the end of the Transfer Certificate to which it is a party as Transferee) as its Lending Office unless the Facility Agent has received from that Bank a notice of change of Lending Office and may act on any such notice until it is superseded by a further such notice; (d) refrain from doing anything which would or might in its opinion be contrary to any law, regulation or judgment of any court of any jurisdiction or any directive of any agency of any state or otherwise render it liable to any person and may do anything which is in its opinion necessary to comply with any such law, regulation, judgment or directive; (e) assume that no Event of Default or Potential Event of Default has occurred unless an officer of the Facility Agent, while active on the account of either Obligor acquires actual knowledge to the contrary; 41 (f) refrain from taking any step (or further step) to protect or enforce the rights of any Bank under the Finance Documents until it has been indemnified and/or secured to its satisfaction against any and all costs, losses, expenses or liabilities (including legal fees) which it would or might sustain or incur as a result; (g) rely on any communication or document believed by it to be genuine; (h) rely, as to any matter of fact which might reasonably be expected to be within the knowledge of an Obligor, on a statement by or on behalf of such Obligor; (i) obtain and pay for such legal or other expert advice or services as may to it seem necessary or desirable and rely on any such advice; (j) retain for its own benefit and without liability to account any fee or other sum receivable by it for its own account; and (k) accept deposits from, lend money to, provide any advisory or other services to or engage in any kind of banking or other business with any party to the Finance Documents, or any Affiliate of any party (and, in each case, may do so without liability to account). 18.4 Exoneration of Facility Agent Neither the Facility Agent nor any of its personnel or agents will: (a) be responsible for the adequacy, accuracy or completeness of any representation, warranty, statement or information in any Finance Document or any notice or other document delivered under any Finance Documents (including the Information Memorandum); (b) be responsible for the execution, delivery, validity, legality, adequacy, enforceability or admissibility in evidence of any Finance Document; (c) be responsible for the collectability of amounts payable under any Finance Document; (d) be obliged to enquire as to the occurrence or continuation of an Event of Default or Potential Event of Default; or (e) be liable for anything done or not done by it or any of them under or in connection with any Finance Document save in the case of its own or their own negligence or wilful misconduct. 42 18.5 Facility Agent as a Finance Party The Facility Agent shall have the same rights and powers with respect to its participation in the Finance Documents as any other Finance Parties and may exercise those rights and powers as if it were not also acting as Facility Agent. 18.6 Non-Reliance on Facility Agent Each of the Finance Parties confirms that it has itself been, and will at all times continue to be, solely responsible for making its own independent investigation and appraisal of the business, financial condition, creditworthiness, status and affairs of the Borrower and its related entities and has not relied, and will not at any time rely, on the Facility Agent: (a) to provide it with any information relating to the business, financial condition, creditworthiness, status or affairs of the Borrower, whether coming into its possession before or after the making of any Advance (save as provided in Clause 18.2 (Facility Agent's Duties)); or (b) to check or enquire into the adequacy, accuracy or completeness of any information provided by the Borrower under or in connection with any Finance Document (whether or not such information has been or is at any time circulated to it by the Facility Agent); or (c) to assess or keep under review the business, financial condition, creditworthiness, status or affairs of the Borrower. 18.7 Information (a) The Facility Agent shall promptly forward to the person concerned the original or a copy of any document which is delivered to the Facility Agent for that person. (b) Except where this Agreement specifically provides otherwise, the Facility Agent is not obliged to review or check the accuracy or completeness of any document it forwards to another party to this Agreement. (c) Except as provided above, the Facility Agent has no duty: (i) either initially or on a continuing basis to provide any Bank with any credit or other information concerning the financial condition or affairs of the Borrower or its related entities, whether coming into its possession before, on or after the date of this Agreement; or 43 (ii) unless specifically requested to do so by a Bank in accordance with a Finance Document to request any certificates or other documents from the Borrower. 18.8 Indemnity to Facility Agent To the extent that the Borrower does not do so on demand or is not obliged to do so, each Bank shall on demand indemnify the Facility Agent in the proportion borne by its Commitments to the Total Commitments at the relevant time (or, if no Commitments are then outstanding, in the proportion borne by its Commitments to the Total Commitments at the last time there were any) against any cost, expense or liability mentioned in Clause 23 (Indemnities) or sustained or incurred by the Facility Agent in complying with any instructions from the Majority Banks or otherwise sustained or incurred by it in connection with the Finance Documents or its duties, obligations and responsibilities under the Finance Documents except to the extent that they are sustained or incurred as a result of the negligence or wilful misconduct of the Facility Agent or any of its personnel or agents. 18.9 Resignation of Facility Agent The Facility Agent may resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty days' prior written notice to that effect to the Borrower and each of the other Finance Parties provided that no such resignation shall be effective until a successor for the Facility Agent is appointed in accordance with this Clause 18.9. If the Facility Agent gives notice of its resignation then any reputable and experienced bank or other financial institution with offices in London may after consultation with the Borrower be appointed as a successor to the Facility Agent by the Majority Banks during the period of such notice but, if no such successor is so appointed, the Facility Agent may appoint a successor itself after consultation with the Borrower. If a successor to the Facility Agent is so appointed, then (i) the retiring Facility Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefit of the provisions of this Clause 18 and (ii) its successor and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original party hereto. 18.10 Payments to Finance Parties (a) The Facility Agent will account to the other Finance Parties for their respective due proportions of all sums received by the Facility Agent for such Finance Parties, whether by way of repayment of principal or payment of interest, commitment commission, fees or otherwise. 44 (b) The Facility Agent may retain for its own use and benefit, and will not be liable to account to the other Finance Parties for all or any part of any sums received by way of agency or arrangement fee or by way of reimbursement of expenses incurred by it. 18.11 Change of Office of Facility Agent The Facility Agent may at any time and from time to time in its sole discretion by written notice to the Borrower and each of the other Finance Parties designate a different office from which its duties as Facility Agent will be performed. 19. ASSIGNMENTS AND TRANSFERS 19.1 Successors This Agreement shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors, Transferees and assigns. 19.2 Assignments and Transfers by the Borrower The Borrower shall not be entitled to assign or transfer all or any of its rights, benefits and obligations hereunder. 19.3 Transfer by Banks (a) Subject to paragraph (b) below, a Bank (the "Existing Bank") may at any time transfer any of its rights and obligations under the Finance Documents to another bank or financial institution (the "New Bank"). An Existing Bank shall transfer its rights and obligations to a New Bank where the credit rating of the Existing Bank has fallen below A- as rated by Standard & Poor's or A3 by Moody's Investor Services Inc. unless the Existing Bank is able to provide cash collateral for all its obligations under the Letters of Credit to the satisfaction of the Project Company. The prior consent of the Borrower and of the Guarantor is required for any such transfer (unless such transfer is to an Affiliate or to a New Bank which was already a Bank), but will not be unreasonably withheld or delayed. (b) Subject to paragraph (c) below, no Bank may assign, transfer, novate or dispose of, or any interest in, rights and/or obligations under the Finance Documents other than in accordance with Clause 19.4 (Procedure for Transfer). (c) Nothing in this Agreement restricts the ability of a Bank to sub- contract an obligation if that Bank remains liable under this Agreement for that obligation. 45 (d) On each occasion an Existing Bank transfers any of its rights and obligations under the Finance Documents, the New Bank shall, on the date the transfer takes effect, pay to the Facility Agent for its own account a fee of (Pound Sterling)1,000 (indexed). (e) An Existing Bank is not responsible to a New Bank for: (i) the execution, genuineness, validity, enforceability or sufficiency of any Finance Document or any other document; (ii) the collectability of amounts payable under any Finance Document; or (iii) the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document. (f) Each New Bank confirms to the Existing Bank and the other Finance Parties that it: (i) has made its own independent investigation and assessment of the financial condition and affairs of the Obligors and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Bank in connection with any Finance Documents; and (ii) will continue to make its own independent appraisal of the creditworthiness of the Obligors and its related entities while any amount is or may be outstanding under this Agreement or any Commitment is in force. (g) Nothing in any Finance Document obliges an Existing Bank to: (i) accept a re-transfer from a New Bank of any of the rights and obligations transferred under Clause 19.4 (Procedure for Transfers); or (ii) support any losses incurred by the New Bank by reason of the non-performance by an Obligor of its obligations under the Finance Documents or otherwise. (h) Any reference in a Finance Document to a Bank includes a New Bank, but excludes a Bank if no amount is or may be owed to or by that Bank under the Finance Documents and its Commitment has been cancelled or reduced to zero. 46 19.4 Procedure for Transfer (a) A transfer is effected if the Existing Bank and the New Bank deliver to the Facility Agent and to the Project Company a duly completed certificate, substantially in the form of Schedule 5 (Form of Transfer Certificate) (a "Transfer Certificate"). Such delivery shall take place at least 5 Business Days prior to the date specified therein. (b) Each Party (other than the Existing Bank and the New Bank) irrevocably authorises the Facility Agent to execute any duly completed Transfer Certificate on its behalf. (c) To the extent that they are expressed to be the subject of the transfer in the Transfer Certificate: (i) the Existing Bank and the other Parties (the "existing Parties") will be released from their obligations to each other (the "discharged obligations"); (ii) the New Bank and the existing Parties will assume obligations towards each other which differ from the discharged obligations only insofar as they are owed to or assumed by the New Bank instead of the Existing Bank; (iii) the rights of the Existing Bank against the existing Parties and vice versa (the "discharged rights") will be cancelled; and (iv) the New Bank and the existing Parties will acquire rights against each other which differ from the discharged rights only insofar as they are exerciseable by or against the New Bank instead of the Existing Bank, on the date specified in the Transfer Certificate. (d) A transfer will only be effective if the proportion of the Existing Bank's Commitments, L/C Exposures and outstanding Advances the subject of the Transfer Certificate are the same. (e) A Bank transferring all or part of its Commitment and outstanding Advances under either Facility must transfer all or a corresponding part of its Commitments and outstanding Advances under the other Facility. 19.5 Disclosure of Information Any Bank may disclose to any person: 47 (a) to (or through) whom such Bank assigns or transfers (or may potentially assign or transfer) all or any of its rights, benefits and obligations hereunder; or (b) with (or through) whom such Bank enters into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, the Finance Documents or the Borrower, such information about the Borrower or the Finance Documents as the Bank shall consider appropriate provided that such person has first entered into a confidentiality agreement with the Borrower on the terms of Clause 21.3 (Confidentiality). 20. PRO RATA PAYMENTS, RECEIPTS AND SET OFF 20.1 Pro rata payments (a) If any amount owing by an Obligor under any Finance Document to a Bank (the "Recovering Bank") is discharged by payment, set-off or any other manner other than through the Facility Agent in accordance with Clause 13 (Payments) (such amount being referred to in this Clause 20.1 as a "Recovery") then: (i) within 2 Business Days of receipt of the Recovery the Recovering Bank shall pay to the Facility Agent an amount equal (or equivalent) to such Recovery; (ii) the Facility Agent shall treat such payment as if it were part of the payment to be made by the Borrower to the Banks rateably in accordance with their respective entitlements; and (iii) (save for any receipt by the Recovering Bank as a result of the operation of paragraph (ii) above) as between the Borrower and the Recovering Bank the Recovery shall be treated and deemed as not having been paid. (b) Each Bank will notify the Facility Agent promptly of any such Recovery by that Bank other than by payment through the Facility Agent. If any Recovery subsequently has to be wholly or partly refunded by the Recovering Bank which paid an amount equal thereto to the Facility Agent under paragraph (a) above, each Bank to which any part of that amount was distributed will, on request from the Recovering Bank, repay to the Recovering Bank such Bank's pro rata share of the amount which has to be refunded by the Recovering Bank. (c) Each Bank will on request supply to the Facility Agent such information as the Facility Agent may from time to time request for the purpose of this Clause 20.1. 48 (d) Each party to this Agreement agrees to take all steps required of it pursuant to paragraph (a) above and to use its reasonable endeavours to obtain any consents or authorisations which may at any relevant time be required in respect of any payment to be made by it pursuant to this Clause 20.1. (e) The provisions of this Clause 20.1 shall not, and shall not be construed so as to, constitute a charge by any Bank over all or any part of any sum received or recovered by it under any of the circumstances mentioned in this Clause 20.1. 20.2 Receipts If any sum paid or recovered in respect of the liabilities of the Borrower under any of the Finance Documents is less than the amount then due, the Facility Agent shall apply that sum against amounts outstanding under the Finance Documents in the following order: (a) first to any unpaid fees and reimbursement of unpaid expenses of the Facility Agent under the Finance Documents; (b) second to any unpaid fees and reimbursement of unpaid expenses of the Banks due under the Finance Documents; (c) third to unpaid interest; (d) fourth to unpaid principal; and (e) fifth to other amounts due under the Finance Documents, in each case (other than (a)) pro rata to the outstanding amounts owing to the Finance Parties under the Finance Documents taking into account any applications under this Clause 20.2. 20.3 Set-Off 49 (a) After an Event of Default has occurred and for so long as it is continuing each Finance Party is hereby authorised at any time and from time to time (without notice to the Borrower) to set-off or otherwise apply any and all deposits (irrespective of the terms applicable to such deposits) at any time held and other indebtedness at any time owing by such Finance Party to or for the account of the Borrower (in any such case whether or not then matured or due) against any indebtedness of the Borrower to the relevant Finance Party under the Finance Documents which is due and unpaid. Nothing in this Clause 20.3 shall be effective to create a security interest. (b) The rights of each Finance Party under this Clause 20 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Finance Party may have. (c) A Finance Party may exercise such rights notwithstanding that the amounts concerned may be expressed in different currencies and each Finance Party is authorised to effect any necessary conversions at a market rate of exchange selected by it. 21. NOTICES, CONFIDENTIALITY AND CERTIFICATES 21.1 Notices (a) Any notice or other communication to be served under or in connection with this Agreement shall, unless otherwise stated, be made in writing and served by letter or facsimile to the relevant party at its address or facsimile number notified to the Facility Agent on or before the date on which it became a party to this Agreement or such other address or number notified by it to the Facility Agent by not less than 5 Business Days notice (or in the case of a notice to the Facility Agent, to its address or facsimile number specified below) and, in the case of any Finance Parties, marked for the attention of the person or department there specified. (b) Any notice or other communication served by post will, unless otherwise stated, be deemed served 48 hours after posting or on delivery if delivered personally or by courier. A notice or other communication sent by facsimile transmission will, unless otherwise stated, be deemed served at the time of transmission unless served on a day which is not a Business Day or after 5 pm London time in which case it will be deemed served at 9 am on the following Business Day provided that any notice or communication served on any Finance Parties will only be deemed served on receipt by the relevant party. (c) In proving service of any notice or other communication it will be sufficient to prove: 50 (i) in the case of a letter, that such letter was properly stamped or franked, addressed and placed in the post or in the case of personal delivery, was left at the correct address; and (ii) in the case of a facsimile transmission, that such facsimile was duly transmitted to the telex or facsimile number, as appropriate, of the addressee referred to in paragraph (a) above. (d) The address and facsimile number of the Facility Agent as at the date of this Agreement are: Barclays Bank PLC 5 The North Colonnade Canary Wharf London E14 4BB Attn: Mike Clarke Fax: 0171 773 6807 (e) The address and facsimile number of the Project Company as at the date of this Agreement for the purposes of Clause 19.4 (Procedure for Transfer) are: Lansdowne House Berkeley Square London W1X 5DH Attn: The General Counsel Edison First Power Limited Fax: 0171 312 4000 21.2 Certificates Any certificate, determination, notification or opinion of any Finance Parties or group of Finance Parties as to any rate of interest or any other amount payable under any Finance Document will set out in reasonable detail the basis of computation of the amount claimed and will be prima facie evidence of the matters to which it relates. 51 21.3 Confidentiality Subject to Clause 19.5 (Disclosure of Information), the parties will keep confidential the Finance Documents and all information which they acquire under or in connection with the Finance Documents save that such information may be disclosed: (a) if so required by law or regulation or, if requested by any regulator with jurisdiction over any Finance Party or any Affiliate of any Finance Party; (b) if (but only to the extent that) it comes into the public domain (other than as a result of a breach by that party of this Clause 21.3); (c) to auditors, professional advisers (provided such advisers are under a professional duty of confidentiality) or rating agencies; or (d) in connection with any legal proceedings. The provisions of this Clause 21.3 shall supersede any undertakings with respect to confidentiality previously given by any Finance Party in favour of the Borrower or any Affiliate of the Borrower. 22. AMENDMENTS, WAIVERS AND CONSENTS 22.1 Banks (a) Subject to paragraphs (b) and (c) below, any provision of this Agreement or any of the other Finance Documents may be amended, waived, varied or modified and all consents hereunder may be given with the agreement of the Facility Agent, the Majority Banks, the Borrower and the Guarantor. (b) Any amendment, waiver, variation, modification or consent shall require the unanimous agreement of all of the Banks if it results in: (i) any change in the Commitment of any Bank; (ii) any reduction in the Applicable Margin (save as expressly contemplated by Clause 6.6 (Margin Adjustment)); (iii) any change in any Availability Period or any Repayment Date or any other date for payment of any sum due, owing or payable to any Bank; 52 (iv) any reduction in the amount or currency of any payment of principal, interest, fees, commissions or any other amount payable under the Finance Documents to any Bank; (v) any amendment, variation or modification to this Clause 22.1(b), Clause 18 (The Facility Agent), Clause 20.1 (Pro-Rata payments), Clause 20.3 (Set-Off), , Clause 19.2 (Assignments and Transfers by the Borrower) or to the definition of Majority Banks; (vi) any amendment to Clause 2 of the Guarantee or any release of the Guarantee. (c) Any matter which by the terms of the Finance Documents as at the date hereof is stated to be subject to the consent of all Banks shall not be waived, amended, varied or modified save with the consent of all the Banks. 22.2 No Implied Waivers (a) No failure or delay by any Finance Party in exercising any right, power or privilege under any of the Finance Documents will operate as a waiver thereof nor will any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. (b) The rights and remedies provided in the Finance Documents are cumulative and not exclusive of any rights and remedies provided by law and all such rights and remedies howsoever arising will, save where expressly provided to the contrary therein, be available to the Finance Parties severally. (c) A waiver given or consent granted by the Finance Parties under the Finance Documents will be effective only if given in writing and then only in the instance and for the purpose for which it is given. 23. INDEMNITIES 23.1 Ongoing Expenses The Borrower will pay and reimburse to the Facility Agent all reasonable and documented costs and expenses (including legal fees and other out-of- pocket expenses and any value added tax or other similar tax thereon to the extent that in the reasonable opinion of the Facility Agent such value added tax or similar tax is or will not be recoverable or creditable against any obligation of the Facility Agent to account for value added tax or similar tax) incurred by the Facility Agent in connection with: 53 (a) any variation, amendment, restatement, waiver, consent or suspension of rights (or any proposal for any of the same) relating to any of the Finance Documents which is requested by or on behalf of the Borrower or which becomes necessary as a result of circumstances affecting the Borrower (except insofar as the same relates to any assignment or transfer by a Bank); and (b) the investigation of any Event of Default or Potential Event of Default. 23.2 Enforcement Expenses The Borrower will on demand pay and reimburse to each Finance Party all costs and expenses (including legal fees and other out of pocket expenses and any value added tax or other similar tax thereon) incurred by such Finance Party in connection with the preservation, enforcement or the attempted preservation or enforcement of any of such Finance Party's rights under any of the Finance Documents except to the extent that the same are found in a final judgment by a court of competent jurisdiction to have been incurred in an attempt to enforce rights and remedies that were pursued by a Finance Party in bad faith and without any reasonable basis in fact or law. 23.3 Stamp Duties etc The Borrower will pay and on demand indemnify each Finance Party from and against any liability for any stamp duty, documentary or registration taxes or notarial fees which are or may hereafter become payable in connection with the entry into, performance, execution or enforcement of any of the Finance Documents (other than a Transfer Certificate) or to which any of the Finance Documents (other than a Transfer Certificate) may otherwise be or become subject or give rise. The Borrower will in addition on demand indemnify each of the Finance Parties from and against any losses or liabilities which they incur as a result of any delay or omission by the Borrower to so pay any such duties, taxes or fees. 23.4 General Indemnity The Borrower will on demand indemnify each of the Finance Parties against any funding or other cost, loss, expense or liability (including, without limitation, loss of profit) sustained or incurred by it as a result of: (a) an Advance not being made by reason of non-fulfilment of any of the conditions in Clauses 4.1 (Initial Conditions Precedent) or 4.2 (Additional Conditions Precedent); 54 (b) any sum payable by the Borrower under the Finance Documents not being paid when due (but credit shall be given to the Borrower for any interest paid when due); (c) the occurrence of any Event of Default; (d) the accelerated repayment of the Advances under Clause 17.12 (Cancellation and Repayment); or (e) the receipt or recovery by any Finance Party (or the Facility Agent on its behalf) of all or part of any Advance or overdue sum (whether due to prepayment or otherwise) which is not on the last day of an Interest Period relating to that Advance or overdue sum. 23.5 Currency Indemnity Without prejudice to Clause 23.4 (General Indemnity), if: (a) any amount payable by the Borrower under or in connection with any Finance Document is received by any Finance Party (or by the Facility Agent on behalf of any Finance Party) in a currency (the "Payment Currency") other than that agreed in the relevant Finance Document (the "Agreed Currency"), whether as a result of any judgment or order or the enforcement thereof, the liquidation of the Borrower or otherwise and the amount produced by converting the Payment Currency so received into the Agreed Currency is less than the relevant amount of the Agreed Currency; or (b) any amount payable by the Borrower under or in connection with any Finance Document has to be converted from the Agreed Currency into another currency for the purpose of (i) making or filing a claim or proof against the Borrower, (ii) obtaining an order or judgment in any court or other tribunal or (iii) enforcing any order or judgment given or made in relation to any Finance Document, then the Borrower will, as an independent obligation, indemnify the relevant Finance Party for the deficiency and any loss sustained as a result. Any conversion required will be made at such prevailing rate of exchange on such date and in such market as is determined by the relevant Finance Party as being most appropriate for the conversion. The Borrower will, in addition pay the costs of the conversion. 23.6 Waiver The Borrower waives any right it may have in any jurisdiction to pay any amount under any Finance Document in a currency other than that in which it is expressed to be payable in the relevant Finance Document. 55 24. PARTIAL INVALIDITY If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect in any jurisdiction, that shall not affect the legality, validity or enforceability of the remaining provisions in that jurisdiction or that or any other provision in any other jurisdiction. 25. GOVERNING LAW This Agreement (and any dispute, controversy, proceedings or claims of whatever nature arising out of or in any way relating to this Agreement) shall be governed by and construed in all respects in accordance with English law. 26. COUNTERPARTS This Agreement may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS whereof the parties hereto have caused this Agreement to be duly executed on the date first written above. 56 SCHEDULE 1 THE BANKS
Banks Coal Commitment Capex Commitment (Pound Sterling) (Pound Sterling) 1. Barclays Bank PLC 5 The North Colonnade Canary Wharf London E14 4BB Tel: 0171 773 1157 Fax: 0171 773 1803 Attn: Nichola Weber 9,080,000 14,869,375 2. Credit Suisse First Boston Five Cabot Square London E14 4QR Tel: 0171 888 5233 Fax: 0171 888 8390 Attn: Ronnie Hawkins - Project 9,080,000 14,869,375 Finance 3. Bank of Montreal 700 Louisana Suite 4400 Houston Texas 77002 U.S.A. Tel: 001 713 546 9750 Fax: 001 713 223 4007 Attn: Cahal Carmody 9,080,000 14,866,250 4. The Governor and Company of the Bank of Scotland Corporate Banking Division Orchard Brae House 30 Queensferry Road Edinburgh EH4 2UG Tel: 0131 343 7136 Fax: 0131 343 7026 Attn: Ian Garden/Steven Lowry 9,080,000 14,866,250
57 5. Bankgesellschaft Berlin AG, London Branch 1 Crown Court Cheapside London EC2V 6LR Tel: 0171 572 9357 Fax: 0171 572 9326 Attn: Philip Nias/Marco Buffoni 9,080,000 14,866,250 6. Bayerische Hypo-und Vereinsbank AG 41 Moorgate London EC2R 6PP Tel: 0171 873 8313 Fax: 0171 573 8352 Attn: Neil Edmonds 9,080,000 14,866,250 7. Bayerische Landesbank Girozentrale- London Branch Bavaria House 13/14 Appold Street London EC2A 2NB Tel: 0171 955 5731 Fax: 0171 955 5129 Attn: Tim Hall/Sonke Petersen 9,080,000 14,866,250 8. Credit Lyonnais PO Box 81, Broadwalk House 5 Appold Street London EC2A 2JP Tel: 0171 214 5233 Fax: 0171 214 6850 Attn: Louise Ellis 9,080,000 14,866,250
58 9. Dexia Project and Public Finance International Bank 55 Tufton Street Westminster London SW1P 3QF Tel: 0171 470 7343 Fax: 0171 976 0976 Attn: Victoria Derby 9,080,000 14,866,250 10. Dresdner Bank AG London Branch PO Box 18075 Riverbank House 2 Swan Lane London EC4R 3UX Tel: 0171 623 8000 Fax: 0171 475 8976 Attn: Steve Moon/Dexter Maitland 9,080,000 14,866,250 11. ING Bank N.V. HE 0201 Power Finance Bijlmerplein 888 1102 MG Amsterdam The Netherlands Tel: 00 31 20 563 5654 Fax: 00 31 20 563 5164 Attn: Johan de Mandt/Han Wetzelaar 9,080,000 14,866,250 12. KBC Bank N.V. London Branch 7/th/ Floor Exchange House Primrose Street London EC2A 2HQ Tel: 0171 256 4807 Fax: 0171 256 4846 Attn: Lisa Taylor 9,080,000 14,866,250
59 13. The Royal Bank of Scotland plc. Waterhouse Square 138-142 Holborn London EC1N 2TH 9,080,000 14,866,250 Tel: 0171 427 9554 Fax: 0171 427 9989 Attn: Brian McInnes 14. Societe Generale London Branch 41 Tower Hill London EC3N 4SG Tel: 0171 676 6157 Fax 0171 680 9951 Attn: Duncan Irvine 9,080,000 14,866,250 15. The Toronto-Dominion Bank Triton Court 14-18 Finsbury Square London EC2A 1DB Tel: 0171 920 0272 Fax: 0171 628 1042 Attn: Richard Palmer 9,080,000 14,866,250 --------------- --------------- 136,200,000 223,000,000
60 SCHEDULE 2 DOCUMENTARY CONDITIONS PRECEDENT 1. Documentation of Obligors (a) Copies, certified to be true, complete and up to date copies by a director or company secretary of each Obligor, of the memorandum and articles of association or other constitutional documents of each Obligor. (b) Copies, certified to be true, complete and up to date copies by a director or company secretary of each Obligor, of resolutions of the board of directors of each Obligor approving the execution, delivery and performance of each of the Finance Documents to which that Obligor is a party and the terms thereof. (c) A certificate of a director or company secretary of each Obligor setting out the names and signatures of the persons authorised to sign on behalf of that Obligor each of the Finance Documents to which it is a party and any other document to be delivered pursuant thereto. 2. Guarantee A duly executed original of the Guarantee. 3. Fee Letters A duly executed original of the Facility Agent's Fee Letter and the Arrangers' Fee Letter. 4. Legal Opinions Legal opinions from: (a) Shearman & Sterling, English legal advisers to the Banks; and (b) The Guarantor's in-house counsel and Morgan Lewis and Boeckius, legal advisers to the Guarantor. 5. Accounts The audited accounts of the Guarantor, certified as being true, complete and up to date by a director or company secretary of the Guarantor. 61 6. Senior Creditors' Security Trustee A certificate of the Senior Creditors' Security Trustee setting out the names and signatures of each of the persons authorised to sign Letter of Credit Requests and any other related documents on behalf of the Senior Creditors' Security Trustee. 7. Project Company's capital expenditure programme Provision of the Project Company's capital expenditure programme. 62 SCHEDULE 3 Form of Request To: [ ] (as Facility Agent for the Banks) Attention: Date: From: EME FINANCE UK LIMITED Dear Sirs, Coal and Capex Facility Agreement dated [ ] (the "Facility Agreement") We request [the issue of the [Coal Letter of Credit]/[Capex Letter of Credit] in the form of Schedule 6 (Letters of Credit) of the Facility Agreement]/[an Advance] as follows: [Letter of Credit] 1. Amount: 2. Name of Beneficiary: Edison First Power Limited 3. Issue Date: 4. Termination date: [Advance] 1. Amount: 2. Drawdown Date: 3. Interest Period: Such Advance should be paid to [give details of Project Company's revenues account]. We confirm that: (i) the representations and warranties made in Clause 14 (Representations and Warranties) of the Facility Agreement stipulated as being made or repeated on the date hereof and on the relevant [Issue Date]/[Drawdown Date] are true and accurate as if made with respect to the facts and circumstances existing on such date; and (ii) no Event of Default or Potential Event of Default has occurred and is continuing or will occur as a result of the [issue of the Letter of Credit]/[proposed Advance] being made. 63 We attach the documents required by Clause 5.3 (Accompanying Documents) of the Facility Agreement. Terms defined in the Facility Agreement shall have the same meanings when used in this request. ................... [Authorised Signatory] for and on behalf of EME Finance UK Limited 64 SCHEDULE 4 Additional Costs Rate 1. The Additional Costs Rate is in addition to the interest rate to compensate Banks for the cost of compliance with the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions). 2. On the first day of each Interest Period (or as soon as possible thereafter) the Facility Agent shall calculate, as a percentage rate, a rate (the "Additional Costs Rate") for each Bank, in accordance with the formulae set out below. The Additional Costs Rate will be calculated by the Facility Agent as a weighted average of the Banks' additional costs rates (weighted in proportion to the percentage participation of each Bank in the relevant Advance) and will be expressed as a percentage rate per annum. 3. The additional cost rate for each Bank will be calculated by the Facility Agent as follows: AB + C(B-D) + E x 0.01 per cent. per annum ---------------------- 100 - (A + C) Where: A is the percentage of eligible liabilities (assuming these to be in excess of any stated minimum) which that Bank is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements. B is the percentage rate of interest (excluding the Applicable Margin and the Additional Costs Rate) payable for the relevant Interest Period on the Advance. C is the percentage (if any) of eligible liabilities which the Bank is required from time to time to maintain as interest bearing special deposits with the Bank of England. D is the percentage rate per annum payable by the Bank of England to the Facility Agent on interest bearing special deposits. E is the rate of charge payable by that Bank to the Financial Services Authority pursuant to the Fees Regulations (but, for this purpose, ignoring any minimum fee required pursuant to the Fees Regulations) and expressed in pounds per (Pound Sterling)1,000,000 of the Fee Base of that Bank. 4. For the purposes of this Schedule: (a) "eligible liabilities" and "special deposits" have the meanings given to them from time to time under or pursuant to the Bank of England Act 1998 (as may be appropriate) by the Bank of England; 65 (b) "Fee Regulations" means the Banking Supervision (Fees) Regulations 1998 or such other law or regulation as may be in force from time to time in respect of the payment of fees for banking supervision; and (c) "Fee Base" has the meaning given to it, and will be calculated in accordance with, the Fees Regulations. 5. In application of the above formulae, A, B, C and D will be included in the formulae as percentages (i.e. 5 per cent, will be included in the formula as 5 and not as 0.05). A negative result obtained by subtracting D from B shall be taken as zero. The resulting figures shall be rounded to four decimal places. 6. Each Bank shall supply any information required by the Facility Agent for the purpose of calculating the above formulae. In particular, but without limitation, each Bank shall supply the following information in writing on or prior to the date on which it becomes a Bank: (a) its jurisdiction of incorporation and the jurisdiction of its Facility Office; and (b) such other information that the Agent may reasonably require for such purpose. Each Bank shall promptly notify the Agent in writing of any change to the information provided by it pursuant to this paragraph. 7. The percentages or rates of charge of each Bank for the purpose of A, C and E above shall be determined by the Facility Agent based upon the information supplied to it pursuant to paragraph 6 above and on the assumption that, unless a Bank notifies the Facility Agent to the contrary, each Bank's obligations in relation to cash ratio deposits, special deposits and the Fee Regulations are the same as those of a typical bank from its jurisdiction of incorporation with a Lending Office in the same jurisdiction as its Lending Office. The Facility Agent shall have no liability to any person if such determination results in an additional costs rate which over or under compensates any Bank and shall be entitled to assume that the information provided by any Bank pursuant to paragraph 6 above is true and correct in all respects. 8. The Facility Agent shall distribute the additional amounts received as a result of the Additional Costs Rate to the Banks on the basis of the additional costs rate for each Bank, in accordance with the above formulae and based on the information provided by each Bank pursuant to paragraph 6 above. 9. Any determination by the Facility Agent pursuant to this Schedule in relation to a formula, the Additional Costs Rate or any amount payable to a Bank shall, in the absence of manifest error, be conclusive and binding on all of the parties to this Agreement. 10. The Facility Agent may from time to time, after consultation with the Borrower and the Banks, determine and notify to all parties any amendments which are required to be made to any of the formulae set out above in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England or the Financial Services Authority (or, in 66 either case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all the parties to this Agreement. 67 SCHEDULE 5 FORM OF TRANSFER CERTIFICATE To: [ ] as Facility Agent and Edison First Power Limited Lansdowne House, Berkeley Square London W1X 5DH as beneficiary under the Coal Letter of Credit and Capex Letter of Credit From: [Existing Bank] and [New Bank] Date: [ ] EME Finance UK Limited - Coal and Capex Facility Agreement dated [ ], 1999 (the "Facility Agreement") We refer to Clause 19.4 (Procedure for Transfer) of the Facility Agreement and to the Coal Letter of Credit and the Capex Letter of Credit. Terms defined in the Facility Agreement shall have the same meaning when used in this Transfer Certificate. 1. We [ ] (the "Existing Bank") and [ ] (the "New Bank") agree to the Existing Bank and the New Bank transferring all the Existing Bank's rights and obligations referred to in the Schedule in accordance with Clause 19.4 (Procedure for Transfer) of the Facility Agreement and with the terms of the Coal Letter of Credit and the Capex Letter of Credit. 2. The specified date for the purposes of Clause 19.4 (a) and (c) (Procedure for Transfer) of the Facility Agreement and paragraph 8 of each of the Coal Letter of Credit and the Capex Letter of Credit is [date of transfer]. 3. The Facility Office and address for notices of the New Bank for the purposes of Clause 21.1 (Notices) of the Facility Agreement are set out in the Schedule. 4. This Transfer Certificate is governed by English law. 68 THE SCHEDULE Rights and obligations to be transferred [Details of the rights and obligations of the Existing Bank to be transferred under the Coal Facility and Coal Letter of Credit and Capex Facility and Capex Letter of Credit.] [New Bank] [Lending Office] [Address for notices] [Existing Bank] [New Bank] [Facility Agent] By: By: By: Date: Date: Date: Payment Instructions: Administrative details: 69 SCHEDULE 6 FORM OF LETTERS OF CREDIT To: Edison First Power Limited Lansdowne House Berkeley Square London W1X 5DH Attention: [ ] [ ] 1999 Dear Sirs 1. The Banks listed in Schedule A (the "Original Banks") hereby issue an irrevocable letter of credit in your favour at the request of EME Finance UK Limited for the aggregate amount equal to the L/C Amount (as defined below) expiring at [ ] p.m. on [ ]. 2. This Letter of Credit is given in connection with a facility agreement dated [ ] 1999 and made between EME Finance UK Limited as Borrower, Barclays Capital and Credit Suisse First Boston as Arrangers, the Banks as defined therein and Barclays Bank PLC as facility agent (the "Facility Agent") (the "Facility Agreement"). In this Letter of Credit: "Advance" shall mean the principal amount of each advance made under the [Coal]/[Capex] Facility (but excluding any Advance deemed made as a consequence of a drawing being made under this Letter of Credit) notified by the Facility Agent to you as having been made; "Banks" means the Original Banks and each New Bank (as defined in paragraph 7) which becomes a party to this Letter of Credit; "Capex Facility" means the (Pound Sterling)223,000,000 loan and letter of credit facility made available by the Banks pursuant to the Facility Agreement; "Coal Facility" means the (Pound Sterling)136,200,000 loan and letter of credit facility made available by the Banks pursuant to the Facility Agreement; "Commitment" means: (a) in relation to an Original Bank, the amount set against the name of that Bank in Schedule A under the heading "Commitment" and the amount of any other Bank's Commitment acquired by it; and 70 (b) in relation to a Bank which becomes a Bank after the date of this Letter of Credit, the amount of any other Bank's Commitment acquired by it under paragraph 7 hereof, to the extent not cancelled, reduced or transferred under this Letter of Credit; "L/C Amount" means, at any time, (Pound Sterling)[223,000,000]/ (Pound Sterling)[136,200,000] less the aggregate of: (a) all drawings under this Letter of Credit; (b) Advances; and (c) Reductions. "Reduction" means the amount of each reduction of the L/C Amount by you pursuant to paragraph 10 below; "Senior Creditors' Security Trustee" means Barclays Bank PLC in its capacity as security trustee under a secured creditors' security trust and intercreditor deed dated [ ]; 3. A drawing may be requested by you, and will be paid by us, upon presentation of a request (an "L/C Request") to the Facility Agent in the form of Schedule B. If the L/C Request is presented by 10.00 a.m. London time on a London business day then payment will be made on the date of presentation in immediately available funds to your account with Barclays Bank PLC number [ ]. Any L/C Request presented after 10.00 a.m. London time on a London business day will be treated as having been presented by 10.00 a.m. London time on the following London business day. The amount each Bank is obliged to make available to you, through the Facility Agent, on presentation of an L/C Request, is the proportion of the amount requested which its Commitment bears to the total of the Commitments. The maximum amount which may be drawn by you at any time under this Letter of Credit shall be the L/C Amount at that time. 4. All payments which fall to be made by the Banks hereunder will be made by the Banks free and clear of and without deduction for, or on account of, any set-off or counterclaim. 5. This Letter of Credit is signed by the Facility Agent solely as agent for each of the Banks and the Facility Agent makes no representation or warranty, express or implied, concerning, and accepts no responsibility for the legality, validity, effectiveness, adequacy or enforceability of, this Letter of Credit or concerning its power to enter into this Letter of Credit on behalf of any Bank and, accordingly, it will not be held liable for any cost, loss or expense sustained or incurred by you as a result of any present or future total or partial invalidity, illegality or unenforceability affecting this Letter of Credit or the failure by any Bank to be bound hereby. 6. You may assign or transfer all or any of your rights, benefits and obligations hereunder to the Senior Creditors' Security Trustee. 71 7. (a) A Bank (the "Existing Bank") may at any time transfer any of its rights and obligations under this Letter of Credit to another bank or financial institution (the "New Bank"). An Existing Bank shall transfer its rights and obligations to a New Bank where the credit rating of the Existing Bank has fallen below A- as rated by Standard & Poors Rating Services ("Standard & Poors") or A3 by Moody's Investor Services Inc. ("Moody's") unless the Existing Bank is able to provide cash collateral for all its obligations under this Letter of Credit to your satisfaction. Your prior consent is required for any such transfer (unless such transfer is to an affiliate of such Existing Bank which has a credit rating of A- or above as rated by Standard & Poors or A3 or above as rated by Moody's or to a New Bank which is already a Bank), but will not be unreasonably withheld or delayed where such New Bank has a credit rating of A- or above as rated by Standard & Poors or A3 or above as rated by Moody's. (b) A transfer is effected if the Existing Bank and the New Bank deliver to you, with a copy to the Facility Agent, a duly completed certificate, substantially in the form of Schedule C (a "Transfer Certificate"). Such delivery shall take place at least 5 Business Days prior to the date specified therein. (c) Each party to this Letter of Credit (other than the Existing Bank and the New Bank) irrevocably authorises the Facility Agent to execute any duly completed Transfer Certificate on its behalf. (d) To the extent that they are expressed to be the subject of the transfer in the Transfer Certificate: (i) the Existing Bank and the other parties to this Letter of Credit (the "existing Parties") will be released from their obligations to each other (the "discharged obligations"); (ii) the New Bank and the existing parties to this Letter of Credit will assume obligations towards each other which differ from the discharged obligations only insofar as they are owed to or assumed by the New Bank instead of the Existing Bank; (iii) the rights of the Existing Bank against the existing Parties and vice versa (the "discharged rights") will be cancelled; and (iv) the New Bank and the existing Parties will acquire rights against each other which differ from the discharged rights only insofar as they are exerciseable by or against the New Bank instead of the Existing Bank, on the date specified in the Transfer Certificate. 8. This Letter of Credit shall be governed by, and construed in accordance with, English law. 72 9. The rights and obligations of the Banks under this Letter of Credit are several. Failure of a Bank to observe and perform its obligations under this Letter of Credit shall not result in any other Bank or the Facility Agent incurring any liability whatsoever. 10. You may, at any time, reduce the L/C Amount by written notice to us which has been countersigned by the Senior Creditors' Security Trustee. 11. This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500. ------------------------------------- Barclays Bank PLC as Facility Agent for and on behalf of the Original Banks 73 Schedule A THE BANKS Bank Commitment (Pound Sterling) Total [(Pound Sterling)136,200,000] / [(Pound Sterling)223,000,000] 74 Schedule B Letter of Credit Request To: [Barclays Bank PLC] [Address] [Date] Dear Sirs [Coal]/[Capex] Letter of Credit dated - ------------------------------------------ Please be advised that we wish to make a drawing under the above mentioned Letter of Credit as follows: (a) Amount: (b) Date of drawing: (c) Account to which payment should be made: ---------------------------------------- [Authorised Signatory] for and on behalf of Edison First Power Limited [AND/OR] [Senior Creditors' Security Trustee] 75 Schedule C FORM OF TRANSFER CERTIFICATE To: [ ] as Facility Agent and Edison First Power Limited Lansdowne House, Berkeley Square London W1X 5DH as beneficiary under the Coal Letter of Credit and Capex Letter of Credit From: [Existing Bank] and [New Bank] Date: [ ] EME Finance UK Limited - Coal and Capex Facility Agreement dated [ ], 1999 (the "Facility Agreement") We refer to Clause 19.4 (Procedure for Transfers) of the Facility Agreement and to paragraph 7 of the Coal Letter of Credit and the Capex Letter of Credit. Terms defined in the Facility Agreement shall have the same meanings when used in this Transfer Certificate. 1. We [ ] (the "Existing Bank") and [ ] (the "New Bank") agree to the Existing Bank and the New Bank transferring all the Existing Bank's rights and obligations referred to in the Schedule in accordance with Clause 19.4 (Procedure for Transfer) of the Facility Agreement and paragraph 7 of the Coal Letter of Credit and the Capex Letter of Credit. 2. The specified date for the purposes of Clause 19.4 (a) and (c) (Procedure for Transfer) of the Facility Agreement and paragraph 7 of each of the Coal Letter of Credit and the Capex Letter of Credit is [date of transfer]. 3. The Facility Office and address for notices of the New Bank for the purposes of Clause 21.1 (Notices) of the Facility Agreement are set out in the Schedule. 4. This Transfer Certificate is governed by English law. 76 THE SCHEDULE Rights and obligations to be transferred [Details of the rights and obligations of the Existing Bank to be transferred under the Coal Facility and Capex Facility.] Coal Letter of Credit and Capex Letter of Credit: Amount of Commitment transferred: (Pound Sterling)[ ] [New Bank] [Lending Office] [Address for notices] [Existing Bank] [New Bank] [Facility Agent] By: By: By: Date: Date: Date: Payment Instructions: Administrative details: 77 The Borrower EME FINANCE UK LIMITED By: S.G. BRETT Name: Title: The Arrangers BARCLAYS CAPITAL By: PAUL SIMS Name: Title: CREDIT SUISSE FIRST BOSTON By: PETER FIRMIN and TOM MULLIGAN Name: Title: The Original Banks BARCLAYS BANK PLC By: PAUL SIMS and ANDREW VINE Name: Title: 78 CREDIT SUISSE FIRST BOSTON By: PETER FIRMIN and TOM MULLLIGAN Name: Title: BANK OF MONTREAL By: JENNIFER RICHARDS Name: Title: THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND By: IAN CAMPBELL GARDEN Name: Title: BANKGESELLSCHAFT BERLIN A.G., LONDON BRANCH By: H.VAN WYK and PHILIP NIAS Name: Title: BAYERISCHE HYPO-UND VEREINSBANK AG By: GARY LANSTON and NEIL EDMONDS Name: Title: 79 BAYERISCHE LANDESBANK GIROZENTRALE LONDON BRANCH By: TIMOTHY HALL and ANTHONY MALTBY Name: Title: CREDIT LYONNAIS By: MARGARET STEWART Name: Title: DEXIA PROJECT AND PUBLIC FINANCE INTERNATIONAL BANK By: NICOLAS SOUCHE Name: Title: DRESDNER BANK AG LONDON BRANCH By: W.A. PEDDER By: DEXTER E.W. MAITLAND Name: Name: Title: Title: ING BANK N.V., LONDON BRANCH By: B.L. WIJNEN and P.H.M. STAAL Name: Title: 80 KBC BANK N.V., LONDON BRANCH By: LISA TAYLOR and MICHAEL BROOM Name: Title: THE ROYAL BANK OF SCOTLAND plc. By: RAJA S. HUSSAIN Name: Title: SOCIITI GINIRALE, LONDON BRANCH By: DAVID THOMAS Name: Title: THE TORONTO-DOMINION BANK By: GRAEME FRANCIS Name: Title: The Agent BARCLAYS BANK PLC By: ANDREW VINE Name: Title: 81 EX-10.65 3 GUARANTEE DATED JULY 16, 1999 Exhibit 10.65 CONFORMED COPY -------------- Guarantee dated 16 July 1999 EDISON MISSION ENERGY and BARCLAYS BANK PLC as Facility Agent for the Banks parties to the Facility Agreement defined herein LINKLATERS & PAINES One Silk Street London EC2Y 8HQ Tel: (+44) 171 456 2000 This Guarantee is made as a deed on 16 July 1999 between (1) Edison Mission Energy, a California corporation registered in the State of California whose principal place of business is at 18101 Von Karman Avenue, Suite 1700, Irvine, California 92715, United States of America (the "Guarantor"); and (2) Barclays Bank PLC, as facility agent for the financial institutions defined as Banks (the "Banks") in the Facility Agreement defined below (the "Facility Agent", which expression includes any successor or replacement Facility Agent appointed pursuant to Clause 18.9 (Resignation of Facility Agent) of the Facility Agreement). The Banks have agreed to enter into the coal and capex facility agreement of even date (the "Facility Agreement") with EME Finance UK Limited (the "Borrower") on various conditions, one of which is that the Guarantor gives this Guarantee. 1 Interpretation 1.1 In this Guarantee terms defined and references construed in the Facility Agreement shall have the same meaning and construction and, except to the extent that the context requires otherwise: "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. "Authorised Representative" means, relative to the Guarantor, those of its officers and employees whose signatures and incumbency shall have been certified to the Facility Agent and the Banks pursuant to Clause 4.1(a) (Initial Conditions Precedent) of the Facility Agreement. "Business Day" has the meaning given to it in the Facility Agreement. "Capitalised Lease Liabilities" of any Person means all monetary obligations of such Person under any leasing or similar arrangement which, in accordance with US GAAP, would be classified as capitalised leases, and, for purposes of this Guarantee, the amount of such obligations shall be the capitalised amount thereof, determined in accordance with US GAAP. "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 rated at least "A" by S&P and "A2" by Moody's or "A-1" by S&P and "P-1" by Moody's and with maturities of less than 366 days; or - -------------------------------------------------------------------------------- (c) other securities as to which the Guarantor has demonstrated, to the satisfaction of the Facility 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 Guarantor (or any successor pursuant to Clause 4.2.5(iii)), on a fully diluted basis. "Code" means the U.S. Internal Revenue Code of 1986, as amended. "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. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "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 Guarantor, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Debt Rating" means a rating of the Guarantor'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 Guarantor'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. "Effective Date" means the date on which the Facility Agent gives the notification under Clause 4.1(b) (Initial Conditions Precedent) of the Facility. - -------------------------------------------------------------------------------- "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 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 U.S. 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" has the meaning given to it in the Facility Agreement. "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 "1999 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. "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 Environmental Law. "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, except trade accounts arising in the ordinary course of business; (c) all reimbursement obligations with respect to surety bonds, letters of credit (to the extent not collateralised 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 Capitalised Lease Liabilities; (g) all net obligations with respect to sales of foreign exchange options; (h) all indebtedness referred to in clauses (a) to (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 (i) all Contingent Liabilities. For all purposes of this Guarantee, 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. "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. "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 Documents" means the Facility Agreement and this Guarantee. "Material Adverse Effect" means any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on the ability of the Guarantor to perform its payment obligations under this Guarantee. "Moody's" means Moody's Investor Service, a division of Dun & Bradstreet Corporation, and its successors and assigns. "Net Tangible Assets" means, as of the date of any determination thereof, the total amount of all assets of the Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with US GAAP), less the sum of (a) the consolidated current liabilities of the Guarantor and its Subsidiaries (determined on a consolidated basis in accordance - -------------------------------------------------------------------------------- with US GAAP) and (b) assets properly classified as "intangible assets" in accordance with US GAAP. "Non-Recourse Debt" means Indebtedness which the Guarantor 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, Authorised Representatives and other controlling persons of the Borrower of any of its Affiliates, provided that in no event shall the Borrower be deemed to be a Non-Recourse Person. "Obligations" means all obligations (monetary or otherwise) of the Guarantor arising under or in connection with the Guarantee. "Organic Document" means, relative to the Guarantor, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorised shares or capital stock. "Partnership" means a general partnership, limited partnership, joint venture or similar entity in which the Guarantor 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 Guarantor or any corporation, trade or business that is, along with the Guarantor, a member of a Controlled Group, has any 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. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Pricing Grid" means the pricing grid in Clause 6.6 (The Margin) of the Facility Agreement. "S&P" means Standard & Poor's Ratings Services and its successors and assigns. "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 Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with US GAAP) after subtracting therefrom the aggregate amount of any intangible assets of the Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with US GAAP), including goodwill, franchises, licences, patents, trademarks, trade names, copyrights, service marks and brand names. "Taxes" or "Tax" means any present or future tax, levy, impost, duty, charge, fee deduction or withholding in the nature of tax whatever called and wherever imposed and whether imposed, levied, collected, withheld or assessed (and any penalty or interest payable in connection with any failure to pay or delay in paying the same) 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 or taxes imposed on or measured by any Bank's net income, in each case, imposed as a result of a connection between the Bank and the jurisdiction imposing the tax (other than a connection arising solely from the Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Guarantee), and the Banks will use reasonable efforts to minimise, to the extent possible, any such applicable taxes; provided, however, that such Taxes does not include franchise taxes, receipts, net worth or shareholders' capital. "Total Commitments" has the meaning given to it in the Facility Agreement. "US GAAP" means generally accepted accounting principles in effect in the United States. "Welfare Plan" means a "welfare plan" as such term is defined in Section 3(1) of ERISA. "Year 2000 Problem" means any significant risk that computer hardware, software or equipment containing embedded microchips essential to the businesses or operations of the Guarantor and its Subsidiaries will not, in the case of dates or time periods occurring after 31 December 1999, function at least as effectively as in the case of dates or time periods occurring prior to 1 January 2000. 1.2 Headings shall be ignored in construing this Guarantee. 1.3 Unless otherwise specified, all accounting terms used in this Guarantee shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with US GAAP applied in the preparation of the financial statements referred to in Clause 3.1.5 except that quarterly financial statements are not required to contain footnotes. 2 Guarantee 2.1 The Guarantor unconditionally and irrevocably guarantees that, if for any reason, the Borrower does not pay any sum payable by it under the Facility Agreement by the time, on the date and otherwise in the manner specified in the Facility Agreement (whether on the normal due date, on acceleration or otherwise), the Guarantor will pay that sum within 5 Business Days of demand by the Facility Agent. - -------------------------------------------------------------------------------- 2.2 The Guarantor's liability under this Guarantee shall remain in force notwithstanding any act, omission, neglect, event or matter whatsoever (whether or not known to the Facility Agent, any Bank or the Guarantor) other than the irrevocable payment to the Banks of all amounts payable hereunder. Nothing shall impair or discharge the Guarantor's liability or obligations under this Guarantee and this shall apply, without limitation, in relation to: 2.2.1 anything which would have discharged the Guarantor (wholly or in part) whether as surety, co-obligor or otherwise or which would have afforded the Guarantor any legal or equitable defence; or 2.2.2 the existence or validity or the taking or renewal of any other guarantee or security taken by the Banks in relation to the Facility Agreement, or any enforcement of or failure to enforce or the release or waiver of any such guarantee or security; or 2.2.3 any amendment to or variation of the Facility Agreement, or any security or other document relating to the Facility Agreement, or any assignment thereof or any waiver or departure from their respective terms or any such security or document in any such case with or without the consent of the Guarantor; or 2.2.4 any release of, or granting of time or any other indulgence to, the Borrower or any other person; or 2.2.5 any winding up, dissolution, reconstruction, arrangement or reorganisation, legal limitation, disability, incapacity or lack of corporate power or authority or other circumstances of, or any change in the constitution or corporate identity or loss of corporate identity by, the Borrower or any other person (or any act taken by the Guarantor or the Borrower in relation to any such event); or 2.2.6 any other circumstances which might render void or unenforceable the obligations, commitments and undertakings of the Borrower under the Facility Agreement, or which might affect the Banks' ability to recover amounts from the Borrower thereunder; or 2.2.7 any defence or counterclaim which the Borrower may be able to assert against the Banks. 2.3 Any amounts payable under this Guarantee shall be paid in full without any deduction or withholding whatsoever (whether in respect of set-off, counterclaim, duties, charges, Taxes or otherwise) unless such deduction or withholding is required by law. If such a deduction or withholding is required the Guarantor shall forthwith pay to the Facility Agent an additional amount calculated to ensure that the net amount received by the Banks (taking into account any deduction or withholding required on the additional amount) will equal the full amount which would have been received by it had no such deduction or withholding been made. 2.4 As a separate, additional continuing and primary obligation, the Guarantor, unconditionally and irrevocably, undertakes to indemnify the Banks on demand by the Facility Agent (without requiring the Facility Agent to first take steps against the Borrower or any other person) against any loss suffered or incurred by the Banks should the amounts which would otherwise be due under Clause 2.1 above not be recoverable for any reason whatsoever, including (but not limited to) the Facility Agreement being or - -------------------------------------------------------------------------------- becoming void, voidable or unenforceable, the amount of that loss being the amount expressed to be payable by the Borrower in respect of the relevant sum. 2.5 Demands may be made by the Facility Agent under this Guarantee from time to time and irrespective of whether any demands, steps or proceedings are being or have been taken against the Borrower or any other person. 2.6 The Guarantor's obligations under this Guarantee are and will remain in full force and effect by way of continuing security until no sum remains to be lent under the Facility Agreement and the Finance Parties have received or recovered all sums payable under the Facility Agreement. 2.7 So long as any sum remains to be lent or remains payable under the Facility Agreement, the Guarantor shall not, after a claim has been made or by virtue of any payment or performance by it under this Guarantee for or on account of the liabilities of the Borrower: 2.7.1 be subrogated to any rights, security or moneys held, received or receivable by the Facility Agent or any of the other Finance Parties or be entitled to any right of contribution or indemnity in respect of any payment made or monies received on account of the Guarantor's liability under this Guarantee; 2.7.2 claim, rank, prove or have the benefit of any payment, distribution or security from or on account of the Borrower or exercise any right of set-off as against the Borrower unless the Facility Agent otherwise directs. 3 Representations and Warranties 3.1 The Guarantor represents and warrants to and for the benefit of the Facility Agent (on behalf of itself and each Bank) as follows: 3.1.1 Organisation; Power; Compliance with Law and Contractual Obligations: It (i) is a corporation validly organised and existing and in good standing under the laws of the state of its incorporation, (ii) 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, (iii) has all requisite corporate power and authority and holds all material requisite governmental licences, permits and other approvals to enter into and perform its Obligations under this Guarantee and to conduct its business substantially as currently conducted by it and (iv) is in compliance with all laws, governmental regulations, court decrees, orders and Contractual Obligations applicable to it, except, with respect to Clause 3.1.1(ii) to (iv) to the extent that the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. 3.1.2 Due Authorisation; Non-Contravention: The execution, delivery and performance by the Guarantor of this Guarantee is within the Guarantor's corporate powers, has been duly authorised by all necessary corporate action, and does not: (i) contravene the Guarantor's Organic Documents; - -------------------------------------------------------------------------------- (ii) contravene any law, governmental regulation, court decree or order or material Contractual Obligation binding on or affecting the Guarantor; or (iii) result in, or require the creation or imposition of, any Lien on any of the Guarantor's properties. 3.1.3 Governmental Approval; Regulation: (i) No authorisation, consent, approval, licence, exemption of or filing or registration with any court or governmental authority or regulatory body ("Governmental Approval") is required for the Guarantor to execute and perform its obligations under this Guarantee, except for those which have been duly obtained or effected. No material Governmental Approval is required for the Guarantor to carry on its business, except for those which have been duly obtained or effected. (ii) The Guarantor is not subject to any regulation as an "investment company" subject to the U.S. Investment Company Act of 1940, as amended, or as a "holding company" or a "subsidiary company" or an "affiliate" of a "holding company" subject to the U.S. Public Utility Holding Company Act of 1935, as amended ("PUHCA"), except that the Guarantor is a "subsidiary company" of Edison International which is a "holding company" that is exempt from all regulation under PUHCA (except Section 9(a)(2) thereof) pursuant to Section 3(a) thereof. The Guarantor is not otherwise subject to any regulation as a "public utility" under any other applicable law, rule or regulation, which would have Material Adverse Effect. 3.1.4 Validity: This Guarantee constitutes the legal, valid and binding obligations of the Guarantor enforceable in accordance with its 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). 3.1.5 Financial Information: The consolidated balance sheets of the Guarantor (as at 31 December 1997 and 31 December 1998, and the related consolidated statements of income and cash flows of the Guarantor, copies of which have been furnished to the Facility Agent, have been prepared in accordance with US GAAP consistently applied, and present fairly the consolidated financial condition of the Guarantor and its Subsidiaries as at the dates thereof and the results of their operations for the periods then ended. 3.1.6 No Material Adverse Change: There has not occurred any event or condition having a Material Adverse Effect since 31 December 1998. 3.1.7 Litigation: There is no pending or, to the knowledge of the Guarantor, threatened litigation, action, proceeding, or labour controversy affecting the Guarantor, or any of its properties, businesses, assets or revenues, which, if adversely determined (taking into account any insurance proceeds payable under a policy where the insurer has accepted coverage without any reservations), would have a Material - -------------------------------------------------------------------------------- Adverse Effect or which purports to affect adversely the legality, validity or enforceability of this Guarantee. 3.1.8 Ownership of Properties: The Guarantor owns good and marketable title to, or a valid leasehold interest in or other enforceable interest in all properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights) purported to be owned, leased or held by it, 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 Clause 4.2.2. 3.1.9 Taxes: The Guarantor 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 US GAAP shall have been set aside on its books. 3.1.10 Pension and Welfare Plans: During the consecutive 12 month period prior to the date of the execution and delivery of this Guarantee and prior to the Issue Date (as defined in the Facility Agreement), 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 Guarantor 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 Guarantor 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. 3.1.11 Environmental Warranties: (i) All facilities and property owned or leased by the Guarantor or any of its Subsidiaries or Partnerships have been, and continue to be, owned or leased by the Guarantor, its Subsidiaries or Partnership, as the case may be, 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. (ii) There are no pending or, to the knowledge of the Guarantor, threatened: (a) material claims, complaints, notices or requests for information received by the Guarantor from governmental authorities with respect to any alleged violation by the Guarantor of any Environmental Law; or - -------------------------------------------------------------------------------- (b) material complaints, notices or inquiries to the Guarantor from governmental authorities regarding potential liability under any Environmental Law. (iii) 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 Guarantor that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect. (iv) The Guarantor has obtained and is in compliance with all permits, certificates, approvals, licences and other authorisations relating to environmental matters and necessary for the Guarantor's business, except where the failure to obtain, maintain or comply with such permits, certificates, approvals, licences or other authorisations would not have, or be reasonably expected to have, a Material Adverse Effect. (vi) No property now or previously owned or leased by the Guarantor is listed or proposed for listing (with respect to owned property only) on the U.S. National Priorities List pursuant to any Environmental Law, on the CERCLIS or on any similar state list of sites requiring investigation or clean- up. (vi) No conditions exist at, on or under any property now or previously owned or leased by the Guarantor 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. 3.1.12 Regulations T, U and X: The Guarantor is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Advances will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation T, U or X. Terms for which meanings are provided in F.R.S. Board Regulation T, U or X or any regulations substituted therefor, as from time to time in effect, are used in this Clause 3.1.12 with such meanings. 3.1.13 Accuracy of Information: All factual information heretofore or contemporaneously furnished by the Guarantor in writing to the Facility Agent or any Bank for purposes of or in connection with this Guarantee or any transaction contemplated hereby is, and all other such written factual information hereafter furnished by the Guarantor in writing to the Facility Agent or any Bank will be, true and materially 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 Guarantee by the Facility Agent 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 materially misleading. 3.1.14 The Obligations: The Obligations are senior, unsecured Indebtedness of the Guarantor ranking at least pari passu with all other senior, unsecured Indebtedness of the Guarantor. - -------------------------------------------------------------------------------- 3.1.15 Year 2000 Matters: The Guarantor has reviewed its operations and those of its Subsidiaries with a view to assessing whether its businesses or the businesses of any of its Subsidiaries will, in the receipt, transmission, processing, manipulation, storage, retrieval, retransmission or other utilisation of data, be vulnerable to a Year 2000 Problem or will be vulnerable to the effects of a Year 2000 Problem suffered by any of the Guarantor's or any of its Subsidiaries' major commercial counterparties. Based on such review the Guarantor has no reason to believe that a Material Adverse Effect will occur with respect to its businesses or operations or the businesses or operations of any of its Subsidiaries resulting from a Year 2000 Problem. 3.2 The representations and warranties set out in Clause 3.1 shall be deemed to be repeated on the date of drawdown of each Advance (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date). The representations and warranties set out in Clause 3.1.1 to 3.1.5 (inclusive) shall be deemed to be repeated by the Guarantor on the first day of each Interest Period with reference to the facts and circumstances then existing. 4 Covenants 4.1 Affirmative Covenants: The Guarantor agrees with the Facility Agent (on behalf of itself and each Bank) that, until the Total Commitments have terminated and all obligations of the Borrower under the Facility Agreement have been paid and performed in full, the Guarantor will perform the obligations set forth in this Clause 4.1. 4.1.1 Financial Information, Reports, Notices: The Guarantor will furnish, or will cause to be furnished, to the Facility Agent copies of the following financial statements, reports, notices and information: (i) as soon as available and in any event within 60 days after the end of each of the first 3 Fiscal Quarters of each Fiscal year of the Guarantor, consolidated balance sheets of the Guarantor and its Subsidiaries as of the end of such Fiscal Quarter and consolidated statements of income and cash flows of the Guarantor 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 an Authorised Representative with responsibility for financial matters; (ii) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Guarantor, a copy of the annual audit report for such Fiscal Year for the Guarantor and its Subsidiaries, including therein consolidated balance sheets of the Guarantor and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of income and cash flows of the Guarantor and its Subsidiaries for such Fiscal Year, and accompanied by the unqualified opinion of Arthur Andersen & Co. or other internationally recognised independent auditors selected by the Guarantor 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 US GAAP applied on a basis consistent with prior periods; (iii) concurrently with the delivery of the financial statements referred to in Clause 4.1.1(i) a certificate, executed by the controller, treasurer or chief financial officer of the Guarantor, showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Facility Agent) compliance with the financial covenant set forth in Clause 4.2.3; (iv) as soon as possible and in any event within 5 Business Days after any Authorised Representative obtains knowledge of the occurrence of each Default, a statement of such Authorised Representative setting forth details of such Default or default and the action which the Guarantor has taken and proposes to take with respect thereto; (v) as soon as possible and in any event within 5 Business Days after (1) the occurrence of any material adverse development with respect to any litigation, action, proceeding, or labour controversy of the type described in Clause 3.1.7 or (2) the commencement of any labour controversy, litigation, action, proceeding of the type described in Clause 3.1.7, notice thereof and, upon request of the Facility Agent, copies of all non-privileged documentation relating thereto; (vi) promptly after the sending or filing thereof, copies of all reports and registration statements which the Guarantor files with the Securities and Exchange Commission or any national securities exchange; (vii) immediately upon becoming aware of the institution of any steps by the Guarantor 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 Guarantor 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 Guarantor 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 Guarantor with respect to any post-retirement Welfare Plan benefit which has a Material Adverse Effect, notice thereof and copies of all documentation relating thereto; and (viii) as soon as known, any changes in Guarantor's Debt Rating by Moody's or S&P or any other rating agency which maintains a Debt Rating on the Guarantor which is used in the Pricing Grid. 4.1.2 Compliance with Laws: The Guarantor will comply in all material respects with all applicable law, rules, regulations and orders, such compliance to include 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 such assignments and charges are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with US GAAP shall have been set aside on its books). 4.1.3 Maintenance of Properties: The Guarantor will, and will use reasonable efforts to cause each of its Subsidiaries and Partnerships to, maintain, preserve, protect and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted), 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 Guarantor determines in good faith that the continued maintenance of any of its properties or equipment is no longer economically desirable and except where the failure so to do would not have a Material Adverse Effect. 4.1.4 Insurance: The Guarantor 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. 4.1.5 Books and Records: The Guarantor 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 Facility Agent and each Bank or any of their respective representatives (at the Facility Agent's or such Bank's expense), at reasonable times and intervals upon reasonable prior notice, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant. The Guarantor will at any reasonable time and from time to time upon reasonable prior notice, permit the Facility Agent and the Banks 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 Guarantor; provided that by virtue of this Clause 4.1.5 the Guarantor shall not be deemed to have waived any right to confidential treatment of the information obtained, subject to the provisions of applicable law or court order. 4.1.6 Environmental Covenant: The Guarantor will, and will use best efforts to cause each of its Subsidiaries and Partnerships to: (i) use and operate all of its facilities and properties in compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licences and other authorisations 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; (ii) promptly cure and have dismissed to the reasonable satisfaction of the Facility 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 Guarantor 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 (iii) provide such non-privileged information as the Facility Agent may reasonably request from time to time to evidence compliance with this Clause 4.1.6. 4.1.7 Conduct of Business and Maintenance of Existence: The Guarantor will continue to engage in business of the same type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Clause 4.2.5. 4.1.8 Year 2000 Matters: The Guarantor will, and will use best efforts to cause each of its Subsidiaries and Partnerships to assure that its computer based systems are able to effectively process data including dates on or after 1 January 2000. 4.1.9 L/C Reductions: The Guarantor will procure that the L/C Amount (as defined in the Capex Letter of Credit) is reduced at the time and to the extent permitted under the financing documents to which the Project Company is a party. 4.2 Negative Covenants: The Guarantor agrees with the Facility Agent (on behalf of itself and each Bank) that, until the Total Commitments] have terminated and all obligations of the Borrower under the Facility Agreement have been paid and performed in full, the Guarantor will, and will cause each of its Subsidiaries and Partnerships, as applicable, to perform the obligations set forth in this Clause 4.2: 4.2.1 Restrictions on Secured Indebtedness: The Guarantor will not create, incur, assume or suffer to exist any secured Indebtedness other than: (i) Capitalised 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 4.2.1(ii)) at any time outstanding not exceeding an aggregate principal amount equal to 10% of Net Tangible Assets; provided that any Indebtedness exceeding such amount may be secured pursuant to Clause 4.2.2(vi) and (ii) Non-Recourse Debt with respect to which the Guarantor has pledged the stock of a Subsidiary in order to secure initial project financing obtained or being obtained after the Effective Date by such Subsidiary (or the Partnership in which such Subsidiary is a partner). 4.2.2 Liens: The Guarantor 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: - -------------------------------------------------------------------------------- (i) Liens granted to secure payment of Indebtedness of the type permitted and described in Clause 4.2.1(ii); (ii) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with US GAAP shall have been set aside on its books; (iii) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with US GAAP shall have been set aside on its books; (iv) 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; (v) 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; (vi) Liens upon any property at any time directly owned by the Guarantor to secure any Indebtedness of the nature described in Clause 4.2.1(i) in excess of the amount otherwise permitted thereby, provided that the Guarantor's Obligations shall be equally and rateably secured with any and all such Indebtedness and with any other Indebtedness similarly entitled to be equally and rateably secured; and (vii) any Lien existing on the property of the Guarantor on the Effective Date. In the event that the Guarantor 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 Clause 4.2.2(vi) above, the Guarantor will give prior written notice thereof to the Facility Agent, who shall give notice to the Banks, and the Guarantor will, prior to or simultaneously with the creation of such Lien, effectively secure the Guarantor's Obligations equally and rateably with such Indebtedness. 4.2.3 Financial Condition: The Guarantor will not permit its Tangible Net Worth to be less than $400,000,000 plus 25% of the Guarantor's and its Subsidiaries' consolidated net income earned (without subtracting net losses) in each Fiscal Quarter commencing with the quarter ending after 30 September 1992. 4.2.4 Investments: The Guarantor 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: - -------------------------------------------------------------------------------- (i) Investments existing on the Effective Date; (ii) Cash Equivalent Investments provided, however, that 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; (iii) without duplication, Investments permitted as Indebtedness pursuant to Clause 4.2.1; (iv) otherwise in the ordinary course of business; and (v) Investments permitted pursuant to Clause 4.2.5(ii). 4.2.5 Consolidation Merger: The Guarantor 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: (i) any such Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Guarantor or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Guarantor or any other Subsidiary; (ii) so long as no Default (by reason of the violation of Clause 4.2.3) has occurred and is continuing or would occur after giving effect thereto, the Guarantor 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 (iii) provided that no Default has occurred and is continuing or would occur after giving effect thereto (including, without limitation, a Change in Control), the Guarantor 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 Guarantor if the Guarantor 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 Guarantor's Obligations. 4.2.6 Asset Dispositions: The Guarantor 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: (i) such sale, transfer, lease, contribution or conveyance is the ordinary course of its business; or (ii) 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 Guarantor or any of its Subsidiaries pursuant to this Clause 4.2.6(ii) 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 limitation of this Clause 4.2.6(ii) if the proceeds are invested in assets in similar or related lines of business of the Guarantor, and provided further, that the Guarantor 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 Guarantor as cash or Cash Equivalent Investments. 4.2.7 Transactions with Affiliates: The Guarantor 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 Guarantor and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Guarantor with a Person which is not one of its Affiliates. 4.2.8 Restrictive Agreements: The Guarantor will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding any Loan Document and any agreement governing any Indebtedness permitted by Clause 4.2.1(ii) as to the assets financed with the proceeds of such Indebtedness) prohibiting: (i) the ability of the Guarantor to amend or otherwise modify any Loan Document; or (ii) the ability of any Subsidiary to make any payments, directly or indirectly, to the Guarantor by way of dividend, 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 Guarantor where such prohibition or restriction has a Material Adverse Effect. 4.3 ERISA: The Guarantor 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 Guarantor to any tax, penalty or other liabilities having a Material Adverse Effect. 5 Invalidity If any provision of this Guarantee is held to be invalid or unenforceable, then such provision shall (so far as it is invalid or unenforceable) be given no effect and shall be deemed not to be included in this Guarantee but without invalidating any of the remaining provisions of this Guarantee. The parties shall then use all reasonable endeavours to replace the invalid or unenforceable provision with a valid provision the effect of which is as close as possible to the intended effect of the invalid or unenforceable provision. - -------------------------------------------------------------------------------- 6 Notices 6.1 Any notice or other communications to be given under, or in connection with, this Guarantee shall be in writing and signed by or on behalf of the party giving it. It shall be served by sending it by fax to the number set out in Clause 6.2 (provided that it is also sent by delivery by hand or first class post on the same day), or delivering it by hand, or sending it by pre-paid recorded delivery, special delivery or registered post, to the address set out in Clause 6.2 and in each case marked for the attention of the relevant party set out in Clause 6.2 (or as otherwise notified from time to time in accordance with the provisions of this Clause 6). Any notice so served by hand, fax or post shall be deemed to have been received: 6.1.1 in the case of delivery by hand, when delivered; 6.1.2 in the case of fax, at the time of transmission; 6.1.3 in the case of pre-paid recorded delivery, special delivery or registered post, at 10:00 a.m. on the second Business Day following the date of posting, provided that in each case where delivery by hand or by fax occurs after 6.00 p.m. on a Business Day or on a day which is not a Business Day, service shall be deemed to occur at 9.00 a.m. on the next following Business Day. References to time in this clause are to local time in the country of the addressee. 6.2 The addresses and fax number of the parties for the purpose of Clause 6.1 are as follows: The Facility Agent: Address 5 The North Colonnade Canary Wharf London E14 4BB For the attention of: Mike Clarke Fax: 0171 773 6807 Guarantor: Address: Lansdowne House Berkeley Square London W1X 5DH For the attention of: General Counsel Fax: 0171 312 4041 6.3 A party may notify the other for a change to its name, relevant addressee, address or fax number for the purposes of this Clause 6, provided that such notice shall only be effective on: - -------------------------------------------------------------------------------- 6.3.1 the date specified in the notice as the date on which the change is to take place; or 6.3.2 if no date is specified or the date specified is less than five New York Business Days after the date on which notice is given, the date following five New York Business Days after notice of any change has been given. 6.4 In proving such service it shall be sufficient to prove that the envelope containing such notice was properly addressed and delivered either to the address shown thereon or into the custody of the postal authorities as a pre-paid recorded delivery, special delivery or registered post letter, or that the facsimile transmission was made after obtaining, in person or by telephone, appropriate evidence of the capacity of the addressee to receive the same, as the case may be. 7 Assignment No person shall be entitled to assign, transfer, charge, declare trusts over or otherwise deal in any way whatsoever with the benefit or burden of this Guarantee (in whole or in part) or any right, benefit or obligation arising under this Guarantee or with any income or benefit derived or to be derived from this Guarantee or agree to do any such matter; Provided that a Bank may assign the benefit of this Guarantee to any person to whom it transfers its rights and obligations under the Facility Agreement. 8 Variation No variation of any of the terms of this Guarantee shall be valid unless it is made in accordance with Clause 22 of the Facility Agreement. The expression "variation" shall include any variation, supplement, deletion or replacement however effected. 9 Waiver 9.1 Any delay by a Bank or the Facility Agent or the Guarantor in exercising, or any failure to exercise, any right or remedy under this Guarantee shall not constitute a waiver of the right or remedy or a waiver of any other rights or remedies and no single or partial exercise of any rights or remedy under this Guarantee or otherwise shall prevent any further exercise of the right or remedy or the exercise of any other right or remedy. 9.2 The rights and remedies of the parties under or pursuant to this Guarantee are cumulative and are in addition to any rights or remedies provided under general law. 10 Governing Law and Jurisdiction 10.1 Governing Law: This Agreement shall be governed by and construed in accordance with the laws of England. 10.2 English Courts: The Facility Agent (on behalf of itself and each Bank) irrevocably agrees that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Guarantee and that, accordingly, any legal action or proceedings arising out of or in connection with this Guarantee ("Proceedings") may be brought in those courts and the Guarantor irrevocably submits to the jurisdiction of those courts. - -------------------------------------------------------------------------------- This Guarantee has been executed as a Deed on the date stated at the beginning. EXECUTED and DELIVERED as a DEED by EDISON MISSION ENERGY acting by a duly authorised officer in the presence of: PAUL GRACEY JEREMY STOKELD One Silk Street London EXECUTED as a DEED by Andrew Vine on behalf of BARCLAYS BANK PLC pursuant to a power of attorney dated for the Banks party to the Facility Agreement ANDREW VINE - -------------------------------------------------------------------------------- EX-27 4 FINANCIAL DATA SCHEDULE
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 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 450,777 0 153,810 0 182,052 880,593 8,279,324 366,721 11,189,084 1,293,007 5,104,988 307,536 118,054 64,130 2,101,126 11,189,084 0 878,319 0 441,052 0 0 245,252 183,022 33,006 150,016 0 0 (13,840) 136,176 0 0
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