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GENERATION PURCHASE RIGHT AGREEMENT
by and between
LONG ISLAND LIGHTING COMPANY,
AS SELLER,
AND
LONG ISLAND POWER AUTHORITY,
AS BUYER,
Dated as of June 26, 1997
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TABLE OF CONTENTS
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Page
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ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions..................................................2
Section 1.2 Rules of Construction........................................4
ARTICLE 2
PURCHASE RIGHT
Section 2.1 Purchase Right...............................................4
Section 2.2 Exercisability...............................................5
Section 2.3 Method of Exercise...........................................5
Section 2.4 Exercise Date................................................5
Section 2.5 Request for Confirmation.....................................5
Section 2.6 Effect of Notice.............................................6
Section 2.7 Closing Date.................................................6
Section 2.8 Payment and Delivery of Interests............................6
Section 2.9 Provision of Corporate Records...............................6
Section 2.10 Non-Recourse.................................................7
ARTICLE 3
THE PURCHASE PRICE
Section 3.1 Purchase Price...............................................7
Section 3.2 Arbitration..................................................7
Section 3.3 Disclosure of Third Party Offers.............................7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Seller
and Genco....................................................8
Section 4.2 Provision of Additional Schedules
upon Exercise...............................................14
Section 4.3 Representations and Warranties of Buyer.....................15
ARTICLE 5
COVENANTS
Section 5.1 Covenants of Seller.........................................15
Section 5.2 Covenants of Buyer..........................................18
Section 5.3 Additional Agreements.......................................19
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ARTICLE 6
GENERAL PROVISIONS
Section 6.1 Notices.....................................................20
Section 6.2 Headings....................................................21
Section 6.3 Miscellaneous...............................................21
Section 6.4 Assignment..................................................21
Section 6.5 Schedules...................................................21
Section 6.6 Waiver; Amendment...........................................22
Section 6.7 Issue Taxes.................................................22
Section 6.8 Fees And Expenses...........................................22
Section 6.9 Alternative Dispute Resolution..............................22
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GENERATION PURCHASE RIGHT AGREEMENT
This GENERATION PURCHASE RIGHT AGREEMENT ("Agreement") is made
and entered into as of the 25th day of June 1997, by and between LONG ISLAND
LIGHTING COMPANY, a New York corporation ("Seller", also referred to herein as
"LILCO"), and LONG ISLAND POWER AUTHORITY, a corporate municipal instrumentality
and political subdivision of the State of New York ("Buyer", also referred to
herein as "LIPA"), acknowledged and agreed to, as of the Closing (as herein
defined), by Marketspan Generation LLC*, a New York limited liability company
("Genco")
RECITALS
WHEREAS, Parent (as therein defined), Seller, Buyer, and LIPA
ACQUISITION CORP., a New York corporation ("LIPA Sub"), entered into an
AGREEMENT AND PLAN OF EXCHANGE AND MERGER (the "Merger Agreement"), dated as of
June 25, 1997, pursuant to which (i) LIPA Sub is to merge with and into Seller;
(ii) Seller undertakes to form an entity for the purpose of receiving certain
assets and properties of LILCO; and (iii) Seller is to enter into a generation
purchase right agreement in substantially the form of this Agreement.
WHEREAS, Genco will own and have all right, title and interest
to the Generating Facilities (as defined herein) at or prior to the Closing.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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*Pursuant to the Merger Agreement, Seller will identify, prior to the Closing
(as therein defined), a limited liability company (formed by Seller or one or
more of its wholly-owned subsidiaries), which will execute this Agreement as
Genco and to which will be transferred at such Closing the Generating
Facilities.
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions. All capitalized terms used in this Agreement
and not otherwise defined shall have the meanings assigned to them in the Power
Supply Agreement, dated as of the date hereof, between LILCO and Buyer, attached
to the Merger Agreement as Exhibit B (the "Power Supply Agreement"). The
following terms, as used herein, shall have the respective meanings set forth in
this Section 1.1:
"Additional Assets" means assets other than interests in real
property reasonably required for the Business (as defined herein),
including, without limitation any fuel supply agreements (other than
Basic Agreements), spare parts and fuel inventory on site.
"Agreement" means this Generation Purchase Right Agreement and
all Exhibits and Schedules annexed hereto, as the same may be amended
from time to time.
"Audited Balance Sheet" has the meaning assigned to it in
Section 2.6 herein.
"Business" means the business of operating the Generating
Facilities (as defined herein) as it is operated on the date hereof.
"Closing" has the meaning assigned to it in the Merger
Agreement.
"Closing Date" has the meaning assigned to it in Section 2.7
herein.
"Confirmation" has the meaning assigned to it in Section 2.5
herein.
"Contract" means any contract, agreement, purchase order,
lease, indenture, mortgage, loan agreement, note, guarantee,
commitment, undertaking or arrangement of any kind.
"Easements" has the meaning assigned to it in Section 5.3(d)
herein.
"Engineer's Report" has the meaning assigned to it in Section
2.1 herein.
"Exercise Date" has the meaning assigned to it in Section 2.4
herein.
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"Fair Market Value" means the amount that a willing buyer and
a willing seller, neither of whom is under any compulsion to sell or to
buy, would be willing to pay or receive, as the case may be, in an all
cash transaction in an orderly market for the Interests; provided,
however, that the Additional Assets shall be deemed to have been
transferred to Genco prior to the Exercise Date.
"GAAP" means United States generally accepted accounting
principles.
"Generating Facilities" means the electric generating
facilities to be owned by Genco as defined in Section 1.27 of the Power
Supply Agreement.
"Generating Properties" has the meaning assigned to it in
Section 2.1 herein.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended, including the Premerger Notification Rules
promulgated thereunder.
"Interests" means all of the limited liability company
interests (whether direct, indirect or contingent) in Genco.
"Investment Bankers" has the meaning assigned to it in
Section 3.1(a) herein.
"Laws" means, with respect to any Person, any foreign, United
States Federal, state or local laws, statutes, ordinances, rules or
regulations applicable to such Person.
"Liens" means, with respect to any asset, property or right of
any Person, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset, property or right.
"Material Adverse Effect" means, with respect to a Person, an
event or circumstance which could reasonably be expected to have a
material adverse effect on the business, operations, properties,
financial condition, results of operations or prospects of such Person.
"Permit" means any permit, license, approval, consent, order
or authorization of any Governmental Authority.
"Person" means, unless otherwise specified, a natural person,
corporation, society, partnership, joint venture, unincorporated
association or other entity, including a Governmental Authority.
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"Purchase Price" has the meaning assigned to it in Section 3.1
herein.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder by the Securities
and Exchange Commission.
"Taxes" means all taxes, assessments and charges imposed by
any United States Federal, state or local taxing authority or any
foreign taxing authority, including, without limitation, interest,
penalties and additions thereto.
Certain other terms are defined elsewhere in this Agreement.
Section 1.2 Rules of Construction. Unless the context otherwise
requires:
(a) Words in the singular include the plural, and words in
the plural include the singular;
(b) Provisions apply to successive events and transactions;
(c) An accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(d) "Herein", "hereof" and other words of similar import
refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision of this Agreement;
(e) Words in the masculine gender include the feminine gender
and words in feminine gender include the masculine gender; and
(f) The Article and Section headings used or contained in
this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
ARTICLE 2
PURCHASE RIGHT
Section 2.1 Purchase Right. Subject to the terms and conditions of this
Agreement, Seller hereby grants to Buyer the right to purchase all of the
outstanding Interests (the "Right") at the price, in the manner and at the time
specified in this Article 2. No later than nine months from the date hereof,
LIPA's consulting engineer will identify with respect to each of
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the existing Generating Facilities, the specific size and location of interests
in real property required for the operation of such Generating Facility (the
"Generating Properties"), subject to any Request for Confirmation pursuant to
Section 2.5 (the "Engineer's Report"). Such property shall be transferred to
Genco at or prior to the Closing. To the extent that, prior to the Exercise
Date, Genco has any right, title or interest in real property other than the
Generating Properties, Genco may transfer such right, title or interest to
Seller or any affiliate or subsidiary of Seller, provided, however, that the
value of any such right, title or interest transferred by Genco prior to the
Closing shall not be reflected in the Purchase Price calculated pursuant to
Section 3.1 herein.
Section 2.2 Exercisability. Subject to the further terms of this
Agreement, the Right shall become exercisable at any time after the third
anniversary of the date of the Closing. The Right shall expire and cease to be
exercisable at 12:01 a.m. on the fourth anniversary of the Closing.
Section 2.3 Method of Exercise. The Right may be exercised only by the
giving of written notice to the Seller in such form and in such manner as is
prescribed in Section 6.1 herein. Notice must be accompanied by:(i)certification
by the Chairman or Executive Director of LIPA that the exercise of the Right has
been affirmatively approved by the vote of two thirds of all members of the
entire LIPA Board of Trustees; (ii) a copy of the related resolutions of the
LIPA Board of Trustees certified as true and correct by the Chairman or
Executive Director of LIPA; (iii) evidence reasonably satisfactory to Seller of
the approval of the exercise of the Right and of any financing required to
exercise the Right by the Public Authorities Control Board; and (iv) Buyer's
election either (x) to operate the Generating Facilities by itself or by an
Affiliate or (y) to retain Seller or an Affiliate of Seller to operate the
Generating Facilities pursuant to Section 5.3(c).
Section 2.4 Exercise Date. The date of exercise of the Right shall be
the date on which the Notice is delivered to the Seller, during normal business
hours, at its address as provided in Section 6.1 of this Agreement (the
"Exercise Date").
Section 2.5 Request for Confirmation. Seller shall be entitled to
appoint an additional independent consulting engineer to consider the Engineer's
Report and shall provide Buyer within thirty business days of the receipt of the
Engineer's Report either: (i) notice that it intends to waive Confirmation (as
herein defined); or (ii) a request for Confirmation, in which case a copy of the
report of Seller's independent consulting engineer shall be given to Buyer and
to its independent consulting engineer within 90 days of Seller's request for
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Confirmation. In the event Seller requests Confirmation, the parties are to
select an independent consulting engineer to identify with respect to each of
the Generating Facilities the specific size and location of land parcels
required for the operation of such Generating Facility (the "Confirmation") and
such Confirmation will be conclusive and binding on the parties.
Section 2.6 Effect of Notice.
(a) Upon receipt of the Notice, Buyer shall be legally bound
to purchase, and Seller shall be legally bound to sell, all of the
Interests, subject to:(i) the receipt of Confirmation or Seller's
waiver thereof; (ii) the provisions of Section 4.2; (iii) Buyer's right
not to purchase the Interests if on the Closing Date any of the
representations set forth in Section 4.1 are inaccurate in any material
respect; and (iv) the other terms and conditions contained herein.
(b) Upon receipt of the Notice, Seller will: (i) cause to be
prepared and delivered to Buyer not later than the 90th day after such
receipt an audited balance sheet of Genco as of the quarter-end
immediately preceding the date of such exercise (the "Audited Balance
Sheet") and (ii) provide Buyer and the Investment Bankers with
reasonable access to the books and records of Genco.
Section 2.7 Closing Date. The closing of this Agreement will be on a
date scheduled by LIPA not later than 90 days after the final determination of
the Purchase Price pursuant to Section 3.1 hereunder (the "Closing Date") at a
location to be agreed upon by the parties hereto following the Exercise Date.
The Closing Date may be extended by the written agreement of the parties hereto.
Section 2.8 Payment and Delivery of Interests. On the Closing Date,
Seller shall deliver to Buyer documents sufficient to cause the entire right,
title and interest in and to all outstanding Interests to be transferred of
record to Buyer and in consideration thereof Buyer shall pay to Seller an amount
in cash equal to the Purchase Price. All such payments and deliveries shall be
deemed to occur simultaneously as a single transaction and no such payment or
delivery shall be effective unless all such payments and deliveries have been
made.
Section 2.9 Provision of Corporate Records. Seller shall arrange as
soon as practicable following the Closing Date for transportation, at Seller's
cost, to Buyer of the records in Seller's possession relating to the assets of
Genco, including, without limitation, all agreements, litigation files and
filings with governmental agencies relating to the Generating Facilities,
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except to the extent such items are already in the possession of Buyer.
Section 2.10 Non-Recourse. The sale and purchase of the Interests
transferred hereunder shall be made on an "as-is" basis without recourse to
Seller, and without representation, covenant or warranty by Seller, express or
implied, except in each case as expressly set forth in this Agreement. Seller
makes no representation and takes no responsibility with respect to the
financial condition of Genco. In particular, the parties hereby agree that,
without limiting the generality of the foregoing, Buyer assumes any and all
obligations pursuant to then existing Contracts of Genco, in addition to
assuming any and all obligations with respect to any pension, employment or
insurance arrangements maintained by Genco.
ARTICLE 3
THE PURCHASE PRICE
Section 3.1 Purchase Price. The purchase price for the Interests
("Purchase Price") shall be the Fair Market Value of the Interests, to be
determined as of the Exercise Date by two independent nationally recognized
investment banking firms experienced in the valuation of comparable property,
one of which shall be appointed by each of Buyer and Seller (collectively, the
"Investment Bankers") to negotiate and agree upon Fair Market Value. In
determining the Fair Market Value, the Investment Bankers shall consider all of
the terms of the Power Supply Agreement for the term of such agreement.
Section 3.2 Arbitration. If the Investment Bankers are not able to
agree on the Fair Market Value or such appropriate interest rate, then Buyer and
Seller will select a mutually agreeable independent nationally recognized
investment banking firm experienced in the valuation of comparable properties to
provide its determination of the Fair Market Value, which will be used to
determine the Purchase Price and will be conclusive and binding on the parties.
Section 3.3 Disclosure of Third Party Offers. If at any time within six
months of the Exercise Date and prior to the Closing Date Buyer has received any
binding or serious offers from any third party to purchase some or all of the
assets of Genco, Buyer shall disclose the terms and existence of such offers to
Seller and to the Investment Bankers. If Buyer agrees to any such third-party
offers and consummates such transaction within 3 months after the Closing Date,
Seller will pay to Buyer 50% of Buyer's reasonable incremental financing costs
(excluding interest or other costs of carry), if any, and including legal
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fees, underwriter's compensation and other costs of issuance, specifically
related to such financing, if any, up to $2 million.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Seller and Genco. Except
for the representation and warranty contained in Section 4.1(a), the following
representations and warranties are furnished solely for the purpose of
facilitating the determination of Fair Market Value and shall not preclude the
Investment Bankers from pursuing such due diligence as they require to perform
their obligations hereunder. Seller and Genco, jointly and severally, represent
and warrant to the Buyer at the Closing and on the Closing Date that, except as
disclosed to Buyer in writing on the date hereof and as updated in writing not
later than the date the Audited Balance Sheet is delivered and further updated
in writing by Seller prior to the determination of Fair Market Value (the
"Schedule"):
(a) ownership of Interests. On the Closing Date, Seller will
own and hold, beneficially, the entire right, title and interest in and
to all of the then existing Interests free and clear of all Liens. As
of the Closing Date, there will be no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Genco to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
Interests, or obligating Genco to grant, extend or enter into any such
agreement or commitment.
(b) Execution and Enforceability. Seller has and Genco will
have as of the Closing all requisite power and authority to execute and
deliver this Agreement and to perform each of their obligations
hereunder. Seller has and Genco will have as of the Closing duly
authorized the execution, delivery and performance of this Agreement.
This Agreement is the legal, valid and binding obligation of Seller and
will be the legal, valid and binding obligation of Genco as of the
Closing, and (assuming that this Agreement has been duly authorized,
executed and delivered by Buyer) is enforceable against Seller and
Genco in accordance with its terms.
(c) Organization and Qualification of Genco. On the Closing
Date, Genco is a limited liability company duly
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organized, validly existing and in good standing under the laws of the
State of New York and will have all requisite power and authority to
conduct its business as then conducted and to own and lease its
properties and assets. On the Closing Date, Genco will be qualified to
do business and in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business then requires
such qualification.
(d) No Violations or Conflicts. Neither the execution and
delivery of this Agreement by Seller or Genco nor the consummation of
the transactions contemplated by this Agreement (i) results in a
violation or breach of, or constitutes a default or an event of default
under, any bond or other material Contract, Permit, instrument or other
obligation to which Seller or Genco is a party, or (ii) violates any
Laws, writ, judgment, injunction or court decree.
(e) Consents and Approvals. Except as otherwise provided in
this Agreement, no consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Authority is
required to-be made or obtained by Genco or Seller in connection with
the execution, delivery and performance of this Agreement by Genco or
Seller. No consent, approval or authorization by, or notice to, any
other Person is required to be made or obtained by Genco or Seller in
connection with the execution, delivery and performance of this
Agreement by Genco or Seller. On the Closing Date, all notices or other
actions required to be made or taken, if any, pursuant to any
applicable Laws to permit the closing of this Agreement will have been
made and taken.
(f) Compliance with Laws; Permits. The operations and
activities of Genco are in compliance with all Laws and neither
Seller or Genco has received any notice to the contrary. Genco has all
material Permits required for it to conduct the Business and no
material violations have been recorded in respect of any Permits and no
proceeding is pending or, to the knowledge of Seller, threatened with
respect to the limitation or revocation of any Permit.
(g) Audited Balance Sheet. The Audited Balance Sheet will, as
of and for the periods ended on the applicable date, fairly present, in
all material respects, the financial position and results of operations
of Genco as of the dates and for the periods presented therein in
accordance with GAAP, applied on a consistent basis during the periods
concerned, except as otherwise noted therein.
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(h) Records. The books of account and records of Genco fairly
reflect, in all material respects, all of the properties, assets,
liabilities and transactions of Genco.
(h) Assets. On the Closing Date, Genco will have good and
marketable title (except to the extent that such assets are leased) to
all of the Generating Facilities free and clear of any debts, Taxes,
claims, options, liabilities, obligations or Liens. On or before the
Closing Date, Seller shall cause Genco to deliver to Buyer copies of all
deeds, endorsements, assignments and other good and sufficient
instruments to evidence Gencol's right, title and interest in and to any
and all of the Generating Facilities, as Buyer may reasonably request.
(j) Sufficiency of Assets. on the Closing Date, Genco will
own, lease or otherwise have a right to the use of all assets and
properties relating to the Business. Except as set forth on the
Schedule, Parent and/or Genco have obtained all consents required in
order to maintain such leases and rights to use in the context of a
transfer of ownership of the Interests.
(k) Properties. The Schedule sets forth a list of all of the
real property that is owned by a third party which is leased to Genco
and all real property that is owned by Genco. Genco enjoys peaceful and
undisturbed possession of all such properties that are owned by Genco,
and such properties are free and clear of all debts, Taxes, claims,
options, liabilities, obligations and Liens.
(1) Environmental Protection. Environmental Protection. Except
as set forth in the Schedule or in Parent SEC Reports (as defined in
the Merger Agreement) filed prior to the date hereof:
(i) Compliance. Genco is in material compliance with
all Environmental Laws (as defined in Section
4.1(j)(vii)(B)) applicable to the Generating
Facilities; and neither Seller nor Genco has
received any communication (written or oral), from
any person or Governmental Authority that alleges
that Genco is not in such compliance with
applicable Environmental Laws.
(ii) Environmental Permits. Genco has obtained or has
applied for all material environmental health and
safety permits and all other governmental licenses,
permits, and authorizations (collectively, the
"Environmental Permits") necessary for the
construction of the
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facilities constituting part of the Generating
Facilities or the ownership or operation of such
facility or the Generating Facilities, and all such
Environmental Permits are in good standing or,
where applicable, a renewal application has been
timely filed and is pending agency approval, and
Genco is in material compliance with all terms and
conditions of the Environmental Permits.
(iii) Environmental claims. There is no material
Environmental Claim (as defined in Section
4.1(j)(vii)(A)) pending (A) against Genco, (B) to
the best knowledge of Seller and Genco, against any
person or entity whose liability for any
Environmental Claim Genco has or may have retained
or assumed either contractually or by operation of
law, or (C) against any real or personal property
or operations which Genco owns or formerly owned
or, to the best knowledge of Seller and Genco, any
real or personal property or operations which Genco
leases or manages or formerly leased or managed, in
whole or in part.
(iv) Releases. Genco has no knowledge of any material
Releases (as defined in Section 4.1(j)(vii)(D)) of
any Hazardous Material (as defined in Section
4.1(j)(vii)(C)), that would be reasonably likely to
form the basis of any material Environmental Claim
against Genco, or against any person or entity
whose liability for any material Environmental
Claim Genco has or may have retained or assumed
either contractually or by operation of law.
(v) Predecessors. Seller and Genco have no knowledge,
with respect to any predecessor of Genco's, of any
material Environmental Claim pending or threatened,
or of any Release of Hazardous Materials that would
be reasonably likely to form the basis of any
material Environmental Claim.
(vi) Disclosure. Seller and Genco have disclosed to
Buyer all material facts which they reasonably
believe form the basis of a material Environmental
Claim arising from (A) the cost of Genco pollution
control equipment currently required or known to be
required in the future with respect to the
Generating Facilities; (B) current Genco
remediation costs or Genco
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remediation and site monitoring costs known to be
required in the future with respect to the
Generating Facilities; or (C) any other
environmental matter affecting Genco with respect
to the Generating Facilities.
(vii) As used in this Agreement:
(A) "Environmental Claim" means any and all
administrative, regulatory or judicial actions,
suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of
noncompliance or violation (written or oral) by any
person or entity (including any Governmental
Authority) alleging potential liability (including,
without limitation, potential responsibility for or
liability for enforcement, investigatory costs,
cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages,
property damages, personal injuries or penalties)
arising out of, based on or resulting from (a) the
presence, or Release or threatened Release into the
environment, of any Hazardous Materials at any
location, whether or not owned, operated, leased or
managed by Genco and constituting a portion of the
Generating Facilities (for purposes of this Section
4.1); or (b) circumstances forming the basis of any
violation, or alleged violation, of any
Environmental Law with respect to the Generating
Facilities; or (c) any and all claims by any third
party seeking damages, contribution,
indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or
Release of any Hazardous Materials with respect to
the Generating Facilities.
(B) "Environmental Laws" means all federal,
state, local laws, ordinances, rules and
regulations relating to health and safety,
pollution, the environment (including, without
limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or
protection of human health as it relates to the
environment including, without limitation, laws and
regulations relating to Releases or threatened
Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing,
distribution, use, treatment,
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storage, disposal, transport or handling of
Hazardous Materials.
(C) "Hazardous Materials" means (A) any
petroleum or petroleum products, radioactive
materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation,
and transformers or other equipment that contain
dielectric fluid containing polychlorinated
biphenyls; and (B) any chemicals, materials or
substances which are now defined as or included in
the definition of "hazardous substances",
"hazardous wastes", "hazardous materials",
"extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", or
words of similar import, under any Environmental
Law; and (C) any other chemical, material,
substance or waste, exposure to which is now
prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which Genco
operates the Generating Facilities (for purposes of
this Section 4.1).
(D) "Release" means any release, spill,
emission, leaking, injection, deposit, disposal,
discharge, dispersal, leaching or migration into
the atmosphere, surface or subsurface soil, surface
water, saltwater shoreline or floor bottom,
groundwater or property from or affecting any of
the Generating Facilities.
(m) Regulation as a Utility. Except as set forth in the
Schedule, Genco is not subject to any regulation as a public utility or
public service company (or similar designation) by any state in the
United States other than New York or any foreign country.
(n) Undisclosed Liabilities. Except as and to the extent set
forth in the Audited Balance Sheet, as of the date thereof, Genco did
not have any liabilities required by GAAP to be reflected on a balance
sheet. Since such date, Genco has not incurred any liabilities (whether
absolute, accrued, contingent or otherwise) required by GAAP to be
reflected on a balance sheet or set forth in the notes thereto, except
such liabilities which were incurred in the ordinary course of
business.
(o) Absence of Certain Changes. Since the Closing, Genco has
not (i) suffered any change in its business, operations, financial
condition or prospects, except such
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changes which, in the aggregate, have not had and are not reasonably
likely to have a Material Adverse Effect, (ii) incurred any long-term
indebtedness for borrowed money or guaranteed, assumed or endorsed the
obligations of any third party, (iii) sold, transferred or otherwise
disposed of any material asset, property or right or (iv) created or
suffered to exist any Lien on any Generating Facilities, other than
easements created pursuant to the Merger Agreement or the other Basic
Agreements.
(p) Conduct of Business of Genco. Since the Closing, Genco
has conducted its operations and affairs only in accordance with the
ordinary and usual course of business.
(q) Contracts and Commitments. The Schedule sets forth a list
and description of the following agreements, oral or written, to which
is a party or by which Genco is bound: (i) all Contracts
involving an obligation on the part of Genco of more than $500,000
individually or more than $10 million in the aggregate, (ii) all
purchase orders in excess of $500,000 individually or more than $10
million in the aggregate, (iii) all agreements under which Genco may be
obligated to perform services or expects to receive fees in excess of
$500,000 individually or more than $10 million in thee aggregate, (iv)
all real and personal property leases involving annual payments in
excess of $500,000 individually or more than $10 million in the
aggregate, (v) all employment contracts with employees or former
employees of Genco, and (vi) all other material agreements (the
contracts and commitments identified in clauses (i) through (vi) of
this Section 4.1(q) being hereafter collectively referred to as the
"Commitments"). Neither Genco nor any of its employee is in default or
breach of any of the Commitments, and, to the best knowledge of Seller,
no other party to any of the Commitments is in default or breach
thereof.
(r) Litigation. There is no claim, suit, litigation,
investigation or proceeding pending, or to the best knowledge of Seller
threatened, against Genco in any court, by any governmental entity or
before any arbitrator or other tribunal. Neither Genco nor any of its
employees is subject to any outstanding action, order, writ, judgment,
injunction or decree of any court or governmental entity.
Section 4.2 Provision of Additional Schedules upon Exercise. The
Schedule provided on the date hereof pursuant to Section 4.1 is valid as of the
date hereof. On or before the date on which the Audited Balance Sheet is
delivered to Buyer, Seller will provide Buyer and each Investment Banker with an
updated Schedule valid as of the Exercise Date. If the Buyer determines that any
such update contains evidence of any change
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or event which has had a Material Adverse Effect since the date hereof, Buyer
must notify Seller within thirty days of the delivery of such update if it
intends to revoke its exercise of the Right. Upon delivery of such notice, this
Agreement shall immediately terminate and no party shall have any further
obligation or right hereunder. After the expiration of such thirty day period,
Buyer (unless it shall have prior to such expiration delivered such notice)
shall be legally bound by its exercise of the Right.
Section 4.3 Representations and Warranties of Buyer. Except as
otherwise disclosed to Seller in writing, Buyer represents and warrants to the
Seller on the date hereof and on the Closing Date as follows:
(a) Power and Authority. Buyer has all requisite power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. Buyer has duly authorized the execution;
delivery and performance of this Agreement. This Agreement is the
legal, valid and binding obligation of Buyer and (assuming that this
Agreement has been duly authorized, executed and delivered by Seller)
is enforceable against Buyer in accordance with its terms.
(b) Applicability of HSR Act. Buyer is an agency of the State
of New York and is not a "corporation engaged in commerce" within the
meaning of the HSR Act as of either the date hereof, the Exercise Date
or the Closing Date.
ARTICLE 5
COVENANTS
Section 5.1 Covenants of Seller. After the date hereof and prior to the
Closing Date or earlier termination of this Agreement, Seller agrees on its own
behalf or agrees that it will cause Genco to act, as the case may be, as
follows, except as expressly contemplated or permitted in this Agreement or to
the extent the other parties hereto shall otherwise consent in writing:
(a) No transfer of Seller's interest in Genco without Prior
Approval. Seller is not permitted to transfer or to permit its
subsidiaries to transfer any or all of its or their right, title and
interest in and to all of the Interests, except where the intended
transferee: (i) is a direct or indirect wholly owned subsidiary of
Seller; (ii) executes and delivers a copy of this Agreement to Buyer;
and (iii) assumes in writing all of Seller's obligations with respect
hereto.
-15-
(b) Ordinary Course of Business. Genco shall carry on its
business in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and use all commercially reasonable
efforts to preserve intact its present business organization and
goodwill and preserve the goodwill and relationships with customers,
suppliers and others having business dealings with it. Genco may, with
the prior approval of Buyer, engage in transactions out of the ordinary
course of business relating to the Generating Facilities, such approval
not to be unreasonably withheld.
(c) No Change in Business. Genco shall not engage in any new
lines of business or make any material change in the line of business
in which it engages as of the date hereof other than as contemplated or
permitted by the Power Supply Agreement.
(d) Maintenance of Assets. In the conduct of its business,
Genco shall endeavor to maintain all of its right, title and interest
in and to the Generating Facilities, which shall include, without
limitation:
(i) Capital Assets. All equipment, computers, photocopy
machines and other tangible personal property owned by
Genco and used by Genco in the ordinary course of the
Business, subject to replacement or retirement in the
ordinary course of business;
(ii) Records and Documentation. All books, records, files,
working papers, correspondence, memoranda and other
documentation relating to any services rendered by
Genco in the Business and otherwise related to the
assets, properties and rights referred to in clause
(i) of this Section.
(e) No Acquisitions. Genco shall not acquire, or publicly
propose to acquire, or agree to acquire, by merger or consolidation
with, or by purchase or otherwise, a substantial equity interest in or
a substantial portion of the assets of, any business or any
corporation, partnership, association or other business organization or
division thereof, nor shall any party acquire or agree to acquire, a
material amount of assets other than in the ordinary course of
business.
(f) No Dispositions. Genco shall not sell, lease, license or
otherwise dispose of the Generating Facilities, other than dispositions
in the ordinary course of its business and other than dispositions of
less than $10 million in the aggregate.
-16-
(g) Transmission, Generation. Except as required pursuant to
tariffs on file with the Federal Energy Regulatory Commission as of the
date hereof, in the ordinary course of business consistent with past
practice or as contemplated or permitted by the Power Supply Agreement,
Genco shall not (i) commence construction of any additional electric
generating capacity, or (ii) obligate itself to purchase or otherwise
acquire, or to sell or otherwise dispose of, or to share, any
additional electric generating capacity.
(h) Cooperation, Notification. Commencing on the third
anniversary hereof, Genco shall: (i) during reasonable business hours
and upon reasonable notice, allow Buyer and its authorized
representatives to make such investigation of the business, property,
books and records of Genco, and to conduct such examinations and to
confer with the officers and employees of Genco, as Buyer deems
reasonably necessary for purposes of verifying the accuracy of Genco's
representations and warranties hereunder and compliance with the terms
hereof; (ii) confer on a regular and frequent basis with one or more
representatives of Buyer to discuss, subject to applicable law,
material operational matters and the general status of its ongoing
operations; (iii) promptly notify Buyer of any significant changes in
its business, properties, assets, condition (financial or other),
results of operations or prospects; (iv) advise Buyer of any change or
event which has had or, insofar as reasonably can be foreseen, is
reasonably likely to result in a Material Adverse Effect; and (v)
promptly provide Buyer with copies of all filings made by Genco with
any state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement and the
transactions contemplated hereby. Genco shall provide similar access to
each Investment Banker and the investment bankers, if any, appointed
pursuant to Section 3.2.
(i) Reasonable Access for Consulting Engineers. From the date
hereof until the completion of the Engineer's Report pursuant to
Section 2.1 and, if required, the receipt of Confirmation pursuant to
Section 2.5, LIPA's consulting engineer shall have a right of
unrestricted access to the Generating Facilities at such times and for
such purposes as it reasonably deems necessary and desirable for the
purpose of preparing the Engineer's Report; provided, however, that:
(i) such access shall not be granted outside normal business
hours, except with reasonable notice;
(ii) such consulting engineer shall comply with any on-site
safety policies and procedures;
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(iii) such access shall only be for the purpose of preparing
the Engineer's Report and any information obtained
therefrom shall only be used for such purpose; and
(iv) if Seller so requests, such access shall only be granted
subject to such consulting engineer executing and
complying with the terms of a confidentiality agreement
in a mutually acceptable form, subject to any applicable
Laws.
(j) Third-Party Consents. Genco and Seller shall use all
commercially reasonable efforts to obtain all required consents for the
exercise of the Right. Genco shall promptly notify Buyer of any failure
or prospective failure to obtain any such consents and, if requested by
Buyer, shall provide copies of all required consents obtained to Buyer.
(k) No Breach, Etc. Genco and Seller shall not willfully take
any action that would or is reasonably likely to result in a material
breach of any provision of this Agreement or in any of its
representations and warranties set forth in this Agreement, being
untrue on and as of the Closing Date.
(l) Tax-Exempt Status. Genco shall not take any action that
would likely jeopardize the qualification of Genco's outstanding
revenue bonds which qualify on the date hereof under Section 142(a) of
the Code as "exempt facility bonds" or as tax-exempt industrial
development bonds under Section 103(b)(4) of the Internal Revenue Code
of 1954, as amended, prior to the Tax Reform Act of 1986.
(m) Permits. Genco shall use reasonable efforts to maintain in
effect all existing permits for the Business.
(n) Transfer of Additional Assets. Prior to the Closing Date,
Parent will cause to be transferred to Genco, to the extent controlled
by Parent and not already owned by Genco, any Additional Assets.
Section 5.2 Covenants of Buyer. After the Exercise Date and prior to
the Closing Date or earlier termination of this Agreement, Buyer agrees as
follows, except as expressly contemplated or permitted in this Agreement or to
the extent the other parties hereto shall otherwise consent in writing:
(a) Third-Party Consents. Buyer shall use all commercially
reasonable efforts to obtain all required third-party consents. Buyer
shall promptly notify Seller
-18-
and Genco of any failure or prospective failure to obtain any such
consents and, if requested by Seller or Genco, shall provide copies of
all such consents obtained to Seller and Genco.
(b) No Breach, Etc. Buyer shall not willfully take any action
that would or is reasonably likely to result in a material breach of
any provision of this Agreement or in any of its representations and
warranties set forth in this Agreement being untrue on and as of the
Closing Date.
(c) Buyer Actions. Buyer shall take only those actions, from
the date hereof until the Closing Date, that are required or
contemplated by this Agreement to be so taken by Buyer, including,
without limitation, the declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental
Authority.
Section 5.3 Additional Agreements.
(a) Notification of Certain Matters. Commencing on the third
anniversary hereof, each party hereto shall give prompt notice to the
other parties hereto of (i) the occurrence or failure to occur of any
event, which occurrence or failure would be reasonably likely to cause
any representation or warranty of such party contained herein to be
untrue or inaccurate in any material respect at any time, (ii) any
material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it
hereunder, and (iii) any newly discovered fact or circumstance that
might reasonably be expected to have a material effect on the accuracy
of any representation or warranty of such party contained herein.
(b) No Layoffs or Salary Cuts. For a period of two years
following the Closing Date, Buyer shall not cause or permit to occur
any layoffs or salary cuts to any non-union Genco personnel.
(c) Management Contract. If Buyer elects in the Exercise
Notice to retain Seller or an Affiliate of Seller to operate the
Generating Facilities, the parties will negotiate in good faith the
terms and conditions of a mutually acceptable agreement therefor.
(d) Easements. Prior to the Closing Date, Genco may grant
Seller an irrevocable and perpetual easement for the installation,
maintenance and access of and to any assets of Seller or its affiliates
or subsidiaries located on or under such property, provided if Seller's
use of such easement
-19-
materially interferes with either the physical operation of any
generating facilities or with Buyer's environmental compliance, Seller
shall compensate Buyer for the adverse impact on Buyer of such
interference.
ARTICLE 6
GENERAL PROVISIONS
Section 6.1 Notices. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made if (i) sent by registered or certified mail, return receipt
requested, or (ii) hand delivered, or (iii) sent by prepaid overnight carrier,
with a record of receipt, to the parties at the following addresses (or at such
other addresses as shall be specified by the parties by like notice):
(a) if to Buyer:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Chairman of the Board
Long Island Power Authority
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with copies to:
▇▇▇▇▇▇▇ ▇▇▇▇
Deputy Chairman of the Board
Long Island Power Authority
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
and to:
Winthrop, Stimpson, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(b) if to Seller:
Long Island Lighting Company
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: Chief Executive Officer
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with copies to:
Kramer, Levin, Naftalis ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Each notice or communication shall be deemed to have been given on the date
received.
Section 6.2 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 6.3 Miscellaneous. This Agreement, together with the Exhibits
and Schedules annexed hereto: (i) constitute the entire agreement and supersede
all other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof and thereof;
(ii) shall be binding upon and inure to the benefit of the parties hereto and
thereto and their respective successors and permitted assigns and, except as
expressly provided under the terms of any Exhibit, are not intended to confer
upon any other Person, any rights or remedies hereunder or thereunder; (iii)
shall be governed, including, without limitation, as to validity, interpretation
and effect, by the Laws of the State of New York, without regard to the
principles of conflicts of laws; and (iv) may be executed in two or more
counterparts which together shall constitute a single agreement.
Section 6.4 Assignment.
(a) Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto
without the prior written consent of the other parties, except, in the
case of Buyer, to LILCO and, in the case of Seller, to any direct or
indirect wholly owned subsidiary or other legal entity of Seller to
which it also assigns all of the Interests. No party shall be relieved
of any liability arising hereunder in respect of any assignment
pursuant to this Section, unless such assignor has received a written
release expressly excepting such assignor from any liability that may
arise hereunder.
(b) Effective upon the Closing, Seller shall assign its
rights, obligations and interests hereunder to the Parent.
Section 6.5 Schedules. Any information set forth on any Schedules
annexed hereto shall, to the extent applicable, be
- 21 -
deemed to be included on each other appropriate Schedule annexed to this
Agreement.
Section 6.6 Waiver; Amendment. No waiver by any party hereto of any
term, condition or obligation of this Agreement shall be valid unless in writing
and signed by the waiving party. No failure or delay by any party hereto at any
time to require any other party hereto to perform strictly in accordance with
the terms hereof shall preclude any party from requiring performance by such
other party hereto at any later time. No waiver of any one or several of the
terms, conditions or obligations of this Agreement, and no partial waiver
thereof, shall be construed as a waiver of any of the other terms, conditions or
obligations of this Agreement. This Agreement may not be amended, changed or
modified in any fashion except by written instrument signed by each of the
parties hereto.
Section 6.7 Issue Taxes. Buyer alone shall bear, to the extent allowed
by law, all documentary transfer, and similar taxes levied under the laws of the
United States of America or any State or local taxing authority thereof or
therein in connection with the sale of the Interests.
Section 6.8 Fees and Expenses. All fees, costs and expenses incurred in
connection with the execution and delivery of this Agreement shall be paid by
the party incurring such fees, costs or expenses; provided, however, that Buyer
shall pay all of the fees and expenses of the Investment Bankers and the
investment bankers, if any, selected pursuant to Section 3.2; provided further,
that such fees and expenses shall have been agreed to by Buyer in advance (such
agreement not to be unreasonably withheld or delayed).
Section 6.9 Alternative Dispute Resolution
(a) Any dispute arising out of or relating to this Agreement,
other than disputes regarding the Purchase Price to be settled pursuant to
Section 3.2 herein, shall be resolved in accordance with the procedures
specified in this Section, which shall constitute the sole and exclusive
procedures for the resolution of such disputes.
(b) The parties agree to use their best efforts to settle
promptly any disputes or claims arising out of or relating to this Agreement
through negotiation conducted in good faith between executives having authority
to reach such a settlement. If either party hereto shall so request, the parties
shall mutually agree on the selection of a mediator who shall mediate the
negotiations which shall be non-binding.
-22-
All negotiations and mediation discussions pursuant to this paragraph
are confidential and shall be treated as compromise and settlement negotiations
for purposes of Federal Rule of Evidence 408 and applicable state rules of
evidence.
(c) Any dispute arising out of or relating to this Agreement
or the breach, termination, or validity thereof, which dispute has not been
resolved by a negotiation or mediation as provided in paragraph (b) hereof
within 60 days from the date that either negotiations or mediation shall have
been first requested, shall be settled by binding arbitration before three
independent and impartial arbitrators in accordance with the then current rules
of the American Arbitration Association, except to the extent such rules are
inconsistent with any provision of this Agreement, in which case the provisions
of this Agreement shall be followed, and except that the arbitrations under this
Agreement shall not be administered by the American Arbitration Association. The
Arbitrators shall be (i) independent of the parties and disinterested in the
outcome of the dispute, (ii) attorneys, accountants, investment bankers,
commercial bankers or engineers familiar with contracts governing the operation
of electric utility assets, and (iii) qualified in the subject area of the issue
in dispute. For purposes of the preceding sentence, residents of Long Island
shall not be considered interested merely by virtue of their residence. The
Arbitrators shall be chosen by the parties, with each party choosing one
arbitrator and those arbitrators choosing the third arbitrator. Judgment on the
award rendered by the Arbitrators may be entered in any court in the State of
New York having jurisdiction thereof. If either party refuses to participate in
good faith in the negotiations or mediation proceedings described in paragraph
(b) hereof, the other may initiate arbitration at any time after such refusal
without waiting for the expiration of the 60 day period. Except as provided in
Paragraph D hereof relating to provisional remedies, the Arbitrators shall
decide all aspects of any dispute brought to them including attorney
disqualification and the timeliness of the making of any claim.
(d) Either party may, without prejudice to any negotiation,
mediation, or arbitration procedures, proceed in any court to seek provisional
judicial relief if, in such party's sole discretion, such action is necessary to
avoid imminent irreparable harm, to provide uninterrupted electrical and other
services, or to preserve the status quo pending the conclusion of the dispute
procedures specified in this Section.
(e) The Arbitrators shall have no authority to award punitive
damages or any other damages aside from the prevailing party's actual and
consequential damages, plus interest thereon at the Best Interest Rate (as
defined in the Management Services Agreement), accrued from the date such
- 23 -
damages were incurred. The Arbitrators shall not have the authority to make any
ruling, finding, or award that does not conform to the terms and conditions of
this Agreement.
(f) The Arbitrators may award reasonable attorneys' fees and
costs of the arbitration.
(g) Any claim under this Agreement shall be time-barred,
regardless of any statute of limitations periods provided by state or federal
law, unless negotiation or mediation with respect thereto is commenced with
respect to such claim within twelve months after the basis for such claim has
been discovered.
(h) The Arbitrators shall have the discretion to order a
pre-hearing exchange of information by the parties, including, without
limitation, the production of requested documents, the exchange of summaries of
testimony of proposed witnesses, and the examination by deposition of parties.
Each of the parties agrees to produce all such requested documents and to
deliver to the other a certificate, executed by a senior executive of such
party, stating that all such documents have been so produced.
(i) The site of any Arbitration brought pursuant to this
Agreement shall be Mineola or Hauppauge, New York.
(j) The Arbitrator's award shall be in writing and shall set
forth the factual and legal bases for the award.
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IN WITNESS WHEREOF, each party hereto has duly executed this
Agreement as of the date first above written.
LONG ISLAND LIGHTING COMPANY, as Seller
By:/s/ ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
LONG ISLAND POWER AUTHORITY, as Buyer
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
By:/s/ ▇▇▇▇▇▇▇ Fove
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: Deputy Chairman
Acknowledged and agreed to, as of the Closing, by:
MARKETSPAN GENERATION LLC
By:
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President