EXHIBIT 10-Z
PENNSYLVANIA ELECTRIC COMPANY
------------------------------------
LESSEE'S LETTER AGREEMENT
Regarding
TMI-1 FUEL CORP.
------------------------------------
Dated as of November 5, 1998
TABLE OF CONTENTS
Section Page
1. Definitions 1
2. Performance of Fuel Lease and Liens 1
3. Security Interest of Collateral 2
4. Sale of Nuclear Material and Assignment
of Rights under Nuclear Material Contracts 2
5. Collateral Equivalence Test; No Additional
Collateral or Covenants; Condemnation Statements;
Exercise of Rights of Secured Parties 3
6. Fuel Management; Quiet Enjoyment 5
7. Insurance 6
8. Representations and Warranties 6
9. General Covenants of the Lessee 11
10. GPU Events 18
11. Credit Agreements and Notes 18
12. Consent to Assignment; Direct Payment of
Payments Under the Fuel Lease 18
13. Severability 19
14. Indemnification 20
15. No Waiver; Amendments 21
16. Successors and Assigns 22
17. Notices 22
18. Set-off 23
19. Waiver of Jury Trial 23
20. Governing Law 24
THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of
November 5, 1998, by and between Pennsylvania Electric Company, a Pennsylvania
corporation (the "Lessee"), TMI-1 Fuel Corp, a Delaware corporation (the
"Company"), and The First National Bank of Chicago, as Administrative Agent (the
"Administrative Agent"), for the Banks party to the Credit Agreement referred to
below (the "Banks").
WHEREAS, the Lessee has entered into the Second Amended and Restated
Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"),
with the Company in order to enable the Company to obtain financing for the
acquisition, processing and use of Nuclear Material in the Generating Facility;
and
WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make
payments due to Manufacturers and/or to reimburse the Lessee for payments
previously made to Manufacturers with respect to Nuclear Material; and
WHEREAS, in order to finance the cost of such Nuclear Material, the
Company proposes to (i) sell its Commercial Paper, and (ii) obtain the
Commitment of each Bank to make Loans from time to time as hereinafter provided;
and
WHEREAS, the Lessee has agreed to make payments under the Fuel Lease
sufficient to enable the Company to meet its obligations under the Company's
financing arrangements, including the Company's obligations under the Credit
Agreement, dated as of November 5, 1998, among the Company, the Banks and the
Administrative Agent (the "Credit Agreement");
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained and other good and valuable consideration, so long as any of
the Loans or the Commercial Paper shall remain outstanding, or the Commitments
shall be continuing, notwithstanding any provision of the Fuel Lease or any
other agreement of the Lessee to the contrary, the Lessee, the Company, the
Administrative Agent and the Banks agree that:
1. Definitions. Unless the context otherwise specifies or requires,
each term defined in the Credit Agreement or Appendix A to the Fuel Lease,
shall, when used in this Letter Agreement, have the meaning indicated in the
Credit Agreement or Appendix A or set forth in the paragraph indicated therein.
2. Performance of Fuel Lease and Liens. The Lessee will perform and
comply with all the terms of the Fuel Lease to be performed or complied with by
2
it and will not omit to take an action the omission of which would cause a Lease
Event of Default. The Lessee acknowledges that, except as otherwise provided in
the Fuel Lease, its obligations as set forth under the Fuel Lease are absolute
and unconditional. The Lessee will not directly or indirectly create or permit
to be created or remain, and will promptly take such action as may be necessary
to discharge, any Lien on any Collateral except Permitted Liens.
3. Security Interest of Collateral. The Lessee represents that no
effective financing statement (other than those naming the Secured Parties as a
secured party) covering all or any part of the Collateral (as defined in the
Security Agreement relating to the Lessee) is on file in any public office. The
Lessee shall make, or shall cause to be made, all filings and recordings, and
shall take, or cause to be taken, such other actions, including filing all
continuation statements, necessary to establish, preserve and perfect the
Secured Parties' lien on and security interest in, the Collateral as a legal,
valid and enforceable first priority lien and security interest, or purchase
money security interest, as the case may be, therein, subject only to the
existence or priority of any Permitted Lien, and the Lessee represents that all
such filings, recordings and other actions have been duly made. The Lessee shall
deliver to the Administrative Agent evidence of the due filings of any
continuation statements to be delivered to the Administrative Agent within the
time period specified in Section 7.05 of the Credit Agreement. In no event will
the Lessee permit the Nuclear Material to enter any jurisdiction in which all
necessary action has not been taken to establish, maintain and protect the
Secured Parties' first priority perfected lien and security interest in the
Nuclear Material under the Security Agreement, subject only to Permitted Liens.
4. Sale of Nuclear Material and Assignment of Rights under Nuclear
Material Contracts.
(a) In the event that the Lessee desires the Company, on
behalf of the Lessee, to purchase Nuclear Material or to have services performed
on such Nuclear Material pursuant to any Nuclear Material Contract, the Lessee
shall provide the Company with an Assignment Agreement and a Manufacturer's
Consent, both substantially in the form of Exhibit D to the Fuel Lease, with
such changes to Exhibit 2 to Exhibit D as the Administrative Agent in its
reasonable discretion may consent to in writing,
3
which consent shall not be unreasonably withheld, with respect to such Nuclear
Material Contract not later than sixty days following the date on which the
Company is to purchase such Nuclear Material or to have such services performed
pursuant thereto. Notwithstanding the foregoing, the Lessee shall not be
required to have obtained a Manufacturer's Consent in any instance where the
Manufacturer's obligations under the applicable Nuclear Material Contract have
been fully discharged and performed, and the Manufacturer's warranties with
respect to such Nuclear Material Contract have expired, and the Lessee has
delivered to the Company and the Collateral Agent a certificate to such effect.
(b) The Lessee at its expense will perform and comply with all
the terms and provisions of each Assigned Agreement to be performed or complied
with by it, will maintain each Assigned Agreement in full force and effect, will
enforce each of the Assigned Agreements in accordance with their respective
terms, and will take all such action to that end as from time to time may
reasonably be requested by the Majority Banks.
(c) The Lessee shall not enter into or consent to or permit
any cancellation, termination, amendment, supplement or modification of or
waiver with respect to any Assigned Agreement without the prior written consent
of the Majority Banks, unless such cancellation, termination, amendment,
supplement or modification could not reasonably be expected to have a Material
Adverse Effect on the Company or the Company has through one or more other
Assigned Agreements or otherwise arranged for the provision of comparable goods
and services on terms not materially more burdensome to the Company.
(d) The Lessee will from time to time, upon request of the
Administrative Agent, furnish to the Administrative Agent such information
concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks
may reasonably request.
(e) The Lessee will not change its principal place of business
or chief executive offices from the location specified in paragraph 8(a) hereof
or remove therefrom its records concerning the Assigned Agreements unless it
gives the Administrative Agent at least 30 days' prior written notice thereof.
5. Collateral Equivalence Test; No Additional Collateral or Covenants;
Condemnation Statements; Exercise of Rights of Secured Parties.
4
(a) The Lessee shall not permit the sum of aggregate
Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease
and the Lessee's Percentage of Cash Collateral to be less than the Lessee's
Percentage of Outstandings.
(b) The Lessee shall not provide to any Person (other than the
Banks), in order to induce such Person to extend credit to the Company, any
collateral or any guarantee or other assurance against loss or non-payment, nor
shall the Lessee consent to the provision thereof by the Company.
(c) The Lessee shall not agree to any affirmative or negative
covenant with respect to the condition, financial or otherwise, of the Lessee
with any Person in order to induce such Person to extend credit to the Company.
(d) The Lessee shall not sell, assign, convey, pledge or
otherwise dispose of or encumber in any manner any interest it may have in the
Trust or any rights it may have under the Trust Agreement. The Lessee shall not
direct the Owner Trustee to liquidate, dissolve, merge or consolidate the
Company except if such transaction is consented to in writing by the Banks. The
Lessee shall not direct the Owner Trustee to take any action under the Trust
Agreement which is inconsistent with the duties imposed upon the Company by the
Basic Documents and any other agreements, documents, instruments and articles
executed and delivered, and to be executed and delivered, by the Owner Trustee
in connection therewith.
(e) The Nuclear Material leased under the Fuel Lease shall
constitute the Lessee's entire ownership interest in the items used or to be
used by it as nuclear fuel in the Generating Facility. The Lessee agrees that
25% of the Lessor's ownership interest in any Nuclear Material which is subject
to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to
take any action under the terms of the Fuel Lease, including, but not limited
to, the delivery of any Leasing Record, which would result in less than 25% of
the Lessor's ownership interest in any such Nuclear Material being so leased.
(f) As provided in the Security Agreement, (i) the Collateral
Agent on behalf of the Secured Parties may, on and after the occurrence of a
Credit Agreement Default, Credit Agreement Event of Default, Lessee Default or
Lessee Event of Default, pursuant to Section 10 of the Security Agreement,
exercise any and all of the Company's rights under the Fuel Lease, the Assigned
Agreements and each other Basic Document to
5
which the Lessee is a party, and (ii) if a Lease Event of Default occurs and is
continuing, the Collateral Agent on behalf of the Secured Parties may, pursuant
to Section 10 of the Security Agreement, enforce and exercise any and all of the
Company's rights under the Fuel Lease, the Assigned Agreements and each other
Basic Document to which the Lessee is a party, or the rights and remedies
granted to the Secured Parties under the Security Agreement at its election and
in its sole discretion, and, in the event that the Collateral Agent is permitted
to exercise such rights pursuant to Section 10 of the Security Agreement, the
Lessee agrees that the Collateral Agent may do so either in concert with or in
place of the Company, and the Lessee shall assist in, comply with and perform in
accordance with all rights or remedies so enforced or exercised by the
Collateral Agent for the ratable benefit of the Secured Parties.
6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit
Agreement Default, a Credit Agreement Event of Default, Lease Event of Default,
Lessee Default, Lessee Event of Default or an event or condition which would,
with the lapse of time or the giving of notice or both, become a Lease Event of
Default, shall not affect the Lessee's sole obligation to engage in Fuel
Management; provided that, upon the occurrence of a Credit Agreement Event of
Default, Lessee Event of Default or Lease Event of Default, the Collateral Agent
may, if so directed by the Majority Secured Parties, by written notice to the
Lessee, elect to revoke such power and authority, in which case the Person from
time to time designated by the Majority Secured Parties may (but shall not be
obligated to), to the extent that the Majority Secured Parties desire and to the
extent permitted by law, engage in Fuel Management and/or remove all or any part
of the responsibility for Fuel Management from the Lessee; provided, however,
that, subject to the right of the Collateral Agent and the Majority Secured
Parties to exercise any or all rights granted to the Secured Parties under the
Security Agreement, the rights granted to the Collateral Agent and the Majority
Secured Parties under this Section 6 shall not be construed to include the right
to direct, whether directly or indirectly, the operation of the Generating
Facility. In the event the Majority Secured Parties, in accordance with the
preceding sentence, shall revoke the Lessee's power and authority to engage in
Fuel Management, all rights conferred by the Company to the Lessee pursuant to
Section 3 of the Fuel Lease shall be deemed to be automatically reassigned to
the Company and the Lessee shall execute such documents and instruments as the
Collateral Agent shall request to further confirm such assignment.
6
7. Insurance. Each year, the Lessee will furnish the Administrative
Agent and each Bank a detailed statement certified by an officer of Lessee
setting forth (i) the location of all Nuclear Material and (ii) the insurance
policies and indemnification agreements provided pursuant to Sections 14 and 17
of the Fuel Lease and certifying that such insurance policies and
indemnification agreements comply with the requirements of the Fuel Lease. In
addition, the Lessee shall promptly furnish at any time to the Administrative
Agent and any Bank such information as any such Bank shall reasonably request
concerning location of Nuclear Material, insurance policies and indemnification
agreements and Manufacturers or other third parties with whom arrangements exist
with respect to transportation, storage or processing of Nuclear Material.
8. Representations and Warranties. The Lessee hereby represents and
warrants to the Company, the Administrative Agent and the Banks that as of the
date hereof:
(a) Organization and Standing. The Lessee is a corporation
duly incorporated, validly existing and subsisting under the laws of the
Commonwealth of Pennsylvania, and is qualified to do business in each state or
other jurisdiction in which the nature of its business makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on its ability to perform its obligations under this Letter
Agreement or each other Basic Document to which the Lessee is a party. The
Lessee's chief executive office is located at 2800 Pottsville Pike, Reading,
Pennsylvania 19605.
(b) Corporate Authority. The Lessee has the corporate power
and authority to execute and perform this Letter Agreement and the Fuel Lease
and to lease the Nuclear Material thereunder. The execution and delivery of this
Letter Agreement and the Fuel Lease and the lease of the Nuclear Material
thereunder will not have a material adverse effect on the financial condition,
results of operations, business, properties or operations of the Lessee.
(c) Compliance with Other Instruments, etc. The execution,
delivery and performance by the Lessee of this Letter Agreement and each Basic
Document to which the Lessee is a party, and other related instruments,
documents and agreements, and the compliance by the Lessee with the terms hereof
and thereof, (i) have been duly and legally authorized by appropriate corporate
action taken by the Lessee, (ii) are not in contravention of, and
7
will not result in a violation or breach of, any of the terms of the Lessee's
articles of incorporation, its by-laws or of any provisions relating to shares
of the capital stock of the Lessee and (iii) will not violate or constitute a
breach of any provision of (x) any applicable law, order, rule or regulation,
rule or regulation of any governmental authority (except in those cases where
non-compliance with any such law, order, rule or regulation could not reasonably
be expected to have a material adverse effect on the financial condition,
results of operations, business, properties or operations of the Lessee or its
ability to perform its obligations hereunder or under each Basic Document) or
(y) any indenture, agreement or other instrument to which the Lessee is party,
or by or under which the Lessee or any of the Lessee's property is bound, or be
in conflict with, result in breach of, or constitute (with due notice and/or
lapse of time) a default under any such indenture, agreement or instrument, or
result in the creation or imposition of any Lien upon any of the Lessee's
property or assets or any Nuclear Material.
(d) Legal Obligations. This Letter Agreement and the Fuel
Lease have been executed by a duly authorized officer of the Lessee, and this
Letter Agreement and the Fuel Lease constitute, and each Leasing Record, when
executed by a duly authorized officer of the Lessee and delivered to the
Company, will constitute, the legal, valid and binding obligations of the
Lessee, enforceable against the Lessee in accordance with their respective
terms, except as the enforceability thereof may be limited by the Atomic Energy
Act and the rules, regulations or orders issued pursuant thereto, or by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general, and except as the availability of the remedy of
specific performance is subject to general principles of equity (regardless of
whether such remedy is sought in a proceeding in equity or at law).
(e) Governmental Consents. Neither the execution and delivery
of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee,
nor the performance by the Lessee of all of its obligations hereunder or
thereunder, requires the consent or approval of, the giving of notice to, or the
registration, filing or recording with, or the taking of any other action in
respect of, any Federal, state, local or foreign government or governmental
authority or agency or any other person except for the order of the Securities
and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the
supplemental order of the SEC dated November 3, 1998, the order of the PaPUC,
dated
8
September 17, 1998, and the filing of any statement or other instrument pursuant
to Section 10(b) of the Fuel Lease, and except for the filing of certificates by
the Lessee with the SEC pursuant to SEC Rule 24 under the Public Utility Holding
Company Act to report on the transactions authorized by such SEC order, the
filing of which is not necessary to the execution or delivery of this Letter
Agreement, the Fuel Lease or any Leasing Record by the Lessee or for the
performance by the Lessee of any of its obligations hereunder or thereunder, and
the failure to file any of which will not affect the validity or enforceability
of any of this Letter Agreement, the Fuel Lease or any Leasing Record.
(f) Consents and Permits. The Lessee possesses all material
licenses, permits, franchises and certificates which are necessary or
appropriate to own or operate its material properties and assets and to conduct
its business as now conducted.
(g) Litigation. There is no litigation or other proceeding now
pending or, to the best of the Lessee's knowledge, threatened, against or
affecting the Lessee, before any court, arbitrator or administrative or
governmental agency (i) which would adversely affect or impair the title of the
Company to the Nuclear Material, (ii) which questions the validity or
enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements
or any other Basic Document to which the Lessee is a party or any action taken
or to be taken by the Lessee pursuant to or in connection with this Letter
Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form
10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, copies of which have previously been delivered
to the Administrative Agent and the Banks, which, if decided adversely to the
Lessee, would materially adversely affect the condition, financial or otherwise,
of the Lessee.
(h) Taxes. The Lessee has filed or caused to be filed all tax
returns which are required to be filed, and has paid or caused to be paid all
taxes as shown on said returns and all assessments received by it to the extent
that such taxes and assessments have become due, except for taxes and
assessments which are being contested in good faith and by appropriate
proceedings and as to which it has provided reserves which are adequate in
connection with generally accepted accounting principles.
9
(i) Reaffirmation and Restatement of Representations and
Warranties. The Lessee repeats and reaffirms as of the date hereof for the
benefit of the Administrative Agent and each Bank the representations and
warranties made by the Lessee in the Fuel Lease as though set forth in full
herein with the same effect as though such representations and warranties had
been made on and as of the date hereof. In addition, the Lessee represents and
warrants that as of the date hereof (i) the Lessee is in compliance with all the
terms and provisions set forth in the Fuel Lease on its part to be observed or
performed, (ii) no Terminating Event has occurred and no event has occurred
which, with the lapse of time or the giving of notice, or both, would constitute
such a Terminating Event, and (iii) no Lease Event of Default has occurred and
is continuing and no event has occurred and is continuing on such date which,
with the lapse of time or the giving of notice, or both, would constitute a
Lease Event of Default.
(j) First Perfected Security Interest. Except for Permitted
Liens, upon the execution and delivery of this Letter Agreement and the Security
Agreement and the due filing of the Uniform Commercial Code financing statements
required to be executed and filed from time to time, the Secured Parties will
have a legal, valid and enforceable first priority security interest (i) in the
rights, titles and interests of the Company in and to the Fuel Lease and (ii) in
and to the other Collateral. Such security interest will constitute a perfected
security interest in the Collateral consisting of Nuclear Material Contracts and
the Collateral consisting of Nuclear Material located in the States of Illinois,
Kentucky, Ohio, Pennsylvania and Virginia, except for any such Collateral which
consists of cash, instruments (as defined in the New York Uniform Commercial
Code) and other items in which a security interest may only be perfected by
possession, enforceable against all third parties as security for the Secured
Obligations.
(k) No Material Adverse Change. Since June 30, 1998, there has
been no material adverse change in the financial condition, results of
operations, business, properties or operations of the Lessee or in its ability
to perform its obligations under the Basic Documents.
(l) No Defaults. The Lessee is not in default under any bond,
debenture, note or any other evidence of Obligations for Borrowed Money or
Deferred Purchase Price or any mortgage, deed of trust, indenture, loan
agreement or other agreement relating thereto, where the amount thereof is in
excess of $20,000,000.
10
(m) Pension Plans. No accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any plan (other than a multiemployer plan). No
liability to the Pension Benefit Guaranty Corporation has been, or is expected
by the Lessee to be, incurred with respect to any plan (other than a
multiemployer plan) by the Lessee which is or would be materially adverse to the
Lessee. The Lessee has not incurred and presently does not expect to incur any
withdrawal liability under Title IV of ERISA with respect to any multiemployer
plan which is or would be materially adverse to the Lessee. Neither the
execution and delivery by the Company of the Credit Agreement and the other
Basic Documents, and the issuance of the Commercial Paper, nor the execution and
delivery by the Lessee of this Letter Agreement, the Trust Agreement and each
other Basic Document to which the Lessee is a party, will involve any
transaction which is subject to the prohibitions of Section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975. As used
herein, the term "plan" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is and has been established or maintained,
or to which contributions are or have been made, by the Lessee or by any trade
or business, whether or not incorporated, which, together with the Lessee is
under common control as described in Section 414(b) or (c) of the Code, and the
term "multiemployer plan" shall mean any plan which is a "multiemployer plan"
(as such term is defined in Section 4001(a)(3) of ERISA).
(n) Financial Statements. The audited balance sheet of the
Lessee as of December 31, 1997, and the related statements of income and cash
flows (including the notes thereto) of the Lessee for the year then ended,
copies of which have been delivered to the Company, the Administrative Agent and
the Banks, and all other annual or quarterly financial statements including,
without limitation, the quarterly statement dated as of June 30, 1998 so
delivered fairly present the financial condition of the Lessee on the dates for
which, and the results of its operations for the periods for which, the same
have been furnished and have been prepared in accordance with generally accepted
accounting principles consistently applied.
(o) Nuclear Material. The Nuclear Material is free and clear
of any Lien in favor of any Person claiming by, through or under the Lessee or
any Affiliate thereof, other than Permitted Liens. No default or event which
with the giving of notice or lapse of time would constitute a default has
occurred and is continuing under any Nuclear Material Contract.
11
(p) Disclosure. Neither the representations in this Letter
Agreement, or in any other document, certificate or statement furnished in
writing to the Administrative Agent or any Bank by or on behalf of the Lessee in
connection with the transactions contemplated hereby, nor the information
disclosed in the Lessee's Annual Report on Form 10-K for the year ended December
31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
contained as of its date, any untrue statement of a material fact or omitted to
state a material fact necessary in order to make such representations or
information not misleading in light of the circumstances under which they were
made.
(q) Collateral Equivalence Test Met. The sum of the aggregate
Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease
and the Lessee's Percentage of the Cash Collateral equals or exceeds the
Lessee's Percentage of the Outstandings.
(r) Year 2000. The Lessee has made a full and complete
assessment of its Year 2000 Issues and has a realistic and achievable Year 2000
Program. Based on such assessment and on its Year 2000 Program, the Lessee does
not reasonably anticipate that Year 2000 Issues will have a Material Adverse
Effect.
9. General Covenants of the Lessee.
(a) Information. The Lessee will furnish to the Company and
the Administrative Agent in sufficient copies for each Bank:
(i) Quarterly Statements. As soon as practicable after the end
of each of the first three quarterly fiscal periods in each fiscal year
of the Lessee, and in any event within 60 days thereafter, copies of:
(A) a balance sheet of the Lessee as at the end of such
quarter, and (B) statements of income and cash flows of the
Lessee for such quarter and for the twelve-month period ending
as of the end of such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding periods in
the previous fiscal year, all
12
in reasonable detail and certified as complete and correct,
subject to changes resulting from year-end adjustments, by a
principal financial officer of the Lessee; provided that it is
understood that the delivery of the Lessee's Quarterly Report
on Form 10-Q shall be deemed to satisfy the requirements with
respect to such financial statements;
(ii) Annual Statements. As soon as practicable after the end
of each fiscal year of the Lessee, and in any event within 120 days
thereafter, copies of:
(A) a balance sheet of the Lessee at the end of such fiscal
year, and (B) statements of income and cash flows of the
Lessee for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all
in reasonable detail and accompanied by an opinion thereon of
independent certified public accountants of recognized
national standing selected by the Lessee, which opinion shall
state that such financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied (except for changes in application in
which such accountants concur) and that the examination of
such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing
standards; provided that it is understood that the delivery of
the Lessee's Annual Report on Form 10-K shall be deemed to
satisfy the requirement with respect to such financial
statements;
(iii) Officer's Compliance Certificate. Simultaneously with the
financial statements referred to in Sections 9(a)(i) and (ii), a
certificate of an authorized officer of the Lessee stating that such
officer has reviewed the relevant terms and conditions of the Fuel
Lease and other Basic Documents to which the Lessee is a party, and has
made, or caused to be made, under such officer's supervision, a review
of the transactions and financial condition of the Lessee from the
beginning of the accounting period covered by the income statements
being delivered therewith to the date of the certificate, and that the
Lessee has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Letter
Agreement, the Fuel Lease and any other Basic Document to which the
Lessee is a party, and no Terminating
13
Event, Lessee Default, Lessee Event of Default, Lease Event of Default
or default or event of default under any such Basic Document has
occurred and is continuing and no event has occurred and is continuing
which, with the lapse of time or the giving of notice, or both, would
constitute a Terminating Event, Lessee Default, Lessee Event of
Default, Lease Event of Default or a default or event of default under
any such Basic Document or, if such condition or event has occurred and
is continuing, a statement as to the nature thereof and the action
which is proposed to be taken with respect thereto;
(iv) Auditor's Compliance Certificate. Simultaneously with the
financial statements referred to in Section 9(a)(ii), a certificate of
the independent public accountants who audited such statements stating
that such accountants have reviewed the relevant terms and conditions
of the Fuel Lease and other Basic Agreements to which the Lessee is a
party, and that, in making the examination necessary for the audit of
such statements, they have obtained no knowledge of any condition or
event which constitutes or which with notice or lapse of time or both
would constitute a Terminating Event, Lessee Default, Lessee Event of
Default, Lease Event of Default or default or event of default under
any such Basic Document, or if such accountants shall have obtained
knowledge of any such condition or event, specifying in such
certificate each such condition or event of which they have knowledge
and the nature and status thereof;
(v) Notices Required under the Basic Documents. Immediately
upon delivery to the Lessee or the Company, all notices, consents,
documents, certificates or instruments of any kind relating to the
Lessee required pursuant to the Fuel Lease;
(vi) Defaults. (A) Promptly upon becoming aware of the
occurrence thereof, notice of any Terminating Event, Lessee Default,
Lessee Event of Default, Lease Event of Default or any event which,
with the lapse of time or the giving of notice, or both, would
constitute a Terminating Event or a Lease Event of Default, or of any
other development, financial or otherwise (including, without
limitation, developments with respect to Year 2000 Issues), which could
reasonably be expected to have a Material Adverse Effect, and (B)
within 10 days of becoming aware of the occurrence thereof, notice of
any other material event affecting the
14
Lessee's obligations under any Basic Document or any Nuclear Material
Contract (except to the extent such event has previously been disclosed
in the Lessee's SEC reports delivered pursuant to clause (viii) below);
(vii) Notice of Claimed Default. Immediately upon becoming
aware that the holder or holders of any evidence of Obligations for
Borrowed Money or Deferred Purchase Price or other security of the
Lessee or any subsidiary exceeding $20,000,000 in the aggregate have
given notice (or taken any other action) with respect to a claimed
default, breach or event of default, a notice describing the notice
given (or action taken) and the nature of the claimed default, breach,
or event of default;
(viii) SEC and Other Reports. Promptly after filing thereof,
copies of all regular and periodic reports and registration statements
which the Lessee may file with the SEC or any governmental agency
substituted therefor and, promptly upon written request therefor,
copies of the financial statements which the Lessee may file annually
with any state regulatory agency or agencies; and
(ix) Requested Information. With reasonable promptness, such
other data and information with respect to the Lessee, including,
without limitation, information regarding Nuclear Material or any
Nuclear Material Contract or the Lessee's Year 2000 Program, as from
time to time may be reasonably requested by the Administrative Agent or
any Bank.
(b) Notice of Litigation. Immediately upon the Lessee becoming
aware thereof, written notice of (i) any litigation or proceedings which would
be required to be disclosed as an exception to the representations and
warranties contained herein or in the Fuel Lease in order that such
representations and warranties would be true and correct on a continuing basis;
and (ii) any dispute between the Lessee and any governmental authority or other
party relating to any part of the transactions contemplated by this Letter
Agreement or any of the other Basic Documents to which the Lessee is a party
which would have a material adverse effect on the ability of the Lessee to carry
out its obligations hereunder or under any other Basic Document to which the
Lessee is a party; provided, however, that the notice requirement in this
Section 9(b) shall be satisfied if the Lessee furnishes the Company and the
Administrative Agent in sufficient
15
copies for each Bank a Current Report on Form 8-K regarding the event requiring
notice by the time that the Current Report is required to be filed with the
Securities and Exchange Commission.
(c) General Obligations. Subject to the last sentence of
this Section 9(c), the Lessee will:
(i) duly comply with all laws, rules, orders, regulations
or other valid requirements (including, without limitation,
any of the foregoing which are applicable to Nuclear
Material or the operation of the Generating Facility) of any
governmental authority necessary to the conduct of its
business or to its properties or assets, noncompliance with
which could reasonably be expected to have a material
adverse effect upon the transactions contemplated by this
Letter Agreement or any other Basic Document, or upon the
financial condition, results of operations, business,
properties or operations of the Lessee, or the ability of
the Lessee to carry out its obligations under any Basic
Document or this Letter Agreement);
(ii) continue to engage principally in the electric utility
business;
(iii) obtain, maintain and keep in full force and effect
all consents, permits, licenses and approvals, the
absence of which would have a material adverse effect
upon the transactions contemplated by this Letter
Agreement or any other Basic Document to which the
Lessee is a party, or upon the financial condition,
results of operations, business, properties or
operations of the Lessee, or the ability of the
Lessee to carry out its obligations under this Letter
Agreement or any other Basic Document to which the
Lessee is a party;
(iv) maintain its material operating properties used or
useful in its business in good repair, working order
and condition consistent with prudent utility
practice; provided, however, that the Lessee shall
not be prevented from discontinuing the operation and
maintenance of any of its properties if it shall
determine that the
16
continued operation and maintenance of such properties is no
longer necessary, desirable or permissible;
(v) pay when due all fees, taxes, assessments and governmental
charges or levies imposed upon it or upon its income or
profits or upon any property belonging to it, and maintain
appropriate reserves for the accrual of the same in
accordance with generally accepted accounting principles;
(vi) except as permitted by clause (vii) below, at all
times maintain its corporate existence, privileges,
franchises and rights to carry on business, and duly procure
all renewals and extensions thereof, if and when any shall
be necessary;
(vii) not consolidate or merge with, or sell or otherwise
dispose of all or substantially all of its properties and
assets to any Person unless (i) the surviving or resulting
entity is the Lessee hereunder, (ii) immediately after
giving effect thereto no Credit Agreement Event of Default,
Credit Agreement Default, Lease Event of Default, Lessee
Default, Lessee Event of Default or event which with the
giving of notice or passage of time would constitute a Lease
Event of Default shall have occurred and be continuing, and
(iii) the senior unsecured debt of the surviving or
resulting Lessee shall be rated at least investment grade by
Standard & Poor's Ratings Group ("S&P") or Moody's Investor
Service, Inc. ("Moody's");
(viii) perform and comply with each of the material
provisions of each material indenture, credit agreement,
contract or other agreement by which the Lessee is bound,
non-performance or non-compliance with which would have a
material adverse effect upon its business or credit or in
any way affect its ability to perform its obligations
hereunder except material contracts or other agreements
being contested in good faith;
17
(ix) reserve and maintain its corporate existence in the
jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in good standing in each
jurisdiction in which such qualification is necessary or
desirable in view of its business and operations or the
ownership of its properties, except where the failure to be
so qualified would not materially adversely affect its
financial condition, operations, properties or business, and
preserve its material rights, franchises and privileges to
conduct its business substantially as conducted on the date
hereof;
(x) maintain insurance in effect at all times in such amounts as
are available to the Lessee and covering such risks as is
usually carried by companies of a similar size, engaged in
similar businesses and owning similar properties (including,
without limitation, the operation and ownership of nuclear
generating facilities) in the same general geographical area
in which the Lessee operates, either with responsible and
reputable insurance companies or associations, or, in whole
or in part, by establishing reserves of one or more
insurance funds, either alone or with other corporations or
associations;
(xi) at any reasonable time and from time to time, permit
the Administrative Agent or any Bank or any agents or
representatives thereof to examine and make copies of and
abstracts from the records and books of account of, and
visit the properties of, the Lessee and discuss the affairs,
finances and accounts of the Lessee with any of its officers
or directors;
(xii) not sell, transfer, lease, assign or otherwise convey
or dispose of more than 25% of its assets (whether now owned
or hereafter acquired), in any single or series of
transactions, whether or not related, except for
dispositions of its fossil and hydroelectric generating
stations and associated facilities and dispositions of its
current assets in the ordinary course of business as
presently conducted, if immediately prior to such sale,
transfer, lease, assignment, conveyance or
18
disposition or as a result of such sale, transfer, lease,
assignment, conveyance or disposition, the senior unsecured
debt of the Lessee shall not be rated at least investment
grade by S&P or Moody's.
(xiii) comply with this Letter Agreement and such other
Basic Documents to which the Lessee is a party in accordance
with the respective terms and conditions set forth herein
and therein; and
(xiv) except for Permitted Liens, permit the creation of any
Liens on the Collateral.
Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may
contest by appropriate proceedings conducted in good faith and due diligence,
the amount, validity or application, in whole or in part of any fee, tax,
assessment or government charge or levy, or any legal requirement, provided that
the Lessee shall have set aside on its books adequate reserves, if required in
accordance with generally accepted accounting principles with respect thereto
and shall furnish such security, if any, as may be required in the proceeding.
10. GPU Events. It shall be a default hereunder if GPU, Inc. (a) fails
to maintain at all times beneficial ownership of at least 75% of all outstanding
shares of common stock of each of the Lessee, Met-Ed and JCP&L; or (b) pledges,
grants options on, creates any charge on or security interest in, or otherwise
subjects to any charge or encumbrance, any of the common stock of the Lessee,
Met-Ed or JCP&L unless the obligations hereunder are secured ratably and with
equal priority, in form and substance reasonably satisfactory to the Majority
Banks.
11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt
of executed counterparts of the Credit Agreement and photostatic copies of the
Notes evidencing the Loans, and consents to all of the terms and provisions of
the Credit Agreement and the Notes.
12. Consent to Assignment; Direct Payment of Payments Under the Fuel
Lease.
(a) Consent to Assignment. The Lessee hereby acknowledges
notice of and consents to all the terms and provisions of the Security Agreement
and hereby confirms to and agrees with the Secured Parties that all
representations, warranties, indemnities and agreements of the Lessee contained
19
in this Letter Agreement and each other Basic Document to which the Lessee is a
party shall inure to the benefit of, and shall be enforceable by, the Secured
Parties to the same extent as if such Secured Parties were originally parties to
or named in such documents and agreements. The Lessee further acknowledges and
consents to the assignment and transfer, and any future assignments and
transfers, to the Secured Parties by the Company of the Company's right to
exercise any and all of its rights, remedies, powers and privileges (but none of
its obligations, duties or liabilities) under the Fuel Lease, the Assigned
Agreements and each other Basic Document to which the Lessee is a party. The
Lessee hereby agrees with the Secured Parties to comply with any exercise by the
Secured Parties, either directly or through the Company, of any rights,
remedies, powers or privileges pursuant to the Security Agreement. The Secured
Parties acknowledge that neither the Security Agreement nor this Section 12
shall in any way add to the obligations of the Lessee (except those obligations
of the Lessee to any Person, which, if not previously so, hereby become
enforceable directly by the Secured Parties) under the Fuel Lease, the Assigned
Agreements and each other Basic Document to which the Lessee is a party.
Notwithstanding the foregoing, so long as no Lease Event of Default shall have
occurred and be continuing, the Lessee shall have exclusive right to possession
and use of the Nuclear Material in accordance with the Fuel Lease and may use
such Nuclear Material for any lawful purpose consistent with the Fuel Lease.
(b) Direct Payment of Payments Under the Fuel Lease. The
Lessee acknowledges that it has been directed by the Company to, and agrees that
it will, make all payments of monies due and to become due to the Company under
the Fuel Lease, the Assigned Agreements and each other Basic Document to which
the Lessee is a party, directly to the Collateral Agent, including, without
limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material
pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments
pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to
the accounts of the Secured Parties as specified in Section 3.03 of the Credit
Agreement.
13. Severability. Any provision of this Letter Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
20
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Lessee hereby waives any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
14. Indemnification. The Lessee shall pay and indemnify and hold
harmless the Administrative Agent and each Bank, and their respective officers,
directors, incorporators, shareholders, partners, employees, agents and servants
from and against any and all liabilities (other than liabilities arising out of
the gross negligence or willful misconduct of such Person), taxes, (excluding,
however, taxes measured solely by the net income of any Person indemnified or
intended to be indemnified pursuant to this Section 14, except as otherwise
provided in Section 14 hereof), losses, obligations, claims, damages, penalties,
causes of action, suits, costs and expenses (including, without limitation,
reasonable attorneys' and accountants' fees and expenses) and judgments of any
nature arising from or in any way relating to any and all of the following
during the term of the Fuel Lease and thereafter: (a) any injury to or disease,
sickness or death of Persons, or loss of or damage to property, occurring
through or resulting from any nuclear incident (as that term is defined in the
Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or connected in any
way with the Nuclear Material or any portion thereof, (b) the acquisition,
ownership (including strict liability of an owner or liability without fault),
possession, disposition, sale, use, nonuse, misuse, leasing, fabrication,
design, cycling, recycling, transportation, containerization, cooling,
processing, reprocessing, storing, condition, management, operation,
construction, maintenance, repair or rebuilding of the Nuclear Material or any
portion thereof or resulting from the condition of adjoining and underlying
land, buildings, streets or ways, (c) any use, nonuse or condition of, or any
other matter of circumstance relating to, the Generating Facility, any other
property associated therewith or any adjoining and underlying land, buildings,
streets and ways, (d) any violation or default, or alleged violation or default,
of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any
contracts or agreements to which the Lessee is a party or by which it is bound,
or any Legal Requirements, (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Nuclear Material
or any portion thereof, (f) any infringement or alleged infringement of any
patent, copyright, trade secret or other similar right relating to the Nuclear
Material or any portion thereof, (g) Lessee's agreements or obligations
contained in the Fuel Lease or this Letter Agreement,
21
(h) any claim arising out of loss of damage to the environment, (i) any claim
arising out of strict or absolute liability in tort, or (j) the offering and
sale of Commercial Paper. The Lessee also indemnifies each indemnitee, as
aforesaid, from and against all other liabilities, taxes, losses, obligations,
claims, damages, penalties, causes of action, suits, costs and expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses) and judgments of any nature which may be imposed on, incurred by, or
asserted at any time against any indemnitee in any way relating to or arising
out of the performance of this Letter Agreement, the Fuel Lease or any other
Basic Document to which Lessee is a party, provided, except for claims of a
nature contemplated by (i) above, that the Lessee shall not be required to
indemnify any indemnitee with respect to any liability relating to or arising
out of indemnitee's gross negligence or willful misconduct and provided,
further, that the foregoing immunity shall not limit the terms of any indemnity
that the Lessee may grant separately to any indemnitee pursuant to any separate
agreement. In the event that any action, suit or proceeding is brought against
the Company or any other Person indemnified or intended to be indemnified
pursuant to this Section 14 by reason of any such occurrence, the Lessee shall,
at the Lessee's expense, resist and defend such action, suit or proceeding or
cause the same to be resisted and defended by counsel designated by the Lessee
and reasonably acceptable to the Person or Persons indemnified or intended to be
indemnified under this Section 14 provided there is no conflict of interest with
the Person or Persons indemnified or intended to be indemnified under this
Section 14. In the event a conflict of interest contemplated by the proviso of
the immediately preceding sentence shall exist, then the Person or Persons as to
which such conflict exists may be defended by counsel of its or their choice at
Lessee's expense, provided Lessee's obligation for such expense shall be limited
to one firm for all such Persons as to which such a conflict exists. The
obligations of the Lessee under this Section 14 shall survive any termination of
this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security
Agreement, in whole or in part.
15. No Waiver; Amendments. Neither the Administrative Agent, the
Collateral Agent, the Banks, the Company nor the Lessee shall, by any act,
delay, omission or otherwise, be deemed to have waived any of its rights and
remedies hereunder, and no waiver shall be valid unless in writing signed by the
party or parties sought to be bound thereby. A waiver by the Administrative
Agent, the Collateral Agent, the Banks, the
22
Company or the Lessee of any of their respective rights or remedies hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Administrative Agent, the Banks, the Company or the Lessee, as applicable,
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercise of any such right or remedy hereunder shall preclude any other
or future exercise or partial exercise of any other right or remedy. The rights
and remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by law.
None of the terms or provisions of this Letter Agreement may be waived, altered,
modified or amended except by an instrument in writing, duly executed by the
party or parties sought to be bound thereby.
16. Successors and Assigns. This Letter Agreement shall bind the
successors and assigns of the Lessee and the Company and shall inure to the
benefit of permitted successors and assigns of either. The Letter Agreement
shall not be assignable by the Lessee or the Company, either voluntarily or by
operation of law, unless consented to by the Administrative Agent and the
Majority Banks. No permitted assignment by the Lessee or the Company shall
release the Lessee or the Company from any of its obligations hereunder. This
Letter Agreement shall inure to and shall be binding upon the successors and
assigns of the Administrative Agent and the Banks.
17. Notices. Any notice, demand or other communication which by any
provision of this Letter Agreement is required or provided to be given shall be
deemed to have been delivered if in writing addressed as provided below and
actually delivered by mail, courier or facsimile to the following addresses:
(a) except as otherwise requested in writing by the Administrative
Agent or any Bank, any notice, demand or communication which
by any provision of this Letter Agreement is required or
provided to be given to the Administrative Agent or any Bank
shall be deemed to have been delivered to the Administrative
Agent or any Bank if a single copy thereof is delivered to the
Administrative Agent at its address set forth in Section 11.01
of the Credit Agreement or at such other address as either may
have furnished the Company and the Lessee in writing;
23
(b) if to the Company (with copies to the Lessee at the address
listed below), TMI-1 Fuel Corp c/o United States Trust Company
of New York, 114 West 47th Street, New York, New York 10036,
marked for the attention of the Corporate Trust and Agency
Division, telecopy number 212-852-1626, or at such other
address as it may have furnished in writing to the
Administrative Agent and the Lessee; or
(c) if to the Lessee, to Pennsylvania Electric Company, c/o GPU
Service Inc., 310 Madison Avenue, Morristown, New Jersey
07962, marked for the attention of the Vice President and
Treasurer, Telecopier: (973) 644-4224, or at such other
address or addresses as the Lessee may have furnished to the
Administrative Agent and the Company.
18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off
rights against it as provided for in Section 11.08 of the Credit Agreement.
(b) Lessee agrees that it shall have no right of set-off,
deduction or counterclaim in respect of its obligations hereunder, and that the
obligations of the Banks hereunder and under the Credit Agreement are several
and not joint. Nothing contained herein shall constitute a relinquishment or
waiver of the Lessee's rights to any independent claim that the Lessee may have
against the Administrative Agent or any Bank for the Administrative Agent's or
such Bank's, as the case may be, gross negligence or willful misconduct, but no
Bank shall be liable for the conduct of the Administrative Agent or any Bank,
and the Administrative Agent shall not be liable for the conduct of any Bank.
19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial
by jury in any action, proceeding or counterclaim arising out of or relating to
this Letter Agreement, the Credit Agreement, the other Basic Documents or any
instrument or document delivered hereunder or thereunder, except that the
foregoing shall not preclude any party hereto from submitting to a jury for
determination in any such action, proceeding or counterclaim any dispute
involving (a) the accuracy or completeness of any representation or warranty
made under the Basic Documents by Lessee, (b) the performance by Lessee of any
affirmative or negative covenant or agreement contained in the Basic Documents,
or (c) questions of materiality, or the
24
reasonableness of, or good faith basis for, any action taken, or determination
made, by any other party hereto (other than in respect of any calculation of
principal, interest, fees, or increased costs payable by the Lessee under the
Basic Documents).
20. Governing Law. This Letter Agreement shall be governed by, and be
construed and interpreted in accordance with the laws of the State of New York.
S-1
IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement
to be executed as of the date first above written.
PENNSYLVANIA ELECTRIC COMPANY
By
Vice President
TMI-1 FUEL CORP.
By
Title
THE FIRST NATIONAL BANK OF
CHICAGO,
as Administrative Agent
By
Title
By
Title
SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT