DEFEASANCE AGREEMENT
DEFEASANCE AGREEMENT, dated as of March 3, 1994 (this "Agreement"), by
and among California Energy Company, Inc. (the "Company") and Principal
Mutual Life Insurance Company ("Principal Mutual").
PRELIMINARY STATEMENT. The Company and Principal Mutual are parties to
a Note Purchase Agreement, dated as of March 15, 1988 (the "Purchase
Agreement"), pursuant to which the Company issued and sold to Principal
Mutual $30,000,000 in aggregate principal amount of the Company's 12%
Senior Notes with Contingent Interest due 1995 (the "Notes"). The Company
proposes to enter into an Escrow Deposit Agreement (the "Escrow Agreement")
in substantially the form attached hereto as Exhibit A with Bank of America
National Trust and Savings Association (the "Trustee"), pursuant to which,
among other things, the Company will deposit certain funds and/or
securities sufficient to provide for the payment of principal and interest
(excluding Contingent Interest) on the Notes on each date when any amount
thereof is to become due and payable. Capitalized terms used herein and
not otherwise defined shall have the meanings assigned to such terms in the
Purchase Agreement.
In consideration of the foregoing and other good and valuable
consideration, the Company and Principal Mutual agree as follows:
1. Upon the satisfaction of the conditions set forth in
Paragraph 2 hereof on a date subsequent to March 15, 1994, the Company
shall be released from its obligations to comply with any covenant
contained in 8.3-8.15, 8.16(a), 8.17-8.19 and 8.21 (the "Defeased
Covenants") of the Purchase Agreement and the outstanding Notes shall
thereafter be deemed not to be "outstanding" for the purposes of any
direction, waiver, consent or declaration or action by the Noteholders (and
the consequences thereof) in connection with the Defeased Covenants, but
shall continue to be deemed "outstanding" for all other purposes under the
Purchase Agreement (it being understood that the Notes shall not be deemed
outstanding for financial accounting purposes), with the effect that the
Company may omit to comply with and shall have no liability in respect of
any term condition or limitation set forth in any of the Defeased
Covenants, whether directly or indirectly, by reason of any reference
elsewhere in the Purchase Agreement or the Notes to any such covenant and
such omission to comply shall not constitute a Default or Event of Default
under 10.1 of the Purchase Agreement, but, except as specified above and
in the next sentence, the remainder of the Purchase Agreement and the Notes
shall be unaffected thereby. In addition, upon the satisfaction of the
conditions set forth in Paragraph 2 hereof, the occurrence of an event
referred to in 10.1(f) or (n) shall not constitute Event of Default.
2. The following shall be the conditions to the defeasance
provided under this Agreement:
(a) The Company shall have deposited or caused to be deposited
with the Trustee pursuant to the Escrow Agreement as trust funds in trust
for the purpose of making the following payments, specifically and
irrevocably pledged as security for and dedicated solely to, the benefit of
the Noteholders, the securities identified in Exhibit B to the Escrow
Agreement.
(b) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit.
(c) The Company shall not be "insolvent" within the meaning of
any applicable law on the date of such deposit.
(d) The defeasance provided under Paragraph 1 hereof shall not
constitute or result in a breach or violation, or constitute a default
under, any agreement or instrument to which the Company is a party or by
which it is bound and the Company shall have delivered to the Trustee and
to each holder of an Outstanding Note an Officer's Certificate to such
effect.
(e) The Company shall have delivered to the Trustee and to each
holder of an Outstanding Note an Officer's Certificate stating that (i) the
deposit made by the Company pursuant to subparagraph (a) of this Paragraph
2 was not made by the Company with the intent of preferring the Noteholders
over other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company and (ii) the
conditions set forth in subparagraph (c) of this Paragraph 2 have been
satisfied.
(f) The Company and the Trustee shall have executed and
delivered the Escrow Agreement.
3. If an Event of Default under any of 10.1(h) through
10.1(m) of the Purchase Agreement shall occur or if the Trustee (or any
paying agent) is unable to apply any money in accordance with the Escrow
Agreement, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under the
Defeased Covenants shall be revived and reinstated as though no deposit had
occurred pursuant to Paragraph 1 hereof, until such time as the Trustee (or
paying agent) is permitted to apply all such money in accordance with
Paragraph 1 hereof and the Escrow Agreement; provided, however, that (i) if
the Company makes any payment of principal of or interest on any Note
following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the holders of such Notes to receive such
payment from the money held by the Trustee (or paying agent) under the
Escrow Agreement and (ii) no action taken by the Company in reliance upon
such deposit and the inapplicability of the Defeased Covenants prior to any
such revival or reinstatement shall constitute or give rise to a Default or
Event of Default under the Purchase Agreement.
4. Until the Notes shall have been paid in full, the Company
agrees that it will not permit any Joint Venture to sell, transfer, lease
or otherwise dispose of any of its assets other than in the ordinary course
of business or in connection with any upgrade, replacement or retirement of
any equipment, and further agrees that any violation of the foregoing shall
constitute an Event of Default under the Purchase Agreement.
5. This Agreement is executed pursuant to 12.4 of the Purchase
Agreement and shall (unless otherwise expressly indicted herein) be
construed, administered, and applied in accordance with all of the terms
and provisions of the Purchase Agreement. Except as expressly released
hereby, all of the representations, warranties, terms, covenants and
conditions of the Purchase Agreement shall remain in effect. The
defeasance set forth herein shall be limited precisely as provided for
herein to the provisions expressly referred to herein and shall not be
deemed to be a waiver, release, amendment or modification of any other term
or provision of the Purchase Agreement or of any term or provision of any
other document or of any transaction or further action on the part of the
Company which would require the consent of any Noteholder under the
Purchase Agreement.
6. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed to be an original but all
of which shall constitute together but one and the same instrument.
7. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns
(including, without limitation, any holder of the Notes whether or not such
holder shall have been expressly assigned any rights hereunder.
8. This Agreement shall be governed by and construed in
accordance with the law of the State of New York, including Section 5-1401
of the New York General Obligations Law, but otherwise without regard to
conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers duly authorized thereunto as of the
day and year first above written.
CALIFORNIA ENERGY COMPANY, INC.
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Vice President &
Chief Financial Officer
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By: /s/ Dennis D. Ballard, Counsel
Name: Dennis D. Ballard
Title: Counsel
By: /s/ Clint Woods
Name: Clint Woods
Title: Counsel